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What changed in Leonardo DRS, Inc.'s 10-K — 2024 vs 2025

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Paragraph-level year-over-year comparison of Leonardo DRS, Inc.'s 2024 and 2025 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 2025 report.

+431 added−445 removedSource: 10-K (2026-02-27) vs 10-K (2025-03-03)

Top changes in Leonardo DRS, Inc.'s 2025 10-K

431 paragraphs added · 445 removed · 356 edited across 10 sections

Item 1. Business

Business — how the company describes what it does

52 edited+19 added−15 removed42 unchanged
Biggest changeMaterials, Manufacturing and Suppliers Our manufacturing processes for our products include the assembly of purchased components and subsystems and testing of products at various stages in the assembly process. Although materials and purchased components generally are available from a number of different suppliers, several suppliers serve as the sole source of certain components.
Biggest changeOur funded backlog as of the dates presented was as follows: December 31, (Dollars in millions) 2025 2024 2023 Funded backlog $ 4,643 $ 4,177 $ 3,397 Materials, Manufacturing and Suppliers Our manufacturing processes for our products include the assembly of purchased components and subsystems and testing of products at various stages in the assembly process.
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.
Contracts As a mid-tier defense technology 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.
Various factors can affect the distribution of our revenues, profits and cash flows between accounting periods, including the U.S. federal government’s budget cycle based on its October-to-September fiscal year (which can lead to customers making orders in the weeks and days leading up to September 30 to avoid the loss of expiring and unobligated funds), the timing of government awards, the availability of government funding, the timing of costs incurred (including when materials are received), product deliveries and customer acceptance.
Various factors can affect the distribution of our revenues, profits and cash flows between accounting periods, including the U.S. federal government’s budget cycle based on its October 1 to September 30 fiscal year (which can lead to customers making orders in the weeks and days leading up to September 30 to avoid the loss of expiring and unobligated funds), the timing of government awards, the availability of government funding, the timing of costs incurred (including when materials are received), product deliveries and customer acceptance.
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.
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.
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.
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.
Research and Development We conduct research and development (“R&D”) activities using our own funds (referred to as company-funded R&D or independent research and development (“IR&D”)) and under contractual arrangements with our customers (referred to as customer-funded R&D) to enhance existing products and services and to develop future technologies.
Research and Development We conduct research and development (“R&D”) activities using our own funds (referred to as company-funded independent research and development (“IR&D”)) and under contractual arrangements with our customers (referred to as customer-funded R&D) to enhance existing products and services and to develop future technologies.
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.
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.
See Part I Item 1A, “ Risk Factors—Risks Relating to Our Business—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.
See Part I Item 1A, “ Risk Factors—Risks Relating to Our Business—We are subject to a number of procurement, international trade, and other rules, regulations and requirements related to our industry, our products, 7 and the businesses we operate.
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.
Department of the Treasury, DoW, 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.
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 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.
Organized into five business Sectors, Leonardo S.p.A. has a significant industrial presence in Italy, the United Kingdom, Germany, Poland, Switzerland and the USA, where it operates through subsidiaries, joint ventures and partnerships, including GIE ATR, MBDA, Telespazio, Thales Alenia Space, and Hensoldt AG.
Organized into five business Sectors, Leonardo S.p.A. has a significant industrial presence in Italy, the United Kingdom, Germany, Poland, Switzerland and the USA, where it operates through subsidiaries, joint ventures and associates, including GIE ATR, MBDA, Telespazio, Thales Alenia Space, and Hensoldt AG.
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”).
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 2024. Available Information We file reports and other information with the Securities and Exchange Commission (“SEC”).
In addition, in some cases the US government is empowered to unilaterally use, or allow our competitors to use, patented technologies, subject only to the obligation to pay reasonable compensation. Human Capital Our performance depends on the skills, expertise, education and experience of our workforce.
In addition, in some cases the U.S. government is empowered to unilaterally use, or allow our competitors to use, patented technologies, subject only to the obligation to pay reasonable compensation. Human Capital Our performance depends on the skills, expertise, education and experience of our workforce.
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.
We estimate variable consideration as the most likely amount to which we expect to be entitled. • T&M 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.
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.
Governance Structure As a U.S. defense contractor with high level personnel and facility security clearances, DRS, our immediate majority stockholder, US Holding, and our indirect majority stockholder, Leonardo S.p.A,. have entered into an amended and restated proxy agreement with the DoW 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.
The proxy agreement requires that DRS have the financial and operational ability to operate as an independent entity under an independent Board, subject to certain limited, enumerated consent rights of the majority stockholder (including material mergers and acquisitions and incurrence of debt).
The amended and restated proxy agreement requires that DRS have the financial and operational ability to operate as an independent entity under an independent Board of Directors (“Board”), subject to certain limited, enumerated consent rights of the majority stockholder (including material mergers and acquisitions and incurrence of debt).
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.
Leonardo S.p.A. competes internationally by leveraging its areas of technological and product leadership (Helicopters, Defense Electronics & Security, Cyber & Security Solutions, Aeronautics and Space). Listed on the Milan Stock Exchange (under the trading symbol “LDO”), in 2024 Leonardo S.p.A. recorded consolidated revenues of €17.8 billion and invested €2.5 billion in R&D.
ITEM 1. BUSINESS Overview Leonardo DRS, Inc. provides advanced defense technology to U.S. national security customers and allies around the world. We specialize in the design, development and manufacture of advanced sensing, network computing, force protection and electric power and propulsion technologies and solutions.
ITEM 1. BUSINESS Overview Leonardo DRS, Inc. provides advanced defense technology to U.S. national security customers and allied defense forces worldwide. We specialize in the design, development, manufacture, and integration of advanced sensing, network computing, force protection, and electric power and propulsion technologies and solutions.
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.
As of December 31, 2025, our workforce included approximately 7,300 employees of which approximately 500 (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.
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.
The amount of our revenues attributable to our contracts by contract type during the periods presented were as follows: Year Ended December 31, (Dollars in millions) 2025 2024 2023 Firm-fixed price $ 3,205 $ 2,710 $ 2,373 Flexibly priced (1) 443 524 453 ______________ (1) Includes revenue derived from cost-type and time-and-materials contracts.
See Part I Item 1A, “ Risk Factors—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.
See Part I Item 1A, “ Risk Factors—Risks Relating to Our Ownership and Status under the Amended and Restated Proxy Agreement — We operate under an amended and restated proxy agreement with the DoW that regulates significant areas of our governance.
Our sensing capabilities are complemented by our rugged, trusted and cyber resilient network computing products. Our network computing offerings are utilized across a broad range of mission applications including platform computing on ground and shipboard (both surface ship and submarine) for advanced battle management, combat systems, radar, command and control (“C2”), tactical networks, tactical computing and communications.
Our network computing offerings are utilized across a broad range of mission applications including platform computing on ground and shipboard (both surface ship and submarine) for advanced battle management, combat systems, radar, command and control (“C2”), tactical networks, tactical computing and communications.
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.
For 2025, our revenue consisted of 39% as a prime contractor direct with the U.S. government and 61% 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.
We derive a significant portion of our revenue from long-term programs and programs for which we are the incumbent supplier or have been the sole or dual supplier for many years. A significant percentage of our revenue is derived from programs that are in the production phase.
We derive a significant portion of our revenue from long-term programs and programs for which we are the incumbent supplier or have been the sole or dual supplier for many years.
Our short-range air defense systems integrate EW equipment, reconnaissance and surveillance systems, modular combat vehicle turrets, and stabilized sensor suites, as well as kinetic countermeasures to protect against evolving threats. Our force protection systems, including solutions for C-UAS and active protection systems on army vehicles, help protect personnel and defense assets from enemy combatants. U.S.
Our short-range air defense systems integrate advanced active electronically scanned array (“AESA”) radars, EW equipment, reconnaissance and surveillance systems, mission command capabilities, modular combat vehicle turrets, and stabilized sensor suites, as well as kinetic countermeasures to protect against evolving threats. Our force protection systems, including solutions for C-UAS, help protect personnel and defense assets from enemy combatants. U.S.
We have patents on certain of our technologies and methods, semiconductor devices, rugged computer-related items and electro-optical and infrared focal plane array products, in addition to other technologies and methods. We and our subsidiaries have certain registered trademarks, none of which are considered material to our current operations.
We have patents on certain of our technologies and methods, semiconductor devices, rugged computer-related items and electro-optical and infrared focal plane array products, in addition to other technologies and methods. We and our subsidiaries also have certain registered trademarks and copyrights.
Advanced Sensing and Computing Our Advanced Sensing and Computing (“ASC”) segment designs, develops and manufactures sensing and network computing technology that enables real-time situational awareness required for enhanced operational decision making and execution by our customers.
Advanced Sensing and Computing Our ASC segment designs, develops and manufactures sensing and network computing technology that enables real-time situational awareness required for enhanced operational decision making and execution by our customers across increasingly complex and contested operating environments.
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.
We make available on our website, free of charge, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K 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.
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.
A significant percentage of our revenue is derived from programs that are in the production phase. 3 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 2025, 2024, and 2023.
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.
Our revenues with the U.S. government span the Navy, Army, Air Force and other U.S. government agencies which represented 36%, 36%, 3% and 5%, respectively, of our total revenues for 2025. The remaining 20% of our revenues for 2025 were derived from sales to foreign governments, as well as commercial sales within the U.S. and abroad.
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.
We have experienced delays attributable to supply shortages, including but not limited to germanium, as well as other raw materials. 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.
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.
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.
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 recognize and reward employee performance through market-competitive compensation and by providing a broad suite of benefits that support the physical, emotional and financial well-being of our employees and their families. Maintaining a safe work environment for our employees is of utmost importance.
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.
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 believe our success depends on attracting, developing, and retaining a highly qualified workforce. To support this, we maintain comprehensive talent acquisition and talent management programs designed to attract and retain employees.
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.
Revenues derived directly, as a prime contractor, or indirectly, as a subcontractor, from contracts with the U.S. government represented 80%, 79% and 80% of our total revenues for 2025, 2024, and 2023, respectively. Our U.S. government sales are concentrated with the DoW, which constitutes the majority of our U.S. government revenue for any given year.
However, a significant portion of our revenue, profit and cash flows are generated in the fourth quarter of our fiscal year.
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.
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.
From our earliest offerings to today’s best-in-class products 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. We continue to target our investments toward high growth areas of the U.S. defense budget.
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 ” in this Annual Report.
If we fail to comply with the amended and restated 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 ” in this Annual Report. 8 At all times subject to the amended and restated proxy agreement, on November 28, 2022, the Company entered into a registration rights agreement (the “Registration Rights Agreement”) and on June 18, 2025, a cooperation agreement (the “Cooperation Agreement”) with Leonardo S.p.A and US Holding.
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.
Funded backlog represents the revenue value of orders for products and services under existing contracts for which funding is appropriated or otherwise authorized less revenue previously recognized on these contracts.
Specifically, US Holding has authorized certain cleared U.S. persons to operate as its proxies and exercise the key prerogatives of stock ownership. We are currently operating under an interim proxy agreement while we seek to enter into a new proxy agreement with the DoD.
Specifically, US Holding has authorized certain cleared U.S. persons to operate as its proxies and exercise the key prerogatives of stock ownership.
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.
Although materials and purchased components generally are available from a number of different suppliers, several suppliers serve as the sole source of 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 cost and manufacturing delays might result.
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.
IR&D costs charged to general and administrative expenses totaled $129 million, $92 million and $82 million in 2025, 2024 and 2023, respectively. The increase in IR&D is focused on accelerating capabilities into the hands of the warfighter in a dynamic threat environment. Intellectual Property We believe our intellectual property portfolio is valuable to our operations.
We also hold certain trade secrets without formal patent filings when we deem it most appropriate to do so, including in order to protect them from disclosure. We do not believe that the conduct of our business as a whole is materially dependent on any single patent, trade secret, trademark or copyright.
We do not 5 believe that the conduct of our business as a whole is materially dependent on any single patent, trade secret, trademark or copyright.
We continue to target our investments toward high growth areas of the U.S. defense budget. Our diverse technologies, systems and solutions are used across land, air, sea, space and cyber domains on a wide range of platforms for the DoD and the defense agencies of our international allies.
Our diverse technologies, systems and solutions are used across land, air, sea, space and cyber domains on a wide range of platforms for the DoW and the defense agencies of our international allies. Across the spectrum of multi-domain operations, we believe our core capabilities will help the U.S. and its allies maintain a strategic advantage over their adversaries.
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.
Our strong commitment to employee and leadership development, talent management, and succession planning ensures our workforce is equipped with the critical skills required for today’s work and future opportunities.
Navy with a significant installed base on submarines, aircraft carriers and other surface ships including motor controllers, instrumentation and control equipment, electrical actuation systems, and thermal management systems for electronics and ship stores refrigeration. DRS is also an integrator of complex systems in ground vehicles for short-range air defense, counter-unmanned aerial systems (“C-UAS”), and vehicle survivability and protection.
DRS has a long history of providing a number of other critical products to the U.S. Navy with a significant installed base on submarines, aircraft carriers and other surface ships including motor controllers, instrumentation and control equipment, electrical actuation systems, and thermal management systems for electronics and ship stores refrigeration.
We believe DRS is well positioned to meet the needs of an increasingly electrified fleet with our high-efficiency, power dense permanent magnet motors, energy storage systems and associated efficient, rugged and compact power conversion, electrical actuation systems, and advanced cooling technologies. DRS has a long history of providing a number of other critical products to the U.S.
We believe DRS is well positioned to meet the needs of an increasingly electrified and power-intensive fleet through high-efficiency, power-dense permanent magnet motors, energy storage systems, and associated rugged and compact power conversion, electrical actuation, and advanced thermal management technologies. These capabilities support higher onboard power demands, improved efficiency, and enhanced platform performance across next-generation naval systems.
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. 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.
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. 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.
For information regarding segment performance see Part II, Item 7, “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ” in this Annual Report.
Our operations and reporting are structured into the following two technology driven segments based on the capabilities and solutions offered to our customers: Advanced Sensing and Computing (“ASC”) and Integrated Mission Systems (“IMS”). For information regarding segment performance see Part II, Item 7, “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ” in this Annual Report.
These products help support the DoD’s need for greater situational understanding at the tactical edge by rapidly transmitting data securely between command centers and forward-positioned defense assets and personnel. 1 Integrated Mission Systems Our Integrated Mission Systems (“IMS”) segment designs, develops, manufactures and integrates power conversion, control and distribution systems, ship propulsion systems, motors and variable frequency drives, force protection systems, and transportation and logistics systems for the U.S. military and allied defense customers.
Integrated Mission Systems Our IMS segment designs, develops, manufactures and integrates power conversion, control and distribution systems, ship propulsion systems, motors and variable frequency drives, force protection systems, and transportation and logistics systems for the U.S. military and allied defense customers. DRS is a leading provider of next-generation electrical propulsion systems for the U.S. Navy.
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.
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. We hold an approximately 25% interest in Hoverfly Technologies, Inc. (“Hoverfly”), which designs, develops and manufactures power-tethered unmanned aerial systems and related products.
Across our offerings, we are focused on advancing sensor distance and enhancing the precision, clarity, definition, spectral depth and effectiveness of our sensors. 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.
Across our offerings, we are focused on advancing sensor range and enhancing the precision, clarity, definition, spectral depth and effectiveness of our sensors to deliver actionable information in time-sensitive mission scenarios in combination with AI, enabled by our advanced edge processing solutions.
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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.
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As a mid-sized defense technology company, our combination of operational speed and agility, deep domain expertise, and established positions on priority defense platforms has resulted in a durable and diversified portfolio of programs across the DoW.
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We believe DRS is well positioned to not only support our customers in today’s mission but to also provide more autonomous, dynamic, interconnected, and multi-domain capabilities to defend against and counter evolving and emerging threats. We view enhancement of capabilities in sensing, computing, self-protection and power as necessary to enable the strategic priorities of the DoD and our other customers.
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We believe DRS is well positioned to support current operational requirements, while facilitating the DoW’s rapid transition toward more autonomous, software-enabled, interconnected, and multi-domain capabilities required to address increasingly complex and proliferating threats. Enhancements in sensing, artificial intelligence (“AI”)-enabled computing, self-protection, and power generation and management are central to these priorities.
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Across the spectrum of multi-domain operations, we believe our core capabilities will help the U.S. and its allies maintain a strategic advantage over their adversaries. Our Company consists of eight business units which are organized as two operating segments: Advanced Sensing and Computing and Integrated Mission Systems.
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Demand for our technologies is concentrated in areas of sustained priority for the DoW, including counter‑unmanned aircraft systems (“C-UAS”), advanced infrared sensing, network computing, and electric power and propulsion for next generation navy vessels.
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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.
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These capabilities align closely with national defense priorities such as shipbuilding, layered air and missile defense, electronic warfare, and force protection, where requirements emphasize integrated capability delivery, survivability, and program execution. DRS benefits from an over 55-year legacy of providing innovative and differentiated products and solutions for defense applications.
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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.
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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 and to support integration onto a wide range of tactical platforms, including mobile and power-constrained systems. 1 Our sensing capabilities are complemented by our rugged, trusted and cyber resilient network edge computing products that support data processing, fusion, and dissemination at the tactical edge.
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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.
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These products help support the DoW’s need for greater situational understanding and faster decision-making at the tactical edge by leveraging AI and AI-optimized open architecture software, SAGEcore™, to rapidly share, synthesize and transmit data securely between command centers and forward-positioned defense assets and personnel, while supporting reduced latency, operational continuity, and interoperability through modular, open-system architectures.
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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.
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Within ASC, we are increasingly combining sensing, computing, and software to support applications such as C-UAS, electronic warfare, and networked sensing, where performance depends on the ability to detect, process, and act on data in real time. These integrated capabilities are designed to support evolving operational concepts that emphasize distributed operations, resilient communications, and decision advantage at the tactical edge.
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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.
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DRS is also an integrator of complex systems in ground vehicles for short-range air defense, C-UAS, and vehicle survivability and protection.
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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.
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Defense Market Trends Our primary customer is the U.S. government, from which we derived 80% of our sales in 2025.
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We work to develop bench strength for our leadership team and other critical roles. Our mission and core values are the driving force behind our actions to maintain an engaged and motivated workforce. We continuously strive to deliver employee programs that support employee performance, development, well-being, and health and safety.
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Funding for U.S. government programs is subject to a variety of factors that can affect our business, including the President’s budget requests and procurement priorities and policies; the annual congressional budget authorization and appropriations process; and other U.S. government domestic and international priorities.
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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.
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U.S. government spending levels, particularly defense spending and the timing of funding can affect our financial performance over the short and long term. 2 The President’s Fiscal Year (“FY”) 2026 budget request was published in June 2025. The budget request includes $848 billion in base (discretionary) funding and $113 billion in reconciliation (mandatory) funding.
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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.
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The One Big Beautiful Bill Act (“OBBBA”) was signed by the President on July 4, 2025, and provides more than $150 billion in mandatory funding (including the $113 billion reconciliation funding) for national defense, available through September 30, 2029. Separately, the National Defense Authorization Act (“NDAA”) for FY2026 was signed into law on December 18, 2025.
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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.
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The NDAA authorizes $901 billion for defense, including an $8 billion increase over the President’s DoW budget request from June 2025. On November 12, 2025, the President signed a continuing resolution to fund the U.S. government, including the DoW, through January 30, 2026.
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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.
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On January 20, 2026, Congress unveiled its final appropriations package, which included the Defense Appropriations Act conference report. This legislation provides $839 billion in funding for the DoW, representing an $8 billion increase over the topline in the President’s DoW budget request.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAdditionally, 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.
Biggest changeAdditionally, 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: • 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. federal, state and local governments; and • the U.S. government could reduce the outsourcing of functions that we are currently contracted to provide, including as a result of increased insourcing by various U.S. government agencies due to changes in the definition of “inherently governmental” work, such as proposals to limit contractor access to sensitive or classified information and work assignments.
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.
If we fail to comply with such rules, regulations or other requirements we may be subject to civil and/or criminal penalties and/or administrative sanctions. • We may not realize the full value of our total estimated remaining 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. • Our working capital requirements and cash flows are extremely variable and subject to fluctuation, which could have a material adverse effect on our business, financial condition and results of operations. • We are subject to global and regional economic downturns, rising interest rates and related risks. • To service indebtedness and fund other cash needs, we will require a significant amount of cash, and our ability to generate cash depends on many factors beyond our control. • We face intense competition and may suffer losses if we fail to compete efficiently. • We depend in part upon our relationships and alliances with industry participants in order to generate revenue, which involves risks and uncertainties. • Contractual disputes with industry participants or the inability of our key suppliers to timely deliver our components, parts or services, could cause our products, systems or services to be produced or delivered in an untimely or unsatisfactory manner. • We are susceptible to a security breach, through cyber-attack, cyber-intrusion, insider threats or otherwise, and to other significant disruptions of our IT networks and related systems, or those of our customers, suppliers, vendors, subcontractors, partners, or other third parties. • We may be at greater risk from terrorism and other threats to our physical security and personnel, than other companies. • Our future success will depend on our ability to respond to the rapid technological changes in the markets in which we compete, and our ability to introduce new or enhanced products and to enter into new markets. • Many of our contracts contain performance obligations that require innovative design capabilities, are technologically complex, require state-of-the-art manufacturing expertise or are dependent upon factors not wholly within our control.
If we fail to comply with such rules, regulations or other requirements we may be subject to civil and/or criminal penalties and/or administrative sanctions. • We may not realize the full value of our total estimated remaining 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. • Our working capital requirements and cash flows are extremely variable and subject to fluctuation, which could have a material adverse effect on our business, financial condition and results of operations. • We are subject to global and regional economic downturns, rising interest rates and related risks. • To service indebtedness and fund other cash needs, we will require a significant amount of cash, and our ability to generate cash depends on many factors beyond our control. • We face intense competition and may suffer losses if we fail to compete efficiently. • We depend in part upon our relationships and alliances with industry participants in order to generate revenue, which involves risks and uncertainties. • Contractual disputes with industry participants or the inability of our key suppliers to timely deliver our components, parts or services, could cause our products, systems or services to be produced or delivered in an untimely or unsatisfactory manner. • We may be susceptible to a security breach, through cyber-attack, cyber-intrusion, insider threats or otherwise, and to other significant disruptions of our IT networks and related systems, or those of our customers, suppliers, vendors, subcontractors, partners, or other third parties. • We may be at greater risk from terrorism and other threats to our physical security and personnel, than other companies. • Our future success will depend on our ability to respond to the rapid technological changes in the markets in which we compete, and our ability to introduce new or enhanced products and to enter into new markets. • Many of our contracts contain performance obligations that require innovative design capabilities, are technologically complex, require state-of-the-art manufacturing expertise or are dependent upon 10 factors not wholly within our control.
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.
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 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 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 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.
Furthermore, President Trump issued an Executive Order 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.
Furthermore, the President issued an Executive Order 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.
Our amended and restated certificate of incorporation provides that we, on our behalf and on behalf of our subsidiaries, renounce and waive any interest or expectancy in, or in being offered an opportunity to participate in, corporate opportunities that are from time to time presented to Leonardo S.p.A., or its officers, directors, agents, stockholders, members, partners, affiliates or subsidiaries, with the exception of the proxy holders, even if the opportunity is one that we or our subsidiaries might reasonably have pursued or had the ability or desire to pursue if granted the opportunity to do so.
Our third amended and restated certificate of incorporation provides that we, on our behalf and on behalf of our subsidiaries, renounce and waive any interest or expectancy in, or in being offered an opportunity to participate in, corporate opportunities that are from time to time presented to Leonardo S.p.A., or its officers, directors, agents, stockholders, members, partners, affiliates or subsidiaries, with the exception of the proxy holders, even if the opportunity is one that we or our subsidiaries might reasonably have pursued or had the ability or desire to pursue if granted the opportunity to do so.
Moreover, our business may suffer from: • The hindrance or limitation of insurance coverage for losses resulting from acts of war or terrorism, potentially leading to significant uninsured liabilities. 28 • Increased difficulties in obtaining financing, as lenders may view our operations as high-risk due to their location in or connection to these regions. • The occurrence of any terrorist acts, armed conflicts, or escalations in hostilities can have a severe impact on our business, results of operations, and financial condition.
Moreover, our business may suffer from: • The hindrance or limitation of insurance coverage for losses resulting from acts of war or terrorism, potentially leading to significant uninsured liabilities. • Increased difficulties in obtaining financing, as lenders may view our operations as high-risk due to their location in or connection to these regions. • The occurrence of any terrorist acts, armed conflicts, or escalations in hostilities can have a severe impact on our business, results of operations, and financial condition.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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 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.
Because a significant portion of our revenue depends on our performance and payment under our contracts, the loss of one or more large contracts could have a material adverse impact on our business, financial condition and results of operations. In addition to termination for convenience, U.S. defense contracts are generally also terminable for default based on performance.
Because a significant portion of our revenue depends on our performance and payment under our contracts, the loss of one or more large contracts could have a material adverse impact on our business, financial condition and results of operations. 15 In addition to termination for convenience, U.S. defense contracts are generally also terminable for default based on performance.
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.
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.
Cross-border manufacturing operations and the subsequent export of goods to various markets around the world exposes us to a variety of risks that may affect our ability to produce and deliver products efficiently and may also impact our cost structure. 35 A failure to attract and retain technical and other key personnel could reduce our revenues and our operational effectiveness.
Cross-border manufacturing operations and the subsequent export of goods to various markets around the world exposes us to a variety of risks that may affect our ability to produce and deliver products efficiently and may also impact our cost structure. A failure to attract and retain technical and other key personnel could reduce our revenues and our operational effectiveness.
Cash dividend payments and share repurchases are subject to limitations under applicable laws and the discretion of our Board of Directors and are determined after considering then-existing conditions, including earnings, other operating results and capital requirements and cash deployment alternatives. Additionally, the declaration of a cash dividend payment is contingent upon consent by our indirect majority stockholder.
Cash dividend payments and share repurchases are subject to limitations under applicable laws and the discretion of our Board and are determined after considering then-existing conditions, including earnings, other operating results and capital requirements and cash deployment alternatives. Additionally, the declaration of a cash dividend payment is contingent upon consent by our indirect majority stockholder.
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.
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.
Future determinations of significant write-offs of goodwill or intangible assets as a result of an impairment test or any accelerated amortization of other intangible assets could have a negative impact on our results of operations and financial condition. Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations.
Future determinations of significant write-offs of goodwill or intangible assets as a result of an impairment test or any accelerated amortization of intangible assets could have a negative impact on our results of operations and financial condition. Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations.
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.
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.
From time to time, we are and may become subject to investigations, claims, disputes, enforcement actions and administrative, civil or criminal litigation, arbitration or other legal proceedings globally and across a broad array of matters, including, but not limited to, government contracts, commercial transactions, false claims, false statements, mischarging, contract performance, fraud, procurement integrity, products liability, warranty liability, the use of hazardous materials, personal injury claims, environmental matters, shareholder-derivative actions, prior acquisitions and divestitures, intellectual property, tax, employees, export/import, anti-corruption, labor, health and safety, accidents, employee benefits and plans, including plan administration, and improper payments, as well as matters relating to our acquisition of assets or companies and other matters.
From time to time, we are and may become subject to investigations, claims, disputes, enforcement actions and administrative, civil or criminal litigation, arbitration or other legal proceedings globally and across a broad array of matters, including, but not limited to, government contracts, commercial transactions, false claims, false statements, mischarging, contract performance, fraud, procurement integrity, products liability, warranty liability, the use of hazardous materials, personal injury claims, environmental matters, stockholder-derivative actions, prior acquisitions and divestitures, intellectual property, tax, employees, export/import, anti-corruption, labor, health and safety, accidents, employee benefits and plans, including plan administration, and improper payments, as well as matters relating to our acquisition of assets or companies and other matters.
The receipt of a negative review on one contract could cause us reputational harm and adversely affect our ability to win future contracts. 16 Due to our reliance on government contracts, negative audit findings or reviews for one or more of these contracts could have a material adverse impact on our business, financial condition and results of operations.
The receipt of a negative review on one contract could cause us reputational harm and adversely affect our ability to win future contracts. Due to our reliance on government contracts, negative audit findings or reviews for one or more of these contracts could have a material adverse impact on our business, financial condition and results of operations.
If we are unable to make payments or we are unable to refinance the debt or obtain new financing under these circumstances, we may consider other options, including: • sales of assets; • equity offerings; • reductions or delays of capital expenditures, strategic acquisitions, investments and alliances; and • negotiations with our lenders to restructure the applicable debt.
If we are unable to make payments or we are unable to refinance the debt or obtain new financing under these circumstances, we may consider other options, including: • sales of assets; • equity offerings; 22 • reductions or delays of capital expenditures, strategic acquisitions, investments and alliances; and • negotiations with our lenders to restructure the applicable debt.
If we close or stop fully utilizing a facility, we will most likely remain obligated to perform under the applicable lease, which would include, among other things, making the base rent payments, and paying insurance, taxes and other expenses on the leased property for the remainder of the lease term.
If we close or stop fully utilizing a facility, we will most likely remain obligated to perform under the applicable lease, which would include, among other things, making the base rent payments, and paying insurance, taxes and other expenses on the leased property for the 40 remainder of the lease term.
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.
Under the terms of our third 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.
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.
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.
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.
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, 45 financial and accounting support, legal support, trade compliance, marketing and, communications on an arm’s-length basis.
Failure to accurately estimate the costs that we will incur including as a result of changes in underlying assumptions, circumstances or estimates may materially reduce our profit or cause a loss on these contracts and adversely impact our business, financial condition and results of operations.
Failure to accurately estimate the costs that we will incur including as a result of changes in 18 underlying assumptions, circumstances or estimates may materially reduce our profit or cause a loss on these contracts and adversely impact our business, financial condition and results of operations.
Moreover, we may not be able to obtain royalty or license agreements on terms acceptable to us, or at all. We also may be subject to significant damages or injunctions against development and sale of certain of our products, services and solutions. Our success depends in large part on our proprietary technology.
Moreover, we may not be able to obtain royalty or license agreements on terms acceptable to us, or at all. We also may be subject to significant damages or injunctions against development and sale of certain of our products, services and 30 solutions. Our success depends in large part on our proprietary technology.
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.
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 funded value of contract awards and orders received from customers other than the U.S. government.
The agreements governing our debt contain various covenants that limit our ability to take certain actions and also require us to meet financial maintenance tests, and failure to comply with these covenants could have an adverse impact on our business, financial condition and results of operations.
The agreements governing our debt contain various covenants that limit our ability to take certain actions and also require us to meet financial maintenance tests, and failure to comply with these 21 covenants could have an adverse impact on our business, financial condition and results of operations.
As these companies continue to expand, their scale and scope may also grow, potentially allowing them to compete more directly and effectively against us. Our failure to compete effectively with these smaller, innovative companies can reduce our market share and materially impact our business, financial condition, and operating results.
As these companies continue to expand, their scale and scope may also grow, potentially allowing them to compete more directly and effectively 23 against us. Our failure to compete effectively with these smaller, innovative companies can reduce our market share and materially impact our business, financial condition, and operating results.
Such attack may harm our personnel, close our facilities or render our backup data and recovery systems inoperable. Damage to our facilities due to attacks may be significantly in excess of any amount of insurance recovery, and we may not be able to insure against such damage at a reasonable price or at all.
Such attack may harm our personnel, close our facilities or render our backup data and recovery systems inoperable. 27 Damage to our facilities due to attacks may be significantly in excess of any amount of insurance recovery, and we may not be able to insure against such damage at a reasonable price or at all.
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 34 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.
Any failure of our internal control over financial reporting could also prevent us from maintaining accurate accounting records and discovering accounting errors and financial frauds. Rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act require annual assessment of our internal control over financial reporting.
Any such failure could also prevent us from maintaining accurate accounting records and discovering accounting errors and financial frauds. Rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act require annual assessment of our internal control over financial reporting.
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.
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 condition. In addition, the presence of unions may limit our flexibility in dealing with our workforce.
Future changes in our stock ownership, some of which are beyond our control, could result in an ownership change under Section 382 of the Tax Code. Furthermore, our ability to utilize NOLs of any companies that we may acquire in the future may be subject to limitations.
Future changes in our stock ownership, some of which are beyond our control, could result in an ownership change under Section 382 of the Tax Code. Furthermore, our ability to utilize NOLs of any companies that we may acquire in the 37 future may be subject to limitations.
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.
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.
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.
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.
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.
Additionally, our ability to develop other new products and technologies that anticipate changing customer requirements, reduce 28 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.
In addition, restrictions on carbon dioxide or other greenhouse gas emissions could result in significant costs such as higher energy costs and the passing down of carbon taxes, emission cap-and-trade programs, and renewable portfolio standards by utility companies.
In addition, restrictions on carbon dioxide or other greenhouse gas emissions could result in significant costs such as higher energy costs and the passing down of carbon taxes, emission cap-and-trade 31 programs, and renewable portfolio standards by utility companies.
Competition for personnel in the defense industry is intense, and there is a limited number of persons with knowledge of and experience in this industry. Additionally, some of our businesses are located in regions where competition for personnel is particularly intense. The rate of turnover for our technical personnel may increase in the future.
Competition for personnel in the defense industry is intense, and there is a limited number of persons with knowledge of and experience in this industry. Additionally, some of our businesses are located in regions where competition for personnel is particularly intense. The rate of turnover for our technical personnel may 35 increase in the future.
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.
See “— Risks Relating to Our Business — We are subject to the U.S. government’s requirements, including the DoW’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.
While we must compete effectively in the marketplace, our future alliances may depend on our industry partners’ perception of us. Our ability to win new and/or follow-on contracts may be dependent upon our relationships within the defense industry.
While we must compete effectively in the marketplace, our future alliances may depend on our industry 24 partners’ perception of us. Our ability to win new and/or follow-on contracts may be dependent upon our relationships within the defense industry.
If we are not able to successfully manage the risks of international expansion, or our investments in these regions do not yield expected returns, our business, financial condition, and operating results may be adversely affected.
If we are not able to successfully manage the risks of 34 international expansion, or our investments in these regions do not yield expected returns, our business, financial condition, and operating results may be adversely affected.
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.
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.
Our failure to replace canceled or reduced bookings could have a material adverse impact on our business, financial condition and results of operations. Our business may be harmed if we are unable to appropriately manage our inventory.
Our failure to replace canceled or reduced bookings could have a material adverse impact on our business, financial condition and results of operations. 19 Our business may be harmed if we are unable to appropriately manage our inventory.
We store sensitive data, including information relating to national security and other sensitive government functions, intellectual property and technology, proprietary business information, and confidential employee information such as personally identifiable or protected health information on our servers and databases.
We store sensitive data, including information relating to national security and other sensitive government functions, intellectual property and technology, proprietary business information, and 25 confidential employee information such as personally identifiable or protected health information on our servers and databases.
However, we do not have the right to prohibit the U.S. government from using certain technologies developed by us or to prohibit third-party companies, including our competitors, from using those technologies in providing products and services to the U.S. government.
However, we do not have the right to prohibit the U.S. government from using certain technologies developed by us or to prohibit third-party 29 companies, including our competitors, from using those technologies in providing products and services to the U.S. government.
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.
See “— Risks Relating to Our Ownership and Status under the Amended and Restated 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.
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.
Conflicts of interest could also arise with respect to business 44 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.
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.
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 DoW’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.
The process of determining the funded status of these plans and our pension plan expense or income involves significant judgment, particularly with respect to our long-term return on pension assets and discount-rate assumptions.
The process of determining the funded status of these plans and our pension plan expense or income involves judgment, particularly with respect to our long-term return on pension assets and discount rate assumptions.
Risks Related to Ownership of our Common Stock There can be no assurance that we will continue to pay or increase our dividend or to repurchase shares of our common stock. Additionally, there can be no assurance that we will not accelerate our dividend or repurchase of our common stock.
Risks Related to Ownership of our Common Stock There can be no assurance that we will continue to pay or increase our dividend or to repurchase shares of our common stock. Additionally, there can be no assurance that we will not accelerate our dividend or repurchases of our common stock.
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.
Department of the Treasury, DoW, 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 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.
The amended and restated 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 43 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.
Even if insurance coverage is available, we may not be able to obtain it or renew existing coverage at a price or on terms acceptable to us.
Even if 36 insurance coverage is available, we may not be able to obtain it or renew existing coverage at a price or on terms acceptable to us.
Our amended and restated certificate of incorporation provides that we waive any interest or expectancy in corporate opportunities presented to Leonardo S.p.A.
Our third amended and restated certificate of incorporation provides that we waive any interest or expectancy in corporate opportunities presented to Leonardo S.p.A.
As the DoD budget represents the largest part of the federal discretionary budget, it is possible that the various legislative actions might exert downward pressure on defense spending, as well as other non-defense discretionary outlays. The U.S. government may also delay, modify or cancel ongoing competitive bidding processes, procurements and programs, as well as change its acquisition strategy.
As the DoW budget represents the largest part of the federal discretionary budget, it is possible that the various legislative actions might exert downward pressure on defense spending, as well as other non-defense discretionary outlays. The U.S. government may also delay, modify or cancel ongoing competitive bidding processes, procurements and programs, as well as change its acquisition strategy.
The proxy agreement provides that the shares of our common stock owned directly by US Holding and indirectly by Leonardo S.p.A. are voted through proxy holders, who must be independent from current and prior affiliation with Leonardo S.p.A. and its subsidiaries (including US Holding and us) (subject to limited exceptions) and must maintain adequate security clearance.
The amended and restated proxy agreement provides that the shares of our common stock owned directly by US Holding and indirectly by Leonardo S.p.A. are voted through proxy holders, who must be independent from current and prior affiliation with Leonardo S.p.A. and its subsidiaries (including US Holding and us) (subject to limited exceptions) and must maintain adequate security clearance.
Although we operate largely independently from Leonardo S.p.A. and the proxy agreement contains limitations on services that we may provide to and receive from Leonardo S.p.A. and its affiliates, we have historically provided, and expect to continue to provide, certain services to Leonardo S.p.A. and its affiliates to support its U.S. operations (aside from us) and have historically received and expect to continue to receive certain services from Leonardo S.p.A., including services related to group training support, subject in all cases to the proxy agreement.
Although we operate largely independently from Leonardo S.p.A. and the amended and restated proxy agreement contains limitations on services that we may provide to and receive from Leonardo S.p.A. and its affiliates, we have historically provided, and expect to continue to provide, certain services to Leonardo S.p.A. and its affiliates to support its U.S. operations (aside from us) and have historically received and expect to continue to receive certain services from Leonardo S.p.A., including services related to group training support, subject in all cases to the amended and restated proxy agreement.
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 .” Pandemics, epidemics, disease outbreaks and health emergencies, such as the COVID-19 pandemic, have had, and future public health crises could have, an adverse impact on our business, financial condition and results of operations.
See “— Risks Relating to Our Ownership and Status under the Amended and Restated 38 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 .” Pandemics, epidemics, disease outbreaks and health emergencies, such as the COVID-19 pandemic, have had, and future public health crises could have, an adverse impact on our business, financial condition and results of operations.
Additionally, the restrictions imposed by the proxy agreement on our communications and ability to share facilities, personnel and services with Leonardo S.p.A. or its other subsidiaries mean that we cannot benefit from the full range of synergies and cost savings typically enjoyed by a majority-owned subsidiary.
Additionally, the restrictions imposed by the amended and restated proxy agreement on our communications and ability to share facilities, personnel and services with Leonardo S.p.A. or its other subsidiaries mean that we cannot benefit from the full range of synergies and cost savings typically enjoyed by a majority-owned subsidiary.
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. We depend on revenues from contracts and subcontracts with the U.S. government, including defense-related programs with the DoD and a broad range of programs with all branches of the U.S. military.
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. We depend on revenues from contracts and subcontracts with the U.S. government, including defense-related programs with the DoW and a broad range of programs with all branches of the U.S. military.
Among other things, the proxy agreement: • provides that the shares of our common stock owned directly by US Holding and indirectly by Leonardo S.p.A. are voted through proxy holders, who must be independent from current and prior affiliation with Leonardo S.p.A. and its subsidiaries (including US Holding and us) (subject to limited exceptions) and must maintain adequate security clearance; • provides that the proxy holders are appointed by our immediate majority stockholder US Holding (in consultation with Leonardo S.p.A.)., but the appointment is subject to approval of the DCSA, an agency of the DoD, and that the proxy holders must be members of our Board; • restricts our ability to share facilities and personnel with and receive certain services from Leonardo S.p.A. or its other subsidiaries; • requires us to maintain a government security committee of our Board; and • regulates meetings, visits and communications that are not deemed to be routine business visits between us and Leonardo S.p.A. or its other subsidiaries (including US Holding).
Among other things, the amended and restated proxy agreement: • provides that the shares of our common stock owned directly by US Holding and indirectly by Leonardo S.p.A. are voted through proxy holders, who must be independent from current and prior affiliation with Leonardo S.p.A. and its subsidiaries (including US Holding and us) (subject to limited exceptions) and must maintain adequate security clearance; • provides that the proxy holders are appointed by our immediate majority stockholder US Holding (in consultation with Leonardo S.p.A.), but the appointment is subject to approval of the DCSA, an agency of the DoW, and that the proxy holders must be members of our Board; • restricts our ability to share facilities and personnel with and receive certain services from Leonardo S.p.A. or its other subsidiaries; • requires us to maintain a government security committee of our Board; and • regulates meetings, visits and communications that are not deemed to be routine business visits between us and Leonardo S.p.A. or its other subsidiaries (including US Holding).
Leonardo S.p.A., an Italian company listed on the Milan Stock Exchange, owns the entire share capital of US Holding which, in turn, owns approximately 72% of the voting power of our outstanding common stock. As a result, we are deemed to be under FOCI.
Leonardo S.p.A., an Italian company listed on the Milan Stock Exchange, owns the entire share capital of US Holding which, in turn, owns approximately 71% of the voting power of our outstanding common stock. As a result, we are deemed to be under FOCI.
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.
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 third amended and restated certificate of incorporation. This will allow Leonardo S.p.A. and its affiliates to compete with us.
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.
This influence, including the requirement in our amended and restated 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.
These initiatives and changes to procurement practices may change the way U.S. government contracts are solicited, negotiated and managed, which may affect whether and how we pursue opportunities to provide our products and services to the U.S. government, including the terms and conditions under which we do so.
Any initiatives and changes to procurement practices may change the way U.S. government contracts are solicited, negotiated and managed, which may affect whether and how we pursue opportunities to provide our products and services to the U.S. government, including the terms and conditions under which we do so.
DoD requirements to comply with the CMMC now and in the future, and any obligations that may be imposed on us under the CMMC that may be different from or in addition to those otherwise required by applicable laws and regulations, may cause additional expense for compliance.
DoW requirements to comply with the CMMC now and in the future, and any obligations that may be imposed on us under the CMMC that may be different from or in addition to those otherwise required by applicable laws and regulations, may cause additional expense for compliance.
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.
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. • 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. • 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, severe weather 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 an amended and restated proxy agreement with the DoW that regulates significant areas of our governance.
If we fail to maintain an agreement with the DoD regarding the appropriate FOCI mitigation arrangement or otherwise fail to comply with the NISPOM, this could have a material adverse impact on our business, financial condition and results of operations.
If we fail to maintain an agreement with the DoW regarding the appropriate FOCI mitigation arrangement or otherwise fail to comply with the NISPOM, this could have a material adverse impact on 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. We have unfunded obligations under our pension, postretirement and supplemental retirement plans, see Note 14: Pension and Other Postretirement Benefits to the Consolidated Financial Statements.
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. We have unfunded obligations under our pension, postretirement and supplemental retirement plans, see Note 13: Pension and Other Postretirement Benefits to the Consolidated Financial Statements.
We depend on revenues from contracts and subcontracts with the U.S. government, including defense-related programs with the DoD and a broad range of programs with the U.S. Navy and U.S. Army. See “— Risks Relating to Our Business — We depend on U.S. defense spending for the vast majority of our revenues.
We depend on revenues from contracts and subcontracts with the U.S. government, including defense-related programs with the DoW and a broad range of programs with the U.S. Navy and U.S. Army. See “— Risks Relating to Our Business — We depend on U.S. defense spending for the vast majority of our revenues.
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.
If we fail to comply with the amended and restated 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.
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.
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.
Leonardo S.p.A., an Italian company listed on the Milan Stock Exchange, ultimately owns the entire share capital of our immediate majority stockholder US Holding which, in turn owns approximately 72% our outstanding common stock.
Leonardo S.p.A., an Italian company listed on the Milan Stock Exchange, ultimately owns the entire share capital of our immediate majority stockholder US Holding which, in turn owns approximately 71% our outstanding common stock.
Litigation to determine the scope of intellectual property rights, even if ultimately successful, could be costly and could divert management’s attention away from other aspects of our business. Further, in some cases the US government is unilaterally empowered to use, or allow our competitors to use, patented technology, subject only to the obligation to pay reasonable compensation.
Litigation to determine the scope of intellectual property rights, even if ultimately successful, could be costly and could divert management’s attention away from other aspects of our business. Further, in some cases the U.S. government is unilaterally empowered to use, or allow our competitors to use, patented technology, subject only to the obligation to pay reasonable compensation.
The Cooperation Agreement, among other things, provides (a) Leonardo S.p.A. with certain consent, access and cooperation rights, (b) US Holding with 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, and (c) neither US Holding nor Leonardo S.p.A. with the ability to transfer any Company voting securities for a period of six months following the merger with RADA, except in connection with a change in control of the Company or for transfers to affiliates.
The Amended and Restated Cooperation Agreement, among other things, provides (a) Leonardo S.p.A. with certain consent, access and cooperation rights, (b) US Holding with 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, and (c) neither US Holding nor Leonardo S.p.A. with the ability to transfer any Company voting securities for a period of six months following the merger with RADA Electronic Industries Ltd., except in connection with a change in control of the Company or for transfers to affiliates.
We depend on U.S. government contracts, which are heavily regulated and subject to audit by the U.S. government and its agencies, such as the Defense Contract Audit Agency (“DCAA”), Defense Contract Management Agency, the DoD Inspector General, and others.
We depend on U.S. government contracts, which are heavily regulated and subject to audit by the U.S. government and its agencies, such as the Defense Contract Audit Agency (“DCAA”), Defense Contract Management Agency, the DoW Inspector General, and others.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

13 edited+4 added−2 removed7 unchanged
Biggest changeThe Chief Information Security Officer also provides the GSC with an update on the Company’s risk management process and the risk trends related to cybersecurity at least annually. The Audit Committee maintains oversight of material risk mitigation recommendations identified by third-party assessors and receives reports as assessments occur. Cyber assessments are performed no less than annually.
Biggest changeThe Audit Committee maintains oversight of material risk mitigation recommendations identified by third-party assessors and receives reports as assessments occur. Cyber assessments are performed no less than annually. The full Board retains oversight of cybersecurity because of its importance and the heightened risk in the defense industry. The Cybersecurity Program is organized under our Chief Information Security Officer.
These assessments are documented and reviewed with the Company’s Chief Executive Officer and Chairman, Chief Operating Officer, Chief Information Officer, General Counsel, as well as the Government Security Committee (“GSC”) of the Board. Both the Internal Audit team and the Chief Information Security Officer are responsible for reporting any material assessment findings to their respective Board committees.
These assessments are documented and reviewed with the Company’s Chief Executive Officer, Chief Operating Officer, Chief Information Officer, General Counsel, as well as the Government Security Committee (“GSC”) of the Board. Both the internal audit team and the Chief Information Security Officer are responsible for reporting any material assessment findings to their respective Board committees.
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 Cyber and Information Technology Governance team develops Company policies designed to reduce, manage, and mitigate cyber risks. • The Classified Information Systems 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 DoW 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 47 regularly engaged to assess our security controls and incident response capabilities.
The Cybersecurity Program staff also maintains 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.
As a defense contractor, we must comply with extensive regulations, including requirements imposed by the Defense Federal Acquisition Regulation Supplement related to adequately safeguarding controlled unclassified information and reporting cybersecurity incidents to the DoD. We have implemented cybersecurity policies and frameworks based on industry and governmental standards to align closely with DoD requirements, instructions and guidance.
As a defense contractor, we must comply with extensive regulations, including requirements imposed by the Defense Federal Acquisition Regulation Supplement related to adequately safeguarding controlled unclassified information and reporting cybersecurity incidents to the DoW. We have implemented cybersecurity policies and frameworks based on industry and governmental standards to align closely with DoW requirements, instructions and guidance.
The Cyber Operations team is engaged to provide timely incident response and works to minimize adverse impacts to our operations. • The Cyber and Information Technology Governance and Compliance team works to align the Company’s cyber approach to requirements such as NIST 800-171, CMMC, and other information technology general controls.
The Cyber Operations team is engaged to provide timely incident response and works to minimize adverse impacts to our operations. • The Cyber and Information Technology Governance and Compliance team works to align the Company’s cyber approach to frameworks such as NIST 800-171, CMMC, and other information technology general controls.
See Part I, Item 1A, “ Risk Factors—Risks Related to Our Business—We are susceptible to a security breach, through cyber-attack, cyber-intrusion, insider threats or otherwise, and to other significant disruptions of our IT networks and related systems, or those of our customers, suppliers, vendors, subcontractors, partners, or other third parties ” in this Annual Report.
See Part I, Item 1A, “ Risk Factors—Risks Related to Our Business—We may be susceptible to a security breach, through cyber-attack, cyber-intrusion, insider threats or otherwise, and to other significant disruptions of our IT networks and related systems, or those of our customers, suppliers, vendors, subcontractors, partners, or other third parties ” in this Annual Report.
Cybersecurity Risk Management and Strategy Our Cybersecurity Program Our Cybersecurity Program includes the following four core components: Cyber Operations; Cyber and Information Technology Governance and Compliance; Classified Information Systems; and Cyber/Supplier Risk Management. • The Cyber Operations team is responsible for maintaining prevention, detection, and response capabilities in a defense-in-depth infrastructure.
Our Cybersecurity Program includes the following 46 four core components: Cyber Operations; Cyber and Information Technology Governance and Compliance; Classified Information Systems; and Cyber/Supplier Risk Management. • The Cyber Operations team is responsible for maintaining prevention, detection, and response capabilities in a defense-in-depth infrastructure. The prevention, detection, and response capabilities leverage various tools and services.
The Chief Information Security Officer reports to the Executive Vice President, General Counsel & Secretary with oversight by the Board of Directors. Over the course of the last decade, our management team has gained extensive experience investing in, providing oversight of, and setting the strategy for our cybersecurity program.
Over the course of the last decade, our management team has gained extensive experience investing in, providing oversight of, and setting the strategy for our Cybersecurity Program.
He has a Masters in cybersecurity from Valparaiso University. Additionally, he has both Certified Information Systems Security Professional-Information Systems Security Management Professional (“CISSP-ISSMP”) and Certified Information Systems Auditor (“CISA”) certifications, and is also a recognized Information Technology Infrastructure Library (“ITIL”) expert.
Additionally, he has both Certified Information Systems Security Professional-Information Systems Security Management Professional (“CISSP-ISSMP”) and Certified Information Systems Auditor (“CISA”) certifications, and is also a recognized Information Technology Infrastructure Library (“ITIL”) expert. The Chief Information Security Officer reports to the Executive Vice President, General Counsel & Secretary with oversight by the Board.
The full Board retains oversight of cybersecurity because of its importance and the heightened risk in the defense industry. The Cyber Program is organized under our Chief Information Security Officer. The current Chief Information Security Officer has extensive information technology and program management experience and has served for over a decade in our corporate information security organization.
The current Chief Information Security Officer has extensive information technology and program management experience and has served for over a decade in our corporate information security organization. He has a Masters in cybersecurity from Valparaiso University.
Governance Our Board oversees management’s processes for identifying and mitigating risks, including cybersecurity risks, to help align our risk exposure with our strategic objectives. Senior leadership, including our Chief Information Security Officer, regularly briefs our Board through the GSC depending on the nature and severity of the business impact.
Senior leadership, including our Chief Information Security Officer, regularly briefs our Board through the GSC depending on 47 the nature and severity of the business impact. The Chief Information Security Officer also provides the GSC with an update on the Company’s risk management process and the risk trends related to cybersecurity at least annually.
While 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.
As of the date of this Annual Report, we do not believe that any risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, have materially affected or are reasonably likely to materially affect our business strategy, results of operations, or financial condition.
Removed
The prevention, detection, and response capabilities leverage various tools and services.
Added
Cybersecurity Risk Management and Strategy Our Cybersecurity Program As described below, we have established policies, standards, processes and practices for assessing, identifying and managing material risks from cybersecurity threats, which are integrated into our overall risk management program and governance structure.
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Prior to joining DRS, our Chief Executive Officer oversaw the development of the DoD cybersecurity strategy while serving as Deputy Secretary of Defense from 2009 to 2011.
Added
However, this does not mean that we will meet, or maintain, any particular technical standard, specification, framework, or requirement in the future.
Added
We also maintain third-party management processes to identify and manage the cybersecurity risks associated with third-party service providers. Governance Our Board oversees management’s processes for identifying and mitigating risks, including cybersecurity risks, to help align our risk exposure with our strategic objectives.
Added
However, there can be no guarantee that we will not experience such an incident in the future.

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 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.
Biggest changeThe table below provides additional information about our significant leased and owned facilities and properties: 48 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 2014 Bushy Park Road, Goose Creek, SC Manufacturing, Warehouse, Office Integrated Mission Systems 146,158 Land leased, building owned 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 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 116,420 Leased 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 16465 Via Esprillo, San Diego, CA Manufacturing, Engineering, Office Advanced Sensing and Computing 84,277 Leased 6200 118th Avenue North, Largo, FL Manufacturing, Engineering, Office Advanced Sensing and Computing 75,968 Owned 49 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 645 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 Engineering, Office Advanced Sensing and Computing 60,465 Owned 2750 Blue Water Road, Eagan, MN Engineering, Lab, Office Advanced Sensing and Computing 48,563 Leased 13544 N Central Expressway, Dallas, TX Manufacturing, Engineering, Office Advanced Sensing and Computing 48,374 Leased 2601 Mission Point Blvd, Beavercreek, OH Engineering, Office Advanced Sensing and Computing 47,586 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 40,238 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 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 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 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 50 590 Territorial Drive, Bolingbrook, IL Manufacturing, Engineering, Office Advanced Sensing and Computing 26,460 Leased 6 Trowbridge Drive, Bethel, CT Office Integrated Mission Systems 23,409 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 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.
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 7700 US Highway 1, Titusville, FL Warehouse Advanced Sensing and Computing 63,309 Leased 640 Lovejoy, Ft.
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.
The owned building in South Carolina is situated on land leased from a landlord for a period of 25 years ending in 2050 and 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 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.
ITEM 2. PROPERTIES We are headquartered in Arlington, Virginia. Our principal executive offices are leased under a lease agreement expiring March 31, 2029, with an option to extend for three years thereafter. We also lease or 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 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.
We own properties in three states in the United States and in one city in Canada. Two of our sites, one in Goose Creek, South Carolina and one in Israel, each contain a land lease and a building which is owned.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeThe EPA has determined that no further federal action (NFFA) will be taken at this site.” As a result, DRS has eliminated the Orphan Mine reserve as a liability is no longer probable or estimable. However, it remains possible that the NPS may seek to recover damages, including for remediation and/or loss of use of certain natural resources.
Biggest changeThe EPA has determined that no further federal action (NFFA) will be taken at this site.” As a result, DRS has eliminated the Orphan Mine reserve as a liability is no longer probable or estimable. However, it remains possible that the NPS may seek to recover damages, including for remediation and/or loss of use 51 of certain natural resources.
The 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 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.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeWallace is responsible for overseeing the policies and standards required for effective program execution. Ms. Wallace has more than 30 years’ experience, in roles of increasing responsibility, within the defense industry. Prior to assuming the position of Executive Vice President, Operations, Ms.
Biggest changeWallace has more than 30 years’ experience, in roles of increasing responsibility, within the defense industry. Prior to assuming the position of Executive Vice President, Chief Operating Officer, Ms. Wallace was the Company’s Executive Vice President, Business Operations, a position she held since late 2016. Throughout her career at DRS, Ms.
Mr. Baylouny has a master’s degree in electrical engineering from Stevens Institute of Technology, and a Bachelor of Science degree in electrical engineering from Fairleigh Dickinson University. Michael D. Dippold Michael Dippold has been our Executive Vice President and Chief Financial Officer since January 2017. As the Executive Vice President, Chief Financial Officer, Mr.
Mr. Baylouny has a master’s degree in electrical engineering from Stevens Institute of Technology, and a Bachelor of Science degree in electrical engineering from Fairleigh Dickinson University. Michael D. Dippold Mr. Dippold has been our Executive Vice President and Chief Financial Officer since January 2017. As the Executive Vice President, Chief Financial Officer, Mr.
Dippold received a Bachelor of Science degree in accounting from Pennsylvania State University. Mark A. Dorfman Mr. Dorfman has been our Executive Vice President, General Counsel and Secretary since February 2011. Mr. Dorfman is responsible for providing advice and counsel to the Company’s Board and executive leadership of the Company on legal and business matters.
Dippold received a Bachelor of Science degree in accounting from Pennsylvania State University. 52 Mark A. Dorfman Mr. Dorfman has been our Executive Vice President, General Counsel and Secretary since February 2011. Mr. Dorfman is responsible for providing advice and counsel to the Company’s Board and executive leadership of the Company on legal and business matters.
Baylouny served as Vice President and General Manager of the Company’s Land Systems and Advanced ISR businesses from January 2014 to January 2017, among other leadership roles. Mr. Baylouny has more than 30 years of experience in the aerospace and defense industry with diverse experience in operational responsibility, general management, technology, product and system design and development, and program management.
Baylouny served as Vice President and General Manager of the Company’s Land Systems and Advanced ISR businesses from January 2014 to January 2017, among other leadership roles. Mr. Baylouny has more than 35 years of experience in the aerospace and defense industry with diverse experience in operational responsibility, general management, technology, product and system design and development, and program management.
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.
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.
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
Ms. 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. 53 PART II
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.
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 February 25, 2026. Biographies of each of our executive officers are also below. Name Age Position John A.
Wallace was President of the C4ISR Group within DRS from April 2014 to December 2016, Vice President of Business Operations for DRS Maritime and Combat Support Systems Group from July 2008 to April 2014, as well as the Vice President and General Manager of DRS Power and Control Technologies from 2004 to July 2008. Ms.
Wallace has held a variety of roles of increasing responsibility including President of the C4ISR Group within DRS from April 2014 to December 2016, Vice President of Business Operations for DRS Maritime and Combat Support Systems Group from July 2008 to April 2014, as well as the Vice President and General Manager of DRS Power and Control Technologies from 2002 to July 2008.
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.
Baylouny has been a director and our President and Chief Executive Officer since January 2026. Prior to assuming the position of President and Chief Executive Officer, Mr. Baylouny served as our Chief Operating Officer since October 2018. Mr. Baylouny also served as our Chief Technology Officer from January 2017 to October 2018. Prior to that, 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.
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. Jason W. Rinsky Mr. Rinsky has been our Executive Vice President, Chief Tax and Treasury Officer since January 2026. 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.
Baylouny 64 President and Chief Executive Officer Michael D. Dippold 45 Executive Vice President, Chief Financial Officer Mark A. Dorfman 51 Executive Vice President, General Counsel & Secretary Jason W. Rinsky 53 Executive Vice President, Chief Tax and Treasury Officer Sally A. Wallace 59 Executive Vice President, Chief Operating Officer John A. Baylouny Mr.
Removed
Lynn has been a director since 2012 and our Chief Executive Officer since January 2012. Mr. Lynn also serves as Chairman of our Board. Prior to joining DRS in January 2012, Mr. Lynn served as the 30th United States Deputy Secretary of Defense from 2009 to 2011. From 2002 to 2009, Mr.
Added
Rinsky is responsible for the global tax and treasury functions as well as the commercial real estate profile for the Company and all of its business units. He previously served as Senior Vice President, Tax and Treasury from 2012 until his most recent promotion. Mr. Rinsky joined the Company in 2006 as Senior Vice President, Corporate Taxation. Mr.
Removed
Lynn was Senior Vice President of Government Operations and Strategy at the Raytheon Company. In this position, he directed strategic planning, oversaw merger and acquisition activities and supervised government relations. Previously, he served as the Chief Financial Officer and Under Secretary of Defense (Comptroller) from 1997 to 2001.
Added
Rinsky also chairs DRS’ Retirement Plan Committee which has oversight over approximately $1 billion of defined benefit and defined contribution plan assets. He previously served as Tax Officer for US Holding from 2009 to 2022 and worked at both KPMG and PricewaterhouseCoopers advising clients on tax related matters. Mr.
Removed
From 1993 to 1997, he led strategic planning for the DoD as Director of Program Analysis and Evaluation. Mr. Lynn worked for Senator Ted Kennedy as counsel to the Senate Armed Services Committee from 1987 to 1993. Mr.
Added
Rinsky earned his undergraduate degree from Hamilton College and his J.D. and M.B.A. from Seton Hall University. Sally A. Wallace Ms. Wallace has been our Executive Vice President, Chief Operating Officer since January 2026. As Executive Vice President, Chief Operating Officer, Ms. Wallace is responsible for overseeing the business operations and technical strategy of the Company. Ms.
Removed
Lynn 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.
Removed
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.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeFor 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.
Biggest changeFor 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.
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”).
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, 2025, 54 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”).
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.
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 28 Liberty Street, Floor 53, New York, NY 10005.
As of February 28, 2025, there were 48 registered holders of record of our common stock.
As of February 24, 2026, there were 40 registered holders of record of our common stock.
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.
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 24, 2026, the Company announced that its Board declared a cash dividend of $.09 per share of common stock payable on March 24, 2026 to stockholders of record as of the close of business on March 10, 2026.
Removed
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.
Added
Common Stock Share Repurchase Program The following table summarizes our repurchases of common stock during the three months ended December 31, 2025: Period Total Number of Shares (or Units) Purchased Average Price Paid per Share (or Unit) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (1) Approximate Dollar Value of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (1) (Dollars in millions, except per share amounts) October 1, 2025 - October 31, 2025 91,845 $ 42.00 91,845 $ 47 November 1, 2025 - November 30, 2025 91,905 34.78 91,905 44 December 1, 2025 - December 31, 2025 108,814 $ 33.98 108,814 $ 40 Total 292,564 292,564 ________________ (1) On February 20, 2025, the Company announced that its Board 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.
Added
All repurchased shares are expected to be retired. Share repurchases 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.
Added
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. ITEM 6. [RESERVED] 55

Item 6. [Reserved]

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

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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
Biggest changeItem 6. [Reserved] 55 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 56 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 73 Item 8. Financial Statements and Supplementary Data 74 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 119

Item 7. Management's Discussion & Analysis

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

107 edited+40 added−50 removed38 unchanged
Biggest changeYear 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.
Biggest changeYear Ended December 31, 2025 vs. 2024 Change 2024 vs. 2023 Change (Dollars in millions, except per share amounts) 2025 2024 2023 $ % $ % Revenues $ 3,648 $ 3,234 $ 2,826 $ 414 12.8 % $ 408 14.4 % Cost of revenues (2,779) (2,498) (2,178) (281) 11.2 % (320) 14.7 % Gross profit $ 869 $ 736 $ 648 $ 133 18.1 % $ 88 13.6 % Gross margin 23.8 % 22.8 % 22.9 % 100 bps (10) bps General and administrative expenses (497) (414) (384) (83) 20.0 % (30) 7.8 % Amortization of acquired intangible assets (22) (22) (22) — — % — — % Other operating expenses, net (2) (7) (11) 5 (71.4) % 4 (36.4) % Operating earnings $ 348 $ 293 $ 231 $ 55 18.8 % $ 62 26.8 % Interest expense, net (8) (21) (36) 13 (61.9) % 15 (41.7) % Other, net (4) (8) (3) 4 (50.0) % (5) 166.7 % Earnings before taxes $ 336 $ 264 $ 192 $ 72 27.3 % $ 72 37.5 % Income tax provision (58) (51) (24) (7) 13.7 % (27) 112.5 % Net earnings $ 278 $ 213 $ 168 $ 65 30.5 % $ 45 26.8 % Basic EPS $ 1.05 $ 0.81 $ 0.64 $ 0.24 29.6 % $ 0.17 26.6 % Diluted EPS $ 1.03 $ 0.80 $ 0.64 $ 0.23 28.8 % $ 0.16 25.0 % Backlog $ 8,448 $ 8,268 $ 7,751 $ 180 2.2 % $ 517 6.7 % Bookings $ 4,245 $ 4,077 $ 3,516 $ 168 4.1 % $ 561 16.0 % Year Ended December 31, 2025 Compared to the Year Ended December 31, 2024 Our operating results for the year ended December 31, 2025, are highlighted by our strong $8.4 billion of backlog and over $4.2 billion of new orders, demonstrating the strong customer demand for our mission critical technologies.
Labor and overhead costs consist of direct and indirect manufacturing costs, including wages and fringe benefits, operating supplies, depreciation and amortization, occupancy costs, and purchasing, receiving, inspection costs and inbound freight costs.
Labor and overhead costs consist of direct and indirect manufacturing costs, including wages and fringe benefits, operating supplies, depreciation and amortization, occupancy costs, and purchasing, receiving, inspection and inbound freight costs.
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.
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.
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.
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 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 58 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 strategic investments, all while maintaining our focus on customer satisfaction. In these elements, our goals are aligned with those of our customers.
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.
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.
If a contract termination is for default, however, the contractor is paid an amount agreed upon for completed and partially completed products and services accepted by the U.S. government. In these circumstances, the U.S. government is not liable for excess costs incurred by us in procuring undelivered items from another source.
If a contract termination is for default, however, the contractor is 59 paid an amount agreed upon for completed and partially completed products and services accepted by the U.S. government. In these circumstances, the U.S. government is not liable for excess costs incurred by us in procuring undelivered items from another source.
For cost-plus contracts typically 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. The contracts may also include incentives for various performance criteria, including quality, timeliness and cost-effectiveness.
For cost-plus contracts, typically 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. The contracts may also include incentives for various performance criteria, including quality, timeliness 65 and cost-effectiveness.
Our network computing offerings are utilized across a broad range of mission applications including platform computing on ground and shipboard (both surface ship and submarine) for advanced battle management, combat systems, radar, command and control (“C2”), tactical networks, tactical computing and communications.
Our network computing offerings are utilized across a broad range of mission applications including platform computing on ground and shipboard (both surface ship and submarine) for advanced battle management, combat systems, radar, command and control, tactical networks, tactical computing and communications.
We strive for excellence in everything we do, in every job in our Company, in order to satisfy our customers’ needs embedded in our contractual commitments. We seek to ensure that we learn from every lesson experienced in our Company and insist that these lessons affect all elements of our businesses.
We strive for excellence in everything we do, in every job in our Company, in order to satisfy our customers’ needs embedded in our contractual commitments. We seek to ensure that we learn from every lesson experienced in our Company and insist that these lessons affect all elements of our 57 businesses.
The provision for federal, state, foreign and local income taxes is calculated on income before income taxes based on current tax law and includes the cumulative effect of any changes in tax rates from those used previously in determining deferred tax assets and liabilities.
The provision for federal, state, foreign and local income taxes is calculated on earnings before taxes based on current tax law and includes the cumulative effect of any changes in tax rates from those used previously in determining deferred tax assets and liabilities.
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.
See Part I, Item 1A, “ Risk Factors—Risks Related to Our Business—Significant delays, including government shutdowns, 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.
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.
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, 2024, which provides additional information on comparisons of the year ended December 31, 2024, to the year ended December 31, 2023.
Cost-cutting and efficiency initiatives, current and future budget restrictions, spending cuts and other efforts to reduce government spending and shifts in overall priorities could cause our government customers to reduce or delay funding or invest appropriated funds on a less consistent basis or not at all, and demand for our solutions or services could diminish.
Cost-cutting and efficiency initiatives, increasing nationalization efforts, current and future budget restrictions, spending cuts and other efforts to reduce government spending and shifts in overall priorities could cause our government customers to reduce or delay funding or invest appropriated funds on a less consistent basis or not at all, and demand for our solutions or services could diminish.
Integrated Mission Systems Our Integrated Mission Systems (“IMS”) segment designs, develops, manufactures and integrates power conversion, control and distribution systems, ship propulsion systems, motors and variable frequency drives, force protection systems, and transportation and logistics systems for the U.S. military and allied defense customers. DRS is a leading provider of next-generation electrical propulsion systems for the U.S. Navy.
Integrated Mission Systems Our IMS segment designs, develops, manufactures and integrates power conversion, control and distribution systems, ship propulsion systems, motors and variable frequency drives, force protection systems, and transportation and logistics systems for the U.S. military and allied defense customers. DRS is a leading provider of next-generation electrical propulsion systems for the U.S. Navy.
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.
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 2: Revenue from Contracts with Customers to the Consolidated Financial Statements for additional information.
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.
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 on Contracts and Contract Estimates • 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.
Our overall strategy is to be a balanced and diversified company, less vulnerable to any one budgetary platform or service decision with a specific focus on establishing strong technical and market positions in areas of priority for the DoD.
Our overall strategy is to be a balanced and diversified company, less vulnerable to any one budgetary platform or service decision with a specific focus on establishing strong technical and market positions in areas of priority for the DoW.
Our contract reviews are conducted at least quarterly in which we incorporate our best estimate to complete the program known at that point in time. For further discussion, see Note 3 : Revenue from Contracts with Customers to the Consolidated Financial Statements.
Our contract reviews are conducted at least quarterly in which we incorporate our best estimate to complete the program known at that point in time. For further discussion, see Note 2 : Revenue from Contracts with Customers to the Consolidated Financial Statements.
The majority of our total revenues are derived from fixed-price contracts; refer to the revenue disaggregation disclosures in Note 3: Revenue from Contracts with Customers to the Consolidated Financial Statements. For fixed-price contracts, customers agree to pay a fixed amount, negotiated in advance for a specified scope of work.
The majority of our total revenues are derived from fixed-price contracts; refer to the revenue disaggregation disclosures in Note 2: Revenue from Contracts with Customers to the Consolidated Financial Statements. For fixed-price contracts, customers agree to pay a fixed amount, negotiated in advance for a specified scope of work.
In particular, our results can be affected by shifts in strategies and priorities on homeland security, intelligence, defense-related programs, infrastructure and urbanization and continued increased spending on technology and innovation, including cybersecurity with respect to our and third parties' information networks and related systems, artificial intelligence, connected communities and physical infrastructure (for example, the potential impacts for the Russia / Ukraine conflict and the Israel-Hamas war).
In particular, our results can be affected by shifts in strategies and priorities on homeland security, intelligence, defense-related programs, infrastructure and urbanization and continued increased spending on technology and innovation, including cybersecurity with respect to our and third parties' 64 information networks and related systems, AI, connected communities and physical infrastructure (for example, the potential impacts for the Russia / Ukraine conflict and the Israel-Hamas war).
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.
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, 2025, 2024 and 2023.
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.
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 71 estimated total contract costs at completion.
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.
Accounting Standards Updates See Note 1: Summary of Significant Accounting Policies to the Consolidated Financial Statements for information regarding accounting standards we adopted in 2025 and other new accounting standards that have been issued by the Financial Accounting Standards Board but are not effective until after December 31, 2025.
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.
Business Environment Revenues derived directly, as a prime contractor, or indirectly, as a subcontractor, from contracts with the U.S. government represented 80%, 79% and 80% of our total revenues for the years ended December 31, 2025, 2024 and 2023, respectively.
(2) Finance leases and other includes financing arrangement rel ated to our Menomonee Falls, WI manufacturing facility. See Note 13: Debt to the Consolidated Financial Statements. (3) Post-retirement obligations include those amounts we expect to pay out in benefit payments and are further explained in Note 14: Pension and Other Postretirement Benefits to the Consolidated Financial Statements.
(2) Finance leases and other includes financing arrangement rel ated to our Menomonee Falls, WI manufacturing facility. See Note 12: Debt to the Consolidated Financial Statements. (3) Postretirement obligations include those amounts we expect to pay out in benefit payments and are further explained in Note 13: Pension and Other Postretirement Benefits to the Consolidated Financial Statements.
Business Overview and Considerations General DRS is an innovative and agile provider of advanced defense technology to U.S. national security customers and allies around the world. We specialize in the design, development and manufacture of advanced sensing, network computing, force protection, as well as electric power and propulsion.
Business Overview and Considerations General DRS is an innovative and agile provider of advanced defense technology to U.S. national security customers and allies around the world. We specialize in the design, development and manufacture of advanced sensing, network computing, force protection, and electric power and propulsion technologies and solutions.
Our sensing capabilities span numerous applications, including missions requiring advanced detection, precision targeting and surveillance sensing, long range electro-optic/infrared (“EO/IR”), signals intelligence (“SIGINT”) and other intelligence systems, electronic warfare (“EW”), ground vehicle sensing, next generation active electronically scanned array tactical radars, dismounted soldier sensing and space sensing.
Our sensing capabilities span numerous applications, including missions requiring advanced detection, precision targeting and surveillance sensing, long range electro-optic/infrared, signals intelligence and other intelligence systems, electronic warfare, ground vehicle sensing, next generation active electronically scanned array tactical radars, dismounted soldier sensing and space sensing.
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.
Our U.S. government sales are highly concentrated within our DoW customers, which made up the overwhelming majority of our U.S. government revenue for the year ended December 31, 2025, and are principally derived directly or indirectly from contracts with the U.S. Navy and U.S.
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.
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 $59 million, $25 million, and $23 million for 2025, 2024, and 2023, respectively.
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.
Embedded in our backlog is a diversified, balanced portfolio supported by foundational programs strongly aligned in areas of, in our view, growing importance within the DoW budget priorities.
We believe that the combination of our existing cash, access to credit facilities as described in Note 13: Debt and future cash that we expect to generate from our operations will be sufficient to meet our short and long-term liquidity needs.
We believe that the combination of our existing cash, access to credit facilities as described in Note 12: Debt to the Consolidated Financial Statements, and future cash that we expect to generate from our operations will be sufficient to meet our short and long-term liquidity needs.
While the Company provides warranties on certain contracts, we typically do not provide for services beyond standard assurances and therefore do not consider warranties to be separate performance obligations. Typically, we enter into three types of contracts: fixed-price contracts, cost-plus contracts and T&M contracts (cost-plus contracts and T&M contracts are aggregated below as flexibly priced contracts).
While the Company provides warranties on certain contracts, we typically do not provide for services beyond standard assurances and therefore do not consider warranties to be separate performance obligations. Typically, we enter into three types of contracts: fixed-price contracts, cost-plus contracts and T&M contracts.
Components of Operations Revenue Revenue consists primarily of product related revenue, which represented 94%, 93% and 91% of our total revenues for the periods ended December 31, 2024, 2023 and 2022, respectively. The remaining revenue was generated from service related contracts.
Components of Operations Revenue Revenue consists primarily of product related revenue, which represented 94%, 94% and 93% of our total revenues for the years ended December 31, 2025, 2024 and 2023, respectively. The remaining revenue was generated from service related contracts.
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.
The U.S. government, primarily with the DoW, is our largest customer and, for the years ended December 31, 2025 and 2024, accounted for approximately 80% and 79%, 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 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.
The following represents the net impact that changes in our estimates, particularly those regarding our fixed-price programs, have had on our revenues for the periods presented: Year Ended December 31, (Dollars in millions) 2025 2024 2023 Revenue $ (59) $ (25) $ (23) Total % of revenue 2 % 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, including executive orders, could affect our operating results.
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.
As of December 31, 2025 and 2024, we had gross deferred tax assets of $252 million and $297 million, respectively, and deferred tax asset valuation allowances of $36 million and $25 million, respectively. The deferred tax assets principally relate to capitalized R&D, benefit accruals, inventory obsolescence, tax benefit carryforwards and contract reserves.
Our operations and reporting are structured into the following two technology driven segments based on the capabilities and solutions offered to our customers: Advanced Sensing and Computing Our Advanced Sensing and Computing (“ASC”) segment designs, develops and manufactures sensing and network computing technology that enables real-time situational awareness required for enhanced operational decision making and execution by our customers.
Our operations and reporting are structured into the following two technology driven segments based on the capabilities and solutions offered to our customers: Advanced Sensing and Computing Our ASC segment designs, develops and manufactures sensing and network computing technology that enables real-time situational awareness required for enhanced operational decision making and execution by our customers across increasingly complex and contested operating environments.
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.
The following table summarizes our cash flows for the periods presented: Year ended December 31, (Dollars in millions) 2025 2024 2023 Net cash provided by operating activities $ 366 $ 271 $ 205 Net cash used in investing activities (154) (84) (59) Net cash (used in) provided by financing activities (163) (56) 15 Effect of exchange rate changes on cash and cash equivalents — — — Net increase in cash and cash equivalents $ 49 $ 131 $ 161 Year Ended December 31, 2025 Compared to the Year Ended December 31, 2024 Operating Activities We generated cash from operating activities of $366 million for the year ended December 31, 2025, as compared to $271 million for the year ended December 31, 2024.
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.
Under flexibly priced contracts, which consisted of 12%, 16% and 16% of our total revenues for the years ended December 31, 2025, 2024 and 2023, 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.
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 new awards are highlighted by the receipt of awards totaling approximately $580 million for new Columbia Class funding, approximately $570 million of additional naval power awards outside of the Columbia Class programs and approximately $323 million of short-range air defense and C-UAS programs during the period.
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.
Additionally, 88%, 84% and 84% of our revenue for the years ended December 31, 2025, 2024 and 2023, 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.
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.
Army, which represented 36% and 36%, respectively, of our total revenues for the year ended December 31, 2025 and 37% and 32%, respectively, for the year ended December 31, 2024.
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.
Earnings Before Taxes Earnings before taxes increased by $72 million to $336 million for the year ended December 31, 2025, from $264 million for the year ended December 31, 2024.
Government Spending and Federal Budget Uncertainty Changes in the volume and relative mix of U.S. government spending as well as areas of spending growth could impact our business and results of operations.
Government Spending and Federal Budget Uncertainty Changes in the volume and relative mix of U.S. and allied government spending as well as areas of spending growth, including due to the evolution of warfare, could impact our business and results of operations.
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.
Army, which represented 36% and 36%, respectively, of our total revenues for the year ended December 31, 2025. Therefore, our revenue is highly correlated to changes in U.S. 58 government spending levels, especially within the DoW. The DoW budget is the largest defense budget in the world.
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.
The deferred tax assets as of 72 December 31, 2025 and 2024 include $7 million related to tax benefit carryforwards associated with net operating losses. The decrease in the deferred tax asset as compared to the prior year is primarily attributed to the deduction of previously capitalized R&D expenditures pursuant to Section 174 of the Tax Code.
Our cash balance as of December 31, 2024 was $598 million compared to $467 million as of December 31, 2023.
Our cash balance as of December 31, 2025 was $647 million compared to $598 million as of December 31, 2024.
This was primarily due to increased operating earnings of $62 million, the decrease of $15 million in interest expense and the increase in other, net costs of $5 million as described above.
This was primarily due to increased operating earnings of $55 million, the decrease of $13 million in net interest expense and the decrease in other, net costs of $4 million, as described above.
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.
Bookings Bookings for the year ended December 31, 2025 were $1,786 million, an increase of $318 million as compared to the year ended December 31, 2024, driving a book to bill ratio of 1.4 to 1.
Our operating earnings and net earnings increased $62 million (26.8%) 62 and $45 million (26.8%) from the year ended December 31, 2023, respectively, attributed to the higher gross profit, and lower interest expense, offset slightly by higher tax expense.
Our operating and net earnings increased $55 million (18.8%) and $65 million (30.5%) from the year ended December 31, 2024, respectively, attributed to the higher gross profit, and lower net interest expense, offset slightly by higher tax expense.
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.
Review of Operating Segments The following is a discussion of operating results for each of our operating segments. We have elected to use revenue, operating earnings, operating margin, bookings and backlog to provide detailed 67 information on our segment performance. Additional information regarding our segments can be found in Note 18: Segment Information within the Consolidated Financial Statements.
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.
General and Administrative Expenses General and administrative (“G&A”) expenses include G&A expenses not included within cost of revenues such as salaries, wages and fringe benefits, facility costs and other costs related to these indirect functions.
The estimated transaction price may include variable consideration such as performance incentives, requests for equitable adjustment (“REAs”) and claims. Variable consideration is included in the estimated transaction price only to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
Variable consideration is included in the estimated transaction price only to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
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”).
The strength of our market positioning in these technology areas have created a foundational and diverse base of programs across the DoW and its allies.
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.
This was attributed to the increased demand and new awards realized (noted above) which were 1.0x that of the revenue generated during the period, coupled with increased unfunded backlog attributed to our recent SDA missile tracking award, driving an increase in the overall backlog position.
The increase in cash from operating activities is attributed to improved profit generation during the period, partially offset by increased investments in working capital to facilitate future growth. In total our changes in our assets and liabilities absorbed $79 million of cash for the year ended December 31, 2024, compared to $14 million for the year ended December 31, 2023.
The increase in cash from operating activities is attributed to improved profit generation during the period and lower cash used to fund working capital. In total our changes in our assets and liabilities absorbed $65 million of cash for the year ended December 31, 2025, compared to $79 million for the year ended December 31, 2024.
The increased shares outstanding resulted in $0.81 and $0.80 for basic and diluted EPS, respectively, as compared to the prior year results of $0.64 for both basic and diluted EPS. The increase in basic and diluted EPS is attributed to the increased net earnings described above, partially offset by the increased weighted average shares outstanding.
Basic and diluted earnings per share (“EPS”) was $1.05 and $1.03 for the year ended December 31, 2025, respectively, as compared to the prior year basic and diluted EPS of $0.81 and $0.80, respectively. The increase in basic and diluted EPS is attributed to the increased net earnings described above, partially offset by the increased weighted average shares outstanding.
This increase in operating earnings and operating margin is attributed to operational leverage realized on the expanding revenue base coupled with improved program performance on our Columbia Class program, offset in part by costs realized on our Land Surveillance program along with minor increases in G&A and IR&D expenditures.
This decrease in operating margin is attributed to the impact of the legacy ground surveillance program noted above and minor increases in G&A and IR&D expenditures which were largely offset by operational leverage realized on the expanding revenue base coupled with improved program performance on our Columbia Class program.
These increases were offset in part by lower new awards received on certain infrared counter measures that were accelerated into the prior year. See “— Review of Operating Segments ” below for a more detailed analysis. Factors Impacting Our Performance U.S.
These increases were offset in part by lower new awards received at our ASC segment. See “— Review of Operating Segments ” below for a more detailed analysis. Factors Impacting Our Performance U.S.
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.
Our backlog position is highlighted by our contract 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. We believe the performance on these and other programs within our portfolio will support continued revenue growth.
Focus on Customer and Execution DRS and its employees focus on our end-customers – the men and women of the armed forces in the U.S. and its allies. We seek to provide high-quality equipment and services to support their mission success.
Our force protection systems, including solutions for C-UAS, help protect personnel and defense assets from enemy combatants. Focus on Customer and Execution DRS and its employees focus on our end-customers – the men and women of the armed forces in the U.S. and its allies. We seek to provide high-quality equipment and services to support their mission success.
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.
Amortization of Acquired Intangible Assets Amortization of acquired intangible assets for the year ended December 31, 2025 of $22 million remained consistent with the year ended December 31, 2024. Other Operating Expenses, Net Other operating expenses, net decreased $5 million from $7 million for the year ended December 31, 2024 to $2 million for the year ended December 31, 2025.
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.
IMS Revenue IMS revenue increased by $169 million, or 14.9%, from $1,138 million for the year ended December 31, 2024 to $1,307 million for the year ended December 31, 2025. The increase is attributed primarily to our increased output within our power and propulsion programs with the U.S. Navy’s surface and submarine platforms.
Operating Earnings and Operating Margin ASC’s operating earnings increased by $47 million, or 34.6%, from $136 million for the year ended December 31, 2023 to $183 million for the year ended December 31, 2024. Operating margin increased from 7.4% for the year ended December 31, 2023 to 8.6% for the year ended December 31, 2024.
Operating Earnings and Operating Margin ASC’s operating earnings increased by $57 million, or 31.1%, from $183 million for the year ended December 31, 2024 to $240 million for the year ended December 31, 2025. Operating margin increased from 8.6% for the year ended December 31, 2024 to 10.2% for the year ended December 31, 2025.
We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent results of operations.
In making such determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent results of operations.
Negative publicity and increased scrutiny of government contractors in general, including us, relating to government expenditures for contractor services and incidents involving the mishandling of sensitive or classified information as well as the increasingly complex requirements of the DoD and the United States intelligence community, including those related to cybersecurity, could impact our ability to perform in the markets we serve.
Negative publicity and increased scrutiny of government contractors in general, including us, relating to government expenditures for contractor services and incidents involving the mishandling of sensitive or classified information as well as the increasingly complex requirements of the DoW and the U.S. intelligence community, including those related to cybersecurity, could impact our ability to perform in the markets we serve. 66 International Sales International revenue, including foreign military sales, foreign military financing, and direct commercial sales, accounted for approximately 8%, 13% and 10% of our revenue for the years ended December 31, 2025, 2024 and 2023, respectively.
The asset and liability method requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities. Under this method, changes in tax rates and laws are recognized in income in the period such changes are enacted.
Income Taxes We account for income taxes under the asset and liability method in accordance with the accounting standard for income taxes. The asset and liability method requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities.
Year 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.
Year Ended December 31, 2025 vs. 2024 Change 2024 vs. 2023 Change (Dollars in millions) 2025 2024 2023 $ % $ % Revenues: ASC $ 2,355 $ 2,118 $ 1,831 $ 237 11.2 % $ 287 15.7 % IMS 1,307 1,138 1,021 169 14.9 % 117 11.5 % Corporate & Eliminations (14) (22) (26) 8 (36.4) % 4 (15.4) % Total revenues $ 3,648 $ 3,234 $ 2,826 $ 414 12.8 % $ 408 14.4 % Operating earnings: ASC $ 240 $ 183 $ 136 $ 57 31.1 % $ 47 34.6 % IMS 115 117 92 (2) (1.7) % 25 27.2 % Corporate & Eliminations (7) (7) 3 — — % (10) (333.3) % Total operating earnings $ 348 $ 293 $ 231 $ 55 18.8 % $ 62 26.8 % Operating margin: ASC 10.2 % 8.6 % 7.4 % IMS 8.8 % 10.3 % 9.0 % Bookings: ASC $ 2,459 $ 2,609 $ 2,307 $ (150) (5.7) % $ 302 13.1 % IMS 1,786 1,468 1,209 318 21.7 % 259 21.4 % Total bookings $ 4,245 $ 4,077 $ 3,516 $ 168 4.1 % $ 561 16.0 % Backlog: ASC $ 3,250 $ 2,992 $ 2,402 $ 258 8.6 % $ 590 24.6 % IMS 5,198 5,276 5,349 (78) (1.5) % (73) (1.4) % Total backlog $ 8,448 $ 8,268 $ 7,751 $ 180 2.2 % $ 517 6.7 % Year Ended December 31, 2025 Compared to the Year Ended December 31, 2024 ASC Revenue In total, ASC segment revenue increased $237 million, or 11.2%, from $2,118 million for the year ended December 31, 2024 to $2,355 million for the year ended December 31, 2025.
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.
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.
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.
The fixed labor rates on T&M contracts include amounts for the cost of direct labor, indirect contract costs and profit. 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.
Gross Profit Gross profit increased $88 million, or 13.6%, from $648 million for the year ended December 31, 2023, to $736 million for the year ended December 31, 2024 attributed to increased volume offset by the program impacts noted above.
Gross Profit Gross profit increased $133 million, or 18.1%, from $736 million for the year ended December 31, 2024, to $869 million for the year ended December 31, 2025, attributed to increased volume offset by the program impacts for the legacy ground surveillance program and optics and infrared programs noted above.
Revenue of $3,234 million for the year ended December 31, 2024 represented an increase of $408 million (14.4%) driven by increased demand across our program portfolio. Our gross profit of $736 million increased $88 million (13.6%) from the prior year results attributed to the increased volume.
Revenue of $3,648 million for the year ended December 31, 2025 represented an increase of $414 million (12.8%) driven by increased demand across our program portfolio. Our gross profit of $869 million increased $133 million (18.1%) from the prior year results attributed to the increased volume and higher profitability levels.
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.
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.
Operating Earnings Operating earnings increased by $62 million, or 26.8%, to $293 million for the year ended December 31, 2024, from $231 million for the year ended December 31, 2023, driven by the higher gross profit offset by the impacts of G&A expenditures. 63 Interest Expense Interest expense decreased by $15 million to $21 million for the year ended December 31, 2024, from $36 million for the year ended December 31, 2023.
The expense in both periods is attributed to restructuring efforts implemented in our ASC segment. 62 Operating Earnings Operating earnings increased by $55 million, or 18.8%, to $348 million for the year ended December 31, 2025, from $293 million for the year ended December 31, 2024, driven by the higher gross profit offset by the impacts of G&A expenditures.
Income Tax Provision Income tax provision increased by $27 million to $51 million for the year ended December 31, 2024, from $24 million for the year ended December 31, 2023. This was primarily due to an increase in earnings before taxes and the absence of a multi-year catch-up on the R&D tax credit that benefited 2023.
Income Tax Provision Income tax provision increased by $7 million to $58 million for the year ended December 31, 2025, from $51 million for the year ended December 31, 2024. This was primarily due to an increase in earnings before taxes, partially offset by an increase in tax credits.
Our short-range air defense systems integrate EW equipment, reconnaissance and surveillance systems, modular combat vehicle turrets, and stabilized sensor suites, as well as kinetic countermeasures to protect against evolving threats. Our force protection systems, including solutions for C-UAS and active protection systems on army vehicles, help protect personnel and defense assets from enemy combatants.
DRS is also an integrator of complex systems in ground vehicles for short-range air defense, C-UAS, and vehicle survivability and protection. Our short-range air defense systems integrate advanced AESA radars, EW equipment, reconnaissance and surveillance systems, mission command capabilities, modular combat vehicle turrets, and stabilized sensor suites, as well as kinetic countermeasures to protect against evolving threats.
(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.
Off-Balance Sheet Arrangements As of December 31, 2025 and 2024, 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.
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.
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.
Backlog Total backlog includes the following components: • Funded - 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. • Unfunded - 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. 64 The following table summarizes the value of our backlog at December 31, 2024 and 2023, incorporating both funded and unfunded components: December 31, (Dollars in millions) 2024 2023 Funded $ 4,177 $ 3,397 Unfunded 4,332 4,354 Total Backlog $ 8,509 $ 7,751 Backlog increased by $758 million, or 9.8%, from $7,751 million as of December 31, 2023, to $8,509 million as of December 31, 2024.
Backlog Total backlog includes the following components: • Funded - Funded backlog represents the revenue value of orders for products and services under existing contracts for which funding is appropriated or otherwise authorized less revenue previously recognized on these contracts. 63 • Unfunded - 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.

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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 changeFluctuations 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.
Biggest changeFluctuations 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. As of December 31, 2025, we had an outstanding balance of $191 million under our 2022 Term Loan A, and no amounts outstanding under our revolving credit facilities.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Equity Risk We currently have limited risk related to fluctuations in marketable securities. Outside of pension assets which are disclosed in Note 14: Pension and Other Postretirement Benefits to the Consolidated Financial Statements, the only investments the Company holds are overnight money market accounts.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Equity Risk We currently have limited risk related to fluctuations in marketable securities. Outside of pension assets which are disclosed in Note 13: Pension and Other Postretirement Benefits to the Consolidated Financial Statements, the only investments the Company holds are overnight money market accounts.
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.
A 0.5% increase or decrease in our weighted average interest rate on our variable debt outstanding as of December 31, 2025, 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, 2025.
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 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
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. However, these costs could rise further and may not be mitigated. As a result, they could affect our financial results negatively in the future. 73
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.
See Note 12: Debt to the Consolidated Financial Statements for additional information. Foreign Currency Risk In certain circumstances, we may be exposed to foreign currency risk.
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.
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.
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.
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. A 10% fluctuation in exchange rates would not have a material impact on our financial statements.

Other DRS 10-K year-over-year comparisons