LOGO
Light / Dark
Questmark and Current Wordmark
DELIVERING DISRUPTIVE
TECHNOLOGY
Annual Report 2019
FINANCIAL HIGHLIGHTS
During 2019, Parsons reported record revenue and profitability. We’re delivering on our
strategy to achieve strong revenue growth, deliver significant margin expansion across the
enterprise, invest in our people and technology, apply agile processes, and leverage our strong
balance sheet to complete strategic acquisitions that expand our customer base and provide
differentiated technology solutions.
B
$
S
U
$5
$4
$3
$2
$1
$0
3.0
1.9
1.1
2017
Total Revenue
14.5%
3.6
2.1
1.5
4.0
2.1
1.9
2018
2019
Federal Solutions
Critical Infrastructure
Net Income Attributable to Parsons
$250
$200
M
$
S
U
$150
$100
$50
$0
97.3
2017
222.3
11.3%
120.5
2018*
Parsons
2019
Adjusted EBITDA inc. Non-Controlling Interests
Adjusted EBITDA Margin inc. Non-Controlling Interests
M
$
S
U
$350
$300
$250
$200
$150
$100
$50
$0
209.6
114.2
95.4
2017
24.5%
246.2
123.9
122.3
2018
325.0
155.5
169.5
2019
Federal Solutions
Critical Infrastructure
e
g
a
t
n
e
c
r
e
P
9%
8%
7%
6%
5%
130
bps
8.2%
6.9%
6.9%
FS=8.8%
CI=5.9%
FS=8.3%
CI=6.0%
FS=9.0%
CI=7.5%
2017
2018
Parsons
2019
2019 STRATEGIC ACQUISITIONS
OGSystems, an innovative geo-intelligence solutions and
immersive engineering provider that creates technology
solutions for the intelligence and defense communities.
QRC Technologies, an agile radio-frequency products
and integrated solutions company specializing in signals
intelligence, electronic warfare, cellular survey and
situational awareness, and exploitation solutions for global
government, military, and law enforcement customers.
* 2018 net income attributable to Parsons includes $128 million from a non-recurring legal matter decided in the Company’s favor.
Chuck Harrington
Chairman And Chief Executive Officer
To Our Fellow Shareholders
We achieved many accomplishments
and had an outstanding year in
2019. I was pleased with our
business growth, margin expansion,
the engagement of our employees,
and the financial returns created
for our ESOP and new shareholders
following our IPO, in May.
Our transformation strategy is
being executed on a daily basis,
and our employees and incredible
customers are the key elements
that drive our success. Our IPO was
a significant step in our company’s
quest to invest in, develop, and
implement disruptive technologies
and business models that advance
our Enhance • Extend • Transform
strategy.
Successfully Executing
Our Strategy
In 2019, we delivered record
revenue and profitability, completed
two significant acquisitions, and
won large contracts in growing
and enduring markets. We also
achieved notable recognition for
our corporate social responsibility
initiatives and recently rebranded
Parsons to highlight our company’s
differentiators.
Both of our business segments—
Federal Solutions and Critical
Infrastructure—delivered strong
financial performances, resulting
in record revenue of $4 billion, net
income attributable to Parsons of
$121 million, a 32% increase in
adjusted EBITDA, and a 130 basis
point expansion in our adjusted
EBITDA margin to a record 8.2%.
We also leveraged our strong
balance sheet for inorganic and
organic investments to accelerate
future growth.
The successful execution of
our strategy drove these strong
results. The pace of technology
advancement in areas such as
artificial intelligence and machine
learning, cloud computing,
Our disciplined approach to
pursuing higher-margin software,
hardware, services and integrated
solutions, combined with our
acquisition of companies with
revenue growth and margins that
exceed 10%, has contributed to our
double-digit revenue growth and
significant margin expansion.
Simultaneously, we extended into
new markets, such as geospatial
and signals intelligence, cloud
“
Parsons’ transformation into
an industry-leading technology
company is underway.
autonomous systems, and the
Internet of Things are shaping the
marketplace and creating a wave of
change, representing an opportunity
for Parsons to enhance our existing
business, extend our business
into new markets, and transform
our company’s role in supporting
our customers’ vital missions.
This transformation is already
underway.
We have enhanced organic
operations by focusing on higher-
margin and growth markets,
including cyber and intelligence,
missile defense, space, and
connected communities.
”
computing, and small-satellite
launch and integration, aided by the
acquisitions of OGSystems (a leader
in geospatial intelligence) and QRC
Technologies (a leader in radio-
frequency signals intelligence).
These accomplishments, coupled
with our strategy to transform
by building our technology and
transactional revenue streams,
will enable us to augment our
services business with software
and hardware technologies that are
scalable and bring comprehensive
solutions to new and existing
customers. Through our OGSystems
acquisition, we obtained the PeARL
Parsons / 2019 Annual Report
1
product suite, which provides
high-resolution, combat-proven
geospatial imagery to our defense
and intelligence customers. Our
QRC acquisition provided entrance
into the signals intelligence software
• A $175 million award from a
classified government customer
to provide services relating
to information technology
infrastructure and industrial
control systems.
“In addition to the mission-critical
work we are performing for our
customers, I am extremely proud
of our contributions to delivering
a better world.”
and hardware markets, which is
enabling us to leverage our artificial
intelligence capabilities to expand
our customer base and deliver a
total solution to our customers and
to take lead positions on larger
contracts than we or our acquired
firms had in the past.
Our M&A strategy has broadened
our revenue streams, provided
differentiated technology, and
contributed to increased win rates
and our ability to prime larger
contracts. Key 2019 contract
awards that exemplify these
characteristics include the following:
• Our largest single-award cyber
contract to date, a $590 million
award for new work on the
Combatant Commands Cyber
Mission Support contract.
OGSystems and QRC both
played key roles in acquiring this
strategic contract.
• A $229 million award from the
US Army Corps of Engineers to
repair Bucholz Army Airfield.
This is an example of the
synergies that exist between our
Federal Solutions and Critical
Infrastructure segments.
• A $147 million of expanded
scope on our Ballistic Missile
Defense System contracts with
the Missile Defense Agency in
areas including cyber, command
and control, and targets and
countermeasures.
Environmental, Social, and
Governance Excellence
In addition to the mission-critical
work we are performing for our
customers, I am extremely proud
of our contributions to delivering a
better world. Our 75-year history
has taught us that our organization
and shareholders are best served
by improving the economic,
socio-cultural, and environmental
practices within the communities
we serve. We do this through our
employee-driven Parsons Gives
Back program and other efforts.
An example of what draws talent to
Parsons is our community service,
like our partnership with Bridges to
Prosperity. During 2019, two groups
of employees completed footbridges
in South America and Africa that
connect isolated communities
with essential food, medical
services, schools, and economic
opportunities.
In addition, we received recognition
for our safety, hiring, and integrity
leadership. We were awarded the
National Safety Council’s prestigious
Robert W. Campbell Award. This
international award honors one
global company each year for
excellence in the environmental,
health, and safety management of
business operations.
We were also recognized as one
of the top employers in the United
States for minority groups, women,
and people with disabilities
working in science, technology,
engineering, and math. Finally,
we recently received our 11th
consecutive recognition as one of
the Ethisphere Institute’s World’s
Most Ethical Companies.
Looking Forward
As we look forward, I am
encouraged about our future. We
have a Federal Solutions portfolio
aligned to the National Defense
Strategy and a Critical Infrastructure
portfolio that leverages our
technology and operational
expertise to transform cities,
transportation systems, and other
infrastructure to deliver a smarter,
safer, and more sustainable future.
We ended 2019 with a large and
qualified pipeline, a healthy balance
sheet to continue targeted organic
and inorganic investments, and
a disciplined business strategy
focused on leveraging our business
momentum to drive additional
growth and margin expansion.
In closing, I want to thank our
nearly 16,000 employees for their
hard work and dedication. They
are the foundation of our business,
and their commitment to our
customers’ missions and our core
values is inspiring. We also are
grateful for the continued loyalty of
our customers and shareholders,
and we look forward to a long and
prosperous future together.
Charles H. Harrington
Chairman/CEO
2
Parsons / 2019 Annual Report
WHO WE ARE
Parsons is a leading disruptive
technology provider in the global defense,
intelligence, and critical infrastructure
markets.
As connectivity increases, geopolitical
conditions shift, and near-peer threats
loom—all powered by a technology
revolution that isn’t slowing—we are
embarking on a journey with our
customers to confront the challenges of
tomorrow in all domains: land, sea, air,
space, and cyber.
WHAT WE DO
By strategically positioning the company
at the nexus of defense, intelligence,
and critical infrastructure, we’re unlocking
the full potential of cyber, missile defense,
space, and connected infrastructure to
deliver new value and possibilities to
our customers.
embedded capabilities in artificial
intelligence/machine learning, cloud
computing, Internet of Things (IoT),
and autonomous systems. This range
of capabilities allows us to layer and
integrate solutions in ways that truly
deliver a better world.
Our commitment to innovation began
with the founding of our company, in
1944, and has only grown over the
ensuing decades, resulting in a rich
history of dependability and deeply
From Earth to cyberspace, Parsons is delivering tomorrow’s solutions today. Equipped with the resources required
to take on any defense, intelligence, or critical infrastructure challenge, we also maintain the agility to outmaneuver
the ever-increasing pace of change.
To enable us to provide the most agile, innovative, and collaborative answers to our client’s needs,
Parsons is organized according to the following six key markets:
Cyber And Intelligence
Missile Defense And C5ISR
Space And Geospatial Solutions
• Full-spectrum cybersecurity solutions
• Front-line operations and tools
• Actionable intelligence
• Missile defense engineering,
integration, and support
• Small satellite launch integration
and payload development
• All-Domain command and control
• Advanced geospatial solutions
• Electromagnetic spectrum and
electronic security solutions
• Space situational awareness
Engineered Systems
Mobility Solutions
Connected Communities
• Complex critical infrastructure
• Transportation infrastructure
• End-to-end digital infrastructure
• Nuclear threat protection
• Industrial and water/wastewater
• Soil and groundwater remediation
processes
solutions
• Smart cities
• Program management
• Aviation and rail/transit systems
Parsons / 2019 Annual Report
3
3
Parsons became publicly traded on May 8, 2019, and was the first IPO of a government services firm since 2010
and the first 100 percent ESOP-owned company, at $27 per share.
ACHIEVEMENTS AND MILESTONES
Building upon our Enhance • Extend • Transform strategy, 2019 was a year of tremendous excitement as we continued
building momentum to further enhance the strength, agility, and innovation that creates long-lasting value for our
employees, customers, and shareholders. Throughout the year, we celebrated numerous achievements, milestones, and
awards that exemplify our mission and our people.
The National Safety Council awarded Parsons the 2019
Robert W. Campbell Award, presented to one company each
year. This award signifies our inclusion in an elite group of
organizations that have successfully integrated environment,
health, and safety management of business operations as a
cornerstone of excellence.
Parsons celebrated its 75th anniversary in 2019 and
continues the same quest—to solve the world’s toughest
challenges—that inspired the founding of our company,
in 1944. Since that time, we’ve evolved from a design
engineering firm into a leading disruptive technology provider.
We were honored by the Ethisphere Institute, a global leader
in defining and advancing the standards of ethical business
practices, as one of the 2019 World’s Most Ethical Companies
for the 10th consecutive year.
4
Parsons / 2019 Annual Report
Industry Leadership
• Achieved the first multi-manifest launch integration
of a small space vehicle payload just 7 months after
contract award
• Performance-Enhanced Airborne Reconnaissance
Low (PeARL) Flash rated the best geospatial imagery
solution against competitors by the MITRE-led assessment
at the Air Force Special Operations Command
• Launched the Parsons Smart Cities Challenge
and announced 10 global semifinalists
• One of 50 companies awarded the CSO50 Award for our
transformative approach to corporate security practices
• Received prestigious Certificate of RecognitionTM by
Canadian Infrastructure Health and Safety Association
(IHSA), endorsing the corporation’s rigorous health and
safety management system
Operational Excellence
• Relocated headquarters from Pasadena, CA, to Centreville,
VA, to better serve our customers in the defense and
intelligence markets and to position ourselves in the
epicenter of legislative and policy actions related to
critical infrastructure
• Achieved contractor operational readiness on the
Department of Energy’s Salt Waste Processing
Facility Project
• Opened Regina Bypass, our first P3, that is helping to
decrease CO2 emissions, and improve safety and mobility
throughout Regina, Saskatchewan
• Awarded our second Nunn-Perry Award, presented
by the US Department of Defense Office of Small Business
Programs, recognizing our mentor-protégé relationship
with Trident Technologies, LLC
• Implemented tools for improved employee
collaboration/networking, travel and expense
management, and people management
Award-Winning Project
Portfolio Highlights
• Northwest Corridor Express Lanes (Atlanta, GA)
• Khalifa Avenue (P005) Expressway (Qatar)
• Virginia Avenue Tunnel (Washington, DC, area)
• Infinity Box (Dubai, UAE)
• Dubai Expo 2020 (Dubai, UAE)
• St. Anthony Parkway Bridge (Hennepin County, MN)
OUR CORE VALUES
Our corporate purpose of delivering a better world is
guided by our six core values, which, in turn, provide
value for our shareholders, employees, customers,
suppliers, teaming partners, and the communities
and environments in which we deliver solutions.
Safety
Quality
Integrity
Diversity
Innovation
Sustainability
Parsons / 2019 Annual Report
5
5
INSPIRED THINKERS ON A QUEST
TO DELIVER A BETTER WORLD
Our teams use their global expertise on our quest to answer the question “How can we do it better?”
by thinking beyond the status quo to deliver future-ready, technology-enabled solutions.
~16,000
Employees
Inclusion And Diversity Culture
The Farm – Cyber Innovation
80+
Languages
Parsons Gives Back
13,000+
Degrees And Registrations
Technical Fellows Program
56%
Cleared Professionals In
Federal Solutions
25
Countries
Employee Recognition Program
6
6
Parsons / 2019 Annual Report
Parsons / 2020 Annual Report
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(cid:3) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
OR
(cid:4) 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
(State or other jurisdiction of
incorporation or organization)
5875 Trinity Parkway, #300,
Centreville, VA
(Address of principal executive offices)
95-3232481
(I.R.S. Employer
Identification No.)
21120
(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
Common Stock, $1 par value
Trading
Symbol(s)
PSN
Securities registered pursuant to Section 12(g) of the Act: None
Name of each exchange on which registered
New York Stock Exchange
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:4) No (cid:3)
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes (cid:4) No (cid:3)
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 (cid:3) No (cid:4)
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 (cid:3) No (cid:4)
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
Non-accelerated filer
Emerging growth company
Smaller reporting company
Accelerated filer
(cid:4)
(cid:4)
(cid:4)
(cid:3)
(cid:4)
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. (cid:4)
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:4) No (cid:3)
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, based on the closing price
of the shares of common stock on The New York Stock Exchange on June 28, 2019, was $3.7 billion.
The number of shares of Registrant’s Common Stock outstanding as of February 28, 2020 was 100,669,694.
Portions of Parsons’ 2020 Proxy Statement are incorporated by reference into Part III of this Annual Report on Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
[THIS PAGE INTENTIONALLY LEFT BLANK]
Table of Contents
PART I
Item 1. Business ............................................................................................................................
Item 1A. Risk Factors.......................................................................................................................
Item 1B. Unresolved Staff Comments..............................................................................................
Item 2. Properties ..........................................................................................................................
Item 3. Legal Proceedings .............................................................................................................
Item 4. Mine Safety Disclosures ....................................................................................................
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities ..........................................................................................
Item 6. Selected Financial Data.....................................................................................................
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations .........................................................................................................................
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.............................................
Item 8. Financial Statements and Supplementary Data ................................................................
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure ..........................................................................................................................
Item 9A. Controls and Procedures ...................................................................................................
Item 9B. Other Information...............................................................................................................
PART III
Item 10. Directors, Executive Officers and Corporate Governance.................................................
Item 11. Executive Compensation ...................................................................................................
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters...........................................................................................................
Item 13. Certain Relationships and Related Transactions, and Director Independence .................
Item 14. Principal Accounting Fees and Services ...........................................................................
PART IV
Item 15. Exhibits, Financial Statement Schedules...........................................................................
Item 16 Form 10-K Summary .........................................................................................................
Exhibit Index ......................................................................................................................
Signatures..........................................................................................................................
Index to Consolidated Financial Statements and Report of Independent Registered
Public Accounting Firm ......................................................................................................
Page
1
16
42
42
43
44
45
48
51
76
76
76
76
77
78
78
78
78
78
79
79
80
82
F-1
i
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K contains forward-looking statements within the meaning of the
federal securities laws, which statements involve substantial risks and uncertainties. Forward-looking
statements generally relate to future events or our future financial or operating performance. In some
cases, you can identify forward-looking statements because they contain words such as “may”, “will”,
“should”, “expects”, “plans”, “anticipates”, “could”, “intends”, “target”, “projects”, “contemplates”, “believes”,
“estimates”, “predicts”, “potential” or “continue” or the negative of these words or other similar terms or
expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements
involve known and unknown risks, uncertainties and other important factors that may cause our actual
results, performance or achievements to be materially different from any future results, performance or
achievements expressed or implied by the forward-looking statements. We believe that these factors
include, but are not limited to, the following:
• any issue that compromises our relationships with the U.S. federal government or its agencies
or other state, local or foreign governments or agencies;
• any issues that damage our professional reputation;
• changes in governmental priorities that shift expenditures away from agencies or programs that
we support;
• our dependence on long-term government contracts, which are subject to the government’s
budgetary approval process;
•
•
•
the size of our addressable markets and the amount of government spending on private
contractors;
failure by us or our employees to obtain and maintain necessary security clearances or
certifications;
failure to comply with numerous laws and regulations;
• changes in government procurement, contract or other practices or the adoption by
governments of new laws, rules, regulations and programs in a manner adverse to us;
•
the termination or nonrenewal of our government contracts, particularly our contracts with the
U.S. federal government;
• our ability to compete effectively in the competitive bidding process and delays, contract
terminations or cancellations caused by competitors’ protests of major contract awards received
by us;
• our ability to generate revenue under certain of our contracts;
• any inability to attract, train or retain employees with the requisite skills, experience and security
clearances;
•
the loss of members of senior management or failure to develop new leaders;
• misconduct or other improper activities from our employees or subcontractors;
• our ability to realize the full value of our backlog and the timing of our receipt of revenue under
contracts included in backlog;
• changes in the mix of our contracts and our ability to accurately estimate or otherwise recover
expenses, time and resources for our contracts;
• changes in estimates used in recognizing revenue;
•
internal system or service failures and security breaches;
ii
•
inherent uncertainties and potential adverse developments in legal proceedings, including
litigation, audits, reviews and investigations, which may result in materially adverse judgments,
settlements or other unfavorable outcomes; and
• other risks and factors listed under “Risk Factors” and elsewhere in this report.
We have based the forward-looking statements contained in this report primarily on our current
expectations and projections about future events and trends that we believe may affect our business,
financial condition, results of operations, prospects, business strategy and financial needs. The outcome
of the events described in these forward-looking statements is subject to risks, uncertainties, assumptions
and other factors described in the section captioned “Risk Factors” and elsewhere in this report. These
risks are not exhaustive. Other sections of this report include additional factors that could adversely
impact our business and financial performance. Furthermore, new risks and uncertainties emerge from
time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on
the forward-looking statements contained in this report. We cannot assure you that the results, events
and circumstances reflected in the forward-looking statements will be achieved or occur, and actual
results, events or circumstances could differ materially from those described in the forward-looking
statements.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on
the relevant subject. These statements are based upon information available to us as of the date of this
report, and while we believe such information forms a reasonable basis for such statements, such
information may be limited or incomplete, and our statements should not be read to indicate that we have
conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These
statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
You should read this report and the documents that we reference in this report and have filed as
exhibits to the registration statement of which this report forms a part with the understanding that our
actual future results, levels of activity, performance and achievements may be materially different from
what we expect. We qualify all of our forward-looking statements by these cautionary statements.
The forward-looking statements made in this report relate only to events as of the date on which
such statements are made. We undertake no obligation to update any forward-looking statements after
the date of this report or to conform such statements to actual results or revised expectations, except as
required by law.
iii
[THIS PAGE INTENTIONALLY LEFT BLANK]
Item 1. Business.
Overview
PART I
We are 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.
Since our founding over 75 years ago, we have built our reputation and business on our ability to
successfully transform and innovate our services while leveraging cutting-edge technologies in order to
expand our offerings. Whether our customers need a first-of-its-kind advanced missile development and
testing facility, or an artificial intelligence enabled cloud platform to defend against cybersecurity threats,
we deliver for our customers. We seek to grow by offering our clients innovative solutions supported by
research and development, as well as acquisitions of emerging technologies. We have developed
longstanding relationships with customers such as the U.S. military and intelligence agencies and state
and local governments and agencies.
We operate in two reporting segments, Federal Solutions and Critical Infrastructure, with revenue
contribution of 47.7% and 52.3%, respectively, and Adjusted EBITDA contribution of 52.2% and 47.8%,
respectively, for fiscal 2019. See "Management’s Discussion and Analysis of Financial Condition and
Results of Operations—Segment Results” for further discussion on our segments.
Federal Solutions: Our Federal Solutions segment is a high-end technology provider to the U.S.
government, delivering timely, cost-effective solutions for mission-critical projects. We provide
advanced technologies, including cybersecurity, missile defense systems, C5ISR, space launch and
situational awareness, geospatial intelligence, RF signals intelligence, nuclear and chemical waste
remediation, and engineering services. The U.S. government and its agencies represent substantially
all of the revenue of our Federal Solutions segment. These U.S. government agencies include the
United States intelligence community, the U.S. Department of Defense military services and Missile
Defense Agency, the Department of Energy, the Department of Homeland Security and the Federal
Aviation Administration.
Critical Infrastructure: Our Critical Infrastructure segment provides integrated design and
engineering services for complex physical and digital infrastructure around the globe. We are a
technology innovator focused on next generation infrastructure, leveraging sensors and data. Our
capabilities in design and project management allow us to deliver significant value to our customers by
employing cutting-edge technologies, improving timelines and reducing costs. We serve a diverse
global customer base including federal, state, municipal and industry customers such as Los Angeles
World Airports, Canada’s Metrolinx, Dubai’s Roads and Transport Authority and the Port Authority of
New York and New Jersey.
Advances in technology are dramatically shifting the operating landscape across our markets.
Governments and companies are grappling with pressing challenges ranging from confronting
increasingly sophisticated cybersecurity threats to upgrading aging systems and infrastructure. To
address these challenges, our customers are actively seeking technology-enabled solutions to
enhance and transform their operations and assets. Our wide-ranging capabilities enable us to provide
our services, products and solutions across the defense, intelligence and critical infrastructure markets.
As a leading technology-driven solutions provider with a proven track record, we believe we are well
positioned to benefit from these trends and serve our customers’ evolving needs. We have capabilities
in the following four areas that cut across our segments and business lines:
Product Development: We develop software and hardware across many domains and mission-
specific applications. Our experienced engineers and developers design, develop, integrate, operate
1
and sustain mission-critical software and hardware products across cyber, intelligence, defense and
commercial customers.
Systems Integration: We provide engineering services and technology for large digital and
physical systems with high technical complexity. We lead projects from concept development through
design, implementation, testing and verification, ensuring interoperability of these complex, disparate
systems.
Program Management: We provide expertise and technology to advance our customers’
execution of large, complex projects within their defined time and cost parameters.
Design Engineering: We provide advanced systems and infrastructure engineering design
associated with missile systems infrastructure, nuclear waste processing facilities, environmental
remediation, long-span bridges, rail and transit systems and other associated infrastructure.
Our customer relationships, which are based on a long history of successfully delivering complex
technical services, are key to our success. We are often involved in the early stages of our customers’
planning processes, which allows us to efficiently optimize our service delivery model. These
relationships, along with our technical expertise and access to talented human capital, allow us to
successfully deliver solutions that meet our customers’ demanding technical and execution requirements
and fulfill our corporate purpose of developing a better world.
Technology and our people are our most important assets, allowing us to consistently deliver for
our customers and help them solve their most pressing challenges. Investment in key technological
capabilities is core to our business and helps us to stay at the forefront of the evolving trends across our
end markets. To meet the challenges of tomorrow, we are focusing our technology investment on artificial
intelligence and machine learning, analytics, autonomous systems, cloud computing applications and
migration, and IoT sensors and networks. The work of our highly skilled and dedicated employees has
enabled our long track record of continued innovation and execution on behalf of our customers. Our
team of engineers, scientists, programmers and other specialists include PhDs and certified hackers and
a large number of our skilled workforce hold government security clearances, which provides a significant
competitive advantage for the highly technical and demanding work we perform.
In fiscal 2019, we generated revenues of $4.0 billion, net income attributable to Parsons Corporation
of $120.5 million and Adjusted EBITDA of $325.0 million.
On new contracts and task orders for which we competed, we achieved an overall win rate of 34.9%
in fiscal 2017, 42.9% in fiscal 2018 and 37.4% in fiscal 2019. As of December 31, 2019, our total backlog
was $8.0 billion, an increase of 0.8% from December 31, 2018.
Our Services, Products and Solutions
Within each of our segments, we focus our services and solutions on the needs of customers in each
of our business lines. Our services, products and solutions are differentiated by our people, processes
and technology that work together to develop, rapidly prototype and deploy specialized hardware,
software and infrastructure solutions to meet continually evolving customer missions and challenges. Our
capabilities of systems integration, product development, program management and design engineering
apply across our segments and business lines.
Federal Solutions
Our Federal Solutions business provides engineering services, software and hardware products and
integrated solutions. In 2019, Federal Solutions consisted of five business lines: Cyber & Intelligence,
Geospatial Solutions, Defense, Mission Solutions and Engineered Systems. Our growth strategy is to
continue to expand our market position in the cybersecurity, intelligence, space and defense segments
with solutions that allow our customers to conduct their missions effectively and efficiently.
2
• Cyber & Intelligence—Our Cyber & Intelligence business line focuses on two related, but
discrete markets: cybersecurity and intelligence. Our customers include the U.S. Department
of Defense, the United States intelligence community, which consists of 17 separate United
States government intelligence agencies, U.S. Cyber Command, the Department of Justice
and the Department of Homeland Security. We provide cybersecurity software and
engineering services, rapid hardware prototyping and other technical services.
•
An example is ThunderRidge, our tool that assists cyber operational users to develop
action plans, assess cyber threats and disseminate situational awareness in real-
time. ThunderRidge visually depicts a network’s topology comprised of diverse
devices in a map-like display.
• Other representative product offerings include Legion, which was selected as the
U.S. Army’s offensive cyber platform; Advanced Video Activity Analytics, or AVAA,
which enables the automated analysis of actionable data produced from massive
volumes of motion imagery; and Knowtify®, an open source intelligence search
engine.
• Our Cyber & Intelligence team is comprised of nearly 1,100 engineers, computer
scientists and data analysts as of December 31, 2019, over 75% of whom have high
levels of security clearance.
• Geospatial Solutions—Our Geospatial Solutions business line focuses on providing
geospatial intelligence, threat analytics, insider threat detection, and technology services to
the defense, intelligence, space and C5ISR end markets. Our customers include the National
Geospatial-Intelligence Agency, or NGA, National Reconnaissance Office, or NRO, and
multiple units within the U.S. Department of Defense including the Special Operations
Command, or SOCOM, and military services.
•
An example is our work with NGA in providing automated capabilities to analyze,
collect and expose geospatial intelligence content from the open source environment.
• Our Geospatial team is comprised of over 600 engineers, software developers and
analysts as of December 31, 2019, the majority of which have high-level security
clearances.
• Defense—Our Defense business line focuses on the missile defense, space and C5ISR end
markets. Our customers include the Defense Intelligence Agency, the National
Reconnaissance Officer and U.S. Department of Defense, including the military services, the
Missile Defense Agency, and research laboratories. We provide mission planning for space
situational awareness, small satellite systems integration and payloads, missile defense
systems engineering, electronic warfare, directed energy, all domain operations and
command and control systems and support.
•
An example is our role as the prime SETA contractor for the MDA, facilitating key
aspects of their mission, from battle management to next-generation multi-domain
command and control. We have over 1,000 professionals working with MDA at
multiple locations as of December 31, 2019. We provide weapons and missile
defense, systems engineering, battle management command, control and
communications (C2BMC), warfighter support and facilities and life cycle support.
• Representative products include our Parsons Universal Modeling and Analysis
(PUMA) modeling and simulation environment and our Command and Control Core
(C2Core®) mission planning and tasking suite that links requests, effects and
operational guidance in a unified database.
3
• Our Defense team is comprised of over 2,100 professional engineers and computer
scientists as of December 31, 2019, the majority of which have high levels of security
clearance.
• Missions Solutions – Our Mission Solutions business line focuses on services and solutions
to support military training and readiness and associated infrastructure. These services and
solutions include converged cyber-physical solutions for critical infrastructure, physical
security and global military mission readiness and training. Customers include the Federal
Aviation Administration, the U.S. Army, the United States Intelligence Community, the North
Atlantic Treaty Organization, or NATO, NASA Goddard and the Federal Emergency
Management Agency, or FEMA. Representative offerings include live, virtual and
constructive gaming training, border protection technologies, converged physical and cyber
security for industrial control systems and infrastructure upgrades, including control systems,
power systems, connected devices, and smart meters.
• Differentiated technologies include our information assurance and compliance
qualifications, our RoMaN voice, video and data communications solution and our
operational/information technology tools for industrial control systems protection.
• Representative contracts include the FAA Technical Services Support and Army
Corps Utility Monitoring and Control System.
•
Engineered Systems—Our Engineered Systems business line focuses on advanced
technology services for complex energy production systems, healthcare systems,
environmental systems and associated infrastructure. Customers include the Department of
Energy, the U.S. Army Corps of Engineers, the U.S. Air Force, the United States Postal
Service, the Department of Labor and the Jet Propulsion Laboratory. Representative
offerings include nuclear waste processing and treatment, weapons of mass destruction
elimination, program and project management, infectious disease control analytics and data
protection.
• Our expertise includes fluorinated organic chemicals, advanced digital classification
and complex program and engineering management.
• Representative programs include the Antarctica Infrastructure Modernization for
Science and the Salt Waste Processing Facility.
• Our Engineered Systems team is comprised of over 2,200 personnel as of December
31, 2019, including experienced professional engineering and technical personnel,
and many of these professionals hold security clearances.
Effective January 1, 2020, as a result of the recent acquisitions of Polaris Alpha, OGSystems and
QRC, we have realigned the five business lines within our Federal Solutions segment into four business
lines. We consolidated all space and geospatial programs from the former Geospatial Solutions, Defense
and Cyber & Intelligence markets into a new Space & Geospatial Solutions business line to increase
focus on the critical, evolving space market. This new business line better aligns capabilities and
customers to drive growth and performance execution through improved agile, end-to-end solutions and
dedicated customer focus.
Further, we re-named our Defense business line to Missile Defense and C5ISR. We dissolved our
Missions Solutions business line into our Missile Defense and C5ISR, Engineered Systems and Cyber &
Intelligence business lines, for better customer and capability alignment. These changes were the next
logical step in our acquisition integration process, to optimize performance delivery and growth.
4
Critical Infrastructure
Our Critical Infrastructure business provides engineering, program management, systems
engineering and software solutions. It is focused on two business lines: Connected Communities and
Mobility Solutions. Our growth strategy includes leveraging our portfolio of sophisticated engineering
solutions and technologies for complex physical infrastructure projects. We are expanding our portfolio in
key emerging growth areas including integrated transportation systems and smart cities, critical
infrastructure protection, aviation and water/wastewater treatment.
• Connected Communities—Our Connected Communities business line includes intelligent
transportation system management, aviation, rail and transit systems including communications-
based train controls, smart cities software and critical infrastructure protection. Our customers
include the transportation authorities for the cities of Los Angeles, New York and Paris, the states
or provinces of Georgia, Ontario and Texas and rail and transit entities including AMTRAK, CSX
and the WMATA. Technology capabilities include positive and communications-based train
controls systems integration, intelligent transportation network software, vehicle inspection data
analytics software, automated people mover and baggage handling systems and autonomous
vehicle integration.
•
•
An example is our role as provider of Advanced Traffic Management Systems, or ATMS,
for transportation systems in seven U.S. states through our iNET™ platform. Our
deployment for the Georgia Department of Transportation of our iNET™ platform
connects over 8,500 sensors and improves transportation efficiency by reducing
commutes through solutions such as the new reversible toll lanes in Atlanta’s Northwest
Corridor.
For aviation, we play a critical role as program manager for global airports. We are the
program manager of the Diamond Head Extension Program at Honolulu International
Airport and the Landside Access Modernization Program for Los Angeles International
Airport
• Our Connected Communities team is comprised of over 1,800 personnel as of December
31, 2019, and includes systems engineers, solution architects, data scientists and
software developers throughout the United States and Europe.
• Mobility Solutions— Our Mobility Solutions business line provides engineering services for
complex infrastructure including bridges and tunnels, roads and highways, and rail and transit
and aviation. Within our diverse customer base, our customer relationships include the Port
Authority of New York and New Jersey; the cities of Los Angeles, New York, Dubai and Toronto;
the states or provinces of Texas, Florida and Ontario; and rail and transit entities including CSX,
Metrolinx (Ontario, Canada) and Riyadh Metro. Our capabilities include technologies in long-span
bridges, tunnels, water/wastewater and mine remediation.
•
•
An example of our design capabilities is our role as the leading designer of the Tacoma
Narrows Bridge, the largest twin tower suspension bridge in the world. We are also the
lead designer for the Federal Way link extension for Sound Transit in Seattle.
For program management, we are part of the Riyadh Metro Transit Consultants
responsible for program management of the Riyadh metro system. In addition, we are
the program manager for the California Delta Water Conveyance Modernization Project,
a multi-billion water transfer project to improve water supply sustainability and reliability
for human and environmental uses.
• Our Mobility Solutions team is comprised of over 7,800 personnel as of December 31,
2019.
5
•
Industrial – Our Industrial business line delivers engineering, program management and
environmental solutions to private sector industrial clients and public utilities. Customers are
diverse and include chemical, energy, utility, communications and manufacturing customers and
some provincial agencies. Our capabilities include environmental remediation, process
engineering, and program management of capital projects. We have a unique offering in this
space, in that Parsons understands our customers domains and can deliver advanced technology
solutions including cyber-physical security, environmental remediation, geospatial intelligence
and 3D image processing, and application of virtual and augmented reality.
Effective January 1, 2020, we re-aligned our Critical Infrastructure segment from three markets to
two markets. Industrial is now a part of Mobility Solutions and we moved all Middle East business into
Mobility as well. This will drive improved synergies among like-markets and increased collaboration in
areas such as program and engineering management, civil and structural and water/wastewater
treatment. In addition, we consolidated aviation and rail and transit into Connected Communities to focus
on growth in these critical market segments. In each, we are pursuing systems, software and hardware
product, advanced technology opportunities.
Our Market Opportunities
Technological progress is driving a swift pace of change, resulting in ongoing societal transformation,
complicated geopolitical dynamics, a shifting threat landscape and the globalization of commerce. To
address this evolving landscape, our customers are actively seeking technology-enabled solutions to
upgrade and transform assets and operations. The below trends are key drivers of activity and growth in
both our Federal Solutions and Critical Infrastructure segments.
Defense Spending Remains a Key Focus of the national agenda due to the reemergence of long-
term strategic peer competition, which has been cited in the National Defense Strategy as the primary
concern for U.S. national prosperity and security. This reemergence has resulted in increased global
disorder and a security environment, defined by rapid technological change, which may be more complex
than ever before. We believe the U.S. Department of Defense will continue to invest in space and
cyberspace as warfighting domains, C5ISR, missile defense, artificial intelligence and resilient and agile
logistics.
Cybersecurity is Mission Critical to U.S. National Security and cybersecurity threats are
increasing in volume and sophistication as global connectivity and the rise of social media have led to an
explosion in the amount of available and exploitable data. The Center for Strategic and International
Studies estimates that threats from hacks, cyber criminals, foreign governments, malicious insiders and
corporate espionage have a $600 billion annual global cost impact. The proliferation of mobile devices,
smart devices and cloud computing has vastly increased the need for enterprise-wide risk-based
cybersecurity programs and governments have become increasingly aware of the need for a proactive
approach to the risk of cyber-attacks. We believe that this market will continue to grow in response to the
shifting threat landscape.
Consistent Need for Actionable Intelligence to Support U.S. Priorities is driving a shifting threat
landscape that necessitates a greater need for collaboration and cooperation between intelligence
agencies. There is a new demand for joint all-domain command and control systems that are not
designed for one particular warfighting domain but are instead optimized to function cohesively across a
spectrum of domains. This in turn drives a need for sophisticated data analytics to parse data into useful
formats in real-time. To respond, we believe the United States intelligence community will need continued
focus on information sharing and collaboration for improved intelligence accuracy and timeliness
encompassing multiple forms of intelligence collection.
Global Infrastructure Needs Significant Replacements and Technology-Driven Upgrades.
Aging physical infrastructure is strained by the swift pace of technological change. This strain has driven
a mobility solutions market that was $712.4 billion in 2018 and is estimated to grow at a CAGR of more
6
than 7% between 2018 and 2021, according to Fitch Solutions, Inc., based on the estimated growth of the
total global airports, roads and bridges and rail infrastructure markets. Critical infrastructure, specifically
transportation infrastructure that is essential to national economic and security concerns including
airports, bridges, and rail and transit systems, is particularly vulnerable. We believe aging infrastructure
will continue to be replaced and supplanted by newer, smarter infrastructure with an increased focus on
connectivity.
Urbanization Creates Demand for Smart Cities with Connected Populations. Cities around the
globe increasingly demand new capabilities, such as sensor networks and communication strategies to
connect streetlights, security cameras and emergency systems, to provide important real-time information
and better serve their citizens. Better integrated corridor management solutions, intelligent transportation
systems, advanced rail systems and updated telecommunication networks will keep cities around the
world functioning as smart cities and serve as engines for economic growth.
Disruption of Legacy Service Delivery Models from Technology. Historical capital project
management is changing with the introduction of cloud-connected computer-aided design, automation,
big data, machine learning and other technologies. The introduction of these new technologies allows
industry participants to reimagine existing value chains, address integrated lifecycle objectives, boost
productivity and streamline project management. Industry participants that have the capability to embrace
these new technologies to enhance their capability and service offering to higher value solutions will be
well positioned to assist governments and communities in their transformation.
Amidst this disruption, we believe we are well-positioned to serve a large array of governments and
companies. Across a diverse set of industries, we provide smart and agile solutions that address our
customers’ concerns as they adapt to the rapid changes of a more interconnected and technology-driven
world.
Our Competitive Strengths
Proven Track Record
Our proven track record is a result of our strong performance, the dedication of our employees and
our longstanding customer relationships. We focus on being a company that delivers on its promises,
holds integrity at the highest level and successfully assists our clients as they execute their most complex
missions. Driven by our integrated people, process and technology approach, we have a reputation for
innovation and are trusted with our customers’ most important endeavors.
Our differentiated business model has driven high win rates and strong financial performance,
characterized by solid top and bottom-line growth, high and growing backlog levels and low capital
requirements. We achieved incentive fees of $10.1 million and average incentive fees of 86% in fiscal
2017, incentive fees of $8.5 million and average incentive fees of 89% in fiscal 2018 and incentive fees of
$30.4 million and average incentive fees of 89% in fiscal 2019. Incentive fees are fees earned for
achievement of certain performance criteria included in our contracts, such as achievement of target
completion dates or target costs, and our incentive fees average is calculated as the actual incentive fees
achieved as a percentage of incentive fees expected to be earned in the applicable period. In addition, we
achieved a win rate of 34.9% in fiscal 2017, 42.9% in fiscal 2018 and 37.9% in fiscal 2019 for new awards
that we bid on (including a win rate on re-compete contracts and task orders in the Federal Solutions
segment of 92.0% in fiscal 2017, 96.0% in fiscal 2018 and 88.0% in fiscal 2019). In fiscal 2019, our
Federal Solutions revenues grew 27.6% and our Critical Infrastructure revenues grew 0.7% year-over-
year. As of December 31, 2019, our backlog was $8.0 billion, up 0.8% from year end fiscal 2018.
Long-Term Customer Relationships
We maintain long-term relationships with key government and commercial customers, many of which
span over 40 years. For example, in the Federal Solutions segment, we have been providing support to
the MDA for over 30 years with approximately 1,000 personnel embedded with the customer as of
January 31, 2020 and have provided services to the Department of Energy for over 50 years on a variety
7
of projects and programs. In the Critical Infrastructure segment, we have supported the WMATA for over
50 years and have served as Program Manager for Yanbu Industrial City for over 42 years.
These longstanding relationships give us the insight and customer intimacy to align our research and
development investments based on customer needs and enable high win rates for prime contract
positions on the most technically demanding assignments. We believe that our position as a recognized
leader in integrity, innovation, operational efficiency, safety and security performance, and our ability to
deliver exceptional quality has resulted in a high level of repeat wins and has driven substantial customer
loyalty. Market segments including cybersecurity, missile defense, C5ISR and smart and connected cities
require leading-edge technologies and extensive technical know-how, and necessitate consistently
exceptional performance, thus further entrenching us with our key customers and driving our long-term
relationships.
Technology Innovation
We are on the forefront of developing sophisticated engineering and technical services and products
for our customers, such as our iNET™, Legion and AVAA technology offerings. Our technical and
management teams have a deep understanding of the products, their ecosystems and deployments, the
customer and the processes necessary to create tailored solutions. We offer 100 different offerings in our
product portfolio, have deployed our software solutions in 30 countries and more than 1,800 customers
utilize our technology.
Our competencies include delivering advanced technologies in cybersecurity, data and video
analytics, cloud applications and migration and artificial intelligence. Our approach of agile development,
rapid prototyping, quick reaction capability and low rate initial production delivers customers solutions
from concept to full life cycle support. Our development environment includes customers and third-party
provider engagement and embeds application and infrastructure security throughout. By leveraging
people, processes and technologies, we focus on continually delivering innovative solutions to address
our customers’ immediate and long-term challenges.
Scalable and Agile Business Offerings
Our scalable and agile offerings enable us to satisfy robust and evolving customer needs. The
demanding environments where we operate are characterized by a need for high-confidence solutions,
widespread application needs and mission critical outcomes. We pride ourselves on providing agile
technologies through inventive and refined processes that provide quality outcomes to our customers on
time sensitive projects. Our domain knowledge of our customers’ current and emerging requirements
enables us to deliver responsive, high quality solutions on time. By having the ability to respond to
customers’ requirements with global deployment capability, we are well positioned to be a single-source
contractor for many of our customers’ needs.
Our technologies and platforms are designed to be applicable across end user markets and sub-
markets. This approach allows for scalable solutions that can be quickly and seamlessly integrated into
multiple customer applications, regardless of geography or industry, allowing us to deploy a given service
or platform across multiple markets.
World Class Talent
Our most important asset is our team of talented employees, 15,879 as of January 31, 2020, whose
technical expertise is sought by our clients for their most sophisticated applications and challenges. Our
base of diverse, committed and passionate experts is critical to delivering our leading capabilities.
Engineers, scientists, programmers and other employees choose us and stay with us for the opportunity
to collaborate with our customers, deploy our expansive technical resources, rapidly bring bold ideas to
market and work on leading solutions that enable a better world.
Our professionals are highly educated, with a wide range of technical acumen and in-depth domain
knowledge and expertise. Our employees hold more than 19,500 degrees and professional credentials ,
including those with registrations and certifications in technical areas like Agile methodology, Project
Management, Engineering, Architecture, Technology and Security as of December 31, 2019. Our diverse
8
teams understand our clients and are comprised of technology subject matter experts and professionals
with deep customer knowledge and experience.
Our management team has significant experience executing strategies for delivering profitable growth
and is recognized for operational excellence and leadership integrity. Our executive management team
has an average tenure of approximately 20 years with the company and averages over 37 years of
industry or functional experience. They possess diverse leadership capabilities in the markets we serve
and the solutions and technology we deliver.
Demonstrated Ability to Identify and Execute Acquisitions to Transform our Business
Strategic acquisitions that augment our technology offerings and capabilities are a key tenet of our
growth strategy. We have completed six strategic acquisitions (five in Federal Solutions and one in
Critical Infrastructure) since 2011, which collectively provided us with a wide variety of complementary
technology capabilities, with an aggregate purchase price of $1.4 billion. This highlights our ability to
successfully identify and execute on attractive opportunities to augment our leading technical offerings.
These acquisitions include:
• QRC: Acquired in 2019 at a purchase price of $214.1 million, QRC is a disruptive product
company that provides design and development of open-architecture radio-frequency
products.
• OGSystems: Acquired in 2019 at a purchase price of $292.4 million, OGSystems is a
disruptive geo-intelligence solutions and immersive engineering provider that creates
technology solutions for the United States intelligence community and the Department of
Defense. OGSystems’ VIPER Labs and Immersive Engineering techniques serve as the
catalysts for deployment of geospatial systems and software, embedded system threat
analytics and cloud engineering solutions. OGSystems’ advanced hardware solutions include
the PeARL family of sensors, combining industry-leading camera and optic lens technologies
with our software solutions, yielding very high resolution 2D and 3D aerial imagery.
•
•
Polaris Alpha: Acquired in 2018 at a purchase price of $489.1 million, Polaris Alpha is an
advanced, technology-focused provider of innovative mission solutions for national security,
intelligence, defense and other U.S. federal customers. With leading technologies in artificial
intelligence and a focus on machine learning and data analytics, Polaris Alpha has long-term
customer relationships and is known as a technology disruptor.
Secure Mission Solutions: Acquired in 2014 at a purchase price of $127.3 million, Secure
Mission Solutions is a leading provider of physical security services to the national security
community.
• Delcan Technologies: Acquired in 2014 at a purchase price of $108.4 million, Delcan
Technologies is a multidisciplinary provider of engineering, planning, management and
technology services offering a broad range of integrated systems and infrastructure solutions
focused on mobility and urban autonomy.
•
Sparta: Acquired in 2011 at a purchase price of $349.3 million, Sparta is a leading provider of
advanced systems engineering, cybersecurity and mission support services primarily to the
national security and intelligence communities.
We maintain a robust acquisition pipeline and are continually evaluating potential opportunities for
disciplined growth by acquisition to further transform our business.
Our Strategy for Growth
Our growth strategy is focused on three pillars: Enhance, Extend and Transform. These include
continually enhancing and optimizing our core business processes, extending our core business into
high-growth and opportunity-rich adjacent markets and acquiring and integrating companies that possess
transformative and disruptive technologies.
9
Enhance and Optimize our Core Operations
We are committed to enhancing and optimizing our core business and improving financial
performance, including revenue growth, margin expansion and positive cash flow, using the following
strategies:
• Maintaining high re-compete rates.
• Focusing on cross selling a wide range of applicable services and solutions to our customers,
including those added to our portfolio through acquisition.
• Continuing research and development investments in cybersecurity, intelligence and C5ISR
software and hardware products, iNET™, our intelligent transportation system connected city
platform, modeling and simulation, data analytics and our software and security-as-a-service
platforms.
• Developing intellectual property and product offering from our investments.
• Streamlining operations and processes to optimize overhead expenditures.
•
Increasing our presence and prime contractor positions on large omnibus Indefinite
Delivery/Indefinite Quantity (“IDIQ”) and Master Service Agreement contracts.
• Expanding our talent pool in key strategic areas outside of high-employment zones.
• Continuously evaluating and shaping our portfolio to divest, exit and de-emphasize lower-
performing businesses and markets.
• Rigorously managing our working capital to maximize cash flow.
Extend into Opportunity-Rich Adjacent Markets
We are extending our core markets through organically penetrating and expanding in market
adjacencies requiring our core services and solutions. The characteristics of these markets encompass
development, design and delivery of software and services leveraging artificial intelligence, machine
learning, autonomous systems, computing and Internet of Things applications with growth rates and
margins that are on par or higher than our core. Our key market focuses include:
• Cybersecurity – Continue our growth momentum in cybersecurity by offering end-to-end
solutions, tools, operations and quick reaction capabilities for our Department of Defense and
Intelligence Community customers.
•
•
•
•
•
Space—Extend our space situational awareness, small satellite integration and payload and
command and control solutions to our current space customers (MDA, Air Force, Space &
Missile Command, NASA and NRO) and to new space customers in the government and
commercial space markets.
All-domain operations-Leverage our command and control and sensor solutions developed
for the military services into a joint command network to enable joint warfighting capability.
Energy—Extend our cyber-physical security, energy efficiency, owner’s engineer, and critical
infrastructure solutions to regulated utilities, oil and gas energy companies and federal
energy customers.
Aviation – Expand our program management capabilities to include systems and technology
offerings for airport modernization.
Smart Cities—Extend our iNET™ platform to include enhanced cybersecurity, data analytics,
machine learning, and cloud computing to expand coverage to additional global cities and
regions.
This strategy extends the reach of our people, customer relationships and intellectual property to
capture growing demand in the five market adjacencies. These markets demand information systems that
are safe and secure, scalable, reliable, interoperable and mobile. In assessing potential areas of
10
expansion or entry into adjacent markets, we maintain a strictly disciplined approach, always placing
paramount importance on responsible growth in areas aligned with our strategy and core competencies.
Continued Acquisition and Integration of Transformative, Disruptive Technologies
We are transforming our business capabilities and business models through the acquisition of
companies with additional software and hardware intellectual property in:
• Cybersecurity software leveraging artificial intelligence algorithms across large data sets to
further expand our coverage with large infrastructure and mobility systems.
•
•
Intelligence software focused on data capture, processing and configuration to produce
actionable intelligence from large data sets.
IoT sensor hardware and systems integration, data capture and processing focused on
intelligence applications and mobility solutions for connected and smart cities.
• Space and geospatial software and hardware to expand our small satellite command and
control coverage, large data capture and analysis with embedded artificial intelligence to
improve space operations.
Our objective is to continue to transform our business into a highly scalable defense and
infrastructure platform and increase revenue growth rates, margins and cash flows. Our
acquisition strategy is focused on gaining additional intellectual property, resources and
expertise to:
•
Increase the portion of our portfolio dedicated to software development and sales.
• Sell more of our solutions through transactional and subscription business models, leveraging
our expertise developed over the past 20 years in vehicle inspection.
• Leverage our strong balance sheet and free cash flow to fund this strategy.
We seek to expand opportunities for long-term revenue growth, both by developing and acquiring
capabilities that will allow us to reach new customers and by expanding our offerings for existing
customers. We build on the foundation of our Enhance and Extend strategies and reinforce these
strategies with acquisitions of companies with software, hardware and expertise in our target markets,
services and solutions.
Backlog
We view growth in total backlog as a key measure of our business growth. We define backlog to
include the following two components:
•
•
Funded—Funded backlog represents the revenue value of orders for services under existing
contracts for which funding is appropriated or otherwise authorized less revenue previously
recognized on these contracts.
Unfunded—Unfunded backlog represents the revenue value of orders for services under
existing contracts for which funding has not been appropriated or otherwise authorized less
revenue previously recognized on these contracts.
Backlog includes (i) unissued task orders and unexercised option years, to the extent their issuance
or exercise is probable, as well as (ii) contract awards, to the extent we believe contract execution and
funding is probable.
Our backlog includes orders under contracts that can extend for several years, and in some cases,
contracts that extend for more than 10 to 15 years. For example, the U.S. Congress generally
appropriates funds for our U.S. federal government customers on a yearly basis, even though their
contracts with us may call for performance that is expected to take a number of years to complete. As a
result, our federal contracts typically are only partially funded at any point during their term. All or some of
11
the work to be performed under the contracts may remain unfunded unless and until the U.S. Congress
makes subsequent appropriations and the procuring agency allocates funding to the contract.
As of December 31, 2019, our total backlog was $8.0 billion, consisting of $4.1 billion of funded
backlog and $3.9 billion of unfunded backlog. We expect to recognize $2.8 billion of our funded backlog
at December 31, 2019 as revenues in the following twelve months. However, our government customers
may cancel their contracts with us at any time through a termination for convenience or may elect to not
exercise option periods under such contracts. In the case of a termination for convenience, we would not
receive anticipated future revenues, but would generally be permitted to recover all or a portion of our
incurred costs and fees for work performed.
Competition
The industries we operate in consist of a large number of enterprises ranging from small, niche-
oriented companies to multi-billion-dollar corporations that serve many government and commercial
customers. We compete on the basis of our technical expertise, technological innovation, our ability to
deliver cost-effective multi-faceted services in a timely manner, our reputation and relationships with our
customers, qualified and/or security-clearance personnel, and pricing. Our main competitors in Federal
Solutions are U.S. federal systems integrators and service providers such as CACI International Inc,
Leidos Holdings, Inc., Science Applications International Corporation, Booz Allen Hamilton, Lockheed
Martin Corporation, The Raytheon Company, Northrop Grumman Corporation, Perspecta Inc. and
ManTech International Corporation. Our main competitors in Critical Infrastructure include Jacobs
Engineering Group Inc. and Tetra Tech, Inc., as well as Siemens AG and Cisco Systems, Inc. in the
Connected Communities market. Large defense firms or technology companies may develop products or
services in the future that could compete with us.
Seasonality
Our results may be affected by variances as a result of seasonality we experience across our
businesses. This pattern is typically driven by the U.S. federal government fiscal year-end, September 30.
While not certain, it is not uncommon for U.S. government agencies to award task orders or complete
other contract actions in the weeks before the end of the U.S. federal government fiscal year in order to
avoid the loss of unexpended U.S. federal government fiscal year funds. In addition, we have also
historically experienced higher bid and proposal costs in the months leading up to the U.S. federal
government fiscal year-end as we pursue new contract opportunities expected to be awarded early in the
following U.S. federal government fiscal year as a result of funding appropriated for that U.S. federal
government fiscal year. Furthermore, many U.S. state governments with fiscal years ending on June 30
tend to accelerate spending during their first quarter, when new funding becomes available. We may
continue to experience this seasonality in future periods, and our results of operations may be affected by
it.
Employees
As of January 31, 2020, we had 15,879 employees. Our employees hold more than 19,500 degrees
and professional credentials, including those with registrations and certifications in technical areas like
Agile methodology, Project Management, Engineering, Architecture, Technology and Security as of
December 31, 2019. As of December 31, 2019, approximately 22% of our employees held security
clearances. Approximately 56% of the employees in our Federal Solutions business segment hold
security clearances, and, of those holding such clearances in Federal Solutions, approximately 58% of
those clearances are Top Secret/Sensitive Compartmented Information-Level clearances, which often
requires the completion of a polygraph. In addition, our executive management has an average tenure of
approximately 20 years with the company and over 37 years of industry or functional experience. As of
December 31, 2019, approximately 314 of our employees were covered by collective bargaining
agreements. We continue to focus on our firm-wide hiring program to recruit and attract additional high
quality and experienced talent and maintain close relationships with key academic institutions globally,
12
which allows us to identify and target leading minds in key fields of study relevant to our business. We
believe that our employee relations are good.
Intellectual Property
Our intellectual property portfolio consists of issued and pending patents as well as trademarks for
many of our technologies. In addition, we maintain a number of trade secrets that we endeavor to protect
to ensure their continuing availability to us. Our technical expertise is vital to our growth strategy, and we
believe they are a core competitive advantage.
We rely upon a combination of nondisclosure agreements and other contractual arrangements, as
well as copyright, trademark, patent and trade secret laws to protect our proprietary information. We also
enter into proprietary information and intellectual property agreements with employees, which require
them to disclose any inventions created during employment, to convey such rights to inventions to us and
to restrict any disclosure of proprietary information. While protecting trade secrets and proprietary
information is important, we are not materially dependent on maintenance of any specific trade secret or
group of trade secrets.
During the normal course of business, we perform research and development and technology
consulting services and related products in support of our customers. Typically, these services do not
depend on patent protection. In accordance with applicable law, our government contracts often provide
government agencies certain license rights to our inventions, copyrights and other intellectual property.
Government agencies may in turn sublicense to other contractors (including our competitors) the right to
utilize our intellectual property. In addition, in the case of our work as a subcontractor, our prime
contractor may also have certain rights to data, information and products we develop under the
subcontract. At the same time, our government contracts often license to us patents, copyrights and other
intellectual property owned by third parties.
Regulation
Our business is impacted by government procurement, anti-bribery, international trade,
environmental, health and safety and other regulations and requirements. Below is a summary of some of
the significant regulations that impact our business.
Government Procurement. The services we provide to the U.S. Government are subject to Federal
Acquisition Regulation, or FAR, the Truth in Negotiations Act, Cost Accounting Standards, or CAS, the
Services Contract Act, the False Claims Act, export controls rules and U.S. Department of Defense
security regulations, as well as many other laws and regulations. These laws and regulations affect how
we transact business with our clients and, in some instances, impose additional costs on our business
operations. A violation of specific laws and regulations could lead to fines, contract termination or
suspension of future contracts. Generally, our government clients can also terminate, renegotiate, or
modify any of their contracts with us at their convenience, and many of our government contracts are
subject to renewal or extension annually.
In 2019, the U.S. Department of Defense announced the development of Cybersecurity Maturity
Model Certification (“CMMC”) as a framework to assess and enhance the cybersecurity posture of the
Defense Industrial Base (“DIB”), particularly as it relates to controlled unclassified information within the
supply chain. CMMC is designed to ensure that contractors providing services to the U.S. Department of
Defense have implemented cybersecurity controls and processes to adequately protect information that
resides on DIB systems and networks. It is expected that the DoD will incorporate CMMC requirements
into Requests for Proposals beginning in June 2020.
Anti-Bribery and other regulations. We are subject to the U.S. Foreign Corrupt Practices Act and
similar anti-bribery laws, which generally prohibit companies and their intermediaries from making
improper payments to foreign government officials for the purpose of obtaining or retaining business. The
13
U.K. Bribery Act of 2010 prohibits both domestic and international bribery, as well as bribery across both
private and public sectors. In addition, an organization that “fails to prevent bribery” committed by anyone
associated with the organization can be charged under the U.K. Bribery Act unless the organization can
establish the defense of having implemented “adequate procedures” to prevent bribery.
International Trade. We are subject to U.S. export control laws and regulations, including the
International Traffic in Arms Regulations, or ITAR, and the Export Administration Regulations, or EAR, as
well as U.S. economic and trade sanctions, including those administered and enforced by the U.S.
Department of Treasury’s Office of Foreign Assets Control, or OFAC. To the extent we export items and
provide services outside of the United States (or to certain parties in the United States), we must do so in
compliance with these laws and regulations. These laws and regulations impose export licensing
requirements, and we may not be successful in obtaining necessary licenses and other authorizations.
Further, these laws and regulations restrict our ability to export items or provide services to certain
countries and certain persons, including those that are the target of OFAC sanctions. Noncompliance with
these or similar laws could lead to government investigations, penalties, reputational harm, and other
negative consequences, and thereby could adversely affect our business and financial condition. Further,
any change in these laws and regulations, or any shift in the approach to their enforcement or scope, or
change to the countries, persons, or items targeted by such regulations, could potentially result in our
decreased ability to export or sell items or services to existing or potential customers.
Environmental, Health and Safety. We are subject to federal, state and local laws and regulations
relating to environmental, health and safety matters, including, among other things, the handling,
transport and disposal of regulated substances and wastes, including hazardous and radioactive
materials; contamination by regulated substances and wastes; the types, quantities and concentration of
materials that can be released into the environment; the acquisition of a permit or other approval before
conducting regulated activities; the maintenance of information about hazardous materials used or
produced in operations and provision of such information to employees, state and local government
authorities and the public; and employee health and safety. Our previous ownership and current and
previous operation of real property may subject us to liability pursuant to these laws or regulations. Under
the Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, and related
state laws, certain persons may be liable at sites where or from a release or threatened release of
hazardous substances has occurred or is threatened. These persons can include the current owner or
operator of property where a release or threatened release occurred, any persons who owned or
operated the property when the release occurred, and any persons who disposed of, or arranged for the
transportation or disposal of, hazardous substances at a contaminated property. Liability under CERCLA
is strict, retroactive and, under certain circumstances, joint and several, so that any responsible party may
be held liable for the entire cost of investigating and remediating the release of hazardous substances.
The Resource Conservation and Recovery Act, or RCRA, regulates the generation, treatment, storage,
handling, transportation and disposal of solid waste and requires states to develop programs to ensure
the safe disposal of solid waste. Under RCRA, persons may be liable at sites where the past or present
storage, handling, treatment, transportation, or disposal of any solid or hazardous waste may present an
imminent and substantial endangerment to health or the environment. These persons can include the
current owner or operator of property where disposal occurred, any persons who owned or operated the
property when the disposal occurred, and any persons who disposed of, or arranged for the
transportation or disposal of, hazardous substances at a contaminated property. Liability under RCRA is
strict and, under certain circumstances, joint and several, so that any responsible party may be held liable
for the entire cost of investigating and remediating the release of hazardous substances. Violations and
liabilities with respect to environmental, health and safety laws and regulations could result in significant
administrative, civil, or criminal penalties, remedial clean-ups, natural resource damages, permit
modifications or revocations, operational interruptions or shutdowns and other liabilities. Additionally,
Congress, state legislatures, local governing bodies and federal and state agencies frequently revise
environmental laws and regulations, and any changes could result in more stringent or costly
requirements for our operations. Our costs related to complying with environmental, health and safety
laws and regulations have not been material in the past and are not currently material to our total
operating costs or cash flows. However, if we have any violations of, or incur liabilities pursuant to these
laws or regulations in the future, our financial condition and operating results could be adversely affected.
14
In addition, in the unlikely event that we are required to fund remediation of a contaminated site, the
statutory framework might allow us to pursue rights of contribution from other potentially responsible
parties.
We maintain a compliance program designed to ensure compliance with the various regulations and
requirements applicable to us. The compliance program, managed by our Chief Ethics and Compliance
Counsel and overseen by our Chief Compliance Officer, includes an annual audit of performance with
respect to our codes of ethics and business conduct and the adequacy of our compliance program,
among other initiatives.
Executive Officers
Charles L. Harrington was appointed our Chief Executive Officer in May 2008, Chairman of our
board of directors in November 2008. Before his appointment in 2006 as Executive Vice President, Chief
Financial Officer and Treasurer of Parsons, Mr. Harrington was the founding President of one of our
business units. Mr. Harrington also serves on the board of directors of AES Corporation and J.G. Boswell
Company. Further, he serves on several non-profit boards of directors, including the California Science
Center Foundation Board of Trustees and the California Polytechnic State University San Luis Obispo
Foundation board of directors. Mr. Harrington received a Bachelor of Science in engineering from
California Polytechnic State University and a masters of business administration from the University of
California, Los Angeles (UCLA) Anderson School of Management. Mr. Harrington was selected to serve
on our board of directors because of the perspective and experience he brings as our Chief Executive
Officer and President, as well as his operations and finance industry experience.
George L. Ball was appointed our Chief Financial Officer in May 2008. Mr. Ball has held a
succession of senior financial and management positions with us over the past 13 years. Previously, he
was Senior Vice President, Financial Systems and Control, of Parsons Corporation from March 2007 to
May 2008 and Vice President, Finance, of Parsons Development Company from October 2004 to
February 2008. Since joining us in 1995, he has served in various capacities including Corporate
Controller and International Division Manager of the Infrastructure & Technology Group. Mr. Ball has
more than 36 years of experience in finance and accounting roles for both public and private companies.
In addition to his responsibilities with us, he serves on the board of directors of Cornerstone Building
Brands, Inc., and the Los Angeles Arboretum Foundation Board of Trustees. Mr. Ball is a certified public
accountant and holds a Bachelor of Science degree in accounting from Drexel University in Philadelphia,
Pennsylvania.
Carey A. Smith was appointed Chief Operating Officer in November 2018 and President in
November 2019. Prior to that, Ms. Smith led Parsons’ Federal Solutions business from November 2016.
Before joining Parsons, Ms. Smith served in progressive leadership roles at Honeywell International Inc.
(“Honeywell”) from 2011 to 2016, including President of the Defense and Space business unit, Vice
President of Honeywell Aerospace Customer and Product Support and President of Honeywell
Technology Solutions, Inc. Prior to joining Honeywell, Ms. Smith held various positions with Lockheed
Martin Corporation (and legacy companies through acquisition) from 1985 to 2011. In total, Ms. Smith has
34 years of aerospace and defense experience. Ms. Smith serves on the Edison International board of
directors, including on the Compensation & Executive Personnel and Safety and Operations Committees,
and in several capacities for the Professional Services Council, including as Vice Chairman on the board
of directors and a member of the Executive Committee. In addition, Ms. Smith is a National Association of
Corporate Directors (NACD) Governance Fellow. Ms. Smith received a Master of Science degree in
electrical engineering from Syracuse University and a bachelor of science in electrical engineering from
Ohio Northern University.
Michael R. Kolloway was appointed General Counsel and Corporate Secretary of Parsons
Corporation in October 2017 and later became our Chief Legal Officer in January 2019. Before assuming
the role of General Counsel and Corporate Secretary, Mr. Kolloway served as Deputy General Counsel –
Americas from March 2016 through October 2017. Before joining Parsons, Mr. Kolloway served as Senior
Vice President and Assistant General Counsel for Operations and Risk Management at AECOM
15
Technology Corporation, a publicly traded company. Prior to his tenure at AECOM, Mr. Kolloway was a
partner in the Chicago law firm of Rock, Fusco & Garvey, Ltd and a member of the Federal Trial Bar for
the Northern District of Illinois. Mr. Kolloway received his Bachelor of Arts degree from St. Norbert College
and his Juris Doctor from the University of Illinois College of Law. Mr. Kolloway served on the Board of
Directors for MUSE/IQUE based in Pasadena, California.
Available Information
We file annual, quarterly, and current reports and other information with the Securities and
Exchange Commission (SEC). The SEC maintains a website (www.sec.gov) that contains reports, proxy
and information statements, and other information regarding registrants that file electronically with the
SEC, including us. You may also access, free of charge, our reports filed with the SEC (for example, our
Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, and our Current Reports on Form 8-K
and any amendments to those forms) through the “Investors” portion of our website (www.parsons.com).
Reports filed with or furnished to the SEC will be available as soon as reasonably practicable after they
are filed with or furnished to the SEC. Our website is included in this Annual Report as an inactive textual
reference only. The information found on our website is not part of this or any other report filed with or
furnished to the SEC.
Item 1A. Risk Factors.
You should carefully consider the risks described below and the other information contained in this
Annual Report, including our consolidated financial statements and the related notes, before making an
investment decision. Our business, financial condition and results of operations could be materially and
adversely affected by any of these risks or uncertainties. In that case, the trading price of our common
stock could decline, and you may lose all or part of your investment.
Risk Relating to Our Business
Government spending and priorities could change in a manner that adversely affects our future
revenue and limits our growth prospects.
We derive, and expect to continue to derive, a significant portion of our revenue from contracts with
government entities. As a result, our business depends upon continued government expenditures on
defense, intelligence, civil and engineering programs for which we provide support, both among foreign
governments and at federal, state and local levels domestically. These expenditures have not remained
constant over time and have been reduced in some periods. In particular, these expenditures have
recently been affected by efforts to improve efficiency and reduce costs affecting government programs
generally. Our business, prospects, financial condition or operating results could be materially harmed,
among other causes, by the following:
•
•
•
•
•
budgetary constraints, including mandated automatic spending cuts, affecting across-the-board
government spending, or specific agencies in particular, and changes in available funding;
a shift in expenditures away from agencies or programs that we support;
reduced government outsourcing of functions that we are currently contracted to provide,
including as a result of increased insourcing by various U.S. government agencies due to
changes in the definition of “inherently governmental” work, including proposals to limit
contractor access to sensitive or classified information and work assignments;
further efforts to improve efficiency and reduce costs affecting government programs;
changes or delays in government programs that we support or the programs’ requirements;
16
•
•
•
•
•
•
•
a continuation of recent efforts by the U.S. government in particular to decrease spending for
management support service contracts;
U.S. government shutdowns due to, among other reasons, a failure by elected officials to fund
the government, such as the shutdowns which occurred during government fiscal years 2019
and 2014 and, to a lesser extent, government fiscal year 2018, and other potential delays in the
appropriations process;
U.S. government agencies awarding contracts on a technically acceptable/lowest cost basis in
order to reduce expenditures;
delays in the payment of our invoices by government payment offices;
results of elections, including politicians who may have priorities that would reduce spending in
areas in which we operate;
an inability by the U.S. government to fund its operations as a result of a failure to increase the
federal government’s debt ceiling, a credit downgrade of U.S. government obligations or for any
other reason; and
changes in the political climate and general economic conditions, including a slowdown of the
economy or unstable economic conditions and responses to conditions, such as emergency
spending, that reduce funds available for other government priorities.
Any disruption in the functioning of government agencies, including as a result of government
closures and shutdowns, terrorism, war, natural disasters, destruction of government facilities, and other
potential calamities could have a negative impact on our operations and cause us to lose revenue or incur
additional costs due to, among other things, our inability to deploy our staff to client locations or facilities
as a result of such disruptions.
In particular, with regard to our largest single customer, the U.S. federal government, budget deficits,
the national debt and the prevailing economic condition, and actions taken to address them, could
continue to negatively affect the U.S. government expenditures on defense, intelligence and civil
programs for which we provide support. The Department of Defense is one of our significant clients and
cost cutting, including through consolidation and elimination of duplicative organizations and insourcing,
has become a major initiative for the Department of Defense. There remains uncertainty as to how exactly
budget cuts, including sequestration, will impact us, and we are therefore unable to predict the extent of
the impact of such cuts on our business and results of operations. However, a reduction in the amount of
or delays or cancellations of funding for, services that we are contracted to provide to the Department of
Defense as a result of any of these initiatives, legislation or otherwise could have a material adverse
effect on our business, financial condition and results of operations. In addition, in response to an Office
of Management and Budget mandate, government agencies have reduced management support services
spending in recent years. If federal awards for management support services continue to decline, our
revenue and operating profits may materially decline and further efforts by the Office of Management and
Budget to decrease federal awards for management support services could have a material and adverse
effect on our business, financial condition and results of operations.
In addition, most government contracts are subject to the government’s budgetary approval process.
Legislatures typically appropriate funds for a given program on a year-by-year basis, even though
contract performance may take more than one year. In addition, public-supported financing such as state
and local municipal bonds may be only partially raised to support existing infrastructure projects. As a
result, at the beginning of a program, the related contract is only partially funded, and additional funding is
normally committed only as appropriations are made in each fiscal year. These appropriations, and the
timing of payment of appropriated amounts, may be influenced by, among other things, the state of the
economy, competing priorities for appropriation, changes in administration or control of legislatures and
17
the timing and amount of tax receipts and the overall level of government expenditures. Similarly, the
impact of an economic downturn on state and local governments may make it more difficult for them to
fund infrastructure projects. If appropriations are not made in subsequent years on our government
contracts, then we will not realize all of our potential revenue and profit from that contract, and we may
incur substantial labor costs without reimbursement.
Government funding with respect to our Critical Infrastructure services fluctuates over time and new
or changing government policies may affect our Critical Infrastructure business and operations. In March
2018, for example, President Trump signed proclamations to impose tariffs on steel and aluminum
imports per the U.S. Trade Expansion Act of 1962 increasing the price for steel and aluminum in the
United States which could impact client spending. Government spending for our Critical Infrastructure
services may also depend on factors related to government demand, such as the condition of the existing
infrastructure and buildings and the need for new or expanded infrastructure and buildings. Our
government clients may face budget cuts or deficits that prohibit them from funding proposed and existing
Critical Infrastructure projects.
These or other factors could cause our defense, intelligence, infrastructure or civil clients to decrease
the number of new government contracts awarded generally and fail to award us new government
contracts, reduce their purchases under our existing government contracts, exercise their right to
terminate our government contracts or not exercise options to renew our government contracts, any of
which could materially and adversely affect our business, financial condition and results of operations.
The U.S. federal government and its agencies collectively are our largest single customer and, if
our reputation or relationships with the U.S. federal government were harmed, our future revenues
and cash flows would be adversely affected.
The U.S. federal government and its agencies, including the military and intelligence community,
collectively are our largest customer. In particular, it represents substantially all of the revenue of our
Federal Solutions segment. Approximately 36%, 42% and 48% of consolidated revenues for the years
ended December 29, 2017, December 31, 2018 and December 31, 2019, respectively, and approximately
29% and 17% of accounts receivable as of December 31, 2018 and December 31, 2019, respectively,
were derived from contracts with the U.S. federal government and its agencies. Our reputation and
relationships with various U.S. government entities and agencies, and in particular with the U.S.
Department of Defense, including the Missile Defense Agency and the United States Army, the Federal
Aviation Administration, the United States intelligence community and the U.S. Department of Energy are
key factors in maintaining and growing these revenues and winning new bids for new business. Negative
press reports or publicity, regardless of accuracy, could harm our reputation. If our reputation or
relationships with government agencies were to be negatively affected, or if we are suspended or
debarred from contracting with government agencies for any reason, the amount of business with
government and other customers would decrease and our financial condition and results of operations
could be adversely affected.
Our failure to comply with a variety of complex procurement rules and regulations could result in
our being liable for penalties, including termination of our government contracts, disqualification
from bidding on future government contracts and suspension or debarment from government
contracting.
We must comply with various laws and regulations relating to the formation, administration and
performance of government contracts, which affect how we do business with our customers and may
impose added costs on our business.
Many of our U.S. government contracts contain organizational conflict of interest, or OCI, clauses that
may limit our ability to compete for or perform contracts or other types of services for particular
customers. OCI arises when we engage in activities that may make us unable to render impartial
assistance or advice to the U.S. government, impair our objectivity in performing contract work or provide
18
us with an unfair competitive advantage. Existing OCI, and any OCI that may develop, could preclude our
competition for or performance on a significant project or contract, which could limit our opportunities.
Some U.S. federal and state statutes and regulations provide for automatic debarment based on our
actions, such as violations of the U.S. False Claims Act or the U.S. Foreign Corrupt Practices Act, or
FCPA. The suspension or debarment in any particular case may be limited to the facility, contract or
subsidiary involved in the violation or could be applied to our entire enterprise in severe circumstances.
Even a narrow scope suspension or debarment could result in negative publicity that could adversely
affect our ability to renew contracts and to secure new contracts, both with governments and private
customers, which could materially and adversely affect our business, financial condition and results of
operations.
Governments may adopt new contract rules and regulations or revise their procurement practices
in a manner adverse to us at any time.
The government-related industries within which we do business continue to experience significant
changes to business practices as a result of an increased focus on affordability, efficiencies and recovery
of costs, among other items. Our existing and potential clients are similarly focused on increasing the
productivity of their contractual arrangements. Moreover, government agencies may face restrictions or
pressure regarding the type and amount of services that they may obtain from private contractors.
Legislation, regulations and initiatives dealing with procurement reform, mitigation of potential OCIs,
deterrence of fraud, and environmental responsibility or sustainability could have an adverse effect on us.
Moreover, shifts in the buying practices of government agencies, such as increased usage of fixed price
contracts, multiple award contracts and small business set-aside contracts, could have adverse effects on
government contractors, including us. Any of these changes could impair our ability to obtain new
contracts or contract renewals. Any new contracting requirements or procurement methods could be
costly or administratively difficult for us to implement and could adversely affect our business, financial
condition and results of operations.
A substantial portion of our business is subject to reviews, audits and cost adjustments by
government agencies, which, if resolved unfavorably to us, could adversely affect our profitability,
cash flows or growth prospects.
Government agencies routinely audit and review a contractor’s performance on government
contracts, indirect cost rates and pricing practices, and compliance with applicable contracting and
procurement laws, regulations and standards. They also review the adequacy of the contractor’s
compliance with government standards for its business systems, which are defined as the contractor’s
accounting, earned value management, estimating, materials management, property management and
purchasing systems. A finding of significant control deficiencies in a contractor’s business systems or a
finding of noncompliance with U.S. government Cost Accounting Standards, or CAS, can result in
decremented billing rates to U.S. government customers until the control deficiencies are corrected and
their remediation is accepted by the Defense Contract Management Agency. The agencies conducting
these audits and reviews have come under increased scrutiny. As a result, audits and reviews have
become more rigorous and the standards to which we are held are being more strictly interpreted which
has increased the likelihood of an audit or review resulting in an adverse outcome.
If a review or investigation by a government agency identifies improper or illegal activities, we may be
subject to civil or criminal penalties or administrative sanctions which could include the termination of
contracts, forfeiture of profits, the triggering of price reduction clauses, suspension of payments, fines,
and suspension or debarment from doing business with governmental agencies. We may suffer harm to
our reputation if allegations of impropriety are made against us, which would impair our ability to win new
contract awards or receive contract renewals. Penalties and sanctions are not uncommon in our
industries. If we incur a material penalty or administrative sanction or otherwise suffer harm to our
reputation, our profitability, cash position and future prospects could be adversely affected.
19
Government audits and reviews may conclude that our practices are not consistent with applicable
laws and regulations and result in adjustments to contract costs and mandatory customer refunds. Such
adjustments can be applied retroactively, which could result in significant customer refunds, and those
refunds would negatively impact our revenue. Receipt of adverse audit findings or the failure to obtain an
“approved” determination on our various business systems could significantly and adversely affect our
business by, among other things, restricting our ability to bid on new contracts and, for those proposals
under evaluation, diminishing our competitive position. A determination of noncompliance could also
result in penalties and sanctions against us, including withholding of payments, suspension of payments
and increased government scrutiny. Increased scrutiny could adversely impact our ability to perform on
contracts, affect our ability to invoice for work performed, delay the receipt of timely payment on contracts,
and weaken our ability to compete for new contracts with the government.
Our government contracts may be terminated by the government counterparty at any time and
may contain other provisions permitting the government to discontinue contract performance,
and if lost contracts are not replaced, our operating results may differ materially and adversely
from those anticipated.
Government contracts often contain provisions and are subject to laws and regulations that provide
government clients with rights and remedies not typically found in commercial contracts. These rights and
remedies allow government clients, among other things, to:
•
•
•
•
•
•
•
•
•
terminate existing contracts, with short notice, for convenience as well as for default;
reduce orders under or otherwise modify contracts;
for contracts subject to the Truth in Negotiations Act, reduce the contract price or cost where
it was increased because a contractor or subcontractor furnished cost or pricing data during
negotiations that was not complete, accurate and current;
for some contracts, (1) demand a refund, make a forward price adjustment or terminate a
contract for default if a contractor provided inaccurate or incomplete data during the contract
negotiation process and (2) reduce the contract price under triggering circumstances,
including the revision of price lists or other documents upon which the contract award was
predicated;
terminate our facility security clearances and thereby prevent us from receiving classified
contracts and complete work on existing contracts;
cancel multi-year contracts and related task orders if funds for contract performance for any
subsequent year become unavailable;
decline to exercise an option to renew a multi-year contract or issue task orders in connection
with indefinite delivery/indefinite quantity contracts, or IDIQ contracts;
claim rights in solutions, systems and technology produced by us, appropriate such work-
product for their continued use without continuing to contract for our services and disclose
such work-product to third parties, including other government agencies and our competitors,
which could harm our competitive position;
prohibit future procurement awards with a particular agency due to a finding of organizational
conflicts of interest based upon prior related work performed for the agency that would give a
contractor an unfair advantage over competing contractors, or the existence of conflicting
roles that might bias a contractor’s judgment;
20
•
•
•
subject the award of contracts to protest by competitors, which may require the contracting
federal agency or department to suspend our performance pending the outcome of the
protest and may also result in a requirement to resubmit offers for the contract or in the
termination, reduction or modification of the awarded contract;
suspend or debar us from doing business with the applicable government; and
control or prohibit the export of our services.
Recent and potential future budget cuts, the impact of sequestration and recent efforts by the Office
of Management and Budget to decrease federal awards for management support services, may cause
agencies with which we currently have contracts to terminate, reduce the number of task orders under or
fail to renew such contracts. If a government client were to unexpectedly terminate, cancel, or decline to
exercise an option to renew with respect to one or more of our significant contracts, or suspend or debar
us from doing business with such government, our revenue and operating results would be materially
harmed.
We face aggressive competition that can impact our ability to obtain contracts and may affect our
future revenues, profitability and growth prospects.
We expect that a majority of the business that we seek in the foreseeable future will be awarded
through a competitive bidding process. For example, the U.S. government increasingly relies on IDIQ,
GSA Schedule and other multi-award contracts, which has resulted in greater competition and increased
pricing pressure. The competitive bidding process involves substantial costs and a number of risks,
including significant cost and managerial time to prepare bids and proposals for contracts that may not be
awarded to us, or that may be awarded but for which we do not receive meaningful task orders. For
contracts awarded to us, we also face the risk of inaccurately estimating the resources and costs that will
be required to fulfill any contract we win. Following contract award, we may encounter significant
expense, delay, contract modifications or even contract loss as a result of our competitors protesting the
award of contracts to us in competitive bidding. Any resulting loss or delay of startup and funding of work
under protested contract awards may adversely affect our revenues and/or profitability. In addition, multi-
award contracts require that we make sustained post-award efforts to obtain task orders under the
contract. As a result, we may not be able to obtain these task orders or recognize revenues under these
multi award contracts. Our failure to compete effectively in this procurement environment would adversely
affect our business, financial condition and results of operations.
Projects may be awarded based solely upon price, but often take into account other factors, such as
technical qualifications, proposed project team, schedule and past performance on similar projects. We
compete with larger companies that have greater name recognition, financial resources and larger
technical staffs and with smaller, more specialized companies that are able to concentrate their resources
on particular areas. Additionally, we may compete with a government’s own capabilities. Technology-
focused companies may also develop products and services that could disrupt our business or compete
with our services. To remain competitive, we must consistently provide superior service, technology and
performance on a cost-effective basis to our customers and there is no assurance that we will do so.
Our revenue and growth prospects may be harmed if we or our employees are unable to obtain
government granted eligibility or other qualifications, we and they need to perform services for
our customers.
A number of government programs require contractors to have certain kinds of government granted
eligibility, such as security clearance credentials. Depending on the project, eligibility can be difficult and
time-consuming to obtain. If we or our employees are unable to obtain or retain the necessary eligibility,
including local ownership requirements, we may not be able to win new business, and our existing
customers could terminate their contracts with us or decide not to renew them. To the extent we cannot
21
obtain or maintain the required security clearances for our employees working on a particular contract, we
may not derive the revenue or profit anticipated from such contract.
A failure to attract, train and retain skilled employees and our senior management team would
adversely affect our ability to execute our strategy and may disrupt our operations.
Our business relies heavily upon the expertise and services of our employees. Our continued
success depends on our ability to recruit and retain highly trained and skilled engineering, technical and
professional personnel. Competition for skilled personnel is intense and competitors aggressively recruit
key employees. In addition, many U.S. government programs require contractors to have security
clearances. Depending on the level of required clearance, security clearances can be difficult and time-
consuming to obtain and personnel with security clearances are in great demand. Particularly in highly
specialized areas, it has become more difficult to retain employees and meet all of our needs for
employees in a timely manner, which may affect our growth in the current and future fiscal years.
Although we intend to continue to devote significant resources to recruiting, training and retaining
qualified employees, we may not be able to attract, effectively train and retain these employees. Any
failure to do so could impair our ability to efficiently perform our contractual obligations, timely meet our
customers’ needs and ultimately win new business, all of which could adversely affect our business,
financial condition and results of operations.
We believe that our success also depends on the continued employment of a highly qualified and
experienced senior management team and that team’s ability to retain existing business and generate
new business. The loss of key personnel in critical functions could lead to lack of business continuity or
disruptions in our business until we are able to hire and train replacement personnel.
Our profitability could suffer if we are not able to timely and effectively utilize our employees or
manage our cost structure.
The cost of providing our services, including the degree to which our employees are utilized, affects
our profitability. The degree to which we are able to utilize our employees in a timely manner or at all is
affected by a number of factors, including:
•
•
•
•
•
•
our ability to transition employees from completed projects to new assignments and to hire,
assimilate and deploy new employees;
our ability to forecast demand for our services and to maintain and deploy headcount that is
aligned with demand, including employees with the right mix of skills and experience to
support our projects;
our employees’ inability to obtain or retain necessary security clearances or required
certifications;
changes to or delays or cancellations of projects, as a result of governmental budgetary
processes or otherwise;
our ability to manage attrition; and
our need to devote time and resources to training, business development, and other non-
chargeable activities.
If our employees are under-utilized, our profit margin and profitability could suffer. Additionally, if our
employees are over-utilized, it could have a material adverse effect on employee morale and attrition,
which would in turn have a material adverse impact on our business, financial condition or results of
operations.
22
Our profitability is also affected by the extent to which we are able to effectively manage our overall
cost structure for operating expenses, such as wages and benefits, real estate expenses, overhead and
capital and other investment-related expenditures. If we are unable to effectively manage our costs and
expenses and achieve efficiencies, our competitiveness and profitability may be adversely affected.
Our focus on new growth areas for our business entails risks, including those associated with
new relationships, clients, talent needs, capabilities, service offerings and maintaining our
collaborative culture and core values.
We are focused on growing our presence in our addressable markets by enhancing and optimizing
our core operations, extending into opportunity-rich adjacent markets and acquiring and integrating
transformative, disruptive technologies. These efforts entail inherent risks associated with innovation and
competition from other participants in those areas, potential failure to help our clients respond to the
challenges they face, our ability to comply with uncertain evolving legal standards applicable to some of
our service offerings, including those in the cybersecurity area, and, with respect to potential international
growth, risks associated with operating in foreign jurisdictions, such as compliance with applicable foreign
and U.S. laws and regulations that may impose different and, occasionally, conflicting or contradictory
requirements, and the economic, legal, and political conditions in the foreign jurisdictions in which we
operate, as described in additional detail below. As we attempt to develop new relationships, clients,
capabilities, and service offerings, these efforts could harm our results of operations due to, among other
things, a diversion of our focus and resources and actual costs, opportunity costs of pursuing these
opportunities in lieu of others and a failure to reach a profitable return on our investments in new
technologies, capabilities, and businesses, including expenses on research and development
investments, and these efforts could ultimately be unsuccessful. Additionally, the possibility exists that our
competitors might develop new capabilities or service offerings that might cause our existing capabilities
and service offerings to become obsolete. If we fail in our new capabilities development efforts or our
capabilities or services fail to achieve market acceptance more rapidly than our competitors, our ability to
procure new contracts could be negatively impacted, which would negatively impact our results of
operations and our financial condition.
In addition, our ability to grow our business by leveraging our operating model to efficiently and
effectively deploy our people across our client base is largely dependent on our ability to maintain our
collaborative culture. To the extent that we are unable to maintain our culture for any reason, including
our effort to focus on new growth areas or acquire new businesses with different corporate cultures, we
may be unable to grow our business. Any such failure could have a material adverse effect on our
business, financial condition and results of operations.
With the growth of our U.S. and international operations, we are now providing client services and
undertaking business development efforts in numerous and disparate geographic locations both
domestically and internationally. Our ability to effectively serve our clients is dependent upon our ability to
successfully leverage our operating model across all of these and any future locations, maintain effective
management controls over all of our locations to ensure, among other things, compliance with applicable
laws, rules and regulations, and instill our core values in all of our personnel at each of these and any
future locations. Any inability to ensure any of the foregoing could have a material adverse effect on our
business, financial condition and results of operations.
We may make acquisitions, investments, joint ventures and divestitures in the future that involve
numerous risks, which if realized, may adversely affect our business and our future results.
We may make strategic acquisitions, engage in joint ventures or divest existing businesses, which
could cause us to incur unforeseen expenses and have disruptive effects on our business and may not
yield the benefits we expect. Our Credit Agreement imposes limitations on our ability to make other
acquisitions. Subject to those limitations, we may selectively pursue additional strategic acquisitions,
investments and joint ventures in the future. Any future acquisitions, investments and joint ventures may
pose many risks that could adversely affect our reputation, operations or financial results, including:
23
• we may not retain key employees (including those with needed security clearances),
customers and business partners of an acquired business in the future;
• we may fail to successfully integrate acquired businesses, such as failing to successfully
integrate information technology and other control systems relating to the operations of any
acquired business;
•
acquisitions normally require a significant investment of time and resources, which may
disrupt our business and distract our management from other important responsibilities;
• we may not be able to accurately estimate the financial effect of any acquisitions and
investments on our business and we may not realize anticipated revenue opportunities, cost
savings, or other synergies or benefits, or acquisitions may not result in improved operating
performance; and
• we may assume known as well as unknown material liabilities, legal or regulatory risks that
were not identified as part of our due diligence or for which we are unable to receive a
purchase price adjustment or reimbursement through indemnification.
If any acquisitions, investments or joint ventures fail, perform poorly or their value is otherwise
impaired for any reason, including contractions in credit markets and global economic conditions, our
business, financial condition and results of operations could be adversely affected.
In addition, we may periodically divest or plan to divest businesses, including businesses that are no
longer a part of our ongoing strategic plan. These divestitures similarly require significant investment of
time and resources and may disrupt our business, distract management from other responsibilities and
may result in losses on disposal or continued financial involvement in the divested business, including
through indemnification, guarantee or other financial arrangements, for a period of time following the
transaction, which could adversely affect our business, financial condition or results of operations. When
we determine that we would like to divest a business, we may not be able to divest that business on
attractive terms or at all.
We conduct a portion of our work through joint venture entities, some of which we do not have
management control over, and with which we typically have joint and several liability with our
joint venture partners.
14.8% of our revenue during fiscal 2017, 15.2% of our revenue during fiscal 2018 and 12.0% of our
revenue during fiscal 2019 was derived from our operations through consolidated joint ventures. In
addition, 3.7% of our revenues in fiscal 2017, 4.1% of our revenues in fiscal 2018, and 4.0% of our
revenue during fiscal 2019 related to services we provided to our unconsolidated joint ventures, where
control resides with unaffiliated third parties, and 26.6% of our operating income during fiscal 2017,
18.0% of our operating income during fiscal 2018 and 45.3% of our operating income during fiscal 2019
was derived from equity in our unconsolidated joint ventures. As with most joint venture arrangements,
differences in views among the joint venture participants may result in delayed decisions or disputes. We
also cannot control the actions of our joint venture partners and we typically have joint and several liability
with our joint venture partners under the applicable contracts for joint venture projects. These factors
could potentially adversely impact the business and operations of a joint venture and, in turn, our
business and operations.
Operating through joint ventures in which we are a minority holder results in us having limited control
over many decisions made with respect to projects and internal controls relating to projects. We generally
do not have control of these unconsolidated joint ventures. These joint ventures may not be subject to the
same requirements regarding internal controls and internal control over financial reporting that we follow.
As a result, internal control problems may arise with respect to these joint ventures, which could have a
24
material adverse effect on our business, financial condition and results of operations and could also affect
our reputation in the industries we serve.
We participate in joint ventures where we provide guarantees and may be adversely impacted by
the failure of such joint venture or its participants to fulfill their obligations.
We have investments in and commitments to joint ventures with unrelated parties. These joint
ventures from time to time may borrow money to help finance their activities and, in some circumstances,
we may be required to provide guarantees of the obligations of our affiliated entities. At December 31,
2019, we had $55.0 million of letters of credit and guarantees that relate to joint ventures. If these entities
are not able to honor their obligations under the guarantees, we may be required to expend additional
resources or suffer losses, which could be significant.
Our acquisitions may not achieve their full intended benefits or may disrupt our plans and
operations.
We cannot assure you that we will be able to successfully integrate acquired companies with our
business or otherwise realize the expected benefits of our acquisitions. For example, in the last several
years we have made three large acquisitions. The combination of multiple independent businesses will be
a complex, costly, and time-consuming process. Our business may be negatively impacted following
acquisitions if we are unable to effectively manage our expanded operations. The integration process will
require significant time and focus from our management team and may divert attention from the day-to-
day operations of the combined business. Additionally, consummation of acquisitions could disrupt our
current plans and operations, which could delay the achievement of our strategic objectives.
The expected synergies and operating efficiencies of the acquisitions may not be fully realized, which
could result in increased costs and have a material adverse effect on our business, financial condition
and results of operations. In addition, the overall integration of the businesses may result in material
unanticipated problems, expenses, liabilities, competitive responses, loss of customer relationships and
diversion of management’s attention, among other potential adverse consequences. The risks of
combining our operations of the businesses include, among others:
• we may have underestimated the costs to integrate the information systems of acquired
companies with ours;
• we may face difficulties in integrating employees, integrating different corporate cultures and
in attracting and retaining key personnel; and
• we may face challenges in keeping existing contracts and customers.
Many of these risks will be outside of our control and any one of them could result in increased costs,
decreases in the amount of expected revenue, and diversion of our management’s time and energy,
which could have a material adverse effect on our business, financial condition and results of operations.
In addition, even if our operations are integrated successfully, we may not realize the full benefits of the
acquisitions, including the synergies, operating efficiencies, or sales or growth opportunities that are
expected. These benefits may not be achieved within the anticipated time frame or at all.
Our earnings and profitability may vary based on the mix of our contracts and may be adversely
affected by our failure to accurately estimate and manage costs, time and resources.
We generate revenue under various types of contracts, which include time-and-materials, cost-plus
and fixed-price contracts. Our earnings and profitability may vary materially depending on changes in the
proportionate amount of revenues derived from each type of contract, the nature of services or solutions
provided, as well as the achievement of performance objectives and the stage of performance at which
the right to receive fees, particularly under incentive fee contracts, is finally determined. Cost-plus and
25
time-and-materials contracts generally have lower profitability than fixed-price contracts. To varying
degrees, each of our contract types involves some risk that we could underestimate the costs and
resources necessary to fulfill the contract. Our profitability is adversely affected when we incur costs on
cost-plus and time-and-materials contracts that we cannot bill to our customers. While fixed-price
contracts allow us to benefit from cost savings, these contracts also increase our exposure to the risk of
cost overruns.
Revenue derived from fixed-price contracts represented 35% of our total revenue during fiscal 2017,
32% of our total revenue during fiscal 2018 and 30% of our total revenue during fiscal 2019. When
making proposals on fixed-price contracts, we rely heavily on our estimates of costs, scope and timing for
completing the associated projects, as well as assumptions regarding technical issues. In particular,
contracts in our Critical Infrastructure segment are often won in a hard-bid process, in which clients
primarily select the lowest qualified bidder with the understanding that they will not pay above the bid
amount, even if we perform work beyond the initial scope of our contract. In each case, our failure to
accurately estimate costs, scope or the resources and technology needed to perform our contracts or to
effectively manage and control our costs during the performance of work could result, and in some
instances has resulted, in reduced profits or in losses. More generally, any increased or unexpected costs
or unanticipated delays in connection with the performance of our contracts, including costs and delays
caused by contractual disputes or other factors outside of our control, such as performance failures of our
subcontractors, natural disasters or other force majeure events, could make our contracts less profitable
than expected or unprofitable.
We use estimates in recognizing revenues and, if we make changes to estimates used in
recognizing revenues, our profitability may be adversely affected.
A significant portion of our contract revenues are recognized using the cost-to-cost measure of
progress method. This method requires estimates of total costs at completion or measurement of
progress towards completion. Particularly due to the technical nature of the services being performed and
the length of the contracts, this estimation process is complex and involves significant judgment.
Adjustments to original estimates are often required as work progresses, experience is gained and
additional information becomes known, even though the scope of the work required under the contract
may not change. Any adjustment as a result of a change in estimate is recognized immediately. Changes
in the underlying assumptions, circumstances or estimates could result in adjustments that may adversely
affect our financial results of operations.
We have submitted claims to clients for work we performed beyond the initial scope of some of
our contracts. If these clients do not approve these claims, our results of operations could be
adversely impacted.
We typically have pending claims submitted under some of our contracts for payment of work
performed beyond the initial contractual requirements for which we have already recorded revenue. Some
of these relate to change orders from the original scope of the contract. Our client may dispute these
change orders and claims, and we cannot guarantee that such claims will be approved in whole, in part,
or at all. Often, these claims and disputes can be the subject of lengthy arbitration or litigation
proceedings, and it is difficult to accurately predict when these claims and disputes will be fully resolved.
We may also renegotiate contracts to address these additional costs. When these types of events occur,
we have used working capital in projects to cover cost overruns. If our claims are not approved or
resolved, our revenue may be reduced in future periods.
Systems that we develop, integrate, maintain, or otherwise support could experience security
breaches which may damage our reputation with our clients and hinder future contract win rates.
We develop, integrate, maintain, or otherwise support systems and provide services that include
managing and protecting information involved in intelligence, national security and other sensitive or
classified government functions. Our systems also store and process sensitive information for commercial
clients. The cyber and security threats that our clients face have grown more frequent and sophisticated.
26
A security breach in one of these systems could cause serious harm to our business, damage our
reputation, and prevent us from being eligible for further work on sensitive systems for government or
commercial clients. Work for non-government and commercial clients involving the protection of
information systems or that store clients’ information could also be harmed due to associated security
breaches. Damage to our reputation or limitations on our eligibility for additional work or any liability
resulting from a security breach in one of the systems we develop, install, maintain, or otherwise support
could have a material adverse effect on our business, financial condition and results of operations.
Services we provide and technologies we develop are designed to detect and monitor threats to
our clients, the failure of which may lead to reputational harm or liability against us by our clients
or third parties and may subject our staff to potential threats, risk of loss or harm.
We help our clients detect, monitor and mitigate threats to their people, information and facilities.
These threats may originate from nation states, terrorist or criminal actors, activist hackers or others who
seek to harm our clients. There are many factors, some of which are beyond our control, which could
result in the failure of our products to detect, monitor or mitigate these threats. Successful attacks on our
clients may cause physical or reputational harm to us and our clients, as well as lead to liability claims
against us by our clients or third parties, particularly if such attacks are a result of a failure or perceived
failure of our services or technologies. In addition, as a result of our involvement with some clients or
projects, our staff, information and facilities may be targeted by these or other threat actors and may be at
risk for loss, or physical or reputational harm.
Internal system or service failures affecting us or our vendors, including as a result of cyber or
other security threats, could disrupt our business and impair our ability to effectively provide our
services to our clients, which could damage our reputation and have a material adverse effect on
our business, financial condition and results of operations.
We create, implement, and maintain information technology and engineering systems and also use
vendors to provide services that are often critical to our clients’ operations, some of which involve
sensitive information and may be conducted in war zones or other hazardous environments, or include
information whose confidentiality is protected by law. As a result, we may be subject to systems or service
failures, not only resulting from our own failures or the failures of third-party service providers, natural
disasters, power shortages, or terrorist attacks, but also from continuous exposure to cyber and other
security threats, including computer viruses and malware, attacks by computer hackers or physical break-
ins. There has been an increase in the frequency and sophistication of the cyber and security threats we
face, with attacks ranging from those common to businesses generally to those that are more advanced
and persistent, which may target us because, as a cybersecurity services contractor, we hold classified,
controlled unclassified and other sensitive information. As a result, we and our vendors face a heightened
risk of a security breach or disruption resulting from an attack by computer hackers, foreign governments,
and cyber terrorists. While we put in place policies, controls and technologies to help detect and protect
against such attacks, we cannot guarantee that future incidents will not occur, and if an incident does
occur, we may not be able to successfully mitigate the impact. We have been the target of these types of
attacks in the past and future attacks are likely to occur. If successful, these types of attacks on our
network or other systems or service failures could have a material adverse effect on our business,
financial condition and results of operations, due to, among other things, the loss of client or proprietary
data, interruptions or delays in our clients’ businesses and damage to our reputation. In addition, the
failure or disruption of our systems, communications, vendors, or utilities could cause us to interrupt or
suspend our operations, which could have a material adverse effect on our business, financial condition
and results of operations. In addition, if our employees inadvertently do not adhere to appropriate
information security protocols, our protocols are inadequate, or our employees intentionally avoid these
protocols, our or our clients’ sensitive information may be released thereby causing significant negative
impacts to our reputation and exposing us or our clients to liability.
If our or our vendors’ systems, services or other applications have significant defects or errors, are
successfully attacked by cyber and other security threats, suffer delivery delays or otherwise fail to meet
our clients’ expectations, we may:
27
•
•
•
•
•
•
•
•
lose revenue due to adverse client reaction;
be required to provide additional services to a client at no charge;
incur additional costs related to remediation, monitoring and increasing our cybersecurity;
lose revenue due to the deployment of internal staff for remediation efforts instead of client
assignments;
receive negative publicity, which could damage our reputation and adversely affect our ability to
attract or retain clients;
be unable to successfully market services that are reliant on the creation and maintaining of
secure information technology systems to government and commercial clients;
suffer claims by clients or impacted third parties for substantial damages, particularly as a result
of any successful network or systems breach and exfiltration of client and/or third-party
information; or
incur significant costs, including fines from government regulators related to complying with
applicable federal or state law, including laws pertaining to the security and protection of personal
information.
In addition to any costs resulting from contract performance or required corrective action, these
failures may result in increased costs or loss of revenue if they result in clients postponing subsequently
scheduled work or canceling or failing to renew contracts.
The costs related to cyber or other security threats or disruptions may not be fully insured or
indemnified by other means. Additionally, some cyber technologies and techniques that we utilize or
develop may raise potential liabilities related to legal compliance, intellectual property and civil liberties,
including privacy concerns, which may not be fully insured or indemnified. We may not be able to obtain
and maintain insurance coverage on reasonable terms or in sufficient amounts to cover one or more large
claims, or the insurer may disclaim coverage as to some types of future claims. The successful assertion
of any large claim against us could seriously harm our business. Even if not successful, these claims
could result in significant legal and other costs, may be a distraction to our management, and may harm
our client relationships. In some new business areas, we may not be able to obtain sufficient insurance
and may decide not to accept or solicit business in these areas.
As a contractor supporting defense and national security clients, we are also subject to regulatory
compliance requirements under the Defense Federal Acquisition Regulation Supplement and other
federal regulations requiring that our networks and information technology systems comply with the
security and privacy controls in National Institute of Standards and Technology Special Publications. To
the extent that we do not comply with the applicable security and control requirements, whether imposed
by regulation or contract, unauthorized access or disclosure of sensitive information could potentially
result in a contract termination that has a material adverse effect on our business, financial condition and
results of operations and reputational harm.
Unavailability or cancellation of third-party insurance coverage would increase our overall risk
exposure as well as disrupt the management of our business operations.
We maintain insurance coverage from third-party insurers as part of our overall risk management
strategy and because some of our contracts require us to maintain specific insurance coverage limits. If
any of our third-party insurers fail, suddenly cancel our coverage or otherwise are unable to provide us
with adequate insurance coverage, then our overall risk exposure and our operational expenses would
increase, and the management of our business operations would be disrupted. In addition, there can be
28
no assurance that any of our existing insurance coverage will be renewable upon the expiration of the
coverage period or that future coverage will be affordable at the required limits.
Adverse judgments or settlements in legal disputes could result in materially adverse monetary
damages or injunctive relief and damage our reputation.
We are subject to, and may become a party to, a variety of litigation or other claims and suits that
arise from time to time in the ordinary course of our business. For example, our performance under U.S.
government contracts and compliance with the terms of those contracts and applicable laws and
regulations are subject to continuous audit, review, and investigation by the U.S. government which may
include such investigative techniques as subpoenas or civil investigative demands.
The results of litigation and other legal proceedings, including the claims described under
“Business—Legal Proceedings”, are inherently uncertain and adverse judgments or settlements in some
or all of these legal disputes may result in materially adverse monetary damages or injunctive relief
against us. Additionally, our insurance policies may not protect us against potential liability due to various
exclusions in the policies and self-insured retention amounts. Partially or completely uninsured claims, if
successful and of significant magnitude, could have a material adverse effect on our business, financial
condition and results of operations. Furthermore, any claims or litigation, even if fully indemnified or
insured, could damage our reputation and make it more difficult to compete effectively or obtain adequate
insurance in the future.
Our business is subject to numerous legal and regulatory requirements and any violation of these
requirements or any misconduct by our employees, subcontractors, agents or business partners
could harm our business and reputation.
In addition to government contract procurement laws and regulations, we are subject to numerous
other federal, state and foreign legal requirements on matters as diverse as data privacy and protection,
employment and labor relations, immigration, taxation, anti-corruption, import/export controls, trade
restrictions, internal and disclosure control obligations, securities regulation and anti-competition.
Compliance with diverse and changing legal requirements is costly, time-consuming and requires
significant resources. Violations of one or more of these requirements in the conduct of our business
could result in significant fines and other damages, criminal sanctions against us or our officers,
prohibitions on doing business and damage to our reputation. Violations of these regulations or
contractual obligations related to regulatory compliance in connection with the performance of customer
contracts could also result in liability for significant monetary damages, fines and/or criminal prosecution,
unfavorable publicity and other reputational damage, restrictions on our ability to compete for work and
allegations by our customers that we have not performed our contractual obligations.
Misconduct by our employees, subcontractors, agents or business partners could subject us to fines
and penalties, restitution or other damages, loss of security clearance, loss of current and future customer
contracts and suspension or debarment from contracting with federal, state or local government agencies,
any of which could adversely affect our business, financial condition and results of operations. Such
misconduct could include fraud or other improper activities such as falsifying time or other records, failure
to comply with our policies and procedures or violations of applicable laws and regulations.
Goodwill and intangible assets represent a significant amount of our total assets and any
impairment of these assets would negatively impact our results of operations.
As of December 31, 2019, we had goodwill and intangible assets of $1.3 billion. In fiscal 2016, we
recorded an impairment charge of $84.7 million associated with goodwill and intangible assets in
connection with our restructuring activities in 2015 and 2016.
Goodwill is tested for impairment annually, or more often if indicators of potential impairment exist,
and intangible assets are tested for impairment whenever events or changes in circumstances indicate
29
that the carrying value may not be recoverable. Examples of events or changes in circumstances
indicating that the carrying value of goodwill may not be recoverable could include a significant adverse
change in legal factors or in the business climate, an adverse action or assessment by a regulator,
unanticipated competition, loss of key contracts, customer relationships, or personnel that affect current
and future operating cash flows of the reporting unit. Any future impairment of goodwill or other intangible
assets would have a negative impact on our profitability and financial results.
We depend on our teaming arrangements and relationships with other contractors and
subcontractors. If we are not able to maintain these relationships, or if these parties fail to satisfy
their obligations to us or the customer, our revenues, profitability and growth prospects could be
adversely affected.
We rely on teaming relationships with other prime contractors and subcontractors in order to submit
bids for large procurements or other opportunities where we believe the combination of services, products
and solutions provided by us and our teammates will help us to win and perform the contract. Our future
revenues and growth prospects could be adversely affected if other contractors eliminate or reduce their
contract relationships with us, or if our government clients terminate or reduce these other contractors’
programs, do not award them new contracts or refuse to pay under a contract. Companies that do not
have access to government contracts or experience with our customers may perform services as our
subcontractor that we cannot otherwise provide ourselves, and that exposure could enhance such
companies’ prospect of securing a future position as a prime government contractor which could increase
competition for future contracts and impair our ability to win these contracts.
Whenever our subcontractors fail to timely meet their contractual obligations, have regulatory
compliance or other problems, our ability to fulfill our obligations as a prime contractor or higher tier
subcontractor may be jeopardized. Subcontractor performance deficiencies under subcontracts with us as
the prime contractor could lead to significant losses in future periods and could result in our termination
for default as the prime contractor even though it was the subcontractor that failed to perform and not our
personnel.
Our failure to meet contractual schedule requirements, meet a required performance standard,
meet our internal contractual performance projections or otherwise perform adequately on a
project could adversely affect our business, financial condition or results of operations.
Under some of our contracts, we can incur liquidated or other damages if we do not achieve project
completion by a scheduled date. In addition, our costs generally increase from schedule delays and/or
could exceed our projections for a particular project. Project performance can be affected by a number of
factors beyond our control, including unavoidable delays from governmental inaction, public opposition,
inability to obtain financing, weather conditions, unavailability of vendor materials, changes in the project
scope of services requested by our clients, industrial accidents, environmental hazards, labor disruptions
and other factors. Any defects or errors, or failures to meet our clients’ expectations, in our projects or
services could result in claims for damages against us and could adversely affect our reputation. Material
performance problems for existing and future contracts could cause actual results of operations to differ
from those anticipated by us and also could cause us to suffer damage to our reputation within our
industries and client base.
Many of our contracts require innovative design capabilities, are technologically complex or are
dependent upon factors not wholly within our control. Failure to meet these obligations could
adversely affect our business, financial condition or results of operations.
We design and develop technologically advanced and innovative products and services applied by
our customers in a variety of environments. Problems and delays in development or delivery as a result of
issues with respect to design, technology, licensing and patent rights, labor, learning curve assumptions
or materials and components could prevent us from achieving contractual requirements. Our offerings
cannot be tested and proven in all situations and are otherwise subject to unforeseen problems that could
negatively affect revenue and profitability such as problems with governmental inaction, quality and
30
workmanship, delivery of subcontractor components or services, unplanned degradation of product
performance, unavailability of vendor materials and changes in the project scope requested by our
clients. Among the factors that may adversely affect our business, financial condition or results of
operations could be unforeseen costs and expenses not covered by insurance or indemnification from the
customer, diversion of management focus in responding to unforeseen problems, loss of follow-on work,
damage to our reputation and repayment to the customer of contract cost and fee payments we
previously received.
Failure to adequately protect, maintain, or enforce our rights in our intellectual property may
adversely limit our competitive position.
We rely upon a combination of nondisclosure agreements and other contractual arrangements, as
well as copyright, trademark, patent and trade secret laws to protect our proprietary information. We also
enter into proprietary information and intellectual property agreements with employees, which require
them to disclose any inventions created during employment, to convey such rights to inventions to us,
and to restrict any disclosure of proprietary information. Trade secrets are generally difficult to protect.
Although our employees are subject to confidentiality obligations, this protection may be inadequate to
deter or prevent misappropriation of our confidential information and/or the infringement of our patents
and copyrights. Further, we may be unable to detect unauthorized use of our intellectual property or
otherwise take appropriate steps to enforce our rights. Failure to adequately protect, maintain, or enforce
our intellectual property rights may adversely limit our competitive position.
Assertions by third parties of infringement, misappropriation or other violations by us of their
intellectual property rights could result in significant costs and substantially harm our business,
financial condition and operation results.
In recent years, there has been significant litigation involving intellectual property rights in technology
industries. We may face from time to time, allegations that we or a supplier or customer have violated the
rights of third parties, including patent, trademark, and other intellectual property rights. If, with respect to
any claim against us for violation of third-party intellectual property rights, we are unable to prevail in the
litigation or retain or obtain sufficient rights or develop non-infringing intellectual property or otherwise
alter our business practices on a timely or cost-efficient basis, our business, financial condition or results
of operations may be adversely affected.
Any infringement, misappropriation or related claims, whether or not meritorious, are time consuming,
divert technical and management personnel, and are costly to resolve. As a result of any such dispute,
we may have to develop non-infringing technology, pay damages, enter into royalty or licensing
agreements, cease utilizing products or services, or take other actions to resolve the claims. These
actions, if required, may be costly or unavailable on terms acceptable to us.
Our operations outside the United States expose us to legal, political and economic risks in
different countries as well as currency exchange rate fluctuations that could harm our business
and financial results.
Revenue attributable to our services provided outside of the United States as a percentage of our
total revenue was 30.4% in fiscal 2017, 29.8% in fiscal 2018 and 24.8% in fiscal 2019. There are risks
inherent in doing business internationally, including:
•
•
•
•
imposition of governmental controls and changes in laws, regulations or policies;
political and economic instability, such as in the Middle East;
civil unrest, acts of terrorism, force majeure, war, or other armed conflict;
greater physical security risks;
31
•
•
•
•
•
•
•
changes in U.S. and other national government trade policies affecting the markets for our
services;
changes in regulatory practices, tariffs and taxes;
potential non-compliance with a wide variety of laws and regulations, including anti-
corruption, U.S. export controls and economic and trade sanctions, and anti-boycott laws and
similar non-U.S. laws and regulations;
changes in labor conditions;
logistical and communication challenges;
currency exchange rate fluctuations, devaluations and other conversion restrictions; and
health and safety concerns, including those related to the coronavirus and other potential
epidemics.
Any of these factors could have a material adverse effect on our business, financial condition or
results of operations.
We have operations in the Middle East and neighboring regions, and these regions may
experience turmoil that may impact our current projects, future business and financial stability.
We currently have operations in the Middle East, including in Oman, Qatar, Saudi Arabia and the
United Arab Emirates. These countries experience frequent political turmoil such as the tensions among
Qatar and several of its neighbors, including Saudi Arabia and the United Arab Emirates. This uncertainty
may affect our ability to continue our projects in these regions due to lack of resources, local support, and
safety for our workers. If we are unable to finish these projects, it is likely that our finances will be
impacted. Furthermore, we may experience liability regarding our employees and their safety and security
in these locations. We also may incur material costs to maintain the safety of our personnel. Despite
these precautions, the safety of our personnel in these locations may continue to be at risk. Acts of
terrorism and threats of armed conflicts in or around various areas in which we operate could limit or
disrupt markets and our operations, including disruptions resulting from the evacuation of personnel,
cancellation of contracts, or the loss of key employees, contractors or assets.
We operate in many different jurisdictions and we could be adversely affected by violations of the
U.S. Foreign Corrupt Practices Act and similar worldwide anti-corruption laws.
The FCPA and similar worldwide anti-corruption laws, including the U.K. Bribery Act of 2010,
generally prohibit companies and their intermediaries from making improper payments to non-U.S.
officials for the purpose of obtaining or retaining business. Our internal policies mandate compliance with
these anti-corruption laws, including the requirements to maintain accurate information and internal
controls which may fall within the purview of the FCPA, its books and records provisions or its anti-bribery
provisions. We operate in many parts of the world that have experienced governmental corruption to
some degree; and, in some circumstances, strict compliance with anticorruption laws may conflict with
local customs and practices. Despite our training and compliance programs, we cannot assure that our
internal control policies and procedures always will protect us from reckless or criminal acts committed by
our employees or agents. In addition, from time to time, government investigations of corruption in
industries we operate in may affect us and our peers. Violations of these laws, or allegations of such
violations, could disrupt our business and result in a material adverse effect on our business, financial
condition or results of operations.
32
We may not realize the full value of our backlog, which may result in lower than expected revenue.
As of December 31, 2019, our total backlog was $8.0 billion, of which $4.1 billion was funded. Our
backlog includes orders under contracts that can extend for several years, and in some cases, contracts
that extend for more than 10 to 15 years. We historically have not realized all of the revenue included in
our total backlog, and we may not realize all of the revenue included in our total backlog in the future.
There is a somewhat higher degree of risk in this regard with respect to unfunded backlog and backlog
related to unexercised options years and IDIQ contracts for which task orders have not yet been issued.
In addition, there can be no assurance that our backlog will result in actual revenue in any particular
period. This is because the actual receipt, timing and amount of revenue under contracts included in
backlog are subject to various contingencies, including congressional appropriations, many of which are
beyond our control. In particular, delays in the completion of the U.S. government’s budgeting process
and the use of continuing resolutions could adversely affect our ability to timely recognize revenue under
our contracts included in backlog. Furthermore, the actual receipt of revenue from contracts included in
backlog may never occur or may be delayed because: a program schedule could change or the program
could be canceled; a contract’s funding or scope could be reduced, modified, delayed or terminated early,
including as a result of a lack of appropriated funds or as a result of cost cutting initiatives and other
efforts to reduce government spending; in the case of funded backlog, the period of performance for the
contract has expired; in the case of unfunded backlog, funding may not be available; in the case of
backlog related to unexercised option years, the contract option is not yet exercised or may ever be
exercised; and, in the case of backlog related to IDIQ contracts where task orders have not been issued,
no further task orders may be issued. In addition, headcount growth is the primary means by which we
are able to achieve revenue growth. Any inability to hire additional appropriately qualified personnel or
failure to timely and effectively deploy such additional personnel against funded backlog could negatively
affect our ability to grow our revenue. We may also not recognize revenue on funded backlog due to,
among other reasons, the tardy submissions of invoices by our subcontractors and the expiration of the
relevant appropriated funding in accordance with a predetermined expiration date such as the end of the
U.S. government’s fiscal year. The amount of our funded backlog is also subject to change, due to,
among other factors: changes in appropriations that reflect changes in government policies or priorities
resulting from various military, political, economic or international developments; changes in the use of
government contracting vehicles, and the provisions therein used to procure our services; and
adjustments to the scope of services under, or cancellation of contracts, by the applicable government at
any time. Furthermore, even if our backlog results in revenue, the contracts may not be profitable.
If we cannot collect our receivables or if payment is delayed, our business may be adversely
affected by our inability to generate cash flow, provide working capital or continue our business
operations.
As of December 31, 2019, our accounts receivable, net was $671.5 million. We depend on the timely
collection of our receivables to generate cash flow, provide working capital and continue our business
operations. If our customers fail to pay or delay the payment of invoices for any reason, our business and
financial condition may be materially and adversely affected. Our customers have in the past and may in
the future delay or fail to pay invoices for a number of reasons, including lack of appropriated funds, lack
of an approved budget or as a result of audit findings by government regulatory agencies. In particular, a
Federal Services client has recently begun to short pay on invoices on a contract pending negotiations to
increase the amount and timing of the contract, which includes cost and schedule disincentives. We also
experience longer payment cycles in the Middle East. We cannot assure you that we will collect all our
accounts receivable in excess of our allowance for doubtful accounts in a timely manner, which would
impact our cash flows.
The agreements governing our debt contain a number of restrictive covenants which may limit our
ability to finance future operations, acquisitions or capital needs or engage in other business
activities that may be in our interest.
As of December 31, 2019, our total indebtedness was $249.4 million. Our Credit Agreement and the
agreements governing our Senior Notes contain a number of covenants that impose operating and other
33
restrictions on us and our subsidiaries. Such restrictions affect or will affect, and in many respects limit or
prohibit our ability and the ability of our subsidiaries to, among other things:
•
•
•
•
•
incur additional indebtedness;
create liens;
pay dividends and make other distributions in respect of our equity securities;
redeem our equity securities;
distribute excess cash flow from foreign to domestic subsidiaries;
• make loans, advances, investments or other restricted payments;
•
•
•
•
•
sell assets or receivables;
engage in certain business activities;
amend our ESOP’s plan documents;
enter into transactions with affiliates; and
effect mergers or consolidations.
In addition, our Credit Agreement also requires us to comply with certain financial ratio covenants,
including a debt leverage ratio and a fixed charge coverage ratio. Our ability to comply with these ratios
may be affected by events beyond our control.
These restrictions could limit our ability to plan for or react to market or economic conditions or meet
capital needs or otherwise restrict our activities or business plans, and could adversely affect our ability to
finance our operations, acquisitions, investments or strategic alliances or other capital needs or to engage
in other business activities that would be in our interest.
A breach of any of these covenants or our inability to comply with the required financial ratios could
result in a default under our debt instruments. If an event of default occurs, our creditors could elect to:
•
•
•
declare all borrowings outstanding, together with accrued and unpaid interest, to be
immediately due and payable;
require us to apply all of our available cash to repay the borrowings; or
prevent us from making debt service payments on some of our borrowings.
If we were unable to repay or otherwise refinance these borrowings when due, the lenders under our
Credit Agreement could demand payment from subsidiary guarantors, as provided under our Credit
Agreement. These guarantors constitute substantially all of our domestic, wholly owned subsidiaries’
assets.
We may lose one or more members of our senior management team or fail to develop new
leaders, which could cause a disruption in the management of our business.
We believe that the future success of our business and our ability to operate profitably depends on
the continued contributions of the members of our senior management and the continued development of
34
new members of senior management. We rely on our senior management to generate business and
execute programs successfully. In addition, the relationships and reputation that many members of our
senior management team have established and maintain with our clients are important to our business
and our ability to identify new business opportunities. We do not have any employment agreements
providing for a specific term of employment with any members of our senior management. The loss of any
member of our senior management or our failure to continue to develop new members could impair our
ability to identify and secure new contracts, to maintain good client relations, and to otherwise manage
our business, and could have a material adverse effect on our business, financial condition and results of
operations.
Our services and operations sometimes involve handling or disposing of hazardous substances
or dangerous materials, and we are subject to environmental requirements and risks which could
result in significant costs, liabilities and obligations.
Our operations are subject to stringent and complex federal, state and local laws and regulations
governing the discharge of materials into the environment, the health and safety aspects of our
operations, or otherwise relating to environmental protection. Some of our services and operations
involve the handling or disposal of hazardous substances or dangerous materials, including explosive,
chemical, biological, radiological or nuclear materials. These activities generally subject us to extensive
foreign, federal, state and local environmental protection and health and safety laws and regulations,
which, among other things, require us to incur costs to comply with these regulations and could impose
liability on us for handling or disposing of hazardous substances or dangerous materials. Numerous
governmental authorities, such as the U.S. Environmental Protection Agency, or the EPA, and analogous
state agencies, have the power to enforce compliance with these laws and regulations and the permits
issued under them. Such enforcement actions often involve difficult and costly compliance measures or
corrective actions. Furthermore, failure to comply with these environmental protection and health and
safety laws and regulations could result in civil, criminal, regulatory, administrative or contractual
sanctions, including fines, penalties or suspension or debarment from contracting with the U.S.
government, and could also result in investigations, the imposition of corrective action or remedial
obligations, and the issuance of orders limiting or prohibiting some or all of our operations. In certain
instances, citizen groups also have the ability to bring legal proceedings against us if we are not in
compliance with environmental laws. In addition, claims for damages to persons or property, including
natural resources, may result from the environmental, health and safety impacts of our operations. We,
like other businesses, can never completely eliminate the risk of contamination or injury from certain
materials that we use in our business. If we have any violations of, or incur liabilities pursuant to, these
laws or regulations, it may result in a material adverse effect on our business, financial condition or results
of operations.
Certain environmental laws impose strict liability (i.e., no showing of “fault” is required) as well as joint
and several liability for costs required to remediate and restore sites where hazardous substances,
hydrocarbons or solid wastes have been stored or released. We may be required to remediate
contaminated properties currently or formerly owned or operated by us or facilities of third parties that
received waste generated by our operations, regardless of whether such contamination resulted from the
conduct of others or from the consequences of our own actions that were in compliance with all
applicable laws at the time those actions were taken.
We have limited, and potentially insufficient, insurance coverage for expenses and losses that may
arise in connection with environmental contamination. Finally, in connection with certain acquisitions, we
could acquire, or be required to provide indemnification against, environmental liabilities that could
expose us to material losses.
35
Many of our field project sites and facilities are inherently dangerous workplaces. Failure to
manage our field project sites and facilities safely could result in environmental disasters,
employee deaths or injuries, reduced profitability, the loss of projects or clients and possible
exposure to litigation.
Our field project sites and facilities, particularly in our Critical Infrastructure business, often put our
employees and others in close proximity with mechanized equipment, moving vehicles, chemical and
manufacturing processes, and highly regulated materials. On some field project sites and in some of our
facilities, we may be responsible for safety and, accordingly, we have an obligation to implement effective
safety procedures. If these procedures are not appropriately implemented or are ineffective, our
employees could be injured or killed, and we could be exposed to possible litigation. As a result, our
failure to maintain adequate safety standards and equipment could result in reduced profitability or the
loss of projects or clients and could have a material adverse impact on our business, financial condition,
and results of operations.
Prior to our initial public offering, we were 100% owned by the ESOP, which is a retirement plan
that is intended to be qualified under the Code. If the ESOP failed to meet the requirements of a
tax qualified retirement plan, we could be subject to substantial penalties.
The ESOP is a defined contribution retirement plan subject to the requirements of the Code and
ERISA. The ESOP has received a determination letter, dated January 31, 2012, from the Internal
Revenue Service (IRS) that it meets the requirements of a tax qualified retirement plan in form and we
endeavor to maintain and administer the ESOP in compliance with all requirements of the Code and
ERISA. However, the rules regarding tax qualified plans, and especially ESOPs, are complex and change
frequently. Accordingly, it is possible that the ESOP may not have been administered in full compliance
with all applicable rules under the Code or ERISA at all times.
If the ESOP were determined not to be in material compliance with the Code or ERISA, then the
ESOP could lose its tax qualified status and we could be subject to substantial penalties under the Code
and ERISA which could have a material adverse effect on our business, financial condition or results of
operations. Additionally, loss of the ESOP’s tax-qualified status would adversely impact our prior
treatment as an S Corporation.
Negotiations with labor unions and possible work actions could divert management attention and
disrupt operations. In addition, new collective bargaining agreements or amendments to existing
agreements could increase our labor costs and operating expenses.
We have entered into collective bargaining agreements for approximately 314 of our more than
15,800 employees as of January 31, 2020. The outcome of any future negotiations relating to union
representation or collective bargaining agreements for these or other employees in the future may not be
favorable to us. We may reach agreements in collective bargaining that increase our operating expenses
and lower our net income as a result of higher wages or benefit expenses. In addition, negotiations with
unions could divert management attention and disrupt operations, which may adversely affect our results
of operations. If we are unable to negotiate acceptable collective bargaining agreements, we may have to
address the threat of union-initiated work actions, including strikes. Depending on the nature of the threat
or the type and duration of any work action, these actions could disrupt our operations and adversely
affect our operating results.
36
Risk Related to Our Common Stock
If we are unable to implement and maintain effective internal control over financial reporting in the
future, investors may lose confidence in the accuracy and completeness of our financial reports
and the market price of our common stock may be negatively affected.
As a public company, we are required to maintain internal control over financial reporting and to
report any material weaknesses in such internal control. In addition, beginning with our second annual
report on Form 10-K, we will be required to furnish a report by management on the effectiveness of our
internal control over financial reporting, pursuant to Section 404 of the Sarbanes-Oxley Act. At such time,
our independent registered public accounting firm may issue a report that is adverse in the event it is not
satisfied with the level at which our internal control over financial reporting is documented, designed or
operating.
The process of designing, implementing and testing the internal control over financial reporting
required to comply with this obligation is time-consuming, costly and complicated. If we identify material
weaknesses in our internal control over financial reporting, or if we are unable to comply with the
requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner or to assert that our internal
control over financial reporting is effective, or if our independent registered public accounting firm is
unable to express an opinion as to the effectiveness of our internal control over financial reporting,
investors may lose confidence in the accuracy and completeness of our financial reports, the market price
of our common stock could be negatively affected, and we could become subject to investigations by our
stock exchange, the SEC or other regulatory authorities, which could require additional financial and
management resources.
If our stock price fluctuates, you could lose a significant part of your investment.
The market price of our stock may be influenced by many factors, some of which are beyond our
control, including the following:
•
the opinions and estimates of any securities analysts who publish research about us;
• announcements by us or our competitors of significant contracts, acquisitions or capital
commitments;
• variations in quarterly operating results;
• changes in general economic or market conditions or trends in our industry or the
economy as a whole;
•
•
future sales of our common stock; and
investor perception of us and the industries we operate in.
As a result of these factors, investors in our common stock may not be able to resell their shares at or
above the initial purchase price. These broad market and industry factors may materially reduce the
market price of our common stock, regardless of our operating performance.
In addition, the stock markets have experienced extreme price and volume fluctuations that have
affected and continue to affect the market prices of equity securities of many companies. In the past,
stockholders have instituted securities class action litigation following periods of market volatility. If we
were involved in securities litigation, we could incur substantial costs and our resources, and the attention
of management could be diverted from our business.
37
Our operating results and share price may be volatile, and the market price of our common stock
may drop.
Our quarterly operating results are likely to fluctuate in the future as a publicly traded company. In
addition, securities markets worldwide have experienced, and are likely to continue to experience,
significant price and volume fluctuations. This market volatility, as well as general economic, market or
political conditions, could subject the market price of our shares to wide price fluctuations regardless of
our operating performance. Our operating results and the trading price of our shares may fluctuate in
response to various factors, including:
• market conditions in the broader stock market;
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
actual or anticipated fluctuations in our quarterly financial and operating results;
introduction of new products or services by us or our competitors;
changes in our awards, backlog and book-to-bill ratios in a given period;
issuance of new or changed securities analysts’ reports or recommendations;
results of operations that vary from expectations of securities analysis and investors;
guidance, if any, that we provide to the public, any changes in this guidance or our failure
to meet this guidance;
strategic actions by us or our competitors;
announcement by us, our competitors or our acquisition targets;
sales, or anticipated sales, of large blocks of our stock;
additions or departures of key personnel;
regulatory, legal or political developments;
public response to press releases or other public announcements by us or third parties,
including our filings with the SEC;
litigation and governmental investigations;
seasonality associated with U.S. federal, state, regional and local government funding
and spending;
changing economic conditions;
changes in accounting principles;
default under agreements governing our indebtedness;
exchange rate fluctuations; and
• other events or factors, including those from natural disasters, war, actors of terrorism or
responses to these events and pandemics, such as the coronavirus.
These and other factors, many of which are beyond our control, may cause our operating results and
the market price and demand for our shares to fluctuate substantially. While we believe that operating
results for any particular quarter are not necessarily a meaningful indication of future results, fluctuations
in our quarterly operating results could limit or prevent investors from readily selling their shares and may
otherwise negatively affect the market price and liquidity of our shares. In addition, in the past, when the
market price of a stock has been volatile, holders of that stock have sometimes instituted securities class
action litigation against the company that issued the stock. If any of our stockholders brought a lawsuit
against us, we could incur substantial costs defending the lawsuit. Such a lawsuit could also divert the
time and attention of our management from our business, which could significantly harm our profitability
and reputation.
38
Sales of outstanding shares of our common stock into the market in the future could cause the
market price of our common stock to drop significantly, even if our business is doing well.
At December 31, 2019, we had 100,669,694 shares of our common stock outstanding. Of these
shares, the 21,296,275 shares sold in our initial public offering were freely tradable except for any shares
purchased by our “affiliates” as that term is used in Rule 144 under the Securities Act of 1933, as
amended, or the Securities Act. In addition, approximately 430,000 shares were distributed to ESOP
participants in late 2019 following the lock-up expiration and became freely tradeable. In addition, we
entered into a registration rights agreement with the ESOP Trustee, providing the ESOP with certain
demand registration rights related to shares held by the ESOP in the event the ESOP Trustee determines
in good faith, in exercising its fiduciary duties under ERISA, that the ESOP is required to sell its shares,
which we believe is only likely to occur if our business, financial condition or results of operations have
materially and adversely deteriorated.
Qualifying ESOP participants have the right to receive distributions of shares of our common
stock from the ESOP and can sell such shares in the market.
As of December 31, 2019, there were 78,896,806 shares of common stock held in the ESOP. Shares
held in the ESOP are eligible for sale in the public market, subject to applicable Rule 144 limitations,
vesting restrictions and any applicable market standoff agreements and lock-up agreements. Participants
are generally entitled to distributions from the ESOP only following termination of employment or upon
death and in order to diversify their accounts upon attaining a specified age and completing a specified
number of years of service.
ESOP distributions are made in the form of shares of our common stock (other than distributions in
respect of fractional shares, which will be made in cash). Upon receiving a distribution of our common
stock from the ESOP, a participant will be able to sell such shares in the market. As a result, we cannot
predict the effect, if any, that these distributions and the corresponding sales of shares by the participants
may have on the market price of our common stock. Distribution of substantial amounts of our common
stock to participants may cause the market price of our common stock to decline.
The issuance of additional stock, not reserved for issuance under our equity incentive plans or
otherwise, will dilute all other stockholdings.
We have an aggregate of 899,330,306 shares of common stock authorized but not outstanding and
not reserved for issuance under our 2020 Plan, under our existing Incentive Plans or otherwise. We may
issue all of these shares without any action or approval by our stockholders. The issuance of additional
shares could be dilutive to existing holders. We historically have made annual contributions of our
common stock to the ESOP. We made contributions of 1,790,496 shares in fiscal 2017, 1,874,988 shares
in fiscal 2018 and 1,345,198 shares in fiscal 2019 of our common stock to the ESOP and intend to
continue to make annual contributions in shares of our common stock to the ESOP after we are a public
company. In fiscal 2017, 2018 and 2019, we made annual contributions to the ESOP in shares of our
common stock in the amount of 8% of the participants’ cash compensation for the applicable year (net of
shares forfeited by participants in the applicable year) and we have agreed with the ESOP Trustee that
for fiscal 2020 and fiscal 2021, we will make annual contributions in shares of our common stock to the
ESOP in an amount not to be less than 8% of the ESOP participants’ cash compensation for the
applicable year.
39
Your ability to influence corporate matters may be limited because the ESOP beneficially owns a
majority of our stock and therefore our employees, voting the shares allocated to them under the
ESOP, or the ESOP Trustee, who will have the right to vote shares for which no voting
instructions are provided by employees, could have substantial control over us.
Our common stock has one vote per share. The ESOP beneficially owns approximately 78.4% of our
outstanding common stock. Under the terms of the ESOP, each participant has the ability to direct the
ESOP Trustee on the voting of the shares allocated to his or her account under the ESOP. However, the
ESOP Trustee will vote any shares that a participant does not direct the voting, or any shares that are
held by the ESOP which are not allocated to participants’ accounts. As such, the ESOP Trustee may be
able to exercise a greater influence than otherwise over matters requiring stockholder approval, including
the election of directors and approval of significant corporate transactions.
The purpose of the ESOP is to provide retirement income to employees and their beneficiaries.
Accordingly, the interests of the ESOP and the ESOP participants may be contrary to yours as an outside
investor.
ERISA sets forth certain fiduciary requirements that require an ERISA fiduciary, like the ESOP
Trustee, to act solely in the interests of plan participants and their beneficiaries for the purpose of
providing retirement benefits. The Department of Labor, which is the agency with the authority to interpret
and enforce the fiduciary sections of ERISA, has indicated in its interpretative guidance that voting is an
ERISA fiduciary act. The ESOP Trustee’s fiduciary duties under ERISA to the ESOP and its participants
may cause the ESOP Trustee to override participants’ voting directions to the extent that following such
directions would violate ERISA. In such case, the ESOP Trustee will be able to exercise voting control
over all of the ESOP’s shares. Further, the interests of the minority stockholders may not be aligned with
those of the ESOP as the majority stockholder, because the ESOP Trustee is required under ERISA to
act in the best interest of the ESOP participants and beneficiaries, this may present a conflict.
As a result, the concentration of ownership in our company by the ESOP could delay or prevent a
change in control of our company or otherwise discourage a potential acquirer from attempting to obtain
control of our company, which in turn could reduce the price of our common stock.
We are a “controlled company” within the meaning of the New York Stock Exchange listing
standards and, as a result, qualify for exemptions from certain corporate governance
requirements. You may not have the same protections afforded to stockholders of companies that
are subject to such requirements.
The ESOP holds common stock representing approximately 78.4% of the voting power of our
common stock as of December 31, 2019. As a result, we are considered a “controlled company” for the
purposes of New York Stock Exchange (“NYSE”) rules and corporate governance standards. As a
controlled company, we are exempt from certain NYSE corporate governance requirements, including
those that would otherwise require our board of directors to have a majority of independent directors and
require that we either establish compensation and nominating and corporate governance board
committees, each comprised entirely of independent directors, or otherwise ensure that the compensation
of our executive officers and nominees for directors are determined or recommended to the board of
directors by the independent members of the board of directors. While we intend to have a majority of
independent directors, and our compensation and nominating and corporate governance committees to
consist entirely of independent directors, we may decide at a later time to rely on one of the “controlled
company” exemptions. Accordingly, our common stock may not have the same protections afforded to
stockholders of companies that are subject to all of the NYSE corporate governance requirements.
Our ability to raise capital in the future may be limited, which could limit our business plan or
adversely affect your investment.
Our business and strategic plans may consume resources faster than we anticipate. In the future, we
may need to raise additional funds through the issuance of new equity securities, debt or a combination of
40
both. However, any decline in the market price of our common stock could impair our ability to raise
capital. Separately, additional financing may not be available on favorable terms, or at all. If adequate
funds are not available on acceptable terms, we may be unable to fund our operations or new
investments. If we issue new debt securities, the debt holders would have rights senior to common
stockholders to make claims on our assets, and the terms of any debt could restrict our operations,
including our ability to pay dividends on our common stock. If we issue additional equity securities,
existing stockholders will experience dilution, and the new equity securities could have rights senior to
those of our common stock. Because our decision to issue securities in any future offering will depend on
market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing
or nature of our future offerings. Thus, our stockholders bear the risk of our future securities offerings
reducing the market price of our common stock and diluting their interest.
Anti-takeover provisions in our organizational documents could delay a change in management
and limit our share price.
Provisions of our certificate of incorporation and bylaws could make it more difficult for a third party to
acquire control of us even if such a change in control would increase the value of our common stock and
prevent attempts by our stockholders to replace or remove our current board of directors or management.
We have a number of anti-takeover devices that could hinder takeover attempts and could reduce the
market value of our common stock or prevent sale at a premium. Our anti-takeover provisions:
•
•
•
•
•
•
•
•
•
permit the board of directors to establish the number of directors and fill any vacancies
and newly created directorships;
provide that our board of directors is classified into three classes with staggered, three-
year terms and that directors may only be removed for cause;
include blank-check preferred stock, the preference, rights and other terms of which may
be set by the board of directors and could delay or prevent a transaction or a change in
control that might involve a premium price for our common stock or otherwise benefit our
stockholders;
eliminate the ability of our stockholders to call special meetings of stockholders;
specify that special meetings of our stockholders can be called only by our board of
directors or a board committee authorized with the power to call such meetings;
prohibit stockholder action by written consent, which requires all stockholder actions to be
taken at a meeting of our stockholders;
provide that vacancies on our board of directors may be filled only by a majority of
directors then in office, even though less than a quorum;
prohibit cumulative voting in the election of directors; and
establish advance notice requirements for nominations for election to our board of
directors or for proposing matters that can be acted upon by stockholders at annual
stockholders’ meetings.
In addition, as a Delaware corporation, we are subject to Section 203 of the Delaware General
Corporation Law, or the DGCL. These provisions may prohibit large stockholders, in particular those
owning 15% or more of our outstanding voting stock, from merging or combining with us for a period of
time.
41
Our certificate of incorporation provides that the Court of Chancery of the State of Delaware is the
exclusive forum for substantially all disputes between us and our stockholders, which could limit
our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors,
officers or employees.
Our certificate of incorporation provides that the Court of Chancery of the State of Delaware is the
exclusive forum for the following civil actions:
•
•
•
•
any derivative action or proceeding brought on our behalf;
any action asserting a claim of breach of a fiduciary duty by any of our directors, officers,
employees or agents or our stockholders;
any action asserting a claim arising pursuant to any provision of the DGCL or our
certificate of incorporation or bylaws or as to which the DGCL confers jurisdiction on the
Court of Chancery of the State of Delaware; or
any action asserting a claim governed by the internal affairs doctrine.
This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that
the stockholder finds favorable for disputes with us or our directors, officers or other employees, which
may discourage such lawsuits against us and our directors, officers and other employees. Alternatively, if
a court were to find the choice of forum provision contained in our certificate of incorporation to be
inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such
action in other jurisdictions, which could have a material adverse effect on our business, financial
condition or results of operations.
We do not expect to declare any dividends in the foreseeable future.
We do not anticipate declaring any cash dividends to holders of our common stock in the foreseeable
future. Any determination to pay dividends in the future will be at the discretion of our board of directors
and will depend upon results of operations, financial condition, any contractual restrictions, our
indebtedness, restrictions imposed by applicable law and other factors our board of directors deems
relevant. Consequently, investors may need to sell all or part of their holdings of our common stock after
price appreciation, which may never occur, as the only way to realize any future gains on their
investment. Investors seeking cash dividends should not purchase our common stock.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable
research about our business, our stock price and trading volume could decline.
The trading market for our common stock depends, in part, on the research and reports that
securities or industry analysts publish about us or our business. If an analyst who covers us downgrades
our common stock or publishes inaccurate or unfavorable research about our business, our stock price
would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on
us regularly, demand for our common stock could decrease, which could cause our stock price and
trading volume to decline.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our headquarters are located in Centreville, Virginia. As of December 31, 2019, we leased 238
commercial facilities (including our headquarters) with an aggregate of approximately 3.0 million square
feet of space across 36 U.S. states and 16 countries used in connection with the various services
rendered to our customers. Additionally, we operate at several customer-accredited Sensitive
42
Compartmented Information Facilities, which are highly specialized, secure facilities used to perform
classified work for the United States intelligence community. We also have employees working at
customer sites throughout the U.S. and in other countries. We believe our facilities are adequate for our
current and presently foreseeable needs.
Item 3. Legal Proceedings.
Our performance under our contracts and our compliance with the terms of those contracts and
applicable laws and regulations are subject to continuous audit, review and investigation by our
customers, including the U.S. federal government. In addition, we are from time to time involved in legal
proceedings and investigations arising in the ordinary course of business, including those relating to
employment matters, relationships with clients and contractors, intellectual property disputes,
environmental matters and other business matters. Although the outcome of any such matter is inherently
uncertain and may be materially adverse, based on current information, except as noted below, we
believe there are no pending lawsuits or claims that may have a material adverse effect on our business,
financial condition or results of operations.
On or about March 1, 2017, the Peninsula Corridor Joint Powers Board, or the JPB, filed a lawsuit
against Parsons Transportation Group, Inc., or PTG, in the Superior Court of California, County of San
Mateo, in connection with a positive train control project on which PTG was engaged prior to termination
of its contract by the JPB. PTG had previously filed a lawsuit against the JPB for breach of contract and
wrongful termination. The JPB seeks damages in excess of $100.0 million, which we are currently
disputing. In addition to filing our complaint for breach of contract and wrongful termination, we have
denied the allegations raised by the JPB and, accordingly, filed affirmative defenses. We are currently
defending against the JPB’s claims and the parties are still engaged in discovery. We also have a
professional liability insurance policy to the extent the JPB proves any errors or omissions occurred. At
this time, it is too soon to determine the outcome of the litigation or assess the potential range of
exposure, if any. We have also filed a third-party claim against a subcontractor for indemnification in
connection with this matter.
In September 2015, a former Parsons employee filed an action in the United States District Court for
the Northern District of Alabama against us as a qui tam relator on behalf of the United States (the
“Relator”) alleging violation of the False Claims Act. The plaintiff alleges that, as a result of these actions,
the United States paid in excess of $1 million per month between February and September 2006 that it
should have paid to another contractor, plus $2.9 million to acquire vehicles for the contractor defendant
to perform its security services. The lawsuit sought (i) that we cease and desist from violating the False
Claims Act, (ii) monetary damages equal to three times the amount of damages that the United States
has sustained because of our alleged violations, plus a civil penalty of not less than $5,500 and not more
than $11,000 for each alleged violation of the False Claims Act, (iii) monetary damages equal to the
maximum amount allowed pursuant to §3730(d) of the False Claims Act, and (iv) Relator’s costs for this
action, including recovery of attorneys’ fees and costs incurred in the lawsuit. The United States
government did not intervene in this matter as it is allowed to do so under the statute. We filed a motion to
dismiss the lawsuit on the grounds that the Relator did not meet the applicable statute of limitations. The
District Court granted our motion to dismiss. The Relator’s attorney appealed the decision to the United
States Court of Appeals of the Eleventh Circuit, which ultimately ruled in favor of the Relator, and we
petitioned the United States Supreme Court to review the decision. The Supreme Court upheld the
Appellate Court ruling and remanded the case to the District Court. The parties are engaged in limited
discovery and Parsons has filed a renewed motion to dismiss the case.
43
On or about October 4, 2019, LBH Engineers, LLC (“LBH”) filed a lawsuit against Parsons, PTG,
and various other parties in the US District Court of for the Northern District of Georgia, in connection with
an alleged infringement of LBH’s patent. LBH seeks damages and costs incurred by LBH, a post-
judgment royalty, treble damages if the infringement is found to be willful, among other damages, which
the Company and the other defendants are currently disputing. At this time, the Company is unable to
determine the probability of the outcome of the litigation or determine a potential range of loss, if any.
Item 4. Mine Safety Disclosures.
Not Applicable.
44
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
On May 8, 2019, the Company consummated its initial public offering (“IPO”) whereby the
Company sold 18,518,500 shares of common stock for $27.00 per share. The underwriters exercised
their share option on May 14, 2019 to purchase an additional 2,777,775 shares at the share price of
$25.515 which was the IPO share price of $27.00 less the underwriting discount of $1.485 per share.
Our common stock is listed on the NYSE under the ticker symbol “PSN”. The following table
presents the ranges of high and low sales prices of our common stock quoted on the NYSE for each
quarter since the IPO on May 8, 2019.
Fiscal 2019:
Second Quarter ..........................................
Third Quarter ..............................................
Fourth Quarter ............................................
$
$
$
Low Sale Price
High Sale Price
29.03
32.37
31.69
$
$
$
38.33
38.82
42.65
On April 3, 2019, the board of directors of the Company declared a cash dividend to the
Company’s sole existing shareholder at that time, the ESOP, in the amount of $2.00 per share, or $52.1
million in the aggregate (the “IPO Dividend”). The IPO Dividend was paid on May 10, 2019. On April 15,
2019, the board of directors of the Company declared a common stock dividend in a ratio of two shares of
common stock for every one share of common stock then held by the Company’s shareholder (the “Stock
Dividend”). The record date of the Stock Dividend was May 7, 2019, the day immediately prior to the
consummation of the Company’s IPO on May 8, 2019, and the payment date of the Stock Dividend was
May 8, 2019. Purchasers of the Company’s common stock in the Company’s public offering were not
entitled to receive any portion of the Stock Dividend. During the year ended December 31, 2018, the
Company did not declare any dividends.
Other than the IPO Dividend and the Stock Dividend discussed above, we currently do not intend
to declare or pay any cash dividends in the foreseeable future. Any further determination to pay dividends
on our capital stock will be at the discretion of our board of directors, subject to applicable laws, and will
depend on our financial condition, results of operations, capital requirements, restrictions under our senior
notes issued in a private placement in 2014, or the Senior Notes, and Credit Agreement, and other
factors that our board of directors considers relevant.
According to the records of our transfer agent, there were four shareholders of record as of
February 28, 2020.
The following graph compares the cumulative total return, from the IPO date through December
31, 2019, to shareholders of Parsons Corporation common stock relative to the cumulative total returns of
the Russell 2000 Index and the Standard and Poor’s IT Consulting & Other Services Index. The graph
assumes that the value of the investment in our common stock, the index, and the peer group (including
reinvestment of dividends) was $100 on May 8, 2019 and tracks it through December 31, 2019. The
stock performance included in this graph is not necessarily indicative of future stock price performance.
45
stock performance included in this graph is not necessarily indicaperformance..
COMPARISON OF 8 MONTH CUMULATIVE TOTAL RETURN*
Among Parsons Corp., the Russell 2000 Index,
and S&P 1500 IT Consulting & Other Services Index
$150
$140
$130
$120
$110
$100
$90
$80
5/8/19
12/31/19
Parsons Corp.
Russell 2000
S&P 1500 IT Consulting & Other Services Index
*$100 invested on 5/8/19 in stock or 4/30/19 in index, including reinvestment of dividends.
Fiscal year ending December 31.
Copyright© 2020 Standard & Poor's, a division of S&P Global. All rights reserved.
Copyright© 2020 Russell Investment Group. All rights reserved.
Parsons Corporation ..................................................
Russell 2000 ................................................................
S&P 1500 IT Consulting & Other Services Index .....
5/8/19
12/31/19
100.00
100.00
100.00
137.28
105.95
103.37
Securities Authorized for Issuance Under Equity Compensation Plans
The information required by this item with respect to our equity compensation plans is incorporated by
reference to our 2020 Proxy Statement.
Recent Sales of Unregistered Securities
None.
46
Use of Proceeds from Public Offering of Common Stock
On May 8, 2019, the Company consummated its IPO, in which the Company sold 18,518,500 shares
of our common stock for $27.00 per share. The underwriters exercised their share option on May 14,
2019 to purchase an additional 2,777,775 shares at the share price of $25.515 which was the IPO share
price of $27.00 less the underwriting discount of $1.485 per share.
We received net proceeds of $536.9 million after deducting underwriting discounts and commissions
and offering expenses. No offering expenses were paid directly or indirectly to any of our directors or
officers (or their associates), or persons owning 10.0% or more of any class of our equity securities, or to
any other affiliates.
The Company used the net profits to fund the cash dividend of $52.1 million, or $2.00 per share, in
connection with the IPO, repay the outstanding balance of $150.5 million under the term loan and pay
outstanding indebtedness under our revolving credit facility.
There has been no material change in the planned use of IPO proceeds from that described in the
final prospectus filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act of 1933 on May 9,
2019.
Issuer Purchases of Equity Securities
None.
47
Item 6. Selected Financial Data.
The following tables present selected financial data for each of the last five fiscal years. This
selected financial data should be read in conjunction with the Consolidated Financial Statements and
related notes beginning on page F-1, as well as the information under the caption “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report on Form
10-K. Dollar amounts are presented in thousands, except for per share information:
December
25, 2015
December
30, 2016
Fiscal Year Ended
December
29, 2017
December
31, 2018
December
31, 2019
Consolidated Statements of Operations Data:
Revenue ............................................................................... $ 3,218,616 $ 3,039,191 $ 3,017,011 $ 3,560,508 $ 3,954,812
Direct cost of contracts ......................................................... 2,535,504 2,431,193 2,400,140 2,795,005 3,123,062
41,721
Equity in earnings of unconsolidated joint ventures .............
781,408
Indirect, general and administrative expenses .....................
Impairment of goodwill, intangible and other assets ............
—
92,063
Operating income ..............................................................
Interest income .....................................................................
1,300
(23,729)
Interest expense ...................................................................
Other income (expense), net ................................................
(2,392)
(Interest and other expense) gain associated with claim on
long-term contract.................................................................
Total other (expense) income............................................
Income before income tax expense ..................................
Income tax (expense) benefit ...............................................
Net income (loss) including noncontrolling interests .........
Net income attributable to noncontrolling interests...............
Net income (loss) attributable to Parsons Corporation...... $
—
74,578
(10,026)
(24,821)
54,795
(17,701)
67,242
259,803
133,001
69,886
(20,367)
(21,464)
137,128
239,436
111,537
(14,211)
(16,594)
(17,099)
97,326 $ 222,337 $ 120,534
(14,034)
(32,352)
128,144
(13,790)
114,354
(26,098)
88,256 $
(9,422)
(23,401)
12,006
(13,992)
(1,986)
(11,161)
(13,147) $
36,915
597,410
—
205,008
2,710
(20,842)
(1,651)
40,086
506,255
—
150,702
2,465
(15,798)
5,658
35,462
522,920
85,133
35,407
1,190
(16,509)
1,340
19,450
542,066
—
160,496
520
(16,165)
(2,673)
Net income (loss) attributable to Parsons Corporation
per share (1):
Basic.................................................................................. $
Diluted ............................................................................... $
0.93 $
0.93 $
(0.15) $
(0.15) $
1.16 $
1.16 $
2.78 $
2.78 $
1.30
1.30
Weighted-average number of shares:
Basic..................................................................................
Diluted ...............................................................................
94,551
94,551
88,497
88,497
83,574
83,574
80,014
80,014
92,419
92,753
(1) The weighted-average number of shares used in computing net income (loss) attributable to Parsons Corporation per share,
basic and diluted, gives effect in each period to the payment of the Stock Dividend as previously defined in Item 5 of Part II in
this Annual Report on Form 10-K.
December
25, 2015
December
30, 2016
As of
December
29, 2017
December
31, 2018
December
31, 2019
Consolidated Balance Sheet Data:
Cash and cash equivalents (1) ............................................. $ 349,033 $ 332,368 $ 376,368 $ 206,427 $ 131,516
Total assets .......................................................................... 2,403,074 2,153,494 2,272,718 2,612,578 3,450,368
249,353
Total debt..............................................................................
Noncontrolling interests ........................................................
30,866
Total shareholder's equity
(1)
Does not include cash of consolidated joint ventures and restricted cash and investments.
249,301
57,169
250,000
82,476
249,407
27,494
429,164
46,461
(U.S. dollars in thousands)
Other Information:
Adjusted EBITDA (1) ...................................................................................... $
Net Income Margin (2)....................................................................................
Adjusted EBITDA Margin (3) ..........................................................................
(1)
December 29,
2017
December 31,
2018
December 31,
2019
209,647
$
3.7%
6.9%
246,244
$
6.7%
6.9%
325,047
3.5%
8.2%
A reconciliation of net income (loss) attributable to Parsons Corporation to Adjusted EBITDA is set forth below (in
thousands).
Net Income Margin is calculated as net income including noncontrolling interest divided by revenue in the applicable period.
Adjusted EBITDA Margin is calculated as Adjusted EBITDA divided by revenue in the applicable period.
(2)
(3)
48
December 29,
2017
December 31,
2018
December 31,
2019
97,326 $
13,333
21,464
35,198
14,211
10,026
(7,283)
19,016
1,190
—
5,166
209,647 $
222,337 $
18,132
20,367
69,869
17,099
(129,674)
(7,253)
16,487
12,942
—
5,938
246,244 $
Net income attributable to Parsons Corporation ............................................. $
Interest expense, net .......................................................................................
Income tax expense (benefit) ..........................................................................
Depreciation and amortization.........................................................................
Net income attributable to noncontrolling interests .........................................
Litigation-related expenses (income) (a) .........................................................
Amortization of deferred gain resulting from sale-leaseback transactions (b).
Equity-based compensation (c) .......................................................................
Transaction-related costs (d)...........................................................................
Restructuring (e)..............................................................................................
Other (f) ...........................................................................................................
Adjusted EBITDA............................................................................................. $
(a)
120,534
22,429
(69,886)
125,700
16,594
—
—
65,744
34,353
3,424
6,155
325,047
Fiscal 2017 reflects post-judgment interest expense recorded in “(Interest and other expenses) gain associated with claim
on long-term contract” in our results of operations related to a judgment entered against the Company in 2014 in
connection with a lawsuit against a joint venture in which the Company is the managing partner. Fiscal 2018 reflects a
reversal of an accrued liability, with $55.1 million recorded to revenue and $74.6 million recorded to other income (“gain
associated with claim on long-term contract”) in our results of operations. See “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” in this Annual Report on Form 10-K for a description of this matter, which
was resolved in favor of the Company on June 13, 2018.
Reflects recognized deferred gains related to sales-leaseback transactions described in “Note 10—Sale-Leasebacks” in the
notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Reflects equity-based compensation costs primarily related to cash-settled awards. See “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K for a further discussion of
these awards.
Reflects costs incurred in connection with acquisitions, IPO, and other non-recurring transaction costs, primarily fees paid
for professional services and employee retention.
Reflects costs associated with and related to our corporate restructuring initiatives.
Includes a combination of gain/loss related to sale of fixed assets, software implementation costs, and other individually
insignificant items that are non-recurring in nature.
(b)
(c)
(d)
(e)
(f)
Adjusted EBITDA is a supplemental measure of our operating performance included in this Annual
Report on Form 10-K because it is used by management and our board of directors to assess our
financial performance both on a segment and on a consolidated basis. We discuss Adjusted EBITDA
because our management uses this measure for business planning purposes, including to manage the
business against internal projected results of operations and to measure the performance of the business
generally. Adjusted EBITDA is frequently used by analysts, investors and other interested parties to
evaluate companies in our industry.
Adjusted EBITDA is not a U.S. GAAP measure of our financial performance or liquidity and should
not be considered as an alternative to net income as a measure of financial performance or cash flows
from operations as measures of liquidity, or any other performance measure derived in accordance with
U.S. GAAP. We define Adjusted EBITDA as net income attributable to Parsons Corporation, adjusted to
include net income attributable to noncontrolling interests and to exclude interest expense (net of interest
income), provision for income taxes, depreciation and amortization and certain other items that we do not
consider in our evaluation of ongoing operating performance. These other items include, among other
things, impairment of goodwill, intangible and other assets, interest and other expenses recognized on
litigation matters, amortization of deferred gain resulting from sale-leaseback transactions, expenses
incurred in connection with acquisitions and other non-recurring transaction costs, equity-based
compensation, and expenses related to our corporate restructuring initiatives. Adjusted EBITDA should
not be construed as an inference that our future results will be unaffected by unusual or non-recurring
items. Additionally, Adjusted EBITDA is not intended to be a measure of free cash flow for management’s
discretionary use, as it does not reflect tax payments, debt service requirements, capital expenditures and
certain other cash costs that may recur in the future, including, among other things, cash requirements for
working capital needs and cash costs to replace assets being depreciated and amortized. Management
compensates for these limitations by relying on our U.S. GAAP results in addition to using Adjusted
EBITDA supplementally. Our measure of Adjusted EBITDA is not necessarily comparable to similarly
titled captions of other companies due to different methods of calculation.
49
The following table shows Adjusted EBITDA attributable to Parsons Corporation for each of our
reportable segments and Adjusted EBITDA attributable to noncontrolling interests:
(U.S. dollars in thousands)
Federal Solutions Adjusted EBITDA attributable to Parsons
Corporation ............................................................................. $
Critical Infrastructure Adjusted EBITDA attributable to
Parsons Corporation ...............................................................
Adjusted EBITDA attributable to noncontrolling interests .......
Total Adjusted EBITDA ...................................................... $
December 29,
2017
Fiscal Year Ended
December 31,
2018
December 31,
2019
95,354 $
121,986 $
169,100
99,402
14,891
209,647 $
106,851 $
17,407 $
246,244 $
138,851
17,096
325,047
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—
Segment Results,“ and "Note 21—Segments Information” in the notes to our consolidated financial
statements included elsewhere in this Annual Report on Form 10-K for further discussion regarding our
segment Adjusted EBITDA attributable to Parsons Corporation.
50
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis is intended to help investors understand our business,
financial condition, results of operations, liquidity and capital resources. You should read this discussion
together with our consolidated financial statements and related notes thereto included elsewhere in this
Annual Report on Form 10-K.
The statements in this discussion regarding industry outlook, our expectations regarding our future
performance, liquidity and capital resources and other non-historical statements in this discussion are
forward-looking statements. These forward-looking statements are subject to numerous risks and
uncertainties, including, but not limited to, the risks and uncertainties described in “Risk Factors” and
“Special Note Regarding Forward-Looking Statements.” Actual results may differ materially from those
contained in any forward-looking statements.
PARSONS CORPORATION
Enabling a safer, smarter, and more interconnected world.
SEGMENTS
Federal Solutions
Technology -driven solutions for
defense and intelligence customers
Critical Infrastructure
Engineered solutions for complex physical
and digital infrastructure challenges
FINANCIAL SNAPSHOT
$4B
FY 2019 Revenue
Critical
Infrastructure
52%
Federal
Solutions
48%
$4.3B
FY 2019 Contract Awards
Critical
Infrastructure
41%
Federal
Solutions
59%
KEY FACTS AND FIGURES
75
Years of History
~16K
Employees
11%
Revenue Growth
(FY 2019)
1.1X
TTM Book-to-Bill
$8.0B
Backlog as of
12/31/2019
PARSONS CORPORATION Enabling a safer, smarter, and more interconnected world. Federal Solutions Technology-driven solutions for defense and intelligence customers SEGMENTS Critical Infrastructure Engineered solutions for complex physical and digital infrastructure challenges FINANCIAL SNAPSHOT $4B FY 2019 Revenue Critical Infrastructure52% Federal Solutions48% $4.3BFY 2019 Contract Awards Critical Infrastructure41% Federal Solutions59% KEY FACTS AND FIGURES 75Years of History ~ 16KEmployees 11%Revenue Growth (FY 2019) 1.1XTTM Book-to-Bill $8.0BBacklog as of 12/31/2019
Overview
We are a leading disruptive technology provider in the global 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.
We operate in two reporting segments, Federal Solutions and Critical Infrastructure. Our Federal
Solutions business provides advanced technical solutions to the U.S. government. Our Critical
Infrastructure business provides integrated engineering and management services for complex physical
and digital infrastructure to state and local governments and large companies.
51
Our employees provide services pursuant to contracts that we are awarded by the customer and
specific task orders relating to such contracts. These contracts are often multi-year, which provides us
backlog and visibility on our revenues for future periods. Many of our contracts and task orders are
subject to renewal and rebidding at the end of their term, and some are subject to the exercise of contract
options and issuance of task orders by the applicable government entity. In addition to focusing on
increasing our revenues through increased contract awards and backlog, we focus our financial
performance on margin expansion and cash flow.
We manage and assess the performance of our business by evaluating a variety of metrics. The
following table sets forth selected key metrics (in thousands, except Book-to-Bill):
Key Metrics
December 29,
2017
Fiscal Year Ended
December 31,
2018
December 31,
2019
Awards ................................................................................... $ 3,404,717 $ 4,484,500 $ 4,237,101
Backlog (1)............................................................................. $ 6,422,594 $ 7,971,002 $ 8,031,085
Book-to-Bill ............................................................................
1.1
(1)
Difference between our backlog of $8.0 billion and our remaining unsatisfied performance
obligations, or RUPO, of $5.0 billion, each as of December 31, 2019, is due to (i) unissued task
orders and unexercised option years, to the extent their issuance or exercise is probable, as well
as (ii) contract awards, to the extent we believe contract execution and funding is probable.
1.1
1.3
Awards
Awards generally represent the amount of revenue expected to be earned in the future from
funded and unfunded contract awards received during the period. Contract awards include both new and
re-compete contracts and task orders. Given that new contract awards generate growth, we closely track
our new awards each year.
The following table summarizes the total value of new awards for the periods presented below (in
thousands):
December 29,
2017
Fiscal Year Ended
December 31,
2018
December 31,
2019
Federal Solutions ................................................................... $ 1,278,490 $ 1,806,533 $ 2,514,545
Critical Infrastructure.............................................................. 2,126,227 2,677,967 1,722,556
Total Awards .......................................................................... $ 3,404,717 $ 4,484,500 $ 4,237,101
The change in new awards from year to year is primarily due to ordinary course fluctuations in our
business. The volume of contract awards can fluctuate in any given period due to win rate and the timing
and size of the awards issued by our customers. In Federals Solutions, the change in awards between
fiscal 2018 and fiscal 2019 was driven primarily from business acquisitions. Awards in Critical
infrastructure, for fiscal 2019, were impacted by potential awards being pushed out to 2020.
Backlog
We define backlog to include the following two components:
• Funded—Funded backlog represents the revenue value of orders for services under existing
contracts for which funding is appropriated or otherwise authorized less revenue previously
recognized on these contracts.
52
• Unfunded—Unfunded backlog represents the revenue value of orders for services under
existing contracts for which funding has not been appropriated or otherwise authorized less
revenue previously recognized on these contracts.
Backlog includes (i) unissued task orders and unexercised option years, to the extent their
issuance or exercise is probable, as well as (ii) contract awards, to the extent we believe contract
execution and funding is probable.
The following table summarizes the value of our backlog at the respective dates presented (in
thousands):
Federal Solutions:
December 29,
2017
As of
December 31,
2018
December 31,
2019
Funded (1) ........................................................................ $ 1,299,137 $
964,626 $ 1,153,041
Unfunded .......................................................................... 1,963,463 3,523,376 3,882,289
Total Federal Solutions .......................................................... 3,262,600 4,488,002 5,035,330
Critical Infrastructure:
Funded.............................................................................. 3,159,994 3,483,000 2,954,955
40,800
Unfunded ..........................................................................
Total Critical Infrastructure..................................................... 3,159,994 3,483,000 2,995,755
Total Backlog (2).................................................................... $ 6,422,594 $ 7,971,002 $ 8,031,085
-
-
(1)
(2)
As presented in the Company’s Form S-1/A filed on April 29, 2019, funded backlog for the Federal
Solutions segment was overstated by $893.8 million with a corresponding understatement in
unfunded backlog. There was no impact on total Federal Solutions backlog or total backlog for
Parsons Corporation.
Difference between our backlog of $8.0 billion and our RUPO of $5.0 billion, each as of December
31, 2019, is due to (i) unissued task orders and unexercised option years, to the extent their
issuance or exercise is probable, as well as (ii) contract awards, to the extent we believe contract
execution and funding is probable.
Our backlog includes orders under contracts that in some cases extend for several years. For
example, the U.S. Congress generally appropriates funds for our U.S. federal government customers on
a yearly basis, even though their contracts with us may call for performance that is expected to take a
number of years to complete. As a result, our federal contracts typically are only partially funded at any
point during their term. All or some of the work to be performed under the contracts may remain
unfunded unless and until the U.S. Congress makes subsequent appropriations and the procuring agency
allocates funding to the contract.
We expect to recognize $2.8 billion of our funded backlog at December 31, 2019 as revenues in
the following twelve months. However, our U.S. federal government customers may cancel their contracts
with us at any time through a termination for convenience or may elect to not exercise option periods
under such contracts. In the case of a termination for convenience, we would not receive anticipated
future revenues, but would generally be permitted to recover all or a portion of our incurred costs and fees
for work performed. See “Risk Factors—Risks Relating to Our Business—We may not realize the full
value of our backlog, which may result in lower than expected revenue.”
The changes in backlog in our Federal Solutions segment between fiscal 2018 and fiscal 2019
included contributions of $0.3 billion from business acquisitions. Backlog in our Critical Infrastructure
segment, in fiscal 2019, was impacted primarily by a number of potential awards being pushed out to
2020. Our backlog will fluctuate in any given period based on the volume of awards issued in comparison
to the revenue generated from our existing contracts.
53
Book-to-Bill
Book-to-bill is the ratio of total awards to total revenue recorded in the same period. Our
management believes our book-to-bill ratio is a useful indicator of our potential future revenue growth in
that it measures the rate at which we are generating new awards compared to the Company’s current
revenue. To drive future revenue growth, our goal is for the level of awards in a given period to exceed
the revenue booked. A book-to-bill ratio greater than 1.0 indicates that awards generated in a given
period exceeded the revenue recognized in the same period, while a book-to-bill ratio of less than 1.0
indicates that awards generated in such period were less than the revenue recognized in such period.
The following table sets forth the book-to-bill ratio for the periods presented below:
Federal Solutions ...................................................................
Critical Infrastructure ..............................................................
Overall....................................................................................
December 29,
2017
1.2
1.1
1.1
Fiscal Year Ended
December 31,
2018
1.2
1.3
1.3
December 31,
2019
1.3
0.8
1.1
Factors and Trends Affecting Our Results of Operations
We believe that the financial performance of our business and our future success are dependent
upon many factors, including those highlighted in this section. Our operating performance will depend
upon many variables, including the success of our growth strategies and the timing and size of
investments and expenditures that we choose to undertake, as well as market growth and other factors
that are not within our control.
Government Spending
Changes in the relative mix of government spending and areas of spending growth, with shifts in
priorities on homeland security, intelligence, defense-related programs, infrastructure and urbanization,
and continued increased spending on technology and innovation, including cybersecurity, artificial
intelligence, connected communities and physical infrastructure, could impact our business and results of
operations. Cost-cutting and efficiency initiatives, current and future budget restrictions, spending cuts
and other efforts to reduce government spending could cause our government customers to reduce or
delay funding or invest appropriated funds on a less consistent basis or not at all, and demand for our
solutions or services could diminish. Furthermore, any disruption in the functioning of government
agencies, including as a result of government closures and shutdowns, could have a negative impact on
our operations and cause us to lose revenue or incur additional costs due to, among other things, our
inability to deploy our staff to customer locations or facilities as a result of such disruptions.
Federal Budget Uncertainty
There is uncertainty around the timing, extent, nature and effect of Congressional and other U.S.
government actions to address budgetary constraints, caps on the discretionary budget for defense and
non-defense departments and agencies, and the ability of Congress to determine how to allocate the
available budget authority and pass appropriations bills to fund both U.S. government departments and
agencies that are, and those that are not, subject to the caps. Additionally, budget deficits and the
growing U.S. national debt increase pressure on the U.S. government to reduce federal spending across
all federal agencies, with uncertainty about the size and timing of those reductions. Furthermore, delays
in the completion of future U.S. government budgets could in the future delay procurement of the federal
government services we provide. A reduction in the amount of, or delays, or cancellations of funding for,
services that we are contracted to provide to the U.S. government as a result of any of these impacts or
related initiatives, legislation or otherwise could have a material adverse effect on our business and
results of operations.
54
Regulations
Increased audit, review, investigation and general scrutiny by government agencies of
performance under government contracts and compliance with the terms of those contracts and
applicable laws could affect our operating results. Negative publicity and increased scrutiny of
government contractors in general, including us, relating to government expenditures for contractor
services and incidents involving the mishandling of sensitive or classified information, as well as the
increasingly complex requirements of the U.S. Department of Defense and the U.S. intelligence
community, including those related to cybersecurity, could impact our ability to perform in the markets we
serve.
Competitive Markets
The industries we operate in consist of a large number of enterprises ranging from small, niche-
oriented companies to multi-billion-dollar corporations that serve many government and commercial
customers. We compete on the basis of our technical expertise, technological innovation, our ability to
deliver cost-effective multi-faceted services in a timely manner, our reputation and relationships with our
customers, qualified and/or security-clearance personnel, and pricing. We believe that we are uniquely
positioned to take advantage of the markets in which we operate because of our proven track record,
long-term customer relationships, technology innovation, scalable and agile business offerings and world
class talent. Our ability to effectively deliver on project engagements and successfully assist our
customers affects our ability to win new contracts and drives our financial performance.
Acquired Operations
Polaris Alpha
On May 31, 2018, the Company acquired Polaris Alpha for $489.1 million. Polaris Alpha is an
advanced, technology-focused provider of innovative mission solutions for national security, intelligence
and other U.S. federal customers. The acquisition was funded by cash on-hand and borrowings under our
Revolving Credit Facility. The financial results of Polaris Alpha have been included in our consolidated
results of operations from May 31, 2018 onward.
OGSystems
On January 7, 2019, the Company acquired OGSystems for $292.4 million. OGSystems provides
geospatial intelligence, big data analytics and threat mitigation for defense and intelligence customers.
The acquisition was funded by cash on-hand and borrowings under our Term Loan and Revolving Credit
Facility. The financial results of OGSystems have been included in our consolidated results of operations
from January 7, 2019 onward.
QRC Technologies
On July 31, 2019, the Company acquired QRC Technologies for $214.1 million. QRC
Technologies provides design and development of open-architecture radio-frequency products. The
acquisition was funded by cash on-hand and borrowings under our Revolving Credit Facility. The
financial results of QRC Technologies have been included in our consolidated results of operations from
July 31, 2019 onward.
Seasonality
Our results may be affected by variances as a result of seasonality we experience across our
businesses. This pattern is typically driven by the U.S. federal government fiscal year-end, September 30.
While not certain, it is not uncommon for U.S. government agencies to award extra tasks or complete
other contract actions in the weeks before the end of the U.S. federal government fiscal year in order to
avoid the loss of unexpended fiscal year funds. In addition, we have also historically experienced higher
bid and proposal costs in the months leading up to the U.S. federal government fiscal year-end as we
pursue new contract opportunities expected to be awarded early in the following U.S. federal government
55
fiscal year as a result of funding appropriated for that U.S. federal government fiscal year. Furthermore,
many U.S. state governments with fiscal years ending on June 30 tend to accelerate spending during
their first quarter, when new funding becomes available. We may continue to experience this seasonality
in future periods, and our results of operations may be affected by it.
Taxes
Historically, the Company had elected to be taxed under the provisions of Subchapter “S” of the
Internal Revenue Code for federal tax purposes. As a result, the Company’s income had not been subject
to U.S. federal income taxes or state income taxes in those states where the “S” Corporation status was
recognized. No provision or liability for federal or state income tax had been provided in the Company’s
consolidated financial statements, prior to the IPO on May 8, 2019, except for those states where the “S”
Corporation status was not recognized or where states imposed a tax on “S” Corporations. The provision
for income tax in the historical periods prior to the IPO consists of these state taxes and from certain
foreign jurisdictions where the Company is subject to tax.
In connection with the IPO, the Company’s “S” Corporation status terminated, and the Company is
now treated as a “C” Corporation under Subchapter C of the Internal Revenue Code. The revocation of
the Company’s “S” Corporation election had a material impact on the Company’s results of operations,
financial condition and cash flows. Going forward, the effective tax rate will increase, and net income will
decrease since the Company will be subject to both U.S. federal and state taxes on our earnings.
Results of Operations
In October 2018, our board of directors approved a change in our fiscal year end from the last
Friday on or before the calendar year end to December 31st. Accordingly, the fiscal year end for fiscal
2019 is December 31, 2019, the fiscal year end for fiscal 2018 is December 31, 2018 and the fiscal year
end for fiscal 2017 is December 29, 2017.
Revenue
Our revenue consists of both services provided by our employees and pass-through fees from
subcontractors and other direct costs. Our Federal Solutions segment derives revenue primarily from the
U.S. federal government and our Critical Infrastructure segment derives revenue primarily from
government and commercial customers.
We recognize revenue for work performed under cost-plus, time-and-materials and fixed-price
contracts, as follows:
Under cost-plus contracts, we are reimbursed for allowable or otherwise defined costs incurred,
plus a fee. The contracts may also include incentives for various performance criteria, including quality,
timeliness, safety and cost-effectiveness. In addition, costs are generally subject to review by clients and
regulatory audit agencies, and such reviews could result in costs being disputed as non-reimbursable
under the terms of the contract.
Under time-and-materials contracts, hourly billing rates are negotiated and charged to clients
based on the actual time spent on a project. In addition, clients reimburse actual out-of-pocket costs for
other direct costs and expenses that are incurred in connection with the performance under the contract.
Under fixed-price contracts, clients pay an agreed fixed-amount negotiated in advance for a
specified scope of work.
Refer to “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 elsewhere in this
Annual Report on Form 10-K for a further description of our policies on revenue recognition.
56
The table below presents the percentage of total revenue for each type of contract.
Cost-plus ................................................................................
Time-and-materials ................................................................
Fixed-price .............................................................................
December 29,
2017
36%
29%
35%
Fiscal Year Ended
December 31,
2018
41%
27%
32%
December 31,
2019
43%
27%
30%
The amount of risk and potential reward varies under each type of contract. Under cost-plus
contracts, there is limited financial risk, because we are reimbursed for all allowable costs up to a ceiling.
However, profit margins on this type of contract tend to be lower than on time-and-materials and fixed-
price contracts. Under time-and-materials contracts, we are reimbursed for the hours worked using the
predetermined hourly rates for each labor category. In addition, we are typically reimbursed for other
direct contract costs and expenses at cost. We assume financial risk on time-and-materials contracts
because our labor costs may exceed the negotiated billing rates. Profit margins on well-managed time-
and-materials contracts tend to be higher than profit margins on cost-plus contracts as long as we are
able to staff those contracts with people who have an appropriate skill set. Under fixed-price contracts, we
are required to deliver the objectives under the contract for a pre-determined price. Compared to time-
and-materials and cost-plus contracts, fixed-price contracts generally offer higher profit margin
opportunities because we receive the full benefit of any cost savings, but they also generally involve
greater financial risk because we bear the risk of any cost overruns. In the aggregate, the contract type
mix in our revenue for any given period will affect that period’s profitability. Over time, we have
experienced a relatively stable contract mix.
Our recognition of profit on long-term contracts requires the use of assumptions related to
transaction price and total cost of completion. Estimates 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, we record a positive or negative adjustment to revenue and/or direct cost of contracts.
In fiscal 2017, fiscal 2018 and fiscal 2019, no single contract accounted for more than 5% of our
revenue.
Joint Ventures
We conduct a portion of our business through joint ventures or similar partnership arrangements.
For the joint ventures we control, we consolidate all the revenues and expenses in our consolidated
statements of income (including revenues and expenses attributable to noncontrolling interests). For the
joint ventures we do not control, we recognize equity in earnings of unconsolidated joint ventures. Our
revenues included $112.1 million in fiscal 2017, $144.7 million in fiscal 2018 and $157.3 million in fiscal
2019 related to services we provided to our unconsolidated joint ventures.
Operating costs and expenses
Operating costs and expenses primarily include direct costs of contracts and indirect, general and
administrative expenses. Costs associated with compensation-related expenses for our people and
facilities, which includes ESOP contribution expenses, are the most significant component of our
operating expenses. In fiscal 2017, 2018 and 2019, we made annual contributions to the ESOP in the
amount of 8% of the participants’ cash compensation for the applicable year. Total ESOP contribution
expense was $40.6 million for fiscal 2017, $45.2 million for fiscal 2018 and $53.6 million for fiscal 2019,
and is recorded in “Direct cost of contracts” and “Indirect, general and administrative expenses.” We
expect operating expenses to increase due to our anticipated growth and the incremental costs
associated with being a public company. However, on a forward-looking basis, we generally expect these
costs to decline as a percentage of our total revenue as we realize the benefits of scale.
57
Direct costs of contracts consist of direct labor and associated fringe benefits, indirect overhead,
subcontractor costs, travel expenses and other expenses incurred to perform on contracts.
Indirect, general and administrative expenses include salaries and wages and fringe benefits of
our employees not performing work directly for customers, facility costs and other costs related to these
indirect functions.
Other income and expenses
Other income and expenses primarily consist of interest income, interest expense, other income,
net and interest and other expense associated with claim on long-term contract.
Interest income primarily consists of interest earned on U.S. government money market funds.
Interest expense consists of interest expense incurred under our Senior Notes and Credit
Agreement.
Other income, net primarily consists of gain or loss on sale of assets, sublease income and
transaction gain or loss related to movements in foreign currency exchange rates.
Included in other income and expenses in 2018 are amounts related to the settlement of a lawsuit
in favor of a joint venture in which the Company was the managing partner. With regard to the lawsuit,
during the second half of fiscal 2013, a California state court issued a number of preliminary judgments
with the final judgment being rendered in early fiscal 2014 in favor of the plaintiff in a lawsuit against the
joint venture. We recorded a loss of $98.8 million for fiscal 2013 as a result of these judgments, which
included the reversal of $55.1 million in previously recognized revenue. For fiscal 2017, we recorded
post-judgment interest of $9.3 million in “(Interest and other expense) gain associated with claim on long-
term contract” in our consolidated statements of income. In addition, for fiscal 2017, we recorded other
expenses of $0.1 million and $0.7 million, respectively, in “Interest and other expense associated with
claim on long-term contract.” $129.9 million was accrued for this matter in “Provision for contract losses”
on our consolidated balance sheet as of fiscal 2017 year-end. Post-judgment interest was accrued
through May 2018 when a total of $133.1 million was accrued in “Provision for contract losses of
consolidated joint ventures” on our consolidated balance sheet. On February 28, 2018, the California
Court of Appeals vacated the judgement, and in doing so, the appellate court remanded the case to the
trial court for the sole purpose of entering a new and final judgement in our favor. On April 9, 2018, the
appellate court ruling was appealed by the counterparty to the California Supreme Court. On June 13,
2018, the California Supreme Court denied the counterparty’s appeal. As a result, in the second quarter
of 2018 we reversed $133.1 million accrued in “Provision for contract losses on consolidated joint
ventures” on our consolidated balance sheet, resulting in a net gain of $129.7 million on our consolidated
statements of income, of which $55.1 million was recorded as an increase in revenue with the remainder
recorded as other income.
58
Year ended December 31, 2018 compared to year ended December 31, 2019
The following table sets forth our results of operations for fiscal 2018 and fiscal 2019 as a
percentage of revenue.
Fiscal Year Ended
December 31,
2018
December 31,
2019
Revenues..............................................................................................
Direct costs of contracts........................................................................
Equity in earnings of unconsolidated joint ventures..............................
Indirect, general and administrative expenses......................................
Operating income.............................................................................
Interest income .....................................................................................
Interest expense ...................................................................................
Other income, net .................................................................................
(Interest and other expense) gain associated with claim on long-term
contract .................................................................................................
Total other income benefit (expense) ..............................................
Income before income tax expense .................................................
Income tax benefit (expense)................................................................
Net income including noncontrolling interests..................................
Net income attributable to noncontrolling interests ...............................
Net income attributable to Parsons Corporation ..............................
100.0%
78.5%
1.0%
16.8%
5.8%
0.1%
(0.6)%
0.0%
2.1%
1.5%
7.3%
(0.6)%
6.7%
(0.5)%
6.2%
100.0%
79.0%
1.1%
19.8%
2.3%
0.0%
(0.6)%
(0.1)%
0.0%
(0.6)%
1.7%
1.8%
3.5%
(0.4)%
3.0%
Revenue
Fiscal Year Ended
Variance
(U.S. dollars in thousands)
Revenue ..................................................................... $3,560,508 $3,954,812 $ 394,304
Dollar
Percent
11.1%
December
31, 2018
December
31, 2019
Revenue for the year ended December 31, 2018 included $55.1 million related to the settlement of
a claim that was resolved in favor of the Company on June 13, 2018, in our Critical Infrastructure
segment. See “Results of Operations—Other income and expenses” above for a description of this
matter. Excluding the claim settlement, revenue increased $449.4 million for the year ended December
31, 2019 when compared to the corresponding period last year, primarily due to an increase in revenue in
our Federal Solutions segment of $408.9 million and an increase in our Critical Infrastructure segment of
$40.5 million See “—Segment Results” below for further discussion.
Direct costs of contracts
(U.S. dollars in thousands)
Direct cost of contracts ............................................... $2,795,005 $3,123,062 $ 328,057
Dollar
Percent
11.7%
December
31, 2018
December
31, 2019
Direct cost of contracts increased in fiscal 2019 primarily due to an increase of $289.6 million in
our Federal Solutions segment and an increase of $38.5 million in our Critical Infrastructure segment. The
increase in our Federal Solutions segment was due primarily to business acquisitions, which added
$239.4 million, and $50.2 million from an increase in business volume on existing contracts, offset by the
completion of a significant contract. The change in our Critical Infrastructure segment was primarily due to
an increase in business volume on existing contracts, along with normal course fluctuations in the winding
down and starting up of contracts.
59
Equity in earnings of unconsolidated joint ventures
(U.S. dollars in thousands)
Equity in earnings of unconsolidated joint ventures .. $
Fiscal Year Ended
December
31, 2018
December
31, 2019
Variance
Dollar
Percent
36,915 $
41,721 $
4,806
13.0%
Equity in earnings of unconsolidated joint ventures increased in fiscal 2019 primarily due to
increased activity under a number of the Company’s existing joint ventures, offset by the completion of a
significant joint venture during the year.
Indirect, general and administrative expenses
Fiscal Year Ended
Variance
(U.S. dollars in thousands)
Indirect, general and administrative expenses ........... $ 597,410 $ 781,408 $ 183,998
Dollar
Percent
30.8%
December
31, 2018
December
31, 2019
Indirect, general and administrative expenses (“IG&A”) for the years ended December 31, 2018
and December 31, 2019 include $16.5 million and $65.7 million, respectively, of compensation cost
related to equity-based awards that primarily settle in cash. Cash settled awards are remeasured to an
updated fair value at each reporting period until the award is settled. Compensation cost is trued-up at
each reporting period for changes in fair value pro-rated for the portion of the requisite service period
rendered.
The significant increase in compensation cost related to these cash settled equity-based awards
for the year ended December 31, 2019 is due to the significant difference in the fair value of a share of
the Company’s common stock under Parsons ESOP valuation at December 31, 2018 compared to the
fair value of a share of the Company’s common stock in the public market at December 31, 2019. See
Item 5 of Part II for ranges in the share price of the Company’s common stock since the consummation of
the IPO and “Note 19—Fair Value of Financial Instruments” in the notes to our consolidated financial
statements included elsewhere in this Annual Report on Form 10-K for a description of how the ESOP
share value is determined. See “Note 1—Description of Operations” in the notes to our consolidated
financial statements included elsewhere in this Annual Report on Form 10-K for more detail regarding the
Company’s IPO. The plans in which these awards were granted have been frozen and the Company
does not currently intend to grant any further cash settled equity-based awards.
Excluding the compensation costs discussed above, IG&A for the years ended December 31,
2018 and December 31, 2019 were $580.9 million and $715.7 million, respectively.
The increase in IG&A of $134.8 million for the year ended December 31, 2019 when compared to
the corresponding period last year was primarily due to our Federal Solutions segment, most of which is
related to additional expenses of $47.8 million from business acquisitions, $50.9 million from the
amortization of intangible assets related to our acquisitions and $11.2 million in acquisition-related
expenses. The remaining increase of $24.9 million is related to additional bid and proposal costs and an
increase in corporate functional group costs.
Total other income (expense)
(U.S. dollars in thousands)
Fiscal Year Ended
Variance
December 31,
2018
December 31,
2019
Dollar
Percent
Interest income ...................................... $
Interest expense ....................................
Other income (expense), net .................
Gain associated with claim on long-
term contract..........................................
Total other income (expense)................ $
2,710 $
(20,842)
(1,651)
1,300 $
(23,729)
(2,392)
(1,410)
(2,887)
(741)
(52.0)%
13.9%
44.9%
74,578
54,795 $
-
(24,821) $
(74,578)
(79,616)
(100.0)%
(145.3)%
60
Interest income is related to interest earned on cash balances held. Interest expense is primarily
due to debt related to our business acquisitions. During the year ended December 31, 2019, the
Company’s term loan of $150 million was paid off and the amount of debt outstanding under the
Company’s revolving credit facility was reduced. The amounts in other income (expense), net are
primarily related to transaction gains and losses on foreign currency transactions and sublease income.
The amount presented in gain associated with claim on long-term contract for the year ended
December 31, 2018 relates to a lawsuit against a joint venture in which the Company is the managing
partner. See “Results of Operations—Other income and expenses” above for a description of this matter,
which was resolved in favor of the company on June 13, 2018.
Income tax (expense) benefit
Fiscal Year Ended
Variance
(U.S. dollars in thousands)
Income tax (expense) benefit ..................................... $ (20,367) $
69,886 $
Dollar
90,253
Percent
443.1%
December
31, 2018
December
31, 2019
Income tax expense decreased in fiscal 2019 primarily due to the revaluation of our deferred tax
assets and liabilities as a result of our conversion from “S” Corporation to a “C” Corporation, partially
offset by the impact of the increase in overall pre-tax earnings subject to taxation as a result of our
conversion to a “C” Corporation.
As described in “Note 14 – Income Taxes,” in the notes to our consolidated financial statements
included elsewhere in this Annual Report on Form 10-K, in connection with the Company’s IPO on May 8,
2019, the Company converted from an “S” Corporation to a “C” Corporation. On a pro forma basis, if the
Company had been taxed as a “C” Corporation for the year ended December 31, 2018 and December 31,
2019, the pro forma effective tax rate would have been 28.77% and 36.89%, respectively, and the
Company’s pro forma income tax expense would have been $74.8 million and $24.8 million, respectively.
The most significant item contributing to the change in the effective tax rate relates to a change in
jurisdictional earnings. The difference between the statutory U.S. federal income tax rate of 21% and the
effective tax rate for the year ended December 31, 2019 primarily relates to foreign earnings which are
subject to foreign income taxes at rates that exceed the U.S. income tax rate.
The termination of the “S” Corporation status was treated as a change in tax status for Accounting
Standards Codification 740, Income Taxes. These rules require that the deferred tax effects of a change
in tax status to be recorded to income from continuing operations on the date the “S” Corporation status
terminates. Through the year ended December 31, 2019, the Company recorded a deferred tax benefit of
$93.9 million for the estimated effect of the change in tax status, relating to the recognition of net deferred
tax assets for temporary differences in existence on the date of conversion to a “C” Corporation. This
estimated amount is subject to additional revision based upon actual results to be reflected in the tax
return for the current year.
61
Year ended December 29, 2017 compared to year ended December 31, 2018
The following table sets forth our results of operations for fiscal 2017 and fiscal 2018 as a
percentage of revenue.
Fiscal Year Ended
December 29,
2017
December 31,
2018
Revenues..............................................................................................
Direct costs of contracts........................................................................
Equity in earnings of unconsolidated joint ventures..............................
Indirect, general and administrative expenses......................................
Operating income.............................................................................
Interest income .....................................................................................
Interest expense ...................................................................................
Other income, net .................................................................................
(Interest and other expense) gain associated with claim on long-term
contract .................................................................................................
Total other income benefit (expense) ..............................................
Income before income tax expense .................................................
Income tax benefit (expense)................................................................
Net income including noncontrolling interests..................................
Net income attributable to noncontrolling interests ...............................
Net income attributable to Parsons Corporation ..............................
100.0%
79.6%
1.3%
16.8%
5.0%
0.1%
(0.5)%
0.2%
(0.3)%
(0.6)%
4.4%
(0.7)%
3.7%
(0.5)%
3.2%
100.0%
78.5%
1.0%
16.8%
5.8%
0.1%
(0.6)%
0.0%
2.1%
1.5%
7.3%
(0.6)%
6.7%
(0.5)%
6.2%
Revenue
Fiscal Year Ended
Variance
(U.S. dollars in thousands)
Revenue ..................................................................... $3,017,011 $3,560,508 $ 543,497
Dollar
Percent
18.0%
December
29, 2017
December
31, 2018
Revenue for the year ended December 31, 2018 compared to the corresponding period last year
increased $543.5 million. As discussed above, revenue for the year ended December 31, 2018 included
$55.1 million related to the settlement of a claim that was resolved in favor of the Company. Excluding
the claim settlement, revenue increased $488.4 million for the year ended December 31, 2018 when
compared to the corresponding period last year, primarily due to an increase in revenue in our Federal
Solutions segment of $399.1 million and an increase in our Critical Infrastructure segment of $89.3 million
See “—Segment Results” below for further discussion.
Direct costs of contracts
Fiscal Year Ended
Variance
(U.S. dollars in thousands)
Direct cost of contracts ............................................... $2,400,140 $2,795,005 $ 394,865
Dollar
Percent
16.5%
December
29, 2017
December
31, 2018
Direct cost of contracts increased in fiscal 2018 primarily due to an increase of $327.3 million in
our Federal Solutions segment. This increase was due in part to business acquisitions, which added
$194.5 million. The remaining increase in our direct costs of contracts in Federal Solutions was due to the
ramp up of a number of projects, as well as growth on existing contracts. Direct cost of contracts in our
Critical Infrastructure segment increased $67.6 million primarily due to a proportionate increase in Critical
Infrastructure revenue.
62
Equity in earnings of unconsolidated joint ventures
(U.S. dollars in thousands)
Equity in earnings of unconsolidated joint ventures .. $
Fiscal Year Ended
December
29, 2017
December
31, 2018
Variance
Dollar
Percent
40,086 $
36,915 $
(3,171)
(7.9)%
Equity in earnings of unconsolidated joint ventures decreased in fiscal 2018 primarily due to the
timing of the completion of joint ventures and the starting of new joint ventures as part of ordinary course
timing fluctuations in our business.
Indirect, general and administrative expenses
Fiscal Year Ended
Variance
(U.S. dollars in thousands)
Indirect, general and administrative expenses ........... $ 506,255 $ 597,410 $
Dollar
91,155
Percent
18.0%
December
29, 2017
December
31, 2018
Indirect, general and administrative expenses increased in fiscal 2018 primarily due to our Federal
Solutions segment, most of which is related to additional expenses from business acquisitions of $36.3
million, $32.3 million from the amortization of intangible assets related to our acquisitions, and $6.2 million
in acquisition-related expenses. In our Critical Infrastructure segment, expenses in fiscal 2018 were
substantially unchanged from fiscal 2017.
Total other (expense) income
(U.S. dollars in thousands)
Fiscal Year Ended
Variance
December 29,
2017
December 31,
2018
Dollar
Percent
Interest income ...................................... $
Interest expense ....................................
Other income (expense), net .................
2,465 $
(15,798)
5,658
2,710 $
(20,842)
(1,651)
245
(5,044)
(7,309)
9.9%
(31.9)%
(129.2)%
(Interest and other expense) gain
associated with claim on long-term
contract.......................................................
Total other income (expense)................ $
(10,026)
(17,701) $
74,578
54,795 $
84,604
72,496
843.8%
(409.6)%
Interest expense increased in fiscal 2018 primarily due to the increase in debt in fiscal 2018
compared to fiscal 2017. This increase in debt was primarily related to the Polaris Alpha acquisition. The
amounts in other income (expense), net, are primarily related to transaction gains and losses on foreign
currency transactions and sublease income.
As discussed above, the amount presented in gain associated with claim on long-term contract for
the year ended December 31, 2018 relates to a lawsuit against a joint venture in which the Company is
the managing partner.
Income tax expense
Fiscal Year Ended
Variance
(U.S. dollars in thousands)
Income tax expense.................................................... $ (21,464) $ (20,367) $
Dollar
Percent
1,097
5.1%
December
29, 2017
December
31, 2018
Income tax expense decreased in fiscal 2018 primarily due to the impact of our change in
jurisdictional earnings mix from higher to lower tax jurisdictions, partially offset by the impact of the
increase in overall pre-tax earnings subject to taxation.
63
Segment Results
We evaluate segment operating performance using segment revenue and segment Adjusted
EBITDA attributable to Parsons Corporation. Adjusted EBITDA attributable to Parsons Corporation is
Adjusted EBITDA excluding Adjusted EBITDA attributable to noncontrolling interests. See “Selected
Financial Data” for a discussion of our definition of Adjusted EBITDA, how we use this metric, why we
present this metric and the material limitations on the usefulness of this metric. See “Note 21—Segments
Information” in the notes to our consolidated financial statements included elsewhere in this Annual
Report on Form 10-K for further discussion regarding our segment Adjusted EBITDA attributable to
Parsons Corporation.
The following table shows Adjusted EBITDA attributable to Parsons Corporation for each of our
reportable segments and Adjusted EBITDA attributable to noncontrolling interests:
(U.S. dollars in thousands)
Federal Solutions Adjusted EBITDA attributable to Parsons
Corporation ............................................................................. $
Critical Infrastructure Adjusted EBITDA attributable to
Parsons Corporation ...............................................................
Adjusted EBITDA attributable to noncontrolling interests .......
Total Adjusted EBITDA ...................................................... $
December 29,
2017
Fiscal Year Ended
December 31,
2018
December 31,
2019
95,354 $
121,986 $
169,100
99,402
14,891
209,647 $
106,851 $
17,407 $
246,244 $
138,851
17,096
325,047
Year ended December 31, 2018 compared to year ended December 31, 2019
Federal Solutions
The Year Ended
Variance
(U.S. dollars in thousands)
Revenue............................................................................... $ 1,479,007 $ 1,887,907 $408,900 27.6%
Adjusted EBITDA attributable to Parsons Corporation ........ $ 121,986 $ 169,100 $ 47,114 38.6%
Dollar
Percent
December
31, 2018
December
31, 2019
The increase in Federal Solutions revenue for the year ended December 31, 2019 compared to
the corresponding period last year was primarily due to incremental revenue from business acquisitions,
which added $317.4 million. Federal Solutions organic revenue grew $91.5 million, which included
significant incentive fee recognition and an increase in business volume on existing contracts, offset by
the completion of a significant contract.
The increase in Federal Solutions Adjusted EBITDA attributable to Parsons Corporation for the
year ended December 31, 2019 compared to the corresponding period last year was primarily due to
business acquisitions, an increase in business volume on existing contracts, and generally higher profit
margins driven by significant incentive fee recognition. These increases were partially offset by an
increase in IG&A, driven by an increase in bid and proposal costs and a greater allocation of corporate
IG&A in line with the segment’s growing share of overall business as well as the completion of a
significant contract.
Critical Infrastructure
The Year Ended
Variance
(U.S. dollars in thousands)
(0.7)%
Revenue .............................................................................. $ 2,081,501 $ 2,066,905 $(14,596)
Adjusted EBITDA attributable to Parsons Corporation ........ $ 106,851 $ 138,851 $ 32,000 29.9%
Percent
Dollar
December
31, 2018
December
31, 2019
As discussed above, Critical Infrastructure revenue for the year ended December 31, 2018
included $55.1 million related to the settlement of a claim that was resolved in favor of the Company.
64
Excluding the claim settlement, revenue for the year ended December 31, 2019 compared to the
corresponding period last year increased $44.2 million. This increase in revenue was primarily related to
an increase in business volume under existing contracts, along with normal course fluctuations in the
winding down and starting up of contracts.
The increase in Critical Infrastructure Adjusted EBITDA attributable to Parsons for the year ended
December 31, 2019 compared to the corresponding period last year was primarily due to an increase in
business volume, a decrease in IG&A, primarily due to a lower allocation of corporate IG&A in line with
the segment’s share of overall business, and an increase in equity in earnings of unconsolidated joint
ventures.
Year ended December 29, 2017 compared to year ended December 31, 2018
Federal Solutions
The Year Ended
Variance
(U.S. dollars in thousands)
Revenue............................................................................... $ 1,079,906 $ 1,479,007 $399,101 37.0%
95,354 $ 121,986 $ 26,632 27.9%
Adjusted EBITDA attributable to Parsons Corporation ........ $
Dollar
Percent
December
29, 2017
December
31, 2018
The increase in Federal Solutions revenue for the year ended December 31, 2018 compared to
the corresponding period last year was primarily due to incremental revenue from business acquisitions,
which added $254.9 million. Federal Solutions legacy revenue increased $144.2 million primarily due to
the ramp up of a number of projects, as well as growth on existing contracts.
The increase in Federal Solutions Adjusted EBITDA attributable to Parsons Corporation for the
year ended December 31, 2018 compared to the corresponding period last year was primarily due to
business acquisitions.
Critical Infrastructure
The Year Ended
Variance
(U.S. dollars in thousands)
Revenue .............................................................................. $ 1,937,105 $ 2,081,501 $144,396
7,449
Adjusted EBITDA attributable to Parsons Corporation ........ $
99,402 $ 106,851 $
Dollar
Percent
7.5%
7.5%
December
29, 2017
December
31, 2018
As discussed above, Critical Infrastructure revenue for the year ended December 31, 2018
included $55.1 million related to the settlement of a claim that was resolved in favor of the Company.
Excluding the claim settlement, revenue for the year ended December 31, 2018 compared to the
corresponding periods last year increased $89.3 million. This increase in revenue was primarily related to
an increase in business volume under existing contracts, along with normal course fluctuations in the
winding down and starting up of contracts.
The increase in Critical Infrastructure Adjusted EBITDA attributable to Parsons Corporation was
primarily related to an increase in business volume, offset by an increase in other income and expense,
primarily related to foreign currency transaction gains and losses, and an increase in net income
attributable to noncontrolling interests.
Liquidity and Capital Resources
Historically, we have financed our operations and capital expenditures and, prior to the conclusion
of the 180-day lock-up period on November 3, 2019, satisfied redemptions of ESOP interests through a
combination of internally generated cash from operations, our Senior Notes and from borrowings under
our Revolving Credit Facility. At the conclusion of the 180-day lock-up period on November 3, 2019, all
shares held by the ESOP are redeemable by participants in shares of the Company’s common stock
once vesting and eligibility requirements have been met. See “Critical Accounting Policies and
65
Estimates” elsewhere in this Annual Report on Form 10-K for a discussion of the ESOP and related IPO
matters.
Generally, cash provided by operating activities has been adequate to fund our operations. Due to
fluctuations in our cash flows and growth in our operations, it may be necessary from time to time in the
future to borrow under our Credit Agreement to meet cash demands. Our management regularly monitors
certain liquidity measures to monitor performance. We calculate our available liquidity as a sum of cash
and cash equivalents from our consolidated balance sheet plus the amount available and unutilized on
our Credit Agreement.
We believe we have adequate liquidity and capital resources to fund our operations, support our
debt service and support our ongoing acquisition strategy for at least the next twelve months based on
the liquidity from cash provided by our operating activities, cash and cash equivalents on-hand and our
borrowing capacity under our Revolving Credit Facility.
Cash Flows
Cash received from customers, either from the payment of invoices for work performed or for
advances in excess of revenue recognized, is our primary source of cash. We generally do not begin
work on contracts until funding is appropriated by the customers. Billing timetables and payment terms on
our contracts vary based on a number of factors, including whether the contract type is cost-plus, time-
and-materials, or fixed-price. We generally bill and collect cash more frequently under cost-plus and time-
and-materials contracts, as we are authorized to bill as the costs are incurred or work is performed. In
contrast, we may be limited to bill certain fixed-price contracts only when specified milestones, including
deliveries, are achieved. A number of our contracts may provide for performance-based payments, which
allow us to bill and collect cash prior to completing the work.
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.
Accounts receivable is the principal component of our working capital and is generally driven by
revenue growth. Accounts receivable includes billed and unbilled amounts. The total amount of our
accounts receivable can vary significantly over time, but is generally sensitive to revenue levels. We
experience delays in collections from time to time from Middle East customers. Net days sales
outstanding, which we refer to as net DSO, is calculated by dividing (i) accounts receivable (net of project
accruals, billings in excess of revenue and accounts payable) by (ii) average revenue per day (calculated
by dividing trailing twelve months revenue by the number of days in that period). We focus on collecting
outstanding receivables to reduce Net DSO and working capital. Net DSO was 68 days at December 29,
2017, 52 days at December 31, 2018 and 55 days at December 31, 2019. Our working capital (current
assets less current liabilities) was $554.2 million at December 29, 2017, $482.6 million at December 31,
2018 and $382.0 million at December 31, 2019.
Our cash, cash equivalents and restricted cash decreased by $85.8 million to $195.4 million at
December 31, 2019 from $281.2 million at December 31, 2018. This compares to a decrease in cash,
cash equivalents and restricted cash of $164.9 million from $446.1 million at December 29, 2017 to
$281.2 million at December 31, 2018.
The following table summarizes our sources and uses of cash over the periods presented (in
thousands):
Net cash provided by operating activities ............................... $
Net cash used in investing activities .......................................
Net cash provided by (used in) financing activities .................
Effect of exchange rate changes ............................................
Net increase (decrease) in cash and cash equivalents .......... $
December 29,
2017
265,029 $
(52,961)
(160,171)
1,235
Fiscal Year Ended
December 31,
2018
284,634 $
(503,295)
55,411
(1,699)
53,132 $ (164,949) $
December 31,
2019
220,240
(570,803)
266,036
(1,294)
(85,821)
66
Operating Activities
Net cash provided by operating activities consists primarily of net income adjusted for noncash
items, such as: equity in earnings of unconsolidated joint ventures, contributions of treasury stock,
depreciation and amortization of property and equipment and intangible assets, provisions for doubtful
accounts, amortization of deferred gains, and impairment charges. The timing between the conversion of
our billed and unbilled receivables into cash from our customers and disbursements to our employees
and vendors is the primary driver of changes in our working capital. Our operating cash flows are primarily
affected by our ability to invoice and collect from our clients in a timely manner, our ability to manage our
vendor payments and the overall profitability of our contracts.
Net cash provided by operating activities decreased $64.4 million to $220.2 million during fiscal
2019 compared to $284.6 million during fiscal 2018. The decrease in net cash provided by operating
activities is primarily due to a change in the use of cash related to our working capital accounts of $64.1
million (primarily driven by growth in accounts receivable and contract assets net of contract liabilities),
and a $8.8 million change in net income after adjusting for non-cash items. These negative changes in
operating cash flows were offset, in part, by a $8.6 million change in other long-term liabilities, primarily
related to our insurance reserves. Net DSOs increased from 52 days to 55 days primarily driven by the
change in the Company’s working capital accounts discussed above.
Net cash provided by operating activities increased $19.6 million to $284.6 million during fiscal
2018 compared to $265.0 million during fiscal 2017. The increase in net cash provided by operating
activities is primarily due to a change in other long-term liabilities of $12.8 million, primarily related to our
insurance reserves, and a $38.5 million increase in net income after adjusting for non-cash items. These
positive changes in operating cash flows were offset, in part, by a $33.1 million change in the use of cash
related to our working capital accounts. Notwithstanding the decrease in cash flows from our working
capital accounts, net DSOs decreased from 68 days to 52 days primarily driven by the change in our
business mix with a greater percentage of business volume coming from Federal Solutions segment
which generally has lower DSO.
In connection with the Company’s IPO on May 8, 2019, the Company converted from an “S”
Corporation to a “C” Corporation. As a “C” Corporation we are now subject to U.S. Income Taxes.
During fiscal 2019 the Company made $60.5 million in tax payments compared with $17.1 million in tax
payments during fiscal 2018.
Investing Activities
Net cash used in investing activities consists primarily of cash flows associated with capital
expenditures and business acquisitions.
Net cash used in investing activities increased $67.5 million from fiscal 2018 to fiscal 2019,
primarily due to an increase in cash used for capital expenditures of $38.3 million, principally related to
the Company’s office space, investments in unconsolidated joint ventures of $19.9 million, and payments
for acquisitions, net of cash acquired, of $13.7 million.
Net cash used in investing activities increased $450.3 million from fiscal 2017 to fiscal 2018,
primarily due to the use of $481.2 million, net of cash acquired, for the acquisition of Polaris Alpha in
fiscal 2018 compared to $25.7 million, net of cash acquired, in fiscal 2017 for the acquisition of Williams
Electric Company.
Financing Activities
Net cash provided by (used in) financing activities is primarily associated with proceeds from debt,
the repayment thereof, distributions to noncontrolling interests and payments to the ESOP in connection
with the redemption of ESOP participants’ interests. We spent $111.4 million in fiscal 2017, $125.8 million
in fiscal 2018 and $6.3 million in fiscal 2019 in connection with the redemption of ESOP participants’
interests. With a public market for the Company’s common stock, cash is no longer required for ESOP
67
redemptions following the 180-day lock-up period which ended November 3, 2019. Participants now
receive distributions of their ESOP interests in shares of our common stock.
Net cash provided by financing activities increased $210.6 million from fiscal 2018 to fiscal 2019,
primarily due to $536.9 million of net proceeds from the IPO and a reduction of $119.5 million in the
purchases of treasury stock related to redemptions of ESOP interests in fiscal 2019 compared to fiscal
2018. These changes in cash flows provided by financing activities were offset, in part, by a change in
net repayments under the Company’s revolving credit agreement of $360.0 million, payment of the IPO
dividend of $52.1 million, an increase of $23.4 million in distributions to noncontrolling interests and a
decrease of $10.6 million in contributions by noncontrolling interests.
Net cash provided by financing activities increased $215.6 million from fiscal 2017 to fiscal 2018,
primarily due to an increase in net borrowings under our Credit Agreement of $180.0 million and a
decrease in distributions to noncontrolling interest of $45.7 million. These cash flows provided by
financing activities were offset, in part, by an increase of $14.4 million in the purchases of treasury stock
related to redemptions of ESOP interests in fiscal 2018 compared to redemptions in fiscal 2017.
Letters of Credit
We also have in place several secondary bank credit lines for issuing letters of credit, principally
for foreign contracts, to support performance and completion guarantees. Letters of credit commitments
outstanding under these bank lines aggregated $197.3 million as of December 31, 2019. Letters of credit
outstanding under the Credit Agreement total $43.7 million.
Contractual Obligations
The following table summarizes our contractual obligations that require us to make future cash
payments as of December 31, 2019. For contractual obligations, we included payments that we have an
unconditional obligation to make.
(U.S. dollars in thousands)
2021-2022 2023-2024 Thereafter
Total
Senior Notes (1)................................................. $316,853 $ 12,361 $ 71,824 $118,094 $114,574
Operating lease obligations ............................... 283,453 58,412 102,945 72,369 49,727
Finance lease obligations ..................................
-
Total minimum payments................................... $602,702 $ 71,925 $175,965 $190,511 $164,301
1,152
1,196
2,396
48
2020
(1)
Consists of our principal and interest obligations under our Senior Notes. See “Note 12—Debt and
Credit Facilities” in the notes to our consolidated financial statements included elsewhere in this
Annual Report on Form 10-K for additional information regarding our debt and related matters.
In the normal course of business, we enter into agreements with subcontractors and vendors to
provide products and services that we consume in our operations or that are delivered to our clients.
These products and services are not considered unconditional obligations until the products and services
are actually delivered at which time we record a liability for our obligation.
Critical Accounting Policies and Estimates
Our significant accounting policies are described in “Note 2—Summary of Significant Accounting
Policies” in the notes to our consolidated financial statements included elsewhere in this Annual Report
on Form 10-K. Management makes estimates and judgments in preparing our consolidated financial
statements. These estimates and judgments affect the reported amounts of certain assets and liabilities
and the revenues and expenses reported for the periods presented in the consolidated financial
statements. Although such estimates and assumptions are based on information available through the
date of the issuance of our consolidated financial statements, actual results could differ significantly from
those estimates and assumptions. Our estimates, judgments and assumptions are evaluated periodically
and adjusted accordingly.
68
We believe that the following items are the most critical accounting policies and estimates that
involved significant judgment as we prepared our financial statements. We consider an accounting policy
or estimate to be critical if the policy or estimate requires assumptions to be made that were uncertain at
the time they were made and if changes in these assumptions could have a material impact on our
financial condition or results of operations.
Revenue Recognition and Cost Estimation
In May 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards
Update (“ASU”) 2014-09, Revenue from Contracts with Customers, (“ASC 606”), which provides a single
comprehensive accounting standard for revenue recognition for contracts with customers and supersedes
then-current industry-specific guidance, including Accounting Standards Codification 605-35, or ASC 605-
35. The new standard requires companies to recognize revenue when control of promised goods or
services is transferred to customers at an amount that reflects the consideration to which the company
expects to be entitled in exchange for the goods or services. The new model requires companies to
identify contractual performance obligations and determine whether revenue should be recognized at a
point in time or over time for each of these obligations. The new standard also significantly expands
disclosure requirements regarding the nature, amount, timing and uncertainty of revenue and cash flows
arising from contracts with customers.
On December 30, 2017, the Company adopted ASC 606, using the modified retrospective method,
which provides for a cumulative effect adjustment to retained earnings beginning in fiscal 2018 for those
uncompleted contracts impacted by the adoption of the new standard. The difference between the
recognition criteria under ASC-606 and our previous recognition practices under ASC 605-35 was
recognized through a cumulative adjustment of $4.7 million that was made to the opening balance of
accumulated deficit as of December 30, 2017. The cumulative effect of adopting ASC 606 was primarily
due to combining certain deliverables that were previously considered separate deliverables into a single
performance obligation and the transition of certain cost-type contracts into the cost-to-cost measure of
progress method. Consistent with the modified retrospective transition approach, the comparative fiscal
2017 period was not adjusted to conform to the current period presentation. The following are the
significant policies and practices as applied to our business.
In our industry, recognition of revenue and profit on long-term contracts requires the use of
assumptions and estimates related to total contract revenue, total cost at completion, and the
measurement of progress towards completion. Estimates are continually evaluated as work progresses
and are revised when necessary. When a change in estimate is determined to have an impact on contract
revenue or profit, we record a positive or negative adjustment to the consolidated statements of income.
A performance obligation is a promise in a contract to transfer a distinct good or service to the
customer and is the unit of account in ASC 606. The transaction price of a contract is allocated to each
distinct performance obligation and recognized as revenue when, or as, the performance obligation is
satisfied. To the extent a contract is deemed to have multiple performance obligations, we allocate the
transaction price of the contract to each performance obligation using our best estimate of the standalone
selling price of each distinct good or service in the contract. We determine the relative standalone selling
price utilizing observable prices for the sale of the underlying goods or services. Contracts are considered
to have a single performance obligation if the promise to transfer the individual goods or services is not
separately identifiable from other promises in the contracts or is not distinct in the context of the contract,
which is mainly because we provide a significant service of integrating a complex set of tasks and
components into a single project or capability. Engineering and construction contracts are generally
accounted for as a single performance obligation, while our engineering and construction supervision
contracts are accounted for as two separate performance obligations. When providing construction
supervision services, we are not liable for the construction of the asset, but have an overall responsibility
to oversee, coordinate, measure, and evaluate the quality of construction work and the performance of
the construction contractor on behalf of the customer. Customers are generally billed as we satisfy our
performance obligations and payment terms typically range from 30 to 120 days from the invoice date.
Billings under certain fixed-price contracts may be based upon the achievement of specified milestones,
69
while some arrangements may require advance customer payment. Our contracts generally do not
include a significant financing component.
The transaction price for our contracts may include variable consideration, which includes
increases to the transaction price for approved and unpriced change orders, claims and incentives, and
reductions to transaction price for liquidated damages. We recognize adjustments in estimated profit on
contracts under the cumulative catch-up method. Under this method, the impact of the adjustment on
profit recorded to-date is recognized in the period the adjustment is identified. If at any time the estimate
of contract profitability indicates an anticipated loss on the contract, we recognize the total loss in the
quarter it is identified.
Claims revenue is related to amounts in excess of agreed contract price that we seek to collect
from clients or others for customer-caused delays, errors in specifications and designs, contract
terminations, change orders that are either in dispute or are unapproved as to both price and scope, or
other causes of unanticipated additional contract costs, including factors outside of our control, where we
therefore believe we are entitled to additional compensation. Claims revenue, when recorded, is only
recorded to the extent it is probable that a significant reversal of cumulative revenue recognized will not
occur. We include certain unapproved claims in the transaction price when the claims are legally
enforceable, we consider collection to be probable and believe we can reliably estimate the ultimate
value. We continue to engage in negotiations with our customers on our outstanding claims. However,
these claims may be resolved at amounts that differ from our current estimates, which could result in
increases or decreases in future estimated contract profits or losses. Costs related to claims are
recognized when they are incurred.
Change orders, which are a normal and recurring part of our business, are generally not distinct
and are accounted for as part of the existing contract. The effect of a change order that is not distinct on
the transaction price and our measure of progress for the performance obligation to which it relates is
recognized on a cumulative catch-up basis. To the extent change orders included in the transaction price
are not resolved in our favor, there could be reductions in, or reversals of previously reported amounts of,
revenues and profits, and charges against current earnings. Costs relating to change orders are
recognized when they are incurred.
We recognize revenue for most of our contracts over time as performance obligations are satisfied,
as we are continuously transferring control to the customer. Typically, revenue is recognized over time
using an input measure (i.e., costs incurred to date relative to total estimated costs at completion) to
measure progress.
We often enter into contracts in which the amount billed to the customer corresponds directly with
the amount of work performed. These contract types qualify for the “right to invoice” practical expedient
method of measuring progress, in which the right to consideration corresponds directly with the value to
the customer of our performance to date. For these contracts, revenue is recognized in the amount that
we have the right to invoice.
Provisions for anticipated losses on contracts, including those arising from disputes and other
contingencies, are recorded in the period such loss becomes known; provisions not ultimately required
are released as disputes or contingencies are resolved.
Contract costs include labor and materials, amounts payable to subcontractors, direct overhead
costs and equipment expense (primarily depreciation, fuel, maintenance and repairs). All contract costs
are recorded as incurred. Changes to estimated contract costs, either due to unexpected events or
revisions to management’s initial estimates, for a given project are recognized in the period in which they
are determined as estimated at the contract level.
70
Leases
In February 2016, the FASB issued ASU 2016-02 “Leases (Topic 842)”, which is a new standard
related to leases to increase transparency and comparability among organizations by requiring the
recognition of right-of-use (“ROU”) assets obtained in exchange for lease liabilities on the balance sheet.
Most prominent among the changes in the standard is the recognition of ROU assets and lease liabilities
by lessees for those leases classified as operating leases. Under the standard, disclosures are required
to meet the objective of enabling users of financial statements to assess the amount, timing, and
uncertainty of cash flows arising from leases.
The Company elected to adopt the standard, and available practical expedients, effective January
1, 2019. These practical expedients allowed the Company to keep the lease classification assessed
under the previous lease accounting standard (ASC 840) without reassessment under the new standard,
and allowed all separate lease components, including non-lease components, to be accounted for as a
single lease component for all existing leases prior to adoption of the new standard. Furthermore, the
Company made an accounting policy election to not recognize a lease liability and ROU asset for leases
with lease terms of twelve months or less.
The Company adopted this new standard under the modified retrospective transition approach
without adjusting comparative periods in the financial statements, as allowed under Topic 842, and
implemented internal controls and key system functionality to enable the preparation of financial
information on adoption.
The standard had a material impact on the Company’s consolidated balance sheets but did not
have an impact on the consolidated income statements. The most significant impact was the recognition
of ROU assets and lease liabilities for operating leases, while accounting for finance leases remained
substantially unchanged.
As a result of the adoption, the Company recorded a cumulative-effect adjustment to retained
earnings of $52.6 million, net of a deferred tax asset adjustment of $0.7 million, representing the
unamortized portion of a deferred gain previously recorded as a sale-leaseback transaction associated
with the sale of an office building in 2011. The Company concluded the transaction resulted in the transfer
of control of the office building to the buyer-lessor at market terms and would have qualified as a sale
under Topic 842 with gain recognition in the period the sale was recognized.
The Company determines if an arrangement is a lease at inception. Operating leases are included
in operating lease ROU assets and current and long-term operating lease liabilities in the consolidated
balance sheets. Finance leases are included in other noncurrent assets, accrued expenses and other
current liabilities and other long-term liabilities in the consolidated balance sheets.
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease
liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU
assets and liabilities are recognized at commencement date based on the present value of lease
payments over the lease term. As most of the Company’s leases do not provide an implicit interest rate,
incremental borrowing rates are used based on the information available at commencement date in
determining the present value of lease payments. The operating lease ROU asset also includes any lease
payments made and excludes lease incentives. Lease terms may include options to extend or terminate
the lease when it is reasonably certain that we will exercise that option. Lease expense for operating
lease payments is recognized on a straight-line basis over the lease term.
We have lease agreements with lease and non-lease components, which are generally accounted
for separately. For certain equipment leases, such as vehicles, we account for the lease and non-lease
components as a single lease component. Additionally, for certain equipment leases, we apply a portfolio
approach to effectively account for the operating lease ROU assets and liabilities.
71
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 10 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 up to the seventh year.
Business Combinations
The cost of an acquired company is assigned to the tangible and intangible assets purchased and
the liabilities assumed on the basis of their fair values at the date of acquisition. The determination of fair
values of assets acquired and liabilities assumed requires us to make estimates and use valuation
techniques when a market value is not readily available. Any excess of purchase price over the fair value
of tangible and intangible assets acquired and obligations assumed is allocated to goodwill. Goodwill
typically represents the value paid for the assembled workforce and enhancement of our service
offerings. Transaction costs associated with business combinations are expensed as incurred. The
determination of fair values of assets acquired and liabilities assumed requires the Company to make
estimates and use valuation techniques when a market value is not readily available. The Company
adjusts the preliminary purchase prices allocation, as necessary, during the measurement period of up to
one year after the acquisition closing date as the Company obtains more information as to facts and
circumstances existing at the acquisition date.
Goodwill and Intangible Assets
Goodwill is not amortized but is subject to an annual impairment test. Interim testing for impairment
is performed if indicators of potential impairment exist. For purposes of impairment testing, goodwill is
allocated to the applicable reporting units based on the current reporting structure. When evaluating
goodwill for impairment, we may decide to first perform a qualitative assessment, or “step zero”
impairment test, to determine whether it is more likely than not that impairment has occurred. If we do not
perform a qualitative assessment, or if we determine that it is not more likely than not that the fair value of
our reporting units exceeds their carrying amounts, we perform a quantitative assessment and calculate
the estimated fair value of the respective reporting unit. If the carrying amount of a reporting unit’s
goodwill exceeds the fair value of that goodwill, an impairment loss is recognized.
Our decision to perform a qualitative impairment assessment in a given year is influenced by a
number of factors, including the significance of the excess of our estimated fair value over carrying value
at the last quantitative assessment date, the amount of time in between quantitative fair value
assessments, and the date of the applicable acquisitions, if any.
In 2019, the Company changed the date of its annual goodwill impairment testing from November
30 to October 1. This change results in better alignment of the Company's annual impairment test with the
Company’s annual budgeting cycle and provides a more reliable measurement using the Company’s
interim closing processes. The change had no effect on the Company’s consolidated financial statements
for the current or historical periods.
We perform a goodwill impairment test on an annual basis for each reporting unit that requires
certain assumptions and estimates be made regarding industry economic factors and future profitability.
For the years ended December 29, 2017, December 31, 2018 and December 31, 2019, we performed a
quantitative analysis for all of our reporting units. It was determined that the fair value of each of our
reporting units substantially exceeded their carrying values. As a result, no goodwill impairments were
identified for those periods.
The goodwill impairment test involves determination of the fair value of our reporting units. This
process requires significant judgments and estimates, including assumptions about our strategic plans for
operations as well as the interpretation of current economic indicators. Development of the present value
of future cash flow projections includes assumptions and estimates derived from a review of our expected
revenue growth rates, profit margins, business plans, cost of capital and tax rates. We also make certain
assumptions about future market conditions, market prices, interest rates and changes in business
strategies. Changes in assumptions or estimates could materially affect the determination of the fair value
72
of a reporting unit. This could eliminate the excess of fair value over carrying value of a reporting unit
entirely and, in some cases, result in impairment. Such changes in assumptions could be caused by a
loss of one or more significant contracts, reductions in government or commercial client spending, or a
decline in the demand for our services due to changing economic conditions. In the event that we
determine that our goodwill is impaired, we would be required to record a non-cash charge that could
result in a material adverse effect on our results of operations or financial position.
We use the Income Approach and Market Approach (Guideline Transaction and Guideline
Company Method) to determine the fair value of reporting units. The Income Approach utilizes the
discounted cash flow method, which focuses on the expected cash flow of the reporting unit. In applying
this approach, the cash flow is calculated for a finite period of years. Beyond the finite period, a terminal
value is developed using a sustainable long-term annual growth rate estimate. Then the finite period cash
flows and the terminal value are discounted to present value to arrive at an indication of fair value. We
utilized internal financial projections through fiscal 2024. The Market Approach utilizes market
comparable transactions and comparable companies to calculate the estimated fair value. The guideline
company approach focuses on comparing the reporting unit to select reasonably similar (or ”guideline”)
publicly traded companies. Under this method, valuation multiples are derived from the median of the
operating data of selected guideline companies and applied to the operating data of the reporting unit to
arrive at an indication value. In the similar transactions approach, consideration is given to prices paid in
recent transactions that have occurred in the reporting unit's industry or in related industries. For the
Federal Solutions reporting unit, only Guideline Company Method is used as the Federal Solutions
reporting unit has gone through multiple acquisitions during the past 2 years, and thus making Guideline
Transaction Method difficult to apply. For the Critical Infrastructure reporting unit, both Guideline
Transaction Method and Guideline Company Method are utilized to calculate the estimated fair value.
Equal weighing is given to each of the methods used to estimate the fair value of reporting units. Our last
review at October 1, 2019 (i.e. the first day of our fourth quarter in fiscal 2019), indicated that we had no
impairment of goodwill, and all of our reporting units had estimated fair values that were in excess of their
carrying values, including goodwill. We had no reporting units that had estimated fair values that
exceeded their carrying values by less than 50%.
Intangible assets with finite lives arise from business acquisitions and are amortized based on the
period over which the contractual or economic benefit of the intangible assets are expected to be realized
or on a straight-line basis over the useful lives of the underlying assets, ranging from one to ten years.
These primarily consist of customer relationships, backlog, and covenants not to compete. We assess the
recoverability of the unamortized balance of our intangible assets when indicators of impairment are
present based on expected future profitability and undiscounted expected cash flows and their
contribution to overall operations. Should the review indicate that the carrying value is not fully
recoverable, the excess of the carrying value over the fair value of the intangible assets would be
recognized as an impairment loss.
Consolidation of Joint Ventures and Variable Interest Entities
We participate in joint ventures, which include partnerships and partially owned limited liability
corporations, to bid, negotiate and complete specific projects. We are required to consolidate these joint
ventures if we hold the majority voting interest or if we meet the criteria under the consolidation model as
described below.
A variable interest entity, or “VIE”, is an entity with one or more of the following characteristics:
(a) the total equity investment at risk is not sufficient to permit the entity to finance its activities without
additional financial support; (b) as a group, the holders of the equity investment at risk lack the ability to
make certain decisions, the obligation to absorb expected losses or the right to receive expected residual
returns; or (c) an equity investor has voting rights that are disproportionate to its economic interest and
substantially all of the entity’s activities are on behalf of the investor with disproportionately low voting
rights. Our VIEs may be funded through contributions, loans and/or advances from the joint venture
partners or by advances and/or letters of credit provided by clients. Certain VIEs are directly governed,
managed, operated and administered by the joint venture partners. Others have no employees and,
73
although these entities own and hold the contracts with the clients, the services required by the contracts
are typically performed by the joint venture partners or by other subcontractors.
We are required to perform an analysis to determine whether we are the primary beneficiary of our
VIEs. We are deemed to be the primary beneficiary of a VIE if we have (i) the power to direct the activities
of the VIE that most significantly impact the VIE’s economic performance; and (ii) the obligation to absorb
losses or the right to receive benefits that could potentially be significant to the VIE.
Many of the joint ventures we enter into are deemed to be VIEs because they lack sufficient equity
to finance the activities of the joint venture. We use a qualitative approach to determine if we are the
primary beneficiary of the VIE, which considers factors that indicate a party has the power to direct the
activities that most significantly impact the joint venture’s economic performance. In determining whether
we are the primary beneficiary of the VIE, significant assumptions and judgments include the following:
(1) identifying the significant activities and the parties that have the power to direct them; (2) reviewing the
governing board composition and participation ratio; (3) determining the equity, profit and loss ratio;
(4) determining the management-sharing ratio; (5) reviewing employment terms, including which joint
venture partner provides the project manager; and (6) reviewing the funding and operating agreements.
We analyze each joint venture initially to determine if it should be consolidated or unconsolidated into our
financial statements:
• A joint venture is consolidated into our financial statements if we are the primary beneficiary of a
VIE or hold the majority of voting interests of a non-VIE (and no significant participative rights
are available to the other partners).
• A joint venture is not consolidated into our financial statements if we are not the primary
beneficiary of a VIE, or do not hold the majority of voting interest of a non-VIE.
We account for our unconsolidated joint ventures using the equity method of accounting. Under
this method, we recognize our proportionate share of the net earnings of these joint ventures as “Equity in
earnings (loss) of unconsolidated joint ventures”. Our maximum exposure to loss as a result of our
investments in unconsolidated variable interest entities is typically limited to the aggregate of the carrying
value of the investment and future funding commitments in these entities.
ESOP
On May 8, 2019, the Company consummated the IPO. At the IPO date, shares held by the ESOP
were subject to a 180-day lock-up period which concluded on November 3, 2019.
We contribute shares of our own stock to the ESOP each year. Shares held by the ESOP or
committed to be contributed to the ESOP were presented as temporary equity at December 31, 2018 as
they included a cash redemption feature that was not solely within the Company’s control. At the
conclusion of the 180-day lock-up period, ESOP distributions are no longer made in cash and are now
made in shares of the Company’s common stock. Accordingly, at December 31, 2019, shares held by
the ESOP have been reclassified from temporary equity to permanent equity.
Throughout the year, as employee services are rendered, we record compensation expense based
on salaries of eligible employees. Contributions of our common stock to the ESOP are made annually in
amounts determined by our board of directors and are held in trust for the sole benefit of the participants.
Shares allocated to a participant’s account are fully vested after six years of credited service, or in the
event(s) of reaching age 65, death or disability while an active employee.
A participant’s interest in their ESOP account is redeemable upon certain events, including
retirement, death, termination due to permanent disability, a severe financial hardship following
termination of employment, certain conflicts of interest following termination of employment, or the
exercise of diversification rights. Prior to the IPO, participants’ interests were redeemable in cash based
on share prices established by the ESOP Trustee. Subsequent to the IPO and during the 180-day lock-up
period, participants’ interests were redeemable in cash based on quoted prices of a share of the
Company’s common stock on the NYSE. Subsequent to the 180-day lock-up period, distributions from
74
the ESOP of participants’ interests are made in the Company’s common stock based on quoted prices of
a share of the Company’s common stock on the NYSE. A participant will be able to sell such shares of
common stock in the market, subject to any requirements of the federal securities laws.
Valuation of Common Stock
Prior to the Company’s IPO, our share price was determined using a combination of income- and
market-based methods that utilized unobservable Level 3 inputs, including significant assumptions such
as forecasted revenue and operating margins, working capital requirements and weighted average cost of
capital. Given the absence of a public trading market for our common stock, for all purposes related to the
fair market value of our common stock, we historically used the per share price of our common stock as
established by the ESOP Trustee, taking into account, among other things, the advice of a third-party
valuation consultant for the ESOP Trustee, as well as the ESOP Trustee’s knowledge of the Company as
of December 31 for each calendar year. Subsequent to the IPO, the share price is based on quoted
prices of the Company’s common stock on the NYSE.
Equity-Based Compensation
The Company measures the value of services received from employees and directors in exchange
for an equity-based award based on the grant date fair value. The Company issues equity-based awards
that settle in either cash or shares of the Company’s common stock. Cash settled awards are
subsequently remeasured to an updated fair value at each reporting period until the award is settled.
Awards containing performance measures are adjusted at each reporting period for the number of shares
expected to be earned. Compensation cost for cash settled and performance awards are trued-up at
each reporting period for changes in fair value and expected shares pro-rated for the portion of the
requisite service period rendered. The Company recognizes compensation costs for these awards on
either a straight-line or accelerated basis over the vesting period of the award in “Indirect, general and
administrative expenses” in the consolidated statements of income.
Self-Insurance
We are self-insured for a portion of our losses and liabilities primarily associated with workers’
compensation, general, professional, automobile, employee matters, certain medical plans, and project
specific liability claims. Losses are accrued based upon our estimates of the aggregate liability for claims
incurred using historical experience and certain actuarial assumptions, as provided by an independent
actuary. The estimate of self-insurance liability includes an estimate of incurred but not reported claims,
based on data compiled from historical experience.
Recent Accounting Pronouncements
See the information set forth in “Note 2—Summary of Significant Accounting Policies—Recently
Adopted Accounting Pronouncements” in the notes to our consolidated financial statements included
elsewhere in this Annual Report on Form 10-K.
Off-Balance Sheet Arrangements
As of December 31, 2019, we have no off-balance sheet arrangements that have or are
reasonably likely to have a material current or future effect on our financial condition, changes in financial
condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.
Commitments and Contingencies
We are subject to certain claims and assessments that arise in the ordinary course of business.
Additionally, Parsons has been named as a defendant in lawsuits alleging personal injuries as a result of
contact with asbestos products at various project sites. We believe that any significant costs relating to
75
these claims will be reimbursed by applicable insurance and do not expect any of these claims to have a
material adverse effect on our financial condition or results of operations. We record a liability when we
believe that it is both probable that a loss has been incurred and the amount can be reasonably
estimated. Management judgment is required to determine the outcome and the estimated amount of a
loss related to such matters. Management believes that there are no claims or assessments outstanding
which would materially affect our consolidated results of operations or our financial position.
Item 7A. Qualitative and Quantitative Disclosure About Market Risk
Interest Rate Risk
We are exposed to interest rate risks related to the Company’s Revolving Credit Facility. As of
December 31, 2019, we had no amounts outstanding under the Revolving Credit Facility. Borrowings
under the Revolving Credit Facility bear interest, at the Company’s option, at either the Base Rate (as
defined in the Credit Agreement), plus an applicable margin, or LIBOR plus an applicable margin. The
applicable margin for Base Rate loans is a range of 0.125% to 1.00% and the applicable margin for
LIBOR loans is a range of 1.125% to 2.00%, both based on the leverage ratio of the Company at the end
of each fiscal quarter. The rates at December 31, 2018 and December 31, 2019 were 4.253% and 3.02%,
respectively.
Foreign Currency Exchange Risk
We are exposed to foreign currency exchange rate risk resulting from our operations outside of the
U.S. We limit exposure to foreign currency fluctuations in most of our contracts through provisions that
require client payments in currencies corresponding to the currency in which costs are incurred. As a
result of this natural hedge, we generally do not need to hedge foreign currency cash flows for contract
work performed.
Item 8. Financial Statements and Supplementary Data.
The information required by this item 8 is submitted as a separate section beginning on page F-1
of this Annual Report on Form 10-K and is incorporated by reference.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Control and Procedures
Our management carried out, as of December 31, 2019, with the participation of our Chief
Executive Officer and our Chief Financial Officer, an evaluation of the effectiveness of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
of 1934, as amended (the “Exchange Act”). Based on that evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that, as of December 31, 2019, our disclosure controls and procedures
were effective to provide reasonable assurance that material information required to be disclosed by us in
reports we file under the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC rules and forms and that information required to be disclosed by us in the
reports we file or submit under the Exchange Act is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure.
76
Management’s Annual Report on Internal Control over Financial Reporting
This Annual Report on Form 10-K does not include a report on management’s assessment regarding
internal control over financial reporting or an attestation report of our independent registered public
accounting firm as permitted in this transition period under the rules of the SEC for newly public
companies. A report of management’s assessment regarding internal control over financial reporting will
be required to be included in our Annual Report on Form 10-K for the fiscal year ended December 31,
2020.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting, as defined in Rules 13a-
15(f) and 15d-15(f) of the Securities Exchange Act of 1934, that occurred in the fourth fiscal quarter of the
period covered by this Annual Report that materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
Item 9B. Other Information.
None.
77
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Information related to our directors set forth under the caption “Proposal 1: Election of Directors” of
our Proxy Statement for our Annual Meeting of Stockholders scheduled for April 21, 2020 (the “2020
Proxy Statement”). Such information is incorporated herein by reference.
Information relating to our Executive Officers is included in Part I of this Annual Report under the
caption “Executive Officers.”
Information relating to compliance with Section 16(a) of the Exchange Act is set forth under the
caption “Section 16(a) Beneficial Ownership Reporting Compliance” of our 2020 Proxy Statement. Such
information is incorporated herein by reference.
Information related to our code of ethics is set forth under the caption “Corporate Governance and
General Information Concerning the Board of Directors and its Committees” of our 2020 Proxy Statement.
Such information is incorporated herein by reference.
Information relating to the Audit Committee and Board of Directors determinations concerning
whether a member of the Audit Committee is a “financial expert” as that term is defined under Item
407(d)(5) of Regulation S-K is set forth under the caption “Corporate Governance and General
Information Concerning the Board of Directors and its Committees” of our 2020 Proxy Statement. Such
information is incorporated herein by reference.
Item 11. Executive Compensation.
Information relating to this item is set forth under the captions “Compensation Discussion and
Analysis,” “Director Compensation,” “Compensation Committee Interlocks and Insider Participation” and
“Compensation Committee Report on Executive Compensation” of our 2020 Proxy Statement. Such
information is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
Information relating to the security ownership of certain beneficial owners and management is
included in our 2020 Proxy Statement under the caption “Security Ownership of Certain Beneficial
Owners and Management” and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Information relating to this item is set forth under the captions “Certain Relationships and Related
Party Transactions” and “Corporate Governance and General Information Concerning the Board of
Directors and its Committees” of our 2020 Proxy Statement. Such information is incorporated herein by
reference.
Item 14. Principal Accounting Fees and Services.
Information relating to this item is set forth under the caption “Independent Registered Public
Accounting Firm Fees” of our 2020 Proxy Statement. Such information is incorporated herein by
reference.
78
Item 15. Exhibits, Financial Statement Schedules.
(a)
List the following documents filed as a part of the report:
PART IV
(1)
The Company’s Consolidated Financial Statements at December 31, 2018 and
December 31, 2019 and for each of the three years in the period ended December 31,
2019, and the notes thereto, together with the report of the independent auditors on
those Consolidated Financial Statements, are hereby filed as part of this report,
beginning on page F-1.
(2) Valuation & Qualifying Accounts for each of the three years in the period ended
December 31, 2019 are hereby filed as part of this report on page F-51.
(3) See Exhibit Index below.
Item 16. Form 10-K Summary
None.
79
Exhibit
Number
Description
Exhibit Index
3.1#
Amended and Restated Certificate of Incorporation of Parsons Corporation.
3.2#
Amended and Restated Bylaws of Parsons Corporation.
4.1*
Description of Capital Stock of Parsons Corporation.
10.1#
2012 Amendment and Restatement of Parsons Employee Stock Ownership Plan (including all
amendments to date), currently in effect.
10.2#
2019 Amendment and Restatement of Parsons Employee Stock Ownership Plan.
10.3*
10.4#
First Amendment to the 2019 Amendment and Restatement of Parsons Employee Stock
Ownership Plan, effective May 8, 2019.
Parsons Corporation Employee Stock Ownership Trust Agreement, effective as of
December 31, 2005.
10.5#+ Parsons Corporation Restricted Award Plan.
10.6#+ Form of Restricted Award Units agreement under the Parsons Corporation Restricted Award
Plan.
10.7#+ Parsons Corporation Annual Incentive Plan.
10.8#+ Parsons Corporation Shareholder Value Plan.
10.9#+ Parsons Corporation Long Term Growth Plan.
10.10#+ Parsons Corporation Share Value Retirement Plan.
10.11#+ Parsons Corporation Incentive Award Plan.
10.12*+ Form of Restricted Stock Unit Agreement under the Parsons Corporation Incentive Award
Plan.
10.14*+ Form of Restricted Stock Unit Agreement under the Parsons Corporation Incentive Award Plan
(for Non-Employee Director Awards commencing in 2020).
10.15*+ Form of Restricted Stock Unit Agreement under the Parsons Corporation Incentive Award Plan
(for Non-Employee Director Fee Deferral Awards commencing in 2020).
10.16*+ Form of Restricted Stock Unit Agreement under the Parsons Corporation Incentive Award Plan
(for Non-Employee Director Awards in 2019).
10.17*+ Parsons Corporation Non-Employee Director Compensation Policy (as amended effective July
15, 2019.
10.18#+ Fee Deferral Plan for Outside Directors of the Parsons Corporation.
10.19*+ Parsons Corporation Employee Stock Purchase Plan.
10.20#+ Change in Control Severance Agreement, dated as of February 7, 2019, by and between
Parsons Corporation and George L. Ball.
10.21#+ Change in Control Severance Agreement, dated as of April 5, 2019, by and between Parsons
Corporation and Charles L. Harrington.
10.22#+ Change in Control Severance Agreement, dated as of February 7, 2019, by and between
Parsons Corporation and Michael R. Kolloway.
10.23#+ Change in Control Severance Agreement, dated as of March 9, 2019, by and between
Parsons Corporation and Carey A. Smith.
10.24#+ Form of Indemnification Agreement between Parsons Corporation and certain of its directors
and officers.
10.25# Note Purchase Agreement, dated as of May 9, 2014, among Parsons Corporation and the
purchasers party thereto, and the forms of Senior Notes.
80
10.26# Subsidiary Guaranty, dated as of July 1, 2014, by each of Parsons Constructors Inc., Parsons
Engineering of New York, Inc., Parsons Environment & Infrastructure Group Inc., Parsons
Government Services Inc., Parsons Government Services International Inc., Parsons
International Limited, Parsons Technical Services Inc., Parsons Transportation Group Inc.,
Parsons Water & Infrastructure Inc., PTSI Managed Services Inc., Parsons RCI Inc. and each
entity that may from time to time become a Guarantor thereunder.
10.27#
First Amendment to the Note Purchase Agreement, dated as of August 10, 2018, by and
between Parsons Corporation and the purchasers party thereto.
10.28#
10.29#
10.30#
Fifth Amended and Restated Credit Agreement, dated as of November 15, 2017, by and
among Parsons Corporation, the lenders from time to time party thereto, The Bank of Tokyo-
Mitsubishi UFJ, Ltd., as administrative agent, swing line bank and co-lead arranger, Wells
Fargo Bank, National Association, as syndication agent, The Bank of Nova Scotia, JPMorgan
Chase Bank, N.A., Sumitomo Mitsui Banking Corporation and U.S. Bank National Association,
as documentation agents, and Wells Fargo Securities, LLC, as co-lead arranger.
First Amendment to the Fifth Amended and Restated Credit Agreement, dated as of
January 4, 2019, by and among Parsons Corporation, the Banks party thereto and MUFG
Bank Ltd, as administrative agent.
Term Loan Agreement, dated as of January 4, 2019, among Parsons Corporation, MUFG
Union Bank, N.A., as administrative agent, The Bank of Nova Scotia, as syndication agent, the
other financial institutions party thereto and MUFG Union Bank, N.A. and The Bank of Nova
Scotia, as co-lead arrangers.
10.31#+ Michael Johnson Separation Agreement (including related Consulting Services Agreement).
10.32*+ Adam Taylor Separation Agreement.
10.33# Engagement Letter by and between Parsons Corporation and Newport Trust Company.
10.34#
Form of Registration Rights Agreement by and between Parsons Corporation and Newport
Trust Company.
10.35#
Form of Letter Agreement by and between Parsons Corporation and Newport Trust Company.
21.1*
23.1*
31.1*
31.2*
32.1*
32.2*
List of Subsidiaries of the Registrant.
Consent of PricewaterhouseCoopers LLP.
Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under
the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002.
Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the
Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS* XBRL Instance Document
101.SCH* XBRL Taxonomy Extension Schema Document
101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF* XBRL Taxonomy Extension Definition Linkbase Document
101.LAB* XBRL Taxonomy Extension Label Linkbase Document
101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document
*
#
+
Filed herewith.
Previously filed.
Indicates a management contract or compensatory plan or arrangement.
81
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Company Name
Date: March 10, 2020
By:
/s/ Charles L. Harrington
Charles L Harrington
Chief Executive Officer and Director
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has
been signed below by the following persons on behalf of the Registrant in the capacities and on the dates
indicated.
Name
Title
/s/ Charles L. Harrington
Charles L. Harrington
Chief Executive Officer and Director
(Principal Executive Officer)
Date
March 10, 2020
/s/ George L. Ball
George L. Ball
Chief Financial Officer
(Principal Financial and Accounting Officer)
March 10, 2020
/s/ Kenneth C. Dahlberg
Kenneth C. Dahlberg
/s/ Mark K. Holdsworth
Mark K. Holdsworth
/s/ Steven F. Leer
Steven F. Leer
/s/ Tamara L. Lundgren
Tamara L. Lundgren
/s/ James F. McGovern
James F. McGovern
/s/ Harry T. McMahon
Harry T. McMahon
/s/ M. Christian Mitchell
M. Christian Mitchell
/s/ Suzanne M. Vautrinot
Suzanne M. Vautrinot
March 10, 2020
March 10, 2020
March 10, 2020
March 10, 2020
March 10, 2020
March 10, 2020
March 10, 2020
March 10, 2020
Director
Director
Director
Director
Director
Director
Director
Director
82
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm.................................................................... F-2
Consolidated Balance Sheets as of December 31, 2018 and December 31, 2019 ............................... F-3
Consolidated Statements of Income for the Years ended December 29, 2017, December 31, 2018
and December 31, 2019 .........................................................................................................................
Consolidated Statements of Comprehensive Income for the Years ended December 29, 2017,
December 31, 2018 and December 31, 2019 ........................................................................................
Consolidated Statements of Changes in Redeemable Common Stock and Shareholders, Equity
(Deficit) for the Years ended December 29, 2017, December 31, 2018 and December 31, 2019.........
Consolidated Statements of Cash Flows for the Years ended December 29, 2017,
December 31, 2018 and December 31, 2019 ........................................................................................
F-4
F-5
F-6
F-7
Notes to Consolidated Financial Statements.......................................................................................... F-8
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Parsons Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Parsons Corporation and its
subsidiaries (the “Company”) as of December 31, 2019 and December 31, 2018, and the related
consolidated statements of income, of comprehensive income, of changes in redeemable common stock
and shareholders’ equity (deficit) and of cash flows for each of the three years in the period ended
December 31, 2019, including the related notes and financial statement schedule listed in the index
appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our
opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of the Company as of December 31, 2019 and December 31, 2018, and the results of its operations
and its cash flows for each of the three years in the period ended December 31, 2019 in conformity with
accounting principles generally accepted in the United States of America.
Changes in Accounting Principles
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in
which it accounts for leases in 2019 and the manner in which it accounts for revenue from contracts with
customers in 2018.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on the Company’s consolidated financial statements based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (PCAOB) and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of
the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are free of material misstatement, whether due to
error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. We believe that our audits provide a reasonable
basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Los Angeles, California
March 10, 2020
We have served as the Company's auditor since at least 1969. We have not been able to determine the
specific year we began serving as the auditor of the Company.
F-2
PARSONS CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
As of December 31, 2018 and December 31, 2019
(in thousands, except shares and par value)
Assets
Current assets
Cash and cash equivalents (including $73,794 and $51,171 Cash of consolidated joint
ventures) ................................................................................................................................ $
Restricted cash and investments ...........................................................................................
Accounts receivable, net (including $180,325 and $166,355 Accounts receivable of
consolidated joint ventures, net) ............................................................................................
Contract assets (including $21,270 and $26,458 Contract assets of consolidated joint
ventures) ................................................................................................................................
Prepaid expenses and other current assets (including $11,837 and $11,182 Prepaid
expenses and other current assets of consolidated joint ventures) .......................................
Total current assets .........................................................................................................
Property and equipment, net (including $2,561 and $2,945 Property and equipment of
consolidated joint ventures, net) ...................................................................................................
Right of use assets, operating leases...........................................................................................
Goodwill ........................................................................................................................................
Investments in and advances to unconsolidated joint ventures ...................................................
Intangible assets, net....................................................................................................................
Deferred tax assets ......................................................................................................................
Other noncurrent assets ...............................................................................................................
Total assets ..................................................................................................................... $
Liabilities, Redeemable Common Stock, and Shareholder’s Equity (Deficit)
Current liabilities
Accounts payable (including $87,914 and $85,869 Accounts payable of consolidated joint
ventures) ................................................................................................................................ $
Accrued expenses and other current liabilities (including $73,209 and $74,857 Accrued
expenses and other current liabilities of consolidated joint ventures) ....................................
Contract liabilities (including $38,706 and $32,638 Contract liabilities of consolidated joint
ventures) ................................................................................................................................
Short-term lease liabilities, operating leases..........................................................................
Income taxes payable ............................................................................................................
Total current liabilities......................................................................................................
Long-term employee incentives....................................................................................................
Deferred gain resulting from sale-leaseback transactions............................................................
Long-term debt .............................................................................................................................
Long-term lease liabilities, operating leases.................................................................................
Deferred tax liabilities ...................................................................................................................
Other long-term liabilities ..............................................................................................................
Total liabilities ..................................................................................................................
Contingencies (Note 15)
Redeemable common stock held by Employee Stock Ownership Plan (ESOP), $1 par value;
78,172,809 and 0 shares outstanding, recorded at redemption value .........................................
Shareholders' equity (deficit)
Common stock, $1 par value; authorized 1,000,000,000 shares; 125,097,684 and
146,440,701 shares issued; 0 and 21,772,888; 0 and 78,896,806 shares and ESOP
shares outstanding.................................................................................................................
Treasury stock, 46,918,140 and 45,771,008 shares at cost ..................................................
Additional paid-in capital ........................................................................................................
Retained earnings (accumulated deficit)................................................................................
Accumulated other comprehensive income ...........................................................................
Total Parsons Corporation shareholders' equity (deficit).................................................
Noncontrolling interests ................................................................................................................
Total shareholders' equity (deficit)...................................................................................
Total liabilities, redeemable common stock and shareholders' equity (deficit) ................ $
2018
2019
280,221 $
974
623,286
515,319
69,007
1,488,807
91,849
—
736,938
63,560
179,519
5,680
46,225
2,612,578 $
182,688
12,686
671,492
575,089
84,454
1,526,409
122,751
233,415
1,047,425
68,620
259,858
130,401
61,489
3,450,368
226,345 $
216,613
559,700
639,863
208,576
—
11,540
1,006,161
41,913
46,004
429,164
—
6,240
127,863
1,657,345
230,681
49,994
7,231
1,144,382
56,928
—
249,353
203,624
9,621
125,704
1,789,612
1,876,309
—
—
(957,025)
—
12,445
(22,957 )
(967,537)
46,461
(921,076)
2,612,578 $
146,441
(934,240)
2,649,975
(218,025)
(14,261 )
1,629,890
30,866
1,660,756
3,450,368
The accompanying notes are an integral part of these consolidated financial statements.
F-3
PARSONS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
Years Ended December 29, 2017, December 31, 2018 and December 31, 2019
2018
2017
2019
(in thousands, except for per share data)
Revenue.................................................................................. $ 3,017,011 $ 3,560,508 $ 3,954,812
Direct cost of contracts ........................................................... 2,400,140 2,795,005 3,123,062
41,721
Equity in earnings of unconsolidated joint ventures................
781,408
Indirect, general and administrative expenses........................
92,063
Operating income...............................................................
Interest income .......................................................................
1,300
(23,729)
Interest expense .....................................................................
(2,392)
Other income (expense), net ..................................................
(Interest and other expense) gain associated with claim on
long-term contract ...................................................................
Total other (expense) income ............................................
Income before income tax expense ...................................
Income tax (expense) benefit..................................................
Net income including noncontrolling interests....................
Net income attributable to noncontrolling interests .................
Net income attributable to Parsons Corporation ................ $
(10,026)
(17,701)
133,001
(21,464)
111,537
(14,211)
97,326 $
74,578
54,795
259,803
(20,367)
239,436
(17,099)
222,337 $
36,915
597,410
205,008
2,710
(20,842)
(1,651)
40,086
506,255
150,702
2,465
(15,798)
5,658
—
(24,821)
67,242
69,886
137,128
(16,594)
120,534
Earnings per share:
Basic earnings per share ................................................... $
Diluted earnings per share................................................. $
1.16 $
1.16 $
2.78
2.78
1.30
1.30
The accompanying notes are an integral part of these consolidated financial statements.
F-4
PARSONS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
Years Ended December 29, 2017, December 31, 2018 and December 31, 2019
(in thousands)
Net income including noncontrolling interests......................... $
Other comprehensive income (loss), net of tax
2017
111,537 $
2018
239,436 $
2019
137,128
Foreign currency translation adjustment, net of tax ...........
Pension adjustments, net of tax.........................................
4,793
(95)
(7,800)
(56)
8,418
281
Comprehensive income including noncontrolling
interests, net of tax.....................................................
Comprehensive income attributable to noncontrolling
interests, net of tax..................................................................
Comprehensive income attributable to Parsons
Corporation, net of tax................................................ $
116,235
231,580
145,827
(14,210)
(17,197)
(16,597)
102,025 $
214,383 $
129,230
The accompanying notes are an integral part of these consolidated financial statements.
F-5
PARSONS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Redeemable Common Stock and Shareholders’ Equity (Deficit)
Years Ended December 29, 2017, December 31, 2018 and December 31, 2019
(in thousands)
Balances at December 30,
2016 .......................................... $
Comprehensive loss
Net (loss) income...............
Foreign currency
translation (loss)
gain .................................
Pension adjustments .........
Purchase of treasury stock........
Contributions of treasury stock
to ESOP ....................................
Contributions .............................
Distributions...............................
ESOP shares at redemption
value ..........................................
Balances at December 29,
2017 .......................................... $
Comprehensive income
Net income.........................
Foreign currency
translation gain
(loss) ...............................
Pension adjustments .........
Adoption of ASC 606.................
Purchase of treasury stock........
Contributions of treasury stock
to ESOP ....................................
Contributions .............................
Distributions...............................
ESOP shares at redemption
value..........................................
Balances at December 31,
2018 .......................................... $
Comprehensive income
Net income.........................
Foreign currency
translation gain ..................
Pension adjustments .........
ASC 842 transition adjustment..
Purchase of treasury stock........
Contributions of treasury stock
to ESOP ....................................
Contributions .............................
Distributions...............................
Dividend paid.............................
Stock-based compensation .......
Issuance of equity securities,
net of retirements ......................
Conversion of S-Corp to C-
Corp...........................................
IPO proceeds, net .....................
ESOP shares at redemption
value..........................................
Temporary to permanent equity
end of lock-up period.................
Balances at December 31,
2019 ..........................................
—
—
(111,403 )
40,553
—
—
186,724
—
—
—
—
— (111,403 )
41,150
—
—
—
—
—
—
—
—
—
(125,814 )
47,043
—
—
99,775
—
—
—
—
—
—
— (125,814 )
45,161
—
—
—
—
—
—
Redeemable
Common Stock
Common
Stock
Treasury
Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
(Loss) Income
Total
Parsons Equity
(Deficit)
Noncontrolling
Interests
Total
1,739,431 $
— $ (806,119 ) $
— $
(166,890 ) $
(19,702 ) $
(992,711 ) $
57,169
(935,542 )
—
—
—
—
97,326
—
97,326
14,211
111,537
—
—
—
—
—
—
—
—
111,403
(41,150 )
—
—
4,794
(95 )
—
—
—
—
4,794
(95 )
—
(1 )
—
—
4,793
(95 )
—
—
—
—
—
7,481
(51,366 )
—
7,481
(51,366 )
—
—
(186,724 )
—
(186,724 )
—
(186,724 )
1,855,305 $
— $ (876,372 ) $
— $
(186,035 ) $
(15,003 ) $
(1,077,410 ) $
27,494 $ (1,049,916 )
—
—
—
—
222,337
—
222,337
17,099
239,436
—
—
—
—
—
—
—
—
—
(4,735 )
125,814
(45,161 )
—
—
(7,898 )
(56 )
—
—
—
—
—
(7,898 )
(56 )
(4,735 )
—
98
—
—
—
(7,800 )
(56 )
(4,735 )
—
—
—
—
—
20,656
(18,886 )
—
20,656
(18,886 )
—
—
(99,775 )
—
(99,775 )
—
(99,775 )
1,876,309 $
— $ (957,025 ) $
— $
12,445 $
(22,957 ) $
(967,537 ) $
46,461 $ (921,076 )
—
—
120,534
-
120,534
16,594
137,128
—
—
—
—
(6,219 )
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(6,272 )
29,057
—
—
—
—
—
—
—
-
24,587
—
—
—
8,272
—
—
52,608
6,219
—
—
—
(52,093 )
—
—
47
—
(999 )
(197 )
25,877
—
— 21,296
—
—
—
515,582
(25,877 )
—
8,415
281
—
—
—
—
—
—
—
—
—
—
8,415
281
52,608
(53 )
53,644
—
—
(52,093 )
8,272
3
—
—
—
—
10,093
(42,285 )
—
—
8,418
281
52,608
(53 )
53,644
10,093
(42,285 )
(52,093 )
8,272
(1,149 )
—
(1,149 )
(25,877 )
536,878
—
—
(25,877 )
536,878
857,559
—
—
(525,895 )
(331,664 )
—
(857,559 )
—
(857,559 )
(2,753,526 ) 125,098
— 2,628,428
-
—
2,753,526
— 2,753,526
— 146,441 (934,240 ) 2,649,975
(218,025 )
(14,261 )
1,629,890
30,866 1,660,756
The accompanying notes are an integral part of these consolidated financial statements.
F-6
PARSONS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 29, 2017, December 31, 2018 and December 31, 2019
(in thousands)
Cash flows from operating activities
Net income including noncontrolling interests ......................................................... $
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization ..........................................................................
Amortization of deferred gain............................................................................
Amortization of debt issue costs .......................................................................
Gain associated with claim on long-term contract ............................................
Loss on disposal of property and equipment ....................................................
Provision for doubtful accounts.........................................................................
Deferred taxes ..................................................................................................
Foreign currency transaction gains and losses.................................................
Equity in earnings of unconsolidated joint ventures..........................................
Return on investments in unconsolidated joint ventures...................................
Stock-based compensation...............................................................................
Contributions of treasury stock .........................................................................
Changes in assets and liabilities, net of acquisitions and newly consolidated joint
ventures
Accounts receivable..........................................................................................
Contract assets .................................................................................................
Prepaid expenses and current assets...............................................................
Accounts payable..............................................................................................
Accrued expenses and other current liabilities .................................................
Billings in excess of costs .................................................................................
Contract liabilities..............................................................................................
Provision for contract losses .............................................................................
Income taxes.....................................................................................................
Other long-term liabilities ..................................................................................
Net cash provided by operating activities...................................................
Cash flows from investing activities
Capital expenditures................................................................................................
Proceeds from sale of property and equipment.......................................................
Payments for acquisitions, net of cash acquired .....................................................
Investments in unconsolidated joint ventures..........................................................
Return of investments in unconsolidated joint ventures ..........................................
Net cash used in investing activities...........................................................
Cash flows from financing activities
Proceeds from borrowings.......................................................................................
Repayments of borrowings......................................................................................
Payments for debt costs and credit agreement .......................................................
Contributions by noncontrolling interests.................................................................
Distributions to noncontrolling interests...................................................................
Purchase of treasury stock ......................................................................................
IPO proceeds, net....................................................................................................
Dividend paid...........................................................................................................
Deferred payments for acquisitions .........................................................................
Net cash (used in) provided by financing activities ....................................
Effect of exchange rate changes .............................................................................
Net (decrease) increase in cash, cash equivalents and restricted cash ....
2017
2018
2019
111,537 $
239,436 $
137,128
35,198
(7,283 )
504
—
1,184
12,530
5,403
(5,121 )
(40,086 )
33,377
—
40,553
(2,958 )
—
(10,850 )
27,334
26,153
7,900
—
19,431
2,518
7,705
265,029
(27,939 )
2,250
(25,737 )
(3,502 )
1,967
(52,961 )
—
—
(1,949 )
7,481
(51,366 )
(111,403)
—
—
(2,934 )
(160,171)
1,235
53,132
69,869
(7,253 )
721
(129,674)
780
5,255
(1,422 )
5,224
(36,915 )
35,192
—
45,161
461,304
(480,090)
(23,668 )
5,566
30,367
(150,873)
205,047
(13,795 )
3,911
20,491
284,634
(29,283 )
439
(481,163)
(4,720 )
11,432
(503,295)
260,000
(80,000 )
(545 )
20,656
(18,886)
(125,814)
—
—
—
55,411
(1,699 )
(164,949)
125,700
—
973
—
1,042
290
(123,338)
4,472
(41,721 )
51,077
8,272
53,644
(30,206 )
(49,999 )
(22,110)
(17,123 )
78,366
—
20,146
—
(5,421 )
29,048
220,240
(67,597 )
3,789
(494,826)
(24,579 )
12,410
(570,803)
597,200
(777,200)
(286 )
10,093
(42,285 )
(6,272 )
536,879
(52,093 )
—
266,036
(1,294 )
(85,821 )
Cash, cash equivalents and restricted cash
Beginning of year.....................................................................................................
End of year .............................................................................................................. $
393,012
446,144 $
446,144
281,195 $
281,195
195,374
Cash paid during the year for
Interest..................................................................................................................... $
Income taxes (net of refunds)..................................................................................
12,905 $
14,364
16,805 $
17,054
23,254
60,477
The accompanying notes are an integral part of these consolidated financial statements.
F-7
PARSONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 29, 2017, December 31, 2018 and December 31, 2019
1.
Description of Operations
Organization
Parsons Corporation, a Delaware corporation, and its subsidiaries (collectively, the “Company”)
provide sophisticated design, engineering and technical services, and smart and agile software to the
United States federal government and Critical Infrastructure customers worldwide. The Company
performs work in various foreign countries through local subsidiaries, joint ventures and foreign offices
maintained to carry out specific projects.
Initial Public Offering
On May 8, 2019, the Company consummated its initial public offering (“IPO”) whereby the Company
sold 18,518,500 shares of common stock for $27.00 per share. The underwriters exercised their share
option on May 14, 2019 to purchase an additional 2,777,775 shares at the share price of $25.515 which
was the IPO share price of $27.00 less the underwriting discount of $1.485 per share. The net proceeds
of the IPO and the underwriters’ share option were $536.9 million, after deducting underwriting discounts
and other fees, and were used to fund an IPO dividend of $52.1 million, repay the outstanding balance of
$150.0 million under our Term Loan, and repay outstanding indebtedness under our Revolving Credit
Facility.
Stock Dividend
On April 15, 2019, the board of directors of the Company declared a common stock dividend in a
ratio of two shares of common stock for every one share of common stock then held by the Company’s
stockholder (the “Stock Dividend”). The record date of this common Stock Dividend was May 7, 2019, the
day immediately prior to the consummation of the Company’s IPO on May 8, 2019, and the payment date
of the Stock Dividend was May 8, 2019. Purchasers of the Company’s common stock in the Company’s
public offering were not entitled to receive any portion of the Stock Dividend.
2.
Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include 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 significant influence, the Company applies the equity method of accounting.
Intercompany accounts and transactions are eliminated in consolidation.
F-8
PARSONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 29, 2017, December 31, 2018 and December 31, 2019
Fiscal Year
The Company reports results of operations based on a calendar year end date of December 31
starting in 2018. Prior to 2018, the Company reported results of operations based on a 52- or 53-week
periods ending the last Friday on or before December 31. For 2017, this date was December 29, 2017,
and 2017 was comprised of 52 weeks.
Use of Estimates
The preparation of the consolidated financial statements in accordance with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual amounts could differ from those estimates. The Company’s most
significant estimates and judgments involve revenue recognition with respect to the determination of the
costs to complete contracts and transaction price; determination of self-insurance reserves; valuation of
the Company’s fair value of common stock prior to the conclusion of the 180-day lock-up period on
November 3, 2019; 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.
ESOP
The Company maintains a non-leveraged ESOP for eligible employees, for which the Company
contributes shares of its own stock to the ESOP trust each year. Shares held by the ESOP or committed
to be contributed to the ESOP were presented as temporary equity at December 31, 2018 as they
included a cash redemption feature that was not solely within the Company’s control. At the IPO date,
shares held by the ESOP were subject to a 180-day lock-up period. At the conclusion of the 180-day lock-
up period ESOP distributions are no longer made in cash. Shares held by the ESOP have been
reclassified from temporary equity to permanent equity at December 31, 2019.
Throughout the year, as employee services are rendered, the Company records compensation
expense based on salaries of eligible employees. At each reporting period, the shares held within the
ESOP or committed to be contributed to the ESOP are adjusted to their redemption value through an
offsetting charge or credit to accumulated deficit.
Treasury Stock
The Company records treasury stock purchases under the cost method whereby the entire cost of
the acquired stock is recorded as treasury stock. The Company records the reissuance of treasury stock
using the first-in, first-out method of accounting. Contributions of 1,790,496 shares, 1,874,988 shares and
1,345,198 shares of common stock were made to the ESOP in fiscal 2017, 2018 and 2019, respectively.
In fiscal 2017, 2018 and 2019 the Company repurchased 5,843,211 shares, 5,553,891 shares and
191,331 shares of common stock from the ESOP, respectively, in connection with the redemption of
ESOP participants’ interests in the ESOP for $111.4 million, $125.8 million and $6.3 million, respectively.
F-9
PARSONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 29, 2017, December 31, 2018 and December 31, 2019
Earnings per Share
Basic earnings per common share (“EPS”) is calculated by dividing Net income by the weighted
average number of common shares outstanding during the year. Diluted earnings per common share is
calculated by dividing net income by adjusted weighted average outstanding shares, assuming
conversion of all potentially dilutive securities. Upon contribution to the ESOP, the shares become
outstanding and are included within the earnings per share computations.
Revenue Recognition
On December 30, 2017, the Company adopted Accounting Standards Update (“ASU”) 2014-09,
“Revenue from Contracts with Customers”, and the related ASU’s subsequently issued by the Financial
Accounting Standards Board (the “FASB”) (“ASC 606”) using the modified retrospective method. As a
result, the Company revised its accounting policy on revenue recognition and the results for reporting
periods beginning after December 29, 2017 are presented under ASC 606. In accordance with ASC 606,
the Company follows the five-step process in ASC 606 to recognize revenue:
1.
2.
3.
4.
5.
Identify the contract
Identify performance obligations
Determine the transaction price
Allocate the transaction price
Recognize revenue
Contracts—Revenue is derived from long-term contracts with customers whereby the Company
provides planning, design, engineering, technical, and construction and program management services.
The Company has contracts with the United States federal government that contain provisions requiring
compliance with the United States Federal Acquisition Regulation (“FAR”) and the United States Cost
Accounting Standards (“CAS”). These regulations are generally applicable to all of the Company’s federal
government contracts and are partially or fully incorporated in some local and state agency contracts.
Most of the Company’s federal government contracts are subject to termination at the convenience of the
client. These contracts typically provide for reimbursement of costs incurred and payment of fees earned
through the date of such termination.
The Company enters into the following types of contracts with its customers:
Cost-Plus—Under cost-plus contracts, the Company is reimbursed for allowable or otherwise
defined costs incurred, plus a fee. The contracts may also include incentives for various performance
criteria, including quality, timeliness, safety and cost-effectiveness. In addition, costs are generally subject
to review by clients and regulatory audit agencies, and such reviews could result in costs being disputed
as nonreimbursable under the terms of the contract.
Time-and-Materials—Under time-and-materials contracts, hourly billing rates are negotiated and
charged to clients based on the actual time spent on a project. In certain cases, these contracts may be
subject to maximum contract values. In addition, clients reimburse actual out-of-pocket costs for materials
and other direct incidental expenditures that are incurred in connection with the performance under the
contract.
Fixed-Price—The Company enters into two types of fixed-price contracts: firm fixed-price (“FFP”)
and fixed-price per unit (“FPPU”). Under FFP contracts, clients pay an agreed fixed-amount negotiated in
advance for a specified scope of work.
F-10
PARSONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 29, 2017, December 31, 2018 and December 31, 2019
Contract Costs—Contract costs consist of direct costs on contracts, including labor and materials,
amounts payable to subcontractors, direct overhead costs and equipment expense (primarily
depreciation, fuel, maintenance and repairs). All contract costs are recorded as incurred. Changes to
estimated contract costs, either due to unexpected events or revisions to management’s initial estimates,
for a given project are recognized in the period in which they are determined as estimated at the contract
level. Pre-contract costs are expensed as incurred unless they are expected to be recovered from the
client, generate or enhance resources that will be used in satisfying performance obligations in the future
and directly relate to an existing or anticipated contract. Costs to mobilize equipment and labor to a job
site, prior to substantive work beginning (“mobilization costs”) are capitalized as incurred and amortized
over the expected duration of the contract. Additionally, the Company may incur incremental costs to
obtain certain contracts, such as selling and market costs, bid and proposal costs, sales commissions,
and legal fees, certain of which can be capitalized if they are recoverable under the contract. Capitalized
contract costs are included in other current assets on the consolidated balance sheets and were not
material as of December 31, 2018 and December 31, 2019.
Performance Obligations—A performance obligation is a promise in a contract to transfer a distinct
good or service to the customer and is the unit of account in ASC 606. The transaction price of a contract
is allocated to each distinct performance obligation and recognized as revenue when, or as, the
performance obligation is satisfied. To the extent a contract is deemed to have multiple performance
obligations, the Company allocates the transaction price of the contract to each performance obligation
using our best estimate of the standalone selling price of each distinct good or service in the contract. The
Company determines the relative standalone selling price utilizing observable prices for the sale of the
underlying goods or services. Contracts are considered to have a single performance obligation if the
promise to transfer the individual goods or services is not separately identifiable from other promises in
the contracts or is not distinct in the context of the contract, which is mainly because the Company
provides a significant service of integrating a complex set of tasks and components into a single project or
capability. Engineering and construction contracts are generally accounted for as a single performance
obligation while our engineering and construction supervision contracts are accounted for as two separate
performance obligations. When providing construction supervision services, the Company is not liable for
the construction of the asset, but has an overall responsibility to oversee, coordinate, measure, and
evaluate the quality of construction work and the performance of the construction contractor on behalf of
the customer. Customers are generally billed as the Company satisfies its performance obligations and
payment terms typically range from 30 to 120 days from the invoice date. Billings under certain fixed-price
contracts may be based upon the achievement of specified milestones, while some arrangements may
require advance customer payment. The Company’s contracts generally do not include a significant
financing component.
Variable Consideration—The transaction price for the Company’s contracts may include variable
consideration, which includes increases to transaction price for approved and unpriced change orders,
claims and incentives, and reductions to transaction price for liquidated damages. Change orders, claims
and incentives are generally not distinct from the existing contract due to the significant integration
service provided in the context of the contract and are accounted for as a modification of the existing
contract and performance obligation. The Company estimates variable consideration for a performance
obligation utilizing one of the two prescribed methods, depending on which method better predicts the
amount of consideration to which the Company will be entitled (or the amount the Company expects to
incur in the case of liquidated damages). Such methods are: (a) the expected value method, whereby the
amount of variable consideration to be recognized represents the sum of probability weighted amounts in
a range of possible consideration amounts, and (b) the most likely amount method, whereby the amount
of variable consideration to be recognized represents the single most likely amount in a range of possible
consideration amounts. When applying these methods, the Company considers all information that is
reasonably available, including historical, current and estimates of future performance. The expected
value method is utilized in situations where a contract contains a large number of possible outcomes,
while the most likely amount method is utilized in situations where a contract has only two possible
outcomes.
F-11
PARSONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 29, 2017, December 31, 2018 and December 31, 2019
The Company includes variable consideration in the estimated transaction price to the extent it is
probable that a significant reversal of cumulative revenue recognized will not occur or when the
uncertainty associated with the variable consideration is resolved. The Company’s estimates of variable
consideration and determination of whether to include estimated amounts in transaction price are based
largely on an assessment of anticipated performance and all information (historical, current and
forecasted) that is reasonably available. The effect of variable consideration on the transaction price of a
performance obligation is recognized as an adjustment to revenue on a cumulative catch-up basis.
Change Orders—Change orders, which are a normal and recurring part of business, may include
changes in specifications or design, manner of performance, facilities, equipment, materials, sites and
period of completion of the work. The Company or customer may initiate change orders. Most change
orders are not distinct from the existing contract and are accounted for as part of that existing contract.
The effect of a change order on the transaction price and measure of progress for the performance
obligation to which it relates is recognized as an adjustment to revenues (either as an increase in or a
reduction of revenues) on a cumulative catch-up basis. Revenues from unpriced change orders are
recognized to the extent of the amounts the Company expects to recover, consistent with the variable
consideration policy discussed above. If it is probable that a reversal of revenues will occur, the costs
attributable to change orders are treated as contract costs without incremental revenues. To the extent
change orders included in the price are not resolved in the Company’s favor, there could be reductions in,
or reversals of previously reported amounts of, revenues and profits, and charges against current
earnings, which could be material.
Claims Revenue—Claims are amounts in excess of agreed contract prices that the Company seeks
to collect from clients or others for customer-caused delays, errors in specifications and designs, contract
terminations, change orders that are in dispute, or other causes of unanticipated additional contract costs,
including factors outside of our control, and therefore the Company believes it is entitled to additional
compensation. Claims revenue, when recorded, is only recorded to the extent it is probable that a
significant reversal of cumulative revenue recognized will not occur. The Company includes certain claims
in the transaction price when the claims are legally enforceable, the Company considers collection to be
probable and believes it can reliably estimate the ultimate value. The Company continues to engage in
negotiations with its customers on outstanding claims. However, these claims may be resolved at
amounts that differ from current estimates, which could result in increases or decreases in future
estimated contract profits or losses.
Warranties—In most cases, contracts include assurance-type warranties that the Company’s
performance is free from material defect and consistent with the specifications of the Company’s
contracts, which do not give rise to a separate performance obligation. To the extent the warranty terms
provide the customer with an additional service, such as extended maintenance services, such warranty
is accounted for as a separate performance obligation.
Revenue recognized over time—The Company’s performance obligations are generally satisfied
over time as work progresses because of continuous transfer of control to the customer and the Company
has the right to bill the customer as costs are incurred. Typically, revenue is recognized over time using
an input measure (i.e.’ costs incurred to date relative to total estimated costs at completion) to measure
progress. The Company generally uses the cost-to-cost measure of progress method because it best
depicts the transfer of control to the customer which occurs as the Company incurs costs on its contracts.
Under the cost-to-cost measure of progress method, the extent of progress towards completion is
measured based on the ratio of total costs incurred to-date to the total estimated costs at completion of
the performance obligation. Revenues, including estimated fees or profits, are recorded proportionally as
costs are incurred. Any expected losses on construction-type contracts in progress are charged to
earnings, in total, in the period the losses are identified. The Company recognizes adjustments in
estimated profit on contracts under the cumulative catch-up method. Under this method, the impact of the
adjustment on profit recorded to date is recognized in the period the adjustment is identified. Revenue
and profit in future periods of contract performance is recognized using the adjusted estimate. If at any
F-12
PARSONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 29, 2017, December 31, 2018 and December 31, 2019
time the estimate of contract profitability indicates an anticipated loss on the contract, the Company
recognizes the total loss in the period it is identified.
Right to invoice practical expedient—For performance obligations satisfied over time where the
Company has a right to consideration from a customer in an amount that corresponds directly with the
value of the Company’s performance to-date, the Company recognizes revenue in the amount to which it
has a right to invoice. For the Company’s reimbursable services contracts, revenue is recognized using
the right to invoice practical expedient, or on a cost-to-cost measure of progress method. The Company
will select the method that best represents progress on a project.
Revenue recognized at a point in time—For performance obligations satisfied at a point in time,
revenue is recognized when the services are performed, control is transferred, and the performance
obligation is complete. The Company recognizes revenue at a point in time for vehicle inspection
services. Revenue related to the inspection service is recognized for each vehicle inspection at the point
the Company has completed the inspection.
In the Company’s industry, recognition of profit on long-term contracts requires the use of
assumptions and estimates related to total contract revenue, total cost at completion, and the
measurement of progress towards completion. Estimates 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 statements of income.
Refer to the Recently Adopted Accounting Pronouncements for discussion of the differences
between the current revenue recognition criteria under ASC 606 and the Company’s previous recognition
practices under ASC 605, Revenue Recognition.
Cash Equivalents
The Company considers all highly liquid investments with original maturities of less than three
months to be cash equivalents. Cash equivalent investments are carried at cost, which approximates fair
value, and consist primarily of United States Treasuries, time deposits, and other forms of short-term fixed
income investments.
Restricted Cash and Investments
Restricted cash and investments held in trust accounts represent collateral for certain incentive
programs.
Accounts Receivable, Net
Accounts receivable includes billed and unbilled amounts and are recognized in the period when the
Company’s rights to receive consideration are unconditional.
The Company establishes an allowance for doubtful accounts based on the assessment of the
clients’ ability to pay. In addition to such allowances, there are often items in dispute or being negotiated
that may require us to make an estimate as to the ultimate outcome. Past due receivable balances are
written off when internal collection efforts have been unsuccessful in collecting the amounts due.
Contract Assets and Contract Liabilities
In connection with the adoption of ASC 606 on December 30, 2017, the Company revised its policy
related to contract assets and contract liabilities.
F-13
PARSONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 29, 2017, December 31, 2018 and December 31, 2019
Projects with performance obligations recognized over time that have revenue recognized to-date in
excess of cumulative billings and unbilled accounts receivable are reported on our consolidated balance
sheets as “Contract assets”. Contract retentions, included in contract assets, represent amounts withheld
by clients, in accordance with underlying contract terms, until certain conditions are met or the project is
completed. The operating cycle for certain long-term contracts may extend beyond one year, and,
accordingly, collection of retainage on those contracts may extend beyond one year. Contract assets are
reclassified to accounts receivable when the right to consideration becomes unconditional.
Contract liabilities on uncompleted contracts represent the excess of cash collected from clients and
billings to clients on contracts in advance of work performed over the amount of revenue recognized and
provisions for losses. The majority of these amounts are expected to be earned within 12 months and are
classified as current liabilities.
Refer to the Recently Adopted Accounting Pronouncements for further discussion of the impact of
adopting ASC 606.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentrations of credit risk consist
primarily of cash and cash equivalents and accounts receivables. The Company’s cash is primarily held
with major banks and financial institutions throughout the world. At times, cash balances may be in
excess of the amount insured.
The Company is involved in a significant volume of contracts with the United States federal
government and state and local governments. Approximately 36%, 42% and 48% of consolidated
revenues for the years ended December 29, 2017, December 31, 2018 and December 31, 2019,
respectively, and approximately 29% and 18% of accounts receivable as of December 31, 2018 and
December 31, 2019, respectively, were derived from contracts with the United States federal government.
No other customers represented 10% or more of consolidated revenues or accounts receivable in any of
the periods presented.
In order to mitigate the credit risk associated with customers, the Company performs periodic credit
evaluations of its customers’ financial condition.
Property and Equipment
Property and equipment are stated at cost and are shown net of accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated useful lives of the assets.
Depreciation of leasehold improvements is computed using the straight-line method over the shorter of
their estimated useful lives or the remaining term of the lease.
The cost of assets retired or otherwise disposed of and the related accumulated depreciation are
eliminated from the accounts, and any gain or loss thereon is included in net income. Expenditures for
maintenance and repairs are expensed as incurred. Property and equipment are reviewed for impairment
when events or circumstances change that indicate they may not be recoverable. Impairment losses are
recognized when estimated future cash flows expected to result from the use of the assets and their
eventual disposition are less than their carrying amount, in which case the asset is written down to its fair
value.
Leases
The Company determines if an arrangement is a lease at inception. Operating leases are included
in operating lease ROU assets and current and long-term operating lease liabilities in the consolidated
balance sheets. Finance leases are included in other noncurrent assets, accrued expenses and other
current liabilities and other long-term liabilities in the consolidated balance sheets.
F-14
PARSONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 29, 2017, December 31, 2018 and December 31, 2019
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease
liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU
assets and liabilities are recognized at commencement date based on the present value of lease
payments over the lease term. As most of the Company’s leases do not provide an implicit rate,
incremental borrowing rates are used based on the information available at commencement date in
determining the present value of lease payments. The operating lease ROU asset also includes any lease
payments made and excludes lease incentives. Lease terms may include options to extend or terminate
the lease when it is reasonably certain that we will exercise that option. Lease expense for operating
lease payments is recognized on a straight-line basis over the lease term.
We have lease agreements with lease and non-lease components where the lease consideration is
allocated between the components based on relative standalone prices. For real property leases,
allocations of lease consideration between lease and non-lease components are immaterial. For certain
equipment leases, such as vehicles, we account for the lease and non-lease components as a single
lease component. Additionally, for certain equipment leases, we apply a portfolio approach to effectively
account for the operating lease ROU assets and liabilities.
Equity-Based Compensation
The Company measures the value of services received from employees and directors in exchange
for an equity-based award based on the grant date fair value. The Company issues equity-based awards
that settle in either cash or shares of the Company’s common stock. Cash settled awards are
subsequently remeasured to an updated fair value at each reporting period until the award is settled.
Awards containing performance measures are adjusted at each reporting period for the number of shares
expected to be earned. Compensation cost for cash settled and performance awards are trued-up at
each reporting period for changes in fair value and expected shares pro-rated for the portion of the
requisite service period rendered. The Company recognizes compensation costs for these awards on
either a straight-line or accelerated basis over the vesting period of the award in indirect, general and
administrative expense in the consolidated statements of income.
Business Combinations
The Company accounts for business combinations using the acquisition method, under which the
purchase price of an acquired company is allocated to the tangible and intangible assets acquired and the
liabilities assumed on the basis of their fair values at the date of acquisition. Any excess of purchase price
over the fair value of tangible and intangible assets acquired and liabilities assumed is allocated to
goodwill. The determination of fair values of assets acquired and liabilities assumed requires the
Company to make estimates and use valuation techniques when a market value is not readily available.
The Company adjusts the preliminary purchase price allocation, as necessary, during the measurement
period of up to one year after the acquisition closing date as the Company obtains more information as to
facts and circumstances existing at the acquisition date. Acquisition-related costs are recognized
separate from the acquisition and are expensed as incurred.
Consolidation of Joint Ventures and Variable Interest Entities
The Company participates in joint ventures, which include partnerships and partially owned limited
liability corporations, to bid, negotiate and complete specific projects. The Company is required to
consolidate these joint ventures if it holds the majority voting interest or if the joint venture is determined
to be a variable interest entity (“VIE”) for which the Company is the primary beneficiary, as described
below.
A VIE is an entity with one or more of the following characteristics: (a) the total equity investment at
risk is not sufficient to permit the entity to finance its activities without additional financial support; (b) as a
group, the holders of the equity investment at risk lack the ability to make certain decisions, the obligation
to absorb expected losses or the right to receive expected residual returns; or (c) an equity investor has
voting rights that are disproportionate to its economic interest and substantially all of the entity’s activities
F-15
PARSONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 29, 2017, December 31, 2018 and December 31, 2019
are on behalf of the investor with disproportionately low voting rights. The Company’s VIEs may be
funded through contributions, loans and/or advances from the joint venture partners or by advances
and/or letters of credit provided by clients. Certain VIEs are directly governed, managed, operated and
administered by the joint venture partners. Others have no employees and, although these entities own
and hold the contracts with the clients, the services required by the contracts are typically performed by
the joint venture partners or by other subcontractors.
The Company is considered the primary beneficiary and required to consolidate a VIE if it has the
power to direct the activities that most significantly impact that VIE’s economic performance, and the
obligation to absorb losses or the right to receive benefits of that VIE that could potentially be significant
to the VIE. In determining whether the Company is the primary beneficiary, significant assumptions and
judgments include the following: (1) identifying the significant activities and the parties that have the
power to direct them; (2) reviewing the governing board composition and participation ratio;
(3) determining the equity, profit and loss ratio; (4) determining the management-sharing ratio;
(5) reviewing employment terms, including which joint venture partner provides the project manager; and
(6) reviewing the funding and operating agreements. Examples of significant activities currently being
performed by the Company’s significant consolidated and unconsolidated joint ventures include
engineering and design services; management consulting services; procurement and construction
services; program management; construction management; and operations and maintenance services. If
the Company determines that the power to direct the significant activities is shared by two or more joint
venture parties, then there is no primary beneficiary and no party consolidates the VIE. In making the
shared-power determination, the Company analyzes the key contractual terms, governance, related party
and de facto agency as they are defined in the accounting standard, and other arrangements.
Goodwill
In 2019, the Company changed the date of its annual goodwill impairment testing from November
30 to October 1. This change is results in better alignment of the Company's annual impairment test with
the Company’s annual budgeting cycle and provides a more reliable measurement using the Company’s
interim closing processes. The change had no effect on the Company’s financial statements for the
current or historical periods.
The Company performs an additional review at year end to address the interim period.
For purposes of impairment testing, goodwill is allocated to the applicable reporting units based on
the current reporting structure. The Company’s reporting units are operating segments or components of
operating segments where discrete financial information is available and segment management regularly
reviews the operating results. When evaluating goodwill for impairment, the Company may decide to first
perform a qualitative assessment, or “step zero” impairment test, to determine whether it is more likely
than not that impairment has occurred. If the Company does not perform a qualitative assessment, or if
the Company determines that it is not more likely than not that the fair value of its reporting units exceeds
their carrying amounts, the Company performs a quantitative assessment and calculates the estimated
fair value of the respective reporting unit. If the carrying amount of a reporting unit exceeds its fair value,
an impairment loss is recognized in the amount the carrying value exceeds its fair value, not to exceed
the carrying amount of goodwill.
The Company’s decision to perform a qualitative impairment assessment in a given year is
influenced by a number of factors, including the significance of the excess of the Company’s estimated
fair value over carrying value at the last quantitative assessment date, the amount of time in between
quantitative fair value assessments, and the date of its acquisitions, if any.
Intangible Assets
Intangible assets with finite lives arise from business acquisitions and are amortized based on the
period over which the contractual or economic benefit of the intangible assets are expected to be realized
or on a straight-line basis over the useful lives of the underlying assets, ranging from one to ten years.
F-16
PARSONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 29, 2017, December 31, 2018 and December 31, 2019
These primarily consist of customer relationships, developed technology, backlog, and covenants not to
compete. When indicators of a potential impairment exist, the Company assesses the recoverability of the
unamortized balance of its intangible assets by first comparing undiscounted expected cash flows
associated with the asset, or the asset group they are part of, to its carrying value. Should the review
indicate that the carrying value is not fully recoverable, the excess of the carrying value over the fair value
of the intangible assets would be recognized as an impairment loss.
Income Taxes
Income taxes are accounted for under the asset and liability method. This approach requires the
recognition of deferred tax liabilities and assets to reflect the tax effects of temporary differences between
the financial statement carrying amounts and tax bases of the Company’s assets and liabilities. Deferred
tax assets and liabilities are measured using enacted tax rates expected to be recovered or settled. The
effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period
that includes the enactment date. Deferred tax assets are evaluated for future realization and valuation
allowances are established when, in our opinion, it is more likely than not that all or some portion of the
asset will not be realized.
The Company recognizes the effect of income tax positions only if those positions are more likely
than not of being sustained on examination by the taxing authorities based on the technical merits of the
position. The tax benefits recognized in the financial statements on a particular tax position are measured
based on the largest benefit that is greater than 50 percent likely of being realized. The amount of
unrecognized tax benefits (“UTB”) is adjusted as appropriate for changes in facts and circumstances,
such as significant amendments to existing tax law, new regulations or interpretations by the taxing
authorities, new information obtained during a tax examination, or resolution of an examination. The
Company recognizes both accrued interest and penalties, where appropriate, related to UTBs in income
tax expense.
Foreign Currency Translation
The Company’s reporting currency is the U.S. Dollar. The functional currency of the Company’s
foreign entities is typically the currency of the primary environment in which they operate. For foreign
entities whose functional currency is not the U.S. dollar, the assets and liabilities are translated based on
exchange rates in effect at the balance sheet date, while the income and expense accounts are
translated using the average exchange rates during the period. Translation gains or losses, net of income
tax effects, are reflected in accumulated other comprehensive income on the consolidated balance
sheets. Transaction gains and losses due to movements in exchange rates between the functional
currency and the currency in which a foreign currency transaction is denominated are recognized as
“Other income (expense), net” in the Company’s consolidated statements of income.
Self-Insurance
The Company typically utilizes third-party insurance subject to varying retention levels or self-
insurance. The Company is self-insured for a portion of the losses and liabilities primarily associated with
workers’ compensation, general, professional, automobile, employee matters, certain medical plans, and
project-specific liability claims. Losses are accrued based upon the Company’s estimates of the
aggregate liability for claims incurred using historical experience and certain actuarial assumptions, as
provided by an independent actuary. The estimate of self-insurance liability includes an estimate of
incurred but not reported claims, based on data compiled from historical experience.
F-17
PARSONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 29, 2017, December 31, 2018 and December 31, 2019
Recently Adopted Accounting Pronouncements
The Company adopted ASC 606 on December 30, 2017, using the modified retrospective method,
which provides for a cumulative effect adjustment to beginning 2018 accumulated deficit for those
uncompleted contracts impacted by the adoption of the new standard. For contracts that were modified
before the beginning of the earliest reporting period presented in accordance with ASC 606, the Company
has not retrospectively restated the contract for those modifications. The Company instead reflected the
aggregate effect of all modifications when identifying the satisfied and unsatisfied performance
obligations, determining the transaction price and allocating the transaction price. The core principle of
ASC 606 is that revenue will be recognized when promised goods or services are transferred to
customers in an amount that reflects consideration for which entitlement is expected in exchange for
those goods or services.
Additionally, the Company began to separately present contract assets and liabilities on the
consolidated balance sheets. Contract assets include amounts due under contractual retainage
provisions as well as revenue recognized to date in excess of cumulative billings and unconditional
unbilled accounts receivable that were previously presented as unbilled accounts receivable. Contract
liabilities include billings in excess of costs and estimated earnings as well as provisions for losses that
were previously separately presented. The difference between the recognition criteria under ASC 606 and
the Company’s previous recognition practices under the revenue recognition guidance, ASC Topic 605-
35, was recognized through a cumulative effect adjustment that was made to the opening balance of
accumulated deficit as of December 30, 2017. Consistent with the modified retrospective transition
approach, the comparative fiscal 2017 period was not adjusted to conform to the fiscal 2018 and 2019
presentation.
The cumulative effect of adopting ASC 606 was primarily due to combining certain deliverables that
were previously considered separate deliverables into a single performance obligation and the transition
of certain cost-type contracts into the cost-to-cost measure of progress method.
The cumulative effect adjustment was an increase to accumulated deficit of $4.7 million as of
December 30, 2017 as well as the following cumulative effect adjustments:
•
•
•
•
An increase to contract assets of $2.5 million;
An increase to deferred tax assets of $0.1 million;
An increase to contract liabilities of $7.2 million; and
An increase to non-controlling interests of $0.1 million.
In February 2016, the FASB issued ASU 2016-02 “Leases (Topic 842)”, which is a new standard
related to leases intended to increase transparency and comparability among organizations by requiring
the recognition of right-of-use (“ROU”) assets obtained in exchange for lease liabilities on the balance
sheet. Most prominent among the changes in the standard is the recognition of ROU assets and lease
liabilities by lessees for those leases classified as operating leases. Under the standard, disclosures are
required to meet the objective of enabling users of financial statements to assess the amount, timing, and
uncertainty of cash flows arising from leases.
The Company elected to adopt the standard, and available practical expedients, effective January 1,
2019. These practical expedients allowed the Company to keep the lease classification assessed under
the previous lease accounting standard (ASC 840) without reassessment under the new standard, and
allowed all separate lease components, including non-lease components, to be accounted for as a single
lease component for all existing leases prior to adoption of the new standard. Furthermore, the Company
made an accounting policy election to not recognize a lease liability and ROU asset for leases with lease
terms of twelve months or less.
F-18
PARSONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 29, 2017, December 31, 2018 and December 31, 2019
The Company adopted this new standard under the modified retrospective transition approach
without adjusting comparative periods in the financial statements, as allowed under Topic 842, and
implemented internal controls and key system functionality to enable the preparation of financial
information on adoption.
The standard had a material impact on the Company’s consolidated balance sheets but did not
have an impact on the consolidated statements of income and cash flows. The most significant impact
was the recognition of ROU assets and lease liabilities for operating leases, while accounting for finance
leases remained substantially unchanged.
As a result of the adoption, the Company recorded a cumulative-effect adjustment to retained
earnings of $52.6 million, net of deferred tax asset adjustment of $0.7 million, representing the
unamortized portion of a deferred gain previously recorded as a sale-leaseback transaction associated
with the sale of an office building in 2011. The Company concluded the transaction resulted in the transfer
of control of the office building to the buyer-lessor at market terms and would have qualified as a sale
under Topic 842 with gain recognition in the period the sale was recognized.
In July 2018, the FASB issued ASU No. 2018-09, Codification Improvements. The amendments in
this ASU clarify certain aspects of the guidance related to: reporting comprehensive income, debt
modification and extinguishment, income taxes related to stock compensation, income taxes related to
business combinations, derivatives and hedging, fair value measurements, brokers and dealers liabilities,
and plan accounting. This ASU is effective for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2018. The Company has adopted this ASU on a prospective basis in the
first quarter of 2019 and has determined there to be no impact on its financial statements and related
disclosures.
Effective January 1, 2019, the Company adopted ASU 2018-02, “Reclassification of Certain Tax
Effects from Accumulated Other Comprehensive Income” under which the Company did not elect to
reclassify the income tax effects stranded in accumulated other comprehensive income to retained
earnings as a result of the enactment of comprehensive tax legislation, commonly referred to as the Tax
Cuts and Jobs Act. As a result, there was no impact on the Company’s financial position, results of
operations or cash flows.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial
Instruments,” and issued subsequent amendments to the initial guidance within ASU 2019-04 and ASU
2019-05. The amendments in ASU 2016-13 replace the incurred loss impairment methodology in current
practice with a methodology that reflects expected credit losses and requires consideration of a broader
range of reasonable and supportable information to estimate credit losses. ASU 2016-13 and its
amendments are effective for interim and annual reporting periods beginning after December 15, 2019.
This standard will be effective for the Company’s interim and annual periods beginning with the first
quarter of fiscal 2020. Management continues to assess the impact of adopting ASU 2016-13 and does
not believe it will have a material effect on the company’s financial position, results of operations and
cash flows.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the
Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 was issued as a means to reduce the
complexity of accounting for income taxes for those entities that fall within the scope of the accounting
standard. The guidance is to be applied using a prospective method, excluding amendments related to
franchise taxes, which should be applied on either a retrospective basis for all periods presented or a
modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the
beginning of the fiscal year of adoption. ASU 2019-12 is effective for fiscal years beginning after
December 15, 2020, with early adoption permitted. The Company is evaluating the impact of ASU 2019-
12 on its consolidated financial statements.
F-19
PARSONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 29, 2017, December 31, 2018 and December 31, 2019
3.
Acquisitions
Williams Electric
On October 6, 2017, the Company completed the acquisition of Williams Electric Company, Inc., a
specialty contractor delivering global control system integration and energy infrastructure solutions to U.S.
Government customers. The total consideration for this acquisition, net of cash received, was
approximately $25.7 million, which we paid in cash at closing.
Polaris Alpha
On May 31, 2018, the Company acquired a 100% ownership interest in Polaris Alpha, a privately-
owned, advanced technology-focused provider of innovative mission solutions for complex defense,
intelligence, and security customers, as well as other U.S. federal government customers, for $489.1
million paid in cash. The Company borrowed $260 million under the Credit Agreement, as described in
“Note 12—Debt and Credit Facilities”, to partially fund the acquisition. In connection with this acquisition,
the Company recognized $6.2 million of acquisition-related expenses in “Indirect, general and
administrative expense” in the consolidated statements of income for the year ended December 31, 2018,
including legal fees, consulting fees, and other miscellaneous direct expenses associated with the
acquisition. Polaris Alpha enhances the Company’s artificial intelligence and data analytics expertise with
new technologies and solutions. Customers of both companies will benefit from existing, complementary
technologies and increased scale, enabling end-to-end solutions under the shared vision of rapid
prototyping and agile development. The following table summarizes the fair values of the assets acquired
and liabilities assumed as of the date of acquisition (in thousands):
Cash and cash equivalents ........................................................................................... $
Accounts receivable ......................................................................................................
Contract assets .............................................................................................................
Prepaid expenses and other current assets..................................................................
Property and equipment ................................................................................................
Goodwill.........................................................................................................................
Intangible assets ...........................................................................................................
Other noncurrent assets ................................................................................................
Accounts payable ..........................................................................................................
Accrued expenses and other current liabilities..............................................................
Contract liabilities ..........................................................................................................
Deferred tax liabilities ....................................................................................................
Other long-term liabilities...............................................................................................
Net assets acquired.................................................................................................. $
Polaris Alpha
7,914
29,688
35,229
9,295
9,024
243,471
199,520
2,203
(13,942)
(26,419)
(3,529)
(2,231)
(1,146)
489,077
Of the total purchase price, the following values were assigned to intangible assets (in thousands,
except for years):
Developed technology............................................................................. $
Customer relationships ...........................................................................
Backlog ...................................................................................................
Trade name.............................................................................................
Leases.....................................................................................................
84,900
76,000
34,900
3,600
120
4
8
2
1
6
Gross
Carrying
Amount
Amortization
Period
(in years)
F-20
PARSONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 29, 2017, December 31, 2018 and December 31, 2019
Amortization expense of $30.3 million and $54.5 million related to these intangible assets was
recorded for the years ended December 31, 2018 and December 31, 2019, respectively. The entire value
of goodwill of $243.5 million was assigned to the Federal Solutions reporting unit and represents
synergies expected to be realized from this business combination. Goodwill of $50.1 million is deductible
for tax purposes.
The amount of revenue generated by Polaris Alpha since the acquisition and included within
consolidated revenues for 2018 is $227.3 million. The Company has determined that the presentation of
net income from the date of acquisition is impracticable due to the integration of general corporate
functions upon acquisition.
Supplemental Pro Forma Information (Unaudited)
Supplemental information on an unaudited pro forma basis, as if the acquisition closed as of the
beginning of the fiscal year ended December 29, 2017 as follows (in thousands):
Pro forma Revenue ................................................................................. $
Pro forma Net Income including noncontrolling interest..........................
3,361,626 $
58,356
3,713,804
225,861
2017
(unaudited)
2018
(unaudited)
The unaudited pro forma supplemental information is based on estimates and assumptions which
the Company believes are reasonable and reflects the pro forma impact of additional amortization related
to the fair value of acquired intangible assets, the pro forma impact of reflecting acquisition costs, which
consisted of legal, advisory and due diligence fees and expenses, and the additional pro forma interest
expense related to the borrowings under the credit agreement as of the assumed acquisition date. This
supplemental pro forma information has been prepared for comparative purposes and does not purport to
be indicative of what would have occurred had the acquisition been consummated during the periods for
which pro forma information is presented.
OGSystems
On January 7, 2019, the Company acquired a 100% ownership interest in OGSystems, a privately-
owned company, for $292.4 million paid in cash. OGSystems provides geospatial intelligence, big data
analytics and threat mitigation for defense and intelligence customers. The Company borrowed $110
million under the Credit Agreement and $150 million on a short-term loan, as described in “Note 12—Debt
and Credit Facilities,” to partially fund the acquisition. In connection with this acquisition, the Company
recognized $5.4 million of acquisition-related expenses in “Indirect, general and administrative expense”
in the consolidated statements of income for the year ended December 31, 2019, including legal fees,
consulting fees, and other miscellaneous direct expenses associated with the acquisition. OGSystems
enhances the Company’s artificial intelligence and data analytics expertise with new technologies and
solutions. Customers of both companies will benefit from existing, complementary technologies and
increased scale, enabling end-to-end solutions under the shared vision of rapid prototyping and agile
development.
F-21
PARSONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 29, 2017, December 31, 2018 and December 31, 2019
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):
Cash and cash equivalents ........................................................................................... $
Accounts receivable ......................................................................................................
Contract assets .............................................................................................................
Prepaid expenses and other current assets..................................................................
Property and equipment ................................................................................................
Right of use assets, operating leases ...........................................................................
Goodwill.........................................................................................................................
Intangible assets ...........................................................................................................
Other noncurrent assets ................................................................................................
Accounts payable ..........................................................................................................
Accrued expenses and other current liabilities..............................................................
Contract liabilities ..........................................................................................................
Short-term lease liabilities, operating leases.................................................................
Income tax payable .......................................................................................................
Deferred tax liabilities ....................................................................................................
Long-term lease liabilities, operating leases .................................................................
Other long-term liabilities...............................................................................................
Net assets acquired.................................................................................................. $
Amount
5,772
9,904
9,747
4,307
4,085
8,826
183,540
92,300
10
(5,450)
(7,147)
(1,300)
(805)
(1,178)
(1,195)
(8,021)
(1,015)
292,380
Of the total purchase price, the following values were assigned to intangible assets (in thousands,
except for years):
Gross
Carrying
Amount
Amortization
Period
(in years)
Customer relationships ........................................................................... $
Backlog ...................................................................................................
Trade name.............................................................................................
Non-compete agreements.......................................................................
Developed technologies.......................................................................... $
57,100
27,700
3,800
2,400
1,300
5
3
2
3
3
Amortization expense of $23.8 million related to these intangible assets was recorded for the year
ended December 31, 2019. The entire value of goodwill of $183.5 million was assigned to the Federal
Solutions reporting unit and represents synergies expected to be realized from this business combination.
Goodwill of $16 million is deductible for tax purposes.
The amount of revenue generated by OGSystems since the acquisition and included within
consolidated revenues for year ended December 31, 2019 is $143.4 million. The Company has
determined that the presentation of net income from the date of acquisition is impracticable due to the
integration of general corporate functions upon acquisition.
F-22
PARSONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 29, 2017, December 31, 2018 and December 31, 2019
Supplemental Pro Forma Information (Unaudited)
Supplemental information of unaudited pro forma operating results assuming the OGSystems
acquisition had been consummated as of the beginning of fiscal year 2018 (December 30, 2017) (in
thousands) is as follows:
Pro forma Revenue ................................................................................. $
Pro forma Net Income including noncontrolling interests........................
3,676,894 $
205,961
3,956,767
134,046
2018
(unaudited)
2019
(unaudited)
The unaudited pro forma supplemental information is based on estimates and assumptions which
the Company believes are reasonable and reflects the pro forma impact of additional amortization related
to the fair value of acquired intangible assets, the pro forma impact of reflecting acquisition costs, which
consisted of legal, advisory and due diligence fees and expenses, and the additional pro forma interest
expense related to the borrowings under the credit agreement as of the assumed acquisition date. This
supplemental pro forma information has been prepared for comparative purposes and does not purport to
be indicative of what would have occurred had the acquisition been consummated during the periods for
which pro forma information is presented.
QRC Technologies
On July 31, 2019 the Company acquired a 100% ownership interest in QRC Technologies
(“QRC”), a privately-owned company, for $214.1 million in cash. QRC provides design and development
of open-architecture radio-frequency products. The Company borrowed $140.0 million under the
Revolving Credit Facility to partially fund the transaction. In connection with this acquisition, the Company
recognized $4.9 million of acquisition-related expenses in “Indirect, general and administrative expense”
in the consolidated statements of income for the year ended December 31, 2019, including legal fees,
consulting fees, and other miscellaneous direct expenses associated with the acquisition. QRC is an
agile, disruptive product company that specializes in radio frequency spectrum survey, record and
playback; signals intelligence; and electronic warfare missions. QRC complements our existing portfolio,
increases our presence in the high-growth markets of spectrum awareness and surveillance, adds critical
intellectual property that complements and expands our available capabilities for the Special Operations
and Intelligence Communities.
The following table summarizes the estimated fair values of the assets acquired and liabilities
assumed based on the preliminary purchase price allocation as of the date of acquisition (in thousands):
Cash and cash equivalents ........................................................................................... $
Accounts receivable ......................................................................................................
Prepaid expenses and other current assets..................................................................
Property and equipment ................................................................................................
Right of use assets, operating leases ...........................................................................
Goodwill.........................................................................................................................
Intangible assets ...........................................................................................................
Accounts payable ..........................................................................................................
Accrued expenses and other current liabilities..............................................................
Short-term lease liabilities, operating leases.................................................................
Long-term lease liabilities, operating leases .................................................................
Net assets acquired.................................................................................................. $
Amount
5,925
5,587
5,727
1,205
5,228
125,091
76,200
(1,567)
(4,025)
(545)
(4,683)
214,143
F-23
PARSONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 29, 2017, December 31, 2018 and December 31, 2019
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 ........................................................................... $
Developed technologies..........................................................................
In-process research and development....................................................
Non-compete agreements.......................................................................
Trade name.............................................................................................
Backlog ...................................................................................................
49,800
21,800
1,800
1,200
800
800
12
3 to 5
3 to 5
4
2
1
The Company is still in the process of finalizing its valuation of the net assets acquired.
Amortization expense of $5.7 million related to these intangible assets was recorded for the year
ended December 31, 2019. The entire value of goodwill of $125.1 million was assigned to the Federal
Solutions reporting unit and represents synergies expected to be realized from this business combination.
Goodwill in its entirety is deductible for tax purposes.
The amount of revenue generated by QRC since the acquisition and included within consolidated
revenues for the year ended December 31, 2019 is $11.2 million. The Company has determined that the
presentation of net income from the date of acquisition is impracticable due to the integration of general
corporate functions upon acquisition.
Supplemental Pro Forma Information (Unaudited)
Supplemental information of unaudited pro forma operating results assuming the QRC
Technologies acquisition had been consummated as of the beginning of fiscal year 2018 (December 30,
2017) (in thousands) is as follows:
2018
(unaudited)
2019
(unaudited)
Pro forma Revenue ................................................................................. $
Pro forma Net Income .............................................................................
3,596,920 $
221,930
3,976,361
138,692
The unaudited pro forma supplemental information is based on estimates and assumptions which
the Company believes are reasonable and reflects the pro forma impact of additional amortization related
to the fair value of acquired intangible assets, the pro forma impact of reflecting acquisition costs, which
consisted of legal, advisory and due diligence fees and expenses, and the additional pro forma interest
expense related to the borrowings under the credit agreement as of the assumed acquisition date. This
supplemental pro forma information has been prepared for comparative purposes and does not purport to
be indicative of what would have occurred had the acquisition been consummated during the periods for
which pro forma information is presented.
F-24
PARSONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 29, 2017, December 31, 2018 and December 31, 2019
4.
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):
Cost plus ................................................................................................. $
Time-and-Materials .................................................................................
Fixed price...............................................................................................
Total ................................................................................................... $
December 31,
2018
1,473,815 $
961,759
1,124,934
3,560,508 $
December 31,
2019
1,705,832
1,074,037
1,174,943
3,954,812
Refer to “Note 21—Segment Information” for the Company’s revenues by business lines.
Contract Assets and Contract Liabilities
Contract assets and contract liabilities balances at December 31, 2018 and December 31, 2019
were as follows (in thousands):
Contract assets.......................................................... $
Contract liabilities ......................................................
Net contract assets (liabilities)(1) .............................. $
December 31,
2018
515,319 $
208,576
306,743 $
December 31,
2019
575,089 $ 59,770
230,681
22,105
344,408 $ 37,665
$ change % change
11.60%
10.60%
12.28%
(1)
Total contract retentions included in net contract assets (liabilities) were $89.6 million as of
December 31, 2018. Total contract retentions included in net contract assets (liabilities) were $85.5
million as of December 31, 2019, of which $41.7 million are not expected to be paid in fiscal 2020.
Contract assets at December 31, 2018 and December 31, 2019 include approximately $47.1 million
and $73.0 million, respectively, related to unapproved change orders, claims, and requests for
equitable adjustment. For the years ended December 31, 2018 and December 31, 2019, no material
losses were recognized related to the collectability of claims, unapproved change orders, and
requests for equitable adjustment.
During the years ended December 31, 2018 and December 31, 2019, the Company recognized
revenue of approximately $168.6 million and $129.9 million, respectively that was included in the
corresponding contract liability balance at December 29, 2017 and December 31, 2018, respectively. The
change in contract assets and contract liabilities was the result of normal business activity and not
significantly impacted by other factors, except as follows:
Acquired contract assets ....................................................................... $
Acquired contract liabilities ....................................................................
Change in the estimate of variable consideration..................................
Reversal of provision for contract losses(1)........................................... $
35,229 $
3,529
—
133,180 $
9,747
1,300
12,166
—
December 31,
2018
December 31,
2019
(1)
Reversal of provision for contract losses of $133.2 million, of which $55.1 million was recorded as
an increase in revenue with the remainder recorded as other income.
There was no significant impairment of contract assets recognized during the years ended
December 31, 2018 and December 31, 2019.
F-25
PARSONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 29, 2017, December 31, 2018 and December 31, 2019
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 an increase in revenue of $12.1 million for the year ended December 31, 2019, and
no impact for the year ended December 31, 2018.
Accounts Receivable, Net
Accounts receivable, net consisted of the following as of December 31, 2018 and December 31,
2019 (in thousands):
Billed ....................................................................................................... $
Unbilled ...................................................................................................
Total accounts receivable, gross........................................................
Allowance for doubtful accounts .............................................................
Total accounts receivable, net ........................................................... $
538,808 $
135,180
673,988
(50,702)
623,286 $
494,366
218,959
713,325
(41,833)
671,492
2018
2019
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 December 31, 2019
represent a measure of the total dollar value of work to be performed on contracts awarded and in
progress. The Company had $5.0 billion in RUPO as of December 31, 2019.
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 task 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 December 31, 2019 over the following periods (in
thousands):
176,103
Federal Solutions .................................................................... $ 1,207,900 $
Critical Infrastructure............................................................... 1,634,625
859,966
Total RUPO............................................................................. $ 2,842,525 $ 1,083,551 $ 1,036,069
451,278 $
632,273
Within One
Year
Within One to
Two Years
Thereafter
F-26
PARSONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 29, 2017, December 31, 2018 and December 31, 2019
5.
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 11 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 up to the seventh year. As of December 31, 2019, assets
recorded under finance leases were $2.4 million and accumulated depreciation associated with finance
leases was $0.7 million.
The components of lease costs for the year ended December 31, 2019 are as follows (in
thousands):
Operating lease cost........................................................................................ $
Short-term lease cost ......................................................................................
Amortization of right-of-use assets ..................................................................
Interest on lease liabilities ...............................................................................
Sublease income .............................................................................................
Total lease cost .................................................................................................... $
2019
70,112
11,988
746
77
(3,620)
79,303
Supplemental cash flow information related to leases for the year ended December 31, 2019 is as
follows (in thousands):
Operating cash flows for operating leases .................................................................... $
Operating cash flows for financing activities .................................................................
Financing cash flows from finance leases .....................................................................
Right-of-use assets obtained in exchange for new
operating lease liabilities ............................................................................................
Right-of-use assets obtained in exchange for new
finance lease liabilities................................................................................................ $
2019
62,714
77
863
299,503
3,124
Supplemental balance sheet and other information related to leases as of December 31, 2019 is as
follows (in thousands):
Operating Leases:
Right-of-use assets....................................................................................................... $
Lease liabilities:
Current..................................................................................................................... $
Long-term ................................................................................................................
Total operating lease liabilities...................................................................................... $
Finance Leases:
Other noncurrent assets ............................................................................................... $
Accrued expenses and other current liabilities ............................................................. $
Other long-term liabilities .............................................................................................. $
Weighted Average Remaining Lease Term:
Operating leases...........................................................................................................
Finance leases..............................................................................................................
Weighted Average Discount Rate:
Operating leases...........................................................................................................
Finance leases..............................................................................................................
2019
233,415
49,994
203,624
253,618
2,377
1,075
1,202
6 years
3 years
4.0%
4.5%
F-27
PARSONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 29, 2017, December 31, 2018 and December 31, 2019
As of December 31, 2019, the Company has additional operating leases, primarily for office spaces,
that have not yet commenced of $9.9 million. These operating leases will commence in 2020 with lease
terms of 5 years to 7 years.
A maturity analysis of the future undiscounted cash flows associated with the Company’s operating
and finance lease liabilities as of December 31, 2019 is as follows (in thousands):
Operating
Leases
Finance
Leases
2020 ........................................................................................................ $
2021 ........................................................................................................
2022 ........................................................................................................
2023 ........................................................................................................
2024 ........................................................................................................
Thereafter................................................................................................
Total lease payments ..............................................................................
Less: imputed interest .............................................................................
Total present value of lease liabilities ..................................................... $
58,412 $
54,491
48,454
41,424
30,945
49,727
283,453
(29,835)
253,618 $
1,152
870
326
48
—
—
2,396
(119)
2,277
Rental expense for the years ended December 29, 2017, December 31, 2018 and December 31,
2019 was $73.3 million, $79.8 million and $ 82.1 million, respectively, and is recorded in “Indirect, general
and administrative expenses” in the consolidated statements of income.
6.
Equity-Based Compensation
The Company issues stock-based awards through the Shareholder Value Plan, Long-Term Growth
Plan, Restricted Award Plan, and Incentive Award Plan. Through these plans the Company may issue
stock options (including incentive and non-qualified stock options), stock appreciation rights, restricted
stock, restricted stock units, an “other” stock or cash-based awards, or a dividend equivalent award. The
compensation expense for these awards is recorded in Indirect, general and administrative expenses” in
the Company’s consolidated financial statements.
Stock-based compensation expense was $18.8 million, $16.3 million and $49.0 million for the years
ended December 29, 2017, December 31, 2018 and December 31, 2019, respectively, net of recognized
tax benefits of $0.2 million, $0.2 million and $16.7 million for the years ended 2017, 2018 and 2019,
respectively. The tax benefit realized related to awards vested during the years ended 2017, 2018, and
2019 was $0.1 million, $0.2 million and $3.3 million, respectively. We recognize forfeitures as they occur.
With the adoption of the Incentive Award Plan on April 15, 2019, the Company has discontinued
issuing awards under the other plans described above. Outstanding awards granted out of the
discontinued plans will continue to vest and will settle in cash.
At December 31, 2019, the amount of compensation cost relating to non-vested awards not yet
recognized in the consolidated financial statements is $16.5 million. The majority of these unrecognized
compensation costs will be recognized by the 3rd quarter of fiscal 2020.
As discussed in “Note 1—Description of Operations”, the Company consummated its IPO on May 8,
2019. Subsequent to the IPO, the fair value of a share of the Company’s common stock is based on
quoted prices on the NYSE. Please see “Note 19—Fair Value of Financial Instruments” for a description
of how the fair value of a share of the Company’s common stock was determined prior to the IPO.
Stock Appreciation Rights
Stock Appreciation Rights (“SARs”) were issued under the Shareholder Value Plan (“SVP”).
Outstanding awards provide a cash incentive based on the increase in the Company’s share price over a
three-year period, multiplied by a number of phantom share units. If at the end of a performance cycle the
F-28
PARSONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 29, 2017, December 31, 2018 and December 31, 2019
Company’s share price has not increased, then no award payment will be made. The awards issued
under the SVP are time-vested cash-settled SARs. The SARs vest at the end of three years and expense
is recognized on an accelerated basis over the vesting period. The grant date fair value of the award is
determined by using the Black-Scholes option-pricing model. SARs are remeasured, using the Black-
Scholes option-pricing model, to an updated fair value at each reporting period until the award is settled.
The fair value of the grant on the vesting date is determined based on the 60-trading day weighted
average closing price of the Company’s common stock on the NYSE. Compensation cost is trued-up at
each reporting period for changes in fair value pro-rated for the portion of the requisite service period
rendered.
The following table presents the assumptions used in the Black-Scholes option-pricing model for
SARs outstanding at the year-end measurement date:
Dividend yield ................................................................................................................
Expected volatility ..........................................................................................................
Risk-free interest rate ....................................................................................................
Expected term................................................................................................................
December 31,
2019
0.0%
31.0%
1.6%
1.0
The following table presents the number of SARs granted, vested, and forfeited for the years ended
December 29, 2017, December 31, 2018, and December 31, 2019:
Unvested at December 30, 2016 .......................................
Granted ..............................................................................
Vested................................................................................
Forfeited.............................................................................
Unvested at December 29, 2017 .......................................
Granted ..............................................................................
Vested................................................................................
Forfeited.............................................................................
Unvested at December 31, 2018 .......................................
Granted ..............................................................................
Vested................................................................................
Forfeited.............................................................................
Unvested at December 31, 2019 .......................................
Long-Term Growth Units
Number of Units
Weighted Average
Grant-Date Fair
Value
3,170,565
2,096,439
(1,573,998)
(297,631)
3,395,375
1,708,746
(1,322,805)
(364,662)
3,416,654
—
(1,547,142)
(391,884)
1,477,628
$
$
$
$
$
$
$
$
$
$
$
$
$
3.00
3.00
3.00
3.00
3.00
3.00
3.00
3.00
3.00
—
3.00
3.00
3.00
Long-Term Growth Units awards were issued under the Long-Term Growth Plan. Outstanding
awards provide a cash incentive based on performance conditions. The grant date fair value of the award
is based on fair value of the Company’s common stock on the grant day. These awards vest at the end
of three years and expense is recognized on an accelerated basis over the vesting period subject to the
probability of meeting the performance requirements and adjusted for the number of shares expected to
be earned. Awards are remeasured to an updated fair value at each reporting period until the award is
settled. The updated fair value is based on the 60-trading day weighted average closing price of the
Company’s common stock on the NYSE on the last day of the reporting period. Compensation cost is
trued-up at each reporting period for changes in fair value and expected shares pro-rated for the portion
of the requisite service period rendered.
F-29
PARSONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 29, 2017, December 31, 2018 and December 31, 2019
The following table presents the number of Long-Term Growth Units granted, vested, and forfeited
(at target shares) for the years ended December 29, 2017, December 31, 2018, and December 31, 2019:
Weighted Average
Grant-Date Fair
Value
Number of Units
Unvested at December 30, 2016 .......................................
Granted ..............................................................................
Vested................................................................................
Forfeited.............................................................................
Unvested at December 29, 2017 .......................................
Granted ..............................................................................
Vested................................................................................
Forfeited.............................................................................
Unvested at December 31, 2018 .......................................
Granted ..............................................................................
Vested................................................................................
Forfeited.............................................................................
Unvested at December 31, 2019 .......................................
Restricted Award Units
331,986
174,270
(176,781)
(21,594)
307,881
144,777
(136,221)
(16,656)
299,781
—
(137,760)
(34,584)
127,437
$
$
$
$
$
$
$
$
$
$
$
$
$
19.65
20.33
19.33
20.09
20.18
22.67
20.00
20.27
20.23
—
20.33
21.50
21.45
Restricted Award Units awards were issued under the Restricted Award Plan. Outstanding awards
provide a cash incentive based on the fair value of the Company’s common stock on the vesting date.
The grant date fair value of the award is based on the fair value of the Company’s common stock on the
grant date. These awards vest and expense is recognized on an accelerated basis over the respective
vesting periods. Awards are remeasured to an updated fair value at each reporting period until the award
is settled. The updated fair value is based on the 60-trading day weighted average closing price of the
Company’s common stock on the NYSE on the last day of the reporting period. Compensation cost is
trued-up at each reporting period for changes in fair value pro-rated for the portion of the requisite service
period rendered.
The following table presents the number of Restricted Award Units granted, vested, and forfeited for
the years ended December 29, 2017, December 31, 2018, and December 31, 2019:
Unvested at December 30, 2016 .......................................
Granted ..............................................................................
Vested................................................................................
Forfeited.............................................................................
Unvested at December 29, 2017 .......................................
Granted ..............................................................................
Vested................................................................................
Forfeited.............................................................................
Unvested at December 31, 2018 .......................................
Granted ..............................................................................
Vested................................................................................
Forfeited.............................................................................
Unvested at December 31, 2019 .......................................
Number of Units
Weighted Average
Grant-Date Fair
Value
534,355
306,843
(135,982)
(45,771)
659,445
262,140
(264,408)
(67,827)
589,350
—
(281,805)
(58,101)
249,444
$
$
$
$
$
$
$
$
$
$
$
$
$
19.85
20.33
19.53
19.90
20.14
22.67
20.00
20.34
21.31
—
20.33
21.31
22.40
F-30
PARSONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 29, 2017, December 31, 2018 and December 31, 2019
The following table presents the amount paid for cash settled awards, by award type, for the years
ended December 29, 2017, December 31, 2018, and December 31, 2019 (in thousands):
December 29,
2017
December 31,
2018
December 31,
2019
Stock Appreciation Rights.......................... $
Long-Term Growth.....................................
Restricted Award Units ..............................
Total .......................................................... $
170 $
8,246
2,635
11,051 $
4,576 $
1,095
4,439
10,110 $
5,261
1,108
5,537
11,906
Restricted Stock Units
Restricted Stock Units awards are issued under the Incentive Award Plan and are settled by the
issuance of the Company’s common stock. Outstanding awards have been granted based on either
service or service and performance conditions. The fair value of the award is based on the closing price
of the Company’s common stock on the grant date. Awards vest over three-year periods, either annually
or cliff. Expense is recognized on an accelerated basis for awards with service conditions only and on a
straight-line basis for awards that include performance conditions. Expense recognition of awards with
performance criteria are subject to the probability of meeting the performance conditions and adjusted for
the number of shares expected to be earned. Compensation cost for awards with performance conditions
are trued-up at each reporting period for changes in the expected shares pro-rated for the portion of the
requisite service period rendered.
The following table presents the number of shares of restricted stock units granted (at target shares
for awards with performance conditions) for the year ended December 31, 2019:
Restricted Stock Units (service condition)................................................
Restricted Stock Units (service and performance condition) ...................
270,544 $
327,675 $
December 31,
2019
Weighted
Average Grant-
Date Fair Value
34.11
34.02
The number of units granted for awards with performance conditions in the above table is based on
performance against the target amount. The number of shares ultimately issued, which could be greater
or less than target, will be based on achieving specific performance conditions related to the awards.
The following table presents the number and weighted average grant-date fair value of restricted
stock units (at target shares for awards with performance conditions) at December 31, 2019:
Outstanding at December 31, 2018 .........................................................
Granted ....................................................................................................
Vested ......................................................................................................
Forfeited ...................................................................................................
Outstanding at December 31, 2019 .........................................................
Number of Units
Weighted
Average Grant-
Date Fair Value
-
34.06
34.02
34.02
34.07
- $
598,219
(74,704)
(16,875)
506,640 $
For the year ended December 31, 2019, 74,704 shares of restricted stock units were issued, and
27,962 shares of common stock related to employee statutory income tax withholding were retired.
The following table presents the number of shares of restricted stock outstanding (at target shares
for awards with performance conditions) at December 31, 2019:
December 31,
2019
189,090 $
317,550 $
Weighted
Average Grant-
Date Fair Value
34.15
34.02
Restricted Stock Units (service condition)................................................
Restricted Stock Units (service and performance condition) ...................
F-31
PARSONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 29, 2017, December 31, 2018 and December 31, 2019
7.
Goodwill
The following table summarizes the changes in the carrying value of goodwill by reporting segment
for fiscal years ended December 31, 2018 and December 31, 2019 (in thousands):
Acquisitions
Foreign
Exchange
Federal Solutions ................................. $
Critical Infrastructure ............................
Total..................................................... $
December 29,
2017
422,439 $
74,347
496,786 $
Federal Solutions ................................. $
Critical Infrastructure ............................
Total..................................................... $
December 31 ,
2018
666,841 $
70,097
736,938 $
244,402 $
—
244,402 $
308,564 $
—
308,564 $
Acquisitions
Foreign
Exchange
December 31,
2018
666,841
70,097
736,938
— $
(4,250)
(4,250) $
December 31,
2019
975,405
72,020
1,047,425
— $
1,923
1,923 $
For the years ended December 31, 2018 and December 31, 2019, the Company performed a
quantitative analysis for all reporting units. It was determined that the fair value of all reporting units
exceeded their carrying values. As a result, no goodwill impairments were identified for those periods.
8.
Intangible Assets
The gross amount and accumulated amortization of acquired identifiable intangible assets with finite
useful lives included in “Intangible assets, net” on the consolidated balance sheets were as follows (in
thousands except for years):
December 31, 2018
December 31, 2019
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
(58,295) $ 22,459 $109,255 $
(38,974) 82,655 228,529
670
(15,174) 72,665 110,939
8,200
(2,100)
1,500
(561)
109
(87,510) $ 21,745
(67,809) 160,720
90
(40,749) 70,190
2,533
(5,667)
(580)
Weighted
Average
Amortization
Period
(in years)
3
7
5
4
1
—
—
3,600
(925)
2,675
3
Backlog............................ $ 80,754 $
Customer relationships.... 121,629
670
Leases .............................
Developed technology ..... 87,839
Trade name .....................
3,600
Non-compete
agreements......................
In process research and
development ....................
Other intangibles .............
—
1,800
—
105
—
Total intangible assets $294,492 $ (115,104) $179,388 $463,268 $ (203,410) $259,858
1,800
275
—
(170)
—
—
—
—
n/a
10
The aggregate amortization expense of intangible assets was $5.6 million, $37.4 million and
$88.3 million for the years ended December 29, 2017, December 31, 2018 and December 31, 2019,
respectively.
F-32
PARSONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 29, 2017, December 31, 2018 and December 31, 2019
Estimated amortization expense in each of the next five years and beyond is as follows
(in thousands):
2020 ............................................................................................................. $
2021 .............................................................................................................
2022 .............................................................................................................
2023 .............................................................................................................
2024 .............................................................................................................
Thereafter.....................................................................................................
$
86,574
81,591
36,100
23,549
9,098
21,146
258,058
9.
Property and Equipment, Net
Property and equipment consisted of the following at December 31, 2018 and December 31, 2019
(in thousands):
Building and leasehold improvements..................................... $
Furniture and equipment .........................................................
Computer systems and equipment..........................................
Construction equipment ..........................................................
Less: Accumulated depreciation .............................................
Property and equipment, net .............................................. $
Useful lives
(years)
1-15
3-10
3-10
5-7
2018
54,348 $
81,705
148,255
12,074
296,382
(204,533)
91,849 $
2019
81,065
91,720
164,161
11,765
348,711
(225,960)
122,751
Depreciation expense of $29.4 million, $32.4 million and $37.3 million was recorded for the years
ended December 29, 2017, December 31, 2018 and December 31, 2019, respectively.
10. Sale-Leasebacks
During fiscal 2011, the Company consummated two sale-leaseback transactions associated with the
sale of two office buildings from which the Company recognized a total gain in the consolidated
statements of income of $106.7 million and a total deferred gain of $107.8 million. The current and long-
term portion of the deferred gain had been recorded in “Accrued expenses and other current liabilities”
and “Deferred gain resulting from sale-leaseback transactions” on the consolidated balance sheet as of
December 31, 2018, respectively, and was being recognized ratably over the minimum lease terms to
which they relate, as an offset to rental expense in “Indirect, general and administrative expenses” in the
consolidated statements of income. Amortization of the deferred gain was $7.3 million for each of the
years ended December 29, 2017 and December 31, 2018.
The deferred gain balance of $53.3 million as of December 31, 2018 was recognized as an
adjustment to beginning accumulated deficit, net of a deferred tax asset adjustment of $0.7 million, during
January 2019 in connection with the adoption of the new leasing standard. See “Note 5—Leases”.
F-33
PARSONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 29, 2017, December 31, 2018 and December 31, 2019
11. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following at December 31, 2018 and
December 31, 2019 (in thousands):
Salaries and wages................................................................................. $
Employee benefits...................................................................................
Self-insurance liability .............................................................................
Project cost accruals ...............................................................................
Other accrued expenses .........................................................................
Total accrued expenses and other current liabilities .......................... $
50,991 $
214,008
29,682
183,362
81,657
559,700 $
46,685
259,081
29,997
217,729
86,371
639,863
2018
2019
12. Debt and Credit Facilities
Long-term debt consisted of the following at December 31, 2018 and December 31, 2019
(in thousands):
Revolving credit facility............................................................................ $
Senior notes ............................................................................................
Debt issuance costs ................................................................................
Long-term debt................................................................................... $
180,000 $
250,000
(836)
429,164 $
—
250,000
(647)
249,353
2018
2019
In November 2017, the Company entered into an amended and restated Credit Agreement. The
Company incurred approximately $2.0 million of costs in connection with this amendment. Under the
agreement, the Company’s revolving credit facility was increased from $500 million to $550 million and
the term of the agreement was extended through November 2022. The borrowings under the Credit
Agreement bear interest, at the Company’s option, at either the Base Rate (as defined in the Credit
Agreement), plus an applicable margin, or LIBOR plus an applicable margin. The applicable margin for
Base Rate loans is a range of 0.125% to 1.00% and the applicable margin for LIBOR loans is a range of
1.125% to 2.00%, both based on the leverage ratio of the Company at the end of each fiscal quarter. The
rates at December 31, 2018 and December 31, 2019 were 4.253% and 3.02%, respectively. Borrowings
under this Credit Agreement are guaranteed by certain of the Company’s operating subsidiaries. Letters
of credit commitments outstanding under this agreement aggregated approximately $49.8 million and
$43.7 million at December 31, 2018 and December 31, 2019, respectively, which reduced borrowing
limits available to the Company.
On July 1, 2014, the Company finalized a private placement whereby the Company raised an
aggregate amount of $250.0 million in debt repayable as follows (in thousands):
Tranche
Senior Note, Series A .............................................................
Debt Amount Maturity Date
July 15, 202
Interest Rate
$
50,000
1
4.44%
Senior Note, Series B .............................................................
July 15, 202
100,000
4
4.98%
Senior Note, Series C .............................................................
July 15, 202
Senior Note, Series D .............................................................
60,000
40,000
6
5.13%
July 15, 202
9
5.38%
The Company incurred approximately $1.1 million of debt issuance costs in connection with the
private placement. On August 10, 2018, the Company finalized an amended and restated intercreditor
F-34
PARSONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 29, 2017, December 31, 2018 and December 31, 2019
agreement related to this private placement to more closely align certain covenants and definitions with
the terms under the 2017 amended and restated Credit Agreement and incurred approximately
$0.5 million of additional issuance costs. These costs are presented as a direct deduction from the debt
on the face of the balance sheet. Interest expense related to the Senior Notes approximated
$12.4 million for the years ended December 29, 2017, December 31, 2018 and December 31, 2019. The
amortization of debt issuance costs and interest expense are recorded in “Interest expense” on the
consolidated statements of income. The Company made interest payments related to the Senior Notes of
approximately $12.4 million during the periods ended December 29, 2017, December 31, 2018 and
December 31, 2019. Interest payable of approximately $5.7 million is recorded in “Accrued expenses and
other current liabilities” on the consolidated balance sheets at December 31, 2018 and December 31,
2019, respectively, related to the Senior Notes.
The Credit Agreement and private placement includes various covenants, including restrictions on
indebtedness, liens, acquisitions, investments or dispositions, payment of dividends and maintenance of
certain financial ratios and conditions. The Company was in compliance with these covenants at
December 31, 2018 and December 31, 2019.
During the year ended December 31, 2019, the Company’s term loan of $150 million was paid off.
The Company also has in place several secondary bank credit lines for issuing letters of credit,
principally for foreign contracts, to support performance and completion guarantees. Letters of credit
commitments outstanding under these bank lines aggregated approximately $223.0 million and $197.3
million at December 31, 2018 and December 31, 2019, respectively.
Using a discounted cash flow technique that incorporates a market interest yield curve with
adjustments for duration, optionality, and risk profile, the Company has determined that the fair value
(Level 2; see “Note 19—Fair Value of Financial Instruments” below) of its debt approximates the carrying
value.
Amortization of debt issuance costs for all of the Company’s debt and credit facilities for the years
ended December 29, 2017, December 31, 2018 and December 31, 2019 was $0.5 million, $0.7 million
and $1.0 million, respectively.
13. Other Long-term Liabilities
Other long-term liabilities consisted of the following at December 31, 2018 and December 31, 2019
(in thousands):
Self-insurance liability ............................................................................. $
Deferred rent ...........................................................................................
Reserve for uncertain tax positions.........................................................
Finance lease obligations........................................................................
Other long-term liabilities ........................................................................
Total other long-term liabilities ........................................................... $
99,813 $
15,966
9,890
935
1,259
127,863 $
102,521
—
14,427
1,202
7,554
125,704
2018
2019
Refer to “Note 14—Income Taxes” for further discussion of the Company’s reconciliation of the
beginning and ending balances of uncertain tax positions.
14.
Income Taxes
Historically, the Company had elected to be taxed under the provisions of Subchapter “S” of the
Internal Revenue Code for federal tax purposes. As a result, income was not subject to U.S. federal
income taxes or state income taxes in those states where the “S” Corporation status is recognized.
F-35
PARSONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 29, 2017, December 31, 2018 and December 31, 2019
Therefore, previously, no provision or liability for federal or state income tax had been provided in the
consolidated financial statements except for those states where the “S” Corporation status was not
recognized, or where states imposed a tax on “S” Corporations. The provision for income tax in the
historical periods prior to the IPO consists of these state taxes and taxes from certain foreign jurisdictions
where the Company is subject to tax.
In connection with the Company’s IPO on May 8, 2019, the “S” Corporation status was terminated,
and the Company is now treated as a “C” Corporation under the Internal Revenue Code. The termination
of the “S” Corporation status was treated as a change in tax status for Accounting Standards Codification
740, Income Taxes. These rules require that the deferred tax effects of a change in tax status to be
recorded to income from continuing operations on the date the “S” Corporation status terminates. The
termination of the “S” Corporation election has had a material impact on the Company’s results of
operations, financial condition, and cash flows as reflected in the December 31, 2019 consolidated
financial statements. Income tax expense decreased in fiscal 2019 primarily due to a tax benefit recorded
for the revaluation of our deferred tax assets and liabilities as a result of our conversion from “S”
Corporation to a “C” Corporation. Going forward, the effective tax rate will increase, and net income will
decrease as compared to the Company’s “S” Corporation tax years, since the Company is now subject to
both U.S. federal and state corporate income taxes on its earnings.
The US government enacted comprehensive tax legislation on December 22, 2017, which is
commonly referred to as the Tax Cuts and Jobs Act ("TCJA"). The TCJA significantly revised the U.S.
corporate income tax regime by, among other things, lowering the U.S. corporate tax rate from 35% to
21% effective January 1, 2018. The TCJA also repealed the deduction for domestic production activities,
limited the deductibility of certain executive compensation, and implemented a modified territorial tax
system with the introduction of the Global Intangible Low-Taxed Income (“GILTI”) tax rules. The TCJA
also imposes a one-time transition tax on deemed repatriation of historical earnings of foreign
subsidiaries. As a Subchapter “S” corporation the TCJA had a limited effect on the Company’s 2018
effective tax rate. The Company calculated that as a “C” corporation in 2019, the provisions of TCJA,
except for the statutory rate, did not have a material impact on the income tax provision. Under GAAP,
the Company is allowed to make an accounting policy election of either: (i) treating taxes due on future
U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period
cost ” method); or (ii) factoring such amounts into the Company’s measurement of its deferred taxes (the
“deferred” method). For taxable income inclusions due to the GILTI tax rules, the Company has elected
the period cost method and has included the impact in the estimated annual effective tax rate as of
December 31, 2019.
For US corporate income tax purposes, the Company will apportion its 2019 taxable income ratably
between the “S” Corporation and “C” Corporation periods, as allowed by law. This allocation of income
will effectively result in a blended income tax rate for the 2019 year, as only the C corporation earnings
will be subject to both U.S. federal and state corporate income tax while the “S” Corporation earnings will
be subject to tax in those states that tax “S” Corporations or do not recognize “S” Corporation status.
The following table presents the components of our income from continuing operations before
income taxes (in thousands):
United States earnings............................................................ $
Foreign earnings .....................................................................
$
2017
85,913 $
47,088
133,001 $
2018
205,418 $
54,385
259,803 $
2019
6,762
60,480
67,242
F-36
PARSONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 29, 2017, December 31, 2018 and December 31, 2019
The income tax expense (benefit) attributable to income from continuing operations for the years
ended December 29, 2017, December 31, 2018 and December 31, 2019 consists of the following (in
thousands):
Current
Federal.................................................................................... $
State........................................................................................
Foreign....................................................................................
Total current income tax expense......................................
Deferred
Federal....................................................................................
State........................................................................................
Foreign....................................................................................
Total deferred tax expense (benefit) ..................................
Total income tax expense (benefit).................................... $
2017
2018
2019
- $
1,579
14,482
16,061
—
(569)
5,972
5,403
21,464 $
- $
1,536 $
20,253
21,789
22,865
10,428
20,159
53,452
—
2,329
(3,751)
(1,422)
20,367 $
(97,299)
(27,432)
1,393
(123,338)
(69,886)
Income tax expense (benefit) was different from the amount computed by applying the United
States federal statutory rate to pre-tax income from continuing operations as a result of the following (in
thousands):
2017
2018
2019
Income before income tax expense
(benefit) ..................................................... $133,001
Tax at federal statutory tax rate................. 46,550
S- corporation exclusion............................ (25,109)
State taxes, net of federal tax benefit........
1,010
Change in tax status..................................
Change in valuation allowance..................
Change in uncertain tax positions .............
Foreign tax rate differential........................
Foreign tax credits.....................................
Transaction costs ......................................
Other permanent items, net.......................
Noncontrolling interests.............................
Other, net ..................................................
(4,960)
3,476
Total income tax expense (benefit) ...... $ 21,464
1,438
(34)
(907)
$259,803
35% 54,559
(19)% (39,539)
3,865
1%
1%
0%
(1)%
(2,215)
629
4,168
— —
— —
— —
— —
— —
— —
— —
— —
(4)%
3%
(3,599)
2,499
16% $ 20,367
(1)%
0%
2%
$ 67,242
21% 14,121
(4,875)
(15)%
3,223
1%
(93,878)
4,502
4,118
4,886
(1,313)
1,052
1,182
(2,282)
(1)%
1%
(622)
8% $(69,886)
21%
(7)%
5%
(140)%
7%
6%
7%
(2)%
1%
2%
(3)%
(1)%
(104)%
The effective tax rate in 2019 decreased to (104%) from 8% in 2018. During fiscal 2019, the
Company recorded $93.9 million of deferred tax benefit related to the remeasurement of its U.S. deferred
tax assets and liabilities due to the change in tax status from an S Corporation to a C Corporation. This is
subject to change based upon additional analysis performed with the filing of the return. The $93.9 million
was recorded net of a $6.3 million charge for a valuation allowance primarily related to foreign tax credits.
This tax benefit was partially offset by the impact in the percentage of pre-tax earnings subject to taxation
as a result of our conversion from “S” Corporation to a “C” Corporation.
The effective tax rate for the year ended December 31, 2019 differs from the federal statutory tax
rate primarily due to the impact of the change in tax status from “S” Corporation to “C” Corporation,
change in uncertain tax positions, jurisdictional mix of income, and change in valuation allowance. The
effective tax rate for 2017 and 2018 differs from the federal statutory rate primarily as a result of the “S”
Corporation status.
F-37
PARSONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 29, 2017, December 31, 2018 and December 31, 2019
The components of deferred tax assets and liabilities consists of the following at December 31,
2018 and December 31, 2019 (in thousands):
Deferred tax assets
Project and non-project reserves ............................................................ $
Employee compensation and benefits ....................................................
Revenue and cost recognition.................................................................
Insurance accruals ..................................................................................
Net operating losses ...............................................................................
Lease liabilities........................................................................................
Tax credit carryforwards..........................................................................
Other .......................................................................................................
Valuation allowance ................................................................................
Total deferred tax assets....................................................................
Deferred tax liabilities
Intangible assets .....................................................................................
Right of use assets..................................................................................
Revenue and cost recognition.................................................................
Other .......................................................................................................
Total deferred tax liabilities ................................................................
Net deferred tax (liability) asset.......................................................... $
2018
2019
2,326 $
1,609
—
962
14,855
205
377
2,240
(6,668)
15,906
(2,529)
—
(10,570)
(3,367)
(16,466)
(560) $
34,225
59,624
33,588
19,204
16,400
68,447
8,969
3,318
(17,358)
226,417
(29,543)
(63,032)
—
(13,063)
(105,638)
120,779
The Company assesses the realizability of its deferred tax assets each reporting period through an
analysis of potential sources of taxable income, including prior year taxable income available to absorb a
carryback of tax losses, reversals of existing taxable temporary differences, tax planning strategies, and
forecasts of taxable income. The Company considers all negative and positive evidence, including the
weight of the evidence, to determine if valuation allowance against deferred tax assets are required. A
valuation allowance is recorded against deferred tax assets to reflect the amount of deferred tax assets
that is determined to be more-likely-than-not to be realized.
The tax cost, net of applicable credits, have been provided on the undistributed earnings of the
Company’s foreign subsidiaries. The Company does not assert any earnings to be permanently
reinvested.
As of December 31, 2018, and December 31, 2019, the Company’s valuation allowance against
deferred tax assets is $6.7 million and $17.4 million, respectively. This valuation allowance represents the
portion of deferred tax assets primarily related to foreign net operating loss carryforwards, foreign tax
credit carryforwards and capital loss carryforwards for which the Company has determined are not more-
likely-than-not to be realized. From December 31, 2018 to December 31, 2019, the Company’s valuation
allowance increased by $10.7 million. Of this increase, $8.1 million relates to deferred tax assets
recorded for foreign tax credit carryforwards. Due to the change in tax status, the Company determined it
was more beneficial to claim foreign tax credits than foreign tax deductions. However, the valuation
allowance is generated because the Company does not and will not have sufficient foreign source income
to support the foreign tax credit carryforwards.
As of December 31, 2019, the Company had net operating loss carryforwards (“NOLs”) of $29.7
million, $28.2 million, and $41.5 million for U.S. Federal, U.S. states, and foreign jurisdictions,
respectively. The utilization of the U.S. federal and U.S. state NOLs are subject to certain annual
limitations. Of these amounts, $29.7 million, $26.6 million and $35.5 million in U.S. federal, U.S. states
and foreign jurisdictions, respectively, do not expire. The remaining amounts of NOLs in U.S. states and
in foreign jurisdictions will expire if not used between 2020 and 2040.
F-38
PARSONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 29, 2017, December 31, 2018 and December 31, 2019
As of December 31, 2019, the Company has foreign tax credit carryforwards of $8.5 million. The
Company has provided a valuation allowance of $8.5 million as the Company considers that these credits
will not be realized. These foreign tax credits start expiring in the year 2029.
The Company conducts business globally and, as a result, the Company or one or more of its
subsidiaries file income tax returns in the U.S. federal jurisdiction, various U.S. states, and foreign
jurisdictions. The Company is subject to examination by tax authorities in several jurisdictions, including
major jurisdictions such as Canada, Mexico, Qatar, Saudi Arabia and the United States.
A reconciliation of the beginning and ending balances of unrecognized tax benefits is as follows
(in thousands):
Beginning of year.................................................................. $
Increases—current year tax positions.....................................
Increases—prior year tax positions.........................................
Decreases—prior year tax positions .......................................
Settlements .............................................................................
Lapse of statute of limitations .................................................
End of year ............................................................................ $
2017
2018
2019
7,827 $
1,134
319
(1,629)
(361)
(153)
7,137 $
7,137 $
1,094
1,301
(1,656)
—
(31)
7,845 $
7,845
7,531
1,379
(991)
(124)
(114)
15,526
At December 31, 2018, and December 31, 2019, there are $9.9 million and $13.9 million of
unrecognized tax benefits that if recognized would affect the effective tax rate.
The Company recognizes interest and penalties related to unrecognized tax benefits as part of its
income tax expense. During the years ended December 31, 2018 and December 31, 2019, the Company
recognized approximately $0.1 million and $1.3 million, respectively, in interest and penalties. The
amount of interest and penalties accrued was $1.9 million, $2.0 million, and $3.4 million for 2017, 2018,
and 2019, respectively.
As of December 31, 2019, the Company’s U.S. federal income tax returns for tax years 2016 and
forward remain subject to examination. U.S. states and foreign income tax returns remain subject to
examination based on varying local statutes of limitations.
The Company does not anticipate a material change within twelve months as a result of concluding
various tax audits and closing tax years. Although the Company believes its reserves for its tax positions
are reasonable, the final outcome of tax examination could be materially different, both favorably and
unfavorably. It is reasonably possible that these examinations may conclude in the next 12 months and
that the unrecognized tax benefits the Company has recorded in relation to these tax years may change
compared to the liabilities recorded for these periods. However, it is not currently possible to estimate the
amount, if any, of such change.
15. Contingencies
The Company is subject to certain lawsuits, claims and assessments that arise in the ordinary
course of business. Additionally, the Company has been named as a defendant in lawsuits alleging
personal injuries as a result of contact with asbestos products at various project sites. Management
believes that any significant costs relating to these claims will be reimbursed by applicable insurance and,
although there can be no assurance that these matters will be resolved favorably, management believes
that the ultimate resolution of any of these claims will not have a material adverse effect on our
consolidated financial position, results of operations, or cash flows. A liability is recorded when it is both
probable that a loss has been incurred and the amount of loss or range of loss can be reasonably
estimated. When using a range of loss estimate, the Company records the liability using the low end of
the range. The Company records a corresponding receivable for costs covered under its insurance
F-39
PARSONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 29, 2017, December 31, 2018 and December 31, 2019
policies. Management judgment is required to determine the outcome and the estimated amount of a
loss related to such matters. Management believes that there are no claims or assessments outstanding
which would materially affect the consolidated results of operations or the Company’s financial position.
On or about March 1, 2017, the Peninsula Corridor Joint Powers Board, or the JPB, filed a lawsuit
against Parsons Transportation Group, Inc., or PTG, in the Superior Court of California, County of San
Mateo, in connection with a positive train control project on which PTG was engaged prior to termination
of its contract by the JPB. PTG had previously filed a lawsuit against the JPB for breach of contract and
wrongful termination. The JPB seeks damages in excess of $100.0 million, which the Company is
currently disputing. In addition to filing a complaint for breach of contract and wrongful termination, the
Company has denied the allegations raised by the JPB and, accordingly, filed affirmative defenses. The
Company is currently defending against the JPB’s claims and the parties are still engaged in discovery.
The Company also has a professional liability insurance policy to the extent the JPB proves any errors or
omissions occurred. At this time, the Company is unable to determine the probability of the outcome of
the litigation or determine a potential range of loss, if any. The Company has also filed a third-party claim
against a subcontractor for indemnification in connection with this matter.
In September 2015, a former Parsons employee filed an action in the United States District Court
for the Northern District of Alabama against us as a qui tam relator on behalf of the United States (the
“Relator”) alleging violation of the False Claims Act. The United States government did not intervene in
this matter as it is allowed to do so under the statute. The Company filed a motion to dismiss the lawsuit
on the grounds that the Relator did not meet the applicable statute of limitations. The District Court
granted the motion to dismiss. The Relator’s attorney appealed the decision to the United States Court of
Appeals of the Eleventh Circuit, which ultimately ruled in favor of the Relator, and the Company petitioned
the United States Supreme Court to review the decision. The Supreme Court reviewed the decision and
accepted the position of the Relator. The case was thus remanded to the United States District Court for
the Northern District of Alabama. The defendants, including Parsons, will file appropriate pleadings
opposing the allegations. At this time, the Company is unable to determine the probability of the
outcome of the litigation or determine a potential range of loss, if any.
On or about October 4, 2019, LBH Engineers, LLC (“LBH”) filed a lawsuit against Parsons, PTG,
and various other parties in the US District Court of for the Northern District of Georgia, in connection with
an alleged infringement of LBH’s patent. LBH seeks damages and costs incurred by LBH, a post-
judgment royalty, treble damages if the infringement is found to be willful, among other damages, which
the Company and the other defendants are currently disputing. At this time, the Company is unable to
determine the probability of the outcome of the litigation or determine a potential range of loss, if any.
Federal government contracts are subject to audits, which are performed for the most part by the
Defense Contract Audit Agency (“DCAA”). Audits by the DCAA and other agencies consist of reviews of
our overhead rates, operating systems and cost proposals to ensure that we account for such costs in
accordance with the Cost Accounting Standards (“CAS”). If the DCAA determines we have not accounted
for such costs in accordance with the CAS, the DCAA may disallow these costs. The disallowance of
such costs may result in a reduction of revenue and additional liability for the Company. Historically, the
Company has not experienced any material disallowed costs as a result of government audits. However,
the Company can provide no assurance that the DCAA or other government audits will not result in
material disallowances for incurred costs in the future. All audits of costs incurred on work performed
through 2010 have been closed, and years thereafter remain open.
Although there can be no assurance that these matters will be resolved favorably, management
believes that their ultimate resolution will not have a material adverse impact on the Company’s
consolidated financial position, results of operations, or cash flows.
F-40
PARSONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 29, 2017, December 31, 2018 and December 31, 2019
16. Retirement and Other Benefit Plans
The Company’s principal retirement benefit plan is the ESOP, a stock bonus plan, established in
1975 to cover eligible employees of the Company and certain affiliated companies. Contributions of
treasury stock to ESOP are made annually in amounts determined by the Company’s board of directors
and are held in trust for the sole benefit of the participants. Shares allocated to a participant’s account are
fully vested after six years of credited service, or in the event(s) of reaching age 65, death or disability
while an active employee of the Company. As of December 31, 2018, all 78,172,809 outstanding shares
of the Company’s common stock were held by the ESOP and recorded at their redemption value of $1.9
billion. As of December 31, 2019, the total shares of the Company’s common stock outstanding were
100,669,694, of which 78,896,806 were held by the ESOP.
A participant’s interest in their ESOP account is redeemable upon certain events, including
retirement, death, termination due to permanent disability, a severe financial hardship following
termination of employment, certain conflicts of interest following termination of employment, or the
exercise of diversification rights. Prior to the IPO, participants’ interests were redeemable in cash based
on share prices established by the ESOP Trustee. Subsequent to the IPO and during the 180-day lock-up
period, participants’ interests were redeemable in cash based on quoted prices of a share of the
Company’s common stock on the NYSE. Subsequent to the 180-day lock-up period, distributions from
the ESOP of participants’ interests are made in the Company’s common stock based on quoted prices of
a share of the Company’s common stock on the NYSE. A participant will be able to sell such shares of
common stock in the market, subject to any requirements of the federal securities laws.
Prior to the end of the 180-day lock-up period. under the terms of the ESOP plan, for participants
who held shares that were not readily tradeable, the Company was obligated to redeem eligible
participants’ interests in their ESOP accounts for cash upon an employee’s election. At December 31,
2018, the Company presented all shares held by the ESOP as temporary equity on the consolidated
balance sheet at redemption value as they included a cash redemption feature that was not solely within
the Company’s control. At the conclusion of the 180-day lock-up period ESOP distributions are no longer
made in cash and are now made in shares of the Company’s common stock. At December 31, 2019,
shares held by the ESOP have been reclassified from temporary equity to permanent equity on the
consolidated balance sheet.
Total ESOP contribution expense was approximately $40.6 million, $45.2 million and $55.5 million
for the years ended December 29, 2017, December 31, 2018 and December 31, 2019, respectively, and
is recorded in “Direct costs of contracts” and “Indirect, general and administrative expense” in the
consolidated statements of income (loss).
At December 31, 2018 and December 31, 2019, 78,172,809 shares and 78,896,806 shares of the
Company’s stock were held by the ESOP, respectively, which were recorded at redemption value of
$1.9 billion at December 31, 2018 and within permanent equity post lock-up period at December 31,
2019. On April 3, 2019, the board of directors of the Company declared a cash dividend to the
Company’s sole existing shareholder at that time, the ESOP, in the amount of $2.00 per share, or $52.1
million in the aggregate (the “IPO Dividend”). The IPO Dividend was paid on May 10, 2019. On April 15,
2019, the board of directors of the Company declared the Stock Dividend in a ratio of two shares of
common stock for every one share of common stock then held by the Company’s shareholder. The record
date of the Stock Dividend was May 7, 2019, the day immediately prior to the consummation of the
Company’s IPO on May 8, 2019, and the payment date of the Stock Dividend was May 8, 2019.
Purchasers of the Company’s common stock in the Company’s public offering were not entitled to receive
any portion of the Stock Dividend. During the years ended December 29, 2017 and December 31, 2018,
the Company did not declare any dividends.
The Company also maintains a defined contribution plan (the “401(k) Plan”). Substantially all
domestic employees are entitled to participate in the 401(k) Plan, subject to certain minimum
requirements. The Company’s contributions to the 401(k) Plan for the years ended December 29, 2017,
December 31, 2018 and December 31, 2019 amounted to $15.8 million, $17.1 million and $25.2 million,
respectively.
F-41
PARSONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 29, 2017, December 31, 2018 and December 31, 2019
As part of an acquisition in 2014, the Company acquired a defined contribution pension plan, a
defined benefit pension plan, and supplemental retirement plan. For the defined contribution pension
plan, the Company contributes a base amount plus an additional amount based upon a predetermined
formula. At December 31, 2018 and December 31, 2019, the defined benefit pension plan was in a net
asset position of $1.7 million and $2.1 million, respectively, which is recorded in “Other noncurrent assets”
on the consolidated balance sheet.
17.
Investments in and Advances to Joint Ventures
The Company participates in joint ventures to bid, negotiate and complete specific projects.
The Company is required to consolidate these joint ventures if it holds the majority voting interest or if the
Company meets the criteria under the consolidation model, as described below.
The Company performs an analysis to determine whether its variable interests give the Company a
controlling financial interest in a VIE for which the Company is the primary beneficiary and should,
therefore, be consolidated. Such analysis requires the Company to assess whether it has the power to
direct the activities of the VIE and the obligation to absorb losses or the right to receive benefits that could
potentially be significant to the VIE.
The Company analyzed all of its joint ventures and classified them into two groups: (1) joint
ventures that must be consolidated because they are either not VIEs and the Company holds the majority
voting interest, or because they are VIEs and the Company is the primary beneficiary; and (2) joint
ventures that do not need to be consolidated because they are either not VIEs and the Company holds a
minority voting interest, or because they are VIEs and the Company is not the primary beneficiary.
Many of the Company’s joint venture agreements provide for capital calls to fund operations, as
necessary; however, such funding is infrequent and is not anticipated to be material.
Letters of credit outstanding described in ‘Note 12—Debt and Credit Facilities” that relate to project
ventures are approximately $76.8 million and $55.0 million at December 31, 2018 and December 31,
2019, respectively.
In the table below, aggregated financial information relating to the Company’s joint ventures is
provided because their nature, risk and reward characteristics are similar. None of the Company’s current
joint ventures that meet the characteristics of a VIE are individually significant to the consolidated
financial statements.
Consolidated Joint Ventures
The following represents financial information for consolidated joint ventures included in the
consolidated financial statements as or and for the years ended December 31, 2018 and December 31,
2019 (in thousands):
Current assets......................................................................................... $
Noncurrent assets ...................................................................................
Total assets........................................................................................
Current liabilities......................................................................................
Total liabilities.....................................................................................
Total joint venture equity .................................................................... $
287,227 $
2,689
289,916
199,833
199,833
90,083 $
255,167
2,860
258,027
193,583
193,583
64,444
2018
2019
F-42
PARSONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 29, 2017, December 31, 2018 and December 31, 2019
Revenue.................................................................................. $
Costs.......................................................................................
Net income......................................................................... $
Net income attributable to noncontrolling interests ................. $
2017
446,506 $
426,245
20,261 $
14,211 $
2018
540,345 $
376,628
163,717 $
17,099 $
2019
473,486
435,947
37,539
16,594
The assets of the consolidated joint ventures are restricted for use only by the particular joint
venture and are not available for the Company’s general operations.
2018 includes reversal of a provisions related to a lawsuit against a joint venture in which the
Company is the managing partner. See “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” in this Annual Report on Form 10-K for a description of this matter, which was
resolved in favor of the Company on June 13, 2018.
Unconsolidated Joint Ventures
The Company accounts for its unconsolidated joint ventures using the equity method of accounting.
Under this method, the Company recognizes its proportionate share of the net earnings of these joint
ventures as “Equity in earnings (loss) of unconsolidated joint ventures” in the consolidated statements of
income. The Company’s maximum exposure to loss as a result of its investments in unconsolidated VIEs
is typically limited to the aggregate of the carrying value of the investment and future funding
commitments.
The following represents the financial information of the Company’s unconsolidated joint ventures
as presented in their unaudited financial statements as or and for the years ended December 31, 2018
and December 31, 2019 (in thousands):
Current assets......................................................................................... $
Noncurrent assets ...................................................................................
Total assets........................................................................................
Current liabilities......................................................................................
Noncurrent liabilities................................................................................
Total liabilities.....................................................................................
Total joint venture equity .................................................................... $
Investments in and advances to unconsolidated joint
ventures ............................................................................................... $
2018
707,457 $
876,385
1,583,842
560,306
813,269
1,373,575
210,267 $
2019
801,335
564,160
1,365,495
655,495
507,131
1,162,626
202,869
63,560 $
68,620
2017
2018
2019
Revenue .................................................................................. $ 2,114,903 $ 1,773,037 2,081,341
Costs ....................................................................................... 1,988,569 1,661,232 1,903,582
177,759
41,721
Net income ......................................................................... $
Equity in earnings of unconsolidated joint ventures ................ $
126,334 $
40,086 $
111,805
36,915
The Company received net distributions from its unconsolidated joint ventures of $31.8 million,
$41.9 million and $38.9 million for the years ended December 29, 2017, December 31, 2018 and
December 31, 2019, respectively.
18. Related Party Transactions
The Company often provides services to unconsolidated joint ventures and revenues include
amounts related to recovering overhead costs for these services. For the years ended December 29,
2017, December 31, 2018 and December 31, 2019, revenues included $112.1 million, $144.7 million and
$157.3 million, respectively, related to services the Company provided to unconsolidated joint ventures.
F-43
PARSONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 29, 2017, December 31, 2018 and December 31, 2019
For the years ended December 29, 2017, December 31, 2018 and December 31, 2019, the Company
incurred approximately $81.8 million, $111.1 million and $119.1 million, respectively, of reimbursable
costs. Amounts included in the consolidated balance sheets related to services the Company provided to
unconsolidated joint ventures is as follows (in thousands):
Accounts receivable ................................................................................ $
Contract assets .......................................................................................
Contract liabilities .................................................................................... $
38,742
2,648
10,861
37,425
6,955
4,509
2018
2019
19. Fair Value of Financial Instruments
The authoritative guidance on fair value measurement defines fair value as the price that would be
received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date (referred to as an “exit price”). At December 31, 2018 and December 31, 2019,
the Company’s financial instruments include cash, cash equivalents, accounts receivable, accounts
payable, and other liabilities. The fair values of these financial instruments approximate their carrying
values due to their short-term maturities.
Investments measured at fair value are based on one or more of the following three valuation
techniques:
•
•
•
Market approach—Prices and other relevant information generated by market transactions
involving identical or comparable assets or liabilities;
Cost approach—Amount that would be required to replace the service capacity of an asset
(i.e., replacement cost); and
Income approach—Techniques to convert future amounts to a single present amount based
on market expectations (including present value techniques, option-pricing models and
lattice models).
In addition, the guidance establishes a fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted
market prices in active markets for identical assets and liabilities (Level 1 measurements) and the lowest
priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are:
Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date
for identical assets and liabilities;
Level 2 Pricing inputs that include quoted prices for similar assets and liabilities in active markets
and inputs that are observable for the asset or liability, either directly or indirectly, for
substantially the full term of the derivative instrument; and
Level 3 Prices or valuations that require inputs that are both significant to the fair value
measurements and unobservable.
The methods described above may produce a fair value calculation that may not be indicative of net
realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation
methods are appropriate and consistent with other market participants, the use of different methodologies
or assumptions to determine the fair value of certain financial instruments could result in a different fair
value measurement at the reporting date.
F-44
PARSONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 29, 2017, December 31, 2018 and December 31, 2019
The following table sets forth assets associated with the pension plan in “Note 16—Retirement and
Other Benefits Plans” that are accounted for at fair value by Level within the fair value hierarchy.
Fair value as of December 31, 2018 (in thousands):
Mutual funds ............................................................... $
Fixed income...............................................................
Cash and cash equivalents .........................................
$
2,539 $
—
361
2,900 $
— $
10,168
—
10,168 $
— $
—
—
— $
2,539
10,168
361
13,068
Level 1
Level 2
Level 3
Total
Fair value as of December 31, 2019 (in thousands):
Mutual funds ...............................................................
Fixed income...............................................................
Cash and cash equivalents .........................................
Level 1
Level 2
Level 3
Total
2,987
—
334
3,321
—
10,447
—
10,447
—
—
—
—
2,987
10,447
334
13,768
As described in “Note 16—Retirement and Other Benefits Plans”, the Company acquired a defined
contribution pension plan, a defined benefit pension plan, and supplemental retirement plans. At
December 31, 2018 and December 31, 2019, the Company measured the mutual funds held within the
defined benefit pension plan at fair value using unadjusted quoted prices in active markets that are
accessible for identical assets. The Company measured the fixed income securities using market bid and
ask prices. The inputs that are significant to the valuation of fixed income securities are generally
observable, and therefore have been classified as Level 2.
The following table sets forth redeemable common stock associated with the ESOP in “Note 16—
Retirement and Other Benefits Plans” that is accounted for at fair value by Level within the fair value
hierarchy.
Fair value as of December 31, 2018 (in thousands):
Redeemable Common Stock...................................... $
$
— $
— $
— $1,876,309 $1,876,309
— $1,876,309 $1,876,309
Level 1
Level 2
Level 3
Total
As described in “Note 16—Retirement and Other Benefits Plans”, the Company was obligated to
redeem eligible participants’ interests in their ESOP accounts for cash upon an employee’s election until
the conclusion of the 180-day lock-up period on November 3, 2019. Prior to the conclusion of the 180-day
lock-up period, all shares held by the ESOP were redeemable in the future for cash at the option of the
holder once vesting and eligibility requirements had been met. At December 31, 2018, 78,172,809
shares of the Company’s common stock were held by the ESOP which the Company recorded at their
redemption values of $1.9 billion and presented as temporary equity on the consolidated balance
sheet. The redemption value was based on a share price established by the ESOP trustee, taking into
account, among other things, the advice of a third-party valuation consultant for the ESOP trustee, as well
as the ESOP trustee’s knowledge of the Company. The share price valuation was determined using a
combination of income- and market-based methods that utilized unobservable Level 3 inputs, including
significant assumptions such as forecasted revenue and operating margins, working capital requirements,
and weighted average cost of capital. At December 31, 2019, all outstanding shares of common stock are
included in permanent equity in the consolidated balance sheet.
F-45
PARSONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 29, 2017, December 31, 2018 and December 31, 2019
The following table presents a reconciliation of the beginning and ending balances of the fair value
measurements using significant unobservable inputs (Level 3) (in thousands):
Balance at beginning of year................................................................... $
Purchases of treasury stock....................................................................
Contributions of treasury stock to ESOP.................................................
Share price adjustment ...........................................................................
Transfer to permanent equity ..................................................................
Balance at end of year ............................................................................ $
2018
1,855,305
(125,814)
47,043
99,775
—
1,876,309
2019
1,876,309
(6,219)
—
883,436
(2,753,526)
—
With respect to equity-based compensation, we estimate the fair value of SARs using the Black-
Scholes option-pricing model. Like all option-pricing models, the Black-Scholes option-pricing model
requires the use of subjective assumptions, including (i) the expected volatility of the market price of the
underlying stock, and (ii) the expected term of the award, among others. Accordingly, changes in
assumptions and any subsequent adjustments to those assumptions can cause different fair values to be
assigned to SARs. Fair value for cash settled awards (excluding SARs prior to vesting) is determined
based on the 60-trading day weighted average closing price of the Company’s common stock on the
NYSE at the end of each reporting period and on the vesting date. For restricted stock units containing
service conditions or service and performance conditions, fair value is based on the closing stock price of
a share of the Company’s common stock on the NYSE on the grant date.
20. Earnings Per Share
Basic earnings per common share is computed using the weighted average number of shares
outstanding during the period and income available to shareholders.
Diluted EPS is computed similar to basic EPS, except the weighted average number of shares
outstanding is increased to include the dilutive effects of outstanding stock options and other stock-based
awards. There were no dilutive securities outstanding during 2017 and 2018.
The weighted average number of shares used to compute basic and diluted EPS were (in
thousands):
Basic weighted average number of shares outstanding .........
Dilutive common share equivalents.........................................
Diluted weighted average number of shares outstanding .......
83,574
—
83,574
80,014
—
80,014
92,419
334
92,753
2017
2018
2019
21. Segments Information
The Company operates in two reportable segments: Federal Solutions and Critical Infrastructure.
The Federal Solutions segment provides advanced technical solutions to the U.S. government,
delivering timely, cost-effective hardware, software and services for mission-critical projects. The segment
provides advanced technologies, supporting national security missions in cybersecurity, missile defense,
and military facility modernization, logistics support, hazardous material remediation and engineering
services.
The Critical Infrastructure segment provides integrated engineering and management services for
complex physical and digital infrastructure around the globe. The Critical Infrastructure segment is a
technology innovator focused on next generation digital systems and complex structures. Industry leading
capabilities in engineering and project management allow the Company to deliver significant value to
customers by employing cutting-edge technologies, improving timelines and reducing costs.
F-46
PARSONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 29, 2017, December 31, 2018 and December 31, 2019
The Company defines its reportable segments based on the way the chief operating decision maker
(“CODM”), currently its Chairman and Chief Executive Officer, evaluates the performance of each
segment and manages the operations of the Company for purposes of allocating resources among the
segments. The CODM evaluates segment operating performance using segment Revenue and segment
Adjusted EBITDA attributable to Parsons Corporation.
The following table summarizes business segment information for the periods presented (in
thousands):
Revenues:
2017
2018
2019
Federal Solutions ............................................................... $ 1,079,906 $ 1,479,007 $ 1,887,907
Critical Infrastructure.......................................................... 1,937,105 2,081,501 2,066,905
Total revenues ........................................................................ $ 3,017,011 $ 3,560,508 $ 3,954,812
The Company defines Adjusted EBITDA attributable to Parsons Corporation as Adjusted EBITDA
excluding Adjusted EBITDA attributable to noncontrolling interests. The Company defines Adjusted
EBITDA as net income (loss) attributable to Parsons Corporation, adjusted to include net income (loss)
attributable to noncontrolling interests and to exclude interest expense (net of interest income), provision
for income taxes, depreciation and amortization and certain other items that are not considered in the
evaluation of ongoing operating performance. These other items include net income (loss) attributable to
noncontrolling interests, asset impairment charges, income and expense recognized on litigation matters,
expenses incurred in connection with acquisitions and other non-recurring transaction costs and
expenses related to our prior restructuring. The following table summarizes business segment Adjusted
EBITDA and a reconciliation to net income attributable to Parsons Corporation for the periods presented
(in thousands):
Adjusted EBITDA attributable to Parsons Corporation
Federal Solutions ............................................................... $
Critical Infrastructure..........................................................
95,354 $
99,402
121,986 $
106,851
169,100
138,851
2017
2018
2019
Adjusted EBITDA attributable to Parsons
Corporation ..........................................................................
Adjusted EBITDA attributable to noncontrolling
interests ...............................................................................
Depreciation and amortization ................................................
Interest expense, net ..............................................................
Income tax (expense) benefit..................................................
Litigation-related expenses (a)................................................
Amortization of deferred gain resulting from sale-leaseback
transactions (b) .......................................................................
Equity-based compensation (c) ..............................................
Transaction-related costs (d) ..................................................
Restructuring (e) .....................................................................
Other (f)...................................................................................
Net income including noncontrolling
interests ............................................................................... $
Net income attributable to noncontrolling interests .................
Net income attributable to Parsons
Corporation .......................................................................... $
(a)
194,756
228,837
307,951
14,891
(35,198)
(13,333)
(21,464)
(10,026)
7,283
(19,016)
(1,190)
—
(5,166)
17,407
(69,869)
(18,132)
(20,367)
129,674
17,096
(125,700)
(22,429)
69,886
—
7,253
(16,487)
(12,942)
—
(5,938)
—
(65,744)
(34,353)
(3,424)
(6,155)
111,537 $
(14,211)
239,436 $
(17,099)
137,128
(16,594)
120,534
Fiscal 2017 reflects post-judgment interest expense recorded in “(Interest and other expense) gain
associated with claim on long-term contract” in our results of operations related to a judgment
entered against the Company in 2014 in connection with a lawsuit against a joint venture in which
222,337 $
97,326 $
F-47
PARSONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 29, 2017, December 31, 2018 and December 31, 2019
the Company is the managing partner. Fiscal 2018 reflects a reversal of an accrued liability, with
$55.1 million recorded to revenue and $74.6 million recorded to other income in our results of
operations. See “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” in this Annual Report on Form 10-K for a description of this matter, which was
resolved in favor of the Company on June 13, 2018.
Reflects recognized deferred gains related to sales-leaseback transactions described in “Note
10— Sale-Leasebacks.”
Reflects equity-based compensation costs primarily related to cash-settled awards. See
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this
Annual Report on Form 10-K for a further discussion of these awards.
Reflects costs incurred in connection with acquisitions, IPO, and other non-recurring transaction
costs, primarily fees paid for professional services and employee retention.
Reflects costs associated with and related to our corporate restructuring initiatives.
Includes a combination of gain/loss related to sale of fixed assets, software implementation costs,
and other individually insignificant items that are non-recurring in nature.
(b)
(c)
(c)
(d)
(e)
Asset information by segment is not a key measure of performance used by the CODM.
The following table presents revenues and property and equipment, net by geographic area (in
thousands):
Revenues:
2017
2018
2019
North America .................................................................... $ 2,374,138 $ 2,870,494 $ 3,249,054
689,067
Middle East ........................................................................
16,691
Rest of World .....................................................................
Total revenues ........................................................................ $ 3,017,011 $ 3,560,508 $ 3,954,812
Property and equipment, net
671,925
18,089
621,796
21,077
North America .................................................................... $
Middle East ........................................................................
Total property and equipment, net .......................................... $
80,852 $
6,726
87,578 $
86,847 $
5,002
91,849 $
117,606
5,145
122,751
North America revenue includes $2.1 billion, $2.6 billion and $3.0 billion of United States revenue
for the years ended December 29, 2017, December 31, 2018 and December 31, 2019, respectively.
North America property and equipment, net includes $76.2 million, $79.9 million and $109.9 million of
property and equipment, net in the United States at December 29, 2017, December 31, 2018 and
December 31, 2019, respectively.
The geographic location of revenue is determined by the location of the customer. The prior
reporting of revenue by geographic location has been conformed to the current presentation.
F-48
PARSONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 29, 2017, December 31, 2018 and December 31, 2019
The following table presents revenues by business lines (in thousands):
2017
2018
2019
Revenues:
Federal Solutions
Cyber & Intelligence ...................................................... $
Defense.........................................................................
Mission Solutions ..........................................................
Engineered Systems .....................................................
Geospatial .....................................................................
351,828
577,109
317,802
497,793
143,375
Federal Solutions revenues ............................................... 1,079,906 1,479,007 1,887,907
184,771 $
291,358
291,933
311,844
—
255,447 $
431,059
360,969
431,532
—
Critical Infrastructure
Connected Communities...............................................
619,220
Mobility Solutions .......................................................... 1,102,725 1,183,863 1,120,563
327,122
Industrial........................................................................
Critical Infrastructure revenues .......................................... 1,937,105 2,081,501 2,066,905
241,125
231,405
602,975
656,513
Total revenues ........................................................................ $ 3,017,011 $ 3,560,508 $ 3,954,812
Revenue for the year ended December 28, 2018 included $55.1 million related to the settlement of
a claim that was resolved in favor of the Company in the Mobility Solutions business line of our Critical
Infrastructure segment. See “Management’s Discussion and Analysis of Financial Condition and Results
of Operations” in this Annual Report on Form 10-K for a description of this matter, which was resolved in
favor of the Company on June 13, 2018. Excluding the claim settlement, revenue for the year ended
December 31, 2018 for the Critical Infrastructure segment was $2.0 billion and for the Mobility Solutions
revenue business line revenue was $1.1 billion.
22. Quarterly Information - Unaudited
The following tables present selected quarterly financial information (in thousands except per
share data).
Fiscal Quarter Ended
December
31, 2018
June 30,
2019
March
30, 2018
March
31, 2019
June 29,
2018(1)
September
30, 2019
December
September
31, 2019
28, 2018
Federal Solutions revenue .............. $291,335 $341,065 $ 443,725 $ 402,882 $422,812 $478,497 $ 486,175 $ 500,423
532,432 526,058 481,593 511,245
Critical Infrastructure revenue ......... 463,344 559,667
536,965
976,157 928,940 904,405 989,742 1,023,277 1,037,388
Total revenue .................................. 754,679 900,732
24,274
Operating income............................ 38,891 86,912
Net income attributable to Parsons
Corporation ..................................... 25,287 148,381
Federal Solutions Adjusted
EBITDA attributable to Parsons
Corporation ..................................... 21,549 33,947
Critical Infrastructure Adjusted
EBITDA attributable to Parsons
Corporation ..................................... 25,361 16,929
Adjusted EBITDA attributable to
1,759
noncontrolling interests ...................
Total Adjusted EBITDA (2).............. $ 50,830 $ 52,635 $
(20)
3,749
54,215 $ 72,024 $ 76,205 $
26,555 27,676 40,525
20,934 40,599 35,700
4,655
88,990 $
5,002
88,564 $
24,092 23,046
9,741 40,259
8,712
87,828
537,102
56,812
53,449
33,976
50,359
41,222
45,556
38,006
55,113
(8,706)
7,447
6,726
3,920
36,674
42,442
13,722
Earnings per share:
(1)
Basic ............................................ $
Diluted .......................................... $
0.14
0.52 $
0.14
0.52 $
Includes reversal of an accrued liability, with $55.1 million recorded to revenue and 74.6 million recorded to other income in our
results of operations related to a lawsuit against a joint venture in which the Company is the managing partner. See
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K
for a description of this matter, which was resolved in favor of the Company on June 13, 2018.
0.10 $
0.10 $
0.44 $
0.44 $
0.12 $
0.12 $
0.57 $
0.57 $
0.31 $
0.31 $
1.83 $
1.83 $
F-49
PARSONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 29, 2017, December 31, 2018 and December 31, 2019
(2) The following table presents a reconciliation of net income attributable to Parsons Corporation to Adjusted EBITDA. For more
information on our use of Adjusted EBITDA, how we use this metric, why we present this metric and the material limitations on
usefulness of this metric, see “Note 21—Segments Information” in the “Other Information” table located in “Selected
Consolidated Financial Data”.
March
30, 2018
June 29,
2018
September
28, 2018
December
31, 2018
March
31, 2019
June 30,
September
2019
30, 2019
December
31, 2019
4,844
-
3,258
5,353
9,009
13,722
3,981
(2,823)
33,008
3,815
1,657
2,330 (132,004)
41,222 $
5,589
4,154
23,599
56,812 $
4,482
(15,453)
31,027
7,447 $ 9,741 $ 40,259 $
7,815
6,015
6,151
1,886 (53,496)
1,841
23,213 30,591 31,074
Net income attributable to Parsons
Corporation ..................................... $ 25,287 $ 148,381 $
3,270
Interest expense, net.......................
9,019
Income tax expense (benefit)..........
Depreciation and amortization ........
14,048
Net income attributable to
noncontrolling interests ...................
Litigation related expenses (a) ........
Amortization of deferred gain
resulting from sale-leaseback
(1,829)
transactions (b) ...............................
5,049
Stock-based compensation (c)........
4,930
Transaction related costs (d)...........
Restructuring (e) .............................
-
Other (f)...........................................
114
Adjusted EBITDA ............................ $ 50,830 $ 52,635 $
(a) Fiscal 2017 reflect the post-judgment interest expense recorded in “(Interest and other expenses associated with claim on
long-term contract” in our results of operations related to a lawsuit against a joint venture in which the Company is the
managing partner. In fiscal 2018, the Company reversed the accrued liability with an offset of $55.1 million to revenue and
$74.6 million to other income. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
in this Annual Report on Form 10-K for a description of this matter, which was resolved in favor of the Company on June 13,
2018
-
3,850 43,311
7,715
9,355
353
2,218
952
2,923
54,215 $ 72,024 $ 76,205 $
(1,798)
5,049
2,456
-
3,449
88,564 $
-
(1,657)
9,891
309
(902)
88,990 $
(1,813)
3,289
5,431
-
2,009
(1,813)
3,100
125
-
366
-
20,240
7,392
544
3,182
87,828
3,645
-
6,783
-
4,481
-
(114)
-
8,582
-
-
(b) Reflects amortization of the deferred gain on prior sale-leaseback transactions in fiscal 2011. See “Note 10—Sale-Leasebacks”
in the notes to our consolidated financial statements included elsewhere in this prospectus.
(c) Reflects equity-based compensation costs primarily related to cash-settled awards. See “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K for a further discussion of these
awards.
(d) Reflects costs incurred in connection with acquisitions and other non-recurring transaction costs, including primarily fees paid
for professional services and employee retention.
(e) Reflects costs associated with and related to our corporate restructuring initiatives.
(f)
Includes a combination of gain/loss related to sale of fixed assets, software implementation costs, and other individually
insignificant items that are non-recurring in nature.
23. Subsequent Events
None.
F-50
PARSONS CORPORATION AND SUBSIDIARIES
Schedule II—Valuation and Qualifying Accounts
Balance at
beginning
of period Additions Deductions
Other and foreign
exchange impact
Balance at
end of period
Description
2017
Allowance for doubtful accounts ................. 40,368 12,530
Valuation allowance on deferred tax
assets .........................................................
2018
Allowance for doubtful accounts ................. 52,911
Valuation allowance on deferred tax
assets .........................................................
2019
Allowance for doubtful accounts ................. 50,702
Valuation allowance on deferred tax
assets .........................................................
6,668 10,817
8,882
7,444
3,456
5,254
2,794
452
(2,730)
2,743
52,911
(2,168)
150
8,882
(6,085)
(1,378)
50,702
(2,633)
-33
6,668
(10,661)
(1,002)
41,833
(32)
(94)
17,359
F-51
[THIS PAGE INTENTIONALLY LEFT BLANK]
BOARD OF DIRECTORS
Kenneth C. Dahlberg
Former Chairman, Chief Executive Officer,
And President Of Science Applications
International Corporation (SAIC)
Tamara L. Lundgren
President, Chief Executive Officer, And A
Director Of Schnitzer Steel Industries,
Inc. (SSI)
Mark K. Holdsworth
Founder And Managing Partner Of The
Holdsworth Group
Harry T. McMahon
Former Executive Vice Chairman Of Bank
Of America Merrill Lynch
Charles L. Harrington
Chairman And Chief Executive Officer Of
Parsons Corporation
M. Christian Mitchell
Former National Managing Partner Of
Deloitte & Touche LLP’s Mortgage Banking
And Finance Practice
James F. McGovern
Senior Managing Partner Of Alagem
Capital; Chief Executive Officer And
President Of Dunhill Technologies, LLC; And
Partner With McGovern & Smith Law Firm
Major General Suzanne M.
“Zan” Vautrinot, USAF (ret)
President Of Kilovolt Consulting, Inc.
Steven F. Leer
Former Executive Chairman Of The Board
Of Directors Of Arch Coal, Inc.
CORPORATE OFFICERS
Charles L. Harrington
Chairman And Chief Executive Officer
Carey A. Smith
President And Chief Operating Officer
George L. Ball
Chief Financial Officer
Debra A. Fiori
Chief People Officer
Gary B. Adams
Chief Risk Officer
Mike R. Kolloway
Chief Legal Officer
Virginia L. Grebbien
Chief Corporate Affairs Officer
LOGO
Questmark and Current Wordmark
Light / Dark
CORPORATE HEADQUARTERS
5875 Trinity Parkway, Suite 140
Centreville, Virginia 20120
Direct: +1 703.988.8500
parsons.com
INVESTOR RELATIONS
Dave Spille, Vice President
dave.spille@parsons.com
Direct: +1 571.655.8264