What changed in this filing

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Item 1. Financial Statements

2022-05-04 compared with 2021-11-03 · 140 added, 294 removed, 579 unchanged (43% of the section changed)

3 unchanged sentences

(in thousands, except share information)

September 30, 2021

March 31, 2022

December 31, 2021

19 unchanged sentences

Income taxes payable

Short-term debt

Total current liabilities

25 unchanged sentences

For the Three Months Ended

For the Nine Months Ended

September 30, 2021

September 30, 2020

September 30, 2021

September 30, 2020

March 31, 2022

March 31, 2021

Direct cost of contracts

17 unchanged sentences

For the Three Months Ended

For the Nine Months Ended

September 30, 2021

September 30, 2020

September 30, 2021

September 30, 2020

March 31, 2022

March 31, 2021

Net income including noncontrolling interests

Other comprehensive income (loss), net of tax

Other comprehensive income, net of tax

Foreign currency translation adjustment, net of tax

7 unchanged sentences

(In thousands) (Unaudited)

For the Nine Months Ended

September 30, 2021

September 30, 2020

For the Three Months Ended

March 31, 2022

March 31, 2021

Cash flows from operating activities:

Net income including noncontrolling interests

Adjustments to reconcile net income to net cash provided by operating activities

Adjustments to reconcile net income to net cash used in operating activities

Depreciation and amortization

Amortization of debt issue costs

Amortization of convertible notes discount

Loss (gain) on disposal of property and equipment

(Gain) loss on disposal of property and equipment

Provision for doubtful accounts

14 unchanged sentences

Other long-term liabilities

Net cash provided by operating activities

Net cash used in operating activities

Cash flows from investing activities:

7 unchanged sentences

Cash flows from financing activities:

Proceeds from borrowings under credit agreement

Repayments of borrowings under credit agreement

Payments for debt costs and credit agreement

Proceeds from issuance of convertible notes

Payments for purchase of bond hedges

Proceeds from issuance of warrants

Transaction costs paid in connection with convertible notes issuance

Contributions by noncontrolling interests

2 unchanged sentences

Taxes paid on vested stock

Proceeds from issuance of common stock

Net cash (used in) provided by financing activities

Net cash used in financing activities

Effect of exchange rate changes

6 unchanged sentences

Consolidated Statements of Shareholders’ Equity

For the Three Months Ended September 30, 2021 and September 30, 2020

For the Three Months Ended March 31, 2022 and March 31, 2021

(In thousands)

2 unchanged sentences

Income (Loss)

Balance at June 30, 2021

Balance at December 31, 2021

Comprehensive income

3 unchanged sentences

Distributions

Repurchases of common stock

Stock-based compensation

Balance at September 30, 2021

Balance at June 30, 2020

Comprehensive income

Foreign currency translation gain, net

Pension adjustments, net

Contributions

Distributions

Issuance of equity securities, net of retirements

Equity component value of convertible note issuance

Purchase of convertible note hedge

Sale of common stock warrants

Stock-based compensation

Balance at September 30, 2020

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

PARSONS CORPORATION AND SUBSIDIARIES

Consolidated Statements of Shareholders’ Equity

For the Nine Months Ended September 30, 2021 and September 30, 2020

(In thousands)

Comprehensive

Noncontrolling

Income (Loss)

Balance at December 31, 2020

Comprehensive income

Foreign currency translation gain, net

Pension adjustments, net

Adoption of ASU 2020-06

Contributions

Distributions

Issuance of equity securities, net of retirement

Repurchases of common stock

Stock-based compensation

Balance at September 30, 2021

Balance at March 31, 2022

Balance at December 31, 2020

Comprehensive income

Foreign currency translation loss, net

Foreign currency translation gain, net

Pension adjustments, net

2 unchanged sentences

Distributions

Issuance of equity securities, net of retirement

Equity component value of convertible note issuance

Purchase of convertible note hedge

Sale of common stock warrants

Issuance of equity securities, net of retirements

Stock-based compensation

Balance at September 30, 2020

Balance at March 31, 2021

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

Parsons Corporation and Subsidiaries

1 unchanged sentence

Description of Operations

Parsons Corporation, a Delaware corporation, and its subsidiaries (collectively, the “Company”) is a leading provider of technology-driven solutions in the defense, intelligence and critical infrastructure markets.

We provide software and hardware products, technical services and integrated solutions to support our customers’ missions.

We have developed significant expertise and differentiated capabilities in key areas of cybersecurity, intelligence, missile defense, C5ISR, space, geospatial, and connected communities.

By combining our talented team of professionals and advanced technology, we help solve complex technical challenges to enable a safer, smarter and more interconnected world.

Parsons Corporation, a Delaware corporation, and its subsidiaries (collectively, the “Company”) provide sophisticated design, engineering and technical services, and smart and agile software to the United States federal government and Critical Infrastructure customers worldwide.

The Company performs work in various foreign countries through local subsidiaries, joint ventures and foreign offices maintained to carry out specific projects.

Basis of Presentation and Principles of Consolidation

18 unchanged sentences

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 statement of income.

Employee Stock Purchase Plan

During the second quarter of fiscal 2020, initial purchases of the Company’s common Stock were made under the Parsons Employee Stock Purchase Program (“ESPP”).

Under the ESPP, eligible employees who elect to participate are granted the right to purchase shares of the common stock of Parsons at a discount that is limited to 5 % of the per-share market value on the day shares are sold to employees.

Purchases of common stock under the ESPP are included in

“proceeds from issuance of common stock” in cash flows from financing activities in the Consolidated Statements of Cash Flows.

Stock Repurchase Plan

2 unchanged sentences

New Accounting Pronouncements

In the first quarter of 2022, the Company early adopted ASU No.

2021-08, “Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”.

The new guidance requires that the approach of ASC 606, Revenue from Contracts with Customers, should be used to measure an acquired revenue contract in a business combination.

This guidance is to be applied (1) retrospectively to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early application and (2) prospectively to all business combinations that occur on or after the date of initial application.

The early adoption of ASU 2021-08 did not have a material impact on the consolidated financial statements.

In the first quarter of 2021, the Company early adopted Accounting Standards Update (“ASU”) ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06)”.

10 unchanged sentences

The adoption of ASU 2019-12 did not have a material impact on the consolidated financial statements.

In the first quarter of 2020, the Company adopted ASU 2016-13, “Measurement of Credit Losses on Financial Instruments.” The amendments in ASU 2016-13 replaced the incurred loss impairment methodology in current practice with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to estimate credit losses.

The adoption of ASU 2016-13 did not have a material impact on the consolidated financial statements.

BlackHorse Solutions, Inc.

2 unchanged sentences

The acquisition was entirely funded by cash on-hand.

In connection with this acquisition, the Company recognized $ 3.0 million of acquisition related “Selling, general and administrative expense” in the consolidated statements of income for the three months ended September 30, 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 based on the purchase price allocation as of the date of acquisition (in thousands):

12 unchanged sentences

Deferred tax liabilities

Other long-term liabilities

Net assets acquired

3 unchanged sentences

Non-compete agreements

Amortization expense of $ 2.6 million related to these intangible assets was recorded for the three months ended September 30, 2021.

Amortization expense of $ 3.6 million related to these intangible assets was recorded for the three months ended March 31, 2022.

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 $ 10.6 million is deductible for tax purposes.

The amount of revenue generated by BlackHorse and included within consolidated revenues is $ 16.7 million for the three months ended September 30, 2021.

The amount of revenue generated by BlackHorse and included within consolidated revenues is $ 18.4 million for the three months ended March 31, 2022.

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

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

Supplemental Pro Forma Information (Unaudited)

1 unchanged sentence

Three Months Ended

Nine Months Ended

September 30, 2021

September 30, 2020

September 30, 2021

September 30, 2020

March 31, 2022

March 31, 2021

Pro forma Revenue

6 unchanged sentences

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 three months ended September 30, 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 to goodwill.

1 unchanged sentence

Goodwill in its entirety is deductible for tax purposes.

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 $ 309.5 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 connection with this acquisition, the Company recognized $ 0.6 million of acquisition related “Selling, general and administrative expense” in the consolidated statements of income for the nine months ended September 30, 2021, 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.

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

Cash and cash equivalents

Accounts receivable

Contract assets

Prepaid expenses and other current assets

Property and equipment

Right of use assets, operating leases

Intangible assets

Accounts payable

Accrued expenses and other current liabilities

Contract liabilities

Short-term lease liabilities, operating leases

Long-term lease liabilities, operating leases

Deferred tax liabilities

Net assets acquired

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

Customer relationships

Developed technologies

Non-compete agreements

Amortization expense of $ 4.0 million and $ 12.1 million related to these intangible assets was recorded for the three and nine months ended September 30, 2021, respectively.

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

Goodwill of $ 196.3 million is deductible for tax purposes.

The amount of revenue generated by Braxton and included within consolidated revenues is $ 34.0 million and $ 94.3 million for the three and nine months ended September 30, 2021, respectively.

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

Supplemental Pro Forma Information (Unaudited)

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

Three Months Ended

Nine Months Ended

September 30, 2021

September 30, 2020

September 30, 2021

September 30, 2020

Pro forma Revenue

Pro forma Net Income including noncontrolling interests

The amount of revenue generated by Echo Ridge and included within consolidated revenues for the three months ended March 31, 2022 is $ 1.6 million.

Contracts with Customers

4 unchanged sentences

Three Months Ended

Nine Months Ended

September 30, 2021

September 30, 2020

September 30, 2021

September 30, 2020

March 31, 2022

March 31, 2021

Time-and-Materials

See “Note 18 – Segments Information” for the Company’s revenues by business lines.

Contract Assets and Contract Liabilities

Contract assets and contract liabilities balances at September 30, 2021 and December 31, 2020 were as follows (in thousands):

September 30, 2021

Contract Assets a nd Contract Liabilities

Contract assets and contract liabilities balances at March 31, 2022 and December 31, 2021 were as follows (in thousands):

March 31, 2022

December 31, 2021

2 unchanged sentences

Net contract assets (liabilities) (1)

Total contract retentions included in net contract assets (liabilities) were $ 94.3 million as of September 30, 2021, of which $ 52.3 million are not expected to be paid in the next 12 months.

Total contract retentions included in net contract assets (liabilities) were $ 80.5 million as of March 31, 2022, of which $ 38.2 million are not expected to be paid in the next 12 months.

Total contract retentions included in net contract assets (liabilities) were $ 91.7 million as of December 31, 2021.

Contract assets at September 30, 2021 and December 31, 2020 include $ 106.0 million and $ 116.6 million, respectively, related to unapproved change orders, claims, and requests for equitable adjustment.

For the three and nine months ended September 30, 2021 and September 30, 2020, there were no material losses recognized related to the collectability of claims, unapproved change orders, and requests for equitable adjustment.

During the three months ended September 30, 2021 and September 30, 2020, the Company recognized revenue of $ 3.0 million and $ 9.5 million, respectively, and $ 95.5 million and $ 132.2 million during the nine months ended September 30, 2021 and September 30, 2020, respectively, that was included in the corresponding contract liability balances at December 31, 2020 and December 31, 2019, respectively.

Contract assets at March 31, 2022 and December 31, 2021 include $ 102.8 million and $ 98.6 million, respectively, related to unapproved change orders, claims, and requests for equitable adjustment.

For the three months ended March 31, 2022 and March 31, 2021, there were no material losses recognized related to the collectability of claims, unapproved change orders, and requests for equitable adjustment.

During the three months ended March 31, 2022 and March 31, 2021, the Company recognized revenue of $ 63.9 million and $ 69.1 million, respectively, that was included in the corresponding contract liability balances at December 31, 2021 and December 31, 2020, respectively.

Certain changes in contract assets and contract liabilities consisted of the following:

September 30, 2021

March 31, 2022

December 31, 2021

1 unchanged sentence

Acquired contract liabilities

There was no significant impairment of contract assets recognized during the three and nine months ended September 30, 2021 and September 30, 2020.

Revisions in estimates, such as changes in estimated claims or incentives, related to performance obligations partially satisfied in previous periods that individually had an impact of $ 5 million or more on revenue resulted in the following changes in revenue:

Three Months Ended

Nine Months Ended

September 30, 2021

September 30, 2020

September 30, 2021

September 30, 2020

Revenue impact, net

There was no significant impairment of contract assets recognized during the three months ended March 31, 2022 and March 31, 2021.

There were no revisions in estimates, such as changes in estimated claims or incentives, related to performance obligations partially satisfied in previous periods that individually had an impact of $ 5 million or more on revenue during the three months ended March 31, 2022 and March 31, 2021.

Accounts Receivable, net

Accounts receivable, net consisted of the following as of September 30, 2021 and December 31, 2020 (in thousands):

Accounts receivable, net consisted of the following as of March 31, 2022 and December 31, 2021 (in thousands):

Total accounts receivable, gross

4 unchanged sentences

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.

We have not seen and do not expect there to be a 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

The Company’s remaining unsatisfied performance obligations (“RUPO”) as of September 30, 2021 represent a measure of the total dollar value of work to be performed on contracts awarded and in-progress.

The Company had $ 6.0 billion in RUPO as of September 30, 2021.

The Company’s remaining unsatisfied performance obligations (“RUPO”) as of March 31, 2022 represent a measure of the total dollar value of work to be performed on contracts awarded and in-progress.

The Company had $ 5.5 billion in RUPO as of March 31, 2022.

RUPO will increase with awards of new contracts and decrease as the Company performs work and recognizes revenue on existing contracts.

3 unchanged sentences

(a) original transaction price, (b) change orders for which written confirmations from our customers have been received, (c) pending change orders for which the Company expects to receive confirmations in the ordinary course of business, and (d) claim amounts that the Company has made against customers for which it has determined that it has a legal basis under existing contractual arrangements and a significant reversal of revenue is not probable, less revenue recognized to-date.

The Company expects to satisfy its RUPO as of September 30, 2021 over the following periods (in thousands):

The Company expects to satisfy its RUPO as of March 31, 2022 over the following periods (in thousands):

Period RUPO Will Be Satisfied

5 unchanged sentences

Our leases have remaining lease terms of one year to 8 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 three and nine months ended September 30, 2021 and September 30, 2020 are as follows (in thousands):

The components of lease costs for the three months ended March 31, 2022 and March 31, 2021 are as follows (in thousands):

Three Months Ended

Nine Months Ended

September 30, 2021

September 30, 2020

September 30, 2021

September 30, 2020

March 31, 2022

March 31, 2021

Operating lease cost

4 unchanged sentences

Total lease cost

Supplemental cash flow information related to leases for the nine months ended September 30, 2021 and September 30, 2020 is as follows (in thousands):

Nine Months Ended

September 30, 2021

September 30, 2020

Supplemental cash flow information related to leases for the three months ended March 31, 2022 and March 31, 2021 is as follows (in thousands):

Three Months Ended

March 31, 2022

March 31, 2021

Operating cash flows for operating leases

3 unchanged sentences

Right-of-use assets obtained in exchange for new finance lease liabilities

Supplemental balance sheet and other information related to leases as of September 30, 2021 and December 31, 2020 are as follows (in thousands):

September 30, 2021

Supplemental balance sheet and other information related to leases as of March 31, 2022 and December 31, 2021 are as follows (in thousands):

March 31, 2022

December 31, 2021

13 unchanged sentences

Finance leases

As of September 30, 2021, the Company has no operating leases that have not yet commenced.

A maturity analysis of the future undiscounted cash flows associated with the Company’s operating and finance lease liabilities as of September 30, 2021 is as follows (in thousands):

As of March 31, 2022, the Company has no operating leases that have not yet commenced.

A maturity analysis of the future undiscounted cash flows associated with the Company’s operating and finance lease liabilities as of March 31, 2022 is as follows (in thousands):

Operating Leases

4 unchanged sentences

Total present value of lease liabilities

The following table summarizes the changes in the carrying value of goodwill by reporting segment from December 31, 2020 to September 30, 2021 (in thousands):

The following table summarizes the changes in the carrying value of goodwill by reporting segment from December 31, 2021 to March 31, 2022 (in thousands):

December 31, 2021

Foreign Exchange

September 30, 2021

March 31, 2022

Federal Solutions

Critical Infrastructure

The ultimate impact from the COVID-19 pandemic is difficult to predict.

While many uncertainties exist, we currently anticipate no material change in our financial condition or results of operations.

Although the Company does not anticipate a material change to our financial condition or results of operations, the Company performed a qualitative triggering analysis and determined there was no triggering event indicating a potential impairment to the carrying value of its goodwill at September 30, 2021 and concluded there has no t been an impairment.

The Company performed a qualitative triggering analysis and determined there was no triggering event indicating a potential impairment to the carrying value of its goodwill at March 31, 2022 and concluded there has no t been an impairment.

Intangible Assets

The gross amount and accumulated amortization of intangible assets with finite useful lives included in “Intangible assets, net” on the consolidated balance sheets are as follows (in thousands except for years):

September 30, 2021

March 31, 2022

December 31, 2021

5 unchanged sentences

Total intangible assets

The aggregate amortization expense of intangible assets for the three months ended September 30, 2021 and September 30, 2020 was $ 27.0 million and $ 20.9 million, respectively, and $ 76.1 million and $ 65.7 million for the nine months ended September 30, 2021 and September 30, 2020, respectively.

The aggregate amortization expense of intangible assets for the three months ended March 31, 2022 and March 31, 2021 was $ 20.1 million and $ 24.5 million, respectively.

Estimated amortization expense for the remainder of the current fiscal year and in each of the next four years and beyond is as follows (in thousands):

September 30, 2021

March 31, 2022

Property and Equipment, Net

Property and equipment consisted of the following at September 30, 2021 and December 31, 2020 (in thousands):

September 30, 2021

Property and equipment consisted of the following at March 31, 2022 and December 31, 2021 (in thousands):

March 31, 2022

December 31, 2021

6 unchanged sentences

Property and equipment, net

Depreciation expense for the three months ended September 30, 2021 and September 30, 2020 was $ 9.6 million and $ 9.5 million, respectively, and $ 28.8 million and $ 28.9 million, respectively, for the nine months ended September 30, 2021 and September 30, 2020.

Depreciation expense for the three months ended March 31, 2022 and March 31, 2021 was $ 9.7 million and $ 9.6 million, respectively.

Debt and Credit Facilities

Debt consisted of the following (in thousands):

September 30, 2021

March 31, 2022

December 31, 2021

Total Short-Term

Convertible senior notes

Debt discount

Debt issuance costs

6 unchanged sentences

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.

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 September 30 , 20 2 1 and December 31, 2020 were 1.34 % and 1.87 %, respectively.

The rates on March 31, 2022 and December 31, 2021 were 1.70 % and 1.36 %, respectively.

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

Letters of credit commitments outstanding under this agreement aggregated to $ 45.0 million and $ 44.9 million at September 3 0 , 20 2 1 and December 3 1 , 20 20 , respectively, which reduced borrowing limits available to the Company.

Interest expense related to the C redit A greement was $ 0.1 million and $ 0 .2 million for the three months ended September 30, 2021 and September 30, 2020, respectively, and was $ 0.6 million and $ 0.9 million for nine months ended September 30, 202 1 and September 30, 2020 , respectively .

There were no loan amounts outstanding under the Credit Agreement on September 3 0 , 202 1 .

Letters of credit commitments outstanding under this agreement aggregated to $ 44.5 million and $ 44.3 million at March 31, 2022 and December 31, 2021, respectively, which reduced borrowing limits available to the Company.

Interest expense related to the Credit Agreement was $ 0.1 million and $ 0.1 million for the three months ended March 31, 2022 and March 31, 2021, respectively.

There were no loan amounts outstanding under the Credit Agreement on March 31, 2022.

Private Placement

13 unchanged sentences

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

Interest expense related to the Senior Notes for the three months ended September 30, 2021 and September 30, 2020 was $ 2.7 million and $ 3.1 million, respectively.

Interest expense related to the Senior Notes for the nine months ended September 30, 2021 and September 30, 2020, was $ 8.9 million and $ 9.3 million , respectively.

Interest expense related to the Senior Notes for the three months ended March 31, 2022 and March 31, 2021 was $ 2.6 million and $ 3.2 million, respectively.

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 Note as scheduled in July 2021.

The Company made interest payments of $ 6.2 million for both the three months ended September 30, 2021 and September 30, 2020.

The Company made interest payments related to the Senior Notes for both the nine months ended September 30, 2021 and September 30, 2020 of $ 12.4 million.

Interest payable of $ 2.0 million and $ 5.5 million is recorded in “Accrued expenses and other current liabilities” on the consolidated balance sheets at September 30, 2021 and December 31, 2020, respectively, related to the Senior Notes.

The Company made interest payments of $ 5.1 million and $ 6.2 million for the three months ended March 31, 2022 and March 31, 2021, respectively.

Interest payable of $ 2.2 million and $ 4.7 million is recorded in “Accrued expenses and other current liabilities” on the consolidated balance sheets at March 31, 2022 and December 31, 2021, respectively, related to the Senior Notes.

Using a discounted cash flow technique that incorporates a market interest yield curve with adjustments for duration, optionality, and risk profile, the Company estimated that the fair value (Level 2) of its Senior Notes at March 31, 2022 approximates $ 208.4 million.

See “Note 16 – Fair Value of Financial Instruments” for the definition of Level 2 of the fair value hierarchy.

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 September 30, 2021 and December 31, 2020.

The Company was in compliance with these covenants at March 31, 2022 and December 31, 2021.

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 $ 221.2 million and $ 193.1 million at September 30, 2021 and December 31, 2020, 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 September 30, 2021 approximates $ 223.1 million.

See “Note 16 – Fair Value of Financial Instruments” for the definition of Level 2 of the fair value hierarchy.

Letters of credit commitments outstanding under these bank lines aggregated $ 220.6 million and $ 223.0 million at March 31, 2022 and December 31, 2021, respectively.

Convertible Senior Notes

20 unchanged sentences

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.

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 amortize d to interest expense over the term of the Convertible Senior Notes using an effective interest rate of 3.25 %.

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 %.

During the year ended December 31, 2020, the Company recognized interest expense of $ 4.4 million.

3 unchanged sentences

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 recognized interest expense of $ 0.7 million and $ 1.6 million for the three months ended September 30, 2021 and September 30, 2020, respectively, and $ 2.2 million and $ 1.6 million for the nine months ended September 30, 2021 and September 30, 2020, respectively.

As of September 30, 2021, the carrying value of the Notes was $ 400.0 million.

The Company recognized interest expense of $ 0.7 million and $ 0.7 million for the three months ended March 31, 2022 and March 31, 2021, respectively.

As of March 31, 2022 and December 31, 2021, the carrying value of the Notes was $ 400.0 million.

Convertible Note Hedge and Warrant Transactions

14 unchanged sentences

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.

The Company’s effective tax rate was 25.5 % and 25.6 % for the three months ended September 30, 2021 and 2020, respectively.

The decrease 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, and a change in jurisdictional earnings, partially offset by a write down of a foreign tax receivable.

The Company’s effective tax rate for the nine months ended September 30, 2021 and September 30, 2020 was 25.8 % and 26.4 %.

The decrease in effective tax rate was due primarily to an increase in untaxed income attributed to noncontrolling interests, release of a valuation allowance on foreign tax credits utilized on the 2020 federal return, and a change in jurisdictional earnings, partially offset by a write down of a foreign tax receivable.

The Company’s effective tax rate was 25.4 % and 27.7 % for the three months ended March 31, 2022 and 2021, respectively.

The change in the effective tax rate was due primarily to a decrease of withholding tax and a change in the jurisdictional mix of earnings.

The difference between the effective tax rate and the statutory U.S.

Federal income tax rate of 21.0 % for the three and nine months ended September 30, 2021 primarily relates to state income taxes, a valuation allowance recorded against foreign tax credit carryovers, and a write down of the foreign tax receivable, partially offset by tax benefits related to untaxed income attributable to noncontrolling interests and federal research tax credits.

As of September 30, 2021, the Company’s deferred tax assets were subject to a valuation allowance of $ 32.0 million primarily related to foreign net operating loss carryforwards, foreign tax credit carryforwards, and capital losses that the Company has determined are not more-likely-than-not to be realized.

Federal income tax rate of 21.0 % for the three months ended March 31, 2022 primarily relates to state income taxes and an increased expense for uncertain tax positions, partially offset by benefits related to untaxed income attributable to noncontrolling interests and federal research tax credits.

As of March 31, 2022, the Company’s deferred tax assets were subject to a valuation allowance of $ 28.0 million primarily related to foreign net operating loss carryforwards, foreign tax credit carryforwards, and capital losses that the Company has determined are not more-likely-than-not to be realized.

The factors used to assess the likelihood of realization include:

1 unchanged sentence

The ability or failure to achieve the forecasted taxable income in these entities could affect the ultimate realization of deferred tax assets.

As of September 30, 2021 and December 31, 2020, the liability for income taxes associated with uncertain tax positions was $ 17.6 million and $ 16.4 million, respectively.

It is reasonably possible that the Company may realize a decrease in our uncertain tax positions of approximately $ 0.2 million during the next 12 months as a result of various tax audits and closing tax years.

As of March 31, 2022 and December 31, 2021, the liability for income taxes associated with uncertain tax positions was $ 22.5 million and $ 21.2 million, respectively.

It is reasonably possible that the Company may realize a decrease in our uncertain tax positions of approximately $ 0.5 million during the next 12 months as a result of concluding various tax audits and closing tax years.

Although the Company believes its reserves for its tax positions are reasonable, the final outcome of tax audits could be materially different, both favorably and unfavorably.

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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 sought damages in excess of $ 100.0 million, which the Company disputed.

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

During the third quarter of 2021, the Company and JPB entered into a settlement agreement resolving their disputes against each other.

The Company intends to pursue further recovery against one of its subcontractors.

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.

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.

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The Relator’s attorney appealed the decision to the United States Court of Appeals of the Eleventh Circuit, which ultimately ruled in favor of the Relator, and the Company petitioned the United States Supreme Court to review the decision.

The Supreme Court reviewed the decision and accepted the position of the R elator.

The Supreme Court reviewed the decision and accepted the position of the Relator.

The case was thus remanded to the United States District Court for the Northern District of Alabama.

13 unchanged sentences

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 September 30, 2021 and December 31, 2020, total shares of the Company’s common stock outstanding were 102,257,780 and 102,360,662 , respectively, of which 69,719,214 and 76,641,312 , respectively, were held by the ESOP.

As of March 31, 2022 and December 31, 2021, total shares of the Company’s common stock outstanding were 103,730,134 and 103,659,731 , respectively, of which 68,787,554 and 70,328,237 , respectively, were held by the ESOP.

A participant’s interest in their ESOP account is redeemable upon certain events, including retirement, death, termination due to permanent disability, a severe financial hardship following termination of employment, certain conflicts of interest following termination of employment, or the exercise of diversification rights.

1 unchanged sentence

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 $ 14.8 million and $ 12.5 million for the three months ended September 30, 2021 and September 30, 2020, respectively, and $ 41.3 million and $ 42.0 million for the nine months ended September 30, 2021 and September 30, 2020, respectively.

Total ESOP contribution expense was $ 13.1 million and $ 13.2 million for the three months ended March 31, 2022 and March 31, 2021 , respectivel y .

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

The fiscal 2021 ESOP contribution has not yet been made.

The amount is currently included in accrued liabilities.

Th e fiscal 20 2 2 ESOP contribution has not yet been made.

The amount is currently includ ed in accrued liabilities.

Investments in and Advances to Joint Ventures

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The Company is required to consolidate these joint ventures if it holds the majority voting interest or if the Company meets the criteria under the consolidation model, as described below.

The Company performs an analysis to determine whether its variable interests give the Company a controlling financial interest in a Variable Interest Entity (“VIE”) for which the Company is the primary beneficiary and should,

therefore, be consolidated.

Such analysis requires the Company to assess whether it has the power to direct the activities of the VIE and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.

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however, such funding is infrequent and is not anticipated to be material.

Letters of credit outstanding described in “Note 10 – Debt and Credit Facilities” that relate to project ventures are $ 75.0 million and $ 59.3 million at September 30, 2021 and December 31, 2020, respectively.

Letters of credit outstanding described in “Note 10 – Debt and Credit Facilities” that relate to project ventures are $ 73.2 million at March 31, 2022 and December 31, 2021.

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.

2 unchanged sentences

The following represents financial information for consolidated joint ventures included in the consolidated financial statements (in thousands):

September 30, 2021

March 31, 2022

December 31, 2021

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Three Months Ended

Nine Months Ended

September 30, 2021

September 30, 2020

September 30, 2021

September 30, 2020

March 31, 2022

March 31, 2021

Net income attributable to noncontrolling interests

5 unchanged sentences

The following represents the financial information of the Company’s unconsolidated joint ventures as presented in their unaudited financial statements (in thousands):

September 30, 2021

March 31, 2022

December 31, 2021

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Three Months Ended

Nine Months Ended

September 30, 2021

September 30, 2020

September 30, 2021

September 30, 2020

March 31, 2022

March 31, 2021

Equity in earnings of unconsolidated joint ventures

The Company had net contributions to its unconsolidated joint ventures for the three months ended September 30, 2021, of $ 7.3 million and received net distributions from its unconsolidated joint ventures for the three months ended September 30, 2020, of $ 11.2 million.

The Company had net contributions to its unconsolidated joint ventures for the nine months ended September 30, 2021 of $ 0.5 million and received net distributions from its unconsolidated joint ventures for the nine months ended September 30, 2020 of $ 23.2 million.

For the three and nine months ended September 30, 2021, the Company recorded write-downs of $ 5.5 million and $ 10.6 million, respectively, on an unconsolidated joint venture in the Critical Infrastructure segment as a result of changes in estimates made by the managing partner.

The write-downs decreased operating and net income by $ 5.5 million and $ 4.1 million, respectively for the three months ended September 2021.

Operating and net income were decreased by $ 10.6 million and $ 7.9 million, respectively, for the nine months ended September 30, 2021.

The write-downs decreased diluted earnings per share by $ 0.04 and $ 0.07 for the three and nine months ended September 30, 2021.

The Company received net distributions from its unconsolidated joint ventures for the three months ended March 31, 2022 and March 31, 2021 of $ 2.8 million and $ 5.4 million, respectively.

Related Party Transactions

The Company often provides services to unconsolidated joint ventures and revenues include amounts related to recovering costs for these services.

Revenues related to services the Company provided to unconsolidated joint ventures for the three months ended September 30, 2021 and September 30, 2020 were $ 37.1 million and $ 42.0 million, respectively, and for the nine months ended September 30, 2021 and September 30, 2020 were $ 119.5 million and $ 124.7 million, respectively.

For the three months ended September 30, 2021 and September 30, 2020, the Company incurred $ 29.0 million and $ 32.3 million, respectively, and for the nine months ended September 30, 2021 and September 30, 2020, $ 90.9 million and $ 98.3 million, respectively, of reimbursable costs.

Revenues related to services the Company provided to unconsolidated joint ventures for the three months ended March 31, 2022 and March 31, 2021 were $ 47.3 million and $ 53.7 million, respectively.

For the three months ended March 31, 2022 and March 31, 2021, the Company incurred $ 33.7 million and $ 41.4 million, respectively, of reimbursable costs.

The revenue and reimbursable cost prior period amounts have been updated to reflect all joint ventures for the comparable period.

Amounts included in the consolidated balance sheets related to services the Company provided to unconsolidated joint ventures are as follows (in thousands):

September 30, 2021

March 31, 2022

December 31, 2021

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The authoritative guidance on fair value measurement defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (referred to as an “exit price”).

At September 30, 2021 and December 31, 2020, the Company’s financial instruments include cash, cash equivalents, accounts receivable, accounts payable, and other liabilities.

At March 31, 2022 and December 31, 2021, the Company’s financial instruments include cash, cash equivalents, accounts receivable, accounts payable, and other liabilities.

The fair values of these financial instruments approximate their carrying values due to their short-term maturities.

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Earnings Per Share

The following tables reconcile the denominator and numerator used to compute basic earnings per share (“EPS”) to the denominator and numerator used to compute diluted EPS for the three and nine months ended September 30, 2021 and September 30, 2020.

Basic EPS is computed using the weighted average number of shares outstanding during the period and income available to shareholders.

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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 shares the Company could be obligated to issue from its Convertible Senior Notes and warrants (see Note 10 for further discussion) and stock -based awards.

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 10 for further discussion) and stock-based awards.

Shares to be provided to the Company from its bond hedge purchased concurrently with the issuance of Convertible Senior Notes are anti-dilutive and are not included in its diluted shares.

Anti-dilutive stock-b ased awards excluded from the calculation of earnings per share for the three months ended September 3 0 , 202 1 and September 3 0 , 2020 were 4,656 and 205 , respectively , and for the nine months ended September 30, 2021 and September 30, 2020 were 6,838 and 3,318 , respectivel y.

In addition, the convertible senior notes were anti-dilutive and excluded for the nine months ended September 30, 2020 .

Anti-dilutive stock-based awards excluded from the calculation of earnings per share for the three months ended March 31, 2022 and March 31, 2021 were 13,117 and 145 , respectively.

The weighted average number of shares used to compute basic and diluted EPS were:

Three Months Ended

Nine Months Ended

September 30, 2021

September 30, 2020

September 30, 2021

September 30, 2020

March 31, 2022

March 31, 2021

Basic weighted average number of shares outstanding

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Three Months Ended

Nine Months Ended

September 30, 2021

September 30, 2020

September 30, 2021

September 30, 2020

March 31, 2022

March 31, 2021

Net income attributable to Parsons Corporation

6 unchanged sentences

The table below presents information on this repurchase program:

Nine Months Ended

September 30, 2021

Three Months Ended

March 31, 2022

Total shares repurchased

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Average price paid per share

As of September 30, 2021, the Company has $ 91.3 million remaining under the stock repurchase program.

As of March 31, 2022, the Company has $ 72.8 million remaining under the stock repurchase program.

Segment Information

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The Critical Infrastructure segment is a technology innovator focused on next generation digital systems and complex structures.

Industry leading capabilities in engineering and project

management allow the Company to deliver significant value to customers by employing cutting-edge technologies, improving timelines and reducing costs.

Industry leading capabilities in engineering and project management allow the Company to deliver significant value to customers by employing cutting-edge technologies, improving timelines and reducing costs.

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

2 unchanged sentences

Three Months Ended

Nine Months Ended

September 30, 2021

September 30, 2020

September 30, 2021

September 30, 2020

March 31, 2022

March 31, 2021

Federal Solutions revenue

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Three Months Ended

Nine Months Ended

Adjusted EBITDA attributable to Parsons Corporation

September 30, 2021

September 30, 2020

September 30, 2021

September 30, 2020

March 31, 2022

March 31, 2021

Federal Solutions

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Three Months Ended

Nine Months Ended

September 30, 2021

September 30, 2020

September 30, 2021

September 30, 2020

March 31, 2022

March 31, 2021

North America

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The geographic location of revenue is determined by the location of the customer.

September 30, 2021

March 31, 2022

December 31, 2021

2 unchanged sentences

Total Property and Equipment, Net

North America includes revenue in the United States for the three months ended September 30, 2021 and September 30, 2020 of $ 730.7 million and $ 774.0 million, respectively, and for the nine months ended September 30, 2021 and September 30, 2020 of $ 2.0 billion and $ 2.2 billion, respectively.

North America property and equipment, net includes $ 96.7 million and $ 109.6 million of property and equipment, net in the United States at September 30, 2021 and December 31, 2020, respectively.

North America includes revenue in the United States for the three months ended March 31, 2022 and March 31, 2021 of $ 718.0 million and $ 652.2 million, respectively.

North America property and equipment, net includes $ 89.0 million and $ 95.0 million of property and equipment, net in the United States at March 31, 2022 and December 31, 2021, respectively.

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

Three Months Ended

Nine Months Ended

September 30, 2021

September 30, 2020

September 30, 2021

September 30, 2020

March 31, 2022

March 31, 2021

Defense and Intelligence

1 unchanged sentence

Federal Solutions revenues

Connected Communities

Mobility Solutions

Connected Communities

Critical Infrastructure revenues

1 unchanged sentence

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.

Effective January 1, 2022, the Company made changes to its Critical Infrastructure business units by transferring a portion of legacy Mobility Solutions to the Connected Communities business unit.

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

Subsequent Events

On April 20, 2022, the Board of Directors authorized the Fifth Amendment to the Parsons Corporation Employee Stock Ownership Plan 2019 Amendment and Restatement (the Plan) providing for lump sum distributions to participants.

The ESOP Advisory Committee executed the Fifth Amendment to the Plan on April 28, 2022.

Participants were previously required to take distributions in up to three annual installments if their balance exceeded certain thresholds as disclosed in the Company’s 10-K for the year ended December 31, 2021.

Annual diversification elections and five-year vested termination distributions are not impacted by this amendment and will still occur annually and over installments as outlined in the Plan.

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-Q

Item 1. Financial Statements