What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2022-02-23 compared with 2021-02-24 · 372 added, 433 removed, 1354 unchanged (37% of the section changed)

11 unchanged sentences

Other Information.

On February 18, 2022, in recognition of Mr.

Harrington’s (executive chair and former chief executive officer) years of service to the Company and in consideration of Mr.

Harrington’s execution of a non-compete agreement with the Company effective upon his retirement on April 14, 2022, the Compensation and Management Development Committee of the board of directors unanimously approved the following:

To accelerate 17,398 of Mr.

Harrington’s unvested FY20 Restricted Stock Unit (RSU) Grant effective April 14, 2022;

Harrington to be eligible to receive 60,889 shares at target of his unvested FY20-22 Performance Stock Unit (PSU) Grant, the receipt of, and the actual shares realized of which, are to be determined in March 2023 based upon actual performance metrics achieved by the Company and approved by the Compensation and Management Development Committee of the board of directors.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Directors, Executive Officers and Corporate Governance.

Information related to our directors set forth under the caption “Proposal 1:

Election of Directors” of our Proxy Statement for our Annual Meeting of Stockholders scheduled for April 20, 2021 (the “2021 Proxy Statement”).

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 2022 (the “2022 Proxy Statement”).

Such information is incorporated herein by reference.

Information relating to our Executive Officers is included in Part I of this Annual Report under the caption “Executive Officers.”

Information relating to compliance with Section 16(a) of the Exchange Act is set forth under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” of our 2021 Proxy Statement.

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 2022 Proxy Statement.

Such information is incorporated herein by reference.

Information related to our code of ethics is set forth under the caption “Corporate Governance and General Information Concerning the Board of Directors and its Committees” of our 2021 Proxy Statement.

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 2022 Proxy Statement.

Such information is incorporated herein by reference.

Information relating to the Audit Committee and Board of Directors determinations concerning whether a member of the Audit Committee is a “financial expert” as that term is defined under Item 407(d)(5) of Regulation S-K is set forth under the caption “Corporate Governance and General Information Concerning the Board of Directors and its Committees” of our 2021 Proxy Statement.

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 2022 Proxy Statement.

Such information is incorporated herein by reference.

Executive Compensation.

Information relating to this item is set forth under the captions “Compensation Discussion and Analysis,” “Director Compensation,” “Compensation Committee Interlocks and Insider Participation” and “Compensation Committee Report on Executive Compensation” of our 2021 Proxy Statement.

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 2022 Proxy Statement.

Such information is incorporated herein by reference.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Information relating to the security ownership of certain beneficial owners and management is included in our 2021 Proxy Statement under the caption “Security Ownership of Certain Beneficial Owners and Management” and is incorporated herein by reference.

Information relating to the security ownership of certain beneficial owners and management will be included in our 2022 Proxy Statement under the caption “Security Ownership of Certain Beneficial Owners and Management” and is incorporated herein by reference.

Certain Relationships and Related Transactions, and Director Independence.

Information relating to this item is set forth under the captions “Certain Relationships and Related Party Transactions” and “Corporate Governance and General Information Concerning the Board of Directors and its Committees” of our 2021 Proxy Statement.

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 2022 Proxy Statement.

Such information is incorporated herein by reference.

Principal Accounting Fees and Services.

Information relating to this item is set forth under the caption “Independent Registered Public Accounting Firm Fees” of our 2021 Proxy Statement.

Information relating to this item will be set forth under the caption “Independent Registered Public Accounting Firm Fees” of our 2022 Proxy Statement.

Such information is incorporated herein by reference.

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Parsons Corporation Annual Incentive Plan Amended as of October 19, 2020.

Parsons Corporation Annual Incentive Plan Amendment dated January 1, 2021.

Parsons Corporation Shareholder Value Plan .

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Parsons Corporation Employee Stock Purchase Plan.

Parsons Corporation Prospectus to Employee Stock Purchase Plan dated November 1, 2021.

Parsons Corporation Employee Stock Purchase Plan Special Offering Period dated November 1, 2021.

Parsons Corporation Employee Stock Purchase Plan List of Participating Companies.

Supplemental Executive Retirement Plan dated January 1, 1997 .

First Amendment to the SERP effective January 1, 2020 .

Change in Control Severance Agreement, dated as of February 7, 2019, by and between Parsons Corporation and George L.

Change in Control Severance Agreement, dated as of April 5, 2019, by and between Parsons Corporation and Charles L.

Change in Control Severance Agreement, dated as of February 7, 2019, by and between Parsons Corporation and Michael R.

Change in Control Severance Agreement, dated as of March 9, 2019, by and between Parsons Corporation and Carey A.

Change in Control Severance Agreement, dated August 6, 2021, by and between Parsons Corporation and Carey Smith .

Change in Control Severance Agreement, dated August 9, 2021, by and between Parsons Corporation and Charles L.

Change in Control Severance Agreement, dated August 6, 2021, by and between Parsons Corporation and George Ball

Change in Control Severance Agreement, dated August 6, 2021, by and between Parsons Corporation and Michael Kolloway .

Change in Control Severance Agreement, dated August 6, 2021, by and between Parsons Corporation and David Spille .

Change in Control Severance Agreement, dated October 6, 2021, by and between Parsons Corporation and Matthew Ofilos .

Form of Equity Award Amendment Letter Agreement, dated August 10, 2020, by and between Parsons Corporation and George L.

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Form of Equity Award Amendment Letter Agreement, dated August 10, 2020, by and between Parsons Corporation and Debra Fiori.

Form of Performance Stock Unit Award Amendment, dated July 19, 2021, by and between Parsons Corporation and Carey A.

Form of Restricted Stock Unit Award Amendment, dated July 19, 2021, by and between Parsons Corporation and Carey A.

Form of Performance Stock Unit Award Amendment, dated July 19, 2021, by and between Parsons Corporation and Charles L.

Form of Restricted Stock Unit Award Amendment, dated July 19, 2021, by and between Parsons Corporation and Charles L.

Form of Performance Stock Unit Award Amendment, dated July 19, 2021, by and between Parsons Corporation and George Ball .

Form of Restricted Stock Unit Award Amendment, dated July 19, 2021, by and between Parsons Corporation and George Ball .

Form of Performance Stock Unit Award Amendment, dated July 19, 2021, by and between Parsons Corporation and Michael R.

Form of Restricted Stock Unit Award Amendment, dated July 19, 2021, by and between Parsons Corporation and Michael R.

Form of Performance Stock Unit Award Amendment, dated July 19, 2021, by and between Parsons Corporation and David Spille .

Form of Restricted Stock Unit Award Amendment, dated July 19, 2021, by and between Parsons Corporation and David Spille .

Note Purchase Agreement, dated as of May 9, 2014, among Parsons Corporation and the purchasers party thereto, and the forms of Senior Notes .

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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 .

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.

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.

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Form of Fourth Amendment to the 2019 Amendment and Restatement of Parsons Employee Stock Ownership Plan, effective March 1, 2021.

Fourth Amendment to the Parsons Employee Stock Ownership Plan 2019 Amendment and Restatement, effective March 1, 2021.

Form of Indemnification Agreement between Parsons Corporation and certain of its directors and officers .

Form of Transition Agreement, dated February 2022, by and between Parsons Corporation and Charles L.

List of Subsidiaries of the Registrant.

Consent of PricewaterhouseCoopers LLP .

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 .

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The following financial statements from the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, formatted in Inline XBRL:

(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.

(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.

Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101 ).

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February 23, 2022

/s/ Charles L.

Charles L Harrington

Chief Executive Officer and Director

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.

/s/ Charles L.

Chief Executive Officer and Director

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(Principal Financial and Accounting Officer)

/s/ Charles L.

February 23, 2022

/s/ Steven F.

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Christian Mitchell

President and Chief Operating Officer and Director

February 24, 2021

/s/ Suzanne M.

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID 238 )

Consolidated Balance Sheets as of December 31, 2021 and December 31, 2020

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Changes in Accounting Principles

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019 and the manner in which it accounts for revenue from contracts with customers in 2018.

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 and the manner in which it accounts for leases in 2019.

Basis for Opinions

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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 Total Estimated Contract Cost and Variable Consideration related to Claims Revenue for Fixed-Price Contracts Recognized Over Time

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.

3 billion for the year ended December 31, 2020, which accounts for approximately 3 2 % of the Company’s total consolidated revenue.

Fixed-price contract revenue recognized was $1.0 billion for the year ended December 31, 2021, which accounts for approximately 26% of the Company’s total 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.

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Changes to estimated contract costs, either due to unexpected events or revisions to management’s initial estimates, for a given project are recognized in the period in which they are determined.

As disclosed by management, 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.

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 total 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 amount of judgment by management in determining the total estimated contract cost and variable consideration related to estimated claims revenue for fixed-price contracts;

(ii) a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence for the total estimated contract cost and variable consideration related to estimated claims revenue for fixed-price contracts recognized over time.

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;

(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 total 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 total estimated contract cost and variable consideration related to estimated claims revenue, which included testing of 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 total estimated contract cost as compared with prior period estimates, including evaluating the timely identification of circumstances that may warrant a modification to the total estimated contract cost;

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 testing of 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 Braxton Science & Technology Group - V aluation of C ustomer R elationships Int angible Asset

As described in Notes 2 and 3 to the consolidat ed financial statements, on November 19, 2020, the Company acquired a 100% ownership interest in Braxton Science & Technology Group (“Braxton”) for $310.9 million in cash, which resulted in $74.0 million of intangible assets being recorded, of which, $35.6 million related to customer relationships.

Acquisition of BlackHorse Solutions, Inc.

- V aluation of the C ustomer R elationships Int angible Asset

As described in Notes 2 and 3 to the consolidated financial statements, on July 6, 2021, the Company acquired a 100% ownership interest in BlackHorse Solutions, Inc.

(“BlackHorse”), a privately-owned company, for $205.0 million which resulted in $64.0 million of intangible assets being recorded, of which, $39.0 million related to a customer relationships intangible asset.

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.

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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 intangible asset acquired in the acquisition of Braxton Science & Technology Group is a critical audit matter are (i) the high degree of auditor judgment and subjectivity in performing procedures relating to the fair value measurement of the customer relationships intangible asset acquired due to the significant judgment by management when determining the fair value estimate;

(ii) significant audit effort in performing procedures and evaluat ing management’s significant assumptions relat ing to the discount rate, revenue growth rate, projected margin, and customer revenue attrition rate ;

The principal considerations for our determination that performing procedures relating to the valuation of the customer relationships intangible asset acquired in the acquisition of BlackHorse is a critical audit matter are (i) the significant judgment by management when determining the fair value of the customer relationships intangible asset acquired;

(ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to the discount rates, revenue growth rates, projected margins, and the customer revenue attrition rate;

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 statem ents.

These procedures included testing the effectiveness of controls relating to the acquisition accounting, including controls over the significant assumptions used in management’s valuation of the customer relationships intangible asset.

These procedures included, among others, (i) reading the purchase agreement;

(ii) testing management’s process for estimating the fair value of the customer relationships intangible asset;

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 intangible asset.

These procedures also included, among others (i) reading the purchase agreement;

(ii) testing management’s process for determining the fair value of the customer relationships intangible asset;

(iii) evaluating the appropriateness of the valuation technique;

(iv) t esting the completeness and accuracy of the underlying data used in the valuation technique ;

and (v) evaluating the reasonableness of significant assumptions

related to the discount rate, revenue growth rate, projected margin, and customer revenue attrition rate.

Evaluating the reasonableness of management ’s assumptions related to the revenue growth rate, projected margin and customer revenue attrition rate involved considering (i) the current and past performance of the acquired business;

(iv) testing the completeness and accuracy of the underlying data used in the valuation technique;

and (v) evaluating the reasonableness of significant assumptions related to the discount rates, revenue growth rates, projected margins, and the customer revenue attrition rate.

Evaluating the reasonableness of management’s significant 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 management’s valuation technique and the discount rate significant assumption .

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 (i) the appropriateness of management’s valuation technique and (ii) the reasonableness of the discount rate and customer revenue attrition rate significant assumptions .

/s/ PricewaterhouseCoopers LLP

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Equity in earnings of unconsolidated joint ventures

Indirect, general and administrative expenses

Selling, general and administrative expenses

Operating income

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Other income (expense), net

Gain associated with claim on long-term contract

Total other (expense) income

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Foreign currency

translation gain (loss)

Pension adjustments

Adoption of ASC 606

Purchase of treasury stock

Contributions of treasury

stock to ESOP

Contributions

Distributions

ESOP shares at redemption

Balances at December 31, 2018

Comprehensive income

Foreign currency

translation gain

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Foreign currency

translation (loss), net

translation gain, net

Pension adjustments,

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Balances at December 31, 2020

Comprehensive income

Foreign currency

translation gain (loss), net

Pension adjustments,

Contributions of treasury

stock to ESOP

Adoption of ASU 2020-06

Contributions

Distributions

Issuance of equity securities,

net of retirement

Repurchases of common stock

Stock-based compensation

Balances at December 31, 2021

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

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Depreciation and amortization

Amortization of deferred gain

Amortization of debt issue costs

Amortization of convertible notes discount

Gain associated with claim on long-term contract

Loss on disposal of property and equipment

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Accrued expenses and other current liabilities

Billings in excess of costs

Contract liabilities

Provision for contract losses

Other long-term liabilities

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Return of investments in unconsolidated joint ventures

Proceeds from sales of investments in unconsolidated joint ventures

Net cash used in investing activities

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Distributions to noncontrolling interests

Purchase of treasury stock

Repurchases of common stock

Taxes paid on vested stock

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property and equipment and intangible assets;

calculation of allowance for doubtful accounts;

valuation of deferred income tax assets and uncertain tax positions, among others.

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Contributions of 1,631,477 shares, 1,522,381 shares, and 1,345,198 shares of common stock were made to the ESOP in 2021, 2020 and 2019, respectively.

In 2019 and 2018, the Company repurchased 191,331 shares, and 5,553,891 shares of common stock from the ESOP, respectively, in connection with the redemption of ESOP participants’ interests in the ESOP for $ 6.3 million and $ 125.8 million, respectively.

In 2019, the Company repurchased 191,331 shares of common stock from the ESOP in connection with the redemption of ESOP participants’ interests in the ESOP for $ 6.3 million.

Subsequent to November 3, 2019 when the 180-day lock-up period ended, repurchases are no longer required for ESOP redemptions.

In 2020, the Company did not repurchase any shares of common stock.

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 by dividing net income by adjusted weighted average outstanding shares, assuming conversion of all potentially dilutive securities.

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

On December 30, 2017 , the Company adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers , (“ASC 606”), using the modified retrospective method, which provides for a cumulative effect adjustment to retained earnings beginning in fiscal 2018 for those uncompleted contracts impacted by the adoption of the new standard.

The difference between the recognition criteria under ASC-606 and our previous recognition practices under ASC 605-35 was recognized through a cumulative adjustment of $ 4.7 million that was made to the opening balance of accumulated deficit as of December 30, 2017.

In accordance with ASC 606, the Company follows the five-step process in ASC 606 to recognize revenue:

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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

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.

PARSONS CORPORATION AND SUBSIDIARIES

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December 31, 2021, December 31, 2020 and December 31, 2019

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.

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The contracts may also include incentives for various performance criteria, including quality, timeliness, safety and cost-effectiveness.

In addition, costs are generally subject to review by clients and regulatory audit agencies, and such reviews could result in costs being disputed as nonreimbursable under the terms of the contract.

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.

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To the extent change orders included in the price are not resolved in the Company’s favor, there could be reductions in, or reversals of previously reported amounts of, revenues and profits, and charges against current earnings, which could be material.

Claims Revenue —Claims are amounts in excess of agreed contract prices that the Company seeks to collect from clients or others for customer-caused delays, errors in specifications and designs, contract terminations, change orders that are in dispute, or other causes of unanticipated additional contract costs, including factors outside of our control, and therefore the Company believes it is entitled to additional compensation.

Claims Revenue —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.

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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.

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.

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When a change in estimate is determined to have an impact on contract profit, the Company records a positive or negative adjustment to the consolidated statements of income.

Refer to the Recently Adopted Accounting Pronouncements for discussion of the differences between the current revenue recognition criteria under ASC 606 and the Company’s previous recognition practices under ASC 605, Revenue Recognition .

Cash Equivalents

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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.

PARSONS CORPORATION AND SUBSIDIARIES

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December 31, 2021, December 31, 2020 and December 31, 2019

Restricted Cash and Investments

Restricted cash and investments held in trust accounts represent collateral for certain incentive programs.

Accounts Receivable, Net

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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.

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020, December 31, 2019 and December 31, 2018

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.

1 unchanged sentence

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.

Impairment losses are recognized when estimated future cash flows expected to result from the use of the assets and their

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021, December 31, 2020 and December 31, 2019

eventual disposition are less than their carrying amount, in which case the asset is written down to its fair value.

The Company determines if an arrangement is a lease at inception.

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Compensation cost for cash settled and performance awards are trued-up at each reporting period for changes in fair value and expected shares pro-rated for the portion of the requisite service period rendered.

The Company recognizes compensation costs for these awards on either a straight-line or accelerated basis over the vesting period of the award in indirect, general and administrative expense in the consolidated statements of income.

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.

Business Combinations

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The determination of fair values of assets acquired and liabilities assumed requires the Company to make estimates and use valuation techniques when a market value is not readily available.

The Company’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.

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

PARSONS CORPORATION AND SUBSIDIARIES

1 unchanged sentence

December 31, 2021, December 31, 2020 and December 31, 2019

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.

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.

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(4) determining the management-sharing ratio;

(5) reviewing employment terms, including which joint venture partner provides the project manager;

(5) reviewing employment terms;

and (6) reviewing the funding and operating agreements.

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The Company performs an additional review at year end to address whether a triggering event has occurred that would require an interim 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

PARSONS CORPORATION AND SUBSIDIARIES

1 unchanged sentence

December 31, 2021, December 31, 2020 and December 31, 2019

For purposes of impairment testing, goodwill is allocated to the applicable reporting units based on the current reporting structure.

The Company’s reporting units are operating segments or components of operating segments where discrete financial information is available and segment management regularly reviews the operating results.

When evaluating goodwill for impairment, the Company may decide to first perform a qualitative assessment, or “step zero” impairment test, to determine whether it is more likely than not that impairment has occurred.

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.

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Intangible Assets

Intangible assets with finite lives arise from business acquisitions and are amortized based on the period over which the contractual or economic benefit of the intangible assets are expected to be realized or on a straight-line basis over the useful lives of the underlying assets, ranging from one to ten years .

These primarily consist of customer relationships, developed technology, backlog, and covenants not to compete.

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This approach requires the recognition of deferred tax liabilities and assets to reflect the tax effects of temporary differences between the financial statement carrying amounts and tax bases of the Company’s assets and liabilities.

Deferred tax assets and liabilities are measured using enacted tax rates expected to be recovered or settled.

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.

8 unchanged sentences

For foreign entities whose functional currency is not the U.S.

dollar, the assets and liabilities are translated based on

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

PARSONS CORPORATION AND SUBSIDIARIES

1 unchanged sentence

December 31, 2021, December 31, 2020 and December 31, 2019

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.

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

18 unchanged sentences

The amendments in this ASU clarify certain aspects of the guidance related to:

reporting comprehensive income, debt

reporting comprehensive income, debt modification and extinguishment, income taxes related to stock compensation, income taxes related to business combinations, derivatives and hedging, fair value measurements, brokers and dealers liabilities, and plan accounting.

This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.

The Company has adopted this ASU on a prospective basis in the

PARSONS CORPORATION AND SUBSIDIARIES

1 unchanged sentence

December 31, 2021, December 31, 2020 and December 31, 2019

modification and extinguishment, income taxes related to stock compensation, income taxes related to business combinations, derivatives and hedging, fair value measurements, brokers and dealers liabilities, and plan accounting.

This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.

The Company has adopted this ASU on a prospective basis in the first quarter of 2019 and has determined there to be no impact on its financial statements and related disclosures.

first quarter of 2019 and has determined there to be no impact on its financial statements and related disclosures.

Effective January 1, 2019 , the Company adopted ASU 2018-02, “ Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income ” under which the Company did not elect to reclassify the income tax effects stranded in accumulated other comprehensive income to retained earnings as a result of the enactment of comprehensive tax legislation, commonly referred to as the Tax Cuts and Jobs Act.

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The Company adopted this ASU in the first quarter of 2020, and it did not have a material impact on its financial statements.

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU No.

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ASU 2019-12 was issued as a means to reduce the complexity of accounting for income taxes for those entities that fall within the scope of the accounting standard.

The guidance is to be applied using a prospective method, excluding amendments related to franchise taxes, which should be applied on either a retrospective basis for all periods presented or a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption.

The guidance is applied using a prospective method, excluding amendments related to franchise taxes, which should be applied on either a retrospective basis for all periods presented or a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption.

ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, with early adoption permitted.

The Company did not elect to adopt early and it does not expect this standard to have a material impact on its consolidated financial statements.

The Company adopted this ASU in the first quarter of 2021, and it did not have a material impact on its financial statements.

In August 2020, the FASB issued 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) ”.

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Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020.

The Company will early adopt this standard in 2021 using the modified retrospective method and expects it will result in a reduction in non-cash interest expense and a reclassification of the equity portion of the Convertible Senior Notes to liabilities on the consolidated balance sheet.

Polaris Alpha

On May 31, 2018, the Company acquired a 100 % ownership interest in Polaris Alpha, a privately-owned, advanced technology-focused provider of innovative mission solutions for complex defense, intelligence, and security customers, as well as other U.S.

federal government customers, for $ 489.1 million paid in cash.

The Company borrowed $ 260 million under the Credit Agreement, as described in

The Company early adopted this ASU 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 consolidated balance sheet.

PARSONS CORPORATION AND SUBSIDIARIES

1 unchanged sentence

December 31, 2021, December 31, 2020 and December 31, 2019

“ Note 1 2 — Debt and Credit Facilities” , to partially fund the acquisition.

In connection with this acquisition, the Company recognized $ 6.2 million of acquisition - related expenses in “Indirect, general and administrative expense” in the consolidated statements of income for the year ended December 31, 2018, including legal fees, consulting fees, and other miscellaneous direct expenses associated with the acquisition.

Polaris Alpha enhances the Company’s artificial intelligence and data analytics expertise with new technologies and solutions.

Customers of both companies will benefit from existing, complementary technologies and increased scale, enabling end-to-end solutions under the shared vision of rapid prototyping and agile development.

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):

Polaris Alpha

Cash and cash equivalents

3 unchanged sentences

Property and equipment

Right of use assets, operating leases

Intangible assets

Other noncurrent assets

Accounts payable

1 unchanged sentence

Contract liabilities

Short-term lease liabilities, operating leases

Long-term lease liabilities, operating leases

Deferred tax liabilities

2 unchanged sentences

Of the total purchase price, the following values were assigned to intangible assets (in thousands, except for years):

Developed technology

Customer relationships

Amortization expense of $ 45.5 million, $ 54.5 million and $ 30.3 million related to these intangible assets was recorded for the years ended December 31, 2020, December 31, 2019 and December 31, 2018, respectively.

Developed technologies

Non-compete agreements

Amortization expense of $ 5.4 million related to these intangible assets was recorded for the year ended December 31, 2021.

The entire value of goodwill of $ 143.8 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 Polaris Alpha and included within consolidated revenues for 2018 is $ 227.3 million.

The amount of revenue generated by BlackHorse and included within consolidated revenues for 2021 is $ 35.3 million.

The Company has determined that the presentation of net income from the date of acquisition is impracticable due to the integration of general corporate functions upon acquisition.

2 unchanged sentences

December 31, 2021, December 31, 2020 and December 31, 2019

The Company is still in the process of finalizing its valuation of the net assets acquired.

Supplemental Pro Forma Information (Unaudited)

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Pro forma Revenue

Pro forma Net Income including noncontrolling interest

The unaudited pro forma supplemental information is based on estimates and assumptions which the Company believes are reasonable and reflects the pro forma impact of additional amortization related to the fair value of acquired intangible assets, the pro forma impact of reflecting acquisition costs, which consisted of legal, advisory and due diligence fees and expenses, and the additional pro forma interest expense related to the borrowings under the credit agreement as of the assumed acquisition date.

Pro forma Net Income including noncontrolling interests

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.

On January 7, 2019, the Company acquired a 100 % ownership interest in OGSystems, a privately-owned company, for $ 292.4 million paid in cash.

OGSystems provides geospatial intelligence, big data analytics and threat mitigation for defense and intelligence customers.

The Company borrowed $ 110 million under the Credit Agreement and $ 150 million on a short-term loan, as described in “Note 12— Debt and Credit Facilities ,” to partially fund the acquisition.

In connection with this acquisition, the Company recognized $ 5.4 million of acquisition-related expenses in “Indirect, general and administrative expense” in the consolidated statements of income for the year ended December 31, 2019, including legal fees, consulting fees, and other miscellaneous direct expenses associated with the acquisition.

OGSystems enhances the Company’s artificial intelligence and data analytics expertise with new technologies and solutions.

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 is $ 2.9 million.

Braxton Science & Technology Group

On November 19, 2020 the Company acquired a 100 % ownership interest in Braxton Science & Technology Group (“Braxton”), a privately-owned company, for $ 310.9 million in cash.

Braxton operates at the forefront of satellite operations, ground system automation, flight dynamics, and spacecraft and antenna simulation for the U.S.

Department of Defense and Intelligence Community.

The acquisition was entirely funded by cash on hand in August 2020, as described in “Note 12— Debt and Credit Facilities” .

In connection with this acquisition, the Company recognized $ 5.5 million of acquisition-related expense in “Selling, general and administrative expense” in the consolidated statements of income for the year ended December 31, 2020, including legal fees, consulting fees, and other miscellaneous direct expenses associated with the acquisition.

Braxton allows Parsons to capitalize on the quickly evolving space missions of its national security space customers and address rapid market growth driven by proliferated low earth orbit constellations, small satellite expansion, and space cyber resiliency.

PARSONS CORPORATION AND SUBSIDIARIES

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Intangible assets

Other noncurrent assets

Accounts payable

2 unchanged sentences

Short-term lease liabilities, operating leases

Income tax payable

Deferred tax liabilities

Long-term lease liabilities, operating leases

Other long-term liabilities

Deferred tax liabilities

Net assets acquired

1 unchanged sentence

Customer relationships

Non-compete agreements

Developed technologies

Non-compete agreements

Amortization expense of $ 16.2 million and $ 1.3 million related to these intangible assets was recorded for the years ended December 31, 2021 and December 31, 2020, respectively.

The entire value of goodwill of $ 183.5 million was assigned to the Federal Solutions reporting unit and represents synergies expected to be realized from this business combination.

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 of $ 200.5 million is deductible for tax purposes.

The amount of revenue generated by OGSystems and included within consolidated revenues for the year ended December 31, 2019 is $ 143.4 million.

The amount of revenue generated by Braxton and included within consolidated revenues for 2020 is $ 10.1 million.

The Company has determined that the presentation of net income from the date of acquisition is impracticable due to the integration of general corporate functions upon acquisition.

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020, December 31, 2019 and December 31, 2018

Supplemental Pro Forma Information (Unaudited)

Supplemental information of unaudited pro forma operating results assuming the OGSystems acquisition had been consummated as of the beginning of fiscal year 2018 (December 30, 2017) (in thousands) is as follows:

Supplemental information of unaudited pro forma operating results assuming the Braxton acquisition had been consummated as of the beginning of 2019 (in thousands) is as follows:

Pro forma Revenue

Pro forma Net Income including noncontrolling interests

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021, December 31, 2020 and December 31, 2019

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The Company borrowed $ 140.0 million under the Revolving Credit Facility to partially fund the transaction.

In connection with this acquisition, the Company recognized $ 4.9 million of acquisition-related expenses in “Indirect, general and administrative expense” in the consolidated statements of income for the year ended December 31, 2019, including legal fees, consulting fees, and other miscellaneous direct expenses associated with the acquisition.

In connection with this acquisition, the Company recognized $ 4.9 million of acquisition-related expenses in “Selling, general and administrative expense” in the consolidated statements of income for the year ended December 31, 2019, including legal fees, consulting fees, and other miscellaneous direct expenses associated with the acquisition.

QRC is an agile, disruptive product company that specializes in radio frequency spectrum survey, record and playback;

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Net assets acquired

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020, December 31, 2019 and December 31, 2018

Of the total purchase price, the following values were assigned to intangible assets (in thousands, except for years):

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Non-compete agreements

Amortization expense of $ 14.0 million and $ 5.7 million related to these intangible assets was recorded for the years ended December 31, 2020 and December 31, 2019, respectively.

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021, December 31, 2020 and December 31, 2019

Amortization expense of $ 13.1 million, $ 14.0 million and $ 5.7 million related to these intangible assets was recorded for the years ended December 31, 2021, December 31, 2020 and December 31, 2019, respectively.

The entire value of goodwill of $ 125.1 million was assigned to the Federal Solutions reporting unit and represents synergies expected to be realized from this business combination.

Goodwill in its entirety is deductible for tax purposes.

The amount of revenue generated by QRC and included within consolidated revenues for the year ended December 31, 2019 is $ 11.2 million.

The amount of revenue generated by QRC and included within consolidated revenues for the year ended December 31, 2019 was $ 11.2 million.

The Company has determined that the presentation of net income from the date of acquisition is impracticable due to the integration of general corporate functions upon acquisition.

2 unchanged sentences

Pro forma Revenue

Pro forma Net Income

Pro forma Net Income including noncontrolling interests

Braxton Science & Technology Group

On November 19, 2020 the Company acquired a 100 % ownership interest in Braxton Science & Technology Group (“Braxton”), a privately-owned company, for $ 310.9 million in cash.

Braxton operates at the forefront of satellite operations, ground system automation, flight dynamics, and spacecraft and antenna simulation for the U.S.

Department of Defense and Intelligence Community.

The acquisition was entirely funded by cash on hand in August 2020, as described in “Note 12— Debt and Credit Facilities” .

In connection with this acquisition, the Company recognized $ 5.5 million of acquisition-related expense in

On January 7, 2019, the Company acquired a 100 % ownership interest in OGSystems, a privately-owned company, for $ 292.4 million paid in cash.

OGSystems provides geospatial intelligence, big data analytics and threat mitigation for defense and intelligence customers.

The Company borrowed $ 110 million under the Credit Agreement and $ 150 million on a short-term loan, as described in “Note 12— Debt and Credit Facilities ,” to partially fund the acquisition.

In connection with this acquisition, the Company recognized $ 5.4 million of acquisition-related expenses in “Selling, general and administrative expense” in the consolidated statements of income for the year ended December 31, 2019, including legal fees, consulting fees, and other miscellaneous direct expenses associated with the acquisition.

OGSystems enhances the Company’s artificial intelligence and data analytics expertise with new technologies and solutions.

PARSONS CORPORATION AND SUBSIDIARIES

1 unchanged sentence

December 31, 2021, December 31, 2020 and December 31, 2019

“Indirect, general and administrative expense” in the consolidated statements of income for the year ended December 31, 2020, 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):

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed based on the purchase price allocation as of the date of acquisition (in thousands):

Cash and cash equivalents

5 unchanged sentences

Intangible assets

Other noncurrent assets

Accounts payable

2 unchanged sentences

Short-term lease liabilities, operating leases

Long-term lease liabilities, operating leases

Income tax payable

Deferred tax liabilities

Long-term lease liabilities, operating leases

Other long-term liabilities

Net assets acquired

1 unchanged sentence

Customer relationships

Developed technologies

Non-compete agreements

Amortization expense of $ 1.3 million related to these intangible assets was recorded for the year ended December 31, 2020.

The entire value of goodwill was assigned to the Federal Solutions reporting unit and represents synergies expected to be realized from this business combination.

Developed technologies

Amortization expense of $ 21.9 million and $ 23.8 million related to these intangible assets was recorded for the years ended December 31, 2021 and December 31, 2020, respectively.

The entire value of goodwill of $ 183.5 million was assigned to the Federal Solutions reporting unit and represents synergies expected to be realized from this business combination.

Goodwill of $ 16 million is deductible for tax purposes.

The Company is still in the process of finalizing its valuation of the net assets acquired.

Supplemental Pro Forma Information (Unaudited)

The amount of revenue generated by OGSystems and included within consolidated revenues for the year ended December 31, 2019 was $ 143.4 million.

The Company has determined that the presentation of net income from the date of acquisition is impracticable due to the integration of general corporate functions upon acquisition.

PARSONS CORPORATION AND SUBSIDIARIES

1 unchanged sentence

December 31, 2021, December 31, 2020 and December 31, 2019

Supplemental information of unaudited pro forma operating results assuming the Braxton acquisition had been consummated as of the beginning of 2019 (in thousands) is as follows:

Supplemental Pro Forma Information (Unaudited)

Pro forma Revenue

Pro forma Net Income

Pro forma Net Income including noncontrolling interests

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Time-and-Materials

Refer to “Note 21— Segment Information ” for the Company’s revenues by business lines.

Refer to “Note 21— Segments Information ” for the Company’s revenues by business lines.

Contract Assets and Contract Liabilities

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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.

In connection with the adoption of ASU 2016-13, we have modified the historical presentation of gross receivables and the allowance for doubtful accounts to reflect only expected credit losses in the allowance in conformity with the current period presentation.

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.

COVID-19 Impacts:

We have not seen and do not expect there to be a material risk of non-payment from either our government agency or commercial customers.

We have experienced payment delays due to administrative limitations from both types of customers.

We have not seen and do not expect there to be a material risk of non-payment from either our government agency or commercial customers related to COVID-19 impacts;

however, we have experienced payment delays due to administrative limitations from both types of customers.

Transaction Price Allocated to the Remaining Unsatisfied Performance Obligations

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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 nine years , some of which may include options to extend the leases for up to five years , and some of which may include options to terminate the leases up to the third year .

As of December 31, 2020 and December 31, 2019, assets recorded under finance leases were $ 3.4 million and $ 2.4 million, and accumulated depreciation associated with finance leases was $ 2.2 million and $ 0.7 million, respectively.

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, 2021 and December 31, 2020 are as follows (in thousands):

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Operating cash flows for financing activities

Financing cash flows from finance leases

Financing cash flows for finance leases

Right-of-use assets obtained in exchange for new

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Total present value of lease liabilities

Rental expense for the years ended December 31, 2020, December 31, 2019 and December 31, 2018 was $ 81.8 million, $ 82.1 million and $ 79.8 million, respectively, and is recorded in “Indirect, general and administrative expenses” in the consolidated statements of income.

Rental expense for the years ended December 31, 2021, December 31, 2020 and December 31, 2019 was $ 73.1 million, $ 81.8 million and $ 82.1 million, respectively, and is recorded in “Selling, general and administrative expenses” in the consolidated statements of income.

Employee Stock Purchase and Equity-Based Compensation Plans

5 unchanged sentences

December 31, 2021, December 31, 2020 and December 31, 2019

The following table presents stock issuance activity for the year ended December 31, 2020 (in thousands):

The following table presents stock issuance activity for the years ended December 31, 2021 and December 31, 2020 (in thousands):

Purchase price paid for shares sold

Number of shares sold

The average purchase price for the year ended December 31, 2020 was $ 34.53 per share.

The average purchase price for the year ended December 31, 2021 and December 31, 2020 was $ 34.46 and $ 34.53 per share, respectively.

Equity-Based Compensation Plans

The Company issues stock-based awards through the Shareholder Value Plan, Long-Term Growth Plan, Restricted Award Plan, and Incentive Award Plan.

The Company issues stock-based awards through the Incentive Award Plan.

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.

Through these plans the Company may issue stock options (including incentive and non-qualified stock options), stock appreciation rights, restricted stock, restricted stock units, an “other” stock or cash-based awards, or a dividend equivalent award.

The compensation expense for these awards is recorded in “Indirect, general and administrative expenses” in the Company’s consolidated financial statements.

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 $ 16.8 million, $ 8.2 million, and $ 49.0 million for the years ended December 31, 2021, December 31, 2020 and December 31, 2019, respectively, net of recognized tax benefits of $ 2.8 million, $ 1.5 million, and $ 16.7 million for 2021, 2020 and 2019, respectively.

19 unchanged sentences

The final SVP grant vested on December 31, 2020 based on the 60-trading day weighted average closing price of the Company’s common stock on the NYSE.

Therefore, the Black-Scholes option-pricing model was not used as of December 31, 2020.

PARSONS CORPORATION AND SUBSIDIARIES

1 unchanged sentence

December 31, 2021, December 31, 2020 and December 31, 2019

The following table presents the number of SARs granted, vested, and forfeited for the years ended December 31, 2018, December 31, 2019, and December 31, 2020:

The following table presents the number of SARs granted, vested, and forfeited for the years ended December 31, 2020 and December 31, 2019:

Number of Units

3 unchanged sentences

Unvested at December 31, 2020

Long-Term Growth Units

6 unchanged sentences

Compensation cost is trued-up at each reporting period for changes in fair value and expected shares pro-rated for the portion of the requisite service period rendered.

The following table presents the number of Long-Term Growth Units granted, vested, and forfeited (at target shares) for the years ended December 31, 2020, December 31, 2019, and December 31, 2018:

The following table presents the number of Long-Term Growth Units granted, vested, and forfeited (at target shares) for the years ended December 31, 2020 and December 31, 2019:

Number of Units

3 unchanged sentences

Unvested at December 31, 2020

Restricted Award Units

1 unchanged sentence

Outstanding awards provide a cash incentive based on the fair value of the Company’s common stock on the vesting date.

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020, December 31, 2019 and December 31, 2018

The grant da te fair value of the award is based on the fair value of the Company’s common stock on the grant da te .

These awards vest and expense is recognized on a n accelerated basis over the respective vesting period s .

The grant date fair value of the award is based on the fair value of the Company’s common stock on the grant date.

These awards vest and expense is recognized on an accelerated basis over the respective vesting periods.

Awards are remeasured to an updated fair value at each reporting period until the award is settled.

1 unchanged sentence

Compensation cost is trued-up at each reporting period for changes in fair value pro-rated for the portion of the requisite service period rendered.

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021, December 31, 2020 and December 31, 2019

The following table presents the number of Restricted Award Units granted, vested, and forfeited for the years ended December 31, 2021, December 31, 2020, and December 31, 2019:

17 unchanged sentences

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, 2020 and December 31, 2019:

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020, December 31, 2019 and December 31, 2018

Weighted Average Grant-Date Fair Value

Restricted Stock Units (service condition)

2 unchanged sentences

The number of shares ultimately issued, which could be greater or less than target, will be based on achieving specific performance conditions related to the awards.

The following table presents the number and weighted average grant-date fair value of restricted stock units (at target shares for awards with performance conditions) for the years ended December 31, 2020 and December 31, 2019:

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021, December 31, 2020 and December 31, 2019

Number of Units

3 unchanged sentences

Outstanding at December 31, 2020

Outstanding at December 31, 2021

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.

For the year ended December 31, 2020, 78,476 shares of restricted stock units were issued, and 36,921 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, 2020 and December 31, 2019:

Weighted Average Grant-Date Fair Value

For the year ended December 31, 2019, 74,704 shares of restricted stock units were issued, and 27,962 shares of common stock related to employee statutory income tax withholding were retired.

The following table presents the number of shares of restricted stock outstanding (at target shares for awards with performance conditions) at December 31, 2021, December 31, 2020 and December 31, 2019:

Restricted Stock Units (service condition)

3 unchanged sentences

Critical Infrastructure

Federal Solutions

Critical Infrastructure

PARSONS CORPORATION AND SUBSIDIARIES

1 unchanged sentence

December 31, 2021, December 31, 2020 and December 31, 2019

Federal Solutions

Critical Infrastructure

For the years ended December 31 , 20 2 1 and December 31, 20 20 , 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.

As a result, no goodwill impairments were identified for those periods.

No goodwill impairments were identified for the three years ended December 31, 2021, December 31, 2020 and December 31, 2019 .

Intangible Assets

28 unchanged sentences

During fiscal 2011, the Company consummated two sale-leaseback transactions associated with the sale of two office buildings from which the Company recognized a total gain in the consolidated statements of income of $ 106.7 million and a total deferred gain of $ 107.8 million.

The current and long-term portion of the deferred gain had been recorded in “Accrued expenses and other current liabilities” and “Deferred gain resulting from sale-leaseback transactions” on the consolidated balance sheet as of December 31, 2018, respectively, and was being recognized ratably over the minimum lease terms to which they relate, as an offset to rental expense in “Indirect, general and administrative expenses” in the consolidated statements of income.

The current and long-term portion of the deferred gain had been recorded in “Accrued expenses and other current liabilities” and “Deferred gain resulting from sale-leaseback transactions” on the consolidated balance sheet as of December 31, 2018, respectively, and was being recognized ratably over the minimum lease terms to which they relate, as an offset to rental expense in “Selling, general and administrative expenses” in the consolidated statements of income.

Amortization of the deferred gain was $ 7.3 million for the year ended December 31, 2018.

14 unchanged sentences

Debt consisted of the following at December 31, 2021 and December 31, 2020 (in thousands):

December 31, 2021

December 31, 2020

Total Short-Term

4 unchanged sentences

Revolving Credit Facility

In November 2017 , the Company entered into an amended and restated Credit Agreement.

The Company incurred approximately $ 2.0 million of costs in connection with this amendment.

Under the agreement, the Company’s revolving credit facility was increased from $ 500 million to $ 550 million and the term of the agreement was extended through November 2022 .

The borrowings under the Credit Agreement bear interest, at the Company’s option, at either the Base Rate (as defined in the Credit Agreement), plus an applicable margin, or LIBOR plus an applicable margin.

The applicable margin for Base Rate loans is a range of 0.125 % to 1.00 % and the applicable margin for LIBOR loans is a range of 1.125 % to 2.00 %, both based on the leverage ratio of the Company at the end of each fiscal quarter.

The rates at December 31, 2020 and December 31, 2019 were 1.87 % and 3.02 %, respectively.

Borrowings under this Credit Agreement are guaranteed by certain of the Company’s operating subsidiaries.

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 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, 2021 and December 31, 2020 were 1.36 % and 1.87 %, respectively.

Borrowings under this Credit Agreement are guaranteed by certain Company operating subsidiaries.

Letters of credit commitments outstanding under this agreement aggregated approximately $ 44.3 million and $ 44.9 million at December 31, 2021 and December 31, 2020, respectively, which reduced borrowing limits available to the Company.

1 unchanged sentence

There were no loan amounts outstanding under the Credit Agreement at December 31, 2021.

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021, December 31, 2020 and December 31, 2019

In January 2019, the Company borrowed $ 150.0 million under our Term Loan Agreement to partially finance the OGSystems acquisition.

1 unchanged sentence

Interest expense related to the Term Loan was $ 2.3 million for the year ended December 31, 2019.

There were no amounts outstanding in 2020.

There were no amounts outstanding in 2020 and 2021.

Private Placement

On July 1, 2014, the Company finalized a private placement whereby the Company raised an aggregate amount of $ 250.0 million in debt repayable as follows (in thousands):

On July 1, 2014, the Company finalized a private placement whereby the Company raised an aggregate amount of $ 250.0 million in debt as follows (in thousands):

Maturity Date

8 unchanged sentences

July 15, 2029

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020, December 31, 2019 and December 31, 2018

The Company incurred approximately $ 1.1 million of debt issuance costs in connection with the private placement.

1 unchanged sentence

These costs are presented as a direct deduction from the debt on the face of the balance sheet.

Interest expense related to the Senior Notes approximated $ 12.4 million for the years ended December 31, 2020, December 31, 2019 and December 31, 2018.

Interest expense related to the Senior Notes was $ 11.6 million for the year ended December 31, 2021 and $ 12.4 million for the years ended December 31, 2020 and December 31, 2019.

The amortization of debt issuance costs and interest expense is recorded in “Interest expense” on the consolidated statements of income.

The Company paid the $ 50 million Series A tranche of the Senior Notes as scheduled in July 2021.

The Company made interest payments related to the Senior Notes of approximately $ 12.4 million during the years ended December 31, 2021, December 31, 2020 and December 31, 2019.

Interest payable of approximately $ 4.7 million and $ 5.5 million was recorded in “Accrued expenses and other current liabilities” on the consolidated balance sheets at December 31, 2021 and December 31, 2020, respectively, related to the Senior Notes.

The Credit Agreement and private placement includes various covenants, including restrictions on indebtedness, liens, acquisitions, investments or dispositions, payment of dividends and maintenance of certain financial ratios and conditions.

The Company was in compliance with these covenants at December 31, 2020 and December 31, 2019.

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 $ 193.1 million and $ 197.3 million at December 31, 2020 and December 31, 2019, respectively.

Using a discounted cash flow technique that incorporates a market interest yield curve with adjustments for duration, optionality, and risk profile, the Company estimated the fair value (Level 2) of its senior notes at December 31, 2021 approximates $ 219.8 million.

See “Note 19— Fair Value of Financial Instruments ” for the definition of level 2 of the fair value hierarchy below.

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020, December 31, 2019 and December 31, 2018

Convertible Senior Notes

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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;

effectively junior in right of payment to any of the Company’s secured indebtedness,

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021, December 31, 2020 and December 31, 2019

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

8 unchanged sentences

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.

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020, December 31, 2019 and December 31, 2018

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.

1 unchanged sentence

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.

Convertible debt instruments that may be settled in cash on conversion are 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 is 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 is 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 amortizes to interest expense over the term of the Convertible Senior Notes using an effective interest rate of 3.25 %.

During the year ended December 31, 2020, the Company recognized interest expense of $ 4.4 million related to the amortization of debt discount and issuance costs.

As of December 31, 2020, the net carrying value of the Notes was $ 340.6 million.

A summary as of December 31, 2020 of the gross carrying amount, unamortized debt discount including debt issuance costs, and net carrying value of the liability component of the Convertible Senior Notes is as follows:

December 31, 2020

Debt discount

Carrying amount

Equity component

PARSONS CORPORATION AND SUBSIDIARIES

1 unchanged sentence

December 31, 2021, December 31, 2020 and December 31, 2019

Convertible Note Hedge and Warrant Transactions

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 $ 3.0 million and $ 4.4 million for the years ended December 31, 2021 and December 31, 2020, respectively.

As of December 31, 2021, the carrying value of the Notes was $ 400.0 million.

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.

The Company was in compliance with these covenants at December 31, 2021 and December 31, 2020.

The Company also has in place several secondary bank credit lines for issuing letters of credit, principally for foreign contracts, to support performance and completion guarantees.

Letters of credit commitments outstanding under these bank lines aggregated approximately $ 223.0 million and $ 193.1 million at December 31, 2021 and December 31, 2020, respectively.

Convertible Note Hedge and Warrant

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.

5 unchanged sentences

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.

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021, December 31, 2020 and December 31, 2019

$ 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 a deferred tax asset of $ 16.5 million related to the convertible note hedge transactions.

The deferred tax liability and deferred tax asset are included net in “Deferred tax assets” on 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.

Other Long-term Liabilities

10 unchanged sentences

Therefore, previously, no provision or liability for federal or state income tax had been provided in the consolidated financial statements except for those states where the “S” Corporation status was not recognized, or where states imposed a tax on “S” Corporations.

The provision for income tax in the

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020, December 31, 2019 and December 31, 2018

historical periods prior to the IPO consists of these state taxes and taxes from certain foreign jurisdictions where the Company is subject to tax.

The provision for income tax in the historical periods prior to the IPO consists of these state taxes and taxes from certain foreign jurisdictions where the Company is subject to tax.

In connection with the Company’s IPO on May 8, 2019, the “S” Corporation status was terminated, and the Company is now treated as a “C” Corporation under the Internal Revenue Code.

1 unchanged sentence

These rules require that the deferred tax effects of a change in tax status to be recorded to income from continuing operations on the date the “S” Corporation status terminates.

The termination of the “S” Corporation election has had a material impact on the Company’s results of operations, financial condition, and cash flows as reflected in the December 31, 2020 and December 31, 2019 consolidated financial statements.

Income tax expense decreased in 2019 primarily due to a tax benefit recorded for the revaluation of our deferred tax assets and liabilities as a result of our conversion from “S” Corporation to a “C” Corporation.

The effective tax rate has increased, and net income has decreased as compared to the Company’s “S” Corporation tax years, since the Company is now subject to both U.S.

The termination of the “S” Corporation election has had a material impact on the Company’s results of operations, financial condition, and cash flows as reflected in the December 31, 2021, December 31, 2020 and December 31, 2019 consolidated financial statements.

Income tax expense was impacted in 2019 primarily due to a tax benefit recorded for the revaluation of our deferred tax assets and liabilities as a result of our conversion from “S” Corporation to a “C” Corporation.

The effective tax rate has increased,

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021, December 31, 2020 and December 31, 2019

and net income has decrease d as compared to the Company’s “S” Corporation tax years, since the Company is now subject to both U.S.

federal and state corporate income taxes on its earnings.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19 pandemic.

The CARES Act, among other things, permits Net Operating Loss (“NOL“) carryovers to offset 100 % of taxable income for tax years beginning before 2021.

In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding tax years to generate a refund of previously paid income taxes.

The CARES Act contains modifications on the limitation of business interest for tax years beginning in 2019 and 2020.

The modifications to Section 163(j) increase the allowable business interest deduction from 30 % of adjusted taxable income to 50 % of adjusted taxable income.

The CARES Act also accelerates the refund of alternative minimum tax (“AMT”) credits that were previously accumulated.

The Company does not expect that the modifications on the limitation of business interest or AMT credits would have any impact to the Company.

Under the NOL carryback provision, the Company carried back some of its NOLs claiming a tax refund of $ 3.9 million relating to certain amounts associated with the acquisition of OGSystems which are subject to certain shareholders’ claims.

On July 9, 2020, the U.S.

Treasury Department issued final tax regulations related to the foreign-derived intangible income (“FDII”) and global intangible low-taxed income (“GILTI”) provisions.

Also, on July 20, 2020 the U.S.

Treasury Department released final tax regulations permitting a taxpayer to elect to exclude from its GILTI inclusion items of income subject to a high effective rate of foreign tax.

Additionally, on August 21, 2020, the U.S.

Treasury Department finalized anti-abuse regulations limiting deductions of foreign-source dividends.

Separately, on September 2, 2020, the U.S.

Treasury Department finalized regulations on the base erosion anti-abuse tax under IRC Section 59A.

Treasury Department also finalized a second set of regulations on the allowance for the additional first-year depreciation deduction under IRC Section 168(k) on September 16, 2020, as amended by the Tax Cuts and Jobs Act (“TCJA”), for qualified property acquired and placed in service after September 27, 2017.

Further, on September 29, 2020, the U.S.

Treasury Department issued final tax regulations addressing various aspects of the foreign tax credit regime.

Lastly, on December 21, 2020, the U.S.

Treasury Department released final regulations addressing the timing of income recognition for accrual method taxpayers under IRC Sections 451(b) and 451(c), as amended by the 2017 TCJA.

The Company is currently assessing the impact of the new regulations to its consolidated financial statements but does not expect a material change of its income tax expense due to the new regulations.

Treasury and the Internal Revenue Service on December 28, 2021 released final regulations that significantly restrict the ability to credit certain foreign taxes.

While the 2021 Final Regulations are effective on March 7, 2022, certain provisions are applicable to periods beginning before that date.

The final regulations provide additional guidance on a wide range of topics, including the definition of a foreign income tax, the disallowance of a credit or deduction for certain foreign income taxes, the allocation and apportionment of foreign income taxes, when foreign income taxes accrue, and related rules under the Internal Revenue Code.

The final regulations generally follow the proposed regulations, published on November 12, 2020, but include notable changes.

Among other things, the final regulations overhaul the requirements which a foreign tax must satisfy to be claimed as a credit.

The most significant change is that a foreign tax must satisfy a new "attribution requirement" for the tax to be creditable under Internal Revenue Code Sections 901 or 903.

Under the attribution requirement, foreign taxes are not generally creditable unless the foreign tax law requires a sufficient nexus between the foreign country and the taxpayer’s activities or investments.

The Company believes these regulations may restrict the amount of future foreign tax credits the Company is eligible to claim on its US Federal income tax return and as such, may have an impact on the Company’s future effective tax rate.

The following table presents the components of our income from continuing operations before income taxes (in thousands):

1 unchanged sentence

Foreign earnings

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020, December 31, 2019 and December 31, 2018

The income tax expense (benefit) attributable to income from continuing operations for the years ended December 31, 2021, December 31, 2020 and December 31, 2019 consists of the following (in thousands):

2 unchanged sentences

Total income tax expense (benefit)

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021, December 31, 2020 and December 31, 2019

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):

11 unchanged sentences

Federal research credits

Executive compensation

Total income tax expense (benefit)

The effective tax rate in 2020 increased to 26.3 % from ( 103.9 %) in 2019.

The change in the effective tax rate was due primarily to the nonrecurring tax benefit items included in 2019 for the remeasurement of its U.S.

The effective tax rate in 2021 decreased to 21.0 % from 26.3 % in 2020.

The change in the effective tax rate was due primarily to an increase in untaxed income attributable to noncontrolling interests, release of a valuation allowance on foreign tax credits utilized on the 2020 federal return, a change in jurisdictional earnings, and a release of uncertain tax positions, partially offset by a write down of a foreign tax receivable and an increase in executive compensation subject to IRC Section 162(m) limitations .

The effective rate in 2020 increased to 26.3% from ( 104 %) in 2019.

The change in the effective rate was due primarily to the nonrecurring tax benefit items included in 2019 for the remeasurement of its U.S.

deferred tax assets and liabilities due to the change in tax status from an S Corporation to a C Corporation.

The effective tax rate for the year ended December 31, 2020 differs from the federal statutory tax rate primarily due to state income taxes and a recorded valuation allowance on foreign tax credits, partially offset by benefits related to income attributable to noncontrolling interest and federal research tax credits .

The effective tax rate for the year ended December 31, 2021 differs from the federal statutory tax rate primarily due to state income taxes, a recorded valuation allowance on foreign tax credit carryovers, and a write down of a foreign tax receivable and an increase in executive compensation subject to IRC Section 162(m) limitations , partially offset by benefits related to untaxed income attributable to noncontrolling interests, release of uncertain tax positions, and federal research tax credits .

The effective tax rate for the year ended December 31, 2020 differs from the federal statutory tax rate primarily due to state income taxes and a recorded allowance on foreign tax credit carryovers, partially offset by benefits related to untaxed income attributable to noncontrolling interests, and federal research tax credits.

The components of deferred tax assets and liabilities consists of the following at December 31, 2021 and December 31, 2020 (in thousands):

20 unchanged sentences

A valuation allowance is recorded against deferred tax assets to reflect the amount of deferred tax assets that is determined to be more-likely-than-not to be realized.

The tax cost, net of applicable credits, has been provided on the undistributed earnings of the Company’s foreign subsidiaries.

The Company does not assert any earnings to be permanently reinvested.

As of December 31, 2020, and December 31, 2019, the Company’s valuation allowance against deferred tax assets is $ 23.9 million and $ 17.4 million, respectively.

This valuation allowance represents the portion of deferred tax assets primarily related to foreign net operating loss carryforwards, foreign tax credit carryforwards and capital loss carryforwards for which the Company has determined are not more-likely-than-not to be realized.

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, 2021, and December 31, 2020, the Company’s valuation allowance against deferred tax assets was $ 27.3 million and $ 23.9 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, 2020 to December 31, 2021, the Company’s valuation allowance increased by $ 3.4 million.

Of this increase, $ 6.9 million relates to deferred tax assets recorded for foreign tax credit carryforwards offset in part by decrease in valuation allowance related to net operating loss carryforwards.

The valuation allowance is generated because the Company does not and will not have sufficient foreign source income to support the foreign tax credit carryforwards.

As of December 31, 2020, the Company has NOLs of $ 32.8 million, and $ 36.7 million for U.S.

Of this increase, $ 4.1 million relates to deferred tax assets recorded for foreign tax credit carryforwards offset in part by a decrease in valuation allowance related to net operating loss carryforwards.

The valuation allowance is recorded because the Company does not expect to have sufficient foreign source income to support the foreign tax credit carryforwards before they expire.

As of December 31, 2021, the Company has NOLs of $ 1.7 million, $ 42.9 million, and $ 38.9 million for U.S.

Federal, U.S.

states and foreign jurisdictions, respectively.

The utilization of the U.S.

federal and U.S.

state NOLs are subject to certain annual limitations.

Of these amounts, $ 27.0 million and $ 33.9 million in U.S.

Of these amounts, $ 0.4 million, $ 32.6 million and $ 24.0 million in U.S.

Federal, U.S.

states and foreign jurisdictions, respectively, do not expire.

13 unchanged sentences

Lapse of statute of limitations

At December 31, 2020, and December 31, 2019, there are $ 15.8 million and $ 13.9 million of unrecognized tax benefits that if recognized would affect the effective tax rate.

At December 31, 2021, and December 31, 2020, there are $ 19.5 million and $ 15.8 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, 2020, December 31, 2019, and December 31, 2018, the Company recognized approximately $ 1.1 million, $ 1.3 million, and $ 0.0 million in interest and penalties, respectively for each year, in the Consolidated Statements of Income.

During the years ended December 31, 2021, December 31, 2020, and December 31, 2019, the Company recognized approximately $( 0.9 ) million, $ 1.1 million, and $ 1.3 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 $ 3.5 million, $ 4.4 million, and $ 3.4 million at December 31, 2021, December 31, 2020, and December 31, 2019, respectively.

15 unchanged sentences

A liability is recorded when it is both probable that a loss has been incurred and the amount of loss or range of loss can be reasonably estimated.

When using a range of loss estimate, the Company records the liability using the low end of the range.

The Company records a corresponding receivable for costs covered under its insurance policies.

Management judgment is required to determine the outcome and the estimated amount of a

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

PARSONS CORPORATION AND SUBSIDIARIES

1 unchanged sentence

December 31, 2021, December 31, 2020 and December 31, 2019

loss related to such matters.

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.

On or about March 1, 2017, the Peninsula Corridor Joint Powers Board, or the JPB, filed a lawsuit against Parsons Transportation Group, Inc., or PTG, in the Superior Court of California, County of San Mateo, in connection with a positive train control project on which PTG was engaged prior to termination of its contract by the JPB.

PTG had previously filed a lawsuit against the JPB for breach of contract and wrongful termination.

The JPB seeks damages in excess of $ 100.0 million, which the Company is currently disputing.

In addition to filing a complaint for breach of contract and wrongful termination, the Company has denied the allegations raised by the JPB and, accordingly, filed affirmative defenses.

The Company is currently defending against the JPB’s claims and the parties are still engaged in discovery.

The Company also has a professional liability insurance policy to the extent the JPB proves any errors or omissions occurred.

At this time, the Company is unable to determine the probability of the outcome of the litigation or determine a potential range of loss, if any.

The Company has also filed a third-party claim against a subcontractor for indemnification in connection with this matter.

In September 2015, a former Parsons employee filed an action in the United States District Court for the Northern District of Alabama against us as a qui tam relator on behalf of the United States (the “Relator”) alleging violation of the False Claims Act.

7 unchanged sentences

At this time, the Company is unable to determine the probability of the outcome of the litigation or determine a potential range of loss, if any.

On or about October 4, 2019, LBH Engineers, LLC (“LBH”) filed a lawsuit against Parsons, PTG, and various other parties in the US District Court of for the Northern District of Georgia, in connection with an alleged infringement of LBH’s patent.

LBH seeks damages and costs incurred by LBH, a post-judgment royalty and treble damages if the infringement is found to be willful, among other damages, which the Company and the other defendants are currently disputing.

At this time, the Company is unable to determine the probability of the outcome of the litigation or determine a potential range of loss, if any.

Federal government contracts are subject to audits, which are performed for the most part by the Defense Contract Audit Agency (“DCAA”).

6 unchanged sentences

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.

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020, December 31, 2019 and December 31, 2018

Retirement and Other Benefit Plans

1 unchanged sentence

Contributions of treasury stock to ESOP are made annually in amounts determined by the Company’s board of directors and are held in trust for the sole benefit of the participants.

Shares allocated to a participant’s account are fully vested after six years of credited service, or in the event(s) of reaching age 65, death or disability while an active employee of the Company.

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, 2021, the total shares of the Company’s common stock outstanding were 103,659,731 , of which 70,328,237 were held by the ESOP.

3 unchanged sentences

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 $ 55.3 million, $ 55.5 million and $ 45.2 million for the years ended December 31, 2020, December 31, 2019 and December 31, 2018, respectively, and is recorded in “Direct costs of contracts” and “Indirect, general and administrative expense” in the consolidated statements of income.

Total ESOP contribution expense was approximately $ 54.9 million, $ 55.3 million and $ 55.5 million for the years ended December 31, 2021, December 31, 2020 and December 31, 2019,

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021, December 31, 2020 and December 31, 2019

respectively, and is recorded in “Direct costs of contracts” and “ Selling , general and administrative expense” in the consolidated statements of income.

On April 3, 2019 , the board of directors of the Company declared a cash dividend to the Company’s sole existing shareholder at that time, the ESOP, in the amount of $ 2.00 per share, or $ 52.1 million in the aggregate (the “IPO Dividend”).

10 unchanged sentences

At December 31, 2021 and December 31, 2020, the defined benefit pension plan was in a net asset position of $ 2.6 million and $ 2.0 million, respectively, which is recorded in “Other noncurrent assets” on the consolidated balance sheets.

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020, December 31, 2019 and December 31, 2018

Investments in and Advances to Joint Ventures

10 unchanged sentences

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.

None of the Company’s current

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021, December 31, 2020 and December 31, 2019

joint ventures that meet the characteristics of a VIE are individually significant to the consolidated financial statements.

Consolidated Joint Ventures

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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.

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020, December 31, 2019 and December 31, 2018

2018 includes reversal of a provisions related to a lawsuit against a joint venture in which the Company was the managing partner.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K for a description of this matter, which was resolved in favor of the Company on June 13, 2018.

Unconsolidated Joint Ventures

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The Company’s maximum exposure to loss as a result of its investments in unconsolidated VIEs is typically limited to the aggregate of the carrying value of the investment and future funding commitments.

The following represents the financial information of the Company’s unconsolidated joint ventures as presented in their unaudited financial statements as or and for the years ended December 31, 2020 and December 31, 2019 (in thousands):

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, 2021 and December 31, 2020 (in thousands):

Current assets

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Investments in and advances to unconsolidated joint

Equity in earnings of unconsolidated joint ventures

The Company received net distributions from its unconsolidated joint ventures of $ 30.5 million, $ 38.9 million and $ 41.9 million for the years ended December 31, 2020, December 31, 2019 and December 31, 2018, respectively.

For the year ended December 31, 2020, the Company recorded a $ 15.5 million write-down on an unconsolidated joint venture in the Critical Infrastructure segment as a result of changes in estimates made by the managing partner.

This write-down decreased operating and net income, net of tax at 25.4 % by $ 15.5 million and $ 11.5 million, respectively, and decreased diluted earnings per share by $ 0.11 .

PARSONS CORPORATION AND SUBSIDIARIES

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December 31, 2021, December 31, 2020 and December 31, 2019

Equity in earnings of unconsolidated joint ventures

The Company had net contributions to its unconsolidated joint ventures for the year ended December 31, 2021 of $ 13.2 million and received net distributions from its unconsolidated joint ventures of $ 30.5 million and $ 38.9 million for the years ended December 31, 2020 and December 31, 2019, respectively.

For the years ended December 31, 2021 and December 31, 2020, the Company recorded a $ 15.6 million and $ 15.5 million write-down, respectively, on an unconsolidated joint venture in the Critical Infrastructure segment as a result of changes in estimates made by the managing partner.

For the year ended December 31, 2021, this write-down decreased operating and net income by $ 15.6 million and $ 11.6 million, respectively, and decreased diluted earnings per share by $ 0.10 .

For the year ended December 31, 2020, this write-down decreased operating and net income by $ 15.5 million and $ 11.5 million, respectively, and decreased diluted earnings per share by $ 0.11 .

Related Party Transactions

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Cost approach —Amount that would be required to replace the service capacity of an asset (i.e., replacement cost);

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021, December 31, 2020 and December 31, 2019

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).

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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

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020, December 31, 2019 and December 31, 2018

or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

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.

The following table sets forth assets associated with the pension plan in “Note 16— Retirement and Other Benefits Plans ” that are accounted for at fair value by Level within the fair value hierarchy.

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Cash and cash equivalents

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021, December 31, 2020 and December 31, 2019

As described in “Note 16— Retirement and Other Benefits Plans ”, the Company acquired a defined contribution pension plan, a defined benefit pension plan, and supplemental retirement plans.

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The inputs that are significant to the valuation of fixed income securities are generally observable, and therefore have been classified as Level 2.

The following table sets forth redeemable common stock associated with the ESOP in “Note 16—R etirement and Other Benefits Plans” that is accounted for at fair value by Level within the fair value hierarchy.

Fair value as of December 31, 2018 (in thousands):

Redeemable Common Stock

As described in “Note 16— Retirement and Other Benefits Plans ”, the Company was obligated to redeem eligible participants’ interests in their ESOP accounts for cash upon an employee’s election until the conclusion of the 180-day lock-up period on November 3, 2019.

Prior to the conclusion of the 180-day lock-up period, all shares held by the ESOP were redeemable in the future for cash at the option of the holder once vesting and eligibility requirements had been met.

At December 31, 2018, 78,172,809 shares of the Company’s common stock were held by the ESOP which the Company recorded at their redemption values of $ 1.9 billion and presented as temporary equity on the consolidated balance sheet.

The redemption value was based on a share price established by the ESOP trustee, taking into account, among other things, the advice of a third-party valuation consultant for the ESOP trustee, as well as the ESOP trustee’s knowledge of the Company.

The share price valuation was determined using a combination of income- and market-based methods that utilized unobservable Level 3 inputs, including significant assumptions such as forecasted revenue and operating margins, working capital requirements, and weighted average cost of capital.

At December 31, 2019, all outstanding shares of common stock are included in permanent equity in the consolidated balance sheet.

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020, December 31, 2019 and December 31, 2018

The following table presents a reconciliation of the beginning and ending balances of the fair value measurements using significant unobservable inputs (Level 3) (in thousands):

Balance at beginning of year

Purchases of treasury stock

Contributions of treasury stock to ESOP

Share price adjustment

Transfer to permanent equity

Balance at end of year

With respect to equity-based compensation, we estimate the fair value of SARs using the Black-Scholes option-pricing model.

Like all option-pricing models, the Black-Scholes option-pricing model requires the use of subjective assumptions, including (i) the expected volatility of the market price of the underlying stock, and (ii) the expected term of the award, among others.

Accordingly, changes in assumptions and any subsequent adjustments to those assumptions can cause different fair values to be assigned to SARs.

Fair value for cash settled awards (excluding SARs prior to vesting) is determined based on the 60-trading day weighted average closing price of the Company’s common stock on the NYSE at the end of each reporting period and on the vesting date.

With respect to equity-based compensation, we estimate the fair value of cash settled awards based on the 60-trading day weighted average closing price of the Company’s common stock on the NYSE at the end of each reporting period and on the vesting date.

For restricted stock units containing service conditions or service and performance conditions, fair value is based on the closing stock price of a share of the Company’s common stock on the NYSE on the grant date.

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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 equity-based awards and shares underlying the Convertible Senior Note.

Convertible Senior Note dilution impact is calculated using the if-converted method which will be required upon adoption of ASU 2020-06.

As a result, the Company elected to adopt the if-converted method under the present accounting.

Convertible Senior Note dilution impact is calculated using the if-converted method which was required upon adoption of ASU 2020-06.

As a result, the Company elected to adopt the if-converted method during the third quarter of 2020.

In connection with the offerings of our note, the Company entered into a convertible note hedge and warrants (see Note 12 Debt and Credit Facilities);

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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 12 for further discussion) and equity-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 equity-based awards excluded from the calculation of earnings per share for the years ended December 31, 2020 and December 31, 2019 were 5,327 and 0 , respectively.

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020, December 31, 2019 and December 31, 2018

Anti-dilutive stock-based awards excluded from the calculation of earnings per share for the years ended December 31, 2021, December 31, 2020, and December 31, 2019 were 11,986 , 5,327 , and 0 , respectively.

In addition, the convertible senior notes were anti-dilutive and excluded for 2020.

The weighted average number of shares used to compute basic and diluted EPS were (in thousands):

Basic weighted average number of shares outstanding

Equity-based awards

Stock-based awards

Convertible senior notes

Diluted weighted average number of shares outstanding

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021, December 31, 2020 and December 31, 2019

The net income available to shareholders to compute basic and diluted EPS were (in thousands):

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Diluted net income attributable to Parsons Corporation

Share Repurchases

In August 2021, the Company’s Board of Directors authorized a stock repurchase program to repurchase up to $ 100.0 million of shares of Common Stock.

Repurchases under this stock repurchase program commenced on August 12, 2021 .

Any and all shares of Common Stock purchased by the Company pursuant to the program shall be retired upon their acquisition and shall not become treasury shares but instead shall resume the status of authorized but unissued shares of Common Stock.

The table below presents information on this repurchase program:

Total shares repurchased

Total shares retired

Average price paid per share

As of December 31, 2021, the Company has $ 78.3 million remaining under the stock repurchase program.

Segments Information

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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”), currently its Chairman and Chief Executive Officer, evaluates the performance of each segment and manages the operations of the Company for purposes of allocating resources among the segments.

The Company defines its reportable segments based on the way the chief operating decision maker (“CODM”), currently 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.

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021, December 31, 2020 and December 31, 2019

The following table summarizes business segment information for the periods presented (in thousands):

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Total revenues

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020, December 31, 2019 and December 31, 2018

The Company defines Adjusted EBITDA attributable to Parsons Corporation as Adjusted EBITDA excluding Adjusted EBITDA attributable to noncontrolling interests.

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Income tax (expense) benefit

Litigation-related expenses (a)

Amortization of deferred gain resulting from sale-leaseback transactions (b)

Equity-based compensation (c)

Transaction-related costs (d)

Restructuring (e)

Equity-based compensation (a)

Transaction-related costs (b)

Restructuring (c)

Net income including noncontrolling

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Net income attributable to Parsons

Fiscal 2018 reflects a reversal of an accrued liability, with $ 55.1 million recorded to revenue and $ 74.6 million recorded to other income in our results of operations related to a judgment entered against the Company in 2014 in connection with a lawsuit against a joint venture in which the Company is the managing partner.

Reflects recognized deferred gains related to sales-leaseback transactions described in “Note 10— Sale-Leasebacks .”

Reflects equity-based compensation costs primarily related to cash-settled awards.

Reflects equity-based compensation costs primarily related to cash-settled awards and stock-based awards through the incentive Award Plan.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K for a further discussion of these awards.

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The following table presents revenues by business lines (in thousands):

Cyber & Intelligence

Space & Geospatial Solutions

Missile Defense & C5ISR

Defense & Intelligence

Engineered Systems

Federal Solutions revenues

Connected Communities

Mobility Solutions

Connected Communities

Critical Infrastructure revenues

Total revenues

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020, December 31, 2019 and December 31, 2018

Revenue for the year ended December 31 , 2018 included $ 55.1 million related to the settlement of a claim that was resolved in favor of the Company in the Mobility Solutions business line of our Critical Infrastructure segment.

Excluding the claim set tlement, revenue for the year ended December 31, 2018 for the Critical Infrastructure segment was $ 2.0 billion and for the Mobility Solutions revenue business line revenue was $ 1.5 billion.

Effective January 1, 2020, the Company made changes to its business lines as described below.

Effective July 1, 2021, the Company made changes to its Federal Solutions business units by consolidating Space & Geospatial Solutions, Cyber & Intelligence, and Missile Defense & C5ISR into a new Defense and Intelligence business unit.

The prior year information in the table above has been reclassified to conform to the business line changes.

Federal Solutions Business Line Changes

As a result of the acquisitions of Polaris Alpha, OGSystems and QRC, we realigned the five business lines within our Federal Solutions segment into four business lines.

We consolidated all space and geospatial programs from the former Geospatial Solutions, Defense and Cyber & Intelligence markets into a new Space & Geospatial Solutions business line to increase focus on the critical, evolving space market.

This new business line better aligns capabilities and customers to drive growth and performance execution through improved agile, end-to-end solutions and dedicated customer focus.

Further, we re-named our Defense business line to Missile Defense & C5ISR.

We moved our Missions Solutions business line into our Missile Defense & C5ISR, Engineered Systems and Cyber & Intelligence business lines, for better customer and capability alignment.

These changes were the next logical step in our acquisition integration process, to optimize performance delivery and growth.

Quarterly Information - Unaudited

The following tables present selected quarterly financial information (in thousands except per share data).

Quarter Ended

December 31, 2020

September 30, 2020

June 30, 2020

March 31, 2020

December 31, 2019

September 30, 2019

June 30, 2019

March 31, 2019

Federal Solutions revenue

Critical Infrastructure revenue

Total revenue

Operating income

Net income attributable to Parsons Corporation

Federal Solutions Adjusted EBITDA attributable to Parsons Corporation

Critical Infrastructure Adjusted EBITDA attributable to Parsons Corporation

Adjusted EBITDA attributable to noncontrolling interests

Total Adjusted EBITDA (1)

The following table presents a reconciliation of net income attributable to Parsons Corporation to Adjusted EBITDA.

For more information on our use of Adjusted EBITDA, how we use this metric, why we present this metric and the material limitations on usefulness of this metric, see “Note 21— Segments Information ” in the “Other Information” table located in “Selected Consolidated Financial Data”.

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020, December 31, 2019 and December 31, 2018

December 31, 2020

September 30, 2020

June 30, 2020

March 31, 2020

December 31, 2019

September 30, 2019

June 30, 2019

March 31, 2019

Net income attributable to Parsons Corporation

Interest expense, net

Income tax expense (benefit)

Depreciation and amortization

Net income attributable to noncontrolling interests

Stock-based compensation (a)

Transaction related costs (b)

Restructuring (c)

Adjusted EBITDA

Reflects equity-based compensation costs primarily related to cash-settled awards.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K for a further discussion of these awards.

Reflects costs incurred in connection with acquisitions and other non-recurring transaction costs, including primarily fees paid for professional services and employee retention.

Reflects costs associated with and related to our corporate restructuring initiatives.

Includes a combination of gain/loss related to sale of fixed assets, software implementation costs, and other individually insignificant items that are non-recurring in nature.

Subsequent Events

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures