PARSONS CORP 10-K

Item 9A. Controls and Procedures. Evaluation of Disclosure Controls and Procedures Our management carried out, as of December 31, 2023, 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, 2023, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in reports we file or submit 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. Management’s Annual Report on Internal Control Over Financial Reporting Management is responsible for establishing and maintaining for the Company adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act. Management, with the participation of its Chair and Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), has assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2023 based on the framework established in “Internal Control—Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on this assessment, management has concluded that the Company’s internal control over financial reporting was effective as of December 31, 2023. 81 The Company’s independent registered public accounting firm, PricewaterhouseCoopers LLP, which audited the Company’s consolidated financial statements included in this Annual Report on Form 10-K, also audited the effectiveness of our internal control over financial reporting as of December 31, 2023, as stated in their audit report included in this Annual Report on Form 10-K. Consistent with the guidance issued by the Securities and Exchange Commission Staff, management has excluded IPKeys, which we acquired on April 13, 2023, SealingTech which we acquired on August 23, 2023, and I.S. Engineers, which we acquired on October 31, 2023 from its assessment of internal controls over financial reporting as of December 31, 2023. The total assets and revenue related to SealingTech and I.S. Engineers, both wholly owned subsidiaries, are both less than 1% of the related consolidated financial statement amounts as of and for the year ended December 31, 2023. The total assets and revenue related to IPKeys, a wholly owned subsidiary, are both 1.1% of the related consolidated financial statement amounts as of and for the year ended December 31, 2023. 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 during the quarter ended December 31, 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information. Insider Trading Relationships and Policies In conformance with updated SEC regulations, the Company has adopted amended insider trading policies and procedures governing the purchase, sale and/or other dispositions of the Company's securities by directors, officers and employees, or the Company itself, that are reasonably designed to promote compliance with insider trading laws, rules and regulations, and New York Stock Exchange standards. During the fiscal quarter ended December 31, 2023, no director or named executive officer of the Company adopted or terminated a "Rule 10b5-1 trading arrangement" or a "non-Rule 10b5-1 trading arrangement" (in each case, as defined in Item 408 of Regulation S-K). Item 9C. Disclosur e Regarding Foreign Jurisdictions that Prevent Inspections. None 82 PART III Item 10. Directors, Executive Off icers and Corporate Governance. Information related to our directors will be set forth under the caption “Proposal 1: Election of Directors” of our Proxy Statement for our Annual Meeting of Stockholders in 2024 (the “2024 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 will be set forth under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” of our 2024 Proxy Statement. Such information is incorporated herein by reference. Information related to our code of ethics will be set forth under the caption “Corporate Governance and General Information Concerning the Board of Directors and its Committees” of our 2024 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 will be set forth under the caption “Corporate Governance and General Information Concerning the Board of Directors and its Committees” of our 2024 Proxy Statement. Such information is incorporated herein by reference. Item 11. Executiv e Compensation. Information relating to this item will be 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 2024 Proxy Statement. Such information is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Own ers and Management and Related Stockholder Matters. Information relating to the security ownership of certain beneficial owners and management will be included in our 2024 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 will be 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 2024 Proxy Statement. Such information is incorporated herein by reference. Item 14. Principal Accoun ting Fees and Services. Information relating to this item will be set forth under the caption “Independent Registered Public Accounting Firm Fees” of our 2024 Proxy Statement. Such information is incorporated herein by reference. 83 PART IV Item 15. Exhibits, Financi al Statement Schedules. (a) List the following documents filed as a part of the report: (1) The Company’s Consolidated Financial Statements at December 31, 2023 and December 31, 2022 and for each of the three years in the period ended December 31, 2023, 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, 2023 are hereby filed as part of this report on page F-54. (3) See Exhibit Index below. Item 16. Form 10-K Summary None. 84 Exhibit Index Exhibit Number Description 3.1# Amended and Restated Certificate of Incorporation of Parsons Corporation . 3.2# Amended and Restated Bylaws of Parsons Corporation . 3.3# Second Amended and Restated Bylaws of Parsons Corporation. 4.1# Description of Capital Stock of Parsons Corporation. 4.2# Indenture, dated as of August 20, 2020, between Parsons Corporation and U.S. Bank National Association. 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# First Amendment to the 2019 Amendment and Restatement of Parsons Employee Stock Ownership Plan, effective January 1, 2020 10.4# Second Amendment to the 2019 Amendment and Restatement of Parsons Employee Stock Ownership Plan, effective May 8, 2019. 10.5# Parsons Corporation Employee Stock Ownership Trust Agreement, effective as of December 31, 2005 . 10.6#+ Parsons Corporation Restricted Award Plan . 10.7#+ Form of Restricted Award Units agreement under the Parsons Corporation Restricted Award Plan . 10.8#+ Parsons Corporation Annual Incentive Plan dated January 1, 2020 . 10.9#+ Parsons Corporation Annual Incentive Plan Amended as of October 19, 2020. 10.10#+ Parsons Corporation Annual Incentive Plan Amendment dated January 1, 2021. 10.11#+ Parsons Corporation Shareholder Value Plan . 10.12#+ Parsons Corporation Long Term Growth Plan . 10.13#+ Parsons Corporation Share Value Retirement Plan . 10.14#+ Parsons Corporation Incentive Award Plan . 10.15#+ Form of Restricted Stock Unit Agreement under the Parsons Corporation Incentive Award Plan. 10.16#+ Third Amendment to the 2019 Amendment and Restatement of Parsons Employee Stock Ownership Plan, effective January 1, 2021. 10.17#+ Form of Restricted Stock Unit Agreement under the Parsons Corporation Incentive Award Plan (for Non-Employee Director Awards commencing in 2020). 10.18#+ Form of Restricted Stock Unit Agreement under the Parsons Corporation Incentive Award Plan (for Non-Employee Director Fee Deferral Awards commencing in 2020) . 10.19#+ Form of Restricted Stock Unit Agreement under the Parsons Corporation Incentive Award Plan (for Non-Employee Director Awards in 2019). 10.20#+ Parsons Corporation Non-Employee Director Compensation Policy (as amended effective April 21, 2020). 10.21#+ Fee Deferral Plan for Outside Directors of the Parsons Corporation . 10.22#+ Parsons Corporation Employee Stock Purchase Plan. 10.23#+ Parsons Corporation Prospectus to Employee Stock Purchase Plan dated November 1, 2021. 10.26#+ Supplemental Executive Retirement Plan dated January 1, 1997 . 10.27#+ First Amendment to the SERP effective January 1, 2020 . 85 10.28#+ Change in Control Severance Agreement, dated August 6, 2021, by and between Parsons Corporation and Carey Smith. 10.29#+ Change in Control Severance Agreement, dated August 9, 2021, by and between Parsons Corporation and Charles L. Harrington. 10.30#+ Change in Control Severance Agreement, dated August 6, 2021, by and between Parsons Corporation and George Ball. 10.31#+ Change in Control Severance Agreement, dated August 6, 2021, by and between Parsons Corporation and Michael Kolloway. 10.32#+ Change in Control Severance Agreement, dated August 6, 2021, by and between Parsons Corporation and David Spille. 10.33#+ Change in Control Severance Agreement, dated October 6, 2021, by and between Parsons Corporation and Matthew Ofilos. 10.34#+ Form of Equity Award Amendment Letter Agreement, dated August 10, 2020, by and between Parsons Corporation and George L. Ball . 10.35#+ Form of Equity Award Amendment Letter Agreement, dated August 10, 2020, by and between Parsons Corporation and Charles L. Harrington. 10.36#+ Form of Equity Award Amendment Letter Agreement, dated August 10, 2020, by and between Parsons Corporation and Carey A. Smith . 10.37#+ Form of Equity Award Amendment Letter Agreement, dated August 10, 2020, by and between Parsons Corporation and Michael R. Kolloway. 10.38#+ Form of Equity Award Amendment Letter Agreement, dated August 10, 2020, by and between Parsons Corporation and Debra Fiori. 10.39#+ Form of Performance Stock Unit Award Amendment, dated July 19, 2021, by and between Parsons Corporation and Carey A. Smith. 10.40#+ Form of Restricted Stock Unit Award Amendment, dated July 19, 2021, by and between Parsons Corporation and Carey A. Smith. 10.41#+ Form of Performance Stock Unit Award Amendment, dated July 19, 2021, by and between Parsons Corporation and Charles L. Harrington. 10.42#+ Form of Restricted Stock Unit Award Amendment, dated July 19, 2021, by and between Parsons Corporation and Charles L. Harrington. 10.43#+ Form of Performance Stock Unit Award Amendment, dated July 19, 2021, by and between Parsons Corporation and George Ball. 10.44#+ Form of Restricted Stock Unit Award Amendment, dated July 19, 2021, by and between Parsons Corporation and George Ball. 10.45#+ Form of Performance Stock Unit Award Amendment, dated July 19, 2021, by and between Parsons Corporation and Michael R. Kolloway. 10.46#+ Form of Restricted Stock Unit Award Amendment, dated July 19, 2021, by and between Parsons Corporation and Michael R. Kolloway. 10.47#+ Form of Performance Stock Unit Award Amendment, dated July 19, 2021, by and between Parsons Corporation and David Spille. 10.48#+ Form of Restricted Stock Unit Award Amendment, dated July 19, 2021, by and between Parsons Corporation and David Spille. 10.52# 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 . 10.53# 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 . 86 10.54# Credit Agreement dated June 25, 2021, among Parsons Corporation, the Guarantors, the Lenders, and Bank of America, N.A., as Administrative Agent, Swingline Lender, and an L/C Issuer. 10.55# 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 . 10.56# Form of Employee Stockownership Trust Agreement, dated as of June 8, 2020, by and between Parsons Corporation and Newport Trust Company. 10.57# Form of Registration Rights Agreement by and between Parsons Corporation and Newport Trust Company. 10.58# Form of Fifth Amendment to the Parsons Corporation Retirement Savings Plan. 10.59#+ Form of Fourth Amendment to the 2019 Amendment and Restatement of Parsons Employee Stock Ownership Plan, effective March 1, 2021. 10.60#+ Fourth Amendment to the Parsons Employee Stock Ownership Plan 2019 Amendment and Restatement, effective March 1, 2021. 10.61#+ Form of Indemnification Agreement between Parsons Corporation and certain of its directors and officers . 10.62#+ Form of Transition Agreement, dated February 2022, by and between Parsons Corporation and Charles L. Harrington. 10.63# Delayed Draw Term Loan Agreement and Form of First Amendment to Credit Agreement. 10.65#+ Seventh Amendment to The Parsons Corporation Retirement Savings Plan (2017 Amendment and Restatement). 10.66#+ Fifth Amendment to The Parsons Employee Stock Ownership Plan 2019 Amendment and Restatement. 10.67#+ Sixth Amendment to The Parsons Employee Stock Ownership Plan 2019 Amendment and Restatement. 19.3* Parsons Corporation Insider Trading Compliance Policy 21.1* List of Subsidiaries of the Registrant 23.1* Consent of PricewaterhouseCoopers LLP. 31.1* 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. 31.2* 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. 32.1* 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. 32.2* 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. 97.1# Parsons Corporation Executive Compensation Clawback Policy 97.2# Parsons Corporation Dodd-Frank Compliant Compensation Clawback Policy 101* The following financial statements from the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, formatted in Inline XBRL Taxonomy Extension Schema With Embedded Linkbases Document: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Earnings, (iii) Consolidated Statements of Comprehensive Income (Loss), (iv) Consolidated Statements of Stockholders’ Equity, (v) Consolidated Statements of Cash Flows and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags. 87 104* Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101). * Filed herewith . # Previously filed. + Indicates a management contract or compensatory plan or arrangement. 88 SIGNA TURES 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 . Parsons Corporation Date: February 14, 2024 By: /s/ Carey A. Smith Carey A. Smith Chief Executive Officer (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 Date /s/ Carey A. Smith Chief Executive Officer and Director February 14, 2024 Carey A. Smith (Principal Executive Officer) /s/ Matthew M. Ofilos Chief Financial Officer February 14, 2024 Matthew M. Ofilos (Principal Financial and Accounting Officer) /s/ George L. Ball Director February 14, 2024 George L. Ball /s/ Mark K. Holdsworth Director February 14, 2024 Mark K. Holdsworth /s/ Steven F. Leer Director February 14, 2024 Steven F. Leer /s/ Ellen M. Lord Director February 14, 2024 Ellen M. Lord /s/ Letitia A. Long Director February 14, 2024 Letitia A. Long /s/ Darren W. McDew Director February 14, 2024 Darren W. McDew /s/ Harry T. McMahon Director February 14, 2024 Harry T. McMahon /s/ M. Christian Mitchell Director February 14, 2024 M. Christian Mitchell /s/ Suzanne M. Vautrinot Director February 14, 2024 Suzanne M. Vautrinot /s/ David C. Wajsgras Director February 14, 2024 David C. Wajsgras 89 INDEX TO CONSOLID ATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm (PCAOB ID 238 ) F- 2 Consolidated Balance Sheets as of December 31, 2023 and December 31, 2022 F- 6 Consolidated Statements of Income for the Years ended December 31, 2023, December 31, 2022 and December 31, 2021 F- 7 Consolidated Statements of Comprehensive Income for the Years ended December 31, 2023, December 31, 2022 and December 31, 2021 F- 8 Consolidated Statements of Changes in Shareholders’ Equity (Deficit) for the Years ended December 31, 2023, December 31, 2022 and December 31, 2021 F- 9 Consolidated Statements of Cash Flows for the Years ended December 31, 2023, December 31, 2022 and December 31, 2021 F- 10 Notes to Consolidated Financial Statements F- 11 F- 1 Re port of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of Parsons Corporation Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Parsons Corporation and its subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of income, of comprehensive income, of changes in shareholders’ equity (deficit) and of cash flows for each of the three years in the period ended December 31, 2023, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2023 appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022 , and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Changes in Accounting Principles As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for convertible instruments and contracts in an entity’s own equity in 2021. Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the Management's Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting 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 in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements 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. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included F- 2 performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. As described in Management’s Annual Report on Internal Control over Financial Reporting, management has excluded IPKeys Power Partner (“IPKeys”), Sealing Technologies, Inc. ("Sealing Tech”), and I.S. Engineers, LLC (“I.S. Engineers”) from its assessment of internal control over financial reporting as of December 31, 2023, because they were acquired by the Company in purchase business combinations during 2023. We have also excluded IPKeys, Sealing Tech, and I.S. Engineers from our audit of internal control over financial reporting. Sealing Tech and I.S. Engineers are both wholly-owned subsidiaries whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting are both less than 1% of the related consolidated financial statement amounts as of and for the year ended December 31, 2023. IPKeys is a wholly-owned subsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting are both 1.1% of the related consolidated financial statement amounts as of and for the year ended December 31, 2023. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Revenue Recognition – Determination of Estimated Contract Cost and Variable Consideration Related to Estimated Claims Revenue for Fixed-Price Contracts Recognized Over Time As described in Notes 2 and 4 to the consolidated financial statements, 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 enters into cost-plus, time-and-materials, and fixed-price contracts with its customers. Fixed-price contract revenue recognized was $1.8 billion for the year ended December 31, 2023, which accounts for approximately 33% of the Company’s F- 3 consolidated revenue. Fixed-price contract 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. 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. Management includes variable consideration, such as claims revenue, 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. 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). 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. Recognition of profit on long-term contracts requires the use of assumptions and estimates related to total contract revenue and in particular estimated claims revenue, total estimated cost at completion, and the measurement of progress towards completion. Management’s estimates are continually evaluated as work progresses and are revised when necessary. The principal considerations for our determination that performing procedures relating to revenue recognition, specifically the determination of estimated contract cost and variable consideration related to estimated claims revenue for fixed-price contracts recognized over time is a critical audit matter are (i) the significant judgment by management in determining the estimated contract cost and variable consideration related to estimated claims revenue for fixed-price contracts recognized over time; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence for the estimated contract cost and variable consideration related to estimated claims revenue for fixed-price contracts recognized over time. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the revenue recognition process, including controls over the determination of estimated contract cost and variable consideration related to estimated claims revenue for fixed-price contracts recognized over time. These procedures also included, among others, for a selection of fixed-price contracts (i) evaluating and testing management’s process for determining the estimated contract cost and variable consideration related to estimated claims revenue, which included reading contracts and other documents related to the estimates, and testing of underlying incurred and estimated contract costs; (ii) assessing management’s ability to reasonably estimate total contract costs by performing a comparison of the actual estimated contract cost as compared with prior period estimates, including evaluating the timely identification of circumstances that may warrant a modification to the estimated contract cost; and (iii) evaluating estimated claims revenue by inquiry with external legal counsel regarding the underlying claim and agreeing estimated claims revenue to documents related to those estimates. Acquisition of Sealing Technologies, Inc. - Valuation of the Customer Relationships As described in Notes 2 and 3 to the consolidated financial statements, on August 23, 2023, the Company acquired a 100% ownership interest in Sealing Technologies, Inc. (Sealing Tech) for $179.3 million. Of the acquired intangible assets, $40.0 million of customer relationships was recorded. Management 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. The determination of fair values of assets acquired and liabilities assumed requires management to make estimates and use valuation techniques when a market value is not readily available. In determining the fair value of acquired intangible assets, management uses the multi-period excess earnings method to value F- 4 customer relationships. Management’s determination of the fair value of the intangible assets acquired involved the use of significant estimates and assumptions related to discount rates, revenue growth rates, projected margins, and customer revenue attrition rates. The principal considerations for our determination that performing procedures relating to the valuation of the customer relationships acquired in the acquisition of Sealing Tech is a critical audit matter are (i) the significant judgment by management when developing the fair value estimate of the customer relationships acquired; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to the revenue growth rates and projected margins; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to acquisition accounting, including controls over the significant assumptions used in management’s valuation of the customer relationships acquired. These procedures also included, among others (i) reading the purchase agreement; (ii) testing management’s process for developing the fair value estimate of the customer relationships acquired; (iii) evaluating the appropriateness of the multi-period excess earnings method used by management; (iv) testing the completeness and accuracy of the underlying data used in the multi-period excess earnings method; and (v) evaluating the reasonableness of significant assumptions used by management related to the revenue growth rates and projected margins. Evaluating the reasonableness of management’s assumptions related to the revenue growth rates and projected margins involved considering (i) the current and past performance of the acquired business; (ii) the consistency with external market and industry data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the appropriateness of the multi-period excess earnings methods. /s/ PricewaterhouseCoopers LLP Los Angeles, California February 14, 2024 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- 5 Parsons Corporation and Subsidiaries Consolidated B alance Sheets (in thousands, except shares and par value) December 31, 2023 December 31, 2022 Assets Current assets: Cash and cash equivalents (including $ 128,761 and $ 53,193 Cash of consolidated joint ventures) $ 272,943 $ 262,539 Accounts receivable, net (including $ 274,846 and $ 217,419 Accounts receivable of consolidated joint ventures, net) 915,638 717,345 Contract assets (including $ 11,096 and $ 11,313 Contract assets of consolidated joint ventures) 757,515 634,033 Prepaid expenses and other current assets (including $ 11,929 and $ 7,913 Prepaid expenses and other current assets of consolidated joint ventures) 191,430 105,866 Total current assets 2,137,526 1,719,783 Property and equipment, net (including $ 3,274 and $ 2,543 Property and equipment of consolidated joint ventures, net) 98,957 96,050 Right of use assets, operating leases (including $ 9,885 and $ 6,315 Right of use assets, operating leases of consolidated joint ventures) 159,211 155,090 Goodwill 1,792,665 1,661,850 Investments in and advances to unconsolidated joint ventures 128,204 107,425 Intangible assets, net 275,566 254,127 Deferred tax assets 140,162 137,709 Other noncurrent assets 71,770 66,108 Total assets $ 4,804,061 $ 4,198,142 Liabilities and Shareholders' Equity Current liabilities: Accounts payable (including $ 49,234 and $ 49,078 Accounts payable of consolidated joint ventures) $ 242,821 $ 201,428 Accrued expenses and other current liabilities (including $ 145,040 and $ 102,417 Accrued expenses and other current liabilities of consolidated joint ventures) 801,423 630,193 Contract liabilities (including $ 61,234 and $ 40,654 Contract liabilities of consolidated joint ventures) 301,107 213,064 Short-term lease liabilities, operating leases (including $ 4,753 and $ 2,552 Short-term lease liabilities, operating leases of consolidated joint ventures) 58,556 59,144 Income taxes payable 6,977 4,290 Total current liabilities 1,410,884 1,108,119 Long-term employee incentives 22,924 17,375 Long-term debt 745,963 743,605 Long-term lease liabilities, operating leases (including $ 5,132 and $ 3,763 Long-term lease liabilities, operating leases of consolidated joint ventures) 117,505 111,417 Deferred tax liabilities 9,775 12,471 Other long-term liabilities 120,295 109,220 Total liabilities 2,427,346 2,102,207 Contingencies (Note 14) Shareholders' equity: Common stock, $ 1 par value; authorized 1,000,000,000 shares; 146,341,363 and 146,132,016 shares issued; 45,960,122 and 40,960,845 public shares outstanding; 59,879,857 and 63,742,151 ESOP shares outstanding 146,341 146,132 Treasury stock, 40,501,385 shares at cost ( 827,311 ) ( 844,936 ) Additional paid-in capital 2,779,365 2,717,134 Retained earnings 203,724 43,089 Accumulated other comprehensive loss ( 14,908 ) ( 17,849 ) Total Parsons Corporation shareholders' equity 2,287,211 2,043,570 Noncontrolling interests 89,504 52,365 Total shareholders' equity 2,376,715 2,095,935 Total liabilities and shareholders' equity 4,804,061 4,198,142 The accompanying notes are an integral part of these consolidated financial statements. F- 6 Parsons Corporation and Subsidiaries Consolidated Stat ements of Income Years Ended December 31, 2023, December 31, 2022 and December 31, 2021 (in thousands, except for per share data) 2023 2022 2021 Revenue $ 5,442,749 $ 4,195,272 $ 3,660,771 Direct cost of contracts 4,236,735 3,248,550 2,807,950 Equity in (losses) earnings of unconsolidated joint ventures ( 47,751 ) 16,347 36,862 Selling, general and administrative expenses 869,905 777,403 757,237 Operating income 288,358 185,666 132,446 Interest income 2,191 966 396 Interest expense ( 31,497 ) ( 23,185 ) ( 17,697 ) Other income (expense), net 5,001 2,775 ( 2,557 ) Total other (expense) income ( 24,305 ) ( 19,444 ) ( 19,858 ) Income before income tax expense 264,053 166,222 112,588 Income tax expense ( 56,138 ) ( 39,657 ) ( 23,636 ) Net income including noncontrolling interests 207,915 126,565 88,952 Net income attributable to noncontrolling interests ( 46,766 ) ( 29,901 ) ( 24,880 ) Net income attributable to Parsons Corporation $ 161,149 $ 96,664 $ 64,072 Earnings per share: Basic earnings per share $ 1.53 $ 0.93 $ 0.62 Diluted earnings per share $ 1.42 $ 0.87 $ 0.59 The accompanying notes are an integral part of these consolidated financial statements. F- 7 Parsons Corporation and Subsidiaries Consolidated Statements of Comprehensive Income Years Ended December 31, 2023, December 31, 2022 and December 31, 2021 (in thousands) 2023 2022 2021 Net income including noncontrolling interests $ 207,915 $ 126,565 $ 88,952 Other comprehensive income (loss), net of tax Foreign currency translation adjustment, net of tax 2,375 ( 7,752 ) 3,834 Pension adjustments, net of tax 568 ( 547 ) 460 Comprehensive income including noncontrolling interests, net of tax 210,858 118,266 93,246 Comprehensive income attributable to noncontrolling interests, net of tax ( 46,768 ) ( 29,883 ) ( 24,877 ) Comprehensive income attributable to Parsons Corporation, net of tax $ 164,090 $ 88,383 $ 68,369 The accompanying notes are an integral part of these consolidated financial statements. F- 8 Parsons Corporation and Subsidiaries Consolidated Statements of Changes i n Shareholders’ Equity (Deficit) Years Ended December 31, 2023, December 31, 2022 and December 31, 2021 (in thousands) Common Stock Treasury Stock Additional Paid-in Capital Retained Earnings (Accumulated Deficit) Accumulated Other Comprehensive (Loss) Income Total Parsons Equity Noncontrolling Interests Total Balances at December 31, 2020 $ 146,609 $ ( 899,328 ) $ 2,700,925 $ ( 120,569 ) $ ( 13,865 ) $ 1,813,772 $ 47,645 $ 1,861,417 Comprehensive income Net income — — — 64,072 — 64,072 24,880 88,952 Foreign currency translation gain — — — — 3,837 3,837 ( 3 ) 3,834 Pension adjustments, net — — — — 460 460 — 460 Contributions of treasury stock to ESOP — 31,937 22,064 — — 54,001 — 54,001 Adoption of ASU 2020-06 — - ( 40,002 ) 2,782 — ( 37,220 ) — ( 37,220 ) Contributions — — — — — — 1,754 1,754 Distributions — — — — — — ( 37,932 ) ( 37,932 ) Issuance of equity securities, net of retirements 287 — 2,887 186 — 3,360 — 3,360 Repurchases of common stock ( 619 ) — ( 21,082 ) — — ( 21,701 ) — ( 21,701 ) Stock-based compensation — — 20,187 — — 20,187 — 20,187 Balances at December 31, 2021 $ 146,277 $ ( 867,391 ) $ 2,684,979 $ ( 53,529 ) $ ( 9,568 ) $ 1,900,768 $ 36,344 $ 1,937,112 Comprehensive income Net income — — — 96,664 — 96,664 29,901 126,565 Foreign currency translation loss, net — — — — ( 7,734 ) ( 7,734 ) ( 18 ) ( 7,752 ) Pension adjustments, net — — — — ( 547 ) ( 547 ) — ( 547 ) Contributions of treasury stock to ESOP — 22,455 31,346 — — 53,801 — 53,801 Contributions — — — — — — 10,266 10,266 Distributions — — — — — — ( 24,128 ) ( 24,128 ) Issuance of equity securities, net of retirement 429 — ( 773 ) ( 46 ) — ( 390 ) — ( 390 ) Repurchase of common stock ( 574 ) — ( 21,426 ) — — ( 22,000 ) — ( 22,000 ) Stock-based compensation — — 23,008 — — 23,008 — 23,008 Balances at December 31, 2022 $ 146,132 $ ( 844,936 ) $ 2,717,134 $ 43,089 $ ( 17,849 ) $ 2,043,570 $ 52,365 $ 2,095,935 Comprehensive income Net income — — — 161,149 — 161,149 46,766 207,915 Foreign currency translation gain, net — — — — 2,373 2,373 2 2,375 Pension adjustments, net — — — — 568 568 — 568 Contributions of treasury stock to ESOP — 17,625 39,804 — — 57,429 — 57,429 Contributions — — — — — — 2,867 2,867 Distributions — — — — — — ( 12,496 ) ( 12,496 ) Issuance of equity securities, net of retirement 442 — ( 1,171 ) ( 514 ) — ( 1,243 ) — ( 1,243 ) Repurchases of common stock ( 233 ) — ( 10,767 ) — — ( 11,000 ) — ( 11,000 ) Stock-based compensation — — 34,365 — — 34,365 — 34,365 Balances at December 31, 2023 $ 146,341 $ ( 827,311 ) $ 2,779,365 $ 203,724 $ ( 14,908 ) $ 2,287,211 $ 89,504 $ 2,376,715 The accompanying notes are an integral part of these consolidated financial statements. F- 9 Parsons Corporation and Subsidiaries Consolidated Statem ents of Cash Flows Years Ended December 31, 2023, December 31, 2022 and December 31, 2021 (in thousands) 2023 2022 2021 Cash flows from operating activities Net income including noncontrolling interests $ 207,915 $ 126,565 $ 88,952 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 119,973 120,501 144,209 Amortization of debt issue costs 2,842 3,029 2,817 Loss (gain) on disposal of property and equipment 206 ( 164 ) 338 Provision for doubtful accounts 32 57 8 Deferred taxes ( 8,914 ) ( 844 ) ( 3,468 ) Foreign currency transaction gains and losses ( 330 ) 1,973 4,916 Equity in losses (earnings) of unconsolidated joint ventures 47,751 ( 16,347 ) ( 36,862 ) Return on investments in unconsolidated joint ventures 48,970 28,417 24,494 Stock-based compensation 34,365 23,008 20,187 Contributions of treasury stock 58,172 54,659 54,905 Changes in assets and liabilities, net of acquisitions and newly consolidated joint ventures Accounts receivable ( 176,181 ) ( 117,318 ) 99,894 Contract assets ( 119,898 ) ( 32,032 ) 1,494 Prepaid expenses and other assets ( 95,415 ) ( 1,405 ) ( 18,798 ) Accounts payable 24,497 ( 717 ) ( 31,766 ) Accrued expenses and other current liabilities 163,440 3,879 ( 74,683 ) Contract liabilities 84,439 41,306 ( 30,407 ) Income taxes 2,886 ( 3,649 ) 2,878 Other long-term liabilities 12,949 6,608 ( 43,534 ) Net cash provided by operating activities 407,699 237,526 205,574 Cash flows from investing activities Capital expenditures ( 40,396 ) ( 30,593 ) ( 21,105 ) Proceeds from sale of property and equipment 546 771 1,329 Payments for acquisitions, net of cash acquired ( 221,937 ) ( 379,467 ) ( 198,256 ) Investments in unconsolidated joint ventures ( 119,582 ) ( 17,622 ) ( 38,459 ) Return of investments in unconsolidated joint ventures 5,018 9,443 772 Proceeds from sales of investments in unconsolidated joint ventures 381 — 14,812 Net cash used in investing activities ( 375,970 ) ( 417,468 ) ( 240,907 ) Cash flows from financing activities Proceeds from borrowings 620,900 969,700 — Proceeds from delayed draw term loan — 350,000 — Repayments of borrowings ( 620,900 ) ( 969,700 ) ( 50,000 ) Repayment of private placement debt — ( 200,000 ) — Payments for debt costs and credit agreement — ( 862 ) ( 1,937 ) Payments for acquired warrants — ( 11,243 ) — Contributions by noncontrolling interests 2,867 10,266 1,754 Distributions to noncontrolling interests ( 12,496 ) ( 24,128 ) ( 37,932 ) Repurchases of common stock ( 11,000 ) ( 22,000 ) ( 21,701 ) Taxes paid on vested stock ( 7,301 ) ( 7,042 ) ( 2,242 ) Proceeds from issuance of common stock 6,059 5,377 5,555 Net cash (used in) provided by financing activities ( 21,871 ) 100,368 ( 106,503 ) Effect of exchange rate changes 546 ( 1,770 ) ( 1,496 ) Net increase (decrease) in cash, cash equivalents and restricted cash 10,404 ( 81,344 ) ( 143,332 ) Cash, cash equivalents and restricted cash Beginning of year 262,539 343,883 487,215 End of year $ 272,943 $ 262,539 $ 343,883 Cash paid during the year for Interest $ 30,273 $ 20,819 $ 14,993 Income taxes (net of refunds) $ 74,133 $ 32,175 $ 22,461 The accompanying notes are an integral part of these consolidated financial statements. F- 10 PARSONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2023, December 31, 2022 and December 31, 2021 1. Description of Operations Organization Parsons Corporation, a Delaware corporation, and its subsidiaries (collectively, the “Company”) provide sophisticated design, engineering and technical services, and smart and agile software to the United States federal government and Critical Infrastructure customers worldwide. The Company performs work in various foreign countries through local subsidiaries, joint ventures and foreign offices maintained to carry out specific projects. 2. 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. Certain amounts may not foot due to rounding. 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; useful lives of property and equipment and intangible assets; 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. 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 retained earnings/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 915,113 shares, 1,188,129 shares, and 1,631,477 shares of common stock were made to the ESOP in 2023, 2022 and 2021, respectively. F- 11 PARSONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2023, December 31, 2022 and December 31, 2021 Share Repurchases During the third quarter of 2021, the Company’s Board of Directors authorized the Company to acquire a number of shares of Common Stock having an aggregate market value of not greater than $ 100,000,000 from time to time. Repurchased shares of common stock are retired and included in “Repurchases of common stock” in cash flows from financing activities in the Consolidated Statements of Cash Flows. 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 using the if-converted method by dividing adjusted 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 In accordance with ASC 606, the Company follows the five-step process in ASC 606 to recognize revenue: 1. Identify the contract 2. Identify performance obligations 3. Determine the transaction price 4. Allocate the transaction price 5. 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 non-reimbursable 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. F- 12 PARSONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2023, December 31, 2022 and December 31, 2021 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. 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. 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, 2023 and December 31, 2022. 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 F- 13 PARSONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2023, December 31, 2022 and December 31, 2021 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. 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 revenue 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 F- 14 PARSONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2023, December 31, 2022 and December 31, 2021 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 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 and in particular estimated claims revenue, total estimated 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. 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 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. Past due receivable balances are written off when internal collection efforts have been unsuccessful in collecting the amounts due. Contract Assets and Contract Liabilities 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 F- 15 PARSONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2023, December 31, 2022 and December 31, 2021 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. 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 55 %, 53 %, and 52 % of consolidated revenues for the years ended December 31, 2023, December 31, 2022 and December 31, 2021, respectively, and approximately 18 % and 17 % of accounts receivable as of December 31, 2023 and December 31, 2022,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. 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 F- 16 PARSONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2023, December 31, 2022 and December 31, 2021 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 shares of the Company’s common stock. Awards containing performance measures are adjusted at each reporting period for the number of shares expected to be earned. Compensation cost for performance awards are trued-up at each reporting period for the number of shares expected to be earned 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 selling, general and administrative expense in the consolidated statements of income. For awards that include market conditions, the grant date fair value is determined using a Monte Carlo simulation. 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. In determining the fair value of acquired intangible assets from our business acquisitions, the Company uses the multi-period excess earnings method to value customer relationships and backlog and values developed technologies using the relief-from royalty method. The Company’s determination of the fair value of the intangible assets acquired involves the use of significant estimates and assumptions related to discount rates, revenue growth rates, projected margins, and customer revenue attrition rates. Certain business acquisitions include contingent consideration. Contingent consideration is recorded at its fair value, using a Black-Scholes model, within other liabilities or other long-term liabilities, as appropriate. The fair value of contingent consideration involves the use of significant estimates and assumptions related to risks associated with earnout, i.e. risk in the underlying metric, risk in the earnout structure, counterparty credit risk, projected revenue, the revenue discount rate, the revenue volatility, and the Company's credit adjusted discount rate. Subsequent adjustments to these assumptions can cause changes to the measure of contingent consideration. 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. F- 17 PARSONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2023, December 31, 2022 and December 31, 2021 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 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; 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 The Company performs a goodwill impairment test annually, on October 1 st of each year and additionally, performs a quarterly qualitative assessment to address whether a triggering event has occurred that would require an impairment test in the interim period. For purposes of impairment testing, goodwill is allocated to the applicable reporting units based on the current reporting structure. 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. F- 18 PARSONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2023, December 31, 2022 and December 31, 2021 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 sixteen years . 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 basis of the Company’s assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to be in effect when the asset or liability is 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 F- 19 PARSONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2023, December 31, 2022 and December 31, 2021 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. New Accounting Pronouncements In the fourth quarter of 2023, The Financial Accounting Standards Board ("FASB") Issued Accounting Standards Update (“ASU”) 2023-09, "Income Taxes (Topic 740)" ("ASU 2023-09"). ASU 2023-09 enhances the transparency and decision usefulness of income tax disclosures. The amendments in ASU 2023-09 addresses investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. ASU 2023-09 also includes certain other amendments to improve the effectiveness of income tax disclosures. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024 . Early adoption is permitted. The adoption of this ASU will no t have a material impact on the Company's consolidated financial statements. In the fourth quarter of 2023, The FASB Issued ASU 2023-07, "Segment Reporting (Topic 280)". ASU 2023-07 introduces enhanced disclosures about significant segment expenses along with other enhanced segment disclosures. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 . Early adoption is permitted. The adoption of this ASU will no t have a material impact on the Company's consolidated financial statements. During July 2023, the FASB Issued ASU 2023-03. ASU 2023-03 incorporates, into certain accounting standards, amendments to SEC paragraphs pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280—General Revisions of Regulation S-X: Income or Loss Applicable to Common Stock. These rules are effective immediately. The adoption of this ASU will not have a material impact on the Company's consolidated financial statements. In the first quarter of 2022 , the Company early adopted ASU 2021-08, “Business Combinations (Topic 805) ("ASU 2021-08"): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”. The new guidance requires that the approach of ASC 606, Revenue from Contracts with Customers, should be used to measure an acquired revenue contract in a business combination. This guidance is to be applied (1) retrospectively to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early application and (2) prospectively to all business combinations that occur on or after the date of initial application. The early adoption of ASU 2021-08 did no t have a material impact on the Company's consolidated financial statements. In the first quarter of 2021 , the Company early adopted ASU 2020-06, "Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40)" (“ASU 2020-06"). The update simplified the accounting for convertible debt instruments and convertible preferred stock by reducing the number of accounting models and limiting the number of embedded conversion features separately recognized from the primary contract. The guidance also included targeted improvements to the disclosures for convertible instruments and earnings per share. ASU 2020-06 was effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption was permitted, but no earlier than fiscal years beginning after December 15, 2020. The Company adopted ASU 2020-06 in the first quarter of 2021 using the modified retrospective method which resulted in a reduction in non-cash interest expense and reclassification of the equity portion of the Convertible Senior Notes to “Long-term debt” on the Company's consolidated balance sheet. F- 20 PARSONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2023, December 31, 2022 and December 31, 2021 3. Acquisitions I.S. Engineers, LLC On October 31, 2023, the Company entered into a Membership Interest Purchase Agreement to acquired a 100 % ownership interest in I.S. Engineers, LLC (“I.S. Engineers”), a privately-owned company, for $ 12.2 million in cash. Headquartered in Texas, I.S. Engineers provides full service consulting specializing in transportation engineering, including roads and highways, and program management. The acquisition was entirely funded by cash on-hand. In connection with this acquisition, the Company recognized $ 0.3 million of acquisition related “Selling, general and administrative expense” in the consolidated statements of income for the year ended December 31, 2023, including legal fees, consulting fees, and other miscellaneous direct expenses associated with the acquisition. The Company allocated the purchase price to the appropriate classes of tangible assets and liabilities and assigned the excess of $ 11.9 million entirely to goodwill. The entire value of goodwill was assigned to the Critical Infrastructure reporting unit and represents synergies expected to be realized from this business combination. No goodwill is deductible for income tax purposes. The amount of revenue generated by I.S. Engineers and included within consolidated revenues for 2023 is $ 1.0 million. Sealing Technologies, Inc. On August 23, 2023, the Company acquired a 100 % ownership interest in Sealing Technologies, Inc (“SealingTech”), a privately-owned company, for $ 179.3 million in cash and up to an additional $ 25 million in the event an earn out revenue target is exceeded. The Company borrowed $ 175 million under the Credit Agreement, as described in “Note 11 – Debt and Credit Facilities ”, to fund the acquisition. Headquartered in Maryland, SealingTech expands Parsons’ customer base across the Department of Defense and Intelligence Community, and further enhances the company’s capabilities in defensive cyber operations; integrated mission-solutions powered by artificial intelligence (AI) and machine learning (ML); edge computing and edge access modernization; critical infrastructure protection; and secure data management. In connection with this acquisition, the Company recognized $ 3.3 million of acquisition-related expenses in “Selling, general and administrative expense” in the consolidated statements of income for the year ended December 31, 2023, including legal fees, consulting fees, and other miscellaneous direct expenses associated with the acquisition. The Company has agreed to pay the selling shareholders up to an additional $ 25 million in the event an earn out revenue target of $ 110 million is exceeded during the fiscal year ended December 31, 2024. The earn out payment due and payable by the Company to the selling shareholders shall be equal to (i) five-tenths ( 0.5 ), multiplied by (ii) the difference of (A) the actual earn out revenue minus (B) the earn out revenue target; provided, however, that in no event shall the earn out payment exceed $ 25 million. In the event that the earn out revenue is less than or equal to the earn out revenue target, the earn out payment shall be zero . The earn out payment, if any, shall be paid by the Company to the selling shareholders within 15 days following the date the earn out statement becomes final and binding on both parties. The fair value of the earn out (contingent consideration in the table below) was calculated using a Black-Scholes model. See "Note 2— Summary of Significant Accounting Policies" for further information on how the fair value of contingent consideration is determined. The following table summarizes the acquisition date fair value of the purchase consideration transferred (in thousands): Amount Cash paid at closing $ 179,259 Fair value of contingent consideration to be achieved 3,231 Total purchase price $ 182,490 The estimated fair value of the SealingTech contingent consideration as of December 31, 2023 is $ 2.3 million, a $ 0.9 million decrease from the quarter ended September 30, 2023. The change in the F- 21 PARSONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2023, December 31, 2022 and December 31, 2021 estimated fair value was recorded to "other income (expense), net" in the consolidated financial statements. 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 $ 8,133 Accounts receivable 17,889 Contract assets 2,946 Prepaid expenses and other current assets 1,379 Property and equipment 2,025 Right of use assets, operating leases 1,836 Deferred tax assets 357 Goodwill 90,593 Intangible assets 75,000 Accounts payable ( 15,987 ) Accrued expenses and other current liabilities ( 2,408 ) Contract liabilities ( 668 ) Short-term lease liabilities, operating leases ( 418 ) Long-term lease liabilities, operating leases ( 1,418 ) Net assets acquired $ 179,259 Of the total purchase price, the following values were preliminarily assigned to intangible assets (in thousands, except for years): Gross Carrying Amount Amortization Period (in years) Customer relationships $ 40,000 14 Backlog 26,000 3 Developed technologies 8,000 3 Other $ 1,000 1 Amortization expense of $ 7.0 million related to these intangible assets was recorded for the year ended December 31, 2023. The entire value of goodwill was assigned to the Federal Solutions reporting unit and represents synergies expected to be realized from this business combination. The entire value of goodwill is deductible for tax purposes. The amount of revenue generated by SealingTech and included within consolidated revenue is $ 34.1 million for the year ended December 31, 2023. The Company has determined that the presentation of net income from the date of acquisition is impracticable due to the integration of general corporate functions upon acquisition. The Company is still in the process of finalizing its valuation of the net assets acquired. Supplemental Pro Forma Information (Unaudited) Supplemental information of unaudited pro forma operating results assuming the SealingTech acquisition had been consummated as of the beginning of fiscal year 2022 (in thousands) is as follows: 2023 2022 (unaudited) (unaudited) Pro forma Revenue $ 5,525,099 $ 4,262,525 Pro forma Net Income including noncontrolling interests 216,157 107,937 F- 22 PARSONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2023, December 31, 2022 and December 31, 2021 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, and the pro forma impact of reflecting acquisition costs, which consisted of legal, advisory and due diligence fees and expenses. 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. IPKeys Power Partners On April 13, 2023, the Company entered into a merger agreement to acquire a 100 % ownership interest in IPKeys Power Partners (“IPKeys”), a privately-owned company, for $ 43.0 million in cash. The merger brings IPKeys' established customer base, expanding Parsons' presence in two rapidly growing end markets: grid modernization and cyber resiliency for critical infrastructure. Headquartered in Tinton Falls, New Jersey, IPKeys is a trusted provider of enterprise software platform solutions that is actively delivering cyber and operational security to hundreds of electric, water, and gas utilities across North America. The acquisition was entirely funded by cash on-hand. In connection with this acquisition, the Company recognized $ 0.6 million of acquisition-related expenses in “Selling, general and administrative expense” in the consolidated statements of income for the year ended December 31, 2023, respectively, including legal fees, consulting fees, and other miscellaneous direct expenses associated with the acquisition. 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 $ 126 Accounts receivable 3,937 Contract assets 834 Prepaid expenses and other current assets 455 Property and equipment 86 Right of use assets, operating leases 1,105 Other noncurrent assets 152 Goodwill 22,407 Intangible assets 23,000 Accounts payable ( 541 ) Accrued expenses and other current liabilities ( 1,768 ) Contract liabilities ( 1,936 ) Short-term lease liabilities, operating leases ( 343 ) Deferred tax liabilities ( 3,713 ) Long-term lease liabilities, operating leases ( 762 ) Net assets acquired $ 43,039 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 (1) $ 15,900 16 Developed technologies 7,000 11 Other $ 100 1 (1) The acquired business is a SaaS commercial business. Backlog for this type of business is included as customer relationships. F- 23 PARSONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2023, December 31, 2022 and December 31, 2021 Amortization expense of $ 1.4 million related to these intangible assets was recorded for the year ended December 31, 2023. The entire value of goodwill was assigned to the Critical Infrastructure reporting unit and represents synergies expected to be realized from this business combination. $ 0.9 million of goodwill is deductible for tax purposes. The amount of revenue generated by IPKeys and included within consolidated revenue is $ 9.3 million for the year ended December 31, 2023. 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 IPKeys acquisition had been consummated as of the beginning of fiscal year 2022 (in thousands) is as follows: 2023 2022 (unaudited) (unaudited) Pro forma Revenue $ 5,445,604 $ 4,207,967 Pro forma Net Income including noncontrolling interests 209,773 123,257 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, and the pro forma impact of reflecting acquisition costs, which consisted of legal, advisory and due diligence fees and expenses. 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. Xator Corporation On May 31, 2022, the Company acquired a 100 % ownership interest in Xator Corporation (“Xator”), a privately-owned company, for $ 387.5 million in cash. The Company borrowed $ 300 million under the Credit Agreement, as described in “Note 11 – Debt and Credit Facilities ”, to partially fund the acquisition. Xator expands Parsons’ customer base and brings differentiated technical capabilities in critical infrastructure protection, counter-unmanned aircraft systems (cUAS), intelligence and cyber solutions, biometrics, and global threat assessment and operations. In connection with this acquisition, the Company recognized $ 7.7 million of acquisition-related expenses in “Selling, general and administrative expense” in the consolidated statements of income for the year ended December 31, 2022, including legal fees, consulting fees, and other miscellaneous direct expenses associated with the acquisition. F- 24 PARSONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2023, December 31, 2022 and December 31, 2021 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 $ 8,935 Accounts receivable 7,393 Contract assets 24,332 Prepaid expenses and other current assets 3,615 Property and equipment 1,699 Right of use assets, operating leases 7,517 Goodwill 257,934 Investments in and advances to unconsolidated joint ventures 698 Intangible assets 123,500 Other noncurrent assets 9,156 Accounts payable ( 6,626 ) Accrued expenses and other current liabilities ( 31,309 ) Contract liabilities ( 2,631 ) Short-term lease liabilities, operating leases ( 2,371 ) Long-term lease liabilities, operating leases ( 5,146 ) Other long-term liabilities ( 9,156 ) Net assets acquired $ 387,540 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 $ 37,000 15 Backlog 81,000 6 Trade name 4,000 1 Developed technologies 1,000 3 Non-compete agreements $ 500 3 Amortization expense of $ 18.1 million and $ 11.9 million related to these intangible assets was recorded for the year ended December 31, 2023 and December 31, 2022, respectively. The entire value of goodwill was assigned to the Federal Solutions reporting unit and represents synergies expected to be realized from this business combination. Goodwill in its entirety is deductible for tax purposes. The amount of revenue generated by Xator and included within consolidated revenue is $ 157.8 million for the year ended December 31, 2022. The Company has determined that the presentation of net income from the date of acquisition is impracticable due to the integration of general corporate functions upon acquisition. Supplemental Pro Forma Information (Unaudited) Supplemental information of unaudited pro forma operating results assuming the Xator acquisition had been consummated as of the beginning of fiscal year 2021 (in thousands) is as follows: 2022 2021 (unaudited) (unaudited) Pro forma Revenue $ 4,302,448 $ 3,949,562 Pro forma Net Income including noncontrolling interests 139,901 91,770 F- 25 PARSONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2023, December 31, 2022 and December 31, 2021 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, and the pro forma impact of reflecting acquisition costs, which consisted of legal, advisory and due diligence fees and expenses. 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. From the year ended December 31, 2022 the results of the acquisition have been included in full year results. BlackHorse Solutions, Inc. On July 6, 2021, the Company acquired a 100 % ownership interest in BlackHorse Solutions, Inc (“BlackHorse”), a privately-owned company, for $ 205.0 million paid in cash. BlackHorse expands Parsons’ capabilities and products in next-generation military, intelligence, and space operations, specifically in cyber electronic warfare and information dominance. The acquisition was entirely funded by cash on-hand. In connection with this acquisition, the Company recognized $ 3.1 million of acquisition-related expenses in “Selling, general and administrative expense” in the consolidated statements of income for the year ended December 31, 2021, including legal fees, consulting fees, and other miscellaneous direct expenses associated with the acquisition. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the date of acquisition (in thousands): Amount Cash and cash equivalents $ 15,428 Accounts receivable 3,351 Contract assets 5,979 Prepaid expenses and other current assets 937 Property and equipment 2,239 Right of use assets, operating leases 6,157 Goodwill 143,086 Intangible assets 65,000 Accounts payable ( 2,326 ) Accrued expenses and other current liabilities ( 17,190 ) Contract liabilities ( 320 ) Short-term lease liabilities, operating leases ( 1,011 ) Long-term lease liabilities, operating leases ( 5,146 ) Deferred tax liabilities ( 10,916 ) Other long-term liabilities ( 235 ) Net assets acquired $ 205,033 Of the total purchase price, the following values were assigned to intangible assets (in thousands, except for years): Gross Carrying Amount Amortization Period (in years) Customer relationships $ 39,000 16 Backlog 23,000 3 Trade name 1,000 2 Developed technologies 1,000 3 Non-compete agreements $ 1,000 3 F- 26 PARSONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2023, December 31, 2022 and December 31, 2021 Amortization expense of $ 14.0 million and $ 5.4 million related to these intangible assets was recorded for the year ended December 31, 2022 and December 31, 2021, respectively. The entire value of goodwill of $ 143.1 million was assigned to the Federal Solutions reporting unit and represents synergies expected to be realized from this business combination. Goodwill of $ 10.6 million is deductible for tax purposes. The amount of revenue generated by BlackHorse and included within consolidated revenues was $ 35.3 million for the year ended December 31, 2021. 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 31, 2020 as follows (in thousands): 2021 2020 (unaudited) (unaudited) Pro forma Revenue $ 3,699,227 $ 3,966,809 Pro forma Net Income including noncontrolling interests 93,592 108,008 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, and the pro forma impact of reflecting acquisition costs, which consisted of legal, advisory and due diligence fees and expenses. 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. From the year ended December 31, 2021 the results of the acquisition have been included in full year results. Echo Ridge LLC On July 30, 2021, the Company acquired a 100 % ownership interest in Echo Ridge LLC (“Echo Ridge”), a privately-owned company, for $ 9.0 million in cash. Echo Ridge adds position, navigation, and timing devices; modeling, simulation, test, and measurement tools; and deployable software defined radio products and signal processing services to Parsons’ space portfolio. The acquisition was entirely funded by cash on-hand. In connection with this acquisition, the Company recognized $ 0.3 million of acquisition related “Selling, general and administrative expense” in the consolidated statements of income for the year ended December 31, 2021, including legal fees, consulting fees, and other miscellaneous direct expenses associated with the acquisition. The Company allocated the purchase price to the appropriate classes of tangible assets and liabilities and assigned the excess of $ 7.2 million entirely to goodwill. The entire value of goodwill was assigned to the Federal Solutions reporting unit and represents synergies expected to be realized from this business combination. Goodwill in its entirety is deductible for tax purposes. The amount of revenue generated by Echo Ridge and included within consolidated revenues for 2021 was $ 2.9 million. F- 27 PARSONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2023, December 31, 2022 and December 31, 2021 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): December 31, 2023 December 31, 2022 December 31, 2021 Fixed-price $ 1,810,499 $ 1,138,482 $ 964,927 Time-and-Materials 1,352,871 1,166,548 1,021,568 Cost-plus 2,279,379 1,890,242 1,674,276 Total $ 5,442,749 $ 4,195,272 $ 3,660,771 Refer to “Note 20— Segments Information ” for the Company’s revenues by business lines. Contract Assets and Contract Liabilities Contract assets and contract liabilities balances at December 31, 2023 and December 31, 2022 were as follows (in thousands): December 31, 2023 December 31, 2022 $ change % change Contract assets $ 757,515 $ 634,033 $ 123,482 19.5 % Contract liabilities 301,107 213,064 88,043 41.3 % Net contract assets (liabilities) (1) $ 456,408 $ 420,969 $ 35,439 8.4 % (1) Total contract retentions included in net contract assets (liabilities) were $ 73.8 million as of December 31, 2023, of which $ 32.1 million are not expected to be paid in 2024. Total contract retentions included in net contract assets (liabilities) were $ 73.5 million as of December 31, 2022. Contract assets at December 31, 2023 and December 31, 2022 include approximately $ 109.5 million and $ 127.9 million, respectively, related to net claim recovery estimates. For the years ended December 31, 2023 and December 31, 2022 , there were no material losses recognized related to the collectability of claims, unapproved change orders, and requests for equitable adjustment. During the years ended December 31, 2023 and December 31, 2022, the Company recognized revenue of approximately $ 126.0 million and $ 94.1 million, respectively, that was included in the corresponding contract liability balance at December 31, 2022 and December 31, 2021 , respectively. Certain changes in contract assets and contract liabilities consisted of the following: December 31, 2023 December 31, 2022 Acquired contract assets $ 2,715 $ 25,397 Acquired contract liabilities 3,155 2,080 There was no significant impairment of contract assets recognized during the years ended December 31, 2023 and December 31, 2022. Revisions in estimates, such as changes in estimated claims or incentives, related to performance obligations partially satisfied in previous periods that individually had an impact of $ 5 million or more on revenue resulted in the following changes in revenue. 2023 2022 2021 Revenue impact, net $ 5,428 $ - $ ( 30,828 ) Certain financial statement impacts from revisions in estimates were as follows (in thousands): F- 28 PARSONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2023, December 31, 2022 and December 31, 2021 December 31, 2023 December 31, 2022 December 31, 2021 Operating income (loss) $ 35,297 $ — $ ( 30,828 ) Net income (loss) 26,261 — ( 22,936 ) Diluted earnings (loss) per share $ 0.23 $ — $ ( 0.20 ) The amounts for 2023, in the table above, include the impact from contracts in the Critical Infrastructure segment related to a change in estimate increasing direct costs of contracts by $ 8.0 million related to net write-downs and a decrease in direct costs of contracts of $ 37.9 million related to a legal matter. These impacts do not include the operating income impacts disclosed below in "Note 16—Investments in and Advances to Joint Ventures. " Accounts Receivable, Net Accounts receivable, net consisted of the following as of December 31, 2023 and December 31, 2022 (in thousands): 2023 2022 Billed $ 646,375 $ 502,411 Unbilled 273,215 218,945 Total accounts receivable, gross 919,590 721,356 Allowance for doubtful accounts ( 3,952 ) ( 4,011 ) Total accounts receivable, net $ 915,638 $ 717,345 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. Receivables from contracts with the U.S. federal government and its agencies were 18 % and 17 % as of December 31, 2023 and December 31, 2022, respectively. 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, 2023 represent a measure of the total dollar value of work to be performed on contracts awarded and in progress. The Company had $ 6.4 billion in RUPO as of December 31, 2023. 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. F- 29 PARSONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2023, December 31, 2022 and December 31, 2021 The Company expects to satisfy its RUPO as of December 31, 2023 over the following periods (in thousands): Period RUPO Will Be Satisfied Within One Year Within One to Two Years Thereafter Federal Solutions $ 1,762,399 $ 377,117 $ 215,435 Critical Infrastructure 2,053,887 1,131,669 837,677 Total $ 3,816,286 $ 1,508,786 $ 1,053,112 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 eight years , some of which may include options to extend the leases for up to five years , and some of which may include options to terminate the leases after the third year . The components of lease costs for the years ended December 31, 2023 and December 31, 2022 are as follows (in thousands): 2023 2022 Operating lease cost $ 67,181 $ 67,033 Short-term lease cost 13,782 14,008 Amortization of right-of-use assets 2,699 2,322 Interest on lease liabilities 273 98 Sublease income ( 4,718 ) ( 5,045 ) Total lease cost $ 79,217 $ 78,416 Supplemental cash flow information related to leases for the years ended December 31, 2023 and December 31, 2022 is as follows (in thousands): 2023 2022 Operating cash flows for operating leases $ 71,432 $ 73,169 Operating cash flows for finance leases 273 98 Financing cash flows for finance leases 2,618 2,175 Right-of-use assets obtained in exchange for new operating lease liabilities 62,856 26,607 Right-of-use assets obtained in exchange for new finance lease liabilities $ 6,456 $ 1,813 F- 30 PARSONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2023, December 31, 2022 and December 31, 2021 Supplemental balance sheet and other information related to leases as of December 31, 2023 and December 31, 2022 is as follows (in thousands): 2023 2022 Operating Leases: Right-of-use assets $ 159,211 $ 155,090 Lease liabilities: Current $ 58,556 $ 59,144 Long-term 117,505 111,417 Total operating lease liabilities $ 176,061 $ 170,561 Finance Leases: Other noncurrent assets $ 7,779 $ 3,965 Accrued expenses and other current liabilities $ 2,682 $ 1,746 Other long-term liabilities $ 5,129 $ 2,246 Weighted Average Remaining Lease Term: Operating leases 3.9 Years 3.6 years Finance leases 3.1 years 2.6 years Weighted Average Discount Rate: Operating leases 4.2 % 3.4 % Finance leases 4.6 % 2.8 % As of December 31, 2023 , the Company has no additional operating leases that have not yet commenced. A maturity analysis of the future undiscounted cash flows associated with the Company’s operating and finance lease liabilities as of December 31, 2023 is as follows (in thousands): Operating Leases Finance Leases 2024 $ 64,525 $ 2,989 2025 48,633 2,526 2026 32,203 1,881 2027 18,809 708 2028 14,047 310 Thereafter 12,806 - Total lease payments 191,023 8,414 Less: imputed interest ( 14,962 ) ( 603 ) Total present value of lease liabilities $ 176,061 $ 7,811 Rental expense for the years ended December 31, 2023, December 31, 2022 and December 31, 2021 was $ 81.0 million , $ 81.0 million and $ 73.1 million , respectively, and is recorded in “Selling, general and administrative expenses” in the consolidated statements of income. F- 31 PARSONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2023, December 31, 2022 and December 31, 2021 6. Employee Stock Purchase and Equity-Based Compensation Plans Equity Compensation Plan Information The following table provides information as of December 31, 2023 regarding compensation plans under which our equity securities are authorized for issuance. Plan Category Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights (a) Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights (b) Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (c) Equity compensation plans approved by security holders (1) - 1,463,790 (2) Equity compensation plans not approved by security holders 2,093,336 (3) 8,238,003 (4) Total 2,093,336 9,701,793 (1) Consists of the 2020 Employee Stock Purchase Plan. (2) Amount represents 1,463,790 shares remaining available for future issuance under the 2020 Employee Stock Purchase Plan (of which 52,364 shares were purchased pursuant to the offering period that ended on December 31, 2023). (3) Amount represents the sum of 2,093,336 shares of common stock subject to outstanding RSU and PSU awards under the 2019 Incentive Plan (with PSU awards reflected at “target” levels), (4) Amount represents 8,238,003 shares remaining available for future issuance under the 2019 Incentive Plan. Employee Stock Purchase Plan The Parsons Corporation Employee Stock Purchase Plan (“ESPP”) was adopted effective March 1, 2020. Under the ESPP, eligible employees who elect to participate are granted the right to purchase shares of Parsons common stock at a discount of 5 % of the market value on the last trading day of the offering period. The following table presents stock issuance activity for the years ended December 31, 2023 and December 31, 2022 (in thousands): 2023 2022 Purchase price paid for shares sold $ 6,059 $ 5,377 Number of shares sold 117 131 The average purchase price for the year ended December 31, 2023 and December 31, 2022 was $ 51.94 and $ 40.95 per share, respectively. Equity-Based Compensation Plans The Company issues stock-based awards through the Incentive Award Plan. The compensation expense for these awards is recorded in “Selling, general and administrative expenses” in the Company’s consolidated financial statements. Stock-based compensation expense was $ 27.5 million, $ 20.0 million, and $ 16.8 million for the years ended December 31, 2023, December 31, 2022 and December 31, 2021 , respectively, net of recognized tax benefits of $ 8.6 million, $ 4.4 million, and $ 2.8 million for 2023, 2022 and 2021, respectively. The tax benefit realized related to awards vested during 2023, 2022, and 2021 was $ 4.3 million, $ 2.7 million, and $ 6.3 million, respectively. We recognize forfeitures as they occur. F- 32 PARSONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2023, December 31, 2022 and December 31, 2021 At December 31, 2023 , the amount of compensation cost relating to non-vested awards not yet recognized in the consolidated financial statements is $ 43.4 million. The majority of these unrecognized compensation costs will be recognized by the fourth quarter of fiscal 2025. Prior to the adoption of the Incentive Award Plan on April 15, 2019, the Company issued awards under the Shareholder Value Plan, Long-Term Growth Plan and Restricted Award Plan. With the adoption of the Incentive Award Plan, the Company discontinued issuing awards under the Shareholder Value Plan, Long-Term Growth Plan and Restricted Award Plan. Awards granted out of the discontinued plans settled in cash. The following table presents the final amount paid for cash settled awards through the discontinued Shareholder Value Plan, Long-Term Growth Plan and Restricted Award Plan, by award type, for the year ended December 31, 2021 (there were no awards outstanding as of the year ended December 31, 2021): in thousands December 31, 2021 Stock Appreciation Rights $ 15,798 Long-Term Growth 3,778 Restricted Award Units 7,067 Total $ 26,643 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. 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 years ended December 31, 2023, December 31, 2022 and December 31, 2021: December 31, 2023 December 31, 2022 December 31, 2021 Restricted Stock Units (service condition) 616,337 666,184 450,675 Restricted Stock Units (service and performance condition) 452,179 402,436 374,535 The number of units granted for awards with performance conditions in the above table is based on performance at 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. During the year ended December 31, 2023, certain restricted stock unit grants with performance conditions vested with performance different from the target share amounts. As a result, 97,551 additional shares were granted and vested. F- 33 PARSONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2023, December 31, 2022 and December 31, 2021 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) for the years ended December 31, 2023, December 31, 2022 and December 31, 2021: Number of Units Weighted Average Grant-Date Fair Value Outstanding at December 31, 2020 931,785 $ 36.32 Granted 825,210 37.09 Vested ( 222,228 ) 36.49 Forfeited ( 175,524 ) 36.39 Outstanding at December 31, 2021 1,359,243 $ 36.75 Granted 1,068,620 37.42 Vested ( 497,200 ) 35.86 Forfeited ( 309,508 ) 36.28 Outstanding at December 31, 2022 1,621,155 $ 37.49 Granted 1,068,516 48.96 Vested ( 372,962 ) 37.56 Forfeited ( 223,373 ) 39.90 Outstanding at December 31, 2023 2,093,336 $ 43.11 For the year ended December 31, 2023 , 484,988 shares of restricted stock units were issued, and 159,281 shares of common stock related to employee statutory income tax withholding were retired. For the year ended December 31, 2022 , 458,952 shares of restricted stock units were issued, and 160,212 shares of common stock related to employee statutory income tax withholding were retired. For the year ended December 31, 2021 , 188,408 shares of restricted stock units were issued, and 63,482 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, 2023, December 31, 2022 and December 31, 2021: December 31, 2023 December 31, 2022 December 31, 2021 Restricted Stock Units (service condition) 1,085,203 817,278 526,349 Restricted Stock Units (service and performance condition) 1,008,133 803,877 832,894 7. Goodwill The following table summarizes the changes in the carrying value of goodwill by reporting segment for the years ended December 31, 2023 and December 31, 2022 (in thousands): December 31, 2022 Acquisitions Foreign Exchange December 31, 2023 Federal Solutions $ 1,591,563 $ 95,338 $ - $ 1,686,901 Critical Infrastructure 70,287 34,261 1,216 105,764 Total $ 1,661,850 $ 129,599 $ 1,216 $ 1,792,665 December 31, 2021 Acquisitions Foreign Exchange December 31, 2022 Federal Solutions $ 1,339,117 $ 252,446 $ - $ 1,591,563 Critical Infrastructure 73,573 - ( 3,286 ) 70,287 Total $ 1,412,690 $ 252,446 $ ( 3,286 ) $ 1,661,850 F- 34 PARSONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2023, December 31, 2022 and December 31, 2021 For the years ended December 31, 2023 and December 31, 2022 , the Company performed a quantitative impairment analysis for all reporting units. It was determined that the fair value of all reporting units exceeded their carrying values. No goodwill impairments were identified for the three years ended December 31, 2023, December 31, 2022 and December 31, 2021 . 8. Intangible Assets The gross amount and accumulated amortization of acquired identifiable intangible assets included in “Intangible assets, net” on the consolidated balance sheets were as follows (in thousands except for years): December 31, 2023 December 31, 2022 Weighted Average Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Amortization Period (in years) Backlog $ 130,000 $ ( 45,964 ) $ 84,036 $ 142,200 $ ( 45,903 ) $ 96,297 4.0 Customer relationships 297,120 ( 124,194 ) 172,926 293,730 ( 146,032 ) 147,698 9.5 Leases 120 ( 106 ) 14 120 ( 87 ) 33 1.0 Developed technology 31,600 ( 15,823 ) 15,777 16,600 ( 11,560 ) 5,040 4.6 Trade name 1,000 ( 417 ) 583 5,000 ( 3,083 ) 1,917 1.1 Non-compete agreements 1,500 ( 1,097 ) 403 3,350 ( 2,074 ) 1,276 3.3 In process research and development 1,800 - 1,800 1,800 - 1,800 n/a Other intangibles 375 ( 348 ) 27 275 ( 209 ) 66 9.9 Total intangible assets $ 463,515 $ ( 187,949 ) $ 275,566 $ 463,075 $ ( 208,948 ) $ 254,127 The aggregate amortization expense of intangible assets was $ 76.6 million , $ 78.2 million, and $ 103.2 million for the years ended December 31, 2023, December 31, 2022 and December 31, 2021, respectively. Estimated amortization expense in each of the next five years and beyond is as follows (in thousands): December 31, 2023 2024 $ 49,870 2025 43,429 2026 37,003 2027 32,522 2028 24,324 Thereafter 86,619 Total $ 273,766 F- 35 PARSONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2023, December 31, 2022 and December 31, 2021 9. Property and Equipment, Net Property and equipment consisted of the following at December 31, 2023 and December 31, 2022 (in thousands): December 31, 2023 December 31, 2022 Useful life (years) Buildings and leasehold improvements $ 102,372 $ 103,071 1 - 15 Furniture and equipment 84,244 85,088 3 - 10 Computer systems and equipment 168,926 152,511 3 - 10 Construction equipment 6,173 5,271 5 - 7 Construction in progress 21,030 21,952 382,745 367,893 Accumulated depreciation ( 283,788 ) ( 271,843 ) Property and equipment, net $ 98,957 $ 96,050 Depreciation expense of $ 39.1 million , $ 39.0 million, and $ 38.6 million was recorded for the years ended December 31, 2023, December 31, 2022 and December 31, 2021 , respectively. 10. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following at December 31, 2023 and December 31, 2022 (in thousands): 2023 2022 Salaries and wages $ 102,779 $ 85,328 Employee benefits 342,707 298,914 Self-insurance liability 24,193 25,351 Project cost accruals 254,070 147,378 Other accrued expenses 77,674 73,222 Total accrued expenses and other current liabilities $ 801,423 $ 630,193 11. Debt and Credit Facilities Debt consisted of the following at December 31, 2023 and December 31, 2022 (in thousands): December 31, 2023 December 31, 2022 Long-Term Debt: Delayed draw term loan $ 350,000 $ 350,000 Convertible senior notes 400,000 400,000 Revolving credit facility - - Debt issuance costs ( 4,037 ) ( 6,395 ) Total $ 745,963 $ 743,605 Revolving Credit Facility In June 2021 , the Company entered into a $ 650 million unsecured revolving credit facility (the “Credit Agreement”). The Company incurred $ 1.9 million of costs in connection with this Credit Agreement. The 2021 Credit Agreement replaced an existing Fifth Amended and Restated Credit Agreement dated as of November 15, 2017. Under the new agreement, the Company’s revolving credit facility was increased from $ 550 million to $ 650 million. The credit facility has a five-year maturity, which may be extended up to two times for periods determined by the Company and the applicable extending lenders, and permits the Company to borrow in U.S. dollars, certain specified foreign currencies, and each other currency that may be approved in accordance with the 2021 Facility. The borrowings under F- 36 PARSONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2023, December 31, 2022 and December 31, 2021 the Credit Agreement bear interest at either a eurocurrency rate plus a margin between 1.0 % and 1.625 % or a base rate (as defined in the Credit Agreement) plus a margin of between 0 % and 0.625 %. The rates on December 31, 2023 and December 31, 2022 were 6.7 % and 5.7 %, respectively. Borrowings under this Credit Agreement are guaranteed by certain Company operating subsidiaries. Letters of credit commitments outstanding under this agreement aggregated approximately $ 43.8 million and $ 44.5 million at December 31, 2023 and December 31, 2022 , respectively, which reduced borrowing limits available to the Company. Interest expense related to the Credit Agreement was $ 3.9 million, $ 4.3 million and $ 0.7 million, for the years ended December 31, 2023, December 31, 2022 and December 31, 2021 , respectively. There were no loan amounts outstanding under the Credit Agreement at December 31, 2023 and December 31, 2022. The Credit Agreement 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, 2023 and December 31, 2022. Convertible Senior Notes In August 2020, the Company issued an aggregate $ 400.0 million of 0.25 % Convertible Senior Notes due 2025, including the exercise of a $ 50.0 million initial purchasers’ option. The Company received proceeds from the issuance and sale of the Convertible Senior Notes of $ 389.7 million, net of $ 10.3 million of transaction fees and other third-party offering expenses. The Convertible Senior Notes accrue interest at a rate of 0.25 % per annum, payable semi-annually on February 15 and August 15 of each year beginning on February 15, 2021 , and will mature on August 15, 2025 , unless earlier repurchased, redeemed or converted. The Convertible Senior Notes are the Company’s senior unsecured obligations and will rank senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the Notes; equal in right of payment to any of the Company’s unsecured indebtedness that is not so subordinated; effectively junior in right of payment to any of the Company’s secured indebtedness, to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) of the Company’s subsidiaries. Each $ 1,000 of principal of the Notes will initially be convertible into 22.2913 shares of our common stock, which is equivalent to an initial conversion price of $ 44.86 per share, subject to adjustment upon the occurrence of specified events. On or after March 15, 2025 until the close of business on the second scheduled trading day immediately preceding the maturity date of the Convertible Senior Notes, holders may convert all or a portion of their Convertible Senior Notes, regardless of the conditions below. Prior to the close of business on the business day immediately preceding March 15, 2025, the Notes will be convertible at the option of the holders thereof only under the following circumstances: • during any calendar quarter commencing after the calendar quarter ending on December 31, 2020, if the last reported sale price of the Company’s common stock for at least 20 trading days, whether or not consecutive, during a period of 30 consecutive trading days ending on, and including the last trading day of the immediately preceding calendar quarter, is greater than or equal to 130 % of the conversion price on each applicable trading day; • during the five business day period after any five consecutive trading day period in which, for each trading day of that period, the trading price per $ 1,000 principal amount of Convertible Senior Notes for such trading day was less than 98 % of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; • if the Company calls such Convertible Senior Notes for redemption; or • upon the occurrence of specified corporate events described in the Indenture. F- 37 PARSONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2023, December 31, 2022 and December 31, 2021 The Company may redeem all or any portion of the Convertible Senior Notes for cash, at its option, on or after August 21, 2023 and before the 51 st scheduled trading day immediately before the maturity date at a redemption price equal to 100 % of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, but only if the last reported sale price per share of the Company’s common stock exceeds 130 % of the conversion price for a specified period of time. In addition, calling any Convertible Senior Note for redemption will constitute a Make-Whole Fundamental Change with respect to that Convertible Senior Note, in which case the conversion rate applicable to the conversion of that Convertible Senior Note will be increased in certain circumstances if it is converted after it is called for redemption. Upon the occurrence of a fundamental change prior to the maturity date of the Convertible Senior Notes, holders of the Convertible Senior Notes may require the Company to repurchase all or a portion of the Convertible Senior Notes for cash at a price equal to 100 % of the principal amount of the Convertible Senior Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date. Upon conversion, the Company may settle the Convertible Senior Notes for cash, shares of the Company’s common stock, or a combination thereof, at the Company’s option. If the Company satisfies its conversion obligation solely in cash or through payment and delivery of a combination of cash and shares of the Company’s common stock, the amount of cash and shares of common stock due upon conversion will be based on a daily conversion value calculated on a proportionate basis for each trading day in a 50-trading day observation period. Under existing GAAP at the time of issuance during 2020, convertible debt instruments that may be settled in cash on conversion were required to be separated into liability and equity components in a manner that reflects the issuer’s non-convertible debt borrowing rate. The carrying amount of the liability component was based on the fair value of a similar instrument that does not contain an equity conversion option. The carrying amount allocated to the equity component, which was recognized as a debt discount, represents the difference between the proceeds from the issuance of the notes and the fair value of the liability component of the notes. Based on this debt-to-equity ratio, debt issuance costs are then allocated to the liability and equity components in a similar manner. Accordingly, at issuance the Company allocated $ 336.1 million to the debt liability and $ 53.6 million to additional paid-in capital. The difference between the principal amount of the Convertible Senior Notes and the liability component, inclusive of issuance costs, represents the debt discount, which the Company amortized to interest expense over the term of the Convertible Senior Notes using an effective interest rate of 3.25 %. The Company recognized interest expense of $ 3.1 million and $ 3.0 million for the years ended December 31, 2023 and December 31, 2022, respectively. As of December 31, 2023 and December 31, 2022 the carrying value of the Notes was $ 400.0 million, respectively. In the first quarter of 2021, the Company early adopted ASU 2020-06. The Company used the modified retrospective method which resulted in a reduction in non-cash interest expense and reclassification of the equity component of the convertible senior notes of $ 55.0 million and equity component of the debt issuance costs of $ 1.4 million to liabilities on the consolidated balance sheet. The Company also adjusted the carrying amount of the convertible senior notes to what it would have been if the Company had applied ASU 2020-06 from the inception of the Notes and recorded the offset of the carrying amount adjustment of $ 3.7 million in retained earnings on January 1, 2021. F- 38 PARSONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2023, December 31, 2022 and December 31, 2021 Delayed Draw Term Loan In September 2022 , the Company entered into a $ 350 million unsecured Delayed Draw Term Loan with an increase option of up to $ 150 million (the “2022 Delayed Draw Term Loan”). The 2022 Delayed Draw Term Loan may be borrowed in a single draw during the period from and including the Closing Date to the earlier to occur of (a) the date of termination of the 2022 Delayed Draw Term Loan by the Company pursuant to the terms of the 2022 Delayed Draw Term Loan Agreement and (b) six (6) months following the Closing Date. Proceeds of the 2022 Delayed Draw Term Loan Agreement may be used (a) to pay off in full, or partially payoff, the Company’s existing Senior Notes, (b) to prepay revolving loans outstanding under the Revolving Credit Agreement (as defined below), or (c) for working capital, capital expenditures and other lawful corporate purposes. The Company drew $ 350.0 million from the 2022 Delayed Draw Term Loan in November 2022. The Company incurred $ 0.9 million of debt issuance costs in connection with the delayed draw term loan as of December 31, 2022. These costs are presented as a direct deduction from the debt on the face of the balance sheet. Interest expense related to the Delayed Draw Term Loan was $ 22.4 million and $ 3.3 million for the years ended December 31, 2023 and December 31, 2022, respectively. The amortization of debt issuance costs and interest expense is recorded in “Interest expense” on the consolidated statements of income. As of December 31, 2023 and December 31, 2022 , there was $ 350.0 million outstanding under the Delayed Draw Term Loan. The 2022 Delayed Draw Term Loan has a three-year maturity and permits the Company to borrow in U.S. dollars. The 2022 Delayed Draw Term Loan does not require any amortization payments by the Company. Depending on the Company’s consolidated leverage ratio (or debt rating after such time as the Company has such rating), borrowings under the 2022 Delayed Draw Term Loan Agreement will bear interest at either an adjusted Term SOFR benchmark rate plus a margin between 0.875 % and 1.500 % or a base rate plus a margin of between 0 % and 0.500 % and will initially bear interest at the middle of this range. The Company will pay a ticking fee on unused term loan commitments at a rate of 0.175 % commencing with the date that is ninety (90) days after the Closing Date. Amounts outstanding under the 2022 Delayed Draw Term Loan Agreement may be prepaid at the option of the Company without premium or penalty, subject to customary breakage fees in connection with the prepayment of benchmark rate loans. The interest rates on December 31, 2023 and December 31, 2022 were 6.6 % and 5.6 %, respectively. Letters of Credit 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 $ 320.7 million and $ 222.5 million at December 31, 2023 and December 31, 2022, respectively. Convertible Note Hedge and Warrant Transactions In connection with the sale of the Convertible Senior Notes, the Company purchased a bond hedge designed to mitigate the potential dilution from the conversion of the Convertible Senior Notes. Under the five-year term of the bond hedge, upon a conversion of the bonds, the Company will receive the number of shares of common stock equal to the remaining common stock deliverable upon conversion of the Convertible Senior Notes if the conversion value exceeds the principal amount of the Notes. The aggregate number of shares that the Company could be obligated to issue upon conversion of the Convertible Senior Notes is approximately 8.9 million shares. The cost of the convertible note hedge transactions was $ 55.0 million. The cost of the convertible note hedge was partially offset by the Company’s sale of warrants to acquire approximately 8.9 million shares of the Company’s common stock. The warrants were initially exercisable at a price of at least $ 66.46 per share and are subject to customary adjustments upon the F- 39 PARSONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2023, December 31, 2022 and December 31, 2021 occurrence of certain events, such as the payment of dividends. The Company received $ 13.8 million in cash proceeds from the sales of these warrants. The bond hedge and warrant transactions effectively increased the conversion price associated with the Convertible Senior Notes during the term of these transactions from 35 %, or $ 44.86 , to 100 %, or $ 66.46 , at their issuance, thereby reducing the dilutive economic effect to shareholders upon actual conversion. The bond hedges and warrants are indexed to, and potentially settled in, shares of the Company’s common stock. The net cost of $ 41.2 million for the purchase of the bond hedges and sale of the warrants was recorded as a reduction to additional paid-in capital in the consolidated balance sheets. At issuance, the Company recorded a deferred tax liability of $ 16.2 million related to the Convertible Senior Notes debt discount and the capitalized debt issuance costs. The Company also recorded a deferred tax asset of $ 16.5 million related to the convertible note hedge transactions and the tax basis of the capitalized debt issuance costs through additional paid-in capital. The deferred tax liability and deferred tax asset were included net in “Deferred tax assets” on the consolidated balance sheets. Upon adoption of ASU2020-06, the Company reversed the deferred tax liability of $ 13.9 million that the Company had recorded at issuance related to the Convertible Senior Note debt discount and recorded an additional deferred tax liability of $ 0.4 million related to the capitalized debt issuance costs. In addition, the Company recorded a $ 0.9 million adjustment to the deferred tax asset through retained earnings related to the tax effect of book accretion recorded in 2020 and reversed upon adoption. 12. Other Long-term Liabilities Other long-term liabilities consisted of the following at December 31, 2023 and December 31, 2022 (in thousands): 2023 2022 Self-insurance liability $ 81,795 $ 77,307 Reserve for uncertain tax positions 22,815 21,508 Finance lease obligations 5,129 2,246 Other long-term liabilities 10,556 8,159 Total other long-term liabilities $ 120,295 $ 109,220 Refer to “Note 13— Income Taxes ” for further discussion of the Company’s reconciliation of the beginning and ending balances of uncertain tax positions. 13. Income Taxes The following table presents the components of our income from continuing operations before income taxes (in thousands): 2023 2022 2021 United States earnings $ 179,522 $ 77,110 $ 24,687 Foreign earnings 84,531 89,112 87,901 $ 264,053 $ 166,222 $ 112,588 F- 40 PARSONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2023, December 31, 2022 and December 31, 2021 The income tax expense (benefit) attributable to income from continuing operations for the years ended December 31, 2023, December 31, 2022, and December 31, 2021 consists of the following (in thousands): 2023 2022 2021 Current Federal $ 37,699 $ 21,323 $ 653 State 13,340 9,946 6,830 Foreign 14,013 9,232 19,621 Total current income tax expense 65,052 40,501 27,104 Deferred Federal ( 5,974 ) ( 2,902 ) 1,624 State ( 590 ) ( 623 ) ( 1,263 ) Foreign ( 2,350 ) 2,681 ( 3,829 ) Total deferred tax benefit ( 8,914 ) ( 844 ) ( 3,468 ) Total income tax expense $ 56,138 $ 39,657 $ 23,636 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): 2023 2022 2021 Income before income tax expense $ 264,053 $ 166,222 $ 112,588 Tax at federal statutory tax rate 55,451 21.0 % 34,907 21.0 % 23,644 21.0 % State taxes, net of federal tax benefit 9,807 3.7 % 7,530 4.5 % 4,192 3.7 % Change in valuation allowance 5,773 2.2 % 1,363 0.8 % 3,865 3.4 % Change in uncertain tax positions 3,530 1.3 % 1,688 1.0 % ( 80 ) - 0.1 % Foreign tax rate differential ( 6,258 ) - 2.4 % ( 1,787 ) - 1.1 % ( 388 ) - 0.3 % Tax cost of foreign operations, net of credits 3,085 1.2 % 777 0.5 % ( 5,151 ) - 4.6 % Foreign-Derived Intangible Income ( 4,736 ) - 1.8 % ( 76 ) 0.0 % — 0.0 % Noncontrolling interests ( 9,821 ) - 3.7 % ( 6,279 ) - 3.8 % ( 5,225 ) - 4.6 % Federal business credits ( 2,731 ) - 1.0 % ( 1,926 ) - 1.2 % ( 2,538 ) - 2.3 % Executive compensation 1,636 0.6 % 1,921 1.2 % 2,352 2.1 % Other, net 402 0.2 % 1,539 0.9 % 2,965 2.6 % Total income tax expense $ 56,138 21.3 % $ 39,657 23.9 % $ 23,636 21.0 % The effective tax rate in 2023 decreased to 21.3 % from 23.9 % in 2022. The change in the effective tax rate was due primarily to tax benefits related to increases in the foreign-derived intangible income (FDII) deduction and a change in jurisdictional mix of earnings, partially offset by an increase in valuation allowance on foreign tax credits originating from foreign withholding taxes. The effective tax rate in 2022 increased to 23.9 % from 21.0 % in 2021. The change in the effective tax rate was due primarily to a net increase of uncertain tax positions during 2022, an income tax benefit recognized in 2021 for foreign tax credits which did not reoccur in 2022, partially offset by a decrease in valuation allowance on foreign tax credit carryovers originating from foreign withholding taxes, a benefit from a change in jurisdictional mix of earnings, and a tax expense recognized in 2021 related to a nonrecurring write down of a foreign tax receivable. The effective tax rate for the year ended December 31, 2023 differs from the federal statutory tax rate primarily due to state income taxes, valuation allowance on foreign tax credit carryovers originating from foreign withholding taxes partially offset by benefits related to untaxed income attributable to F- 41 PARSONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2023, December 31, 2022 and December 31, 2021 noncontrolling interests, earnings in lower tax jurisdictions, the FDII deduction, and federal business tax credits. The effective tax rate for the year ended December 31, 2022 differs from the federal statutory tax rate primarily due to state income taxes and a recorded valuation allowance on foreign tax credit carryovers, partially offset by benefits related to income attributable to noncontrolling interests, earnings in lower tax jurisdictions and federal business tax credits. The components of deferred tax assets and liabilities consists of the following at December 31, 2023 and December 31, 2022 (in thousands): 2023 2022 Deferred tax assets Project and non-project reserves $ 23,555 $ 20,862 Employee compensation and benefits 69,726 55,103 Revenue and cost recognition 37,616 43,629 Insurance accruals 14,081 14,067 Net operating losses 8,663 8,928 Lease liabilities 44,626 44,285 Tax credit carryforwards 31,727 22,333 Other 3,285 3,847 Total deferred tax assets 233,279 213,054 Valuation allowance ( 34,779 ) ( 28,705 ) Total deferred tax assets 198,500 184,349 Deferred tax liabilities Intangible assets ( 18,783 ) ( 12,131 ) Right-of-use assets ( 40,131 ) ( 40,111 ) Profit remittance tax ( 5,822 ) ( 5,498 ) Other ( 3,378 ) ( 1,370 ) Total deferred tax liabilities ( 68,114 ) ( 59,110 ) Net deferred tax asset $ 130,386 $ 125,239 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 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 a valuation allowance against deferred tax assets is 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 Company is not asserting that any of the earnings of the foreign subsidiaries will be permanently reinvested. Therefore, the Company has recorded a deferred tax liability for the undistributed earnings net of applicable foreign tax credits. As of December 31, 2023, and December 31, 2022, the Company’s valuation allowance against deferred tax assets was $ 34.8 million and $ 28.7 million, respectively. The Company has recorded a valuation allowance against certain tax attributes that the Company has determined are not more-likely-than-not to be realized, including certain foreign net operating loss carryforwards, foreign tax credit carryforwards, and capital loss carryforwards. From December 31, 2022 to December 31, 2023, the Company’s valuation allowance increased by $ 6.1 million. This increase relates to deferred tax assets recorded for foreign tax credit carryforwards, offset in part by a decrease related to net operating loss carryforwards. The valuation allowance is recorded because the Company does not expect to have F- 42 PARSONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2023, December 31, 2022 and December 31, 2021 sufficient taxable income and foreign source income to support the net operating loss carryforwards and the foreign tax credit carryforwards before they expire. As of December 31, 2023, the Company has NOLs of $ 1.6 million, $ 30.5 million, and $ 30.8 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 NOL amounts, $ 1.6 million, $ 16.7 million and $ 14.5 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 2024 and 2044 . As of December 31, 2023, the Company has foreign tax credit carryforwards of $ 29.8 million. The Company has provided a valuation allowance of $ 29.8 million as the Company considers it is not more likely than not that these credits will be realized. These foreign tax credits start expiring in the year 2030 . A reconciliation of the beginning and ending balances of unrecognized tax benefits is as follows (in thousands): 2023 2022 2021 Beginning of year $ 22,798 $ 21,181 $ 16,395 Increases—current year tax positions 3,220 4,666 6,203 Increases—prior year tax positions 2,458 2,254 1,512 Decreases—prior year tax positions ( 1,589 ) ( 3,537 ) ( 2,929 ) Settlements ( 1,026 ) ( 1,447 ) — Lapse of statute of limitations ( 364 ) ( 319 ) — End of year $ 25,497 $ 22,798 $ 21,181 At December 31, 2023, and December 31, 2022, there are $ 25.1 million and $ 21.8 million of unrecognized tax benefits that if recognized would affect the Company’s 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, 2023, December 31, 2022, and December 31, 2021, the Company recognized approximately $ 0.5 million, $ 0.7 million, and $( 0.9 ) million in interest and penalties, respectively, in the consolidated statements of income. The total amount of interest and penalties accrued in the consolidated balance sheets was $ 4.6 million, $ 4.1 million, and $ 3.5 million at December 31, 2023, December 31, 2022, and December 31, 2021, respectively. 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 jurisdictions where the Company has significant activities, such as Canada, Qatar, Saudi Arabia and the United States. As of December 31, 2023, the Company’s U.S. federal income tax returns for tax years 2020 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 estimates that, within 12 months, it may decrease its uncertain tax positions by approximately $ 5.5 million 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 audits could be significantly different, both favorably and unfavorably. It is reasonably possible that these audits 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. F- 43 PARSONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2023, December 31, 2022 and December 31, 2021 14. 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 unless some amount within the range of loss appears at that time to be a better estimate than any other amount in the range. The Company records a corresponding receivable for costs covered under its insurance 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. 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. The court heard dispositive motions in 2023, including Parsons’ motion for summary judgment. We are awaiting the court’s rulings upon such motions, which will determine whether a trial will be necessary for this matter in 2024. On November 28, 2023, a Proposed Statement of Decision was filed with the clerk of the Superior Court of the State of California In and For the County of San Mateo proposing an award of damages in the total amount of approximately $ 102.5 million in favor of Parsons Transportation Group, Inc. and against Alstom Signaling Operations LLC (Alstom") (including approximately $ 62.5 million relating to claims assigned to Parsons pursuant to a prior settlement with the Peninsula Corridor Joint Powers Board and approximately $ 40 million attributable to Parsons’ contractual and indemnification claims). This proposed award relates back to a lawsuit Parsons initially filed against the Peninsula Corridor Joint Powers Board for breach of contract and wrongful termination in February 2017 (which was settled between Parsons and the Joint Powers Board in 2021) and a cross-complaint filed against Alstom Signaling Operations LLC in November 2017, as subsequently amended, for breach of contract, negligence and intentional misrepresentation. Alstom filed objections to the Proposed Statement of Decision, and Parsons has filed its responses to the objections. It is anticipated that the court will enter a final decision in the first quarter of 2024. At this time, the Company is unable to determine the probability of the outcome of the litigation. 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 F- 44 PARSONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2023, December 31, 2022 and December 31, 2021 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 2018 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. 15. 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 three 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, 2023, the total shares of the Company’s common stock outstanding were 105,839,978 , of which 59,879,857 were held by the ESOP. As of December 31, 2022 , the total shares of the Company’s common stock outstanding were 104,702,996 , of which 63,742,151 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. 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. Total ESOP contribution expense was approximately $ 58.2 million, $ 54.7 million and $ 54.9 million for the years ended December 31, 2023, December 31, 2022 and December 31, 2021, respectively, and is recorded in “Direct costs of contracts” and “Selling, general and administrative expense” in the consolidated statements of income. 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 31, 2023, December 31, 2022 and December 31, 2021 amounted to $ 35.4 million, $ 30.2 million, and $ 25.5 million, respectively. 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, 2023 and December 31, 2022, the defined benefit pension plan was in a net asset position of $ 1.4 million and $ 1.8 million, respectively, which is recorded in “Other noncurrent assets” on the consolidated balance sheets. 16. 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. F- 45 PARSONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2023, December 31, 2022 and December 31, 2021 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 11— Debt and Credit Facilities ” that relate to project ventures are approximately $ 147.7 million and $ 106.8 million at December 31, 2023 and December 31, 2022, 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 of and for the years ended December 31, 2023, December 31, 2022 and December 31, 2021 (in thousands): 2023 2022 Current assets $ 426,633 $ 289,837 Noncurrent assets 14,295 9,961 Total assets 440,928 299,798 Current liabilities 260,286 198,464 Noncurrent liabilities 5,132 - Total liabilities 265,418 198,464 Total joint venture equity $ 175,510 $ 101,334 2023 2022 2021 Revenue $ 708,391 $ 483,888 $ 402,078 Costs 613,186 422,559 351,670 Net income $ 95,205 $ 61,329 $ 50,408 Net income attributable to noncontrolling interests $ 46,766 $ 29,901 $ 24,880 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. 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 F- 46 PARSONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2023, December 31, 2022 and December 31, 2021 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 of and for the years ended December 31, 2023, December 31, 2022 and December 31, 2021 (in thousands): 2023 2022 Current assets $ 1,607,953 $ 1,610,246 Noncurrent assets 483,693 491,658 Total assets 2,091,646 2,101,904 Current liabilities 1,057,113 1,255,297 Noncurrent liabilities 518,647 468,056 Total liabilities 1,575,760 1,723,353 Total joint venture equity $ 515,886 $ 378,551 Investments in and advances to unconsolidated joint ventures $ 128,204 $ 107,425 2023 2022 2021 Revenue $ 2,313,420 $ 2,406,407 $ 2,709,305 Costs 2,310,114 2,325,472 2,536,403 Net income $ 3,306 $ 80,935 $ 172,902 Equity in (losses) earnings of unconsolidated joint ventures $ ( 47,751 ) $ 16,347 $ 36,862 The Company had net contributions to its unconsolidated joint ventures of $ 65.2 million and $ 13.2 million for the years ended December 31, 2023 and December 31, 2021 , respectively and received net distributions from its unconsolidated joint ventures of $ 20.2 million for the year ended December 31, 2022. The following table presents certain financial statement impacts from changes in estimates on unconsolidated joint ventures in the Critical Infrastructure segment. December 31, 2023 December 31, 2022 December 31, 2021 Operating loss $ ( 83,398 ) $ ( 13,817 ) $ ( 15,593 ) Net loss ( 61,842 ) ( 10,335 ) ( 11,626 ) Diluted loss per share $ ( 0.54 ) $ ( 0.09 ) $ ( 0.10 ) 17. 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 31, 2023, December 31, 2022 and December 31, 2021, revenues included $ 213.8 million , $ 217.4 million, and $ 204.7 million, respectively, related to services the Company provided to unconsolidated joint ventures. For the years ended December 31, 2023, December 31, 2022 and December 31, 2021, the Company incurred approximately $ 153.7 million , $ 157.6 million and $ 155.5 million, respectively, of reimbursable F- 47 PARSONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2023, December 31, 2022 and December 31, 2021 costs. Amounts included in the consolidated balance sheets related to services the Company provided to unconsolidated joint ventures are as follows (in thousands): 2023 2022 Accounts receivable $ 38,898 $ 40,795 Contract assets 38,009 30,578 Contract liabilities 15,287 14,318 Amounts presented above for comparable periods have been updated to reflect all unconsolidated joint ventures. 18. Fair Value 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, 2023 and December 31, 2022 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- 48 PARSONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2023, December 31, 2022 and December 31, 2021 Financial assets and liabilities measured at fair value on a recurring basis are as follows: Fair value as of December 31, 2023 (in thousands): Level 1 Level 2 Level 3 Total Assets related to defined contribution plan Mutual funds $ 1,840 $ — $ — $ 1,840 Fixed income — 6,568 — 6,568 Cash and cash equivalents 355 — — 355 Total assets at fair value $ 2,195 $ 6,568 $ — $ 8,763 Contingent consideration Earnout liability $ - $ - $ 2,300 $ 2,300 Total liabilities at fair value $ - $ - $ 2,300 $ 2,300 Fair value as of December 31, 2022 (in thousands): Level 1 Level 2 Level 3 Total Assets related to defined contribution plan Mutual funds $ 1,924 $ — $ — 1,924 Fixed income — 7,662 — 7,662 Cash and cash equivalents 449 — — 449 Total assets at fair value $ 2,373 $ 7,662 — $ 10,035 As described in “Note 15— 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, 2023 and December 31, 2022, 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. In determining the fair value of acquired intangible assets from our business acquisitions, the Company uses the multi-period excess earnings method to value customer relationships and backlog and values developed technologies using the relief-from royalty method. These valuation methods use significant unobservable inputs classified within Level 3 of the fair value hierarchy. See "Note 2— Summary of Significant Accounting Policies." We measure contingent consideration at fair value on a recurring basis using significant unobservable inputs classified within Level 3 of the fair value hierarchy. See "Note 2— Summary of Significant Accounting Policies" and "Note 3— Acquisitions" for further information. With respect to equity-based compensation, for restricted stock units containing service conditions or service and performance conditions, the grant date 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. For awards that include market conditions, the grant date fair value is determined using a Monte Carlo simulation. 19. Earnings Per Share The tables below reconcile the denominator and numerator used to compute basic earnings per share (“EPS”) to the denominator and numerator used to compute diluted EPS for the years ended December 31, 2023, December 31, 2022 and December 31, 2021. Basic EPS is computed using the weighted average number of shares outstanding during the period and income available to shareholders. F- 49 PARSONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2023, December 31, 2022 and December 31, 2021 Diluted EPS is computed similar to basic EPS, except the income available to shareholders is adjusted to add back interest expense, after tax, related to the Convertible Senior Note, and the weighted average number of shares outstanding is adjusted to reflect the dilutive effects of stock-based awards and shares underlying the Convertible Senior Note. Convertible Senior Note dilution impact is calculated using the if-converted method. In connection with the offerings of our note, the Company entered into a convertible note hedge and warrants (see Note 11 - Debt and Credit Facilities ); however, the convertible note hedge is not considered when calculating dilutive shares given its impact is anti-dilutive. The impact of the bond hedge would offset the dilutive impact of the shares underlying the Convertible Senior Note. The warrants have a strike price above our average share price during the period and are out of the money and not included in the tables below. Dilutive potential common shares include, when circumstances require, shares the Company could be obligated to issue from its Convertible Senior Notes and warrants (see Note 11 - Debt and Credit Facilities for further discussion) and stock-based awards. Shares to be provided to the Company from its bond hedge purchased concurrently with the issuance of Convertible Senior Notes are anti-dilutive and are not included in its diluted shares. Anti-dilutive stock-based awards excluded from the calculation of earnings per share for the years ended December 31, 2023, December 31, 2022, and December 31, 2021 were 5,423 , 15,113 , and 11,986 , respectively. The following table reconciles the numerator and denominator used to compute basic EPS and the numerator and denominator used to computed diluted EPS (in thousands): 2023 2022 2021 Numerator for Basic and Diluted EPS: Net income attributable to Parsons Corporation - basic $ 161,149 $ 96,664 $ 64,072 Convertible senior notes if-converted method interest adjustment 2,291 2,176 2,130 Net income attributable to Parsons Corporation - diluted $ 163,440 $ 98,840 $ 66,202 Denominator for Basic and Diluted EPS: Basic weighted average number of shares outstanding 104,992 103,758 102,544 Dilutive effect of stock-based awards 1,173 808 666 Dilutive effect of convertible senior notes 8,917 8,917 8,917 Diluted weighted average number of shares outstanding 115,082 113,483 112,127 Earnings per share: Basic $ 1.53 $ 0.93 $ 0.62 Diluted $ 1.42 $ 0.87 $ 0.59 Share Repurchases On August 9, 2021, the Company’s Board of Directors authorized the Company to acquire a number of shares of Common Stock having an aggregate market value of not greater than $ 100,000,000 from time to time, commencing on August 12, 2021 . The Board further amended this authorization in August 2022 to remove the prior expiration date and grant executive leadership the discretion to determine the price for such share repurchases. Repurchased shares of common stock are retired and included in “Repurchases of common stock” in cash flows from financing activities in the Consolidated Statements of Cash Flows. The primary purpose of the Company’s share repurchase program is to reduce the dilutive effect of shares issued under the Company’s ESOP and other stock benefit plans. The timing, amount and manner of share repurchases may depend upon market conditions and economic circumstances, availability of investment opportunities, the availability and costs of financing, the market price of the Company's common stock, other uses of capital and other factors. F- 50 PARSONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2023, December 31, 2022 and December 31, 2021 The following table summarizes the repurchase activity under the stock repurchase program. 2023 2022 Total shares repurchased 233,010 574,933 Total shares retired 233,010 574,933 Average price paid per share $ 47.21 $ 38.27 As of December 31, 2023 , the Company has $ 45.3 million remaining under the stock repurchase program. 20. 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. The Company defines its reportable segments based on the way the chief operating decision maker (“CODM”), its 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 tables summarize business segment information for the periods presented (in thousands): 2023 2022 2021 Revenues: Federal Solutions $ 3,020,701 $ 2,212,987 $ 1,888,050 Critical Infrastructure 2,422,048 1,982,285 1,772,721 Total revenues $ 5,442,749 $ 4,195,272 $ 3,660,771 2023 2022 2021 Equity in (losses) earnings of unconsolidated joint ventures: Federal Solutions $ 4,190 $ 3,677 $ 2,303 Critical Infrastructure ( 51,941 ) 12,670 34,559 Total equity in (losses) earnings of unconsolidated joint ventures $ ( 47,751 ) $ 16,347 $ 36,862 F- 51 PARSONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2023, December 31, 2022 and December 31, 2021 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): 2023 2022 2021 Adjusted EBITDA attributable to Parsons Corporation Federal Solutions $ 289,250 $ 199,004 $ 162,733 Critical Infrastructure 127,785 123,385 121,700 Adjusted EBITDA attributable to Parsons Corporation 417,035 322,389 284,433 Adjusted EBITDA attributable to noncontrolling interests 47,638 30,393 25,287 Depreciation and amortization ( 119,973 ) ( 120,501 ) ( 144,209 ) Interest expense, net ( 29,306 ) ( 22,219 ) ( 17,301 ) Income tax expense ( 56,138 ) ( 39,657 ) ( 23,636 ) Equity-based compensation expense ( 36,151 ) ( 24,354 ) ( 19,601 ) Transaction-related costs (a) ( 12,013 ) ( 16,270 ) ( 11,965 ) Restructuring expense (b) ( 1,244 ) ( 213 ) ( 736 ) Other (c) ( 1,933 ) ( 3,003 ) ( 3,320 ) Net income including noncontrolling interests $ 207,915 $ 126,565 $ 88,952 Net income attributable to noncontrolling interests ( 46,766 ) ( 29,901 ) ( 24,880 ) Net income attributable to Parsons Corporation $ 161,149 $ 96,664 $ 64,072 (a) Reflects costs incurred in connection with acquisitions, and other non-recurring transaction costs, primarily fees paid for professional services and employee retention. (b) Reflects costs associated with and related to our corporate restructuring initiatives. (c) 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. 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): 2023 2022 2021 Revenues: North America $ 4,481,492 $ 3,463,128 $ 3,028,760 Middle East 943,175 710,830 610,655 Rest of World 18,082 21,314 21,356 Total revenues $ 5,442,749 $ 4,195,272 $ 3,660,771 Property and equipment, net North America $ 91,766 $ 91,217 $ 100,674 Middle East 7,191 4,833 3,522 Total property and equipment, net $ 98,957 $ 96,050 $ 104,196 F- 52 PARSONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2023, December 31, 2022 and December 31, 2021 North America revenue includes $ 4.1 billion, $ 3.2 billion and $ 2.7 billion of United States revenue for the years ended December 31, 2023, December 31, 2022 and December 31, 2021, respectively. North America property and equipment, net includes $ 83.9 million , $ 84.4 million and $ 95.0 million of property and equipment, net in the United States at December 31, 2023, December 31, 2022 and December 31, 2021, respectively. The geographic location of revenue is determined by the location of the customer. The following table presents revenues by business lines (in thousands): 2023 2022 2021 Revenue: Defense & Intelligence $ 1,539,968 $ 1,368,779 $ 1,269,030 Engineered Systems 1,480,733 844,208 619,020 Federal Solutions revenues 3,020,701 2,212,987 1,888,050 Infrastructure – North America 1,472,768 1,265,376 1,155,511 Infrastructure – Europe, Middle East and Africa $ 949,280 716,909 617,210 Critical Infrastructure revenues 2,422,048 1,982,285 1,772,721 Total revenues $ 5,442,749 $ 4,195,272 $ 3,660,771 Effective June 1, 2022, the Company made changes to its Federal Solutions business units by transferring a portion of legacy Defense and Intelligence business unit to the Engineered Systems business unit. Effective October 1, 2023, the Company reorganized its Critical Infrastructure business units from Mobility Solutions and Connected Communities to Infrastructure – North America and Infrastructure – Europe, Middle East and Africa. The prior year information in the table above has been reclassified to conform to the business unit changes. 21. Subsequent Events None F- 53 PARSONS CORPORATION AND SUBSIDIARIES Schedule II—Valuation and Qualifying Accounts (in thousands) Balance at beginning of period Additions Deductions Other and foreign exchange impact Balance at end of period 2023 Allowance for doubtful accounts $ 4,011 $ - $ ( 59 ) $ - $ 3,952 Valuation allowance on deferred tax assets 28,705 8,209 ( 2,437 ) 302 34,779 2022 Allowance for doubtful accounts 3,955 59 ( 3 ) - 4,011 Valuation allowance on deferred tax assets 27,348 3,656 ( 2,180 ) ( 119 ) 28,705 2021 Allowance for doubtful accounts 4,001 8 ( 54 ) - 3,955 Valuation allowance on deferred tax assets $ 23,878 $ 4,873 $ ( 878 ) $ ( 525 ) $ 27,348 F- 54