What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2023-02-17 compared with 2022-02-23 · 290 added, 390 removed, 1336 unchanged (34% of the section changed)

8 unchanged sentences

The Company’s independent registered public accounting firm, PricewaterhouseCoopers LLP, which audited the Company’s consolidated financial statements included in this Annual Report on Form 10-K, also audited the effectiveness of our internal control over financial reporting as of December 31, 2022, as stated in their audit report included in this Annual Report on Form 10-K.

Consistent with the guidance issued by the Securities and Exchange Commission Staff, management has excluded Xator Corporation, which we acquired on May 31, 2022, from its evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2022.

The total assets and revenue related to Xator, a wholly owned subsidiary, are approximately 1% and 4%, respectively, of the related consolidated financial statement amounts as of the end for the fiscal year ended December 31, 2022.

Changes in Internal Control Over Financial Reporting

1 unchanged sentence

Other Information.

On February 18, 2022, in recognition of Mr.

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

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

To accelerate 17,398 of Mr.

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

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

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

30 unchanged sentences

Amended and Restated Bylaws of Parsons Corporation .

Second Amended and Restated Bylaws of Parsons Corporation.

Description of Capital Stock of Parsons Corporation.

66 unchanged sentences

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

Delayed Draw Term Loan Agreement and Form of First Amendment to Credit Agreement.

Xator Purchase Agreement.

Seventh Amendment to The Parsons Corporation Retirement Savings Plan (2017 Amendment and Restatement).

Fifth Amendment to The Parsons Employee Stock Ownership Plan 2019 Amendment and Restatement.

Sixth Amendment to The Parsons Employee Stock Ownership Plan 2019 Amendment and Restatement.

List of Subsidiaries of the Registrant.

7 unchanged sentences

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

(i) Consolidated Balance Sheets, (ii)

Consolidated Statements of Earnings, (iii) Consolidated Statements of Comprehensive Income (Loss), (iv) Consolidated Statements of Stockholders’ Equity, (v) Consolidated Statements of Cash Flows and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags.

(i) Consolidated Balance Sheets, (ii) Consolidated Statements of Earnings, (iii) Consolidated Statements of Comprehensive Income (Loss), (iv) Consolidated Statements of Stockholders’ Equity, (v) Consolidated Statements of Cash Flows and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags.

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

10 unchanged sentences

(Principal Executive Officer)

/s/ George L.

/s/ Matthew M.

Chief Financial Officer

1 unchanged sentence

(Principal Financial and Accounting Officer)

/s/ Charles L.

/s/ George L.

February 17, 2023

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February 17, 2023

/s/ Letitia A.

3 unchanged sentences

February 17, 2023

February 23, 2022

Christian Mitchell

10 unchanged sentences

Consolidated Statements of Comprehensive Income for the Years ended December 31, 2022, December 31, 2021 and December 31, 2020

Consolidated Statements of Changes in Redeemable Common Stock and Shareholders’ Equity (Deficit) for the Years ended December 31, 2021, December 31, 2020 and December 31, 2019

Consolidated Statements of Changes in Shareholders’ Equity (Deficit) for the Years ended December 31, 2022, December 31, 2021 and December 31, 2020

Consolidated Statements of Cash Flows for the Years ended December 31, 2022,

9 unchanged sentences

Changes in Accounting Principles

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for convertible instruments and contracts in an entity’s own equity in 2021 and the manner in which it accounts for leases in 2019.

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for convertible instruments and contracts in an entity’s own equity in 2021.

Basis for Opinions

9 unchanged sentences

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audits also included performing

such other procedures as we considered necessary in the circumstances.

Our audits also included

performing such other procedures as we considered necessary in the circumstances.

We believe that our audits provide a reasonable basis for our opinions.

As described in Management’s Report on Internal Control over Financial Reporting, management has excluded Xator Corporation (“Xator”) from its assessment of internal control over financial reporting as of December 31, 2022, because it was acquired by the Company in a purchase business combination during 2022.

We have also excluded Xator from our audit of internal control over financial reporting.

Xator is a wholly-owned subsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent 1% and less than 4%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2022.

Definition and Limitations of Internal Control over Financial Reporting

15 unchanged sentences

Revenues, including estimated fees or profits, are recorded proportionally as costs are incurred.

Management includes variable consideration, such as claims revenue, in the estimated transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur or when the uncertainty associated with the variable consideration is resolved.

Management includes variable consideration, such as claims revenue, in the estimated transaction price to

the extent it is probable that a significant reversal of cumulative revenue recognized will not occur or when the uncertainty associated with the variable consideration is resolved.

Contract costs consist of direct costs on contracts, including labor and materials, amounts payable to subcontractors, direct overhead costs and equipment expense (primarily depreciation, fuel, maintenance and repairs).

6 unchanged sentences

These procedures included testing the effectiveness of controls relating to the revenue recognition process, including controls over the determination of estimated contract cost and variable consideration related to estimated claims revenue for fixed-price contracts recognized over time.

These procedures also included, among others, for a selection of fixed-price contracts, (i) evaluating and testing management’s process for determining the estimated contract cost and variable consideration related to estimated claims revenue, which included testing of contracts and other documents related to the estimates, and testing of underlying incurred and estimated contract costs;

These procedures also included, among others, for a selection of fixed-price contracts, (i) evaluating and testing management’s process for determining the estimated contract cost and variable consideration related to estimated claims revenue, which included reading contracts and other documents related to the estimates, and testing of underlying incurred and estimated contract costs;

(ii) assessing management’s ability to reasonably estimate total contract costs by performing a comparison of the actual estimated contract cost as compared with prior period estimates, including evaluating the timely identification of circumstances that may warrant a modification to the estimated contract cost;

and (iii) evaluating estimated claims revenue by inquiry with external legal counsel regarding the underlying claim and agreeing estimated claims revenue to documents related to those estimates.

Acquisition of BlackHorse Solutions, Inc.

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

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

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

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

As described in Notes 2 and 3 to the consolidated financial statements, on May 31, 2022, the Company acquired a 100% ownership interest in Xator Corporation (Xator) for $388.3 million which resulted in $123.5 million of intangible assets being recorded, of which $37 million related to a customer relationships intangible asset.

Management accounts for business combinations using the acquisition method, under which the purchase price of an acquired company is allocated to the tangible and intangible assets acquired and the liabilities assumed on the basis of their fair values at the date of acquisition.

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

Management’s determination of the fair value of the intangible assets acquired involved the use of significant estimates and assumptions related to discount rates, revenue growth rates, projected margins, and customer revenue attrition rates .

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

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

Management’s determination of the fair value of the intangible assets acquired involved the use of significant estimates and assumptions related to revenue growth rates and projected EBITDA margins.

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

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

and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statem ents.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

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

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

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

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

(iii) evaluating the appropriateness of the valuation technique;

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

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

Evaluating the reasonableness of management’s significant assumptions related to the revenue growth rates and projected margins involved considering (i) the current and past performance of the acquired business;

and (v) evaluating the reasonableness of significant assumptions related to the revenue growth rates and projected EBITDA margins.

Evaluating the reasonableness of management’s significant assumptions related to the revenue growth rates and projected EBITDA margins involved considering (i) the current and past performance of the acquired business;

(ii) the consistency with external market and industry data;

and (iii) whether these assumptions

were consistent with evidence obtained in other areas of the audit.

Professionals with specialized skill and knowledge were used to assist in the evaluation of (i) the appropriateness of management’s valuation technique and (ii) the reasonableness of the discount rate and customer revenue attrition rate significant assumptions .

and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit.

Professionals with specialized skill and knowledge were used to assist in the evaluation of the appropriateness of management’s valuation technique.

/s/ PricewaterhouseCoopers LLP

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Income taxes payable

Short-term debt

Total current liabilities

14 unchanged sentences

Additional paid-in capital

Accumulated deficit

Retained earnings (accumulated deficit)

Accumulated other comprehensive loss

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Income before income tax expense

Income tax (expense) benefit

Income tax expense

Net income including noncontrolling interests

20 unchanged sentences

Parsons Corporation and Subsidiaries

Consolidated Statements of Changes in Redeemable Common Stock and Shareholders’ Equity (Deficit)

Consolidated Statements of Changes in Shareholders’ Equity (Deficit)

Years Ended December 31, 2022, December 31, 2021 and December 31, 2020

(in thousands)

Retained Earnings (Accumulated

Comprehensive

7 unchanged sentences

Pension adjustments

ASC 842 transition

Purchase of treasury stock

Adoption of ASU 2016-13

Contributions of treasury

2 unchanged sentences

Distributions

Dividend paid

Stock-based compensation

Issuance of equity securities,

net of retirements

Conversion of S-Corp to

IPO proceeds, net

ESOP shares at redemption

Temporary to permanent

equity end of lock-up

Equity component value of

convertible note issuance

Purchase of convertible note

Sale of common stock

Stock-based compensation

Balances at December 31, 2020

1 unchanged sentence

Foreign currency

translation gain, net

translation gain (loss), net

Pension adjustments,

Adoption of ASU 2016-13

Contributions of treasury

stock to ESOP

Adoption of ASU 2020-06

Contributions

2 unchanged sentences

net of retirement

Equity component value of

convertible note issuance

Purchase of convertible note

Sale of common stock

Repurchase of common

Stock-based compensation

6 unchanged sentences

stock to ESOP

Adoption of ASU 2020-06

Contributions

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Amortization of convertible notes discount

Loss on disposal of property and equipment

(Gain) loss on disposal of property and equipment

Provision for doubtful accounts

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Proceeds from borrowings

Proceeds from delayed draw term loan

Repayments of borrowings

Repayment of private placement debt

Payments for debt costs and credit agreement

Proceeds from issuance of convertible notes

Payments for acquired warrants

Payments for purchase of bond hedges

6 unchanged sentences

Proceeds from issuance of common stock

Dividend paid

Net cash provided by financing activities

Net cash provided by (used in) financing activities

Effect of exchange rate changes

11 unchanged sentences

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

Initial Public Offering

On May 8, 2019, the Company consummated its initial public offering (“IPO”) whereby the Company sold 18,518,500 shares of common stock for $ 27.00 per share.

The underwriters exercised their share option on May 14, 2019 to purchase an additional 2,777,775 shares at the share price of $ 25.515 which was the IPO share price of $27.00 less the underwriting discount of $ 1.485 per share.

The net proceeds of the IPO and the underwriters’ share option were $ 536.9 million, after deducting underwriting discounts and other fees, and were used to fund an IPO dividend of $ 52.1 million, repay the outstanding balance of $ 150.0 million under our Term Loan, and repay outstanding indebtedness under our Revolving Credit Facility.

Stock Dividend

On April 15, 2019 , the board of directors of the Company declared a common stock dividend in a ratio of two shares of common stock for every one share of common stock then held by the Company’s stockholder (the “Stock Dividend”).

The record date of this common Stock Dividend was May 7, 2019 , the day immediately prior to the consummation of the Company’s IPO on May 8, 2019, and the payment date of the Stock Dividend was May 8, 2019 .

Purchasers of the Company’s common stock in the Company’s public offering were not entitled to receive any portion of the Stock Dividend.

Summary of Significant Accounting Policies

11 unchanged sentences

determination of self-insurance reserves;

useful lives of

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

property and equipment and intangible assets;

useful lives of property and equipment and intangible assets;

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

1 unchanged sentence

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

At each reporting period, the shares held within the ESOP or committed to be contributed to the ESOP are adjusted to their redemption value through an offsetting charge or credit to accumulated deficit.

Treasury Stock

2 unchanged sentences

Contributions of 1,188,129 shares, 1,631,477 shares, and 1,522,381 shares of common stock were made to the ESOP in 2022, 2021 and 2020, respectively.

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

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

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

Share Repurchases

1 unchanged sentence

Repurchased shares of common stock are retired and included in “Repurchases of common stock” in cash flows from financing activities in the Consolidated Statements of Cash Flows.

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2022, December 31, 2021 and December 31, 2020

Earnings per Share

12 unchanged sentences

These regulations are generally applicable to all of the Company’s federal government contracts and are partially or fully incorporated in some local and state agency contracts.

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

Most of the Company’s federal government contracts are subject to termination at the convenience of the client.

10 unchanged sentences

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

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2022, December 31, 2021 and December 31, 2020

Contract Costs —Contract costs consist of direct costs on contracts, including labor and materials, amounts payable to subcontractors, direct overhead costs and equipment expense (primarily depreciation, fuel, maintenance and repairs).

13 unchanged sentences

Customers are generally billed as the Company satisfies its performance obligations and payment terms typically range from 30 to 120 days from the invoice date.

Billings under certain fixed-price contracts may be based upon the achievement of specified milestones, while some arrangements may

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

require advance customer payment.

Billings under certain fixed-price contracts may be based upon the achievement of specified milestones, while some arrangements may require advance customer payment.

The Company’s contracts generally do not include a significant financing component.

6 unchanged sentences

The expected value method is utilized in situations where a contract contains a large number of possible outcomes, while the most likely amount method is utilized in situations where a contract has only two possible outcomes.

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2022, December 31, 2021 and December 31, 2020

The Company includes variable consideration in the estimated transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur or when the uncertainty associated with the variable consideration is resolved.

13 unchanged sentences

However, these claims may be resolved at amounts that differ from current estimates, which could result in increases or decreases in future estimated contract profits or losses.

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

Warranties —In most cases, contracts include assurance-type warranties that the Company’s performance is free from material defect and consistent with the specifications of the Company’s contracts, which do not give rise to a separate performance obligation.

10 unchanged sentences

Revenue and profit in future periods of contract performance is recognized using the adjusted estimate.

If at any time the estimate of contract profitability indicates an anticipated loss on the contract, the Company recognizes the total loss in the period it is identified.

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2022, December 31, 2021 and December 31, 2020

time the estimate of contract profitability indicates an anticipated loss on the contract, the Company recognizes the total loss in the period it is identified.

Right to invoice practical expedient —For performance obligations satisfied over time where the Company has a right to consideration from a customer in an amount that corresponds directly with the value of the Company’s performance to-date, the Company recognizes revenue in the amount to which it has a right to invoice.

12 unchanged sentences

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

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

Accounts Receivable, Net

2 unchanged sentences

Past due receivable balances are written off when internal collection efforts have been unsuccessful in collecting the amounts due.

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2022, December 31, 2021 and December 31, 2020

Contract Assets and Contract Liabilities

10 unchanged sentences

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

Approximately 52 %, 49 %, and 48 % of consolidated revenues for the years ended December 31, 2021, December 31, 2020 and December 31, 2019, respectively, and approximately 17 % and 19 % of accounts receivable as of December 31, 2021 and December 31, 2020, respectively, were derived from contracts with the United States federal government.

Approximately 53 %, 52 %, and 49 % of consolidated revenues for the years ended December 31, 2022, December 31, 2021 and December 31, 2020, respectively, and approximately 17 % of accounts receivable as of both December 31, 2022 and December 31, 2021, 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.

7 unchanged sentences

Property and equipment are reviewed for impairment when events or circumstances change that indicate they may not be recoverable.

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

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

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

Impairment losses are recognized when estimated future cash flows expected to result from the use of the assets and their eventual disposition are less than their carrying amount, in which case the asset is written down to its fair value.

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

1 unchanged sentence

Finance leases are included in other noncurrent assets, accrued expenses and other current liabilities and other long-term liabilities in the consolidated balance sheets.

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2022, December 31, 2021 and December 31, 2020

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.

11 unchanged sentences

The Company issues equity-based awards that settle in shares of the Company’s common stock.

Prior to the IPO, the Company issued equity-based awards that settled 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 the number of shares expected to be earned pro-rated for the portion of the requisite service period rendered.

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

4 unchanged sentences

The Company’s determination of the fair value of the intangible assets acquired involves the use of significant estimates and assumptions related to discount rates, revenue growth rates, projected margins, and customer revenue attrition rates.

The Company adjusts the preliminary purchase price allocation, as necessary, during the measurement period of up to one year after the acquisition closing date as the Company obtains more

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

information as to facts and circumstances existing at the acquisition date.

The Company adjusts the preliminary purchase price allocation, as necessary, during the measurement period of up to one year after the acquisition closing date as the Company obtains more information as to facts and circumstances existing at the acquisition date.

Acquisition-related costs are recognized separate from the acquisition and are expensed as incurred.

4 unchanged sentences

(a) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional financial support;

(b) as a group, the holders of the equity investment at risk lack the ability to make certain decisions, the obligation to absorb expected losses or the right to receive expected residual returns;

(b) as a group, the holders of the equity investment at risk lack the ability to make certain decisions, the obligation

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2022, December 31, 2021 and December 31, 2020

to absorb expected losses or the right to receive expected residual returns;

or (c) an equity investor has voting rights that are disproportionate to its economic interest and substantially all of the entity’s activities are on behalf of the investor with disproportionately low voting rights.

18 unchanged sentences

In making the shared-power determination, the Company analyzes the key contractual terms, governance, related party and de facto agency as they are defined in the accounting standard, and other arrangements.

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

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

The change had no effect on the Company’s financial statements for the current or historical periods.

The Company performs an additional review at year end to address whether a triggering event has occurred that would require an interim impairment test in the interim period.

The Company performs a goodwill impairment test annually, on October 1 st of each year and additionally, performs a quarterly qualitative assessment to address whether a triggering event has occurred that would require an impairment test in the interim period.

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

Reporting units are operating segments or components of operating segments where discrete financial information is available and segment management regularly reviews the operating results.

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

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

that impairment has occurred.

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

If the Company does not perform a qualitative assessment, or if the Company determines that it is not more likely than not that the fair value of its reporting units exceeds their carrying amounts, the Company performs a quantitative assessment and calculates the estimated fair value of the respective reporting unit.

6 unchanged sentences

Should the review indicate that the carrying value is not fully recoverable, the excess of the carrying value over the fair value of the intangible assets would be recognized as an impairment loss.

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2022, December 31, 2021 and December 31, 2020

Income taxes are accounted for under the asset and liability method.

13 unchanged sentences

Translation gains or losses, net of income tax effects, are reflected in accumulated other comprehensive income on the consolidated balance sheets.

Transaction gains and losses due to movements in exchange rates between the functional

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

currency and the currency in which a foreign currency transaction is denominated are recognized as “Other income (expense), net” in the Company’s consolidated statements of income.

Transaction gains and losses due to movements in exchange rates between the functional currency and the currency in which a foreign currency transaction is denominated are recognized as “Other income (expense), net” in the Company’s consolidated statements of income.

Self-Insurance

4 unchanged sentences

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, “ Leases (Topic 842) ”, which is a new standard related to leases intended 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 the Company’s consolidated balance sheets but did not have an impact on the consolidated statements of income and cash flows.

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, the Company recorded a cumulative-effect adjustment to retained earnings of $ 52.6 million, net of 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.

The Company 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.

In July 2018, the FASB issued ASU No.

2018-09, “ Codification Improvements” .

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

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

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

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

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

PARSONS CORPORATION AND SUBSIDIARIES

1 unchanged sentence

December 31, 2022, December 31, 2021 and December 31, 2020

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

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

As a result, there was no impact on the Company’s financial position, results of operations or cash flows.

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) (“ASU2020-06)”.

The update simplified the accounting for convertible debt instruments and convertible preferred stock by reducing the number of accounting models and limiting the number of embedded conversion features separately recognized from the primary contract.

The guidance also included targeted improvements to the disclosures for convertible instruments and earnings per share.

ASU 2020-06 was effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.

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

The Company adopted ASU 2020-06 in the first quarter of 2021 using the modified retrospective method which resulted in a reduction in non-cash interest expense and reclassification of the equity portion of the Convertible Senior Notes to “Long-term debt” on the consolidated balance sheet.

In June 2016, the FASB issued ASU 2016-13, “ Measurement of Credit Losses on Financial Instruments ,” and issued subsequent amendments to the initial guidance within ASU 2019-04 and ASU 2019-05.

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December 31, 2022, December 31, 2021 and December 31, 2020

BlackHorse Solutions, Inc.

On July 6, 2021, the Company acquired a 100 % ownership interest in BlackHorse Solutions, Inc (“BlackHorse”), a privately-owned company, for $ 205.0 million paid in cash.

BlackHorse expands Parsons’ capabilities and products in next-generation military, intelligence, and space operations, specifically in cyber electronic warfare and information dominance.

The acquisition was entirely funded by cash on-hand.

Xator Corporation

On May 31, 2022, the Company acquired a 100 % ownership interest in Xator Corporation (“Xator”), a privately-owned company, for $ 388.3 million in cash.

The Company borrowed $ 300 million under the Credit Agreement, as described in “Note 11 – Debt and Credit Facilities”, to partially fund the acquisition.

Xator expands Parsons’ customer base and brings differentiated technical capabilities in critical infrastructure protection, counter-unmanned aircraft systems (cUAS), intelligence and cyber solutions, biometrics, and global threat assessment and operations.

In connection with this acquisition, the Company recognized $ 7.7 million of acquisition-related expenses in “Selling, general and administrative expense” in the consolidated statements of income for the year ended December 31, 2022, including legal fees, consulting fees, and other miscellaneous direct expenses associated with the acquisition

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

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

Cash and cash equivalents

4 unchanged sentences

Right of use assets, operating leases

Investments in and advances to unconsolidated joint ventures

Intangible assets

Other noncurrent assets

Accounts payable

3 unchanged sentences

Long-term lease liabilities, operating leases

Deferred tax liabilities

Other long-term liabilities

Net assets acquired

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

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

Customer relationships

2 unchanged sentences

Amortization expense of $ 11.9 million related to these intangible assets was recorded for the year ended December 31, 2022.

The entire value of goodwill of $ 143.8 million was assigned to the Federal Solutions reporting unit and represents synergies expected to be realized from this business combination.

Goodwill of $ 10.6 million is deductible for tax purposes.

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

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

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

Goodwill in its entirety is deductible for tax purposes.

PARSONS CORPORATION AND SUBSIDIARIES

1 unchanged sentence

December 31, 2022, December 31, 2021 and December 31, 2020

The amount of revenue generated by Xator and included within consolidated revenues is $ 157.8 million for the year ended December 31, 2022.

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

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

Supplemental Pro Forma Information (Unaudited)

Supplemental information on an unaudited pro forma basis, as if the acquisition closed as of the beginning of the fiscal year ended December 31, 2020 as follows (in thousands):

Supplemental information of unaudited pro forma operating results assuming the Xator acquisition had been consummated as of the beginning of fiscal year 2021 (in thousands) is as follows:

Pro forma Revenue

Pro forma Net Income including noncontrolling interests

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

This supplemental pro forma information has been prepared for comparative purposes and does not purport to be indicative of what would have occurred had the acquisition been consummated during the periods for which pro forma information is presented.

Echo Ridge LLC

On July 30, 2021, the Company acquired a 100 % ownership interest in Echo Ridge LLC (“Echo Ridge”), a privately-owned company, for $ 9.0 million in cash.

Echo Ridge adds position, navigation, and timing devices;

modeling, simulation, test, and measurement tools;

and deployable software defined radio products and signal processing services to Parsons’ space portfolio.

BlackHorse Solutions, Inc.

On July 6, 2021, the Company acquired a 100 % ownership interest in BlackHorse Solutions, Inc (“BlackHorse”), a privately-owned company, for $ 205.0 million paid in cash.

BlackHorse expands Parsons’ capabilities and products in next-generation military, intelligence, and space operations, specifically in cyber electronic warfare and information dominance.

The acquisition was entirely funded by cash on-hand.

In connection with this acquisition, the Company recognized $ 0.3 million of acquisition related “Selling, general and administrative expense” in the consolidated statements of income for the year ended December 31, 2021, including legal fees, consulting fees, and other miscellaneous direct expenses associated with the acquisition.

The Company allocated the purchase price to the appropriate classes of tangible assets and liabilities and assigned the excess of $ 7.2 million entirely to goodwill.

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

Goodwill in its entirety is deductible for tax purposes.

The amount of revenue generated by Echo Ridge and included within consolidated revenues for 2021 is $ 2.9 million.

Braxton Science & Technology Group

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

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

Department of Defense and Intelligence Community.

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

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

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

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

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):

In connection with this acquisition, the Company recognized $ 3.1 million of acquisition-related expenses in “Selling, general and administrative expense” in the consolidated statements of income for the year ended December 31, 2021, including legal fees, consulting fees, and other miscellaneous direct expenses associated with the acquisition.

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

Cash and cash equivalents

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Deferred tax liabilities

Other long-term 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 $ 16.2 million and $ 1.3 million related to these intangible assets was recorded for the years ended December 31, 2021 and December 31, 2020, respectively.

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

Goodwill of $ 200.5 million is deductible for tax purposes.

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

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

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 2019 (in thousands) is as follows:

Pro forma Revenue

Pro forma Net Income including noncontrolling interests

PARSONS CORPORATION AND SUBSIDIARIES

1 unchanged sentence

December 31, 2022, December 31, 2021 and December 31, 2020

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

QRC Technologies

On July 31, 2019 the Company acquired a 100 % ownership interest in QRC Technologies (“QRC”), a privately-owned company, for $ 214.1 million in cash.

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

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

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

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

signals intelligence;

and electronic warfare missions.

QRC complements our existing portfolio, increases our presence in the high-growth markets of spectrum awareness and surveillance, adds critical intellectual property that complements and expands our available capabilities for the Special Operations and Intelligence Communities.

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

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

Short-term lease liabilities, operating leases

Long-term lease liabilities, operating leases

Net assets acquired

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

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Developed technologies

In-process research and development

Non-compete agreements

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

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

Amortization expense of $ 14.0 million and $ 5.4 million related to these intangible assets was recorded for the year ended December 31, 2022 and December 31, 2021, respectively.

The entire value of goodwill of $ 143.1 million was assigned to the Federal Solutions reporting unit and represents synergies expected to be realized from this business combination.

Goodwill in its entirety is deductible for tax purposes.

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

Goodwill of $ 10.6 million is deductible for tax purposes.

The amount of revenue generated by BlackHorse and included within consolidated revenues was $ 35.3 million for the year ended December 31, 2021.

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

Supplemental Pro Forma Information (Unaudited)

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

Supplemental information on an unaudited pro forma basis, as if the acquisition closed as of the beginning of the fiscal year ended December 31, 2020 as follows (in thousands):

Pro forma Revenue

Pro forma Net Income including noncontrolling interests

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

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

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

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

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

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

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

Echo Ridge LLC

On July 30, 2021, the Company acquired a 100 % ownership interest in Echo Ridge LLC (“Echo Ridge”), a privately-owned company, for $ 9.0 million in cash.

Echo Ridge adds position, navigation, and timing devices;

modeling, simulation, test, and measurement tools;

and deployable software defined radio products and signal processing services to Parsons’ space portfolio.

The acquisition was entirely funded by cash on-hand.

The Company allocated the purchase price to the appropriate classes of tangible assets and liabilities and assigned the excess of $ 7.2 million entirely to goodwill.

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

Goodwill in its entirety is deductible for tax purposes.

The amount of revenue generated by Echo Ridge and included within consolidated revenues for 2021 is $ 2.9 million.

PARSONS CORPORATION AND SUBSIDIARIES

1 unchanged sentence

December 31, 2022, December 31, 2021 and December 31, 2020

Braxton Science & Technology Group

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

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

Department of Defense and Intelligence Community.

The acquisition was entirely funded by cash on hand in August 2020, as described in “Note 11— Debt and Credit Facilities” .

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):

6 unchanged sentences

Intangible assets

Other noncurrent assets

Accounts payable

2 unchanged sentences

Short-term lease liabilities, operating leases

Income tax payable

Deferred tax liabilities

Long-term lease liabilities, operating leases

Other long-term liabilities

Deferred tax liabilities

Net assets acquired

1 unchanged sentence

Customer relationships

Non-compete agreements

Developed technologies

Non-compete agreements

Amortization expense of $ 16.1 million and $ 16.2 million related to these intangible assets was recorded for the years ended December 31, 2022 and December 31, 2021, respectively.

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

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

Goodwill of $ 200.5 million is deductible for tax purposes.

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

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

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

3 unchanged sentences

Supplemental Pro Forma Information (Unaudited)

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

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

Pro forma Revenue

Pro forma Net Income including noncontrolling interests

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

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

37 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 material risk of non-payment from either our government agency or commercial customers related to COVID-19 impacts;

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

Transaction Price Allocated to the Remaining Unsatisfied Performance Obligations

16 unchanged sentences

The Company has operating and finance leases for corporate and project office spaces, vehicles, heavy machinery and office equipment.

Our leases have remaining lease terms of one year to eight years , some of which may include options to extend the leases for up to five years , and some of which may include options to terminate the leases after the third year .

Our leases have remaining lease terms of one year to seven years , some of which may include options to extend the leases for up to five years , and some of which may include options to terminate the leases after the third year .

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

56 unchanged sentences

We recognize forfeitures as they occur.

With the adoption of the Incentive Award Plan on April 15, 2019, the Company has discontinued issuing awards under the other plans described above.

With the adoption of the Incentive Award Plan on April 15, 2019, the Company has discontinued issuing awards under the Shareholder Value Plan, Long-Term Growth Plan and Restricted Award Plan.

Outstanding awards granted out of the discontinued plans will continue to vest and will settle in cash.

1 unchanged sentence

The majority of these unrecognized compensation costs will be recognized by the third quarter of fiscal 2024.

As discussed in “Note 1— Description of Operations” , the Company consummated its IPO on May 8, 2019.

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

Please see “Note 19— Fair Value of Financial Instruments” for a description of how the fair value of a share of the Company’s common stock was determined prior to the IPO.

The fair value of a share of the Company’s common stock is based on quoted prices on the NYSE.

Stock Appreciation Rights

12 unchanged sentences

December 31, 2022, December 31, 2021 and December 31, 2020

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

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

Number of Units

2 unchanged sentences

Unvested at December 31, 2020

Long-Term Growth Units

6 unchanged sentences

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

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

The final long-term growth units grant vested during the year ended December 31, 2020.

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

Number of Units

2 unchanged sentences

Unvested at December 31, 2020

Restricted Award Units

9 unchanged sentences

December 31, 2022, December 31, 2021 and December 31, 2020

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

The final restricted award units grant vested during the year ended December 31, 2021.

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

Number of Units

3 unchanged sentences

Unvested at December 31, 2021

The following table presents the amount paid for cash settled awards, by award type, for the years ended December 31, 2021, December 31, 2020, and December 31, 2019 (in thousands):

The following table presents the amount paid for cash settled awards, by award type, for the years ended December 31, 2021 and December 31, 2020 (in thousands) (there were no awards outstanding as of the year ended December 31, 2021):

Stock Appreciation Rights

51 unchanged sentences

Total intangible assets

The prior year presentation has been corrected to reflect the removal of fully amortized intangible assets resulting in reductions to gross carrying amount and accumulated amortization of $ 159 million.

The aggregate amortization expense of intangible assets was $ 78.2 million, $ 103.2 million, and $ 87.8 million for the years ended December 31, 2022, December 31, 2021 and December 31, 2020, respectively.

16 unchanged sentences

Depreciation expense of $ 39.0 million, $ 38.6 million, and $ 39.0 million was recorded for the years ended December 31, 2022, December 31, 2021 and December 31, 2020, respectively.

Sale-Leasebacks

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

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

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

The deferred gain balance of $ 53.3 million as of December 31, 2018 was recognized as an adjustment to beginning accumulated deficit, net of a deferred tax asset adjustment of $ 0.7 million, during January 2019 in connection with the adoption of the new leasing standard.

See “Note 5— Leases ”.

Accrued Expenses and Other Current Liabilities

6 unchanged sentences

Total accrued expenses and other current liabilities

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

Debt and Credit Facilities

2 unchanged sentences

December 31, 2021

Total Short-Term

Delayed draw term loan

Convertible senior notes

Debt discount

Revolving credit facility

Debt issuance costs

Total long-term

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2022, December 31, 2021 and December 31, 2020

Revolving Credit Facility

10 unchanged sentences

Interest expense related to the Credit Agreement was $ 4.3 million, $ 0.7 million and $ 1.0 million, for the years ended December 31, 2022, December 31, 2021 and December 31, 2020, respectively.

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

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

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

On May 10, 2019, the Company used proceeds from its May 8, 2019 IPO to repay the $ 150.0 million outstanding balance under the Term Loan and this loan is now closed.

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

There were no amounts outstanding in 2020 and 2021.

There were no loan amounts outstanding under the Credit Agreement at December 31, 2022 and December 31, 2021.

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

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

Private Placement

12 unchanged sentences

On August 10, 2018, the Company finalized an amended and restated intercreditor agreement related to this private placement to more closely align certain covenants and definitions with the terms under the 2017 amended and restated Credit Agreement and incurred approximately $ 0.5 million of additional issuance costs.

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

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

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

Interest expense related to the Senior Notes was $ 8.5 million $ 11.6 million and $ 12.4 million for the years ended December 31, 2022, December 31, 2021 and December 31, 2020, 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 Notes as scheduled in July 2021.

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

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

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

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

The Company made interest payments related to the Senior Notes of approximately $ 13.1 million during the year ended December 31, 2022, and $ 12.4 million during the years ended December 31, 2021 and December 31, 2020.

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

The Company repaid all outstanding Senior Notes in October 2022.

In connection with the prepayment, the Company incurred $ 2.1 million of interest expense associated with a make-whole amount and remaining unamortized debt issuance costs.

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2022, December 31, 2021 and December 31, 2020

Convertible Senior Notes

4 unchanged sentences

equal in right of payment to any of the Company’s unsecured indebtedness that is not so subordinated;

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

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

to the extent of the value of the assets securing such indebtedness;

effectively junior in right of payment to any of the Company’s secured indebtedness, to the extent of the value of the assets securing such indebtedness;

and structurally junior to all indebtedness and other liabilities (including trade payables) of the Company’s subsidiaries

8 unchanged sentences

In addition, calling any Convertible Senior Note for redemption will constitute a Make-Whole Fundamental Change with respect to that Convertible Senior Note, in which case the conversion rate applicable to the conversion of that Convertible Senior Note will be increased in certain circumstances if it is converted after it is called for redemption.

Upon the occurrence of a fundamental change prior to the maturity date of the Convertible Senior Notes, holders of the Convertible Senior Notes may require the Company to repurchase all or a portion of the Convertible Senior Notes for cash at a price equal to 100 % of the principal amount of the Convertible Senior Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

Upon conversion, the Company may settle the Convertible Senior Notes for cash, shares of the Company’s common stock, or a combination thereof, at the Company’s option.

If the Company satisfies its conversion obligation solely in cash or through payment and delivery of a combination of cash and shares of the Company’s common stock, the amount of cash and shares of common stock due upon conversion will be based on a daily conversion value calculated on a proportionate basis for each trading day in a 50-trading day observation period.

PARSONS CORPORATION AND SUBSIDIARIES

1 unchanged sentence

December 31, 2022, December 31, 2021 and December 31, 2020

Upon conversion, the Company may settle the Convertible Senior Notes for cash, shares of the Company’s common stock, or a combination thereof, at the Company’s option.

Under existing GAAP at the time of issuance during 2020, convertible debt instruments that may be settled in cash on conversion were required to be separated into liability and equity components in a manner that reflects the issuer’s non-convertible debt borrowing rate.

4 unchanged sentences

The difference between the principal amount of the Convertible Senior Notes and the liability component, inclusive of issuance costs, represents the debt discount, which the Company amortized to interest expense over the term of the Convertible Senior Notes using an effective interest rate of 3.25 %.

The Company recognized interest expense of $ 3.0 million and $ 4.4 million for the years ended December 31, 2021 and December 31, 2020, respectively.

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

The Company recognized interest expense of $ 3.0 million for the years ended December 31, 2022 and December 31, 2021, respectively.

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

In the first quarter of 2021, the Company early adopted ASU 2020-06.

1 unchanged sentence

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

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

Delayed Draw Term Loan

In September 2022 , the Company entered into a $ 350 million unsecured Delayed Draw Term Loan with an increase option of up to $ 150 million (the “2022 Delayed Draw Term Loan”).

The 2022 Delayed Draw Term Loan may be borrowed in a single draw during the period from and including the Closing Date to the earlier to occur of (a) the date of termination of the 2022 Delayed Draw Term Loan by the Company pursuant to the terms of the 2022 Delayed Draw Term Loan Agreement and (b) six (6) months following the Closing Date.

Proceeds of the 2022 Delayed Draw Term Loan Agreement may be used (a) to pay off in full, or partially payoff, the Company’s existing Senior Notes, (b) to prepay revolving loans outstanding under the Revolving Credit Agreement (as defined below), or (c) for working capital, capital expenditures and other lawful corporate purposes.

The Company drew $ 350.0 million from the 2022 Delayed Draw Term Loan in November 2022.

The Company incurred $ 0.9 million of debt issuance costs in connection with the delayed draw term loan as of December 31, 2022.

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

Interest expense related to the Delayed Draw Term Loan was $ 3.3 million for the year ended December 31, 2022.

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

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

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2022, December 31, 2021 and December 31, 2020

The 2022 Delayed Draw Term Loan has a three-year maturity and permits the Company to borrow in U.S.

The 2022 Delayed Draw Term Loan does not require any amortization payments by the Company.

Depending on the Company’s consolidated leverage ratio (or debt rating after such time as the Company has such rating), borrowings under the 2022 Delayed Draw Term Loan Agreement will bear interest at either an adjusted Term SOFR benchmark rate plus a margin between 0.875 % and 1.500 % or a base rate plus a margin of between 0 % and 0.500 % and will initially bear interest at the middle of this range.

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

Amounts outstanding under the 2022 Delayed Draw Term Loan Agreement may be prepaid at the option of the Company without premium or penalty, subject to customary breakage fees in connection with the prepayment of benchmark rate loans.

Letters of Credit

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

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The Company received $ 13.8 million in cash proceeds from the sales of these warrants.

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

$ 66.46 , at their issuance, thereby reducing the dilutive economic effect to shareholders upon actual conversion.

The bond hedge and warrant transactions effectively increased the conversion price associated with the Convertible Senior Notes during the term of these transactions from 35 %, or $ 44.86 , to 100 %, or $ 66.46 , at their issuance, thereby reducing the dilutive economic effect to shareholders upon actual conversion.

The bond hedges and warrants are indexed to, and potentially settled in, shares of the Company’s common stock.

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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.

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2022, December 31, 2021 and December 31, 2020

Other Long-term Liabilities

6 unchanged sentences

Refer to “Note 13— Income Taxes ” for further discussion of the Company’s reconciliation of the beginning and ending balances of uncertain tax positions.

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

As a result, income was not subject to U.S.

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

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

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

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

The termination of the “S” Corporation status was treated as a change in tax status under 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.

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

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

The effective tax rate has increased,

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

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

federal and state corporate income taxes on its earnings.

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

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

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

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

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

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

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

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

On August 9, 2022 President Biden signed the Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act into law, which includes an advanced manufacturing investment tax credit, among other provisions.

On August 16, 2022 President Biden signed the Inflation Reduction Act (the IRA) into law, which includes implementation of a new alternative minimum tax, an excise tax on stock buybacks, and tax incentives for energy and climate initiatives, among other provisions.

Based on the Company’s review, these new laws do not result in a material change to the Company’s income tax provision for 2022.

On November 18, 2022, the U.S.

Treasury Department and IRS (collectively, “Treasury”) released proposed regulations that provide additional guidance relating to the foreign tax credit (“FTC”).

The 2022 Proposed Regulations include guidance with respect to the reattribution asset rule for purposes of allocating and apportioning foreign taxes, the cost recovery requirement, and the attribution rule for withholding taxes on royalty payments.

These Proposed Regulations would, if finalized, supplement and revise Final Regulations that were published on January 4, 2022.

The Company has assessed the impact of the January 4, 2022, Final Regulations and has included the impact in its provision for income taxes.

The Company does not expect any material impact to its consolidated financial statements from the issuance of the Proposed Regulations.

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

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Foreign earnings

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

Total current income tax expense

Total deferred tax expense (benefit)

Total income tax expense (benefit)

PARSONS CORPORATION AND SUBSIDIARIES

1 unchanged sentence

December 31, 2022, December 31, 2021 and December 31, 2020

The income tax expense (benefit) attributable to income from continuing operations for the years ended December 31, 2022, December 31, 2021, and December 31, 2020 consists of the following (in thousands):

Total current income tax expense

Total deferred tax expense (benefit)

Total income tax expense

Income tax expense (benefit) was different from the amount computed by applying the United States federal statutory rate to pre-tax income from continuing operations as a result of the following (in thousands):

Income before income tax expense (benefit)

Income before income tax expense

Tax at federal statutory tax rate

S- corporation exclusion

State taxes, net of federal tax benefit

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Foreign tax rate differential

Foreign tax credits

Tax cost of foreign operations, net of credits

Transaction costs

Noncontrolling interests

Federal research credits

Federal business credits

Executive compensation

Total income tax expense (benefit)

Total income tax expense

The effective tax rate in 2022 increased to 23.9 % from 21.0% in 2021.

The change in the effective tax rate was due primarily to a net increase of uncertain tax positions during 2022, an income tax benefit recognized in 2021 for foreign tax credits which did not reoccur in 2022, partially offset by a decrease in withholding taxes, a benefit from a change in jurisdictional mix of earnings, and a tax expense recognized in 2021 related to a nonrecurring write down of a foreign tax receivable.

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

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

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

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

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

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

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

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

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

The effective tax rate for the year ended December 31, 2022 differs from the federal statutory tax rate primarily due to state income taxes and a recorded valuation allowance on foreign tax credit

PARSONS CORPORATION AND SUBSIDIARIES

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December 31, 2022, December 31, 2021 and December 31, 2020

carryovers, partially offset by benefits related to income attributable to noncontrolling interests, earnings in lower tax jurisdictions and federal business tax credits.

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

The components of deferred tax assets and liabilities consists of the following at December 31, 2022 and December 31, 2021 (in thousands):

Deferred tax assets

6 unchanged sentences

Tax credit carryforwards

Total deferred tax assets

Valuation allowance

5 unchanged sentences

Net deferred tax asset

The Company assesses the realizability of its deferred tax assets each reporting period through an analysis of potential sources of taxable income, including prior year taxable income available to absorb a carryback of tax losses, reversals of existing taxable temporary differences, tax planning strategies, and forecasts of taxable income.

The Company assesses the realizability of its deferred tax assets each reporting period through an analysis of potential sources of taxable income, including prior year taxable income available to absorb carryback of tax losses, reversals of existing taxable temporary differences, tax planning strategies, and forecasts of taxable income.

The Company considers all negative and positive evidence, including the weight of the evidence, to determine if a valuation allowance against deferred tax assets is required.

2 unchanged sentences

Therefore, the Company has recorded a deferred tax liability for the undistributed earnings net of applicable foreign tax credits.

Beginning in 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.

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

Correspondingly, our deferred tax asset for revenue and cost recognition increased by approximately $ 16 million to reflect future amortization deductions of the capitalized expenses.

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2022, December 31, 2021 and December 31, 2020

As of December 31, 2022, and December 31, 2021, the Company’s valuation allowance against deferred tax assets was $ 28.7 million and $ 27.3 million, respectively.

1 unchanged sentence

From December 31, 2021 to December 31, 2022, the Company’s valuation allowance increased by $ 1.4 million.

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

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

This increase relates to deferred tax assets recorded for foreign tax credit carryforwards, offset in part by a decrease related to net operating loss carryforwards.

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

As of December 31, 2022, the Company has NOLs of $ 0.4 million, $ 30.6 million, and $ 30.2 million for U.S.

4 unchanged sentences

state NOLs are subject to certain annual limitations.

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

Of these NOL amounts, $ 0 million, $ 20.1 million and $ 19.3 million in U.S.

Federal, U.S.

3 unchanged sentences

As of December 31, 2022, the Company has foreign tax credit carryforwards of $ 22.3 million.

The Company has provided a valuation allowance of $ 19.6 million as the Company considers that these credits will not be realized.

The Company has provided a valuation allowance of $ 22.3 million as the Company considers it is not more likely than not that these credits will be realized.

These foreign tax credits start expiring in the year 2029 .

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

A reconciliation of the beginning and ending balances of unrecognized tax benefits is as follows (in thousands):

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states, and foreign jurisdictions.

The Company is subject to examination by tax authorities in several jurisdictions, including major jurisdictions such as Canada, Mexico, Qatar, Saudi Arabia and the United States.

The Company is subject to examination by tax authorities in several jurisdictions, including major jurisdictions such as Canada, Qatar, Saudi Arabia and the United States.

As of December 31, 2022, the Company’s U.S.

1 unchanged sentence

states and foreign income tax returns remain subject to examination based on varying local statutes of limitations.

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2022, December 31, 2021 and December 31, 2020

The Company estimates that, within 12 months, it may decrease its uncertain tax positions by approximately $ 2.5 million as a result of concluding various tax audits and closing tax years.

8 unchanged sentences

When using a range of loss estimate, the Company records the liability using the low end of the range unless some amount within the range of loss appears at that time to be a better estimate than any other amount in the range.

The Company records a corresponding receivable for costs covered

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

under its insurance policies.

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

Management judgment is required to determine the outcome and the estimated amount of a loss related to such matters.

1 unchanged sentence

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

The plaintiff alleges that, as a result of these actions, the United States paid in excess of $ 1 million per month between February and September 2006 that it should have paid to another contractor, plus $ 2.9 million to acquire vehicles for the contractor defendant to perform its security services.

The lawsuit sought (i) that we cease and desist from violating the False Claims Act, (ii) monetary damages equal to three times the amount of damages that the United States has sustained because of our alleged violations, plus a civil penalty of not less than $ 5,500 and not more than $ 11,000 for each alleged violation of the False Claims Act, (iii) monetary damages equal to the maximum amount allowed pursuant to §3730(d) of the False Claims Act, and (iv) Relator’s costs for this action, including recovery of attorneys’ fees and costs incurred in the lawsuit.

The United States government did not intervene in this matter as it is allowed to do so under the statute.

The Company filed a motion to dismiss the lawsuit on the grounds that the Relator did not meet the applicable statute of limitations.

The District Court granted the motion to dismiss.

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 Relator.

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

The defendants, including Parsons, will file appropriate pleadings opposing the allegations.

The parties are concluding discovery and we anticipate that the court will hear dispositive and/or pre-trial motions in early or mid-2023.

Depending upon the court’s rulings upon such motions, a trial may be scheduled in 2023.

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.

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2022, December 31, 2021 and December 31, 2020

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

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

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

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

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

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

The IPO Dividend was paid on May 10, 2019 .

On April 15, 2019 , the board of directors of the Company declared the Stock Dividend in a ratio of two shares of common stock for every one share of common stock then held by the Company’s shareholder.

The record date of the Stock Dividend was May 7, 2019 , the day immediately prior to the consummation of the Company’s IPO on May 8, 2019, and the payment date of the Stock Dividend was May 8, 2019 .

Purchasers of the Company’s common stock in the Company’s public offering were not entitled to receive any portion of the Stock Dividend.

During the years ended December 31, 2021 and December 31, 2020, the Company did no t declare any dividends.

Total ESOP contribution expense was approximately $ 54.7 million, $ 54.9 million and $ 55.3 million for the years ended December 31, 2022, December 31, 2021 and December 31, 2020, respectively, and is recorded in “Direct costs of contracts” and “Selling, general and administrative expense” in the consolidated statements of income.

The Company also maintains a defined contribution plan (the “401(k) Plan”).

4 unchanged sentences

At December 31, 2022 and December 31, 2021, the defined benefit pension plan was in a net asset position of $ 1.8 million and $ 2.6 million, respectively, which is recorded in “Other noncurrent assets” on the consolidated balance sheets.

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2022, December 31, 2021 and December 31, 2020

Investments in and Advances to Joint Ventures

10 unchanged sentences

In the table below, aggregated financial information relating to the Company’s joint ventures is provided because their nature, risk and reward characteristics are similar.

None of the Company’s current

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

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

None of the Company’s current joint ventures that meet the characteristics of a VIE are individually significant to the consolidated financial statements.

Consolidated Joint Ventures

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The assets of the consolidated joint ventures are restricted for use only by the particular joint venture and are not available for the Company’s general operations.

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2022, December 31, 2021 and December 31, 2020

Unconsolidated Joint Ventures

10 unchanged sentences

Investments in and advances to unconsolidated joint

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

Equity in earnings of unconsolidated joint ventures

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

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

The Company received net distribution from its unconsolidated joint ventures of $ 20.2 million and $ 30.5 million for the years ended December 31, 2022 and December 31, 2020, respectively, and had net contributions to its unconsolidated joint ventures of $ 13.2 million for the year ended December 31, 2021.

For the years ended December 31, 2022, December 31, 2021 and December 31, 2020, the Company recorded a $ 13.8 million, $ 15.6 million and $ 15.5 million write-down, respectively, on an unconsolidated joint venture in the Critical Infrastructure segment as a result of changes in estimates made by the managing partner.

For the year ended December 31, 2022, this write-down decreased operating and net income by $ 13.8 million and $ 10.3 million, respectively, and decreased diluted earnings per share by $ 0.09 .

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

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

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2022, December 31, 2021 and December 31, 2020

Related Party Transactions

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

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

Income approach —Techniques to convert future amounts to a single present amount based on market expectations (including present value techniques, option-pricing models and lattice models).

7 unchanged sentences

Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2022, December 31, 2021 and December 31, 2020

The following table sets forth assets associated with the pension plan in “Note 15— Retirement and Other Benefits Plans ” that are accounted for at fair value by Level within the fair value hierarchy.

3 unchanged sentences

Cash and cash equivalents

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

As described in “Note 15— Retirement and Other Benefits Plans ”, the Company acquired a defined contribution pension plan, a defined benefit pension plan, and supplemental retirement plans.

7 unchanged sentences

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

Diluted EPS is computed similar to basic EPS, except the income available to shareholders is adjusted to add back interest expense, after tax, related to the Convertible Senior Note, and the weighted average number of shares outstanding is adjusted to reflect the dilutive effects of equity-based awards and shares underlying the Convertible Senior Note.

Diluted EPS is computed similar to basic EPS, except the income available to shareholders is adjusted to add back interest expense, after tax, related to the Convertible Senior Note, and the weighted average number of shares outstanding is adjusted to reflect the dilutive effects of stock-based awards and shares underlying the Convertible Senior Note.

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

4 unchanged sentences

The warrants have a strike price above our average share price during the period and are out of the money and not included in the tables below.

Dilutive potential common shares include, when circumstances require, shares the Company could be obligated to issue from its Convertible Senior Notes and warrants (see Note 12 for further discussion) and 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.

1 unchanged sentence

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

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2022, December 31, 2021 and December 31, 2020

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

3 unchanged sentences

Diluted weighted average number of shares outstanding

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

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

6 unchanged sentences

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

The table below presents information on this repurchase program:

The following table summarizes the repurchase activity under the stock repurchase program.

Total shares repurchased

10 unchanged sentences

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

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

The Company defines its reportable segments based on the way the chief operating decision maker (“CODM”), currently its Chief Executive Officer, evaluates the performance of each segment and manages the operations of the Company for purposes of allocating resources among the segments.

The CODM evaluates segment operating performance using segment Revenue and segment Adjusted EBITDA attributable to Parsons Corporation.

Industry leading

PARSONS CORPORATION AND SUBSIDIARIES

1 unchanged sentence

December 31, 2022, December 31, 2021 and December 31, 2020

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 CODM evaluates segment operating performance using segment Revenue and segment Adjusted EBITDA attributable to Parsons Corporation.

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

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Income tax (expense) benefit

Equity-based compensation (a)

Transaction-related costs (b)

Restructuring (c)

Equity-based compensation

Transaction-related costs (a)

Restructuring (b)

Net income including noncontrolling

1 unchanged sentence

Net income attributable to Parsons

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

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

Reflects costs incurred in connection with acquisitions, 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.

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

PARSONS CORPORATION AND SUBSIDIARIES

1 unchanged sentence

December 31, 2022, December 31, 2021 and December 31, 2020

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

Asset information by segment is not a key measure of performance used by the CODM.

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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.

Effective June 1, 2022, the Company made changes to its Federal Solutions business units by transferring a portion of legacy Defense and Intelligence business unit to the Engineered Systems business unit.

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

PARSONS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2022, December 31, 2021 and December 31, 2020

Subsequent Events

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Valuation allowance on deferred tax assets

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

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

What changed 10-K

Item 9A. Controls and Procedures