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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________

FORM 10-Q
__________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 27, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission File Number: 1-38643
__________________________
PAE INCORPORATED
(Exact name of registrant as specified in its charter)

Delaware82-3173473
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)

7799 Leesburg Pike, Suite 300 North, Falls Church, Virginia 22043
(Address of principal executive offices) (Zip Code)

(703) 717-6000
(Registrant’s telephone number, including area code)
__________________________

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolsName of each exchange on which registered
Class A Common StockPAENasdaq Stock Market
WarrantsPAEWWNasdaq Stock Market


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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒
The number of shares of the registrant’s common stock outstanding as of August 3, 2021 was 93,069,815

 




PAE Incorporated
Form 10-Q
Table of Contents

Page No.






PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

PAE Incorporated
Condensed Consolidated Statements of Operations (Unaudited)
(In thousands, except share and per share data)
Three Months EndedSix Months Ended
June 27,June 28,June 27,June 28,
2021202020212020
Revenues$747,198 $643,303 $1,495,765 $1,260,556 
Cost of revenues564,952 496,678 1,131,618 961,886 
Selling, general and administrative expenses142,776 105,451 288,067 242,777 
Amortization of intangible assets12,631 8,047 24,846 16,094 
Total operating expenses720,359 610,176 1,444,531 1,220,757 
Program profit 26,839 33,127 51,234 39,799 
Other operating income, net3,922 1,168 5,723 1,954 
Operating income 30,761 34,295 56,957 41,753 
Interest expense, net(13,160)(13,757)(25,674)(34,705)
Other (loss) income, net
(66)(19,467)1,134 10,645 
Income before income taxes
17,535 1,071 32,417 17,693 
Expense (benefit) from income taxes2,626 3,752 5,235 (5,776)
Net income (loss)
14,909 (2,681)27,182 23,469 
Noncontrolling interest in earnings of ventures559 765 (552)931 
Net income (loss) attributed to PAE Incorporated
$14,350 $(3,446)$27,734 $22,538 
Net income (loss) per share attributed to PAE Incorporated:
   Basic $0.15 $(0.04)$0.30 $0.30 
   Diluted$0.15 $(0.04)$0.29 $0.30 
Weighted average shares outstanding:
    Basic93,097,652 92,044,098 92,860,800 75,890,028 
    Diluted95,511,269 92,787,379 95,193,549 76,273,931 
See accompanying notes to condensed consolidated financial statements
2


PAE Incorporated
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(In thousands)
Three Months EndedSix Months Ended
June 27,June 28,June 27,June 28,
2021202020212020
Net income (loss)$14,909 $(2,681)$27,182 $23,469 
Other comprehensive income (loss):
Change in foreign currency translation adjustment, net of tax629 59 (365)(917)
Other, net 142 (1)424 
Other comprehensive income (loss)629 201 (366)(493)
Comprehensive income (loss)15,538 (2,480)26,816 22,976 
Comprehensive income (loss) attributed to noncontrolling interests552 284 (702)781 
Comprehensive income (loss) attributed to PAE Incorporated$14,986 $(2,764)$27,518 $22,195 
See accompanying notes to condensed consolidated financial statements
3



PAE Incorporated
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands, except share and par value amounts)
June 27,December 31,
20212020
Assets
Current assets:
Cash and cash equivalents$94,710 $85,908 
Accounts receivable, net605,060 585,511 
Prepaid expenses and other current assets63,367 61,607 
Total current assets763,137 733,026 
Property and equipment, net38,229 27,615 
Investments20,361 18,272 
Goodwill593,171 590,668 
Intangible assets, net233,364 258,210 
Operating lease right-of-use assets, net195,245 191,370 
Other noncurrent assets12,938 10,209 
Total assets$1,856,445 $1,829,370 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$174,651 $152,962 
Accrued expenses118,918 114,222 
Customer advances and billings in excess of costs88,903 106,475 
Salaries, benefits and payroll taxes145,905 145,186 
Accrued taxes11,689 15,582 
Current portion of long-term debt, net6,611 5,961 
Operating lease liabilities, current portion47,257 46,756 
Other current liabilities39,615 45,037 
Total current liabilities633,549 632,181 
Deferred income taxes, net10,324 4,389 
Long-term debt, net863,893 860,306 
Long-term operating lease liabilities150,824 145,569 
Warrant liability49,333 50,467 
Other long-term liabilities31,932 30,273 
Total liabilities1,739,855 1,723,185 
Stockholders’ equity:
Preferred stock, $0.0001 par value per share, 1,000,000 shares authorized;
no shares issued and outstanding
  
Common stock, $0.0001 par value per share: 210,000,000 shares authorized; 93,069,815 and 92,040,654 shares issued and outstanding as of June 27, 2021 and December 31, 2020, respectively
9 9 
Additional paid-in capital170,245 188,685 
Accumulated deficit(88,887)(116,621)
Accumulated other comprehensive income1,510 1,876 
Total PAE Incorporated stockholders' equity 82,877 73,949 
Noncontrolling interests33,713 32,236 
Total liabilities and stockholders’ equity$1,856,445 $1,829,370 
See accompanying notes to condensed consolidated financial statements
4


PAE Incorporated
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
(In thousands, except share data)
Common StockAdditional Paid-in CapitalAccumulated DeficitAccumulated Other Comprehensive (Loss) / IncomeTotal PAE Incorporated Stockholders’ EquityNoncontrolling InterestsTotal Stockholders’ Equity
SharesAmount
Balance at December 31, 2019282,047 $3 $101,742 $(145,371)$(134)$(43,760)$31,851 $(11,909)
Retrospective application of the Recapitalization20,845,776 (1)1 — — —  
Adjusted balance at December 31, 201921,127,823 2 101,743 (145,371)(134)(43,760)31,851 (11,909)
Net income— — — 25,984 — 25,984 166 26,150 
Other comprehensive loss, net— — — — (695)(695)— (695)
Distributions to venture partners and other— — — — — — —  
Equity contributions from venture partners— — 13 — — 13 152 165 
Equity infusion from Gores46,999,787 5 307,936 — — 307,941 — 307,941 
Private placement23,913,044 2 212,908 — — 212,910 — 212,910 
Payment to Shay stockholders— — (424,243)— — (424,243)— (424,243)
Balance at March 29, 202092,040,654 $9 $198,357 $(119,387)$(829)$78,150 $32,169 $110,319 
Net (loss) income— — — (3,446)— (3,446)765 (2,681)
Other comprehensive income, net— — — — 201 201 — 201 
Distributions to venture partners and other— — — — — — (443)(443)
Equity contributions from venture partners— — — — — — 1,939 1,939 
Equity infusion from Gores— — — — — — —  
Private placement— — — — — — —  
Payment to Shay stockholders— — (20,169)— — (20,169)— (20,169)
Stock-based Compensation— — 3,700 — — 3,700 — 3,700 
Balance at June 28, 202092,040,654 $9 $181,888 $(122,833)$(628)$58,436 $34,430 $92,866 
5



PAE Incorporated
 Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
(In thousands, except share data)
Common StockAdditional Paid-in CapitalAccumulated DeficitAccumulated Other Comprehensive (Loss) / IncomeTotal PAE Incorporated Stockholders’ EquityNoncontrolling InterestsTotal Stockholders’ Equity
SharesAmount
Balance at December 31, 202092,040,654 $9 $188,685 $(116,621)$1,876 $73,949 $32,236 $106,185 
Net income (loss)— — — 13,384 — 13,384 (1,111)12,273 
Other comprehensive loss, net— — — — (995)(995)— (995)
Equity contributions from venture partners— — — — — — 467 467 
Deconsolidation of venture— — — — — — 188 188 
Purchase of noncontrolling interest— — (17,398)— — (17,398)2,224 (15,174)
Stock-based compensation tax withholding obligation— — (5,659)— — (5,659)(5,659)
Stock-based compensation— — 2,270 — — 2,270 — 2,270 
Balance at March 28, 202192,040,654 $9 $167,898 $(103,237)$881 $65,551 $34,004 $99,555 
Net income — — — 14,350 — 14,350 559 14,909 
Other comprehensive income, net— — — — 629 629 — 629 
Distributions to venture partners— — — — — — (850)(850)
Purchase of noncontrolling interest— — (8)— — (8) (8)
Stock-based compensation— — 2,355 — — 2,355 — 2,355 
Balance at June 27, 202192,040,654 $9 $170,245 $(88,887)$1,510 $82,877 $33,713 $116,590 
See accompanying notes to condensed consolidated financial statements
6


PAE Incorporated
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Six Months Ended
June 27,June 28,
20212020
Operating activities
Net income $27,182 $23,469 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property and equipment4,747 5,072 
Amortization of intangible assets24,846 16,094 
Amortization of debt issuance cost1,572 7,821 
Stock-based compensation4,625 3,700 
Net undistributed income from unconsolidated ventures(6,568)(1,739)
Deferred income taxes, net6,557 (14,110)
Change in fair value of warrant liability(1,133)(14,132)
Other non-cash activities, net(810)404 
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable, net(20,000)9,607 
Accounts payable21,838 (17,547)
Accrued expenses5,002 9,845 
Customer advances and billings in excess of costs(17,571)19,282 
Salaries, benefits and payroll taxes1,000 4,310 
Prepaid expenses and other current assets(2,910)(841)
Other current and noncurrent liabilities528 (5,101)
Investments4,758 1,701 
Other noncurrent assets(6,237)11,600 
Accrued taxes(3,889)(3,847)
Net cash provided by operating activities43,537 55,588 
Investing activities
Expenditures for property and equipment(14,400)(1,597)
Proceeds from sales of property231  
Acquisition of CENTRA Technology, Inc., net of acquired cash(1,441) 
Acquisition of Metis Solutions Corporation, net of acquired cash(521) 
Acquisition of noncontrolling interest(14,308) 
Other investing activities, net(373)37 
Net cash used in investing activities(30,812)(1,560)
Financing activities
Net contributions from noncontrolling interests490 1,950 
Borrowings on long-term debt125,383 60,468 
Repayments on long-term debt(122,584)(204,464)
Payment of debt issuance costs (964)
Recapitalization from merger with Gores Holdings III, Inc. 605,713 
Payment of underwriting and transaction costs (27,267)
Distribution to selling stockholders (419,548)
Stock-based compensation tax withholding obligation(5,659) 
Other financing activities, net(825)(292)
Net cash (used in) provided by financing activities(3,195)15,596 
Effect of exchange rate changes on cash and cash equivalents(728)810 
Net increase in cash and cash equivalents8,802 70,434 
Cash and cash equivalents at beginning of period85,908 68,035 
Cash and cash equivalents at end of period$94,710 $138,469 
Supplemental cash flow information
Cash paid for interest$27,846 $23,278 
Cash paid for taxes$7,273 $2,796 
See accompanying notes to condensed consolidated financial statements
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PAE Incorporated
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Description of Business
PAE Incorporated, formerly known as Gores Holdings III, Inc. (“Gores III”), was originally incorporated in Delaware on October 23, 2017 as a special purpose acquisition company formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or other similar business combination with one or more target businesses. On September 11, 2018, Gores III consummated its initial public offering (the “IPO”), following which our shares began trading on the Nasdaq Stock Market (“Nasdaq”). Unless the context otherwise indicates, references herein to the “Company" or “PAE” refer to PAE Incorporated and its consolidated subsidiaries.

On February 10, 2020 (the “Closing Date”), the Company completed the previously announced business combination (the “Business Combination”) in which Shay Holding Corporation (“Shay”) was acquired by Gores III. The transaction was completed in a multi-step process pursuant to which Shay ultimately merged with and into a wholly-owned subsidiary of Gores III, with the Gores III subsidiary continuing as the surviving company. As a result of the Business Combination, each share of common stock of Shay was cancelled and converted into the right to receive a portion of the consideration payable in connection with the transaction and Gores III acquired Shay (as it existed immediately prior to the Second Merger, as such term is defined in that certain Agreement and Plan of Merger, dated November 1, 2019, by and among Gores III, EAP Merger Sub, Inc., EAP Merger Sub II, LLC, Shay, and Platinum Equity Advisors, LLC (in its capacity as the stockholder representative) (the “Merger Agreement”)) and its subsidiaries. Additionally, the stockholders of Shay as of immediately prior to the transaction held a portion of the common stock of the Company.

For accounting purposes, the Business Combination is treated as a reverse acquisition and recapitalization (the “Recapitalization”), in which Shay is considered the accounting acquirer (and legal acquiree) and Gores III is considered the accounting acquiree (and legal acquirer).

Accordingly, as of the Closing Date, Shay’s historical results of operations replaced Gores III’s historical results of operations for periods prior to the Business Combination and the results of operations of both companies are included in the accompanying condensed consolidated financial statements for periods following the Closing Date. See Note 6 - “Business Combinations and Acquisitions” for additional information.

PAE provides a wide variety of integrated support solutions, including defense and military readiness, diplomacy, intelligence support, business process outsourcing, counter-terrorism solutions, peacekeeping, development, host nation capacity building, aircraft and ground equipment maintenance and logistics, and operations and maintenance of facilities and infrastructure. Customers include agencies of the U.S. Government, such as the Department of Defense (“DoD”) and Department of State (“DoS”), the National Aeronautics and Space Administration (“NASA”), Department of Homeland Security, intelligence community agencies and other civilian agencies, as well as allied foreign governments and international organizations.

The Company’s operations are currently organized into the following two reportable segments:

Global Mission Services (“GMS”): GMS provides infrastructure and logistics management, international logistics and stabilization support, and aircraft and vehicle readiness and sustainment support. The segment focuses on customer relationships with DoD, DoS, NASA, and other government agencies for work both in the United States and outside of the United States.
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National Security Solutions (“NSS”): NSS provides counter-threat solutions, business process outsourcing, adjudication support services and full life cycle support for complex legal matters. NSS focuses on customer relationships in the areas of intelligence, defense and security, and with civilian agencies.

The Company separately presents the costs associated with certain corporate functions as “Corporate”, which primarily include costs that are not reimbursed by the Company’s U.S. Government customers.
2. Significant Accounting Principles and Policies
Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) for annual financial information. In management’s opinion, all adjustments, consisting of only normal recurring adjustments, considered necessary for a fair presentation have been included.

The Company closes its books and records on the last Sunday of the calendar quarter to align its financial closing with its business process, which were on June 27, 2021 and June 28, 2020, respectively. The condensed consolidated financial statements and disclosures included herein are labeled based on that convention. This practice only affects interim periods, as the Company’s fiscal year ends on December 31.

The condensed consolidated financial statements include the accounts of PAE Incorporated and subsidiaries and ventures in which the Company owns more than 50% or otherwise controls. All intercompany amounts have been eliminated in consolidation.

Use of Estimates

These condensed consolidated financial statements are prepared in conformity with U.S. GAAP, which requires the use of estimates and assumptions, including assumptions to determine the fair value of acquired assets and liabilities, recoverability of long-lived assets, goodwill, valuation allowances on deferred taxes, inputs used in stock based compensation, inputs in the valuation of the warrants liability and anticipated contract costs and revenues utilized in the earnings recognition process, which affect the reported amounts in the condensed consolidated financial statements and accompanying notes. Due to the size and nature of many of the Company’s programs, the estimation of total revenues and cost at completion is subject to a wide range of variables, including assumptions for timing and risks. Actual results may differ from management’s estimates and changes in these estimates are recorded when known.

Update to Significant Accounting Policies

There have been no material changes to the Company’s significant accounting policies described in the Company’s Form 10-K/A filed with the SEC on May 7, 2021.
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3. Recent Accounting Pronouncements
Accounting Pronouncements Adopted
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 is effective in 2021 and interim periods within that year and permits for an early adoption. The Company adopted ASU 2019-12 effective January 1, 2021. The adoption of the guidance did not have a material impact on its financial statements and related disclosures.
Accounting Pronouncements Not Yet Adopted
In March 2020, the FASB issued ASU 2020-04 Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by the reference rate reform. The amendments in ASU 2020-04 are effective for all entities as of March 12, 2020 through December 31, 2022. The Company is currently evaluating the impact this guidance will have on its condensed consolidated financial statements and related disclosures.
4. Revenues
Disaggregated Revenues
Disaggregated revenues by customer type were as follows (in thousands):

Three Months Ended June 27, 2021
GMSNSSTotal
DoD$194,598 $81,621 $276,219 
Other U.S. government agencies267,592 131,848 399,440 
Commercial and non-U.S. customers49,153 22,386 71,539 
Total$511,343 $235,855 $747,198 
Six Months Ended June 27, 2021
GMSNSSTotal
DoD$357,031 $163,821 $520,852 
Other U.S. government agencies536,377 251,943 788,320 
Commercial and non-U.S. customers139,496 47,097 186,593 
Total$1,032,904 $462,861 $1,495,765 

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Three Months Ended June 28, 2020
GMSNSSTotal
DoD$204,634 $62,096 $266,730 
Other U.S. government agencies260,714 49,434 310,148 
Commercial and non-U.S. customers42,506 23,919 66,425 
Total$507,854 $135,449 $643,303 

Six Months Ended June 28, 2020
GMSNSSTotal
DoD$392,240 $129,275 $521,515 
Other U.S. government agencies510,660 120,156 630,816 
Commercial and non-U.S. customers62,398 45,827 108,225 
Total$965,298 $295,258 $1,260,556 

Revenues by contract type were as follows (in thousands):

Three Months Ended June 27, 2021
GMSNSSTotal
Cost-reimbursable$285,552 $93,653 $379,205 
Fixed-price159,955 79,036 238,991 
Time and materials65,836 63,166 129,002 
Total$511,343 $235,855 $747,198 
Six Months Ended June 27, 2021
GMSNSSTotal
Cost-reimbursable$546,472 $183,747 $730,219 
Fixed-price341,259 161,553 502,812 
Time and materials145,173 117,561 262,734 
Total$1,032,904 $462,861 $1,495,765 

Three Months Ended June 28, 2020
GMSNSSTotal
Cost-reimbursable$299,906 $34,288 $334,194 
Fixed-price158,247 53,693 211,940 
Time and materials49,701 47,468 97,169 
Total$507,854 $135,449 $643,303 

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Six Months Ended June 28, 2020
GMSNSSTotal
Cost-reimbursable$565,986 $71,192 $637,178 
Fixed-price320,285 122,650 442,935 
Time and materials79,027 101,416 180,443 
Total$965,298 $295,258 $1,260,556 
Disaggregated revenues by geographic location were as follows (in thousands):
Three Months Ended June 27, 2021
GMSNSSTotal
United States$266,268 $234,706 $500,974 
International245,075 1,149 246,224 
Total$511,343 $235,855 $747,198 
Six Months Ended June 27, 2021
GMSNSSTotal
United States$555,040 $460,576 $1,015,616 
International477,864 2,285 480,149 
Total$1,032,904 $462,861 $1,495,765 
Three Months Ended June 28, 2020
GMSNSSTotal
United States$277,536 $133,875 $411,411 
International230,318 1,574 231,892 
Total$507,854 $135,449 $643,303 
Six Months Ended June 28, 2020
GMSNSSTotal
United States$526,446 $292,014 $818,460 
International438,852 3,244 442,096 
Total$965,298 $295,258 $1,260,556 
Remaining Performance Obligations
The Company’s remaining performance obligations balance represents the expected revenue to be recognized for the satisfaction of remaining performance obligations on existing contracts. This balance excludes unexercised contract option years and task orders that may be issued underneath an indefinite delivery, indefinite quantity contract. The remaining performance obligations balance as of June 27, 2021 and December 31, 2020 was $1,497.4 million and $1,722.0 million, respectively.
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As of June 27, 2021, the Company expects to recognize approximately 89.2% and 10.8% of the remaining performance obligations balance as revenue over the next year and thereafter, respectively.
5. Contract Assets and Contract Liabilities
Contract assets consist of unbilled receivables, which represent rights to payment for work or services completed but not billed as of the reporting date. Contract assets are recorded as unbilled receivables within accounts receivable, net on the condensed consolidated balance sheets.
Contract liabilities are advances and milestone payments from customers on certain contracts that exceed revenue earned to date. Contract liabilities are recorded as customer advances and billings in excess of costs on the condensed consolidated balance sheets.
Contract assets and contract liabilities consisted of the following as of the dates presented (in thousands):
June 27,December 31,
20212020
Contract assets$376,154 $360,552 
Contract liabilities$88,903 $106,475 
The increase in contract assets of $15.6 million during the six months ended June 27, 2021 was primarily due to the timing of billings, partially offset by revenue recognized related to the satisfaction of performance obligations.
The decrease in contract liabilities of $17.6 million during the six months ended June 27, 2021 was primarily due to the timing of advance payments from customers offset by revenue recognized during the period.
The Company recognized $87.9 million and $33.4 million during the six months ended June 27, 2021 and June 28, 2020, respectively, relating to amounts that were included in the beginning balance of contract liabilities for each of the periods. The Company recognized $3.4 million and $1.1 million during the three months ended June 27, 2021 and June 28, 2020, respectively, relating to amounts that were included in the beginning balance of contract liabilities for each of the periods.
6. Business Combinations and Acquisitions
As described in Note 1 - “Description of Business,” the Business Combination was consummated on February 10, 2020. For financial accounting and reporting purposes under U.S. GAAP, the Business Combination was accounted for as a reverse acquisition and recapitalization, with no goodwill or other intangible asset recorded. Under this method of accounting, Gores III (legal acquirer) is treated as the acquired entity and Shay (legal acquiree) is deemed to have issued common stock for the net assets and equity of Gores III consisting of mainly cash, accompanied simultaneously by the Recapitalization. The net assets of Gores III are stated at historical cost, and accordingly the equity and net assets of Shay have not been adjusted to fair value. Consequently, the consolidated assets, liabilities and results of operations of Shay are the historical financial statements of PAE Incorporated and the Gores III assets, liabilities and results of operations are consolidated with the assets, liabilities and results of operations of Shay beginning on the Closing Date. Shares and earnings per share information prior to the Business Combination have been retroactively restated to reflect the exchange ratio established in the Recapitalization.
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Other than professional fees paid to consummate the transaction, the Business Combination primarily involved the exchange of cash and equity between Gores III, Shay and the stockholders of the respective companies. The aggregate proceeds paid to the Shay Stockholders (as defined below) on the Closing Date was approximately $424.2 million. The remainder of the consideration paid to the Shay Stockholders consisted of 21,127,823 newly issued shares of Class A Common Stock of PAE Incorporated, par value $0.0001 per share (“Class A Common Stock”).

In addition to the foregoing consideration paid on the Closing Date, former stockholders of Shay are entitled to receive additional Earn-Out Shares from PAE of up to an aggregate of 4,000,000 shares of Class A Common Stock if the price of Class A Common Stock trading on the Nasdaq exceeds certain thresholds during the five-year period following the completion of the Business Combination. See Note 11 - “Stockholders’ Equity - Earn-Out Agreement” for additional information.

The Company also has certain warrants issued by Gores III that remain outstanding after the Business Combination.

In connection with the Business Combination, the Company recorded $18.2 million, net of tax as a reduction to additional paid in capital related to the transaction costs. These costs were directly attributable to the Recapitalization. In addition, the Company recorded $3.4 million of transaction costs related to the warrants as non-operating expense in the consolidated statement of operations.

During the third quarter of 2020, pursuant to the post-closing adjustment provisions contained in the Merger Agreement, the Company made a post-closing adjustment payment of $20.2 million to the Shay Stockholders. In addition, the Company paid $1.0 million to certain members of PAE management in connection with the post-closing adjustment, and such amount was recorded as compensation expense.

CENTRA Technology, Inc.

On November 20, 2020, the Company acquired 100% of the capital stock of CENTRA Technology, Inc. (“CENTRA”) for a consideration paid of $225.3 million, net. The results of CENTRA’s operations have been included in the Company’s condensed consolidated financial statements since that date. This business combination expands and differentiates PAE's capabilities in intelligence analysis, communication systems integration and research and development services for intelligence and defense customers.

During the second quarter of 2021, the Company made a payment of $1.4 million related to the working capital adjustment, pursuant to the Stock Purchase Agreement (as defined below).

The Company has completed the purchase accounting valuation for this acquisition and recorded final purchase accounting adjustments. As a result, the Company recognized fair values of assets acquired of $177.4 million and assumed liabilities of $77.2 million allocating $126.4 million to goodwill and $74.1 million to intangible assets. The goodwill of $126.4 million arising from the acquisition relates primarily to revenue and cost synergies. This goodwill is not deductible for tax purposes.

Metis Solutions Corporation

On November 23, 2020, the Company completed the acquisition of 100% of the capital stock of Metis Solutions Corporation (“Metis”) for a consideration paid of $95.7 million in cash. The results of Metis’s operations have been included in the condensed consolidated financial statements since that date. This business combination expands and differentiates PAE's
14


capabilities in intelligence analysis, training and program support for intelligence and defense customers.

During the second quarter of 2021, pursuant to the purchase price adjustment provisions of the Metis Merger Agreement (as defined below), the Company made a payment of $0.5 million to the option holders as a result of a closing adjustment.

The Company has completed the purchase accounting valuation for this acquisition and recorded final purchase accounting adjustments. As a result, the Company recognized fair values of assets acquired of $60.4 million and assumed liabilities of $20.7 million allocating $56.5 million to goodwill and $37.8 million to intangible assets. The goodwill of $56.5 million arising from the acquisition relates primarily to revenue and cost synergies. This goodwill is not deductible for tax purposes.

7. Accounts Receivable, net
The components of accounts receivable, net consisted of the following as of the dates presented (in thousands):
June 27,December 31,
20212020
Billed receivables$234,660 $227,787 
Unbilled receivables374,209 360,552 
Less allowance for credit losses(3,809)(2,828)
    Total accounts receivables, net$605,060 $585,511 
As of June 27, 2021 approximately 93.6% of the Company’s accounts receivable are with the U.S. government.
8. Goodwill and Intangible Assets, net
Goodwill
There was no impairment for the three month and six month periods ended June 27, 2021 and June 28, 2020, respectively.


15


Intangible Assets, net