What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-17 compared with 2022-02-23 · 115 added, 182 removed, 590 unchanged (33% of the section changed)

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These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in “Risk Factors” and “Special Note Regarding Forward-Looking Statements.” Actual results may differ materially from those contained in any forward-looking statements.

COVID-19 Pandemic

In response to the COVID-19 pandemic, the Company has taken certain actions to continue to execute under our contracts with customers and allow our people to work safely.

A substantial majority of our workforce transitioned to work-from-home status during the latter part of the quarter ended March 31, 2020, and these practices remain in effect as of the date of this filing.

To date, we have experienced no material disruption in our work as a consequence of these changes in our work practices.

The Company has experienced an impact in the volume of work in both the Federal Solutions and Critical Infrastructure segments where customers have restricted access to certain project sites.

We have not seen any substantive cancellations of previously awarded contracts.

In the Federal Solutions segment, we have had some existing contracts extended.

We continue to see several potential contract awards pushed out to a future date.

The Company received limited benefits associated with the CARES Act related to its work on certain US national security projects;

however, the curtailment of work under these projects and the CARES Act benefits did not have a material impact on our financial condition or results of operations.

The reimbursement period for Section 3610 of the CARES Act expired September 30, 2021.

The Company has provided additional disclosure around liquidity and capital resources which can be found in the “Liquidity and Capital Resources” section in Management’s Discussion and Analysis of Financial Condition and Results of Operations in this Form 10-K.

The Company anticipates substantially all of the Company’s subcontractors and material suppliers will be able to fulfill their contractual obligations and we do not expect a material impact from non-performance.

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

PARSONS CORPORATION Enabling a safer, smarter, and more interconnected world.

Federal Solutions Technology-driven solutions for defense and intelligence customers SEGMENTS Critical Infrastructure Engineered solutions for complex physical and digital infrastructure challenges FINANCIAL SNAPSHOT $4B FY 2019 Revenue Critical Infrastructure52% Federal Solutions48% $4.3BFY 2019 Contract Awards Critical Infrastructure41% Federal Solutions59% KEY FACTS AND FIGURES 75Years of History ~ 16KEmployees 11%Reven ue Growth (FY 2019) 1.1XTTM Book-to-Bill $8.0BBacklog as of 12/31/2019

Federal Solutions Technology-driven solutions for defense and intelligence customers SEGMENTS Critical Infrastructure Engineered solutions for complex physical and digital infrastructure challenges FINANCIAL SNAPSHOT $4B FY 2019 Revenue Critical Infrastructure52% Federal Solutions48% $4.3BFY 2019 Contract Awards Critical Infrastructure41% Federal Solutions59% KEY FACTS AND FIGURES 75Years of History ~ 16KEmployees 11%Revenue Growth (FY 2019) 1.1XTTM Book-to-Bill $8.0BBacklog as of 12/31/2019

We are a leading provider of the integrated solutions and services required in today’s complex security environment and a world of digital transformation.

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The volume of contract awards can fluctuate in any given period due to win rate and the timing and size of the awards issued by our customers.

In Federals Solutions, large awards in 2021 and 2019 were the primary driver of changes in awards between 2021, 2020 and 2019.

Awards in Critical infrastructure were lower in 2019 due to potential awards being pushed out to 2020.

The change in new awards in our Federal Solutions segment for the year ended December 31, 2022 when compared to the corresponding period last year was primarily due to a significant contract awarded in the second quarter of 2021.

The awards in Critical Infrastructure for the year ended December 31, 2022 were higher primarily due to several new awards and a large contract value increase during 2022.

We define backlog to include the following two components:

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See “Risk Factors—Risks Relating to Our Business—We may not realize the full value of our backlog, which may result in lower than expected revenue.”

The change in backlog in our Federal Solutions segment between 2022 and 2021 was impacted by from higher revenue activity in 2022 compared to 2021, partially offset by contributions of $0.2 billion from business acquisitions.

The change in backlog in our Critical Infrastructure segment between 2022 and 2021 was primarily from ordinary course fluctuations in our business and the impacts related to

awards discussed above.

The changes in backlog in our Federal Solutions segment between 202 1 and 202 0 included contributions of $0.1 billion from business acquisitions.

The change in backlog in our Critical Infrastructure segment between 202 1 and 202 0 was primarily from ordinary course fluctuations in our business and the impacts related to awards discussed above.

The changes in backlog in our Federal Solutions segment between 2019 and 2020 included contributions of $0.2 billion from business acquisitions.

Backlog in our Critical Infrastructure segment, in 2019, was impacted primarily by a number of potential awards being pushed out to 2020.

Our backlog will fluctuate in any given period based on the volume of awards issued and the rate of revenue generated from our existing contracts.

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government to reduce federal spending across all federal agencies, with uncertainty about the size and timing of those reductions.

Furthermore, delays in the completion of future U.S.

Furthermore, delays

in the completion of future U.S.

government budgets could in the future delay procurement of the federal government services we provide.

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Acquired Operations

Xator Corporation

On May 31, 2022, the Company acquired Xator Corporation for $388.3 million.

This strategic acquisition expands Parsons’ presence within the U.S.

Special Operations Command, the Intelligence Community, Federal Civilian customers, and global critical infrastructure markets, while providing new customer access at the Department of State.

Xator also expands Parsons’ customer base and brings differentiated technical capabilities in critical infrastructure protection, counter-unmanned aircraft systems (cUAS), intelligence and cyber solutions, biometrics, and global threat assessment and operations, increasing our addressable market in both the Federal Solutions and Critical Infrastructure segments.

The financial results of Xator have been included in our consolidated results of operations from May 31, 2022 onward.

BlackHorse Solutions, Inc.

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The financial results of Braxton have been included in our consolidated results of operations from November 19, 2020 onward.

QRC Technologies

On July 31, 2019, we acquired QRC Technologies for $214.1 million.

QRC Technologies provides design and development of open-architecture radio-frequency products.

The acquisition was funded by cash on-hand and borrowings under our Revolving Credit Facility.

The financial results of QRC Technologies have been included in our consolidated results of operations from July 31, 2019 onward.

On January 7, 2019, we acquired OGSystems for $292.4 million.

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

The acquisition was funded by cash on-hand and borrowings under our Term Loan and Revolving Credit Facility.

The financial results of OGSystems have been included in our consolidated results of operations from January 7, 2019 onward.

Our results may be affected by variances as a result of weather conditions and contract award seasonality impacts that we experience across our businesses.

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We may continue to experience this seasonality in future periods, and our results of operations may be affected by it.

Historically, we had elected to be taxed under the provisions of Subchapter “S” of the Internal Revenue Code for federal tax purposes.

As a result, our income had not been subject to U.S.

federal income taxes or state income taxes in those states where the “S” Corporation status was recognized.

No provision or liability for federal or state income tax had been provided in our consolidated financial statements, prior to the IPO on May 8, 2019, 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 historical periods prior to the IPO consists of these state taxes and from certain foreign jurisdictions where we are subject to tax.

In connection with the IPO, our “S” Corporation status terminated, and we are now treated as a “C” Corporation under Subchapter C of the Internal Revenue Code.

The revocation of our “S” Corporation election had a material impact on our results of operations, financial condition and cash flows.

The effective tax rate has increased, and net income has decreased as compared to our “S” Corporation tax years, since we are now subject to both U.S.

federal and state corporate income taxes on our earnings.

Results of Operations

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Under fixed-price contracts, clients pay an agreed fixed-amount negotiated in advance for a specified scope of work.

Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” and “Note 2— Summary of Significant Accounting Polices ” in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for a description of our policies on revenue recognition applicable to each type of contract.

R efer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” and “Note 2 — Summary of Significant Accounting Polices ” in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for a description of our policies on revenue recognition applicable to each type of contract .

The table below presents the percentage of total revenue for each type of contract.

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When a change in estimated cost or transaction price is determined to have an impact on contract profit, we record a positive or negative adjustment to revenue.

In 2021, 2020 and 2019, no single contract accounted for more than 5% of our revenue.

The Company is involved in a significant volume of contracts with the United States federal government and state and local governments.

Approximately 53%, 52%, and 49% of consolidated revenues for the years ended December 31, 2022, December 31, 2021 and December 31, 2020, respectively were derived from contracts with the United States federal government.

No other customers represented 10% or more of consolidated revenues or accounts receivable in any of the periods presented.

Joint Ventures

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government money market funds.

Interest expense consists of interest expense incurred under our Senior Notes, Convertible Senior Notes, and Credit Agreement.

Interest expense consists of interest expense incurred under our Senior Notes, Convertible Senior Notes, Credit Agreement and Delayed Draw Term Loan.

Other income, net primarily consists of gain or loss on sale of assets, sublease income and transaction gain or loss related to movements in foreign currency exchange rates.

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December 31, 2021

Revenue for the year ended December 31, 2021 compared to the prior year decreased $258.2 million.

This decrease was primarily due to a decrease in revenue in our Critical Infrastructure segment of $234.3 million and a decrease in our Federal Solutions segment of $23.8 million.

Revenue for the year ended December 31, 2022 compared to the prior year increased $534.5 million.

This increase was primarily due to an increase in revenue in our Federal Solutions segment of $324.9 million and an increase in our Critical Infrastructure segment of $209.6 million.

See “—Segment Results” below for further discussion.

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Direct cost of contracts

Direct cost of contracts decreased in 2021 primarily due to a decrease of $197.0 million in our Critical Infrastructure segment and a decrease of $37.1 million in our Federal Solutions segment.

The decrease was primarily attributable to a decrease in business volume on contracts with significant pass-through costs and a decrease in business volume from project completions and transitions.

Direct cost of contracts for the year ended December 31, 2022 compared to the prior year increased $440.6 million This increase was primarily due to an increase in direct cost of contracts in our Federal Solutions segment of $272.6 million and an increase in our Critical Infrastructure segment of $168.0 million.

The increases were primarily due to an increase in business volume from recent contract awards and business acquisitions.

Equity in earnings of unconsolidated joint ventures

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Equity in earnings of unconsolidated joint ventures

Equity in earnings of unconsolidated joint ventures increased in fiscal 2021 primarily due to $7.5 million from newly started joint ventures in 2021.

The remaining fluctuation was due to decreases associated with the timing of the completion of joint ventures and other small changes across multiple joint ventures as part of ordinary course timing fluctuations in our business.

In addition, there were

offsetting write-downs of $15.6 million and $15.5 million in 2021 and 2020, respectively, on a project in the Critical Infrastructure segment.

Equity in earnings of unconsolidated joint ventures for the year ended December 31, 2022 decreased by $20.5 million compared to the prior year.

The decrease was primarily related to change orders which delayed joint venture profits to future periods and a reduction in activity.

Selling, general and administrative expenses

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Selling, general and administrative expenses

SG&A expenses for the years ended December 31, 2021 and December 31, 2020 include $19.6 million and $9.8 million, respectively, of compensation cost associated with equity-based awards.

Equity awards issued prior to the Company’s IPO were settled in cash and were remeasured to an updated fair value at each reporting period until the award was settled.

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

Subsequent to the IPO, the share price of the Company’s common stock is based on quoted prices on the New York Stock Exchange.

The plans in which these awards were granted have been frozen and the Company does not currently intend to grant any further cash settled equity-based awards.

Excluding the compensation costs discussed above, SG&A for the years ended December 31, 2021 and December 31, 2020 was $737.6 million and $719.3 million, respectively.

The increase in SG&A of $18.3 million, exclusive of equity compensation cost, was primarily due to additional expenses of $25.4 million associated with business acquisitions and $15.3 million intangible asset amortization.

These increases were partially offset by $8.7 million reduction in transaction-related costs, $11.9 million reduction in incentive costs, and $1.8 million in other costs.

SG&A expenses for the year ended December 31, 2022 increased by $20.1 million compared to the prior year.

The increase in SG&A was primarily due to a $17.2 million increase from business acquisitions, a $12.6 million increase related to investments in future growth and general increases in operating costs, a $9.0 million increase in incentives, a $6.2 million increase in transaction related costs primarily related to business acquisition activity, and a $4.8 million increase in compensation costs related to equity-based awards.

These increases were partially offset by a $25.0 million decrease in intangible asset amortization primarily related to the drop-off in intangible asset amortization from the Company’s older acquisitions offset by intangible amortization from the Company’s more recent acquisitions and a reduction in the Company’s liability insurance costs of $4.6 million.

Total other (expense) income

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Total other income (expense)

Interest expense decreased in 2021 primarily due to early adoption of ASU 2020-06 in the first quarter of 2021, resulting in no interest expense related to amortization of the debt discount during 2021 compared to $3.8 million in 2020.

Refer to “Note 2 – Summary of Significant Accounting Policies” and “Note 12 – Debt and Credit Facilities” in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Interest expense increased for the year ended December 31, 2022 compared to the corresponding period last year primarily due to interest expense from borrowings under the Credit Agreement and Delayed Draw Term Loan, neither of which had outstanding balances during the year ended December 31, 2021.

Interest expense for the year ended December 31, 2022 included $2.1 million associated with a make-whole payment and remaining unamortized debt issuance costs resulting from the repayment of all outstanding Senior Notes under the Company’s Private Placement.

The amounts in other income (expense), net, are primarily related to transaction gains and losses on foreign currency transactions and sublease income.

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December 31, 2021

Income tax expense (benefit)

Income tax expense decreased in fiscal 2021 primarily due to an increase in untaxed income attributable to noncontrolling interests, release of a valuation allowance on foreign tax credits, 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.

Income tax expense

Income tax expense increased in fiscal 2022 primarily due to an increase in earnings and a decrease in foreign tax credits, partially offset by a change in jurisdictional mix of earnings and nonrecurring write down of a foreign tax receivable included in 2021.

Our effective tax rate was 23.9% and 21.0% for the years ended December 31, 2022 and 2021, respectively.

The difference between the statutory U.S.

federal income tax rate of 21% and the effective tax rate for the year ended December 31, 2021 primarily relates to state income taxes and a recorded valuation allowance on foreign tax credit carryovers, a write down of a foreign tax receivable and an increase in executive compensation subject to IRC Section 162(m) limitations, offset by benefits related to income attributable to noncontrolling interest, release of uncertain tax positions, and federal research tax credits.

For the year ended December 31, 2020, the difference primarily relates 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.

federal income tax rate of 21% and the effective tax rate for the year ended December 31, 2022 primarily relates to state income taxes and a recorded valuation allowance on foreign tax credit carryovers, offset in part by benefits related to income attributable to noncontrolling interest, earnings in lower tax jurisdictions and federal research tax credits.

For the year ended December 31, 2021, the difference primarily relates to state income taxes and a recorded valuation allowance on foreign tax credit carryovers, a write down of a foreign tax receivable and an increase in executive compensation subject to IRC Section 162(m) limitations, offset by benefits related to income attributable to noncontrolling interest, release of uncertain tax positions, and federal research tax credits.

Effective for tax year 2022, the Tax Cuts and Jobs Act of 2017 eliminated the option to currently deduct research and development expenditures in the year incurred and requires taxpayers to amortize such expenditures over five years for tax purposes (15 years for foreign research and development expenditures).

This provision resulted in additional cash tax liability and additional net deferred tax assets for the 2022 tax year of approximately $16 million.

This 2022 additional cash tax liability was offset by other carryforward tax attributes.

This provision is expected to increase our 2023 cash tax liability by approximately $12 million.

The actual impact on 2023 cash tax liability will depend on the actual amount of research and development expenses incurred in 2023, among other factors.

While the largest impact of this provision will be to our 2022 cash tax liability, the impact will continue to decline over the five-year amortization period and is expected to have an immaterial impact beginning in year six.

Year ended December 31, 202 1 compared to year ended December 31, 20 20

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Revenue for the year ended December 31, 2021 compared to the prior year decreased $258.2 million.

This decrease was primarily due to a decrease in revenue in our Critical Infrastructure segment of $59.9 million partially offset by an increase in our Federal Solutions segment of $24.0 million.

This decrease was primarily due to a decrease in revenue in our Critical Infrastructure segment of $234.3 million and a decrease in our Federal Solutions segment of $23.8 million.

See “—Segment Results” below for further discussion.

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Direct cost of contracts

Direct cost of contracts decreased in 2020 primarily due to a decrease of $86.4 million in our Critical Infrastructure segment.

The decrease was primarily attributable to a decrease in business volume on contracts with significant pass-through costs and cost reductions.

Direct cost of contracts decreased in 2021 primarily due to a decrease of $197.0 million in our Critical Infrastructure segment and a decrease of $37.1 million in our Federal Solutions segment.

The decrease was primarily attributable to a decrease in business volume on contracts with significant pass-through costs and a decrease in business volume from project completions and transitions.

Equity in earnings of unconsolidated joint ventures

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Equity in earnings of unconsolidated joint ventures

Equity in earnings of unconsolidated joint ventures decreased in fiscal 2020 primarily due to a $15.5 million write-down on a project in the Critical Infrastructure segment during 2020, offset in part by increases associated with the timing of the completion of joint ventures and the starting of new joint ventures as part of ordinary course timing fluctuations in our business.

Equity in earnings of unconsolidated joint ventures increased in fiscal 2021 primarily due to $7.5 million from newly started joint ventures in 2021.

In addition, there were

offsetting write-downs of $15.6 million and $15.5 million in 2021 and 2020, respectively, on a project in the Critical Infrastructure segment.

Selling, general and administrative expenses

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Selling, general and administrative expenses

The decrease in SG&A expenses for the years ended December 31, 2020 as compared to December 31, 2019 relates primarily to a decline in compensation cost associated with equity-based awards that settle primarily in cash.

The compensation cost associated with these awards totaled $9.8 million during the year ended December 31, 2020 as compared to $65.7 million for the year ended December 31, 2019.

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

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.

The significant decrease in compensation cost related to these cash settled equity-based awards for the year ended December 31, 2020 compared to December 31, 2019 is due primarily to lower share prices over the last 60 trading days of 2020 as compared to the comparable period in 2019, as well as the higher grant price of active awards in 2020.

The substantial compensation cost for the year ended December 31, 2019 was due to the significant difference in the fair value of a share of our common stock under Parsons ESOP valuation at December 31, 2018 compared to the fair value of a share of our common stock in the public market at December 31, 2019.

See Item 5 of Part II for ranges in the share price of our common stock since the consummation of the IPO and “Note 19— Fair Value of Financial Instruments ” in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for a description of how the ESOP share value was determined.

See “Note 1— Description of Operations ” in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more detail regarding our IPO.

SG&A expenses for the years ended December 31, 2021 and December 31, 2020 include $19.6 million and $9.8 million, respectively, of compensation cost associated with equity-based awards.

Equity awards issued prior to the Company’s IPO were settled in cash and were remeasured to an updated fair value at each reporting period until the award was settled.

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

Subsequent to the IPO, the share price of the Company’s common stock is based on quoted prices on the New York Stock Exchange.

The plans in which these awards were granted have been frozen and the Company does not currently intend to grant any further cash settled equity-based awards.

Excluding the compensation costs discussed above, SG&A for the years ended December 31, 2021 and December 31, 2020 was $737.6 million and $719.3 million, respectively.

The increase in SG&A of $3.6 million, exclusive of equity compensation cost, was primarily due to additional expenses of $23.8 million associated with business acquisitions, $3.9 million due to a tax law

change and $5.0 million related to strategic growth initiatives and public company operating costs.

These increases were partially offset by a $18.4 million reduction in transaction-related costs related primarily to our initial public offering in 2019 , and a $10.1 million reduction in intangible asset amortization.

These increases were partially offset by $8.7 million reduction in transaction-related costs, $11.9 million reduction in incentive costs, and $1.8 million in other costs.

Total other (expense) income

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Total other income (expense)

Interest expense decreased in 2020 primarily due a decrease in interest rates year-over-year.

Refer to “Note 2 – Summary of Significant Accounting Policies” and “Note 11 – Debt and Credit Facilities” in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

The amounts in other income (expense), net, are primarily related to transaction gains and losses on foreign currency transactions and sublease income.

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December 31, 2020

Income tax expense (benefit)

Income tax expense increased in fiscal 2020 primarily due to the nonrecurring tax items included in 2019 for tax benefits associated with the remeasurement of our net deferred tax assets as a result of our conversion from “S” Corporation to a “C” Corporation.

Our effective tax rate was 26.3% and income tax expense was $42.5 million for the year ended December 31, 2020.

As described in “Note 14 – Income Taxes,” in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, in connection with our IPO on May 8, 2019, we converted from an “S” Corporation to a “C” Corporation.

On a pro forma basis, if we had been taxed as a “C” Corporation for the year ended December 31, 2019, the pro forma effective tax rate would have been 36.9%, and our pro forma income tax expense would have been $24.8 million.

The most significant items contributing to the change in the effective tax rate relates to a change in jurisdictional earnings, federal research tax credits and a nonrecurring item included in 2019 associated with equity compensation.

Income tax expense

Our effective tax rate was 21.0% and 26.3% for the years ended December 31, 2021 and 2020, respectively.

The difference between the statutory U.S.

federal income tax rate of 21% and the effective tax rate for the year ended December 31, 2020 primarily relates 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 termination of the “S” Corporation status was treated as a change in tax status for Accounting Standards Codification 740, Income Taxes.

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.

At December 31, 2019, the Company had recorded a deferred tax benefit of $93.9 million for the estimated effect of the change in tax status, relating to the recognition of net deferred tax assets for temporary differences in existence on the date of conversion to a “C” Corporation.

This estimated amount was adjusted to $90.0 million upon filing of the 2019 tax returns.

This adjustment is included in income tax expense for the year ended December 31, 2020.

Non-GAAP Financial Measures:

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Net income attributable to noncontrolling interests

Equity-based compensation (a)

Transaction-related costs (b)

Restructuring (c)

Equity-based compensation

Transaction-related costs (a)

Restructuring (b)

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, the IPO, and other non-recurring transaction costs, primarily fees paid for professional services and employee retention.

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

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

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We define Adjusted EBITDA as net income attributable to Parsons Corporation, adjusted to include net income attributable to noncontrolling interests and to exclude interest expense (net of interest income), provision for income taxes, depreciation and amortization and certain other items that we do not consider in our evaluation of ongoing operating performance.

These other items include, among other things, impairment of goodwill, intangible and other assets, interest and other expenses recognized on litigation matters, amortization of deferred gain resulting from sale-leaseback transactions, expenses incurred in connection with acquisitions and other non-recurring transaction costs, equity-based compensation, and expenses related to our corporate restructuring initiatives.

These other items include, among other things, impairment of goodwill, intangible and other assets, interest and other expenses recognized on

litigation matters, expenses incurred in connection with acquisitions and other non-recurring transaction costs, equity-based compensation, and expenses related to our corporate restructuring initiatives.

Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

Additionally, Adjusted EBITDA is not intended to be a measure of free cash flow for management’s discretionary use, as it does not reflect tax payments, debt service requirements, capital expenditures and certain other cash costs that may recur in the future, including, among other things, cash requirements for working capital needs and cash costs to replace assets being depreciated and amortized.

compensates for these limitations by relying on our U.S.

Management compensates for these limitations by relying on our U.S.

GAAP results in addition to using Adjusted EBITDA supplementally.

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Adjusted EBITDA attributable to Parsons Corporation

The decrease in Federal Solutions revenue for the year ended December 31, 2021 compared to the corresponding period last year was primarily due to a decrease in business volume from program completions and transitions, a reserve taken on a program, and the competitive hiring environment for cleared personnel.

The decreases were partially offset by increases from business acquisitions of $160.8 million.

The decrease in Federal Solutions Adjusted EBITDA attributable to Parsons Corporation for the year ended December 31, 2021 compared to the prior year was primarily due to a $5.5 million net impact from a reserve taken on a program during 2021, compared to a $13.9 million incentive fee recognized during 2020, partially offset by an increase related to business acquisitions.

The increase in Federal Solutions revenue for the year ended December 31, 2022 compared to the corresponding period last year was primarily due to increases from business acquisitions of $205 million, and increases in business volume from recent contract awards and increased activity on existing contracts.

The increase in Federal Solutions Adjusted EBITDA attributable to Parsons Corporation for the year ended December 31, 2022 compared to the prior year was primarily due to increases in business volume, increases related to acquisitions, and a write down on a project in the corresponding period last year.

Critical Infrastructure

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Adjusted EBITDA attributable to Parsons Corporation

The decrease in revenue for the year ended December 31 , 20 2 1 compared to the corresponding period last year was primarily related to a de crease in business volume from program completions and transitions , lower pas s through revenue, and write downs on projects during the year .

The decrease in Critical Infrastructure Adjusted EBITDA attributable to Parsons for the year ended December 31, 2021 compared to the corresponding period last year was primarily due to write downs on projects and a decrease in business volume.

The increase in revenue for the year ended December 31, 2022 compared to the corresponding period last year was primarily due to an increase in business volume from recent contract awards, increased activity on existing contracts, increased hiring activity, and write downs on projects in the corresponding period last year.

The increase in Critical Infrastructure Adjusted EBITDA attributable to Parsons for the year ended December 31, 2022 compared to the corresponding period last year was primarily due to increases in business volume, partially offset by reduced equity in earnings of $21.9 million and increased SG&A.

Year ended December 31, 2021 compared to year ended December 31, 2020

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Adjusted EBITDA attributable to Parsons Corporation

The increase in Federal Solutions revenue for the year ended December 31, 2020 compared to the corresponding period last year was primarily due to incremental revenue from business acquisitions, which added $27.7 million.

The decrease in Federal Solutions Adjusted EBITDA attributable to Parsons Corporation for the year ended December 31, 2020 compared to the prior year was primarily due to an increase in IG&A, partially offset by an increase in business volume from business acquisitions and higher project margins.

The decreases were partially offset by increases from business acquisitions of $160.8 million.

Critical Infrastructure

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Adjusted EBITDA attributable to Parsons Corporation

The decrease in revenue for the year ended December 31, 2020 compared to the corresponding period last year was primarily related to a decrease in business volume on contracts with pass-through revenue, along with normal course net fluctuations in the winding down and starting up of contracts

The increase in Critical Infrastructure Adjusted EBITDA attributable to Parsons for the year ended December 31, 2020 compared to the corresponding period last year was primarily due to improved project margins offset in part by a decrease in equity in earnings.

The decrease in revenue for the year ended December 31, 2021 compared to the corresponding period last year was primarily related to a decrease in business volume from program completions and transitions, lower pass through revenue, and write downs on projects during the year.

Liquidity and Capital Resources

We currently finance our operations and capital expenditures through a combination of internally generated cash from operations, our Senior Notes, Convertible Senior Notes, and periodic borrowings under our Revolving Credit Facility.

Prior to November 3, 2019, we financed our operations, capital expenditures and redemptions of ESOP through a combination of internally generated cash from operations, our Senior Notes, and periodic borrowings under our Revolving Credit facility.

After November 3, 2019, all shares held by the ESOP are redeemable by participants in shares of our common stock once vesting and eligibility requirements have been met.

See “Critical Accounting Policies and Estimates” elsewhere in this Annual Report on Form 10-K for a discussion of the ESOP and related IPO matters.

We currently finance our operations and capital expenditures through a combination of internally generated cash from operations, our Senior Notes, Convertible Senior Notes, Delayed Draw Term Loan and periodic borrowings under our Revolving Credit Facility.

Generally, cash provided by operating activities has been adequate to fund our operations.

Due to fluctuations in our cash flows and growth in our operations, it may be necessary from time to time in the future to borrow under our Credit Agreement to meet cash demands.

Due to fluctuations in our cash flows and growth in our operations, it may be necessary from time to time in the future to borrow under Credit Agreement to meet cash demands.

Our management regularly monitors certain liquidity measures to monitor performance.

We calculate our available liquidity as a sum of cash and cash equivalents from our consolidated balance sheet plus the amount available and unutilized on our Credit Agreement.

We calculate our available liquidity as a sum of cash and cash equivalents from our consolidated balance sheet plus the amount available and unutilized on our Credit Agreement and Delayed Draw Term Loan .

As of December 31, 2022, we believe we have adequate liquidity and capital resources to fund our operations, support our debt service and support our ongoing acquisition strategy for at least the next twelve months based on the liquidity from cash provided by our operating activities, cash and cash equivalents on-hand and our borrowing capacity under our Revolving Credit Facility.

We do not anticipate that the COVID-19 pandemic-related economic impacts will impair our ability to continue to maintain compliance with our debt covenants or access available borrowing capacity from our banks

During October 2022, we prepaid the private placement debt of $200.0 million with borrowings under the revolving credit facility and subsequently borrowed $350.0 million on the 2022 Delayed Draw Term Loan.

Proceeds from the Delayed Draw Term Loan were used to pay down the borrowings under the revolving credit facility.

See “Note 11 – Debt and Credit Facilities” in the notes to the consolidated financial statements in this Form 10-K for further information.

Cash received from customers, either from the payment of invoices for work performed or for advances in excess of revenue recognized, is our primary source of cash.

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We focus on collecting outstanding receivables to reduce net DSO and working capital.

Net DSO was 68 days at December 31, 2021, 64 days at December 31, 2020, and 55 days at December 31, 2019.

Net DSO was 69 days at December 31, 2022, up from 68 days at December 31, 2021.

DSO was 64 days at December 31, 2020.

Our working capital (current assets less current liabilities) was $611.7 million at December 31, 2022, $601.6 million at December 31, 2021 and $655.7 million at December 31, 2020.

Our cash, cash equivalents and restricted cash decreased by $81.3 million to $262.5 million at December 31, 2022 from $343.9 million at December 31, 2021.

This compares to an increase in cash, cash equivalents and restricted cash of $291.8 million to $487.2 million at December 31, 2020 from $195.4 million at December 31, 2019.

This compares to a decrease in cash, cash equivalents and restricted cash of $143.3 million to $343.9 million at December 31, 2021 from $487.2 million at December 31, 2020.

The following table summarizes our sources and uses of cash over the periods presented (in thousands):

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Net cash used in investing activities

Net cash (used in) provided by financing activities

Net cash provided by (used in) financing activities

Effect of exchange rate changes

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Our operating cash flows are primarily affected by our ability to invoice and collect from our clients in a timely manner, our ability to manage our vendor payments and the overall profitability of our contracts.

Net cash provided by operating activities increased $32.0 million to $237.5 million during 2022 compared to $205.6 million during 2021.

The increase in net cash provided by operating activities is primarily due to a $40.4 million change in net income after adjusting for non-cash items and a change in the use of cash related to other long-term liabilities of $50.1 million.

The long-term liabilities change was primarily driven by CARES Act deferrals from 2020 being reclassed from long-term to short-term at the end of 2021 and long-term portion of insurance reserve reduction during 2021.

These increases were offset primarily from changes in our working capital accounts of $58.5 million (primarily from accounts receivable and contract assets, offset by accrued expenses, contract liabilities, accounts payable and prepaid expenses).

Net DSO increased one day to 69 days as of December 31, 2022, compared to 68 as of December 31, 2021.

Net cash provided by operating activities decreased $83.6 million to $205.6 million during 2021 compared to $289.2 million during 2020.

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Net DSOs increased from 64 days to 68 days primarily driven by the change in our working capital accounts discussed above.

Net cash provided by operating activities increased $68.9 million to $289.2 million during 2020 compared to $220.2 million during 2019.

The increase in net cash provided by operating activities is primarily due to a $115.9 million change in net income after adjusting for non-cash items and a change in the use of cash related to our working capital accounts of $10.6 million (primarily from accounts receivable, contract assets, prepaid expenses and current assets, offset by accrued expenses and contract liabilities).

Under the CARES Act, the Company received a net cash benefit of $35.2 million from the deferral of social security taxes otherwise due from April 10, 2020 through the year ended December 31, 2020.

One-half of the deferred amount was paid during the third quarter of 2021 and the second half is due no later than December 31, 2022.

These positive changes in operating cash flows were offset, in part, by a $57.6 million change in other long-term liabilities, primarily driven by the payment of long-term employee incentives.

Net DSOs increased from 55 days to 64 days primarily driven by the change in our working capital accounts discussed above.

In connection with our IPO on May 8, 2019, the Company converted from an “S” Corporation to a “C” Corporation as described in “Note 14 – Income Taxes” in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

As a “C” Corporation we are now subject to U.S.

Income Taxes.

During 2019 the Company made $60.5 million in tax payments compared with $17.1 million in tax payments during 2018.

Investing Activities

Net cash used in investing activities consists primarily of cash flows associated with capital expenditures and business acquisitions.

Net cash used in investing activities de c reased $105.5 million during 202 1 compared to 20 20 , primarily due to the use of $189.6 million, net of cash acquired, for the acquisition of BlackHorse and the use of $8.7 million, net of cash acquired, for the acquisition of Echo Ridge in 2021, compared to $ 302 .

4 million, net of cash acquired, for the acquisition of Braxton in 2020.

Net cash used in investing activities increased $176.6 million to $417.5 million during 2022 compared to $240.9 million during 2021, primarily due to the use of $379.5 million, net of cash acquired during 2022 for the acquisition of Xator compared to the use of cash of $189.6 million, net of cash acquired, for the acquisition of BlackHorse and the use of $8.7 million, net of cash acquired, for the acquisition of Echo Ridge, both in 2021.

Also impacting the increase in cash used in investing activities was a decrease in proceeds from sale of investments in unconsolidated joint ventures to zero during 2022

compared to $14.8 million during 2021.

These increases in cash used in investment activities were offset in part by a $20.8 million decrease in investments in unconsolidated joint ventures.

Net cash used in investing activities decreased $105.5 million to $240.9 million during 2021 compared to $346.4 million during 2020, primarily due to the use of $189.6 million, net of cash acquired, for the acquisition of BlackHorse and the use of $8.7 million, net of cash acquired, for the acquisition of Echo Ridge in 2021, compared to $302.4 million, net of cash acquired, for the acquisition of Braxton in 2020.

Net cash used in investing activities also decreased due to proceeds from sale of investments in unconsolidated joint ventures of $14.8 million and a decrease in cash used for capital expenditures of $12.9 million, offset by increased investments in unconsolidated joint ventures of $27.4 million.

Net cash used in investing activities decreased $224.4 million during 2020 compared to 2019, primarily due to the use of $302.4 million, net of cash acquired, for the acquisition of Braxton in 2020, compared to $287.5 million, net of cash acquired, for the acquisition of OGSystems®, and the use of $208.2 million, net of cash acquired, for the acquisition of QRC Technologies in 2019.

Financing Activities

Net cash provided by financing activities is primarily associated with proceeds from debt, the repayment thereof, distributions to noncontrolling interests and payments to the ESOP in connection with the redemption of ESOP participants’ interests prior to the 180-day lock-up period which ended November 3, 2019.

We spent $6.3 million in 2019 in connection with the redemption of ESOP participants’ interests.

With a public market for our common stock, cash is no longer required for ESOP redemptions after November 3, 2019 and we did not spend any amounts in connection with the redemption of ESOP participants’ interests in 2021 and 2020.

Participants now receive distributions of their ESOP interests in shares of our common stock.

Net cash provided by (used in) financing activities is primarily associated with proceeds from debt, the repayment thereof, transactions related to the Company’s common stock, and contributions by and distributions to noncontrolling interests.

Net cash provided by (used in) financing activities increased $206.9 million to $100.4 million in 2022 compared to $(106.5) million in 2021.

Cash provided by financing activities in 2022 included $916.0 million in proceeds from borrowings under our credit agreement and $350 million in proceeds from the Delayed Draw Term Loan.

These increases in cash provided by financing activities were offset in part by a change in repayments borrowings under our credit agreement of $866.0 million and a $200 million repayment under our private placement debt.

Net cash (used in) provided by financing activities decreased $454.7 million to ($106.5) million in 2021 compared to $348.2 million in 2020.

2021 activities include repayment of the $50.0 million Series A tranche of our Senior Note during July 2021, repurchases of common stock of $21.7 million and increased distributions to noncontrolling interests of $32.1 million, compared to $348.5 million of net proceeds from the issuance of Convertible Senior Notes in 2020.

Net cash provided by financing activities increased $82.2 million to $348.2 million in 2020 compared to $266.0 million in 2019.

2020 activities include $348.5 million of net proceeds from the issuance of Convertible Senior Notes.

2019 activities are primarily comprised of $536.9 million of net proceeds from the IPO, offset in part by net repayments under our revolving credit agreement of $180 million and payment of the IPO dividend of $52.1 million.

Letters of Credit

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We believe that the following items are the most critical accounting policies and estimates that involved significant judgment as we prepared our financial statements.

We consider an accounting policy

or estimate to be critical if the policy or estimate requires assumptions to be made that were uncertain at the time they were made and if changes in these assumptions could have a material impact on our financial condition or results of operations.

We consider an accounting policy or estimate to be critical if the policy or estimate requires assumptions to be made that were uncertain at the time they were made and if changes in these assumptions could have a material impact on our financial condition or results of operations.

Revenue Recognition and Cost Estimation

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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.

In February 2016, the FASB issued ASU 2016-02 “Leases (Topic 842)”, which is a new standard related to leases to increase transparency and comparability among organizations by requiring the recognition of right-of-use (ROU) assets obtained in exchange for lease liabilities on the balance sheet.

Most prominent among the changes in the standard is the recognition of ROU assets and lease liabilities by lessees for those leases classified as operating leases.

Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.

The Company elected to adopt the standard, and available practical expedients, effective January 1, 2019.

These practical expedients allowed the Company to keep the lease classification assessed under the previous lease accounting standard (ASC 840) without reassessment under the new standard, and allowed all separate lease components, including non-lease components, to be accounted for as a single lease component for all existing leases prior to adoption of the new standard.

Furthermore, the Company made an accounting policy election to not recognize a lease liability and ROU asset for leases with lease terms of twelve months or less.

The Company adopted this new standard under the modified retrospective transition approach without adjusting comparative periods in the financial statements, as allowed under Topic 842, and implemented internal controls and key system functionality to enable the preparation of financial information on adoption.

The standard had a material impact on our consolidated balance sheets but did not have an impact on the consolidated income statements.

The most significant impact was the recognition of ROU assets and lease liabilities for operating leases, while accounting for finance leases remained substantially unchanged.

As a result of the adoption, we recorded a cumulative-effect adjustment to retained earnings of $52.6 million, net of a deferred tax asset adjustment of $0.7 million, representing the unamortized portion of a deferred gain previously recorded as a sale-leaseback transaction associated with the sale of an office building in 2011.

We concluded the transaction resulted in the transfer of control of the office building to the buyer-lessor at market terms and would have qualified as a sale under Topic 842 with gain recognition in the period the sale was recognized.

We determine if an arrangement is a lease at inception.

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

When evaluating

goodwill for impairment, we 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.

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

If we do not perform a qualitative assessment, or if we determine that it is not more likely than not that the fair value of our reporting units exceeds their carrying amounts, we perform a quantitative assessment and calculate the estimated fair value of the respective reporting unit.

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Our decision to perform a qualitative impairment assessment in a given year is influenced by a number of factors, including the significance of the excess of our estimated fair value over carrying value at the last quantitative assessment date, the amount of time in between quantitative fair value assessments, and the date of the applicable acquisitions, if any.

In 2019, we changed the date of its annual goodwill impairment testing from November 30 to October 1.

This change results in better alignment of our annual impairment test with our annual budgeting cycle and provides a more reliable measurement using our interim closing processes.

The change had no effect on our consolidated financial statements for the current or historical periods.

We perform a goodwill impairment test on an annual basis for each reporting unit that requires certain assumptions and estimates be made regarding industry economic factors and future profitability.

We perform a goodwill impairment test annually, on October 1 st of each year, for each reporting unit that requires certain assumptions and estimates be made regarding industry economic factors and future profitability.

For the years ended December 31, 2022, December 31, 2021 and December 31, 2020, we performed a quantitative analysis for all of our reporting units.

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The guideline company approach focuses on comparing the reporting unit to select reasonably similar ( or ”guideline ”) publicly traded companies.

Under this method, valuation multiples are derived from the median of the operating data of selected guideline companies and applied to the operating data of the reporting unit to arrive at an indicative value.

In the similar transactions approach, consideration is given to prices paid in recent transactions that have occurred in the reporting unit's industry or in related industries.

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Equal weighing is given to each of the methods used to estimate the fair value of reporting units.

review at October 1, 20 2 1 (i.e.

Our last review at October 1, 20 2 2 (i.e.

, the first day of our fourth quarter in fiscal 20 2 2 ), indicated that we had no impairment of goodwill, and all of our reporting units had estimated fair values that were in excess of their carrying values, including goodwill.

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Our maximum exposure to loss as a result of our investments in unconsolidated variable interest entities is typically limited to the aggregate of the carrying value of the investment and future funding commitments in these entities.

On May 8, 2019, we consummated the IPO.

At the IPO date, shares held by the ESOP were subject to a 180-day lock-up period which concluded on November 3, 2019.

We contribute shares of our own stock to the ESOP each year.

Shares held by the ESOP or committed to be contributed to the ESOP were presented as temporary equity at December 31, 2018 as they included a cash redemption feature that was not solely within our control.

At the conclusion of the 180-day lock-up period, ESOP distributions are no longer made in cash and are now made in shares of our common stock.

Accordingly, at December 31, 2019, shares held by the ESOP were reclassified from temporary equity to permanent equity.

Throughout the year, as employee services are rendered, we record compensation expense based on salaries of eligible employees.

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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.

Prior to the IPO, participants’ interests were redeemable in cash based on share prices established by the ESOP Trustee.

Subsequent to the IPO and during the 180-day lock-up period, participants’ interests were redeemable in cash based on quoted prices of a share of our common stock on the NYSE.

Subsequent to the 180-day lock-up period, distributions from the ESOP of participants’ interests are made in our common stock based on quoted prices of a share of our common stock on the NYSE.

A participant’s interest in their ESOP account is redeemable upon certain events, including retirement, death, termination due to permanent disability, a severe financial hardship following termination of employment, certain conflicts of interest following termination of employment, or the exercise of diversification rights Distributions from the ESOP of participants’ interests are made in our common stock based on quoted prices of a share of our common stock on the NYSE.

A participant will be able to sell such shares of common stock in the market, subject to any requirements of the federal securities laws.

Valuation of Common Stock

Prior to our IPO, our share price 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.

Given the absence of a public trading market for our common stock, for all purposes related to the fair market value of our common stock, we historically used the per share price of our common stock as 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 as of December 31 for each calendar year.

Subsequent to the IPO, the share price is based on quoted prices of the Company’s common stock on the NYSE.

Equity-Based Compensation

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We issue equity-based awards that settle in shares of our common stock.

Prior to the IPO, we issued equity-based awards that settle in cash.

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

Awards containing performance measures are adjusted at each reporting period for the number of shares expected to be earned.

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.

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

We recognize 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 expenses” in the consolidated statements of income.

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We are self-insured for a portion of our losses and liabilities primarily associated with workers’ compensation, general, professional, automobile, employee matters, certain medical plans, and project specific liability claims.

Losses are accrued based upon our estimates of the aggregate liability for claims incurred using historical experience and certain actuarial assumptions, as provided by an independent actuary.

Losses are accrued based upon our estimates of the aggregate liability for claims incurred using historical experience and certain actuarial assumptions, as provided by an independent

The estimate of self-insurance liability includes an estimate of incurred but not reported claims, based on data compiled from historical experience.

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Interest Rate Risk

We are exposed to interest rate risks related to our Revolving Credit Facility.

As of December 31, 2021, we had no loan amounts outstanding under the Revolving Credit Facility.

Borrowings under the new Credit Facility effective June 2021 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%, both based on the leverage ratio of the Company at the end of each quarter.

We are exposed to interest rate risks related to the Company’s Revolving Credit Facility and Delayed Draw Term Loan.

As of December 31, 2022 and December 31, 2021, there were no amounts outstanding under the Revolving Credit Facility.

Borrowings under the Revolving Credit Facility effective June 2021 bear interest at either an adjusted Term SOFR 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%, both based on the leverage ratio of the Company at the end of each quarter.

Prior to June 2021, interest on borrowings under the Credit Facility were 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 was a range of 0.125% to 1.00% and the applicable margin for LIBOR loans was a range of 1.125% to 2.00%, both based on the leverage ratio of the Company at the end of each quarter.

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

As of December 31, 2022, there was $350.0 million outstanding under the Delayed Draw Term Loan.

Borrowings under the 2022 Delayed Draw Term Loan Agreement will bear interest at either an adjusted Term SOFR benchmark rate plus a margin between 0.875% and 1.500% or a base rate plus a margin of between 0% and 0.500% and will initially bear interest at the middle of this range.

The Company will pay a ticking fee on unused term loan commitments at a rate of 0.175% commencing with the date that is ninety (90) days after the Closing Date.

The interest rate at December 31, 2022 was 5.7%.

Foreign Currency Exchange Risk

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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 7. Management’s Discussion and Analysis