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What changed in Leonardo DRS, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Leonardo DRS, Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+373 added−390 removedSource: 10-K (2025-03-03) vs 10-K (2024-02-28)

Top changes in Leonardo DRS, Inc.'s 2024 10-K

373 paragraphs added · 390 removed · 297 edited across 10 sections

Item 1. Business

Business — how the company describes what it does

44 edited+9 added−5 removed56 unchanged
Biggest changeJoint Ventures, Strategic Investments and Mergers and Acquisitions We continually evaluate our existing portfolio and the related capabilities to maximize our ability to drive value. Through this process we consider the acquisition of, or investments in businesses that we believe will expand or complement our current portfolio, allow access to new customers and enhance technologies.
Biggest changeThrough this process we consider the acquisition of, or investments in businesses that we believe will expand or complement our current portfolio, allow access to new customers and enhance technologies. We also may explore the divestiture of businesses that no longer meet our needs or strategy or that could perform better outside of our organization.
DRS is a leading provider of next-generation electrical propulsion systems for the U.S. Navy. We provide power conversion, control, distribution and propulsion systems for the Navy’s top priority shipbuilding programs, including the Columbia Class ballistic missile submarine, the first modern U.S. electric drive submarine.
DRS is a leading provider of next-generation electrical propulsion systems for the U.S. Navy. We provide power conversion, control, distribution and propulsion systems for the U.S. Navy’s top priority shipbuilding programs, including the Columbia Class ballistic missile submarine, the first modern U.S. electric drive submarine.
Our strong commitment to employee and leadership development, talent management, talent development and succession planning ensures our workforce is prepared for the critical skills necessary for the work today and for future opportunities. We are developing our current leaders and preparing the next generation of leaders to demonstrate behaviors and attributes that are aligned with our core values.
Our strong commitment to employee and leadership development, talent management, and succession planning ensures our workforce is prepared for the critical skills necessary for the work today and for future opportunities. We are developing our current leaders and preparing the next generation of leaders to demonstrate behaviors and attributes that are aligned with our core values.
These laws and regulations include, but are not limited to, the Anti-Kickback Act, the Arms Export Control Act, including the ITAR, the Communications Act, the Defense Federal Acquisition Regulations, the Export Control Reform Act, including the EAR (which includes anti-boycott provisions), the False Claims Act, the Federal Acquisition Regulation, the FCPA, the Lobbying Disclosure Act, the Procurement Integrity Act, the Truthful Cost or Pricing Data Act, the Foreign Trade Regulations, the Foreign Investment Risk Review Modernization Act, the International Emergency Economic Powers Act, the Trading with the Enemy Act, and Executive Orders and regulations, administered by the U.S.
These laws and regulations include, but are not limited to, the Anti-Kickback Act, the Arms Export Control Act, including the ITAR, the Communications Act, the Defense Federal Acquisition Regulation Supplement, the Export Control Reform Act, including the EAR (which includes anti-boycott provisions), the False Claims Act, the Federal Acquisition Regulation, the FCPA, the Lobbying Disclosure Act, the Procurement Integrity Act, the Truthful Cost or Pricing Data Act, the Foreign Trade Regulations, the Foreign Investment Risk Review Modernization Act, the International Emergency Economic Powers Act, the Trading with the Enemy Act, and Executive Orders and regulations, administered by the U.S.
We estimate variable consideration as the most likely amount to which we expect to be entitled. • Time-and-material type contracts provide for reimbursement of labor hours expended at a contractual fixed labor rate per hour, plus the actual costs of material and other direct non-labor costs.
We estimate variable consideration as the most likely amount to which we expect to be entitled. • Time-and-materials type contracts provide for reimbursement of labor hours expended at a contractual fixed labor rate per hour, plus the actual costs of material and other direct non-labor costs.
Our international sales consist primarily of transactions with foreign governments for defense applications. 2 Competition We operate in a highly competitive market and we compete with a variety of companies in the defense market including divisions of the large defense primes, mid-tier and smaller defense companies as well as certain non-traditional companies.
Our international sales consist primarily of transactions with foreign governments for defense applications. Competition We operate in a highly competitive market and we compete with a variety of companies in the defense market including divisions of the large defense primes, mid-tier and smaller defense companies as well as certain non-traditional companies.
Accordingly, we derive benefits from cost savings, but bear the risk of cost overruns. Under fixed-price-incentive-fee contracts, if actual costs incurred in the performance of the contracts are less than estimated costs for the contracts the savings are apportioned between the customer and us.
Accordingly, we derive benefits from cost savings, but bear the risk of cost overruns. Under fixed- 3 price-incentive-fee contracts, if actual costs incurred in the performance of the contracts are less than estimated costs for the contracts the savings are apportioned between the customer and us.
If actual costs under such a contract exceed estimated costs, however, excess costs are apportioned between the customer and us, up to a ceiling. We bear all costs that exceed the ceiling, if any. 3 • Cost-type contracts include cost plus fixed fee, cost plus award fee and cost plus incentive fee contracts.
If actual costs under such a contract exceed estimated costs, however, excess costs are apportioned between the customer and us, up to a ceiling. We bear all costs that exceed the ceiling, if any. • Cost-type contracts include cost plus fixed fee, cost plus award fee and cost plus incentive fee contracts.
We (including our subcontractors and others with whom we do business) are also subject to, and expected to perform in compliance with, a vast array of federal, state, local and international laws, regulations and requirements related to our industry, our products and the businesses we operate.
We (including our subcontractors and others with whom we do business) are also subject to, and expected to perform in compliance with, a vast array of federal, state, local and international laws, 7 regulations and requirements related to our industry, our products and the businesses we operate.
The Registration Rights Agreement, among other things, provides Leonardo S.p.A. and its affiliated entities with customary demand, shelf and piggy-back registration rights to facilitate a public offering of the Company Common Stock held by US Holding.
The Registration Rights Agreement, among other things, provides Leonardo S.p.A. and its affiliated entities with customary demand, shelf and piggy-back registration rights to facilitate a public offering of the Company Common Stock held by US 8 Holding.
Governance Structure As a U.S. defense contractor with high level personnel and facility security clearances, DRS, our immediate majority stockholder US Holding, LLC and our ultimate majority stockholder Leonardo S.p.A. have entered into a proxy agreement with the DoD to mitigate against the potential for undue foreign ownership control and influence (“FOCI”) on the performance of classified programs by implementing various limitations on US Holding’s and Leonardo S.p.A.’s rights as the direct foreign majority stockholder of DRS, respectively.
Governance Structure As a U.S. defense contractor with high level personnel and facility security clearances, DRS, our immediate majority stockholder US Holding, LLC and our indirect majority stockholder Leonardo S.p.A. have entered into a proxy agreement with the DoD to mitigate against the potential for undue foreign ownership control and influence (“FOCI”) on the performance of classified programs by implementing various limitations on US Holding’s and Leonardo S.p.A.’s rights as the direct foreign majority stockholder of DRS, respectively.
Unfunded backlog represents the revenue value of firm orders for products and services under existing contracts for which funding has not been appropriated less funding previously recognized on these contracts.
Unfunded backlog represents the revenue value of firm orders for products and services under existing contracts for which funding has not yet been appropriated less funding previously recognized on these contracts.
DRS benefits from an over 50-year legacy of providing innovative and differentiated products and solutions for defense applications. From our earliest offerings to today’s best-in-class products offerings including naval propulsion, electro-optical sensors, electronic warfare systems and other mission critical technologies, we have continually sought to develop advanced technologies enabling solutions to address complex national security challenges.
DRS benefits from an over 55-year legacy of providing innovative and differentiated products and solutions for defense applications. From our earliest offerings to today’s best-in-class products offerings including naval propulsion, electro-optical sensors, electronic warfare systems and other mission critical technologies, we have continually sought to develop advanced technologies enabling solutions to address complex national security challenges.
Department of the Treasury, Office of Foreign Assets Control, as well as rules and regulations administered by the U.S. Customs and Border 7 Protection and the Bureau of Alcohol, Tobacco, Firearms and Explosives.
Department of the Treasury, Office of Foreign Assets Control, as well as rules and regulations administered by the U.S. Customs and Border Protection and the Bureau of Alcohol, Tobacco, Firearms and Explosives.
The fixed labor rates on time-and-material type contracts include amounts for the cost of direct labor, indirect contract costs and profit. Backlog Our total backlog consists of funded and unfunded amounts. Funded backlog represents the revenue value of orders for services under existing contracts for which funding is appropriated or otherwise authorized less revenue previously recognized on these contracts.
The fixed labor rates on time-and-materials type contracts include amounts for the cost of direct labor, indirect contract costs and profit. Backlog Our total backlog consists of funded and unfunded amounts. Funded backlog represents the revenue value of orders for services under existing contracts for which funding is appropriated or otherwise authorized less revenue previously recognized on these contracts.
We are not including the information contained in our website as part of, or incorporating it by reference into, this Report.
We are not including the information contained in our website as part of, or incorporating it by reference into, this Annual Report.
The group has been part of the Dow Jones Sustainability Index (“DJSI”) since 2010 and was again named as sustainability global leader in the Aerospace & Defense sector of DJSI in 2022. Available Information We file reports and other information with the Securities and Exchange Commission (“SEC”).
The group has been part of the Dow Jones Sustainability Index (“DJSI”) since 2010 and was again named as sustainability global leader in the Aerospace & Defense sector of DJSI in 2023. Available Information We file reports and other information with the Securities and Exchange Commission (“SEC”).
Typically we enter into three types of contracts: fixed-price contracts, cost-plus contracts and time-and-material (“T&M”) contracts (cost-plus contracts and T&M contracts are aggregated above as flexibly priced contracts). Our contracts are normally for production, services or development. Production contracts are typically the fixed-price type, development contracts are sometimes of the cost-plus type, and service contracts are sometimes the T&M type.
Typically we enter into three types of contracts: fixed-price contracts, cost-plus contracts and time-and-materials (“T&M”) contracts (cost-plus contracts and T&M contracts are aggregated above as flexibly priced contracts). Our contracts are normally for production, services or development. Production contracts are typically the fixed-price type, development contracts are sometimes of the cost-plus type, and service contracts are sometimes the T&M type.
While the majority of our revenue is derived from the U.S. government, we have a diverse business mix within the U.S. government funding. Currently no single contract represented more than 10% of our revenues for 2023, 2022, and 2021.
While the majority of our revenue is derived from the U.S. government, we have a diverse business mix within the U.S. government funding. Currently no single contract represented more than 10% of our revenues for 2024, 2023, and 2022.
We make available on our website, free of charge, the periodic reports that we file with or furnish to the SEC, as well as amendments to those reports, as soon as reasonably practicable after such reports are filed with or furnished to the SEC.
We make available on our website, free of charge, the regular and periodic reports that we file with or furnish to the SEC, as well as amendments to those reports, as soon as reasonably practicable after such reports are filed with or furnished to the SEC.
December 31, (Dollars in millions) 2023 2022 2021 Backlog: Funded (1) $ 3,397 $ 2,783 $ 2,510 Unfunded (1) 4,354 1,486 351 Total backlog (1) $ 7,751 $ 4,269 $ 2,861 ________________ (1) See Part I Item 1A, “ Risk Factors—Risks Relating to Our Business—We may not realize the full value of our total estimated contract value or bookings, including as a result of reduction of funding or cancellation of our U.S. government contracts, which could have a material adverse impact on our business, financial condition and results of operations ” in this Annual Report.
December 31, (Dollars in millions) 2024 2023 2022 Backlog: Funded (1) $ 4,177 $ 3,397 $ 2,783 Unfunded (1) 4,332 4,354 1,486 Total backlog (1) $ 8,509 $ 7,751 $ 4,269 ________________ (1) See Part I Item 1A, “ Risk Factors—Risks Relating to Our Business—We may not realize the full value of our total estimated contract value or bookings, including as a result of reduction of funding or cancellation of our U.S. government contracts, which could have a material adverse impact on our business, financial condition and results of operations ” in this Annual Report.
The amount of our revenues attributable to our contracts by contract type during 2023, 2022, and 2021 were as follows: Year Ended December 31, (Dollars in millions) 2023 2022 2021 Firm-fixed price $ 2,373 $ 2,347 $ 2,498 Flexibly priced (1) 453 346 381 ______________ (1) Includes revenue derived from cost-type and time-and-materials contracts.
The amount of our revenues attributable to our contracts by contract type during 2024, 2023, and 2022 were as follows: Year Ended December 31, (Dollars in millions) 2024 2023 2022 Firm-fixed price $ 2,710 $ 2,373 $ 2,347 Flexibly priced (1) 524 453 346 ______________ (1) Includes revenue derived from cost-type and time-and-materials contracts.
Company-funded R&D costs charged to general and administrative expenses totaled $82 million, $58 million and $48 million in 2023, 2022 and 2021, respectively. Intellectual Property We believe our intellectual property portfolio is valuable to our operations.
Company-funded R&D costs charged to general and administrative expenses totaled $92 million, $82 million and $58 million in 2024, 2023 and 2022, respectively. Intellectual Property We believe our intellectual property portfolio is valuable to our operations.
Revenues derived directly or indirectly from the U.S. government represent 80%, 84% and 86% of our total revenue for full year 2023, 2022, and 2021, respectively. Our U.S. government sales are concentrated with the DoD, which constitutes the majority of our U.S. government revenue for any given year, including the entirety of our government sales in 2023.
Revenues derived directly or indirectly from the U.S. government represented 79%, 80% and 84% of our total revenues for full year 2024, 2023, and 2022, respectively. Our U.S. government sales are concentrated with the DoD, which constitutes the majority of our U.S. government revenue for any given year, including the entirety of our government sales in 2024.
Our innovative spirit and agility, together with our established market position in these areas have created a foundational and diverse base of programs across the DoD.
Our innovative spirit and agility inherent in a mid-sized defense company, together with our established market position in these areas have created a foundational and diverse base of programs across the DoD.
Leonardo S.p.A. competes internationally by leveraging its areas of technological and product leadership (Helicopters, Defense Electronics & Security, Aircraft, Aerostructures and Space). Listed on the Milan Stock Exchange (under the trading symbol “LDO”), in 2022 Leonardo S.p.A. recorded consolidated revenues of €14.7 billion and invested €2.0 billion in R&D.
Leonardo S.p.A. competes internationally by leveraging its areas of technological and product leadership (Helicopters, Defense Electronics & Security, Aircraft, Aerostructures and Space). Listed on the Milan Stock Exchange (under the trading symbol “LDO”), in 2024 Leonardo S.p.A. recorded preliminary consolidated revenues of €17.8 billion and invested €2.5 billion in R&D.
As of December 31, 2023, our workforce included approximately 6,600 employees, of which, approximately 470 (or 7%) were represented by labor unions. We continuously strive to maintain a culture that fosters and rewards growth, agility, problem-solving, innovation and operational excellence.
As of December 31, 2024, our workforce included approximately 7,000 employees, of which, approximately 520 (or 7%) were represented by labor unions. We continuously strive to maintain a culture that fosters and 5 rewards growth, agility, problem-solving, innovation and operational excellence.
Maintaining a safe work environment for our employees is of utmost importance. We have policies, processes, and trainings in place to comply with health and safety laws and to prevent workplace hazards from occurring. Emphasis is placed on encouraging safe behaviors and creating a culture of continuous improvement to minimize or eliminate workplace incidents and illnesses.
We have policies, processes, and training in place to comply with health and safety laws and to prevent workplace hazards from occurring. Emphasis is placed on encouraging safe behaviors and creating a culture of continuous improvement to minimize or eliminate workplace incidents and illnesses.
On April 19, 2022 we entered into a definitive sales agreement to divest our share of our current equity investment in Advanced Acoustic Concepts LLC to Thales Defense & Security, Inc., the minority 6 partner in this joint venture. The transaction was completed on July 8, 2022 and resulted in proceeds of $56 million.
The transaction was completed on August 1, 2022 and resulted in net cash proceeds of $427 million after net working capital adjustments. 6 On April 19, 2022 we entered into a definitive sales agreement to divest our share of our current equity investment in Advanced Acoustic Concepts LLC to Thales Defense & Security, Inc., the minority partner in this joint venture.
Following that, the FY 2024 National Defense Authorization Act (“NDAA”) was passed by Congress late in 2023 and signed into law by the President in December 2023. The NDAA authorizes $842 billion in defense spending, including increases in procurement, research, development, testing and engineering, as well as military assistance to Ukraine.
Following that, the FY 2025 National Defense Authorization Act (“NDAA”) was passed by Congress late in 2024 and signed into law by the President in December 2024. The NDAA authorizes $850 billion in defense spending, including increases in procurement, research, development, testing and engineering.
Under the Cooperation Agreement, among other things, (a) Leonardo S.p.A. has certain consent, access and cooperation rights, and (b) US Holding has certain consent rights with respect to actions taken by the Company and its subsidiaries, including with respect to the creation or issuance of any new classes or series of stock (subject to customary exceptions), listing or delisting from any securities exchange, and making material changes to the Company’s accounting policies and changing the Company’s auditor. 8 Our Ultimate Majority Stockholder Leonardo S.p.A., a global high-technology company, is a leading global Aerospace, Defense and Security company and one of Italy’s main industrial companies.
Under the Cooperation Agreement, among other things, (a) Leonardo S.p.A. has certain consent, access and cooperation rights, and (b) US Holding has certain consent rights with respect to actions taken by the Company and its subsidiaries, including with respect to the creation or issuance of any new classes or series of stock (subject to customary exceptions), listing or delisting from any securities exchange, and making material changes to the Company’s accounting policies and changing the Company’s auditor.
Defense Market Trends The DoD budget is the largest defense budget in the world. In March 2023, the U.S. President’s fiscal year (“FY”) 2024 budget request was released and included $842 billion for national defense programs, which marks a 3% increase over prior year levels.
Defense Market Trends The DoD budget is the largest defense budget in the world. In March 2024, the U.S. President’s fiscal year (“FY”) 2025 budget request was released and included $850 billion in base funding for national defense programs, which is largely flat over prior year levels.
If a supplier should cease to deliver such components, generally, but not in all cases, we would expect that other sources would be available; however, added cost and manufacturing delays might result. We have experienced delays attributable to supply shortages and quality and other related problems with respect to certain components.
If a supplier should cease to deliver such components, generally, but not in all cases, we would expect that other sources would be available; however, added 4 cost and manufacturing delays might result. We have experienced delays attributable to supply shortages, including but not limited to germanium, as well as other raw materials.
Contracts As a mid-tier defense company with a diverse portfolio of technology that includes offerings at the system, sub-system and component level, we approach each market opportunity with the flexibility and agility to provide the most value to our customers. We serve as either prime contractor or a subcontractor on key contracts based on the competitive dynamics of each opportunity.
Contracts As a mid-tier defense company with a diverse portfolio of technology that includes offerings at the system, sub-system and component level, we approach each market opportunity with the flexibility and agility inherent in a mid-sized defense company to provide the most value to our customers.
Our revenues with the DoD span the Navy, Army, Air Force and other DoD agencies which represent 38%, 31%, 4% and 7%, respectively, of our total revenue for 2023. The remaining 20% of our revenues for 2023, were derived from sales to foreign governments as well as commercial type sales within the U.S. and abroad.
Our revenues with the DoD span the Navy, Army, Air Force and other DoD agencies which represented 37%, 32%, 3% and 7%, respectively, of our total revenues for 2024. 2 The remaining 21% of our revenues for 2024 were derived from sales to foreign governments as well as commercial sales within the U.S. and abroad.
Effective management and oversight of suppliers and subcontractors is an important element of our successful performance. If our sources of supply are disrupted, particularly in instances where we rely on only one or two sources of supply, our ability to meet our customer commitments could be adversely 4 impacted.
If our sources of supply are disrupted, particularly in instances where we rely on only one or two sources of supply, our ability to meet our customer commitments could be adversely impacted.
We also hold an approximately 11% interest in Hoverfly Technologies, Inc. (“Hoverfly”), which designs, develops and manufactures power-tethered unmanned aerial systems and related products. Seasonality We do not consider any material portion of our business to be seasonal. However, a significant portion of our revenue, profit and cash flows are generated in the fourth quarter of our fiscal year.
The transaction was completed on July 8, 2022 and resulted in proceeds of $56 million. We also hold an approximately 11% interest in Hoverfly Technologies, Inc. (“Hoverfly”), which designs, develops and manufactures power-tethered unmanned aerial systems and related products. Seasonality We do not consider any material portion of our business to be seasonal.
Our engineers work on programs that require advanced technology, such as sensing, electro-optical infrared systems, laser systems, network computing, cyber, communications systems, integration and power propulsion.
Our engineers work on programs that require advanced technology, such as sensing, electro-optical infrared systems, laser systems, network computing, cyber, communications systems, integration and power propulsion. Some of our employees maintain security clearances which allows us to conduct business activities for our customers’ classified programs.
We determine our prime versus subcontract position based on our competitive position, likelihood of contract win and overall profit contribution. For 2023 our revenue consisted of 39% as a prime contractor direct with the government and 61% as a subcontractor.
We serve as either prime contractor or a subcontractor on key contracts based on the competitive dynamics of each opportunity. We determine our prime versus subcontract position based on our competitive position, likelihood of contract win and overall profit contribution.
Some of our employees maintain security clearances which allows us to conduct business activities for our customers’ classified programs. 5 Our people are committed to upholding the Company’s core values of: integrity; agility; excellence; customer focus; diversity, equity and inclusion; and innovation. Our commitment to ethical business practices is outlined in our Code of Ethics & Business Conduct (the “Code”).
Our people are committed to upholding the Company’s core values of integrity; agility; excellence; customer focus; community and respect; and innovation. Our commitment to ethical business practices is outlined in our Code of Ethics & Business Conduct (the “Code”). The Code applies to all employees and establishes our expectations for appropriate business conduct in a variety of scenarios.
We recognize and reward the performance of our employees, provide equitable, market-based and competitive compensation, and offer a comprehensive suite of benefits for our employees and their families to support their health and well-being. We strive to create an environment where all employees are treated with dignity and respect.
We recognize and reward the performance of our employees and provide market-based and competitive compensation. We offer an expansive suite of benefits for our employees and their families to support their physical, emotional and financial well-being. Maintaining a safe work environment for our employees is of utmost importance.
We also may explore the divestiture of businesses that no longer meet our needs or strategy or that could perform better outside of our organization. On June 21, 2022, the Company entered into a definitive agreement with RADA Electronic Industries Ltd. (“RADA”), a leading provider of advanced software-defined military tactical radars, to merge and become a combined public company.
On June 21, 2022, the Company entered into a definitive agreement with RADA Electronic Industries Ltd. (“RADA”), a leading provider of advanced software-defined military tactical radars, to merge and become a combined public company. On November 28, 2022 the merger was completed and RADA became a wholly-owned subsidiary of Leonardo DRS.
We recognize that our success depends on our ability to attract, develop and retain a qualified inclusive and diverse workforce. To accomplish this, we have talent acquisition, talent management, and Diversity, Equity and Inclusion (“DE&I”) programs established to attract and retain our employees.
Our employees receive annual compliance training and must formally confirm their commitment to upholding the standards set forth in our Code and ethics program. We recognize that our success depends on our ability to attract, develop and retain a qualified workforce. To accomplish this, we have comprehensive talent acquisition and talent management programs established to attract and retain our employees.
On November 28, 2022 the merger was completed and RADA became a wholly-owned subsidiary of Leonardo DRS. As a result of the merger, we now hold an approximately 12% interest in RadSee Technologies Ltd. an early-stage radar technology company organized in Israel.
As a result of the merger, we now hold an approxima tely 10% interest i n RadSee Technologies Ltd. an early-stage radar technology company organized in Israel. On March 21, 2022, the Company entered into a definitive agreement to sell its Global Enterprise Solutions business to SES Government Solutions, Inc.
Removed
After partially completing the companion defense appropriations bill for FY 2024, Congress landed on a series of Continuing Resolutions (“CRs”), passing a two-part, or “laddered,” Continuing Resolution to extend FY 2023 spending and avoid a government shutdown.
Added
On December 21, 2024, Congress passed a continuing resolution to extend funding through March 14, 2025, allowing lawmakers more time to consider appropriations for FY 2025.
Removed
The current laddered CRs expire in March 2024 and are linked to a broader agreement that may include some form of supplemental funding for foreign aid to Ukraine and Israel. Customers The U.S. government is our largest customer.
Added
Additionally, the current U.S. administration has discussed various changes to defense spending levels ranging from across-the-board percentage cuts, to a change in spending allocations in favor of new priorities, and potential increases in the top-line spending profile.
Removed
The Code applies to all employees and establishes our expectations for appropriate business conduct in a variety of scenarios. Our employees receive annual compliance training and must formally confirm their commitment to upholding the standards set forth in our Code and ethics program.
Added
It remains unclear whether and to what extent the DoD’s budget may change and, if it does, to what extent our business, financial condition and results of operations may be affected. Customers The U.S. government is our largest customer.
Removed
In addition, we support our local communities, active military, and veterans through our charitable giving and volunteerism. We are committed to fostering diversity and inclusion with our Employee Resources Groups and Me (“mERGe”) program, local diversity action teams, and by creating a workforce representative of the communities in which we live and work.
Added
For 2024, our revenue consisted of 37% as a prime contractor direct with the government and 63% as a subcontractor, typically as a system provider to the platform provider. In a prime or subcontractor position our contractual terms and conditions and profit levels are relatively consistent.
Removed
On March 21, 2022, the Company entered into a definitive agreement to sell its Global Enterprise Solutions business to SES Government Solutions, Inc. The transaction was completed on August 1, 2022 and resulted in net cash proceeds of $427 million after net working capital adjustments.
Added
We have also experienced delays as a result of quality and other related problems with respect to certain components. Effective management and oversight of suppliers and subcontractors is an important element of our successful performance.
Added
In addition, we are actively engaged in supporting our local communities, active military and their families, and veterans through our charitable giving, employer matching and volunteerism programs. Joint Ventures, Strategic Investments and Mergers and Acquisitions We continually evaluate our existing portfolio and the related capabilities to maximize our ability to drive value.
Added
However, a significant portion of our revenue, profit and cash flows are generated in the fourth quarter of our fiscal year.
Added
Considerable uncertainty exists regarding future legislation and regulations as the current administration has issued changing guidance on a wide array of topics including but not limited to the Executive Order issued in January 2025, which requires, in relevant part, that every Federal contract or grant award include a clause that requires the contractor or grant recipient to (1) agree that its compliance with all applicable federal anti-discrimination laws is material to the government’s payment decisions on such contract or grant for purposes of the False Claims Act, and (2) certify that it does not operate any programs promoting diversity, equity and inclusion that violate any applicable federal anti-discrimination laws.
Added
Our Indirect Majority Stockholder Leonardo S.p.A., a global high-technology company, is a leading global Aerospace, Defense and Security company and one of Italy’s main industrial companies.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

110 edited+41 added−9 removed319 unchanged
Biggest changeThese risks differ in some respects from those associated with our U.S. business and our exposure to such risks may increase if our international business continues to grow. 31 Our international business is subject to both U.S. and foreign laws and regulations, which may include, without limitation, laws and regulations relating to import-export controls, (such as the ITAR, EAR, and customs laws), tariffs, embargoes, technology transfer restrictions, government contracts and procurement, data privacy and protection, investment, exchange rates and controls, the FCPA and other anti-corruption laws, including the UK Bribery Act and the Canadian Corruption of Foreign Public Officials Act, Article 5 of the Israeli Penal Law of 1977, the anti-boycott provisions under the EAR, U.S. economic sanctions administered by the Office of Foreign Assets Control and other federal agencies, labor and employment, works councils and other labor groups, anti-human trafficking, taxes, environment, immunity, security restrictions and intellectual property.
Biggest changeOur international business is subject to both U.S. and foreign laws and regulations, which may include, without limitation, laws and regulations relating to import-export controls, (such as the ITAR, EAR, and customs laws), tariffs (including recent U.S. tariffs imposed or threatened to be imposed on other countries and any retaliatory actions taken by such countries), embargoes, technology transfer restrictions, government contracts and procurement, data privacy and protection, investment, exchange rates and controls, the FCPA and other anti-corruption laws, including the UK Bribery Act and the Canadian Corruption of Foreign Public Officials Act, Article 5 of the Israeli Penal Law of 1977, the anti-boycott provisions under the EAR, U.S. economic sanctions administered by the Office of Foreign Assets Control and other federal agencies, labor and employment, works councils and other labor groups, anti-human trafficking, taxes, environment, immunity, security restrictions and intellectual property.
Our business also involves the handling, transportation, storage and disposal of potentially dangerous chemicals and unstable materials and is subject to hazards inherent in such activities including chemical spills, storage tank leaks, discharges or releases of toxic or hazardous substances or gases and other hazards incident to the handling, transportation, storage and disposal of dangerous chemicals.
Our business also involves the handling, transportation, storage and disposal of potentially dangerous chemicals and unstable materials and is subject to hazards inherent in such activities including chemical spills, storage tank leaks, discharges or releases of toxic or hazardous substances or gases and other hazards incident to the handling, transportation, storage and disposal of dangerous chemicals.
A security breach or other significant disruption involving these types of information and IT networks and related systems could: • disrupt the proper functioning of these networks and systems and, therefore, our operations and/or those of certain of our customers; • result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of, proprietary, confidential, sensitive or otherwise valuable information of ours, our customers or our employees, including trade secrets, which could be used to compete against us or for disruptive, destructive or otherwise harmful purposes and outcomes; • result in litigation and governmental investigation and proceedings associated with cybersecurity incidents; • compromise national security and other sensitive government functions; 25 • require significant management attention and resources to remedy the damages that result; • result in costs which exceed our insurance coverage and/or indemnification arrangements; • subject us to claims for contract breach, damages, credits, penalties or termination; and • damage our reputation with our customers (particularly agencies of the U.S. government) and the general public.
A security breach or other significant disruption involving these types of information and IT networks and related systems could: • disrupt the proper functioning of these networks and systems and, therefore, our operations and/or those of certain of our customers; • result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of, proprietary, confidential, sensitive or otherwise valuable information of ours, our customers or our employees, including trade secrets, which could be used to compete against us or for disruptive, destructive or otherwise harmful purposes and outcomes; • result in litigation and governmental investigation and proceedings associated with cybersecurity incidents; • compromise national security and other sensitive government functions; • require significant management attention and resources to remedy the damages that result; • result in costs which exceed our insurance coverage and/or indemnification arrangements; • subject us to claims for contract breach, damages, credits, penalties or termination; and • damage our reputation with our customers (particularly agencies of the U.S. government) and the general public.
The actual receipt of revenue from contracts included in total estimated contract value and bookings may never occur or may be delayed because: a program schedule could change or the program could be canceled; a contract’s funding or scope could be reduced, modified, delayed, de-obligated or terminated early, including as a result of a lack of appropriated funds or cost cutting initiatives and other efforts to reduce U.S. government spending and/or the automatic federal defense spending cuts required by sequestration; in the case of funded backlog, the period of performance for the contract has expired or the U.S. government has exercised its unilateral right to cancel multi-year contracts and related orders or terminate existing contracts for convenience or default; in the case of unfunded backlog, funding may not be available.
The actual receipt of revenue from contracts included in total estimated contract value and bookings may never occur or may be delayed because: a program schedule could change or the program could be canceled; a contract’s funding or scope could be reduced, modified, delayed, de-obligated or terminated early, including as a result of a lack of appropriated funds or cost cutting initiatives and other efforts to reduce U.S. government spending 19 and/or the automatic federal defense spending cuts required by sequestration; in the case of funded backlog, the period of performance for the contract has expired or the U.S. government has exercised its unilateral right to cancel multi-year contracts and related orders or terminate existing contracts for convenience or default; in the case of unfunded backlog, funding may not be available.
The proxy agreement provides that the proxy holders may vote for or consent to in, their sole and absolute discretion, without consultation with US Holding or Leonardo S.p.A., the election of additional 41 directors who are not proxy holders (and who are selected from candidates proposed by US Holding after reasonable consultation with our nominating and corporate governance committee, and subject to DCSA’s approval in certain circumstances), any changes or amendments to our certificate of incorporation or bylaws, the sale or disposal of our property, assets or business, our incurrence of debt or any pledge, mortgage or encumbrance of any of our assets, or any other matter affecting us, other than as described below.
The proxy agreement provides that the proxy holders may vote for or consent to in, their sole and absolute discretion, without consultation with US Holding or Leonardo S.p.A., the election of additional directors who are not proxy holders (and who are selected from candidates proposed by US Holding after reasonable consultation with our nominating and corporate governance committee, and subject to DCSA’s approval in certain circumstances), any changes or amendments to our certificate of incorporation or bylaws, the sale or disposal of our property, assets or business, our incurrence of debt or any pledge, mortgage or encumbrance of any of our assets, or any other matter affecting us, other than as described below.
Although we believe that our available cash resources, together with our access to credit facilities as described in Note 13: Debt and future cash that we expect to generate from our operations, are sufficient to meet our presently anticipated liquidity needs and capital expenditure requirements, we might in the future need to raise additional funds to, among other things: • fund our operations; • support expansion of capacity; • address fluctuations in cash flow (including negative cash flow periods); • support more rapid growth of our business; • develop new or enhanced products and solutions; • respond to competitive pressures; and • acquire companies or technologies.
Although we believe that our available cash resources, together with our access to credit facilities as described in Note 13: Debt and future cash that we expect to generate from our operations, are sufficient to meet our presently anticipated liquidity needs and capital expenditure requirements, we might in the future need to raise additional funds to, among other things: • fund our operations; • support expansion of capacity; • address fluctuations in cash flow (including negative cash flow periods); 20 • support more rapid growth of our business; • develop new or enhanced products and solutions; • respond to competitive pressures; and • acquire companies or technologies.
If we fail to comply with the proxy agreement our classified U.S. government contracts could be terminated, which could have a material adverse impact on our business, financial condition and results of operations .” While we currently mitigate FOCI under the interim proxy agreement, the DoD reserves the right to impose such additional security safeguards as it believes necessary in order to prevent unauthorized access to classified and controlled unclassified information and any U.S. government agency may deny or revoke our access to classified and controlled unclassified information under its jurisdiction if it considers it necessary to protect national security.
If we fail to comply with the proxy agreement our classified U.S. government contracts could be terminated, which could have a material adverse impact on our business, financial condition and results of operations .” While we currently mitigate FOCI under the interim proxy agreement, the DoD reserves the right to terminate the proxy agreement or impose such additional security safeguards as it believes necessary in order to prevent unauthorized access to classified and controlled unclassified information and any U.S. government agency may deny or revoke our access to classified and controlled unclassified information under its jurisdiction if it considers it necessary to protect national security.
See “— Risks Relating to Our Business — We are subject to the U.S. government’s requirements, including the DoD’s National Industrial Security Program Operating Manual, for our facility security clearances, which are prerequisites to our ability to perform on classified contracts for the U.S. government .” Furthermore, the combination of the Italian state beneficially owning approximately 30.2% of Leonardo S.p.A.’s voting 39 power (through its ownership of approximately 30.2% of the outstanding ordinary shares of Leonardo S.p.A.), and the governance of Leonardo S.p.A. itself, has led DRS to be deemed to be controlled by a foreign government by certain U.S. regulatory authorities.
See “— Risks Relating to Our Business — We are subject to the U.S. government’s requirements, including the DoD’s National Industrial Security Program Operating Manual, for our facility security clearances, which are prerequisites to our ability to perform on classified contracts for the U.S. government .” Furthermore, the combination of the Italian state beneficially owning approximately 30.2% of Leonardo S.p.A.’s voting power (through its ownership of approximately 30.2% of the outstanding ordinary shares of Leonardo S.p.A.), and the governance of Leonardo S.p.A. itself, has led DRS to be deemed to be controlled by a foreign government by certain U.S. regulatory authorities.
The extent to which a pandemic or epidemic, will impact us in the future will depend on numerous evolving factors and developments that we are unable to predict, including: the severity and transmission rate of the virus(es); the duration of the outbreak, including the risk of a resurgence of the virus in areas in which it appears to have been contained; the extent and effectiveness of containment actions; governmental, business and other actions (which could include limitations on our operations or mandates to provide products, systems or services); the continued success of measures taken by governmental authorities worldwide to stabilize the markets and support economic growth, which is unknown and may 37 not be sufficient to address future market dislocations or avert severe and prolonged reductions in economic activity; the impacts on our supply chain; the impact of the pandemic on economic activity; the effects of additional business or facility closures or other changes to our operations; the health of and the effect on our workforce and our ability to meet staffing needs in our businesses and facilities, particularly if members of our workforce are quarantined as a result of exposure; any impairment in value of our tangible or intangible assets which could be recorded as a result of a weaker economic conditions; and the potential effects on our internal controls, including those over financial reporting, as a result of remote working environments and other conditions such as shelter-in-place and similar orders that apply to our employees and business partners, among others.
The extent to which a pandemic or epidemic will impact us in the future will depend on numerous evolving factors and developments that we are unable to predict, including: the severity and transmission rate of the virus(es); the duration of the outbreak, including the risk of a resurgence of the virus in areas in which it appears to have been contained; the extent and effectiveness of containment actions; 39 governmental, business and other actions (which could include limitations on our operations or mandates to provide products, systems or services); the continued success of measures taken by governmental authorities worldwide to stabilize the markets and support economic growth, which is unknown and may not be sufficient to address future market dislocations or avert severe and prolonged reductions in economic activity; the impacts on our supply chain; the impact of the pandemic on economic activity; the effects of additional business or facility closures or other changes to our operations; the health of and the effect on our workforce and our ability to meet staffing needs in our businesses and facilities, particularly if members of our workforce are quarantined as a result of exposure; any impairment in value of our tangible or intangible assets which could be recorded as a result of a weaker economic conditions; and the potential effects on our internal controls, including those over financial reporting, as a result of remote working environments and other conditions such as shelter-in-place and similar orders that apply to our employees and business partners, among others.
These laws and regulations include, but are not limited to, the Anti-Kickback Act, the Arms Export Control Act, including the ITAR, the Communications Act, the Defense Federal Acquisition Regulations, the EAR 16 (which includes anti-boycott provisions), the False Claims Act, the Federal Acquisition Regulation, the FCPA, the Lobbying Disclosure Act, the Procurement Integrity Act, the Truthful Cost or Pricing Data Act, the Foreign Trade Regulations, the Foreign Investment Risk Review Modernization Act, the International Emergency Economic Powers Act, the Trading with the Enemy Act, and Executive Orders and regulations, administered by the U.S.
These laws and regulations include, but are not limited to, the Anti-Kickback Act, the Arms Export Control Act, including the ITAR, the Communications Act, the Defense Federal Acquisition Regulations, the EAR (which includes anti-boycott provisions), the False Claims Act, the Federal Acquisition Regulation, the FCPA, the Lobbying Disclosure Act, the Procurement Integrity Act, the Truthful Cost or Pricing Data Act, the Foreign Trade Regulations, the Foreign Investment Risk Review Modernization Act, the International Emergency Economic Powers Act, the Trading with the Enemy Act, and Executive Orders and regulations, administered by the U.S.
In particular, fixed-price contracts subject us to the risk of loss in the event of cost overruns or higher than anticipated inflation. 9 • We are subject to the U.S. government’s requirements, including the DoD’s National Industrial Security Program Operating Manual, for our facility security clearances, which are prerequisites to our ability to perform on classified contracts for the U.S. government. • We are subject to a number of procurement, international trade, and other rules, regulations and requirements related to our industry, our products, and the businesses we operate.
In particular, fixed-price contracts subject us to the risk of loss in the event of cost overruns or higher than anticipated inflation. • We are subject to the U.S. government’s requirements, including the DoD’s National Industrial Security Program Operating Manual, for our facility security clearances, which are prerequisites to our ability to perform on classified contracts for the U.S. government. • We are subject to a number of procurement, international trade, and other rules, regulations and requirements related to our industry, our products, and the businesses we operate.
Additionally, our U.S. government contracts are heavily regulated and subject to audit and negative audit findings which could result in the termination of these or other contracts or the failure to receive future awards, see “— Risks Relating to Our Business — We operate in a highly regulated environment and are routinely audited and reviewed by the U.S. government and its agencies .” The U.S. government also has the ability to stop work under a contract for a limited period of time for its convenience.
Additionally, our U.S. government contracts are heavily regulated and subject to audit and negative audit 15 findings which could result in the termination of these or other contracts or the failure to receive future awards, see “— Risks Relating to Our Business — We operate in a highly regulated environment and are routinely audited and reviewed by the U.S. government and its agencies .” The U.S. government also has the ability to stop work under a contract for a limited period of time for its convenience.
These restrictions may include compliance with, or maintenance of, certain financial tests and ratios and may limit or prohibit our ability to, among other things: • borrow money or guarantee debt; • create liens; • pay dividends or acquire our capital stock; 21 • make investments and acquisitions; • enter into, or permit to exist, contractual limits on the ability of our subsidiaries to pay dividends to us; • enter into new lines of business; • enter into transactions with affiliates; and • sell assets or merge with other companies.
These restrictions may include compliance with, or maintenance of, certain financial tests and ratios and may limit or prohibit our ability to, among other things: • borrow money or guarantee debt; • create liens; • pay dividends or acquire our capital stock; • make investments and acquisitions; • enter into, or permit to exist, contractual limits on the ability of our subsidiaries to pay dividends to us; • enter into new lines of business; • enter into transactions with affiliates; and • sell assets or merge with other companies.
Our international business may be impacted by changes in U.S. and foreign national policies and priorities, and geopolitical relationships, any of which may be influenced by changes in the threat environment, political leadership, geopolitical uncertainties, world events, acts of terrorism, bilateral and multi-lateral relationships, government budgets, and economic and political factors more generally, and any of which could impact funding for programs, alter export authorizations, or delay purchasing decisions or customer payments.
Our international business may be impacted by changes in U.S. and foreign national policies and priorities, and geopolitical relationships, any of which may be influenced by changes in the threat environment, political leadership, geopolitical uncertainties, world events, acts of terrorism, bilateral and multi-lateral relationships, government budgets, and economic and political factors more generally, and any of which could impact 33 funding for programs, alter export authorizations, or delay purchasing decisions or customer payments.
Failure to comply with the NISPOM or other security requirements may result in loss of access to classified information and subject us to civil and criminal penalties and administrative sanctions, including termination of contracts, 13 forfeiture of profits, suspension of payments, fines and suspension or prohibition from doing business with the U.S. government, which could have a material adverse impact on our business, financial condition and results of operations.
Failure to comply with the NISPOM or other security requirements may result in loss of access to classified information and subject us to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines and suspension or prohibition from doing business with the U.S. government, which could have a material adverse impact on our business, financial condition and results of operations.
We are 20 subject to the reporting requirements of the Exchange Act and are required to comply with the applicable requirements of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as the rules and regulations subsequently implemented by the SEC and the listing standards of the Nasdaq Stock Exchange (the “Nasdaq”), including changes in corporate governance practices and the establishment and maintenance of effective disclosure and financial controls.
We are subject to the reporting requirements of the Exchange Act and are required to comply with the applicable requirements of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as the rules and regulations subsequently implemented by the SEC and the listing standards of the Nasdaq Stock Exchange (the “Nasdaq”), including changes in corporate governance practices and the establishment and maintenance of effective disclosure and financial controls.
These activities involve risks and uncertainties, including the risk that a joint venture or applicable entity fails to satisfy its obligations, which may result in certain liabilities to us from guarantees and other commitments, the challenges in achieving strategic objectives and expected benefits of the business arrangement, the risk of conflicts arising between us and our partners and the difficulty of managing and resolving such conflicts and the business arrangements generally.
These activities involve risks and uncertainties, including the risk that a joint venture or applicable entity fails to satisfy its obligations, which may result in certain liabilities to us from guarantees and other commitments, the challenges in achieving strategic objectives and expected benefits of the business arrangement, the 24 risk of conflicts arising between us and our partners and the difficulty of managing and resolving such conflicts and the business arrangements generally.
Compliance with the proxy agreement requires a significant commitment of resources and management and Board oversight, and the DoD may impose additional security safeguards that it believes necessary to adequately safeguard classified and controlled unclassified information, which could make it more difficult for us to comply with the proxy agreement or adversely impact the manner in which we operate our business.
Compliance with the proxy agreement requires a significant commitment of resources and management and Board oversight, and the DoD may impose additional security safeguards that it believes necessary to adequately safeguard classified and controlled unclassified information, which 42 could make it more difficult for us to comply with the proxy agreement or adversely impact the manner in which we operate our business.
Many of our larger competitors have significantly greater financial resources than we do and have more extensive or more specialized engineering, manufacturing and marketing capabilities than we do in some areas, including as a result of substantial industry consolidation, which increased the market share of certain of our competitors and enabled them to take advantage of economies of scale and develop new technologies.
Many of our larger competitors have significantly greater financial resources than we do and have more extensive or more specialized engineering, manufacturing and marketing capabilities than we do in 23 some areas, including as a result of substantial industry consolidation, which increased the market share of certain of our competitors and enabled them to take advantage of economies of scale and develop new technologies.
Examples of unforeseen problems that could negatively affect revenue, schedule and results of operations include premature failure of products that cannot be accessed for repair or replacement, failure to perform in anticipated or unanticipated battlefield conditions, unintended explosions or similar events, problems with design, quality and workmanship, inadequate delivery of 27 subcontractor components or services and degradation of product performance.
Examples of unforeseen problems that could negatively affect revenue, schedule and results of operations include premature failure of products that cannot be accessed for repair or replacement, failure to perform in anticipated or unanticipated battlefield conditions, unintended explosions or similar events, problems with design, quality and workmanship, inadequate delivery of subcontractor components or services and degradation of product performance.
From time to time, the Company may deem it appropriate to take legal action (or threaten to take such action) against a customer, supplier, former employee, subcontractor or other industry participant to protect its contractual and other legal rights. The outcome of such litigation is inherently uncertain, often costly and could adversely impact the Company’s commercial relationships and reputation.
From time to time, the Company may deem it appropriate to take legal action (or threaten to 32 take such action) against a customer, supplier, former employee, subcontractor or other industry participant to protect its contractual and other legal rights. The outcome of such litigation is inherently uncertain, often costly and could adversely impact the Company’s commercial relationships and reputation.
Accordingly, we may be unable to anticipate these techniques or to implement adequate security barriers or other preventative measures. Thus, it is impossible for us to entirely mitigate this risk, and there can be no assurance that future cybersecurity incidents will not have a material negative impact on us.
Accordingly, we may be unable to anticipate these techniques or to implement adequate security barriers or other preventative measures. Thus, it is impossible for us to entirely mitigate this risk, and there can be no assurance that future cybersecurity incidents will not have a material 26 negative impact on us.
U.S. government appropriations in turn are affected by general U.S. 14 government budgetary issues and related legislation. Although multi-year contracts may be authorized and appropriated in connection with major procurements, Congress generally appropriates funds on a government fiscal year basis, which runs from October 1 to September 30.
U.S. government appropriations in turn are affected by general U.S. government budgetary issues and related legislation. Although multi-year contracts may be authorized and appropriated in connection with major procurements, Congress generally appropriates funds on a government fiscal year basis, which runs from October 1 to September 30.
These costs, which could be material, could adversely impact our results of operations in the period in which they are incurred and may not meaningfully limit the success of future attempts to breach our information technology systems. Some of our contracts with the U.S. government are classified, which may limit investor insight into portions of our business.
These costs, which could be material, could adversely impact our results of operations in the period in which they are incurred and may not meaningfully limit the success of future attempts to breach our information technology systems. 27 Some of our contracts with the U.S. government are classified, which may limit investor insight into portions of our business.
Disruptions or deterioration in our relationships with the relevant agencies of the U.S. government could have a material adverse impact on our business, financial condition and results of operations. ” Therefore, if we fail to comply with the terms of the proxy agreement and the DoD imposes any of the above remedies, this could have a material adverse impact on our business, financial 40 condition and results of operations.
Disruptions or deterioration in our relationships with the relevant agencies of the U.S. government could have a material adverse impact on our business, financial condition and results of operations. ” Therefore, if we fail to comply with the terms of the proxy agreement and the DoD imposes any of the above remedies, this could have a material adverse impact on our business, financial condition and results of operations.
Proxy agreements, including ours, typically have limited duration and need to be renewed on a regular basis. For additional information on the terms and requirements of the proxy agreement, see “— Risks Relating to Our Status under the Proxy Agreement — We operate under a proxy agreement with the DoD that regulates significant areas of our governance.
Proxy agreements, including ours, typically have limited duration and need to be renewed on a regular basis. For additional information on the terms and requirements of the proxy agreement, see “— Risks Relating to Our Ownership and Status under the Proxy Agreement — We operate under a proxy agreement with the DoD that regulates significant areas of our governance.
Also, our subcontractors and other suppliers may not be able to acquire or maintain the quality of the materials, components, subsystems and services they supply, which might result in greater product returns, service problems and warranty claims and could harm our business, financial condition and results of operations.
Also, our subcontractors and other suppliers may not be able to acquire or maintain the quality of the materials, components, subsystems and services they supply, which might result in greater product returns, service problems and warranty 25 claims and could harm our business, financial condition and results of operations.
Under our existing AOP services agreements, we continue to provide Leonardo S.p.A. and its affiliates with services in support of its U.S. operations (aside from us), including services related to tax, 43 financial and accounting support, legal support, trade compliance, marketing and, communications on an arm’s-length basis.
Under our existing AOP services agreements, we continue to provide Leonardo S.p.A. and its affiliates with services in support of its U.S. operations (aside from us), including services related to tax, financial and accounting support, legal support, trade compliance, marketing and, communications on an arm’s-length basis.
As a result, investors and others might have less insight into our classified programs than our other businesses and, therefore, less ability to fully evaluate the risks related to our classified business. 26 We may be at greater risk from terrorism and other threats to our physical security and personnel, than other companies.
As a result, investors and others might have less insight into our classified programs than our other businesses and, therefore, less ability to fully evaluate the risks related to our classified business. We may be at greater risk from terrorism and other threats to our physical security and personnel, than other companies.
For a general description of our U.S. government contracts and subcontracts, including a discussion of revenue generated thereunder and of cost-reimbursable versus fixed-price contracts please see Part II, Item 7, “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ” in this Annual Report.
For a general description of our U.S. government contracts and subcontracts, including a discussion of revenue generated thereunder and of cost-reimbursable versus fixed-price contracts, see Part II, Item 7, “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ” in this Annual Report.
We evaluate bookings which we define as the total value of contract awards received from the U.S. government for which it has 18 appropriated funds and legally obligated such funds to the Company through a contract or purchase order, plus the value of contract awards and orders received from customers other than the U.S. government.
We evaluate bookings which we define as the total value of contract awards received from the U.S. government for which it has appropriated funds and legally obligated such funds to the Company through a contract or purchase order, plus the value of contract awards and orders received from customers other than the U.S. government.
If credit in financial markets outside of the U.S. tightened, it could adversely affect the ability of our customers and suppliers to obtain financing and could result in a decrease in or cancellation of orders for our products, systems and services or impact the ability of our customers to make payments.
If credit in financial markets outside of the U.S. tightened, it could adversely affect the ability of our customers and 41 suppliers to obtain financing and could result in a decrease in or cancellation of orders for our products, systems and services or impact the ability of our customers to make payments.
Security clearances are subject to regulations and requirements including, among others, the National Industrial Security Program Operating Manual (the “NISPOM”), which specifies the requirements for the protection of classified information released or disclosed in connection with classified U.S. government contracts.
Security clearances are subject to regulations and requirements including, among others, the National Industrial Security Program Operating Manual (the “NISPOM”), which specifies the requirements for the protection of classified information released or disclosed in 13 connection with classified U.S. government contracts.
We do not currently engage in currency-hedging activities to limit the risk of exchange rate fluctuations. However, in the future, we may use derivative instruments, such as foreign currency forward and option contracts, to hedge certain exposures to fluctuations in foreign currency exchange rates.
We do not currently engage in significant currency-hedging activities to limit the risk of exchange rate fluctuations. However, in the future, we may use derivative instruments, such as foreign currency forward and option contracts, to hedge certain exposures to fluctuations in foreign currency exchange rates.
These agencies review performance on government contracts, direct and indirect rates and pricing practices, and compliance 15 with applicable contracting and procurement laws, regulations and standards. They also review compliance with government standards for our business systems and the adequacy of our internal control systems and policies.
These agencies review performance on government contracts, direct and indirect rates and pricing practices, and compliance with applicable contracting and procurement laws, regulations and standards. They also review compliance with government standards for our business systems and the adequacy of our internal control systems and policies.
Additionally, future foreign investments in us could be within the jurisdiction of CFIUS and, given the nature of our business, may trigger a mandatory CFIUS notification requirement or warrant voluntary notification to CFIUS, impacting our ability to attract such investment.
Additionally, future foreign 43 investments in us could be within the jurisdiction of CFIUS and, given the nature of our business, may trigger a mandatory CFIUS notification requirement or warrant voluntary notification to CFIUS, impacting our ability to attract such investment.
Also, despite the steps taken by us to protect our proprietary rights, it may be possible for unauthorized third parties to copy or reverse-engineer aspects of our products, develop similar technology independently or otherwise obtain and use information from our supply chain that we regard as proprietary, and we may be unable to successfully identify or prosecute unauthorized uses of our technology. 28 Third parties have claimed in the past and may claim in the future that we are infringing directly or indirectly upon their intellectual property rights, and third parties may infringe upon our intellectual property rights.
Also, despite the steps taken by us to protect our proprietary rights, it may be possible for unauthorized third parties to copy or reverse-engineer aspects of our products, develop similar technology independently or otherwise obtain and use information from our supply chain that we regard as proprietary, and we may be unable to successfully identify or prosecute unauthorized uses of our technology. 30 Third parties have claimed in the past and may claim in the future that we are infringing directly or indirectly upon their intellectual property rights, and third parties may infringe upon our intellectual property rights.
See “— Risks Relating to Our Status under the Proxy Agreement — Our ultimate majority stockholder, Leonardo S.p.A., may have interests that are different from, or conflict with, those of our other stockholders, and their majority ownership in us may discourage change of control transactions .” The existing debt obligations of Leonardo S.p.A., which contain restrictions applicable to subsidiaries of Leonardo S.p.A., including us, may also negatively impact our ability to obtain additional financing on terms acceptable to us, if at all.
See “— Risks Relating to Our Ownership and Status under the Proxy Agreement — Our indirect majority stockholder, Leonardo S.p.A., may have interests that are different from, or conflict with, those of our other stockholders, and their majority ownership in us may discourage change of control transactions .” The existing debt obligations of Leonardo S.p.A., which contain restrictions applicable to subsidiaries of Leonardo S.p.A., including us, may also negatively impact our ability to obtain additional financing on terms acceptable to us, if at all.
Additionally, we may have to seek qualification of any new facilities in order to 38 meet customer or contractual requirements. We would also have to obtain facility security clearances for the new facility in order to continue to perform on classified contracts.
Additionally, we may have to seek qualification of any new facilities in order to meet customer or contractual requirements. We would also have to obtain facility security clearances for the new facility in order to continue to perform on classified contracts.
Conflicts of interest could also arise with respect to business 42 opportunities that could be advantageous to Leonardo S.p.A., and they may pursue acquisition opportunities that may be complementary to our business. As a result, those acquisition opportunities may not be available to us.
Conflicts of interest could also arise with respect to business opportunities that could be advantageous to Leonardo S.p.A., and they may pursue acquisition opportunities that may be complementary to our business. As a result, those acquisition opportunities may not be available to us.
The inability of our suppliers to perform, or their inability to perform adequately, could also result in the need for us to transition to alternate suppliers, which could 24 result in significant incremental cost and delay or the need for us to provide other resources to support our existing suppliers.
The inability of our suppliers to perform, or their inability to perform adequately, could also result in the need for us to transition to alternate suppliers, which could result in significant incremental cost and delay or the need for us to provide other resources to support our existing suppliers.
The cost of complying, or of failing to 30 comply, with these and other climate change and emissions regulations could have an adverse impact on our business, financial condition and results of operations.
The cost of complying, or of failing to comply, with these and other climate change and emissions regulations could have an adverse impact on our business, financial condition and results of operations.
Disruptions or deteriorations in our relationships with the relevant agencies of the U.S. government could have a material adverse impact on our business, financial condition and results of operations. • Significant delays or reductions in appropriations for our programs and changes in U.S. government priorities and spending levels more broadly may negatively impact our business and could have a material adverse impact on our business, financial condition and results of operations. • Our results of operations and cash flows are substantially affected by our mix of fixed-price, cost-plus and time-and-material type contracts.
Disruptions or deteriorations in our relationships with the relevant agencies of the U.S. government could have a material adverse impact on our business, financial condition and results of operations. • Significant delays or reductions in appropriations for our programs and changes in U.S. government priorities and spending levels more broadly may negatively impact our business and could have a material adverse impact on our business, financial condition and results of operations. 9 • Our results of operations and cash flows are substantially affected by our mix of fixed-price, cost-plus and time-and-materials type contracts.
In addition, to the extent US Holding fails to pay taxes imposed with respect to any consolidated, combined or unitary tax return of US Holding or any of its subsidiaries that includes us or any of our subsidiaries, the relevant taxing authority could seek to collect such taxes (including taxes for which US Holding or any of its subsidiaries is responsible under the tax allocation agreement) from us or our subsidiaries. 36 Acquisitions could result in operating difficulties, dilution and other harmful consequences.
In addition, to the extent US Holding fails to pay taxes imposed with respect to any consolidated, combined or unitary tax return of US Holding or any of its subsidiaries that includes us or any of our subsidiaries, the relevant taxing authority could seek to collect such taxes (including taxes for which US Holding or any of its subsidiaries is responsible under the tax allocation agreement) from us or our subsidiaries. 38 Acquisitions could result in operating difficulties, dilution and other harmful consequences.
See “— Risks Relating to Our Status under the Proxy Agreement — Our ultimate majority stockholder, Leonardo S.p.A., may have interests that are different from, or conflict with, those of our other stockholders, and their significant ownership in us may discourage change of control transactions . CFIUS may modify, delay or prevent our future acquisition or investment activities.
See “— Risks Relating to Our Ownership and Status under the Proxy Agreement — Our indirect majority stockholder, Leonardo S.p.A., may have interests that are different from, or conflict with, those of our other stockholders, and their significant ownership in us may discourage change of control transactions . CFIUS may modify, delay or prevent our future acquisition or investment activities.
The U.S. government’s budget deficit and the national debt could significantly affect government budgeting priorities and could have an adverse impact on our business, financial condition and results of operations in a number of ways, including the following: • the U.S. government could reduce or delay its spending on, or reprioritize its spending away from, defense programs in which we participate; • U.S. defense spending could be impacted by alternate arrangements to sequestration, which increases the uncertainty as to, and the difficulty in predicting, U.S. government spending priorities and levels; • we may experience reduced or delayed orders or payments or other responses to economic difficulties experienced by our customers and prospective customers, including U.S.
Additionally, the U.S. government’s budget deficit and the national debt could also significantly affect government budgeting priorities and could have an adverse impact on our business, financial condition and results of operations in a number of ways, including the following: 12 • the U.S. government could reduce or delay its spending on, or reprioritize its spending away from, defense programs in which we participate; • U.S. defense spending could be impacted by alternate arrangements to sequestration, which increases the uncertainty as to, and the difficulty in predicting, U.S. government spending priorities and levels; • we may experience reduced or delayed orders or payments or other responses to economic difficulties experienced by our customers and prospective customers, including U.S.
In addition, if our actual return on assets differs from our long-term ROA assumption, our pension plan funded status and pension expense would be impacted. 35 Changes to financial accounting standards may affect our results of operations and cause us to change our business practices. We prepare our financial statements in accordance with U.S. GAAP.
In addition, if our actual return on assets differs from our long-term ROA assumption, our pension plan funded status and pension expense would be impacted. 37 Changes to financial accounting standards may affect our results of operations and cause us to change our business practices. We prepare our financial statements in accordance with U.S. GAAP.
Department of 23 Justice and Federal Trade Commission have periodically and increasingly focused on ensuring competition in government acquisition and could challenge a teaming arrangement.
Department of Justice and Federal Trade Commission have periodically and increasingly focused on ensuring competition in government acquisition and could challenge a teaming arrangement.
Failure to meet our contractual obligations could adversely affect our business, financial condition, results of operations, reputation and future prospects. • We may not be able to fully exploit or obtain patents or other intellectual property protections necessary to secure our proprietary technology. • Third parties have claimed in the past and may claim in the future that we are infringing directly or indirectly upon their intellectual property rights, and third parties may infringe upon our intellectual property rights. • Our reputation and ability to do business may be impacted by the improper conduct of our employees, agents, affiliates, subcontractors, suppliers, business partners or joint ventures in which we participate. 10 • The outcome of litigation, arbitration, investigations, claims, disputes, enforcement actions and other legal proceedings in which we are involved from time to time is unpredictable, and an adverse decision in any such matter could have a material adverse impact on our business, financial condition and results of operations. • Our international business exposes us to additional risks, including risks related to geopolitical conflicts, including the war in Israel, and economic factors, laws and regulations. • A failure to attract and retain technical and other key personnel could reduce our revenues and our operational effectiveness. • Our business could be harmed in the event of difficulties with our unionized workforce, including the effects of a prolonged work stoppage. • Our insurance coverage, customer indemnifications or other liability protections may be unavailable or inadequate to cover all of our significant risks or our insurers may deny coverage of or be unable to pay for material losses we incur, which could adversely affect our business, financial condition and results of operations. • We have unfunded obligations under our pension plans, and we use estimates in accounting for our pension plans and changes in our estimates could adversely affect our financial condition and results of operations. • Changes to financial accounting standards may affect our results of operations and cause us to change our business practices. • Acquisitions could result in operating difficulties, dilution and other harmful consequences. • We have significant operations in locations that could be materially and adversely impacted in the event of a natural disaster or other significant disruption. • We cannot predict the consequences of future geopolitical events, but they may adversely affect the markets in which we operate, our ability to insure against risks, our operations or our results of operations. • We operate under a proxy agreement with the DoD that regulates significant areas of our governance.
Failure to meet our contractual obligations could adversely affect our business, financial condition, results of operations, reputation and future prospects. • We may not be able to fully exploit or obtain patents or other intellectual property protections necessary to secure our proprietary technology. • Third parties have claimed in the past and may claim in the future that we are infringing directly or indirectly upon their intellectual property rights, and third parties may infringe upon our intellectual property rights. 10 • Our reputation and ability to do business may be impacted by the improper conduct of our employees, agents, affiliates, subcontractors, suppliers, business partners or joint ventures in which we participate. • The outcome of litigation, arbitration, investigations, claims, disputes, enforcement actions and other legal proceedings in which we are involved from time to time is unpredictable, and an adverse decision in any such matter could have a material adverse impact on our business, financial condition and results of operations. • Our international business exposes us to additional risks, including risks related to geopolitical conflicts, including the war in Israel, and economic factors, laws and regulations. • Our efforts to localize our business operations in new territories present significant challenges and could adversely affect our growth strategy and our financial performance. • A failure to attract and retain technical and other key personnel could reduce our revenues and our operational effectiveness. • Our business could be harmed in the event of difficulties with our unionized workforce, including the effects of a prolonged work stoppage. • Our insurance coverage, customer indemnifications or other liability protections may be unavailable or inadequate to cover all of our significant risks or our insurers may deny coverage of or be unable to pay for material losses we incur, which could adversely affect our business, financial condition and results of operations. • We have unfunded obligations under our pension plans, and we use estimates in accounting for our pension plans and changes in our estimates could adversely affect our financial condition and results of operations. • Changes to financial accounting standards may affect our results of operations and cause us to change our business practices. • Acquisitions could result in operating difficulties, dilution and other harmful consequences. • We have significant operations in locations that could be materially and adversely impacted in the event of a natural disaster or other significant disruption. • We cannot predict the consequences of future geopolitical events, but they may adversely affect the markets in which we operate, our ability to insure against risks, our operations or our results of operations. • We operate under a proxy agreement with the DoD that regulates significant areas of our governance.
Under the terms of our amended and restated certificate of incorporation, neither Leonardo S.p.A. nor US Holding have an obligation to offer us corporate opportunities. As a result of these relationships the interests of our ultimate majority stockholder, Leonardo S.p.A., may not coincide with our interests or the interests of the other holders of our common stock.
Under the terms of our amended and restated certificate of incorporation, neither Leonardo S.p.A. nor US Holding have an obligation to offer us corporate opportunities. As a result of these relationships the interests of our indirect majority stockholder, Leonardo S.p.A., may not coincide with our interests or the interests of the other holders of our common stock.
For the years ended December 31, 2023, 2022, and 2021, approximately 84%, 87% and 87%, respectively, of our revenue was derived from fixed-price contracts. We assume financial risk on fixed-price contracts due to the risk of potential cost overruns, particularly for firm-fixed price contracts in which we assume all of the cost burden.
For the years ended December 31, 2024, 2023, and 2022, approximately 84%, 84% and 87%, respectively, of our revenue was derived from fixed-price contracts. We assume financial risk on fixed-price contracts due to the risk of potential cost overruns, particularly for firm-fixed price contracts in which we assume all of the cost burden.
In addition, the majority of our foreign costs are denominated in local currencies. Over time, an increasing portion of our contracts with paid customers outside of the United States may be denominated in local currencies. Therefore, fluctuations in the value of the U.S. dollar and foreign currencies may affect our results of operations when translated into U.S. dollars.
In addition, the majority of our foreign costs are denominated in local currencies. Over time, an increasing portion of our contracts with paid customers outside of the U.S. may be denominated in local currencies. Therefore, fluctuations in the value of the U.S. dollar and foreign currencies may affect our results of operations when translated into U.S. dollars.
We cannot predict how stable our union relationships will be or whether we will be able to successfully negotiate successor collective bargaining agreements without impacting our financial 34 condition. In addition, the presence of unions may limit our flexibility in dealing with our workforce.
We cannot predict how stable our union relationships will be or whether we will be able to successfully negotiate successor collective bargaining agreements without impacting our financial 36 condition. In addition, the presence of unions may limit our flexibility in dealing with our workforce.
This influence, including the requirement in our proxy agreement for approval by the proxy holders and our majority stockholder of mergers and consolidations, may also discourage change of control transactions. Changes in the leadership at our ultimate majority stockholder could create uncertainty and potentially exacerbate these risks.
This influence, including the requirement in our proxy agreement for approval by the proxy holders and our majority stockholder of mergers and consolidations, may also discourage change of control transactions. Changes in the leadership at our indirect majority stockholder could create uncertainty and potentially exacerbate these risks.
However, the proxy holders may only vote for or consent to the following matters with the express written approval of US Holding: • other than in the ordinary course of business with vendors, customers and suppliers, the sale or disposition of any of our subsidiaries, property, assets or business or those of our subsidiaries or the purchase by us or our subsidiaries of any business, properties, assets or entities, other than in the ordinary course of business, in any individual transaction where our investment (based on our share of the enterprise value) exceeds two percent (2)% of our revenues for the immediately preceding year or where our investment, in the aggregate for all such sales or dispositions in a calendar year, exceeds an amount equal to five percent (5)% of our revenues for the immediately preceding year; • the incurrence of debt or pledge, mortgage, lease or other encumbrance of our assets of those of our subsidiaries in connection with the incurrence of debt if such incurrence would cause the aggregate outstanding principal amount of all debt of us and our subsidiaries to exceed a target leverage ratio set forth in our then-current operating plan, excluding current debt incurred for purposes of funding day-to-day working capital requirements in the ordinary course of business; • any merger, consolidation, reorganization or dissolution of us or any of our subsidiaries except as permitted above and excluding transactions solely among our wholly owned subsidiaries; and • the filing or making of any petition by us or our subsidiaries under the federal bankruptcy laws or any similar law or statute of any state or any foreign country.
However, the proxy holders may only vote for or consent to the following matters with the express written approval of US Holding: • other than in the ordinary course of business with vendors, customers and suppliers, the sale or disposition of any of our subsidiaries, property, assets or business or those of our subsidiaries or the purchase by us or our subsidiaries of any business, properties, assets or entities, other than in the ordinary course of business, in any individual transaction where our investment (based on our share of the enterprise value) exceeds two percent (2%) of our revenues for the immediately preceding year or where our investment, in the aggregate for all such sales or dispositions in a calendar year, exceeds an amount equal to five percent (5%) of our revenues for the immediately preceding year; • the incurrence of debt or pledge, mortgage, lease or other encumbrance of our assets of those of our subsidiaries in connection with the incurrence of debt if such incurrence would cause the aggregate outstanding principal amount of all debt of us and our subsidiaries to exceed a target leverage ratio set forth in our then-current operating plan, excluding current debt incurred for purposes of funding day-to-day working capital requirements in the ordinary course of business; • any merger, consolidation, reorganization or dissolution of us or any of our subsidiaries except as permitted above and excluding transactions solely among our wholly owned subsidiaries; and • the filing or making of any petition by us or our subsidiaries under the federal bankruptcy laws or any similar law or statute of any state or any foreign country. 44 In addition, the proxy holders may only vote to declare or suspend dividends after prior consultation with US Holding.
Additionally, we may have limited ability to control the conduct of our affiliates and we have been, and may in the future be, adversely impacted by misconduct of our affiliates. 29 This risk of improper conduct may increase as we continue to grow and expand our operations.
Additionally, we may have limited ability to control the conduct of our affiliates and we have been, and may in the future be, adversely impacted by misconduct of our affiliates. 31 This risk of improper conduct may increase as we continue to grow and expand our operations.
The Company faces risks related to pandemics, health epidemics and other outbreaks of communicable disease which could significantly disrupt operations, and may materially and adversely affects our business, financial conditions and results of operations.
The Company faces risks related to pandemics, health epidemics and other outbreaks of communicable disease which could significantly disrupt operations, and may materially and adversely affect our business, financial conditions and results of operations.
These failures could result, either directly or indirectly, in loss of life or property.
These failures could 29 result, either directly or indirectly, in loss of life or property.
See also “ — Risks Relating to Our Business — Our results of operations and cash flows are substantially affected by our mix of fixed-price, cost-plus and time-and-material type contracts.
See also “ — Risks Relating to Our Business — Our results of operations and cash flows are substantially affected by our mix of fixed-price, cost-plus and time-and-materials type contracts.
The remediation of such contamination, or the enactment of more stringent laws or regulations or more strict interpretation of existing laws and regulations, may require us to make additional expenditures, and could decrease the amount of free cash flow available to us for other purposes, including capital expenditures, R&D and other investments and could have a material adverse impact on our business, financial condition and results of operations.
The remediation of such contamination, or the enactment of more stringent laws or regulations or more strict 40 interpretation of existing laws and regulations, may require us to make additional expenditures, and could decrease the amount of cash flows available to us for other purposes, including capital expenditures, R&D and other investments and could have a material adverse impact on our business, financial condition and results of operations.
Our business could be harmed in the event of difficulties with our unionized workforce, including the effects of a prolonged work stoppage. As of December 31, 2023, approximately 470 (or 7%) of our employees were covered by collective bargaining agreements. We generally have been able to renegotiate renewals to expiring agreements without significant disruption of operating activities.
Our business could be harmed in the event of difficulties with our unionized workforce, including the effects of a prolonged work stoppage. As of December 31, 2024, approximately 520 (or 7%) of our employees were covered by collective bargaining agreements. We generally have been able to renegotiate renewals to expiring agreements without significant disruption of operating activities.
Considerable uncertainty exists regarding future budget and program decisions, including U.S. defense spending priorities, what challenges budget reductions will present for the defense industry, whether annual appropriations bills for all agencies will be enacted for U.S. government fiscal year 2024 and thereafter, and how the Biden administration will approach those decisions through the budgeting process.
Considerable uncertainty exists regarding future budget and program decisions, including U.S. defense spending priorities, what challenges budget reductions will present for the defense industry, whether annual appropriations bills for all agencies will be enacted for U.S. government fiscal year 2025 and thereafter, and how the current administration will approach those decisions through the budgeting process.
For the years ended December 31, 2023, 2022, and 2021, approximately 10%, 7% and 5%, respectively, of our revenue was derived from sales to customers located in foreign countries and foreign governments. We cannot assure you that we will maintain significant operations internationally or that any such operations will be successful.
For the years ended December 31, 2024, 2023, and 2022, approximately 13%, 10% and 7%, respectively, of our revenue was derived from sales to customers located in foreign countries and foreign governments. We cannot assure you that we will maintain significant operations internationally or that any such operations will be successful.
Department of State must notify Congress at least 15 to 30 days, depending on the size and location of the proposed sale, prior to authorizing certain sales of defense equipment and services to some foreign governments. During that time, Congress may take action to block the proposed sale.
For example, the U.S. Department of State must notify Congress at least 15 to 30 days, depending on the size and location of the proposed sale, prior to authorizing certain sales of defense equipment and services to some foreign governments. During that time, Congress may take action to block the proposed sale.
Our ability to develop new products and technologies that anticipate changing customer requirements, reduce costs and otherwise retain or enhance our competitive position in existing and new markets will be an important factor in our future results from operations.
Additionally, our ability to develop other new products and technologies that anticipate changing customer requirements, reduce costs and otherwise retain or enhance our competitive position in existing and new markets will be an important factor in our future results of operations.
Our ultimate majority stockholder, Leonardo S.p.A., may have interests that are different from, or conflict with, those of our other stockholders, and their significant ownership in us may discourage change of control transactions.
Our indirect majority stockholder, Leonardo S.p.A., may have interests that are different from, or conflict with, those of our other stockholders, and their significant ownership in us may discourage mergers and acquisitions or change of control transactions.
In 2022, we became a public company, and as such, have incurred, and will continue to incur, significant legal, accounting and other expenses that we did not incur as a private company.
In 2022, we became a public company, and as such, have incurred, and may continue to incur, legal, accounting and other expenses that we did not incur as a private company.
These larger competitors may also benefit from supply chain leverage and pricing flexibility, including, in some cases, the ability to price contracts at a loss, due to their size. Larger competitors, for example, may decide to pursue contracts typically won by mid-tier contractors, such as us.
These larger competitors may also benefit from supply chain leverage and pricing flexibility, including, in some cases, the ability to price contracts at a loss, due to their size. Larger competitors, for example, may decide to pursue contracts typically won by mid-tier contractors, such as us. A number of these competitors are also our suppliers and customers.
In addition, our supply chain may be disrupted by trade conflicts and tariffs imposed on products, as well as other external events, including natural disasters, extreme weather conditions, future medical epidemics or pandemics, acts of terrorism, cyber-attacks and labor disputes, governmental actions and legislative or regulatory changes, such as product certification or stewardship requirements, sourcing restrictions, product authenticity and climate change or greenhouse gas emission standards.
In addition, our supply chain may be disrupted by trade conflicts and tariffs imposed on products (including recent U.S. tariffs imposed or threatened to be imposed on other countries and any retaliatory actions taken by such countries), as well as other external events, including natural disasters, extreme weather conditions, future medical epidemics or pandemics, acts of terrorism, cyber-attacks and labor disputes, governmental actions and legislative or regulatory changes, such as product certification or stewardship requirements, sourcing restrictions, product authenticity and climate change or greenhouse gas emission standards.
Ongoing instability and current conflicts in global markets, including in Eastern Europe, the Middle East and Asia, and the potential for other conflicts and future terrorist activities and other recent geopolitical events throughout the world, including the conflict in Ukraine, the U.S. military withdrawal from Afghanistan, new or increased tariffs or sanctions and potential trade wars have created and continue to create economic and political uncertainties and impacts that could have a material adverse impact on our business, financial condition and results of operations.
Ongoing instability and current conflicts in global markets, including in Eastern Europe, the Middle East and Asia, and the potential for other conflicts and future terrorist activities and other recent geopolitical events throughout the world, including the conflict in Ukraine, the U.S. military withdrawal from Afghanistan, new or increased tariffs (including recent U.S. tariffs imposed or threatened to be imposed on other countries and any retaliatory actions taken by such countries) or sanctions and potential trade wars have created and continue to create economic and political uncertainties and impacts that could have a material adverse impact on our business, financial condition and results of operations.
The U.S. government has increasingly relied on certain types of contracts that are 22 subject to multiple competitive bidding processes, including multi-vendor Indefinite Delivery Indefinite Quantity (“IDIQ”), Government wide Acquisition Contracts, General Services Administration Schedule and other multi-award contracts, which has resulted in greater competition and increased pricing pressure.
The U.S. government has increasingly relied on certain types of contracts that are subject to multiple competitive bidding processes, including multi-vendor Indefinite Delivery Indefinite Quantity (“IDIQ”), Government wide Acquisition Contracts, General Services Administration Schedule and other multi-award contracts, which has resulted in greater competition and increased pricing pressure. Our customers’ requirements change and evolve regularly.
We likely will not always be able to compete successfully with our competitors and competitive pressures or other factors may also result in significant price competition, particularly during industry downturns, which could have a material adverse impact on our business, financial condition and results of operations.
Strong competition for investment opportunities could result in fewer such opportunities for us. We likely will not always be able to compete successfully with our competitors and competitive pressures or other factors may also result in significant price competition, particularly during industry downturns, which could have a material adverse impact on our business, financial condition and results of operations.
Revenues derived directly or indirectly from contracts with the U.S. government represented approximately 80%, 84% and 86% of our total revenues for the years ended December 31, 2023, 2022, and 2021, respectively, with revenues principally derived directly or indirectly from contracts with the U.S. 11 Navy and U.S.
Revenues derived directly or indirectly from contracts with the U.S. government represented approximately 79%, 80% and 84% of our total revenues for the years ended December 31, 2024, 2023, and 2022, respectively, with revenues principally derived directly or indirectly from contracts with the U.S. Navy and U.S.
In such event, we will work to replicate or replace these services; however, we cannot assure you that we will be able to obtain the services at the same or better levels or at the same or lower costs directly from third-party providers. ITEM 1B. UNRESOLVED STAFF COMMENTS None.
In such event, we will work to replicate or replace these services; however, we cannot assure you that we will be able to obtain the services at the same or better levels or at the same or lower costs directly from third-party providers.
If we fail to comply with the proxy agreement our classified U.S. government contracts could be terminated, which could have a material adverse impact on our business, financial condition and results of operations. • CFIUS may modify, delay or prevent our future acquisition or investment activities. • Our ultimate majority stockholder, Leonardo S.p.A., may have interests that are different from, or conflict with, those of our other stockholders, and their significant ownership in us may discourage change of control transactions.
If we fail to comply with the proxy agreement our classified U.S. government contracts could be terminated, which could have a material adverse impact on our business, financial condition and results of operations. • CFIUS may modify, delay or prevent our future acquisition or investment activities. • Our indirect majority stockholder, Leonardo S.p.A., may have interests that are different from, or conflict with, those of our other stockholders, and their significant ownership in us may discourage mergers and acquisitions or change of control transactions. • Risks related to ownership of our common stock. 11 Risks Relating to Our Business We depend on U.S. defense spending for the vast majority of our revenues.
If we are not successful in obtaining or maintaining the necessary licenses or authorizations in a timely manner, our sales relating to those approvals may be reversed, prevented or delayed, and any significant impairment of our ability to sell products or technologies outside of the U.S. could negatively impact our business, financial condition and results of operations. 33 A failure to attract and retain technical and other key personnel could reduce our revenues and our operational effectiveness.
If we are not successful in obtaining or maintaining the necessary licenses or authorizations in a timely manner, our sales relating to those approvals may be reversed, prevented or delayed, and any significant impairment of our ability to sell products or technologies outside of the U.S. could negatively impact our business, financial condition and results of operations.
To the extent that organizational conflicts of interest laws, regulations and rules limit our ability to successfully compete for new contracts or task orders with the U.S. government and/or commercial entities, or require us to exit certain existing contracts or wind down certain existing contracts, either because of organizational conflicts of interest issues arising from our business or because companies with which we are affiliated, including Leonardo S.p.A. and its subsidiaries (including US Holding), or with which we otherwise conduct business create organizational conflicts of interest issues for us, our business, financial condition, results of operations and prospects could be materially and adversely affected. 17 The U.S. government has and may continue to implement initiatives focused on efficiencies, affordability and cost growth as well as other changes to its procurement practices.
To the extent that organizational conflicts of interest laws, regulations and rules limit our ability to successfully compete for new contracts or task orders with the U.S. government and/or commercial entities, or require us to exit certain existing contracts or wind down certain existing contracts, either because of organizational conflicts of interest issues arising from our business or because companies with which we are affiliated, including Leonardo S.p.A. and its subsidiaries (including US Holding), or with which we otherwise conduct business create organizational conflicts of interest issues for us, our business, financial condition, results of operations and prospects could be materially and adversely affected.
To the fullest extent permitted by law, by becoming a stockholder in our company, stockholders will be deemed to have notice of and consented to this provision of our amended and restated certificate of incorporation. This will allow Leonardo S.p.A. and its affiliates to compete with us. Strong competition for investment opportunities could result in fewer such opportunities for us.
To the fullest extent permitted by law, by becoming a stockholder in our company, stockholders will be deemed to have notice of and 45 consented to this provision of our amended and restated certificate of incorporation. This will allow Leonardo S.p.A. and its affiliates to compete with us.
Factors which could result in fluctuations in our working capital and cash flows include: • the quantity of product and service sales revenue achieved; • the timing of the delivery of products and services; • the margins achieved on sales of products and services; • the timing and collection of receivables; • the timing and size of inventory and related component purchases; • the timing of payment on payables and accrued liabilities; and • the adequacy of our current financing arrangements and access to additional financing. 19 We cannot predict future capital needs, the sufficiency of our current financing or our ability to obtain additional financing if we need it.
Factors which could result in fluctuations in our working capital and cash flows include: • the quantity of product and service sales revenue achieved; • the timing of the delivery of products and services; • the margins achieved on sales of products and services; • the timing and collection of receivables; • the timing and size of inventory and related component purchases; • the timing of payment on payables and accrued liabilities; and • the adequacy of our current financing arrangements and access to additional financing.
For example, we have recently witnessed shortages of castings as well as electronic components that are used in automotive, cell phones and other electronics. Shortages of similar components that we use could negatively impact our supply chain and manufacturing processes, as well as our ability to deliver on our contracts.
For example, we have recently witnessed shortages of germanium, as well as other raw materials, castings and electronic components that are used in our products. Shortages within our supply chain of these and similar materials and components that we use could negatively impact our supply chain and manufacturing processes, as well as our ability to deliver on our contracts.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeWhile we have not, as of the date of this Form 10-K, experienced a cybersecurity threat or incident that resulted in a material adverse impact to our business or operations, there can be no guarantee that 45 we will not experience such an incident in the future.
Biggest changeWhile we have not, as of the date of this Form 10-K, experienced a cybersecurity threat or incident that materially affected or is reasonably likely to materially affect our business strategy, results of operations, or financial condition, there can be no guarantee that we will not experience such an incident in the future.
The Cyber and Information Technology Governance team develops Company policies designed to reduce, manage, and mitigate cyber risks. • The Classified Information team maintains the Company’s classified information systems and works closely with the Company’s Industrial Security team to help the Company meet the requirements laid out by the DoD for classified systems. 44 • The Cyber/Supplier Risk Management team collaborates with the Company’s supply chain function to identify and work with critical suppliers to reduce cyber risk and minimize or eliminate collateral impacts.
The Cyber and Information Technology Governance team develops Company policies designed to reduce, manage, and mitigate cyber risks. • The Classified Information team maintains the Company’s classified information systems and works closely with the Company’s Industrial Security team to help the Company meet the requirements laid out by the DoD for classified systems. • The Cyber/Supplier Risk Management team collaborates with the Company’s supply chain function to identify and work with critical suppliers to reduce cyber risk and minimize or eliminate collateral impacts.
The Cybersecurity Program staff also maintains regular contact with the Federal Bureau of Investigation for sharing of threat information. Third parties play a key role in support of our Cybersecurity Program. The Chief Information Security Officer coordinates third-party assessments with the Company’s Internal Audit team. Third parties are regularly engaged to assess our security controls and incident response capabilities.
The Cybersecurity Program staff also maintains regular contact with the Federal Bureau of Investigation for sharing of threat information. Third parties play a key role in support of our Cybersecurity Program. The Chief Information Security Officer coordinates third-party assessments with the Company’s Internal Audit team. Third parties are 47 regularly engaged to assess our security controls and incident response capabilities.
We also participate and support multiple threat-sharing communities including the National Defense Information Sharing and Assessment Center, the defense industrial base Cybersecurity Program, and the National Defense Cyber Alliance. Participating these communities allows us to collaborate with our Defense Industrial Base sector peers, government agencies, information sharing and analysis centers, and cybersecurity associations.
We also participate and support multiple threat-sharing communities including the National Defense Information Sharing and Assessment Center, the defense industrial base Cybersecurity Program, and the National Defense Cyber Alliance. Participating in these communities allows us to collaborate with our Defense Industrial Base sector peers, government agencies, information sharing and analysis centers, and cybersecurity associations.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe table below provides additional information about our significant leased and owned facilities and properties: Location Activities Operating Segment Approximate Square Footage Owned / Leased 1 McDaniel Street, West Plains, MO Manufacturing, Engineering, Warehouse, Office Integrated Mission Systems 447,067 Owned Good Hope Rd., Menomonee Falls, WI Manufacturing, Engineering, Warehouse Integrated Mission Systems 372,856 Leased 100 North Babcock Street, Melbourne, FL Manufacturing, Engineering, Warehouse, Office Advanced Sensing and Computing 336,287 Leased 6060 Highway, High Ridge, MO Manufacturing, Engineering, Office Integrated Mission Systems 183,600 Owned 4545 Innovation Way, Bridgeton, MO Manufacturing, Engineering, Warehouse, Office Integrated Mission Systems 171,500 Leased 46 7200 Redstone Gateway, Huntsville, AL Manufacturing, Engineering, Office Advanced Sensing and Computing 131,498 Leased 246 Airport Road, Johnstown, PA Manufacturing, Engineering, Warehouse, Office Advanced Sensing and Computing 129,716 Leased 500 Palladium Drive, Ottawa, ON, Canada Manufacturing, Engineering, Warehouse, Office Advanced Sensing and Computing 127,334 Leased 401 Flint Drive, Menomonee Falls, WI Engineering, Office Integrated Mission Systems 118,620 Leased 166 Boulder Drive, Building #2, Fitchburg, MA Manufacturing, Warehouse Integrated Mission Systems 114,454 Leased 6200 118th Avenue North, Largo, FL Manufacturing, Engineering, Office Advanced Sensing and Computing 113,329 Owned 10600 Valley View Street, Cypress, CA Engineering, Office Advanced Sensing and Computing 91,506 Leased 13532 N Central Expressway, Dallas, TX Manufacturing, Engineering, Office Advanced Sensing and Computing 89,982 Leased 4910 Executive Court South, Frederick, MD Manufacturing, Engineering, Office Advanced Sensing and Computing 88,146 Leased 645 Anchors Street, Ft.
Biggest changeThe table below provides additional information about our significant leased and owned facilities and properties: Location Activities Operating Segment Approximate Square Footage Owned / Leased 1 McDaniel Street, West Plains, MO Manufacturing, Engineering, Warehouse, Office Integrated Mission Systems 447,067 Owned Good Hope Rd., Menomonee Falls, WI Manufacturing, Engineering, Warehouse Integrated Mission Systems 372,856 Leased 100 North Babcock Street, Melbourne, FL Manufacturing, Engineering, Warehouse, Office Advanced Sensing and Computing 336,287 Leased 6060 Highway, High Ridge, MO Manufacturing, Engineering, Office Integrated Mission Systems 183,600 Owned 4201 Innovation Way, Bridgeton, MO Manufacturing, Engineering, Warehouse, Office Integrated Mission Systems 171,500 Leased 7200 Redstone Gateway, Huntsville, AL Manufacturing, Engineering, Office Advanced Sensing and Computing 131,498 Leased 246 Airport Road, Johnstown, PA Manufacturing, Engineering, Warehouse, Office Advanced Sensing and Computing 129,716 Leased 500 Palladium Drive, Ottawa, ON, Canada Manufacturing, Engineering, Warehouse, Office Advanced Sensing and Computing 127,334 Leased 401 Flint Drive, Menomonee Falls, WI Engineering, Office Integrated Mission Systems 118,620 Leased 166 Boulder Drive, Building #2, Fitchburg, MA Manufacturing, Warehouse Integrated Mission Systems 114,454 Leased 10600 Valley View Street, Cypress, CA Engineering, Office Advanced Sensing and Computing 91,506 Leased 49 13532 N Central Expressway, Dallas, TX Manufacturing, Engineering, Office Advanced Sensing and Computing 89,982 Leased 4910 Executive Court South, Frederick, MD Manufacturing, Engineering, Office Advanced Sensing and Computing 88,146 Leased 6200 118th Avenue North, Largo, FL Manufacturing, Engineering, Office Advanced Sensing and Computing 75,968 Owned 21 South Street, Danbury, CT Manufacturing, Engineering, Warehouse, Office Integrated Mission Systems 74,304 Owned 1200 Sherman Street, Dallas, TX Engineering, Office Advanced Sensing and Computing 73,646 Leased 645 Anchors Street, Ft.
Walton Beach, FL Manufacturing, Engineering, Office Advanced Sensing and Computing 31,783 Owned 1620 Old Airport Road, West Plains, MO Distribution, Warehouse Integrated Mission Systems 30,000 Owned 2601 Mission Point Blvd, Beavercreek, OH Engineering, Office Advanced Sensing and Computing 27,306 Leased 590 Territorial Drive, Bolingbrook, IL Manufacturing, Engineering, Office Advanced Sensing and Computing 26,460 Leased 166 Boulder Drive, Fitchburg, MA Engineering, Office Integrated Mission Systems 22,000 Leased 640 Independence Blvd, West Plains, MO Manufacturing, Engineering, Warehouse, Office Integrated Mission Systems 22,000 Owned 26 Castilian Drive, Goleta, CA Engineering, Office Integrated Mission Systems 20,823 Leased
Walton Beach, FL Manufacturing, Engineering, Office Advanced Sensing and Computing 31,783 Owned 1620 Old Airport Road, West Plains, MO Distribution, Warehouse Integrated Mission Systems 30,000 Owned 2601 Mission Point Blvd, Beavercreek, OH Engineering, Office Advanced Sensing and Computing 27,306 Leased 590 Territorial Drive, Bolingbrook, IL Manufacturing, Engineering, Office Advanced Sensing and Computing 26,460 Leased Block 22844 Portions of Plots 90, 91, Beit She’an, Israel Manufacturing, Engineering, Office Advanced Sensing and Computing 22,003 Leased 166 Boulder Drive, Fitchburg, MA Engineering, Office Integrated Mission Systems 22,000 Leased 640 Independence Blvd, West Plains, MO Manufacturing, Engineering, Warehouse, Office Integrated Mission Systems 22,000 Owned 26 Castilian Drive, Goleta, CA Engineering, Office Integrated Mission Systems 20,823 Leased
Walton Beach, FL Engineering, Office Advanced Sensing and Computing 60,465 Owned 13544 N Central Expressway, Dallas, TX Manufacturing, Engineering, Office Advanced Sensing and Computing 48,374 Leased 2345 Crystal Dr., Arlington, VA Office Corporate 46,184 Leased 47 Block 22844 Portions of Plots 90, 91, Beit She’an Israel Manufacturing, Engineering, Office Advanced Sensing and Computing 42,610 Owned 20511 Seneca Meadows Parkway, Germantown, MD Engineering, Office Advanced Sensing and Computing 42,476 Leased 150 Bluewater Road, Bedford, NS, Canada Manufacturing, Engineering, Office Advanced Sensing and Computing 41,750 Owned 11 Durant Ave, Bethel, Ct Distribution Warehouse Integrated Mission Systems 37,840 Leased 825 Greenbrier Circle, Chesapeake, VA Manufacturing, Engineering, Office Advanced Sensing and Computing 34,299 Leased 1021 Production Ct, Madison, AL Distribution, Office Advanced Sensing and Computing 33,000 Leased 1832 Wright Street, Madison, WI Manufacturing, Engineering, Office Advanced Sensing and Computing 32,319 Leased 651 Anchors Street, Ft.
Walton Beach, FL Engineering, Office Advanced Sensing and Computing 60,465 Owned 13544 N Central Expressway, Dallas, TX Manufacturing, Engineering, Office Advanced Sensing and Computing 48,374 Leased 2345 Crystal Dr., Arlington, VA Office Corporate 46,184 Leased 20511 Seneca Meadows Parkway, Germantown, MD Engineering, Office Advanced Sensing and Computing 42,476 Leased 150 Bluewater Road, Bedford, NS, Canada Manufacturing, Engineering, Office Advanced Sensing and Computing 41,750 Owned Block 7962 Plot 14 Floor 1 Buildings 224-235, 237, 238, Netanya, Israel Engineering, Office Advanced Sensing and Computing 39,415 Leased 11 Durant Ave, Bethel, Ct Distribution Warehouse Integrated Mission Systems 37,840 Leased Block 22884 Plot 982 3 Ha’Sadna Street, Beit She’an, Israel Manufacturing, Engineering, Office Advanced Sensing and Computing 37,670 Owned 1021 Production Ct, Madison, AL Distribution, Office Advanced Sensing and Computing 33,000 Leased 50 1832 Wright Street, Madison, WI Manufacturing, Engineering, Office Advanced Sensing and Computing 32,319 Leased 651 Anchors Street, Ft.
Walton Beach, FL Manufacturing, Engineering, Office Advanced Sensing and Computing 74,304 Owned 21 South Street, Danbury, CT Manufacturing, Engineering, Warehouse, Office Integrated Mission Systems 74,300 Owned 1200 Sherman Street, Dallas, TX Engineering, Office Advanced Sensing and Computing 73,646 Leased 1240 Seesetown Rd., Sidman, PA Distribution, Warehouse Advanced Sensing and Computing 72,450 Leased 16465 Via Esprillo, San Diego, CA Manufacturing, Engineering, Office Advanced Sensing and Computing 67,762 Leased 7700 US Highway 1, Titusville, FL Warehouse Advanced Sensing and Computing 63,309 Leased 640 Lovejoy, Ft.
Walton Beach, FL Manufacturing, Engineering, Office Advanced Sensing and Computing 72,761 Owned 1240 Seesetown Rd., Sidman, PA Distribution, Warehouse Advanced Sensing and Computing 72,450 Leased 16465 Via Esprillo, San Diego, CA Manufacturing, Engineering, Office Advanced Sensing and Computing 67,792 Leased 7700 US Highway 1, Titusville, FL Warehouse Advanced Sensing and Computing 63,309 Leased 640 Lovejoy, Ft.
ITEM 2. PROPERTIES We are headquartered in Arlington, Virginia. Our principal executive offices are leased under a lease agreement expiring March 31, 2027, with an option to extend for five years thereafter. We also lease or own space in 18 other states and the District of Columbia in the United States, one city in Canada and three cities in Israel.
ITEM 2. PROPERTIES We are headquartered in Arlington, Virginia. Our principal executive offices are leased under a lease agreement expiring March 31, 2027, with an option to extend for five years thereafter.
Further, we believe that we can obtain additional space, if necessary, based on prior experience and current real estate market conditions.
Such determinations will be made as existing leases approach expiration and will be based on an assessment of our requirements at that time. Further, we believe that we can obtain additional space, if necessary, based on prior experience and current real estate market conditions.
The owned building is situated on land leased from the Israeli Land Authority for a period of 49 years ending in 2034. We believe that our facilities are adequate for our intended use and sufficient for our immediate needs, including to meet any security certification requirements or requirements for locating facilities in certain locations.
We believe that our facilities are adequate for our intended use and sufficient for our immediate needs, including to meet any security certification requirements or requirements for locating facilities in certain locations. It is not certain whether we will negotiate new leases as existing leases expire or whether we will be able to negotiate new leases without substantial cost.
Regarding the three leases in Israel, one of the sites contains a land lease and a building which is owned (described further below) and the other two sites are under 10,000 square feet. Additionally, we own properties in three states in the United States and in one city in Canada as well as the aforementioned building in Israel.
We also lease or 48 own space in 17 other states and the District of Columbia in the United States, two cities in Canada and three cities in Israel. We own properties in three states in the United States and in one city in Canada.
Removed
It is not certain whether we will negotiate new leases as existing leases expire or whether we will be able to negotiate new leases without substantial cost. Such determinations will be made as existing leases approach expiration and will be based on an assessment of our requirements at that time.
Added
One of the sites in Israel contains a land lease and a building which is owned. The owned building in Israel is situated on land leased from the Israeli Land Authority for a period of 49 years ending in 2034.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeThe NPS previously posted its intention to open a formal public comment period regarding the EE/CA at the end of 2019. To our knowledge, the EE/CA has not been released and a public comment period has yet to be opened. The Environmental Protection Agency (“EPA”) episodically updates its electronic databases concerning pending Superfund sites.
Biggest changeThe 51 NPS previously posted its intention to open a formal public comment period regarding the EE/CA at the end of 2019. To our knowledge, the EE/CA has not been released and a public comment period has yet to be opened. The Environmental Protection Agency (“EPA”) episodically updates its electronic databases concerning pending Superfund sites.
The Company reviews the developments in contingencies that could affect the amount of the reserves that have been previously recorded. The Company adjusts provisions and changes to disclosures accordingly to reflect the impact of negotiations, 48 settlements, rulings, advice of legal counsel, and updated information.
The Company reviews the developments in contingencies that could affect the amount of the reserves that have been previously recorded. The Company adjusts provisions and changes to disclosures accordingly to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and updated information.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeHe has been recognized for numerous professional and service contributions, including four DoD Distinguished Public Service medals and the Distinguished Civilian Service Award from the Chairman of the Joint Chiefs of Staff. A graduate of Dartmouth College, Mr.
Biggest changeLynn is a member of the boards of Accenture Federal Services, the USO Foundation, the Atlantic Council, and the Center for a New American Security. He has been recognized for numerous professional and service contributions, including four DoD Distinguished Public Service medals and the Distinguished 52 Civilian Service Award from the Chairman of the Joint Chiefs of Staff.
Mr. Dorfman holds a Bachelor of Arts degree in political science from Emory University and a juris doctor degree from New York University School of Law. Sally A. Wallace Ms. Wallace has been our Executive Vice President, Business Operations since December 2016. As Executive Vice President, Business Operations, Ms.
Dorfman holds a Bachelor of Arts degree in political science from Emory University and a juris doctor degree from New York University School of Law. Sally A. Wallace Ms. Wallace has been our Executive Vice President, Business Operations since December 2016. As Executive Vice President, Business Operations, Ms.
As the Company’s chief legal officer, Mr. 50 Dorfman oversees the Company's legal and regulatory affairs, including transactions, litigation, corporate governance, internal audit, contracts, insurance, intellectual property protection, and ethics and compliance programs (including environmental health and safety, international trade, and industrial and cybersecurity). Mr.
As the Company’s chief legal officer, Mr. Dorfman oversees the Company's legal and regulatory affairs, including transactions, litigation, corporate governance, internal audit, contracts, insurance, intellectual property protection, and ethics and compliance programs (including environmental health and safety, international trade, and industrial and cybersecurity). Mr.
Dorfman was a corporate attorney first at Chadbourne & Parke LLP and then Lowenstein Sandler PC, where his practice included representation of corporate and other clients in connection with mergers and acquisitions, divestitures, public and private securities offerings, joint ventures and other complex transactions and providing advice and counsel on a variety of matters, including securities law and corporate governance.
Dorfman was a corporate attorney first at Chadbourne & Parke LLP and then Lowenstein Sandler PC, where his practice included representation of corporate and other clients in connection with mergers and acquisitions, divestitures, public and private securities offerings, joint ventures and other complex transactions and providing advice and counsel on a variety of matters, including securities law and corporate governance. 53 Mr.
ITEM 4. MINE SAFETY DISCLOSURES Not applicable. SUPPLEMENTARY ITEM— INFORMATION ABOUT OUR EXECUTIVE OFFICERS The following table sets forth certain information concerning our executive officers, including the respective age of each individual, as of December 31, 2023. Biographies of each of our executive officers are also below. Name Age Position William J.
ITEM 4. MINE SAFETY DISCLOSURES Not applicable. SUPPLEMENTARY ITEM— INFORMATION ABOUT OUR EXECUTIVE OFFICERS The following table sets forth certain information concerning our executive officers, including the respective age of each individual, as of December 31, 2024. Biographies of each of our executive officers are also below. Name Age Position William J.
Wallace has a master’s degree in business from the University of Chicago, a master’s degree in mechanical engineering from the University of Connecticut and a Bachelor of Science degree in engineering physics from Grove City College. 51 PART II
Wallace has a master’s degree in business from the University of Chicago, a master’s degree in mechanical engineering from the University of Connecticut and a Bachelor of Science degree in engineering physics from Grove City College. 54 PART II
In that role, Mr. Baylouny is responsible for overseeing the business operations and technical strategy of the Company. Prior to assuming the position of Chief Operating Officer, Mr. Baylouny served as our Chief Technology Officer from January 2017 to October 2018. Prior to that, Mr.
Baylouny has been our Executive Vice President and Chief Operating Officer since October 2018. In that role, Mr. Baylouny is responsible for overseeing the business operations and technical strategy of the Company. Prior to assuming the position of Chief Operating Officer, Mr. Baylouny served as our Chief Technology Officer from January 2017 to October 2018. Prior to that, Mr.
Lynn III 69 Chief Executive Officer and Chairman John A. Baylouny 62 Executive Vice President, Chief Operating Officer Michael D. Dippold 43 Executive Vice President, Chief Financial Officer Mark A. Dorfman 49 Executive Vice President, General Counsel & Secretary Sally A. Wallace 57 Executive Vice President, Business Operations 49 William J. Lynn III Mr.
Lynn III 70 Chief Executive Officer and Chairman John A. Baylouny 63 Executive Vice President, Chief Operating Officer Michael D. Dippold 44 Executive Vice President, Chief Financial Officer Mark A. Dorfman 50 Executive Vice President, General Counsel & Secretary Sally A. Wallace 58 Executive Vice President, Business Operations William J. Lynn III Mr.
Lynn holds a juris doctor degree from Cornell Law School and a master’s degree from the Princeton School of Public and International Affairs. Mr. Lynn brings to the Board his extensive experience in national security, both in government and in industry. John A. Baylouny Mr. Baylouny has been our Executive Vice President and Chief Operating Officer since October 2018.
A graduate of Dartmouth College, Mr. Lynn holds a juris doctor degree from Cornell Law School and a master’s degree from the Princeton School of Public and International Affairs. Mr. Lynn brings to the Board his extensive experience in national security, both in government and in industry. John A. Baylouny Mr.
Removed
Lynn is a member of the boards of Accenture Federal Services, the United Service Organizations, the Atlantic Council, the Marshall Legacy Institute and the Center for a New American Security.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeSuch payments are at the discretion of our Board and will depend upon our financial condition, results of operations, capital requirements, alternative uses of capital and other factors that our Board may consider at its discretion. See Part II, Item 7, “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ” included in this Report.
Biggest changeThis payment and any future payments are at the discretion of our Board and will depend upon our financial condition, results of operations, capital requirements, alternative uses of capital and other factors that our Board may consider at its discretion.
For purposes of this comparison, we have assumed an initial investment of $100, that dividends have been reinvested, and the returns of each company in the S&P 500 Index and the S&P A&D Select Industry Index have been weighted to reflect relative stock market capitalization. 52 The following performance graph does not constitute soliciting material and should not be deemed filed or incorporated by reference into any other previous or future filings by us under the Securities Act or the Exchange Act, except to the extent that we specifically incorporate the performance graph by reference therein.
For purposes of this comparison, we have assumed an initial investment of $100, that dividends have been reinvested, and the returns of each company in the S&P 500 Index and the S&P A&D Select Industry Index have been weighted to reflect relative stock market capitalization. 55 The following performance graph does not constitute soliciting material and should not be deemed filed or incorporated by reference into any other previous or future filings by us under the Securities Act or the Exchange Act, except to the extent that we specifically incorporate the performance graph by reference therein.
Performance Graph The following graph compares the cumulative total stockholder return on our common stock, from November 29, 2022, the date our common stock began trading on Nasdaq, through December 31, 2023, to the Standard & Poor’s 500 Index (the “S&P 500 Index”) and the Standard & Poor’s Aerospace & Defense Select Industry Index (the “S&P A&D Select Industry Index”).
Performance Graph The following graph compares the cumulative total stockholder return on our common stock, from November 29, 2022, the date our common stock began trading on Nasdaq, through December 31, 2024, to the Standard & Poor’s 500 Index (the “S&P 500 Index”) and the Standard & Poor’s Aerospace & Defense Select Industry Index (the “S&P A&D Select Industry Index”).
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our stock is listed on the Nasdaq under the symbol “DRS.” Dividends We do not currently pay quarterly cash dividends.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our stock is listed on the Nasdaq under the symbol “DRS.” Dividends On February 20, 2025, the Company announced that its Board of Directors approved a cash dividend which will be paid on March 27, 2025.
Removed
Holders of Common Stock The Transfer Agent and Registrar for our common stock is American Stock Transfer LLC located at 6201 15th Avenue, Brooklyn, NY 11219. As of February 26, 2024, there were 49 registered holders of record of our common stock. Common Stock Share Repurchase Program We do not currently have a common stock share repurchase program.
Added
See Part II, Item 7, “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ” included in this Annual Report. Holders of Common Stock The Transfer Agent and Registrar for our common stock is Equiniti Trust Company, LLC located at 48 Wall Street, Floor 23, New York, NY 10005.
Added
As of February 28, 2025, there were 48 registered holders of record of our common stock.
Added
Common Stock Share Repurchase Program On February 20, 2025, the Company announced that its Board of Directors approved a share repurchase program that allows the Company to purchase up to $75 million of its outstanding common stock through March 4, 2027, subject to market conditions. All repurchased shares are expected to be retired.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeItem 6. [Reserved] 53 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 54 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 77 Item 8. Financial Statements and Supplementary Data 78 Item 9. Changes in and Disagreements W ith Accountants on Accounting and Financial Disclosure 130
Biggest changeItem 6. [Reserved] 56 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 57 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 74 Item 8. Financial Statements and Supplementary Data 76 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 124

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeYear Ended December 31, 2023 vs. 2022 Variance 2022 vs. 2021 Variance (Dollars in millions) 2023 2022 2021 $ % $ % Revenues: ASC $ 1,831 $ 1,733 $ 1,940 $ 98 5.7 % $ (207) (10.7) % IMS 1,021 983 959 38 3.9 % 24 2.5 % Corporate & Eliminations (26) (23) (20) (3) 13.0 % (3) 15.0 % Total revenues $ 2,826 $ 2,693 $ 2,879 $ 133 4.9 % $ (186) (6.5) % Adjusted EBITDA: ASC $ 215 $ 199 $ 220 $ 16 8.0 % $ (21) (9.5) % IMS 109 119 90 (10) (8.4) % 29 32.2 % Corporate & Eliminations — — — — NM — NM Total adjusted EBITDA $ 324 $ 318 $ 310 $ 6 1.9 % $ 8 2.6 % Adjusted EBITDA margin: ASC 11.7 % 11.5 % 11.3 % 20 bps 20 bps IMS 10.7 % 12.1 % 9.4 % (140) bps 270 bps Bookings: ASC $ 2,307 $ 1,975 $ 1,691 $ 332 16.8 % $ 284 16.8 % IMS 1,209 1,181 904 28 2.4 % 277 30.6 % Total bookings $ 3,516 $ 3,156 $ 2,595 $ 360 11.4 % $ 561 21.6 % Backlog: ASC $ 2,402 $ 1,868 $ 1,762 $ 534 28.6 % $ 106 6.0 % IMS 5,349 2,401 1,099 2,948 122.8 % 1,302 118.5 % Total backlog $ 7,751 $ 4,269 $ 2,861 $ 3,482 81.6 % $ 1,408 49.2 % ______________ NM- percentage change not meaningful Year Ended December 31, 2023, Compared to the Year Ended December 31, 2022 ASC Revenue In total, ASC segment revenue increased $98 million, or 5.7%, from $1,733 million for the year ended December 31, 2022 to $1,831 million for the year ended December 31, 2023.
Biggest changeYear Ended December 31, 2024 vs. 2023 Change 2023 vs. 2022 Change (Dollars in millions) 2024 2023 2022 $ % $ % Revenues: ASC $ 2,118 $ 1,831 $ 1,733 $ 287 15.7 % $ 98 5.7 % IMS 1,138 1,021 983 117 11.5 % 38 3.9 % Corporate & Eliminations (22) (26) (23) 4 (15.4) % (3) 13.0 % Total revenues $ 3,234 $ 2,826 $ 2,693 $ 408 14.4 % $ 133 4.9 % Operating earnings: ASC $ 183 $ 136 $ 503 $ 47 34.6 % $ (367) (73.0) % IMS 117 92 101 25 27.2 % (9) (8.9) % Corporate & Eliminations (7) 3 (43) (10) (333.3) % 46 (107.0) % Total operating earnings $ 293 $ 231 $ 561 $ 62 26.8 % $ (330) (58.8) % Operating margin: ASC 8.6 % 7.4 % 29.0 % IMS 10.3 % 9.0 % 10.3 % Bookings: ASC $ 2,609 $ 2,307 $ 1,975 $ 302 13.1 % $ 332 16.8 % IMS 1,468 1,209 1,181 259 21.4 % 28 2.4 % Total bookings $ 4,077 $ 3,516 $ 3,156 $ 561 16.0 % $ 360 11.4 % Backlog: ASC $ 2,992 $ 2,402 $ 1,868 $ 590 24.6 % $ 534 28.6 % IMS 5,517 5,349 2,401 168 3.1 % 2,948 122.8 % Total backlog $ 8,509 $ 7,751 $ 4,269 $ 758 9.8 % $ 3,482 81.6 % Year Ended December 31, 2024, Compared to the Year Ended December 31, 2023 ASC Revenue In total, ASC segment revenue increased $287 million, or 15.7%, from $1,831 million for the year ended December 31, 2023 to $2,118 million for the year ended December 31, 2024.
The strength of our market positioning in these technology areas have created a foundational and diverse base of programs across the U.S. Department of Defense (“DoD”).
The strength of our market positioning in these technology areas have created a foundational and diverse base of programs across the U.S. Department of Defense (the “DoD”).
We provide power conversion, control, distribution and propulsion systems for the Navy’s top priority shipbuilding programs, including the Columbia Class ballistic missile submarine, the first modern U.S. electric drive submarine.
We provide power conversion, control, distribution and propulsion systems for the U.S. Navy’s top priority shipbuilding programs, including the Columbia Class ballistic missile submarine, the first modern U.S. electric drive submarine.
This approach permeates through the Company with a focus on continuous improvement at every level. Part of this learning has resulted in institutionalizing our continuous improvement process through our Business Excellence initiative called Always Performing for Excellence (“APEX”) program.
This approach permeates through the Company with a focus on continuous improvement at every level. Part of this learning has resulted in institutionalizing our continuous improvement process through our Business Excellence initiative called the Always Performing for Excellence (“APEX”) program.
See Part I, Item 1A, “ Risk Factors—Risks Related to Our Business—Significant delays or reductions in appropriations for our programs and changes in U.S. government priorities and spending levels more broadly may negatively impact our business and could 65 have a material adverse impact on our business, financial condition and results of operations ” and Part II, Item 7, “ Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Overview and Considerations—Business Environment ” in this Annual Report for further details on U.S. government spending’s impact on our business.
See Part I, Item 1A, “ Risk Factors—Risks Related to Our Business—Significant delays or reductions in appropriations for our programs and changes in U.S. government priorities and spending levels more broadly may negatively impact our business and could have a material adverse impact on our business, financial condition and results of operations ” and Part II, Item 7, “ Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Overview and Considerations—Business Environment ” in this Annual Report for further details on U.S. government spending’s impact on our business.
Such provision differs from the amounts currently payable because certain items of income and expense are recognized in different reporting periods for financial reporting purposes than for income tax purposes. We recognize liabilities for uncertain tax positions when it is more likely than not that a tax position will not be sustained upon examination and settlement with various taxing authorities.
Such provision differs from the amounts currently payable because certain items of income and expense are recognized in different reporting periods for financial reporting purposes than for income tax purposes. 73 We recognize liabilities for uncertain tax positions when it is more likely than not that a tax position will not be sustained upon examination and settlement with various taxing authorities.
The transaction netted an aggregate pretax gain of $31 million ($22 million net of taxes). The aggregate gain of $31 million is included in other operating income (expenses), net offset by tax expense of $9 million. The proceeds generated from the GES and AAC divestitures resulted in a $396 million dividend to US Holding, at that time, our sole shareholder.
The transaction netted an aggregate pretax gain of $31 million ($22 million net of taxes). The aggregate gain of $31 million is included in other operating expenses, net offset by tax expense of $9 million. The proceeds generated from the GES and AAC divestitures resulted in a $396 million dividend to US Holding, at that time, our sole shareholder.
Adjustments to original estimates for a contract's revenue, estimated costs at completion and estimated profit or loss often are required as work progresses under a contract, as experience is gained 66 and as more information is obtained, even though the scope of work required under the contract may not change and are also required if contract modifications occur.
Adjustments to original estimates for a contract's revenue, estimated costs at completion and estimated profit or loss often are required as work progresses under a contract, as experience is gained and as more information is obtained, even though the scope of work required under the contract may not change and are also required if contract modifications occur.
Revenue on fixed-price contracts is generally recognized over time using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying our performance obligations. Incurred costs represent work performed that corresponds with and thereby best depicts the transfer of control to the customer.
Revenue on fixed-price contracts is generally recognized over time using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying our 60 performance obligations. Incurred costs represent work performed that corresponds with and thereby best depicts the transfer of control to the customer.
Liabilities for 76 uncertain tax positions are measured based upon the largest amount of benefit that is greater than 50% likely to be realized upon ultimate settlement. We recognize interest and penalties related to uncertain tax positions in our income tax expense.
Liabilities for uncertain tax positions are measured based upon the largest amount of benefit that is greater than 50% likely to be realized upon ultimate settlement. We recognize interest and penalties related to uncertain tax positions in our income tax expense.
Our backlog position is highlighted by the recent awards received to support the electric power and propulsion system for the Columbia Class production program as well as continued 58 demand in our Force Protection, Network Computing and Advanced sensing programs.
Our backlog position is highlighted by the recent awards received to support the electric power and propulsion system for the Columbia Class production program as well as continued demand in our Force Protection, Network Computing and Advanced Sensing programs.
The transaction netted an aggregate pretax gain net of transaction costs of $309 million ($239 million after tax) of which $323 million, was included in other operating income (expenses), net partially reduced by aggregate transaction costs of $14 million included in general and administrative costs and tax expenses of $70 million.
The transaction netted an aggregate pretax gain net of transaction costs of $309 million ($239 million after tax) of which $323 million, was included in other operating expenses, net partially reduced by aggregate transaction costs of $14 million included in general and administrative costs and tax expenses of $70 million.
At the time of the transaction, RADA 67 shareholders retained approximately 19% ownership in the combined Company with Leonardo DRS’s parent company, Leonardo S.p.A., (MIL: LDO), owning the remaining 81%.
At the time of the transaction, RADA shareholders retained approximately 19% ownership in the combined Company with Leonardo DRS’s parent company, Leonardo S.p.A., (MIL: LDO), owning the remaining 81%.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read this discussion together with our consolidated financial statements and related notes thereto included elsewhere in this Annual Report, as well as Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our annual report on Form 10-K for the year ended December 31, 2022, which provides additional information on comparisons of the year ended December 31, 2022, to the year ended December 31, 2021.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read this discussion together with our consolidated financial statements and related notes thereto included elsewhere in this Annual Report, as well as Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our annual report on Form 10-K for the year ended December 31, 2023, which provides additional information on comparisons of the year ended December 31, 2023, to the year ended December 31, 2022.
Given the nature of our business, we believe revenue and earnings from operations are most relevant to an understanding of our performance at a business and segment level. Our operating cycle is lengthy and involves various types of production 57 contracts and varying delivery schedules. Accordingly, operating results in a particular year may not be indicative of future operating results.
Given the nature of our business, we believe revenue and earnings from operations are most relevant to an understanding of our performance at a business and segment level. Our operating cycle is lengthy and involves various types of production 61 contracts and varying delivery schedules. Accordingly, operating results in a particular year may not be indicative of future operating results.
Continuous improvement, through the APEX program also allows us to improve our efficiency, which we believe contributes to increased margins, helps us to remain competitive and allows us to make 55 strategic investments, all while maintaining our focus on customer satisfaction. In these elements, our goals are aligned with those of our customers.
Continuous improvement, through the APEX program also allows us to improve our efficiency, which we believe contributes to increased margins, helps us to remain competitive and allows us to make 58 strategic investments, all while maintaining our focus on customer satisfaction. In these elements, our goals are aligned with those of our customers.
When adjustments in estimated total costs at completion are determined, the related impact on revenue and operating income are recognized using the cumulative catch-up method, which recognizes in the current period the cumulative effect of such adjustments for all prior periods. Any anticipated losses on these contracts are fully recognized in the period in which the losses become evident.
When adjustments in estimated total costs at completion are determined, the related impact on revenue and operating earnings are recognized using the cumulative catch-up method, which recognizes in the current period the cumulative effect of such adjustments for all prior periods. Any anticipated losses on these contracts are fully recognized in the period in which the losses become evident.
Accounting Standards Updates (ASU) See Note 1: Summary of Significant Accounting Policies to the Consolidated Financial Statements for information regarding accounting standards we adopted in 2023 and other new accounting standards that have been issued by the Financial Accounting Standards Board but are not effective until after December 31, 2023.
Accounting Standards Updates (ASU) See Note 1: Summary of Significant Accounting Policies to the Consolidated Financial Statements for information regarding accounting standards we adopted in 2024 and other new accounting standards that have been issued by the Financial Accounting Standards Board but are not effective until after December 31, 2024.
We also seek to leverage the knowledge and expertise built through our decades of experience to optimize size, weight, power and cost for our customers’ specific mission requirements. 54 Our sensing capabilities are complemented by our rugged, trusted and cyber resilient network computing products.
We also seek to leverage the knowledge and expertise built through our decades of experience to optimize size, weight, power and cost for our customers’ specific mission requirements. 57 Our sensing capabilities are complemented by our rugged, trusted and cyber resilient network computing products.
The Federal Acquisition Regulations (“FAR”) and the defense supplement (“DFARS”), incorporated by reference in U.S. government contracts, provide that internal research and development costs are allowable general and administrative expenses. Unallowable costs, pursuant to the FAR, are excluded from costs accumulated on U.S. government contracts.
The Federal Acquisition Regulation (“FAR”) and the Defense Federal Acquisition Regulation Supplement (“DFARS”), incorporated by reference in U.S. government contracts, provide that internal research and development costs are allowable general and administrative expenses. Unallowable costs, pursuant to the FAR, are excluded from costs accumulated on U.S. government contracts.
Our U.S. government sales are highly concentrated within our DoD customers, which made up the overwhelming majority of our U.S. government revenue for the year ended December 31, 2023, and are principally derived directly or indirectly from contracts with the U.S. Navy and U.S.
Our U.S. government sales are highly concentrated within our DoD customers, which made up the overwhelming majority of our U.S. government revenue for the year ended December 31, 2024, and are principally derived directly or indirectly from contracts with the U.S. Navy and U.S.
General and Administrative Expenses General and administrative expenses include general and administrative expenses not included within cost of revenues such as salaries, wages and fringe benefits, facility costs and other costs related to these indirect functions. Additionally, general and administrative expenses include internal research and development costs as well as expenditures related to bid and proposal efforts.
General and Administrative Expenses General and administrative (“G&A”) expenses include general and administrative expenses not included within cost of revenues such as salaries, wages and fringe benefits, facility costs and other costs related to these indirect functions. Additionally, general and administrative expenses include internal research and development costs as well as expenditures related to bid and proposal efforts.
The increase in new awards is driven by our alignment of customer priorities to combat the emerging threats our service men and women face in today’s environment, driving a book to bill ratio of 1.3 to 1 for the year.
The increase in new awards is driven by our alignment of customer priorities to combat the emerging threats our service men and women face in today’s environment, driving a book to bill ratio of 1.2 to 1 for the year.
The impact of those fluctuations is reflected throughout our Consolidated Financial Statements, but in the aggregate, did not have a material impact on our results of operations for the years ended December 31, 2023, 2022 and 2021.
The impact of those fluctuations is reflected throughout our Consolidated Financial Statements, but in the aggregate, did not have a material impact on our results of operations for the years ended December 31, 2024, 2023 and 2022.
Substantially all of our contracts are accounted for using the over time, percentage of completion 74 cost-to-cost method of accounting as determined by the ratio of cumulative costs incurred to date to estimated total contract costs at completion.
Substantially all of our contracts are accounted for using the over time, percentage of completion cost-to-cost method of accounting as determined by the ratio of cumulative costs incurred to date to 72 estimated total contract costs at completion.
The total purchase consideration for RADA was $511 million and is comprised of Company’s shares issued in exchange for all issued and outstanding common shares of RADA, as well as the portion of replacement stock compensation awards’ fair value attributable to pre-combination services. See Note 2: Business Acquisition for additional information regarding the transaction.
The total purchase consideration for RADA was $511 million and is comprised of Company’s shares issued in exchange for all issued and outstanding common shares of RADA, as well as the portion of replacement stock compensation awards’ fair value attributable to pre-combination services. See Note 2: Business Acquisition to the Consolidated Financial Statements for additional information regarding the transaction.
This was attributed to the increased demand and new awards realized (noted above) which were 1.3x that of the revenue generated during the period, driving an increase in the backlog position.
This was attributed to the increased demand and new awards realized (noted above) which were 1.2x that of the revenue generated during the period, driving an increase in the backlog position.
The following represents the impact that changes in our estimates, particularly those regarding our fixed-price development programs, have had on our revenues for the 2023, 2022 and 2021 periods, respectively: Year Ended December 31, (Dollars in millions) 2023 2022 2021 Revenue $ (23) $ (26) $ (34) Total % of Revenue 1 % 1 % 1 % Regulations Increased audit, review, investigation and general scrutiny by U.S. government agencies of performance under government contracts and compliance with the terms of those contracts and applicable laws could affect our operating results.
The following represents the net impact that changes in our estimates, particularly those regarding our fixed-price development programs, have had on our revenues for the 2024, 2023 and 2022 periods, respectively: Year Ended December 31, (Dollars in millions) 2024 2023 2022 Revenue $ (25) $ (23) $ (26) Total % of revenue 1 % 1 % 1 % Regulations Increased audit, review, investigation and general scrutiny by U.S. government agencies of performance under government contracts and compliance with the terms of those contracts and applicable laws could affect our operating results.
To date, the conflict has not had a material impact to our operations. The U.S. and other western powers have directed military and funding support to Israel. DRS has direct exposure to Israel principally through its RADA operations with approximately 4% of our workforce as of December 31, 2023 residing in Israel.
To date, the conflict has not had a material impact to our operations. The U.S. and other western powers have directed military and funding support to Israel. DRS has direct exposure to Israel principally through its RADA operations with approximately 5% of our workforce as of December 31, 2024 residing in Israel.
The deferred tax assets as of December 31, 2023 and 2022 include $11 million and $18 million, respectively, related to tax benefit carryforwards associated with net operating losses. The increase in the deferred tax asset as compared to the prior year is primarily attributed to the capitalization of R&D expenditures pursuant to Section 174 of the Tax Code.
The deferred tax assets as of December 31, 2024 and 2023 include $7 million and $11 million, respectively, related to tax benefit carryforwards associated with net operating losses. The increase in the deferred tax asset as compared to the prior year is primarily attributed to the capitalization of R&D expenditures pursuant to Section 174 of the Tax Code.
Results from Operations The following discussion of operating results is intended to help the reader understand the results of operations and financial condition of the Company, as well as individual segments, for the year ended December 31, 2023 as compared to the year ended December 31, 2022, and for the year ended December 31, 2022 compared to December 31, 2021.
Results of Operations The following discussion of operating results is intended to help the reader understand the results of operations and financial condition of the Company, as well as individual segments, for the year ended December 31, 2024 as compared to the year ended December 31, 2023, and for the year ended December 31, 2023 compared to December 31, 2022.
Army, which represented 38% and 31%, respectively, of our total revenues for the year ended December 31, 2023 and 32% and 37%, respectively, for the year ended December 31, 2022.
Army, which represented 37% and 32%, respectively, of our total revenues for the year ended December 31, 2024 and 38% and 31%, respectively, for the year ended December 31, 2023.
The DoD is our largest customer and, for the years ended December 31, 2023 and 2022, accounted for approximately 80% and 84%, respectively, of our business as an end-user, with revenues principally derived directly or indirectly from contracts with the U.S. Navy and U.S.
The DoD is our largest customer and, for the years ended December 31, 2024 and 2023, accounted for approximately 79% and 80%, respectively, of our business as an end-user, with revenues principally derived directly or indirectly from contracts with the U.S. Navy and U.S.
Army, which represented 38% and 31%, respectively, of our total revenues for the year ended December 31, 2023. Therefore, our revenue is highly correlated to changes in U.S. government spending levels, especially within the DoD. The DoD budget is the largest defense budget in the world. In March 2023, the U.S.
Army, which represented 37% and 32%, respectively, of our total revenues for the year ended December 31, 2024. Therefore, our revenue is highly correlated to changes in U.S. government spending levels, especially within the DoD. The DoD budget is the largest defense budget in the world. In March 2024, the U.S.
Under flexibly priced contracts, which consists of 16%,13% and 13% of our total revenues for December 31, 2023, 2022 and 2021, respectively, we are reimbursed for allowable or otherwise defined 68 total costs (defined as cost of revenues plus allowable general and administrative expenses) incurred, plus a fee.
Under flexibly priced contracts, which consisted of 16%, 16% and 13% of our total revenues for December 31, 2024, 2023 and 2022, respectively, we are reimbursed for allowable or otherwise defined total costs (defined as cost of revenues plus allowable general and administrative expenses) incurred, plus a fee.
We believe the following critical accounting policies contain the more significant judgments and estimates used in the preparation of our Consolidated Financial Statements: • Revenue Recognition and Contract Estimates • Reviews for Impairment of Goodwill • Pension Assumptions • Business Combinations • Income Taxes Revenue Recognition on Contracts and Contract Estimates We recognize revenue from contracts with customers using the five-step model prescribed in ASC 606.
We believe the following critical accounting policies contain the more significant judgments and estimates used in the preparation of our Consolidated Financial Statements: • Revenue Recognition and Contract Estimates • Business Combinations • Income Taxes Revenue Recognition on Contracts and Contract Estimates We recognize revenue from contracts with customers using the five-step model prescribed in ASC 606.
Revenue for flexibly priced contracts are generally recognized as services are performed and are contractually billable. Please refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” and Note 3: Revenue from Contracts with Customers in the Notes to our Consolidated Financial Statements.
Revenue for flexibly priced contracts are generally recognized as services are performed and are contractually billable. Refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” and Note 3: Revenue from Contracts with Customers to the Consolidated Financial Statements for additional information.
International Sales International revenue, including foreign military sales, foreign military financing, and direct commercial sales, accounted for approximately 10%, 7% and 5% of our revenue for the years ended December 31, 2023, 2022 and 2021, respectively.
International Sales International revenue, including foreign military sales, foreign military financing, and direct commercial sales, accounted for approximately 13%, 10% and 7% of our revenue for the years ended December 31, 2024, 2023 and 2022, respectively.
The ensuing and ongoing conflict has the potential to evolve quickly creating uncertainty in the broader Middle East region, along with the potential for disruptions to our Israeli operations in the region, including but not limited to workforce calls for duty, transportation and other logistical impacts and reduced customer confidence.
The ongoing conflicts in Israel and the broader Middle East region have the potential to evolve quickly creating uncertainty, along with the potential for disruptions to our Israeli operations in the region, including, but not limited to, workforce calls for duty, transportation and other logistical impacts and reduced customer confidence.
As of December 31, 2023 and 2022, we had gross deferred tax assets of $258 million and $208 million, respectively, and deferred tax asset valuation allowances of $21 million and $17 million, respectively. The deferred tax assets principally relate to capitalized R&D, benefit accruals, inventory obsolescence, tax benefit carryforwards and contract reserves.
As of December 31, 2024 and 2023, we had gross deferred tax assets of $297 million and $258 million, respectively, and deferred tax asset valuation allowances of $25 million and $21 million, respectively. The deferred tax assets principally relate to capitalized R&D, benefit accruals, inventory obsolescence, tax benefit carryforwards and contract reserves.
We are humbled by the dedication and sacrifice that our ultimate customers have made to serve and we work to perform for them with excellence in everything we do. Global Events and Business Impacts Global Conflicts In February 2022, Russia escalated its war with Ukraine by invading and occupying parts of that country.
We are humbled by the dedication and sacrifice that our ultimate customers have made to serve and we work to perform for them with excellence in everything we do. Global Events and Business Impacts Global Conflicts In February 2022, Russia invaded and began occupying parts of Ukraine.
The increase is due in part to incremental demand resulting from higher defense spending within Eastern Europe, compounded by continued military aid programs in support of Ukraine in its conflict with Russia. These efforts are highlighted by demand for our battle management and C-UAS products.
The increase is due in part to incremental demand resulting from higher defense spending within Eastern Europe, compounded by continued military aid programs in support of Ukraine in its conflict with Russia. These efforts are highlighted by demand for our battle management, weapon sights and tactical radar solutions.
GES, which was part of the ASC segment, provides commercial satellite communications to the U.S. government and delivers satellite communications and security solutions to customers worldwide. The Company recorded operating income for the GES business of $13 million and $29 million for the years ended December 31, 2022 and 2021, respectively.
GES, which was part of the ASC segment, provides commercial satellite communications to the U.S. government and delivers satellite communications and security solutions to customers worldwide. The Company recorded operating earnings for the GES business of $13 million for the year ended December 31, 2022.
For contracts accounted for in this way, our reported revenues may contain amounts which we have not billed to customers if we have incurred costs, and recognized related profits, in excess of billed progress or performance based payments. Under U.S.
For contracts accounted for in this way, our reported revenues may contain amounts which we have not billed to customers if we have incurred costs, and recognized related profits, in excess of billed progress or performance based payments. Under U.S. GAAP, contract costs are charged to work in progress inventory and are expensed as revenues are recognized.
The new awards are highlighted by the receipt of awards totaling approximately $490 million for new Columbia Class funding, approximately $300 million of additional naval power awards outside of the Columbia Class programs and over $170 million of short-range air defense and C-UAS programs during the period.
The new awards are highlighted by the receipt of awards totaling approximately $520 million for new Columbia Class funding, approximately $500 million of additional naval power awards outside of the Columbia Class programs and approximately $210 million of short-range air defense and C-UAS programs during the period.
The significance of these impacts will primarily be based on the length of the CR or shutdown. 56 Operating Performance Assessment and Reporting For the majority of our contracts, revenues are recognized using the over time, percentage of completion cost-to-cost method of accounting, with revenue recognized based on the ratio of cumulative costs incurred to date to estimated total contract costs at completion.
Operating Performance Assessment and Reporting For the majority of our contracts, revenues are recognized using the over time, percentage of completion cost-to-cost method of accounting, with revenue recognized based on the ratio of cumulative costs incurred to date to estimated total contract costs at completion.
Our cash balance as of December 31, 2023 was $467 million compared to $306 million as of December 31, 2022.
Our cash balance as of December 31, 2024 was $598 million compared to $467 million as of December 31, 2023.
IMS Revenue IMS revenue increased by $38 million, or 3.9%, from $983 million for the year ended December 31, 2022 to $1,021 million for the year ended December 31, 2023. The increase is attributed primarily to our increased output within our electric power and propulsion programs with the Navy’s premier submarine initiative, the Columbia Class submarine.
IMS Revenue IMS revenue increased by $117 million, or 11.5%, from $1,021 million for the year ended December 31, 2023 to $1,138 million for the year ended December 31, 2024. The increase is attributed primarily to our increased output within our electric power and propulsion programs with the U.S. Navy’s premier submarine initiative, the Columbia Class submarine.
The remaining revenue is generated from service-related contracts. Additionally, 84%, 87% and 87% of our revenue generation for December 31, 2023, 2022 and 2021, respectively, is derived from firm-fixed priced contracts. For a firm-fixed price contract, customers agree to pay a fixed amount, negotiated in advance, for a specified scope of work.
Additionally, 84%, 84% and 87% of our revenue for December 31, 2024, 2023 and 2022, respectively, was derived from firm-fixed price contracts. For a firm-fixed price contract, customers agree to pay a fixed amount, negotiated in advance, for a specified scope of work.
President’s fiscal year (“FY”) 2024 budget request was released and included $842 billion for national defense programs, which marks a 3% increase over prior year levels. Following that, the FY 2024 National Defense Authorization Act (“NDAA”) was passed by Congress late in 2023 and signed into law by the President in December 2023.
President’s fiscal year (“FY”) 2025 budget request was released and included $850 billion in base funding for national defense programs, which is largely flat over prior year levels. Following that, the FY 2025 National Defense Authorization Act (“NDAA”) was passed by Congress late in 2024 and signed into law by the President in December 2024.
Bookings For the year ended December 31, 2023, we generated bookings of $3,516 million, an 11.4% increase over the $3,156 million realized during the year ended December 31, 2022. The bookings increase is attributed to increased customer demand across both of our segments with our IMS and ASC segments realizing bookings growth of 2.4% and 16.8%, respectively.
For the year ended December 31, 2024, we generated bookings of $4,077 million, a 16.0% increase over the $3,516 million realized during the year ended December 31, 2023. The bookings increase is attributed to increased customer demand across both of our segments with our IMS and ASC segments realizing bookings growth of 21.4% and 13.1%, respectively.
Bookings Bookings for the year ended December 31, 2023 were $1,209 million, an increase of $28 million as compared to the year ended December 31, 2022, driving a book to bill ratio of 1.2 to 1.
Bookings Bookings for the year ended December 31, 2024 were $1,468 million, an increase of $259 million as compared to the year ended December 31, 2023, driving a book to bill ratio of 1.3 to 1.
Revenue from contracts with customers is recognized when the performance obligations are satisfied through the transfer of control over the good or service to the customer, which may occur either over time or at a point in time.
Revenue from contracts with customers is recognized when the performance obligations are satisfied through the transfer of control over the good or service to the customer, which may occur either over time or at a point in time. 66 Revenues for the majority of our contracts are measured using the over time, percentage of completion cost-to-cost method of accounting to calculate percentage of completion.
Review of Operating Segments The following is a discussion of operating results for each of our operating segments. We have elected to use revenue, adjusted EBITDA, adjusted EBITDA margin, bookings and backlog to provide 69 detailed information on our segment performance. Additional information regarding our segments can be found in Note 19: Segment Information within the Consolidated Financial Statements.
We have elected to use revenue, operating earnings, operating margin, bookings and backlog to provide detailed information on our segment performance. Additional information regarding our segments can be found in Note 19: Segment Information within the Consolidated Financial Statements.
Cost of Revenues Cost of revenues increased $60 million, or 2.8%, from $2,118 million to $2,178 million for the year ended December 31, 2023, due to the 4.9% increase in revenue as described above.
Cost of Revenues Cost of revenues increased $320 million, or 14.7%, from $2,178 million to $2,498 million for the year ended December 31, 2024, due to the 14.4% increase in revenue as described above.
The NDAA authorizes $842 billion in defense spending, including increases in procurement, research, development, testing and engineering, as well as military assistance to Ukraine. To prevent a government shutdown at the end of fiscal year 2023, Congress passed three Continuing Resolutions (“CRs”) to fund the government. The President signed the most recent CR into law on January 19, 2024.
The NDAA authorizes $850 billion in defense spending, including increases in procurement, research, development, testing and engineering. To prevent a government shutdown at the end of fiscal year 2024, Congress passed two Continuing Resolutions (“CRs”) to fund the government. The most recent CR was passed into law on December 21, 2024.
Our backlog of $7.8 billion at December 31, 2023 represents a diversified, balanced portfolio supported by foundational programs strongly aligned in areas of, in our view, growing importance within the DoD budget priorities.
Embedded in the record backlog is a diversified, balanced portfolio supported by foundational programs strongly aligned in areas of, in our view, growing importance within the DoD budget priorities.
Year Ended December 31, 2023 vs. 2022 Variance 2022 vs. 2021 Variance (Dollars in millions, except per share amounts) 2023 2022 2021 $ % $ % Total revenues $ 2,826 $ 2,693 $ 2,879 $ 133 4.9 % $ (186) (6.5) % Total cost of revenues (2,178) (2,118) (2,332) (60) 2.8 % 214 (9.2) % Gross profit $ 648 $ 575 $ 547 $ 73 12.7 % $ 28 5.1 % Gross margin 22.9 % 21.4 % 19.0 % 150 bps 240 bps General and administrative expenses (384) (357) (293) (27) 7.6 % (64) 21.8 % Amortization of intangibles (22) (10) (9) (12) 120.0 % (1) 11.1 % Other operating (expenses) income, net (11) 353 (9) (364) (103.1) % 362 (4022.2) % Operating earnings $ 231 $ 561 $ 236 $ (330) (58.8) % $ 325 137.7 % Interest expense (36) (34) (35) (2) 5.9 % 1 (2.9) % Other, net (3) (2) (1) (1) 50.0 % (1) 100.0 % Earnings before taxes $ 192 $ 525 $ 200 $ (333) (63.4) % $ 325 162.5 % Income tax provision 24 120 46 (96) (80.0) % 74 160.9 % Net earnings $ 168 $ 405 $ 154 $ (237) (58.5) % $ 251 163.0 % Basic EPS (1) $ 0.64 $ 1.88 $ 0.73 $ (1.24) (66.0) % $ 1.15 157.5 % Diluted EPS (1) $ 0.64 $ 1.88 $ 0.73 $ (1.24) (66.0) % $ 1.15 157.5 % Backlog (2) $ 7,751 $ 4,269 $ 2,861 $ 3,482 81.6 % $ 1,408 49.2 % Bookings (2) $ 3,516 $ 3,156 $ 2,595 $ 360 11.4 % $ 561 21.6 % ______________ (1) Gives effect to a 1,450,000-for-1 forward stock split on our common stock effected on February 25, 2021 and a 1.451345331-for-1 forward stock split on our common stock effected November 23, 2022.
Year Ended December 31, 2024 vs. 2023 Change 2023 vs. 2022 Change (Dollars in millions, except per share amounts) 2024 2023 2022 $ % $ % Revenues $ 3,234 $ 2,826 $ 2,693 $ 408 14.4 % $ 133 4.9 % Cost of revenues (2,498) (2,178) (2,118) (320) 14.7 % (60) 2.8 % Gross profit $ 736 $ 648 $ 575 $ 88 13.6 % $ 73 12.7 % Gross margin 22.8 % 22.9 % 21.4 % (10) bps 150 bps General and administrative expenses (414) (384) (357) (30) 7.8 % (27) 7.6 % Amortization of intangibles (22) (22) (10) — — % (12) 120.0 % Other operating (expenses) income, net (7) (11) 353 4 (36.4) % (364) (103.1) % Operating earnings $ 293 $ 231 $ 561 $ 62 26.8 % $ (330) (58.8) % Interest expense (21) (36) (34) 15 (41.7) % (2) 5.9 % Other, net (8) (3) (2) (5) 166.7 % (1) 50.0 % Earnings before taxes $ 264 $ 192 $ 525 $ 72 37.5 % $ (333) (63.4) % Income tax provision 51 24 120 27 112.5 % (96) (80.0) % Net earnings $ 213 $ 168 $ 405 $ 45 26.8 % $ (237) (58.5) % Basic EPS (1) $ 0.81 $ 0.64 $ 1.88 $ 0.17 26.6 % $ (1.24) (66.0) % Diluted EPS (1) $ 0.80 $ 0.64 $ 1.88 $ 0.16 25.0 % $ (1.24) (66.0) % Backlog (2) $ 8,509 $ 7,751 $ 4,269 $ 758 9.8 % $ 3,482 81.6 % Bookings (2) $ 4,077 $ 3,516 $ 3,156 $ 561 16.0 % $ 360 11.4 % ______________ (1) Gives effect to a 1.451345331-for-1 forward stock split on our common stock effected November 23, 2022.
This was offset in part by increased G&A expenditures driven by allocated public company costs and increased IR&D investments during the period. 70 Bookings ASC’s bookings increased by $332 million, or 16.8%, from $1,975 million for the year ended December 31, 2022 to $2,307 million for the year ended December 31, 2023.
This was offset in part by increased G&A expenditures and increased IR&D investments during the period. 69 Bookings ASC’s bookings increased by $302 million, or 13.1%, from $2,307 million for the year ended December 31, 2023 to $2,609 million for the year ended December 31, 2024.
Revenue and profit in future periods of contract performance are recognized using the adjusted estimate. The aggregate impact of adjustments in contract estimates that negatively impacted our revenue and profit totals are $23 million, $26 million, and $34 million for 2023, 2022, and 2021, respectively. The changes in estimates are primarily attributed to changes in our firm-fixed-priced development type programs.
Revenue and profit in future periods of contract performance are recognized using the adjusted estimate. The aggregate net impact of adjustments in contract estimates that negatively impacted our revenue and profit totals were $25 million, $23 million, and $26 million for 2024, 2023, and 2022, respectively.
In addition to our cash position, we use various financial measures to assist in capital deployment decision-making, including cash provided by operating activities and free cash flow, a non-GAAP measure described in more detail below.
In addition to our cash position, we use various financial measures to assist in capital deployment decision-making, including cash provided by operating activities.
The new measure creates extensions effective through March 1, 2024, for four appropriations bills and March 8, 2024, for the remaining eight appropriations bills, allowing lawmakers more time to potentially complete the fiscal year 2024 appropriations bills.
The new measure creates extensions effective through March 14, 2025, allowing lawmakers more time to potentially complete the fiscal year 2025 appropriations bills.
Earnings Before Taxes Earnings before taxes decreased by $333 million to $192 million for the year ended December 31, 2023, from $525 million for the year ended December 31, 2022.
Earnings Before Taxes Earnings before taxes increased by $72 million to $264 million for the year ended December 31, 2024, from $192 million for the year ended December 31, 2023.
At this time, it is unclear whether supplemental funding for Israel will impact demand for DRS products. Business Environment Revenues derived directly, as a prime contractor, or indirectly, as a subcontractor, from contracts with the U.S. government represented 80%, 84% and 86% of our total revenues for the years ended December 31, 2023, 2022 and 2021, respectively.
Business Environment Revenues derived directly, as a prime contractor, or indirectly, as a subcontractor, from contracts with the U.S. government represented 79%, 80% and 84% of our total revenues for the years ended December 31, 2024, 2023 and 2022, respectively.
Liquidity and Capital Resources We endeavor to ensure the most efficient conversion of operating income into cash for deployment in our business and to maximize stockholder value through cash deployment activities.
The backlog increase is largely attributed to awards received on surface ship programs within our power and propulsion line of business. 70 Liquidity and Capital Resources We endeavor to ensure the most efficient conversion of operating income into cash for deployment in our business and to maximize stockholder value through cash deployment activities.
Due to the long-term nature of many of our contracts, developing the estimated total cost at completion often requires judgment. Factors that must be considered in estimating the cost of the work to be completed include the nature and complexity of the work to be performed, subcontractor performance and the risk and impact of delayed performance.
Factors that must be considered in estimating the cost of the work to be completed include the nature and complexity of the work to be performed, subcontractor performance and the risk and impact of delayed performance.
General and Administrative Expenses General and administrative (“G&A”) expenses increased by $27 million, or 7.6%, from $357 million for the year ended December 31, 2022, to $384 million for the year ended December 31, 2023.
General and Administrative Expenses G&A expenses increased by $30 million, or 7.8%, from $384 million for the year ended December 31, 2023, to $414 million for the year ended December 31, 2024.
The following table summarizes our cash flows for the periods presented: Year ended December 31, (Dollars in millions) 2023 2022 2021 Net cash provided by operating activities $ 205 $ 33 $ 178 Net cash (used in) provided by investing activities (59) 436 39 Net cash provided by (used in) financing activities 15 (403) (38) Effect of exchange rate changes on cash and cash equivalents — — — Net increase in cash and cash equivalents $ 161 $ 66 $ 179 Free cash flow (1) $ 159 $ 74 $ 122 ________________ (1) Free cash flow is a Non-GAAP measure.
The following table summarizes our cash flows for the periods presented: Year ended December 31, (Dollars in millions) 2024 2023 2022 Net cash provided by operating activities $ 271 $ 205 $ 33 Net cash (used in) provided by investing activities (84) (59) 436 Net cash (used in) provided by financing activities (56) 15 (403) Effect of exchange rate changes on cash and cash equivalents — — — Net increase in cash and cash equivalents $ 131 $ 161 $ 66 Year Ended December 31, 2024, Compared to the Year Ended December 31, 2023 Operating Activities We generated cash from operating activities of $271 million for the year ended December 31, 2024, as compared to $205 million for the year ended December 31, 2023.
Backlog Backlog increased by $2,948 million, or 122.8%, to $5,349 million for the year ended December 31, 2023 from $2,401 million for the year ended December 31, 2022.
Backlog Backlog increased by $168 million, or 3.1%, to $5,517 million for the year ended December 31, 2024 from $5,349 million for the year ended December 31, 2023.
We remain subject to the spending levels, pace and priorities of the U.S. government as well as international governments and commercial customers, and to general economic conditions that could adversely affect us, our customers and our suppliers.
We remain subject to the spending levels, pace and priorities of the U.S. government as well as international governments and commercial customers, and to general economic conditions that could adversely affect us, our customers and our suppliers. 67 Additionally, some international sales may expose us to foreign exchange fluctuations and changing dynamics of foreign competitiveness based on variations in the value of the U.S. dollar relative to other currencies.
Other Operating (Expenses) Income, Net Other operating (expenses) income, net decreased from an income of $353 million for the year ended December 31, 2022 to an expense of $11 million for the year ended December 31, 2023.
Amortization of Intangibles Amortization of intangibles for the year ended December 31, 2024 of $22 million remained consistent with the year ended December 31, 2023. Other Operating (Expenses) Income, Net Other operating expenses, net decreased $4 million from $11 million for the year ended December 31, 2023 to $7 million for the year ended December 31, 2024.
T&M contracts provide for reimbursement of labor hours expended at a contractual fixed labor rate per hour, plus the actual costs of material and other direct non-labor costs. The fixed labor rates on T&M contracts include amounts for the cost of direct labor, indirect contract costs and profit.
The fixed labor rates on T&M contracts include amounts for the cost of direct labor, indirect contract costs and profit.
Furthermore, any disruption in the functioning of government agencies, including as a result of government closures and shutdowns, could have a negative impact on our operations and cause us to lose revenue or incur additional costs due to, among other things, our inability to maintain access and schedules for government testing or deploy our staff to customer locations or facilities as a result of such disruptions.
Furthermore, any disruption in the functioning of government agencies, including as a result of government closures and shutdowns, could have a negative impact on our operations and cause us to lose revenue or incur additional costs due to, among other things, our inability to maintain access and schedules for government testing or deploy our staff to customer locations or facilities as a result of such disruptions. 65 There is also uncertainty around the timing, extent, nature and effect of Congressional and other U.S. government actions to address budgetary constraints, caps on the discretionary budget for defense and non-defense departments and agencies, and the ability of Congress to determine how to allocate the available budget authority and pass appropriations bills to fund both U.S. government departments and agencies that are, and those that are not, subject to the caps.
Despite the improved program performance, however we did realize adjustments on cost at completion estimates which negatively impacted earnings with charges totaling 1% of revenue for the year ended December 31, 2023, consistent with the prior year (see Note 3: Revenue from Contracts with Customers for further detail).
The increase was further impacted by realized adjustments on cost at completion estimates which negatively impacted earnings with net charges totaling approximately 1% of revenue for the year ended December 31, 2024, relatively consistent with the prior year (see Note 3: Revenue from Contracts with Customers to the Consolidated Financial Statements for further detail), which includes the aforementioned ground vehicle surveillance program noted above.
See operating activities discussion above for further detail. 73 Material Cash Requirements As of December 31, 2023, our material cash requirements were as follows: (Dollars in millions) Total Due Within 1 Year Loans from banks (1) 267 26 Operating leases 97 25 Finance leases and other (2) 228 21 Post-retirement obligations (3) 136 14 Purchase commitments (4) 1,276 885 Total $ 2,004 $ 971 ________________ (1) Includes scheduled interest payments.
Material Cash Requirements As of December 31, 2024, our material cash requirements were as follows: (Dollars in millions) Total Due Within 1 Year Loans from banks (1) 264 23 Operating leases 101 25 Finance leases and other (2) 241 19 Post-retirement obligations (3) 112 12 Purchase commitments (4) 1,293 916 Total $ 2,011 $ 995 ________________ (1) Includes scheduled interest payments.
Adjusted EBITDA and Adjusted EBITDA Margin In total, IMS’s adjusted EBITDA decreased by $10 million, or 8.4%, from $119 million for the year ended December 31, 2022 to $109 million for the year ended December 31, 2023, despite the increased revenue output noted above.
Operating Earnings and Operating Margin In total, IMS’s operating earnings increased by $25 million, or 27.2%, from $92 million for the year ended December 31, 2023 to $117 million for the year ended December 31, 2024, driven by the increased revenue output noted above.
The bookings increase was most notable in our airborne and ground vehicle sensing programs as well as naval and ground tactical computing and network programs within our ASC segment. The growth in the IMS segment is attributed to our Columbia Class efforts. These increases were offset in part by lower new awards received on certain short-range air defense programs.
The bookings increase was most notable in our airborne and naval sensing programs as well as naval and ground tactical computing and network programs within our ASC segment. The growth in the IMS segment is attributed to our Columbia Class efforts along with increased demand for surface ship power solutions.
Off-Balance Sheet Arrangements As of December 31, 2023 and 2022, we had no significant off-balance sheet arrangements. Critical Accounting Policies and Estimates The following is not intended to be a comprehensive list of all of our accounting policies. Our significant accounting policies are more fully described in Note 1: Summary of Significant Accounting Policies to the Consolidated Financial Statements.
(4) Purchase commitments include open purchase orders with vendors for which the Company is contractually obligated. Off-Balance Sheet Arrangements As of December 31, 2024 and 2023, we had no significant off-balance sheet arrangements. Critical Accounting Policies and Estimates The following is not intended to be a comprehensive list of all of our accounting policies.
The accounting treatment of a particular transaction is dictated by accounting principles generally accepted in the United States of America. Other areas require management's judgment to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and costs and expenses during the reporting period.
Other areas require management's judgment to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and costs and expenses during the reporting period. Ultimately, actual amounts may differ from these estimates.
Revenue For the year ended December 31, 2023, revenue increased by $133 million, or 4.9%, to $2,826 million from $2,693 million for year ended December 31, 2022. The revenue increase in 2023 was attributed to increased customer demand across our portfolio.
Revenue For the year ended December 31, 2024, revenue increased by $408 million, or 14.4%, to $3,234 million from $2,826 million for year ended December 31, 2023. The revenue increase in 2024 was attributed to increased customer demand across our portfolio, including our increased revenue contribution from international customers as well as a stabilized supply chain enabling more efficient execution.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeInflation Risk We have experienced inflationary pressures to our supply chain costs, including those associated with micro-electronics, commodities (e.g., metals), and others. These costs have impacted our profitability. Bids for longer-term firm-fixed price contracts typically include assumptions for labor and other cost escalations in amounts that have been sufficient to cover cost increases over the period of performance.
Biggest changeBids for longer-term firm-fixed price contracts typically include assumptions for labor and other cost escalations in amounts that have been sufficient to cover cost increases over the period of 74 performance. However, these costs could rise further and may not be mitigated. As a result, they could affect our financial results negatively in the future. 75
A 0.5% increase or decrease in our weighted average interest rate on our variable debt outstanding as of December 31, 2023, would result in an increase or decrease in our annual interest expense of approximately $1 million. The carrying value of the Company’s borrowings under the 2022 Credit Agreement approximate their fair values at December 31, 2023.
A 0.5% increase or decrease in our weighted average interest rate on our variable debt outstanding as of December 31, 2024, would result in an increase or decrease in our annual interest expense of approximately $1 million. The carrying value of the Company’s borrowings under the 2022 Credit Agreement approximate their fair values at December 31, 2024.
Fluctuations are unlikely and would have limited impact on the financial statements of the Company. Interest Rate Risk We are exposed to interest rate risk on variable-rate borrowings under our 2022 Term Loan A, which had an outstanding balance of $214 million, and our revolving credit facilities, which had no amounts outstanding as of December 31, 2023.
Fluctuations are unlikely and would have limited impact on the financial statements of the Company. Interest Rate Risk We are exposed to interest rate risk on variable-rate borrowings under our 2022 Term Loan A, which had an outstanding balance of $203 million, and our revolving credit facilities, which had no amounts outstanding as of December 31, 2024.
See Note 13: Debt for additional information. Foreign Currency Risk In certain circumstances, we may be exposed to foreign currency risk. However, as the overwhelming majority of our revenue is derived from U.S. sources directly as a prime contractor or indirectly as a subcontractor for the U.S. government as end-customer, we have limited foreign currency exposure.
However, as the overwhelming majority of our revenue is derived from U.S. sources directly as a prime contractor or indirectly as a subcontractor for the U.S. government as end-customer, we have limited foreign currency exposure. Currently our exposure is primarily with the Canadian dollar and limited to receivables owed of $27 million as of December 31, 2024.
Currently our exposure is primarily with the Canadian dollar and limited to receivables owed of $31 million as of December 31, 2023. A 10% fluctuation in exchange rates would not have a material impact on our financial statements. We do not enter into or issue derivative instruments for trading purposes.
A 10% fluctuation in exchange rates would not have a material impact on our financial statements. We do not enter into or issue derivative instruments for trading purposes. Inflation Risk We have experienced inflationary pressures to our supply chain costs, including those associated with micro-electronics, commodities (e.g., metals), and others. These costs have impacted our profitability.
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However, these costs could rise further and may not be mitigated. As a result, they could affect our financial results negatively in the future. 77
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See Note 13: Debt to the Consolidated Financial Statements for additional information. Foreign Currency Risk In certain circumstances, we may be exposed to foreign currency risk.

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