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Acquisitions | 9 Months Ended
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Sep. 30, 2019
Business Combinations [Abstract] |
Acquisitions |
4. | Acquisitions
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 11 – 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 fiscal 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 estimated fair values of the assets acquired and liabilities assumed (in thousands):
|  | Amount |
Cash and cash equivalents |  | $ | 7,914 |
Accounts receivable |  |  | 29,688 |
Contract assets |  |  | 35,229 |
Prepaid expenses and other current assets |  |  | 9,295 |
Property and equipment |  |  | 9,024 |
Goodwill |  |  | 243,471 |
Intangible assets |  |  | 199,520 |
Other noncurrent assets |  |  | 2,203 |
Accounts payable |  |  | (13,942 | )
Accrued expenses and other current liabilities |  |  | (26,419 | )
Contract liabilities |  |  | (3,529 | )
Deferred tax liabilities |  |  | (2,231 | )
Other long-term liabilities |  |  | (1,146 | )
Net assets acquired |  | $ | 489,077 |
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)
Developed technology |  | $ | 84,900 |  |  | 4
Customer relationships |  |  | 76,000 |  |  | 8
Backlog |  |  | 34,900 |  |  | 2
Trade name |  |  | 3,600 |  |  | 1
Leases |  | $ | 120 |  |  | 6
Amortization expense of $13.0 million and $13.2 million related to these intangible assets was recorded for the three months ended September 28, 2018 and September 30, 2019, respectively, and $17.3 million and $41.2 million for the nine months ended September 28, 2018 and September 30, 2019, respectively. The entire value of goodwill of $243.5 million was assigned to the Parsons Federal 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 and included within consolidated revenues is $94.8 million and $96.9 million for the three months ended September 28, 2018 and September 30, 2019, respectively, and $124.7 million and $293.0 million for the nine months ended September 28, 2018 and September 30, 2019, respectively. The Company has determined that the presentation of net income from the date of acquisition is impracticable due to the integration of general corporate functions upon acquisition. Supplemental Pro Forma Information Supplemental information on an unaudited pro forma operating results assuming the Polaris Alpha acquisition had been consummated as of the beginning of fiscal year 2018 (December 31, 2017) (in thousands) is as follows:
|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 28, 2018 |  |  | September 28, 2018 |
Pro forma revenue |  | $ | 976,157 |  |  | $ | 2,784,864 |
Pro forma net income including noncontrolling interests |  | $ | 46,848 |  |  | $ | 179,071 |
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, 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 11 – Debt and Credit Facilities,” to partially fund the acquisition. In connection with this acquisition, the Company recognized $0.6 million and $5.5 million of acquisition-related expenses in “Indirect, general and administrative expense” in the consolidated statements of income for the three and nine months ended September 30, 2019, respectively, including legal fees, consulting fees, and other miscellaneous direct expenses associated with the acquisition. OGSystems enhances the Company’s artificial intelligence and data analytics expertise with new technologies and solutions. Customers of both companies will benefit from existing, complementary technologies and increased scale, enabling end-to-end solutions under the shared vision of rapid prototyping and agile development. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed based on the preliminary purchase price allocation as of the date of acquisition (in thousands):
|  | Amount |
Cash and cash equivalents |  | $ | 5,772 |
Accounts receivable |  |  | 9,904 |
Contract assets |  |  | 9,747 |
Prepaid expenses and other current assets |  |  | 4,307 |
Property and equipment |  |  | 4,085 |
Right of use assets, operating leases |  |  | 8,826 |
Goodwill |  |  | 183,540 |
Intangible assets |  |  | 92,300 |
Other noncurrent assets |  |  | 10 |
Accounts payable |  |  | (5,450 | )
Accrued expenses and other current liabilities |  |  | (7,147 | )
Contract liabilities |  |  | (1,300 | )
Short-term lease liabilities, operating leases |  |  | (805 | )
Income tax payable |  |  | (1,469 | )
Deferred tax liabilities |  |  | (904 | )
Long-term lease liabilities, operating leases |  |  | (8,021 | )
Other long-term liabilities |  |  | (1,015 | )
Net assets acquired |  | $ | 292,380 |
Of the total purchase price, the following values were assigned to intangible assets (in thousands, except for years):
|  | Gross Carrying Amount |  |  | Amortization Period
|  |  |  |  |  | (in years)
Customer relationships |  | $ | 57,100 |  |  | 5
Backlog |  |  | 27,700 |  |  | 3
Trade name |  |  | 3,800 |  |  | 2
Non-compete agreements |  |  | 2,400 |  |  | 3
Developed technologies |  | $ | 1,300 |  |  | 3
The Company is still in the process of finalizing its valuation of developed technology acquired. Amortization expense of $5.9 million and $17.8 million related to these intangible assets was recorded for the three and nine months ended September 30, 2019, respectively. The entire value of goodwill of $183.5 million was assigned to the Parsons Federal reporting unit and represents synergies expected to be realized from this business combination. Goodwill of $16.0 million is deductible for tax purposes. The amount of revenue generated by OGSystems since the acquisition and included within consolidated revenues for the three and nine months ended September 30, 2019 is $33.7 million and $108.7 million, respectively. The Company has determined that the presentation of net income from the date of acquisition is impracticable due to the integration of general corporate functions upon acquisition. Supplemental Pro Forma Information Supplemental information on an unaudited pro forma operating results assuming the OGSystems acquisition had been consummated as of the beginning of fiscal year 2018 (December 31, 2017) (in thousands) is as follows:
|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 28, 2018 |  |  | September 30, 2019 |  |  | September 28, 2018 |  |  | September 30, 2019 |
Pro forma revenue |  | $ | 1,007,793 |  |  | $ | 1,023,277 |  |  | $ | 2,715,572 |  |  | $ | 2,919,379 |
Pro forma net income including noncontrolling interests |  | $ | 39,224 |  |  | $ | 61,293 |  |  | $ | 196,905 |  |  | $ | 118,896 |
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, 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 $4.7 million of acquisition-related expenses in “Indirect, general and administrative expense” in the consolidated statements of income for the three and nine months ended September 30, 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):
|  | Amount |
Cash and cash equivalents |  | $ | 5,925 |
Accounts receivable |  |  | 5,587 |
Prepaid expenses and other current assets |  |  | 5,467 |
Property and equipment |  |  | 1,205 |
Right of use assets, operating leases |  |  | 5,228 |
Goodwill |  |  | 128,387 |
Intangible assets |  |  | 72,900 |
Accounts payable |  |  | (1,567 | )
Accrued expenses and other current liabilities |  |  | (3,771 | )
Short-term lease liabilities, operating leases |  |  | (545 | )
Long-term lease liabilities, operating leases |  |  | (4,683 | )
Net assets acquired |  | $ | 214,133 |
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 |  | $ | 47,600 |  |  | 12
Backlog |  |  | 700 |  |  | 1
Trade name |  |  | 800 |  |  | 2
Non-compete agreements |  |  | 1,200 |  |  | 4
Developed technologies |  | $ | 22,600 |  |  | 3-5
The Company is still in the process of finalizing its valuation of the net assets acquired. Amortization expense of $1.9 million related to these intangible assets was recorded for the three and nine months ended September 30, 2019, respectively. The entire value of goodwill of $128.4 million was assigned to the Parsons Federal reporting unit and represents synergies expected to be realized from this business combination. Goodwill in it’s entirety is deductible for tax purposes. The amount of revenue generated by QRC since the acquisition and included within consolidated revenues for both the three and nine months ended September 30, 2019 is $5.6 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 Supplemental information on an unaudited pro forma operating results assuming the QRC Technologies acquisition had been consummated as of the beginning of fiscal year 2018 (December 31, 2017) (in thousands) is as follows:
|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 28, 2018 |  |  | September 30, 2019 |  |  | September 28, 2018 |  |  | September 30, 2019 |
Pro forma revenue |  | $ | 987,343 |  |  | $ | 1,026,831 |  |  | $ | 2,657,105 |  |  | $ | 2,938,973 |
Pro forma net income including noncontrolling interests |  | $ | 44,944 |  |  | $ | 65,782 |  |  | $ | 212,728 |  |  | $ | 117,399 |

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