−Removed: DRS is a leading provider of defense products and technologies that provide battlefield superiority today while shaping the battlefield of tomorrow for the U.S.
−Removed: military and our allies abroad.
−Removed: We offer a broad portfolio of products and services in our core technologies, including advanced sensing, electronic warfare (“EW”) and cyber, network computing, communications, force protection, and electrical power conversion and propulsion.
−Removed: Our positions in these markets have created a foundational base of programs within the DoD that has yielded five consecutive years of organic revenue growth.
−Removed: We believe these technologies will not only support our customers in today’s mission but will also underpin their strategy to migrate towards more autonomous, dynamic, interconnected, and multi-domain capabilities needed to win in tomorrow’s battlefields.
−Removed: We expect that our customer’s focus on countering growing near-peer threats from China and Russia while simultaneously pursuing a counter-terrorism strategy against asymmetric organizations and actors creates an opportunity for the core technologies that DRS provides.
−Removed: DRS benefits from a 50-year legacy of designing and manufacturing innovative and differentiated products and solutions for military applications.
−Removed: From our earliest products that were sonar systems instrumental in detecting enemy submarines, to today’s best-in-class products including electro-optical sensors and electronic warfare systems, we have continually developed advanced technologies to address complex military challenges.
−Removed: We continue to target our investments toward high growth areas of the defense budgets.
−Removed: Our diverse array of defense systems and solutions are used across land, air, sea, space and cyber domains, and are offered to all branches of the U.S.
−Removed: military, major aerospace and defense prime contractors, government intelligence agencies and international military customers for deployment on a wide range of military platforms.
−Removed: Our alignment with some of the nation’s top defense priorities to address the greatest threats to the U.S.
−Removed: has allowed us to achieve a 10% compounded annual growth rate (“CAGR”) in revenues from the year ended December 31, 2017 through the year ended December 31, 2021.
−Removed: This growth, which exceeded the DoD budget CAGR of 3.8% during this period, drove our annual revenue to approximately $2.9 billion for the year ended December 31, 2021.
−Removed: During the same five year period, our net earnings improved by $245 million to $154 million, our operating earnings grew $187 million to $236 million and our Adjusted EBITDA grew $129 million to $310 million (CAGR of 14%).
−Removed: Adjusted EBITDA is a non-GAAP measure.
−Removed: See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Financial and Operating Measures—Non-GAAP Financial Measures” for a reconciliation of Adjusted EBITDA to net earnings in this Annual Report.
−Removed: future fighting force is expected to be increasingly autonomous across land, sea and air domains.
−Removed: Future platforms are also expected to require greater capabilities in sensing, computing, communications, self-protection, and power to allow them to reduce human behavior to improve reaction time, increase effectiveness and enhance soldier safety.
−Removed: Our core technologies enable optionally manned, autonomous platforms, and manned-unmanned teaming.
−Removed: Our customers are expecting platforms where sensor data can be fused, aggregated, and understood.
−Removed: Once situational understanding is achieved, it can be rapidly communicated to the command structure.
−Removed: This drive for increased autonomy is shifting value from the platform itself to its electronics and sensors.
−Removed: We are helping to shape these requirements by developing and offering smaller, integrated, and more modular (and thereby able to support a range of platforms and subsystems) and more capable systems using DRS’ core technologies.
−Removed: Across the spectrum of multi-domain operations on the future battlefield, we believe DRS’ core capabilities in sensing, EW and cyber, network computing, satellite communications, force protection, and power and propulsion will help U.S.
−Removed: and allied military forces to maintain a strategic advantage over their enemies.
−Removed: DRS technology supports our customers’ heightened needs and is positioned to enable future battlefield platforms designed to maintain dominance.
−Removed: Our company consists of eight business units which are organized as three operating segments:
−Removed: Advanced Sensor Technologies, Network Computing & Communications, and Integrated Mission Systems.
−Removed: Following is additional information on each our operating segments.
+Added: Leonardo DRS, Inc.
+Added: provides advanced defense technology to U.S.
+Added: national security customers and allies around the world.
+Added: We specialize in the design, development and manufacture of advanced sensing, network computing, force protection as well as electric power and propulsion.
+Added: Our innovative spirit and agility, together with our established market position in these areas have created a foundational and diverse base of programs across the DoD.
+Added: 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 evolving and emerging threats.
+Added: 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.
+Added: DRS benefits from an over 50-year legacy in providing innovative and differentiated products and solutions for defense applications.
+Added: From our earliest offerings to today’s best-in-class products including naval propulsion, electro-optical sensors and electronic warfare systems, we have continually developed advanced technologies to address complex national security challenges.
+Added: We continue to target our investments toward high growth areas of the U.S.
+Added: defense budget.
+Added: 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.
+Added: Across the spectrum of multi-domain operations, we believe our core capabilities will help the U.S.
+Added: and its allies maintain a strategic advantage over their adversaries.
+Added: Our Company consists of eight business units which are organized as two operating segments:
+Added: Advanced Sensing and Computing and Integrated Mission Systems.
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.
−Removed: Advanced Sensor Technologies
−Removed: Our Advanced Sensor Technologies segment provides world-class electro-optical sensor technologies, laser systems, EW & cyber systems, and intelligence and surveillance solutions to U.S.
−Removed: military and intelligence community customers.
−Removed: We are a leading provider of ground platform targeting and surveillance sensors.
−Removed: We are also a leading provider of soldier sensor systems in high priority modernization areas such as infrared imaging and precision targeting systems.
−Removed: Our infrared focal plane array foundry is recognized as a leading provider of high performance and small sized cryogenically cooled and uncooled detector arrays.
−Removed: We are also a leading and world-recognized provider of aircraft training instrumentation equipment and high-performance radio frequency receivers and transceivers for U.S.
−Removed: and international customers.
−Removed: Our EW and Cyber systems provide cutting edge capability across the broad frequency spectrum.
−Removed: Our quantum cascade laser (“QCL”) technology is used in military and commercial medical applications.
−Removed: Collectively, these sensor technologies provide our customers with a distinct battlefield advantage.
−Removed: As part of the U.S.
−Removed: military’s strategy to increase effectiveness and system interconnectivity in today’s complex threat environment, the U.S.
−Removed: military is working to improve precision against military targets from a greater range.
−Removed: Increased sensor range and interconnectivity enables U.S.
−Removed: forces to detect threats from further away and deliver rapid, forceful responses more quickly.
−Removed: We have positioned ourselves as a market leader in advanced sensing on the most cutting-edge sensing systems programs by providing leading targeting and surveillance sensors, including electro-optical, infrared, EW, and advanced detection systems, for all types of platforms, including for use by individual soldiers.
−Removed: Our capabilities help ensure that the U.S.
−Removed: military remains the most effective fighting force in the world and can maintain dominance from a greater distance and at greater speed than ever before.
−Removed: Our established positions in sensing technologies coupled with the battlefield evolution aligns us for continued growth in this expanding market.
−Removed: Advanced Sensor Technologies Products and Services
−Removed: Our advanced sensor technologies can provide the U.S.
−Removed: military with the capability for longer-range sensing and increased battlefield awareness.
−Removed: military has identified specific needs for advanced sensor technology for ground vehicles to enhance battlefield understanding, vehicle protection and vehicle targeting capabilities.
−Removed: Our market-leading sensor products include third-generation infrared sensing, sensors for threat detection and situational awareness, which we believe position us well for these opportunities.
−Removed: We also provide uncooled focal plane arrays and brownout solutions (which are sensors that can see through blowing sand for helicopters).
−Removed: To further enhance our market position to address the U.S.
−Removed: military’s future needs, we recently acquired Ascendent Engineering Solutions (“AES”), an advanced small-form gimbal producer, which designs, develops and manufactures high-performance, stabilized, multi-sensor systems for the market of small unmanned aerial systems across military services.
−Removed: Our complement of soldier sensor systems employs state-of-the-art sensors, precision targeting capabilities and optics designed to improve infantry combat effectiveness.
−Removed: We have produced a family of innovative electro-optical and infrared systems for soldiers, from our legacy imaging system, the Thermal Weapons Sight, to the next generation of thermal weapon sights being produced today.
−Removed: We believe that our current position on next-generation soldier precision targeting programs will enable us to compete
−Removed: effectively in this area of growing need.
−Removed: Our uncooled sensor technology also positions us well to support the future of soldier goggle systems.
−Removed: Electronic Warfare (EW) & Cyber
−Removed: Our significant technological capabilities and program experience in EW & Cyber offers the U.S.
−Removed: military integrated capabilities for multi-domain operations required to supplement kinetic warfare.
−Removed: We have developed mounted and dismounted EW systems, EW software and training systems and intelligence solutions across a broad range of platforms.
−Removed: We believe that our capabilities in integrated mounted and dismounted ground EW, exploitation and cyber-based multi-domain operations position us well in this area of growing DoD priority.
−Removed: We have also leveraged international EW programs to develop our capabilities for DoD offerings and have invested to meet developing U.S.
−Removed: Army and U.S.
−Removed: Marine Corps requirements for integrated solutions to address threats which are emanating from nation-states and violent extremist organizations.
−Removed: Force Protection / Aircraft Survivability
−Removed: Our Advanced Sensors Technology segment also features QCL technology which, along with our advanced two-color infrared sensors, have enabled us to support high-profile U.S.
−Removed: Navy contracts for advanced systems to protect aircraft from ground-launch missiles.
−Removed: We are also a critical partner on the U.S.
−Removed: Army’s common infrared countermeasures program and the next generation missile warning program.
−Removed: Other Advanced Sensor Technologies Capabilities
−Removed: Our aircraft training instrumentation systems were selected for the high-profile Joint Strike Fighter program that has been the leading U.S.
−Removed: and allied forces military air platform in development over the past two decades.
−Removed: We are also a leading provider of the aircraft training instrumentation which deploy on both legacy and modern aircraft and are required for aircraft training programs.
−Removed: Network Computing & Communications
−Removed: Our Network Computing & Communications segment provides advanced defense electronics solutions across warfare domains.
−Removed: Our technologies and products are used on military platforms, end-to-end network communication systems, satellite services and cyber security solutions.
−Removed: We are a leading provider of ruggedized computing equipment, having provided more than 135,000 total advanced tactical computing units for ground combat platforms and command post operations through December 31, 2021.
−Removed: Navy and its allies, we provide naval computing infrastructure, network and data distribution equipment, radar, and rugged naval control systems, which are present on naval surface and subsurface combatant vessels.
−Removed: Across the full spectrum of our network computing capabilities, we have leadership positions at both the product and sub-systems levels.
−Removed: Our global communications network is a worldwide network of terrestrial and satellite bandwidth that ensures our customers’ data is secure and reliable.
−Removed: As a result of this capability, we are positioned as one of the leading providers of secured commercial satellite communications to the U.S.
−Removed: In order to be able to rapidly respond to emerging future threats, the U.S.
−Removed: military has focused on requiring interconnectivity of sensors and responses.
−Removed: This effort is driven in part by the U.S.
−Removed: military’s Joint All-Domain Command and Control (JADC2) program which has the goal of enhancing connectivity across all branches of the military.
−Removed: We believe with our embedded position within network computing and satellite communications systems that support U.S.
−Removed: armed forces DRS is well positioned to meet these goals in multi-domain operations.
−Removed: DRS has also provided advanced tactical computing systems for ground combat vehicles and command post operations for more than two decades and is a leading provider of advanced ruggedized computing equipment for the warfighter today.
−Removed: Battlefield management and platform communications systems require secure rugged computing solutions that are interconnected with combat air forces and naval computing infrastructure to support multi-domain operations.
−Removed: its legacy of advancement and its current positions in battlefield computing and communications systems, we believe DRS is well positioned to support this effort.
−Removed: Network Computing & Communications Products and Services
−Removed: Network Computing
−Removed: Our network computing products and solutions provide communications capabilities in support of the military’s need for greater situational understanding for the warfighter and permits data to be transmitted securely from command centers to forward-positioned military platforms and dismounted soldiers.
−Removed: Encrypted data and cyber protection capabilities aim to ensure that the data U.S.
−Removed: forces receive is trusted and protected from enemies.
−Removed: This capability is intended to allow forces to be more mobile and geographically dispersed while operating with immediate access to trusted information.
−Removed: We provide an array of network computing products and sub-systems that bring trusted and resilient communications and computational resources to U.S.
−Removed: and international military forces, allowing them to rapidly share data and improve situational understanding.
−Removed: We provide trusted computing systems for ground vehicles, naval computing infrastructure, network and data distribution programs, rugged naval computational and control systems and networked communications.
−Removed: Our Mounted Family of Computing Systems (“MFoCs”) and MFoCs-II, the second generation, have earned us a reputation as a leading provider of mounted battle management systems hardware in the U.S.
−Removed: We have invested in cyber defense and trusted computing capabilities over the past several years to protect information at the edge of the battlefield.
−Removed: We have also transformed our legacy of naval display and computing equipment over the past several years, to secure a position as a leading provider of surface combat system components, submarine combat systems and command and control system components.
−Removed: We provide Command, Control, Communications, Computers and Intelligence (“C4I”) equipment for the U.S.
−Removed: Navy, including those that will be upgraded as the fleet continues to modernize.
−Removed: For submarines, we provide hardware which is planned to be upgraded continuously on a regular update cycle.
−Removed: Satellite Communications
−Removed: Satellite communications systems provide data to U.S.
−Removed: warfighters around the globe and are expected to increasingly utilize satellite constellations at all orbits for redundancy, lower latency, expanded bandwidth and security.
−Removed: We provide terrestrial and satellite communications for the U.S.
−Removed: Special Forces, and intelligence communities, as well as secure and reliable communications for the U.S.
−Removed: military’s forward-deployed forces.
−Removed: We are the prime contractor for two of the U.S.
−Removed: military’s top five commercial satellite communications programs, including its largest, serving special operations forces with terrestrial and space satellite bandwidth.
−Removed: Our contracts on these programs make us one of the largest satellite communications providers for the U.S.
−Removed: We believe that our legacy and outstanding reputation with the U.S.
−Removed: military will enable us to continue to be a leading communications provider for all DoD services.
+Added: Advanced Sensing and Computing
+Added: 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.
+Added: 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 (“AESA”) tactical radars, dismounted soldier sensing and space sensing.
+Added: Across our offerings, we are focused on advancing sensor distance and enhancing the precision, clarity, definition, spectral depth and effectiveness of our sensors.
+Added: 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.
+Added: Our sensing capabilities are complemented by our rugged, trusted and cyber resilient network computing products.
+Added: 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.
+Added: 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.
Integrated Mission Systems
−Removed: Our Integrated Mission Systems segment provides critical force protection, vehicle integration, transportation and logistics and electrical control, distribution and conversion, and ship propulsion systems to the U.S.
−Removed: military and allied forces.
−Removed: military continues to defend our national security interests across the globe, our technologies and systems help protect U.S.
−Removed: forces and assets against increasingly sophisticated and proliferating threats.
−Removed: Our force protection systems, including solutions for counter-unmanned aerial systems, short-range air defense systems and active protection systems used to defend ground combat vehicles help protect service members and military assets from these growing threats, highlighted by the recent deployment of the Mission Equipment Package (“MEP”) for the Maneuver Short-Range Air Defense (“M-SHORAD”) program by the U.S.
−Removed: We also provide power control, distribution, conversion and propulsion systems for the U.S.
−Removed: Navy’s top priority shipbuilding programs, including the Columbia Class ballistic missile submarine, the first modern U.S.
−Removed: electric drive submarine as well as other advanced equipment to the U.S.
−Removed: Coast Guard, and international navies including hybrid electric drive propulsion systems, energy storage, gas turbine packages, nuclear instrumentation and controls, and thermal management and refrigeration equipment.
−Removed: Current and future platforms require more power than before as a result of the advancement of directed energy weapons, increased on-board computing, and increased sensing.
−Removed: As a result, these platforms must be able to adapt their propulsion to the situation around them, increase their stealth in a threatened environment, or speed to the objective if unthreatened.
−Removed: Our IMS segment provides technologies that fulfill these needs for power and have developed propulsion for various platform types.
−Removed: For example, as the U.S.
−Removed: Navy fleet grows, we expect that it will require new forms of integrated power systems.
−Removed: Our electrical drive technology provides the ability to direct energy to these evolving needs and adapt propulsion based on an evolving threat situation.
−Removed: These capabilities can also be used on unmanned platforms.
−Removed: As a leading provider of next-generation electrical propulsion components and systems for the U.S.
−Removed: Navy, we believe DRS has the technology to provide electrical power capabilities to service the future fleet’s needs.
−Removed: Integrated Mission Systems Products and Services
−Removed: Force Protection
−Removed: Our force protection systems protect service members and military assets around the world as they continue to face increasingly sophisticated threats.
−Removed: We provide force protection products which include solutions for counter-unmanned aerial systems, short-range air defense systems, and active protection systems.
−Removed: These systems can be used to protect military bases, aircraft, ships and ground combat vehicles.
−Removed: DRS is an integrator of systems in ground vehicles for short-range air defense, counter-UAS, and vehicle survivability and protection.
−Removed: This integrator role includes utilizing radars, EW equipment, reconnaissance and surveillance systems, modular combat vehicle turrets, and stabilized sensor suites, and kinetic countermeasures for short-range air defense.
−Removed: We believe that our contract to provide the TROPHY™ Active Protection System (APS) to the U.S.
−Removed: Army positioned us well to provide future vehicle protection systems.
−Removed: Our short-range air defense mission equipment package and mounted counter-unmanned aerial systems integrate technologies that have been recently deployed to defend our service men and women in some of the most contested regions in the world.
−Removed: Naval Power and Propulsion
−Removed: Our naval power and propulsion capabilities help provide the U.S.
−Removed: military with next-generation power capabilities for the future fleet.
−Removed: DRS is currently a leading provider of next-generation electrical propulsion components and systems for the U.S.
−Removed: Navy, including on the Columbia-class submarine program which is integral to the United States’ deterrence strategy and is the U.S.
−Removed: Navy’s highest priority program.
−Removed: We believe the increased sensing, self-protection, directed energy, communications and computing needs for the warfighter require significantly higher levels of mobile power than in the past.
−Removed: DRS electrical power generation, conversion, storage and distribution and on-board vehicle power solutions are well suited to meet those needs.
−Removed: Beyond electrification of its fleet, we expect that the U.S.
−Removed: Navy will require increased power to expand and modernize its vessels, including for the introduction of directed energy weapons.
−Removed: We have developed common power electronics building blocks used in a number of power conversion, distribution, and energy storage systems on multiple naval platforms.
−Removed: Combined with our additional products including high-efficiency, power dense permanent magnet motors, energy storage systems and associated efficient, rugged and compact power conversion, electrical actuation systems, advanced cooling technologies, and a new state of the art manufacturing and electrical test facility in Menomonee Falls, Wisconsin, we believe DRS is well positioned to meet the needs of an increasingly
−Removed: electrified fleet.
−Removed: DRS is also a leader in other marine propulsion equipment including gas turbine packages for a wide variety of U.S.
−Removed: and international naval platforms.
−Removed: We provide advanced Hybrid Electric Drive systems for U.S.
−Removed: and international navy applications that enable increased warfighting capability and reduction in fuel consumption and emissions, which are aligned with global green initiatives.
+Added: Our Integrated Mission Systems (“IMS”) segment designs, develops, manufactures and integrates power conversion, control and distribution systems, ship propulsion systems, motors and variable
+Added: frequency drives, force protection systems, and transportation and logistics systems for the U.S.
+Added: military and allied defense customers.
+Added: DRS is currently a leading provider of next-generation electrical propulsion systems for the U.S.
+Added: We provide power conversion, control, distribution and propulsion systems for the Navy’s top priority shipbuilding programs, including the Columbia Class ballistic missile submarine, the first modern U.S.
+Added: electric drive submarine.
+Added: 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.
−Removed: Navy with a significant installed base on submarines, aircraft carriers and other surface ships including motor controllers, instrumentation and control equipment for nuclear propulsion systems, electrical actuation systems, and thermal management systems for weapons, electronics and ship stores refrigeration.
−Removed: DRS also provides selected equipment such as nuclear controls and instrumentation, cooling systems, and permanent magnet motors to commercial markets.
−Removed: Transportation and Logistics
−Removed: DRS is a provider of transportation and logistics solutions for the DoD, including bridging systems, cargo loaders and trailers.
−Removed: Our Tunner and Halvorsen programs have provided the U.S.
−Removed: Air Force with rapidly deployable, high-reach mechanized aircraft loaders that can lift up to 60,000 and 25,000 pounds, respectively, of cargo onto military aircraft.
−Removed: The Joint Assault Bridge program positions us well as the U.S.
−Removed: Army and its allies are looking to expand its battlefield mobility.
−Removed: We believe that our legacy position in heavy military trailers will allow us to win new opportunities as the U.S.
−Removed: Army looks for increased solutions.
−Removed: We also have capabilities in military fuel and water handling and distribution which can support U.S.
−Removed: military forces in a variety of challenging forward deployed environments.
−Removed: government is by far our largest customer with revenues derived directly, or indirectly from the U.S.
−Removed: government representing 86%, 84% and 89% of our total revenue for the years ended December 31, 2021, 2020, and 2019 respectively.
−Removed: government sales are highly concentrated with the DoD which make up the overwhelming majority of our U.S.
−Removed: government revenue for any given year, including 86% of our business for the year ended December 31, 2021.
−Removed: Our sales to the DoD are principally derived directly or indirectly from contracts with the U.S.
−Removed: Army and U.S.
−Removed: Navy representing 38% and 31%, respectively, of our total revenues for the year ended December 31, 2021.
−Removed: As a mid-tier defense company with a diverse portfolio of technology that includes offerings at the component, sub-system and system level, we are able to approach each market opportunity with flexibility as to provide the most value to our customers and other stakeholders.
−Removed: This market flexibility allows us to serve as either prime contractor or a subcontractor on key contracts based on the competitive dynamics of each opportunity.
−Removed: For the year ended December 31, 2021 our revenue consisted of 48% as a prime contractor direct with the government and 52% as a subcontractor.
−Removed: The remaining 14% of our revenues for the year ended December 31, 2021, were derived from sales to foreign governments as well as commercial type sales within the U.S.
−Removed: Our international sales consist primarily of transactions with foreign governments for military applications.
−Removed: In total we have generated sales to international customers of $158 million, $223 million, and $120 million for the years ended December 31, 2021, 2020 and 2019 respectively.
−Removed: Defense Market Competition
−Removed: We operate in a highly competitive environment.
−Removed: In the military sector, we compete with large, mid-tier and smaller defense companies as well as some non-traditional companies on the basis of product performance, cost, overall value, delivery schedule, embedded positions, innovation, and reputation.
−Removed: Our products are sold in markets in which several of our competitors are substantially larger than we are, enabling them to devote greater resources to research and development.
−Removed: These larger competitors generally have more financial resources, allowing them to better withstand challenging operating conditions.
−Removed: We also face a variety of competitors which vary across our segments and specific products.
−Removed: to gain new business, we also often team with, are supplier to, or find other ways to work with these competitors.
−Removed: Although we compete with different companies in each of our segments, our key competitors
−Removed: include Raytheon Technologies, L3Harris, BAE Systems, Teledyne/FLIR, Cubic and Elbit Systems, among others.
−Removed: We generally compete on the basis of:
−Removed: • Our product breadth, performance, adaptability and price:
−Removed: • Our reputation for prompt, flexible, and responsive contract performance;
−Removed: • Our installed base of existing products and track record as a trusted partner;
−Removed: • Our ability to react to customer and market trends;
−Removed: • Our strong core technology capabilities and accumulated technical knowledge and expertise;
−Removed: • Our highly experienced management team and talented workforce;
−Removed: • The capabilities of our facilities, equipment and personnel to undertake the programs for which we compete.
−Removed: Our future success will depend in large part upon our ability to improve existing product lines and to develop new products and technologies in the same or related fields.
+Added: 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.
+Added: 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.
+Added: 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.
+Added: 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.
Defense Market Trends
−Removed: The DoD budget, the largest defense budget in the world, has grown at a CAGR of 3.8% from Fiscal Year (“FY”) 2017 to 2021, reflecting an increasing shift in priorities from a focus on global terrorism to emerging threats from more sophisticated and technologically advanced adversaries requiring enhanced capabilities across the DoD.
−Removed: The DoD is our largest customer and, for the year ended December 31, 2021, accounted for approximately 86% of our business as an end-user, with revenues principally derived directly or indirectly from contracts with the U.S.
−Removed: Army and U.S.
−Removed: Navy, which represented 38% and 31%, respectively, of our total revenues for the year.
−Removed: We believe that this strong recent growth and future expectations in our core areas of high technology provide a solid path for continued growth of our business.
−Removed: President Biden’s administration has identified the key threats America faces, which emanate from great powers and regional adversaries, and also from non-state actors and extremists.
−Removed: The DoD FY 2022 budget request for $715 billion prioritizes China and its military modernization as America’s key pacing challenge, while simultaneously addressing the continued threat from global terrorism.
−Removed: This budget request was similar to the prior administration’s projected budget of $722 billion.
−Removed: However, both the Senate and the House of Representatives Armed Services Committees recently submitted bipartisan bills that increase the FY2022 defense budget authorization by an additional $25 and $24 billion, respectively, resulting in DoD authorization of $740 billion.
−Removed: The appropriations bills from the Senate and the House of Representatives increased DoD levels above the budget request resulting in appropriations for the DoD of $751 billion.
−Removed: This represents a significant increase of $46 billion over the prior year’s level.
−Removed: We believe the DoD priorities, which will likely be further shaped by the recent Russian invasion of Ukraine, combined with the FY2022 budget request, authorization and appropriations bills align with DRS’ product offerings and our ability to innovate our core technology and investment focus.
−Removed: In addition to the U.S.
−Removed: market, DRS has important positions internationally in the Middle East, U.K., Australia, Korea and Taiwan in areas such as Tactical Battlefield Management Systems, Thermal Weapons Sites, Combat Aircraft Training and Power and Propulsion programs, among others.
−Removed: Manufacturing and Supplies
−Removed: 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.
−Removed: Purchased components
−Removed: include integrated circuits, circuit boards, metal fabricated into cabinets, resistors, capacitors, semiconductors, silicon wafers and other materials, wire and cables and subsystems including, but not limited to, off-the-shelf components such as servers, computers and peripherals.
−Removed: In addition, many of our products use castings and machined housings.
−Removed: The manufacturing process for certain of our optic products includes the grinding, polishing and coating of various optical materials and the machining of metal components.
−Removed: Although materials and purchased components generally are available from a number of different suppliers, several suppliers are our sole source of certain components.
−Removed: If a supplier should cease to deliver such components we expect that other sources would be available;
−Removed: however, added cost and manufacturing delays might result.
−Removed: We occasionally experience delays attributable to supply shortages and quality and other related problems with respect to certain components, such as semiconductors and connectors.
−Removed: In addition, for our optical products, certain materials, such as rare earth materials, germanium, and zinc sulfide may not always be readily available.
−Removed: Effective management and oversight of suppliers and subcontractors is an important element of our successful performance.
−Removed: If our sources of supply are disrupted, particularly in instances where we rely on only one or two sources of supply, our ability to meet our customer commitments could be adversely impacted.
−Removed: We attempt to mitigate risks with our suppliers by entering into long-term agreements and leveraging company-wide agreements to achieve economies of scale and by negotiating flexible pricing terms in our customer contracts.
−Removed: To date, despite the market challenges, we have not experienced significant disruptions in our financial results or customer delivery commitments stemming from our ability to obtain the materials and components necessary for our business operations.
−Removed: We expect that the micro-electronics will continue to present a challenge to our business although we anticipate the ability to mitigate the majority of the potential risk.
−Removed: Intellectual Property
−Removed: 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.
−Removed: We and our subsidiaries have certain registered trademarks, none of which are considered material to our current operations.
−Removed: We also hold certain trade secrets without formal patent filings in order to protect them from disclosure.
−Removed: We believe our patent position and intellectual property portfolio in the aggregate are valuable to our operations.
−Removed: 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.
−Removed: When we work on U.S.
−Removed: government contracts or use funding of the U.S.
−Removed: government, the U.S.
−Removed: government may have contractual rights to data for our technologies, source code and other developments associated with such government contracts.
−Removed: Records of our data rights are typically maintained in order to claim these rights as our proprietary technology, but it may not always be possible to delineate our proprietary developments from those developed under U.S.
−Removed: government contracts.
−Removed: The protection of our data from use by other U.S.
−Removed: government contractors is subject to negotiation from time to time between us and the U.S.
−Removed: The extent of the U.S.
−Removed: government’s data rights to any particular product generally depends upon whether the product was developed under a government contract and the degree of government funding for the development of such product.
−Removed: While we may retain rights over any technology, product or intellectual property that we develop under U.S.
−Removed: government contracts or using funding of the U.S.
−Removed: government, this requires us to take timely affirmative measures to preserve our right.
+Added: The DoD budget is the largest defense budget in the world.
+Added: President’s government fiscal year 2024 budget request included $842 billion for national defense programs, which marks continued growth from prior years.
+Added: The most recent National Defense Strategy and annual defense budget request continue to prioritize a strategic focus on countering and deterring threats from near-peer adversaries.
+Added: We believe that the level and growth of the defense budget as well as strategic priorities requiring more advanced and sophisticated defense technology capabilities create a favorable market environment for DRS.
+Added: government is our largest customer.
+Added: Revenues derived directly or indirectly from the U.S.
+Added: government represent 84%, 86% and 84% of our total revenue for full year 2022, 2021, and 2020, respectively.
+Added: government sales are concentrated with the DoD, which constitutes the majority of our U.S.
+Added: government revenue for any given year, including the entirety of our government sales in 2022.
+Added: Our revenues with the DoD span the Army, Navy, Air Force and other DoD agencies which represent 37%, 32%, 5% and 10%, respectively, of our total revenue for 2022.
+Added: The remaining 16% of our revenues for 2022, were derived from sales to foreign governments as well as commercial type sales within the U.S.
+Added: Our international sales consist primarily of transactions with foreign governments for defense applications.
+Added: We operate in a highly competitive market and we compete with a variety of companies in the defense market including divisions of the large defense primes, mid-tier and smaller defense companies as well as certain non-traditional companies.
+Added: To gain new business, we also often team with, are supplier to, or find other ways to work with other market participants.
+Added: Our products are sold in markets in which several of our competitors are substantially larger than we are, enabling them to devote greater resources to research and development.
+Added: The principal competitive factors evaluated by customers in our markets
+Added: include product performance, cost, overall value, delivery schedule, embedded positions, past performance, innovation and reputation.
+Added: As a mid-tier defense company with a diverse portfolio of technology that includes offerings at the system, sub-system and component level, we approach each market opportunity with the flexibility and agility to provide the most value to our customers.
+Added: We serve as either prime contractor or a subcontractor on key contracts based on the competitive dynamics of each opportunity.
+Added: We determine our prime versus subcontract position based on our competitive position, likelihood of contract win and overall profit contribution.
+Added: For 2022 our revenue consisted of 41% as a prime contractor direct with the government and 59% as a subcontractor.
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.
−Removed: We also derive
−Removed: revenue from contracts on which we serve as either prime contractor or subcontractor.
−Removed: For the years ended December 31, 2021, 2020, and 2019, revenues were approximately even between contracts on which we served as prime contractor and subcontractor in our AST segment, whereas in our NC&C segment the majority of our segment revenues are driven from prime contract positions generating approximately 73%, 61%, and 64%, of segment revenue respectively.
−Removed: Conversely at our IMS segment majority of our revenues are generated from subcontractor positions which account for 82%, 66% and 52% for the years ended December 31, 2021, 2020 and 2019 respectively.
−Removed: We determine our prime versus subcontract position based on our competitive position, likelihood of contract win and overall profit contribution.
While the majority of our revenue is derived from the U.S.
−Removed: government and DoD, within this we have a diverse business mix with limited dependence on any single contract.
−Removed: No single contract represented more than 10% of revenues for the years ended December 31, 2021, 2020 and 2019.
−Removed: The amount of our revenues attributable to our contracts by contract type during the years ended December 31, 2021, 2020 and 2019 were as follows:
+Added: government, we have a diverse business mix within the U.S.
+Added: government funding and limited dependence on any single contract.
+Added: Currently no single contract or platform represented more than 10% of our revenues for the 2022, 2021, and 2020 years.
+Added: The amount of our revenues attributable to our contracts by contract type during 2022, 2021, and 2020 were as follows:
($ in millions)
1 unchanged sentence
Firm fixed price $ 2,347 $ 2,498 $ 2,408
−Removed: $ 2,498 $ 2,408 $ 2,334
Flexibly priced (a)
$ 346 $ 381 $ 370
−Removed: Includes revenue derived from time and materials contracts.
+Added: (a) Includes revenue derived from cost type and time and materials contracts.
Typically we enter into three types of contracts:
fixed price contracts, cost-plus contracts and time and material (“T&M”) contracts (cost-plus contracts and T&M contracts are aggregated above as flexibly priced contracts).
−Removed: and our contracts are normally for production, services or development.
−Removed: Production contracts are typically the fixed-price type, development contracts are sometimes of the cost-plus-type, and service contracts are sometimes of the time and materials type.
+Added: Our contracts are normally for production, services or development.
+Added: Production contracts are typically the fixed-price type, development contracts are sometimes of the cost-plus-type, and service contracts are sometimes the T&M type.
We believe continued predominance of fixed-price contracts is reflective of the significant portion of production contracts in our U.S.
6 unchanged sentences
We bear all costs that exceed the ceiling, if any.
−Removed: Cost-plus type contracts typically provide for reimbursement of allowable costs incurred plus a fee (profit).
−Removed: Under cost-plus-fixed-fee contracts, we are reimbursed for allowable costs and receive a fixed fee, which is negotiated and specified in the contract.
−Removed: Such fees have statutory limits.
−Removed: Unlike fixed-price contracts in which we are committed to deliver without regard to cost, cost-plus contracts normally obligate us to use our best efforts to accomplish the scope of work within a specified time and a stated contract dollar limitation.
−Removed: In addition, U.S.
−Removed: government procurement regulations typically result in lower profits for cost type contracts because of our reduced risk.
−Removed: Under cost-plus-incentive-fee contracts, an additional incentive fee awarded may be based on cost or performance.
−Removed: When the incentive is based on cost, the contract specifies that we are reimbursed for allowable incurred costs plus a fee adjusted by a formula based on the ratio of total allowable costs to target cost.
−Removed: Target cost, target fee, minimum and maximum fee, and adjustment formulae are agreed upon when the contract is negotiated.
−Removed: In the case of performance-based incentives, we are reimbursed for allowable incurred costs plus an incentive, contingent upon meeting or surpassing stated performance targets.
−Removed: The contract provides for increases in the fee to the extent that such targets are surpassed and for decreases to the extent that such targets are not met.
−Removed: In some instances, cost-plus-incentive-fee contracts also may include a combination of both cost
−Removed: and performance incentives.
−Removed: Under cost-plus-fixed-fee contracts, we are reimbursed for costs and receive a fixed fee, which is negotiated and specified in the contract.
+Added: • Cost-type contracts include cost plus fixed fee, cost plus award fee and cost plus incentive fee contracts.
+Added: Cost-type contracts generally provide for reimbursement of a contractor’s allowable costs incurred plus fee.
+Added: As a result, cost-type contracts have less financial risk associated with unanticipated cost growth but generally provide lower profit margins than fixed-price contracts.
+Added: Cost-type contracts typically require that the contractor use its best efforts to accomplish the scope of the work within some specified time and stated dollar limitation.
+Added: Fees on cost-type contracts can be fixed in terms of dollar value or can be variable due to award and incentive fees, which are generally based on performance
+Added: criteria such as cost, schedule, quality and/or technical performance.
+Added: Award fees are determined and earned based on customer evaluation of the Company’s performance against contractual criteria.
+Added: Incentive fees are generally based on cost or schedule and provide for an initially negotiated fee to be adjusted later, based on the relationship of total allowable costs to total target costs or as schedule milestones are met.
+Added: Award and incentive fees are included in total estimated sales to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
+Added: We estimate variable consideration as the most likely amount to which we expect to be entitled.
• Time-and-material type contracts provide for reimbursement of labor hours expended at a contractual fixed labor rate per hour, plus the actual costs of material and other direct non-labor costs.
The fixed labor rates on time-and-material type contracts include amounts for the cost of direct labor, indirect contract costs and profit.
−Removed: For the majority of our contracts, revenues are recognized using an over time, cost-to-cost accounting method, with revenue recognized based on the ratio of cumulative costs incurred to date to estimated total contract costs at completion.
−Removed: For contracts accounted for in this way, our reported revenues may contain amounts which we have not billed to customers if we have incurred costs, and recognized related profits, in excess of billed progress payments.
−Removed: GAAP, contract costs, including allowable general and administrative expenses on certain government contracts, are charged to work-in-progress inventory and are written off to costs and expenses as revenues are recognized.
−Removed: The Federal Acquisition Regulations (“FAR”) and the defense supplement (“DFARS”), incorporated by reference in U.S.
−Removed: government contracts, provide that internal research and development costs are allowable general and administrative expenses.
−Removed: Unallowable costs, pursuant to the FAR, are excluded from costs accumulated on U.S.
−Removed: government contracts.
−Removed: Our defense contracts and subcontracts that require the submission of cost or pricing data are subject to audit, various profit and cost controls, and standard provisions for termination at the convenience of the customer.
−Removed: The DCAA performs these audits on behalf of the U.S.
−Removed: The DCAA has the right to perform audits on our incurred costs on cost-type or price redeterminable-type contracts on a yearly basis.
−Removed: Approval of an incurred cost submission can take from one to three years from the date of the submission of the contract cost.
−Removed: government contracts are, by their terms, subject to termination by the U.S.
−Removed: government for either convenience or default by the contractor.
−Removed: Fixed-price contracts provide for payment upon termination for items delivered to and accepted by the U.S.
−Removed: government and, if the termination is for convenience, for payment of fair compensation of work performed plus the costs of settling and paying claims by terminated subcontractors, other settlement expenses and a reasonable profit on the costs incurred.
−Removed: Cost-plus contracts provide that, upon termination, the contractor is entitled to reimbursement of its allowable costs and, if the termination is for convenience, a total fee proportionate to the percentage of the work completed under the contract.
−Removed: 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.
−Removed: In these circumstances, the U.S.
−Removed: government is not liable for excess costs incurred by us in procuring undelivered items from another source.
−Removed: In addition to the right of the U.S.
−Removed: government to terminate U.S.
−Removed: government contracts, such contracts are conditioned upon the continuing availability of Congressional appropriations.
−Removed: Congress usually appropriates funds for a given program on a September 30 fiscal year basis, even though contract performance may take many years.
−Removed: Consequently, at the outset of a major program, the contract is typically only partially funded, and additional funds normally are committed to the contract by the procuring agency only as appropriations are made by Congress for future fiscal years.
−Removed: Product Warranties
−Removed: Product warranty costs generally are accrued in proportion to product revenue realized in conjunction with our over-time revenue recognition policy.
−Removed: Product warranty expense is recognized based on the term of the product warranty, generally one to three years, and the related estimated costs, considering historical claims expense.
−Removed: Accrued warranty costs are reduced as these costs are incurred and as the warranty period expires, and otherwise may be modified as specific product performance issues are identified and resolved.
−Removed: Joint Ventures, Strategic Investments and Mergers and Acquisitions
−Removed: From time to time we enter into strategic joint ventures, investments and mergers and acquisitions.
−Removed: We hold a 51% ownership interest in Advanced Acoustic Concepts (“AAC”), a joint venture with a subsidiary of Thales S.A., which provides sonar systems and components, acoustic training systems, and other underwater systems.
−Removed: AAC engages in development of technology, products, and systems and also licenses technology and products from Thales for adaptation to the U.S.
−Removed: market when the opportunities are present.
−Removed: DRS provides support to AAC in the areas of security, export control, human resources, information technology, and at times, financing, among others.
−Removed: DRS chairs the joint management committee and, together with Thales, reviews and approves their business, financials, and business plans, including investments.
−Removed: AAC provided no cash dividends to DRS for the year ended December 31, 2021 and 2020 respectively resulting from the uncertainty of the COVID-19 impact on operations but did receive $3 million year ended December 31, 2019.
−Removed: In June 2017, we acquired Daylight Solutions for a purchase price of $150 million in cash.
−Removed: Daylight Solutions designs and manufactures infrared Quantum Cascade Laser solutions that supplement the infrared sensors already in DRS’ portfolio.
−Removed: Together these two capabilities address the growing force protection needs for aircraft and ground vehicles by allowing them to sense threats and then enact countermeasures for certain classes of enemy missiles, thus saving lives.
−Removed: The acquisition of Daylight also allowed DRS to address markets unrelated to force protection, again by combining the infrared lasers with infrared sensors.
−Removed: To address the growing demands to sense further, and to increase situational understanding, these two capabilities allow for longer-range threat detection.
−Removed: We also hold an approximately 10% interest in Hoverfly Technologies, Inc.
−Removed: (“Hoverfly”), which designs, develops and manufactures power-tethered unmanned aerial systems and related products.
−Removed: Pursuant to the terms of our agreement with Hoverfly, we increased our investment in Hoverfly from 7% to 10% in Q2 2021 and may increase our investment beyond 10%, at our option.
−Removed: We have also entered into an exclusive manufacturing and teaming agreement with Hoverfly.
−Removed: We do not consider any material portion of our business to be seasonal.
−Removed: However, our cash flows lack linearity with a majority of cash receipts generally occurring in the fourth quarter of our fiscal year.
−Removed: Various factors can affect the distribution of our revenues and cash flows between accounting periods, including the federal government’s budget cycle based on its October-to-September fiscal year, 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.
+Added: Our total backlog consists of funded and unfunded amounts.
+Added: 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.
+Added: Unfunded backlog represents the revenue value of firm orders for products and services under existing contracts for which funding has not been obligated less funding previously recognized on these contracts.
+Added: (Dollars in millions) 2022 2021 2020
+Added: $ 2,783 $ 2,510 $ 2,847
+Added: 1,486 351 444
+Added: Total backlog (1)
+Added: $ 4,269 $ 2,861 $ 3,291
+Added: ________________
+Added: (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.
+Added: government contracts, which could have a material adverse impact on our business, financial condition and results of operations” in this Annual Report.
+Added: Materials, Manufacturing and Suppliers
+Added: 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.
+Added: Although materials and purchased components generally are available from a number of different suppliers, several suppliers serve as the sole source of certain components.
+Added: If a supplier should cease to deliver such components, generally we would expect that other sources would be available;
+Added: however, added cost and manufacturing delays might result.
+Added: We have experienced delays attributable to supply shortages and quality and other related problems with respect to certain components.
+Added: Effective management and oversight of suppliers and subcontractors is an important element of our successful performance.
+Added: If our sources of supply are disrupted, particularly in instances where we rely on only one or two sources of supply, our ability to meet our customer commitments could be adversely impacted.
+Added: We attempt to mitigate risks with our suppliers by entering into long-term agreements and leveraging company-wide agreements to achieve economies of scale and by negotiating flexible pricing terms in our customer contracts.
+Added: Revenue, profit and cash flows have been, and will continue to be, adversely impacted by supply chain disruptions.
Research and Development
5 unchanged sentences
Company-funded R&D costs charged to cost of revenues totaled $58 million, $48 million and $41 million in 2022, 2021 and 2020, respectively.
+Added: Intellectual Property
+Added: We believe our intellectual property portfolio is valuable to our operations.
+Added: 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.
+Added: We and our subsidiaries have certain registered trademarks, none of which are considered material to our current operations.
+Added: 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.
+Added: 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.
+Added: When we work on U.S.
+Added: government contracts or use funding of the U.S.
+Added: government, the U.S.
+Added: government may have contractual rights to data for our technologies, source code and other developments associated with such government contracts.
+Added: Records of our data rights are typically maintained in order to claim these rights as our proprietary technology, but it may not always be possible to delineate our proprietary developments from those developed under U.S.
+Added: government contracts.
+Added: The protection of our data from use by the U.S.
+Added: government, including its ability to allow its use by other U.S.
+Added: government contractors, is subject to negotiation from time to time between us and the U.S.
+Added: The extent of the U.S.
+Added: government’s data rights to any particular product generally depends upon whether the product was developed under a government contract and the degree of government funding for the development of such product.
+Added: While we may retain rights over any technology, product or intellectual property that we develop under U.S.
+Added: government contracts or using funding of the U.S.
+Added: government, this requires us to have sufficient contracting leverage and to take timely affirmative measures to preserve our right.
+Added: Human Capital
+Added: Our performance is dependent on our highly educated and highly skilled workforce.
+Added: We had approximately 6,400 employees on December 31, 2022.
+Added: As of December 31, 2022, approximately 451 (or 7)% of our employees were represented by labor unions.
+Added: We strive to maintain a culture that fosters and rewards growth, problem-solving, technology development and process improvements.
+Added: Our engineers work on programs in advanced fields, including sensing, electro-optical infrared systems, laser systems, network computing, communications systems, integration and power propulsion.
+Added: A portion of our employees also maintain security clearances to allow engineers and management to carry on business activities for our customers’ classified programs.
+Added: Our people are all committed to upholding the core values of the Company including integrity, operational excellence, customer focus, diversity, equity & inclusion and innovation.
+Added: Our commitment to ethical business practices is outlined in our Code of Ethics & Business conduct (the “Code”).
+Added: The Code applies to all employees and establishes our expectations for appropriate business conduct is a variety of scenarios.
+Added: Once a year, all employees must confirm their commitment to our ethics program by providing confirmation they will adhere to the Code.
+Added: We recognize that our success as a Company depends on our ability to attract, develop and retain a qualified workforce with an emphasis on a strong commitment to diversity and inclusion.
+Added: As such, we promote the health, welfare and safety of our employees and seek to treat all employees with dignity and respect and provide fair, market-based, competitive and equitable compensation.
+Added: We strive to recognize and reward the performance of our employees and to provide a comprehensive suite of benefit options that enables our employees and their dependents to live healthy and productive lives.
+Added: Safety in our workplaces is paramount.
+Added: Across our businesses, we take measures to prevent workplace hazards, encourage safe behaviors and enforce a culture of continuous improvement to ensure our processes help reduce incidents and illnesses and comply with governing health and safety laws.
+Added: Our strong commitment to diversity, inclusion, succession planning and training includes our Diversity Advisory Group geared at improving diversity and inclusiveness so that we look like the communities in which we operate.
+Added: We have targeted increases in minority hiring and expanding women in the workforce.
+Added: Our values motivate us to promote strong workplace practices with opportunities for development and training.
+Added: Our training and development efforts focus on ensuring that the workforce is appropriately trained on critical job skills as well as leadership behaviors that are consistent with our core values.
+Added: We conduct rigorous succession planning exercises to ensure that key positions have the appropriate level of bench strength to provide for future key positions and leadership transitions.
+Added: We listen to our workforce to assess areas of concern and levels of engagement.
+Added: Joint Ventures, Strategic Investments and Mergers and Acquisitions
+Added: On June 21, 2022, the Company entered into a definitive agreement with RADA Electronic Industries Ltd.
+Added: (“RADA”), a leading provider of advanced software-defined military tactical radars, to merge and become a combined public company.
+Added: On November 28, 2022 the merger was completed and RADA became a wholly-owned subsidiary of Leonardo DRS.
+Added: As a result of the merger, we now hold an approximately 12% interest in RadSee Technologies Ltd.
+Added: an early-stage radar technology company organized in Israel.
+Added: On March 21, 2022, the Company entered into a definitive agreement to sell its Global Enterprise Solutions business to SES Government Solutions, Inc.
+Added: The transaction was completed on August 1, 2022 and resulted in net cash proceeds of $427 million after net working capital adjustments.
+Added: 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.
+Added: (TDSI), the minority partner in this joint venture.
+Added: The transaction was completed on July 8, 2022 and resulted in proceeds of $56 million.
+Added: We also hold an approximately 10% interest in Hoverfly Technologies, Inc.
+Added: (“Hoverfly”), which designs, develops and manufactures power-tethered unmanned aerial systems and related products.
+Added: We are also party to an exclusive manufacturing and teaming agreement with Hoverfly.
+Added: We do not consider any material portion of our business to be seasonal.
+Added: However, a significant portion of our revenue, profit and cash flows are generated in the fourth quarter of our fiscal year.
+Added: Various factors can affect the distribution of our revenues, profits and cash flows between accounting periods, including the U.S.
+Added: 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.
+Added: Product Warranties
+Added: Product warranty costs generally are accrued in proportion to product revenue realized in conjunction with our over-time revenue recognition policy.
+Added: Product warranty expense is recognized based on the term of the product warranty, generally one to three years, and the related estimated costs, considering historical claims expense.
+Added: Accrued warranty costs are reduced as these costs are incurred and as the warranty period expires, and otherwise may be modified as specific product performance issues are identified and resolved.
Legislation and Regulation
1 unchanged sentence
These regulations and other requirements increase our performance and compliance costs and risks and regularly evolve.
−Removed: New laws, regulations or procurement requirements or changes to current ones (including, for example, regulations related to cybersecurity, privacy, recovery of employee compensation
−Removed: costs, counterfeit parts, anti-human trafficking, specialty metals and conflict minerals) can significantly increase our costs and risks and reduce our profitability.
+Added: New laws, regulations or procurement requirements or changes to current ones (including, for example, regulations related to cybersecurity, privacy, recovery of employee compensation costs, counterfeit parts, anti-human trafficking, specialty metals and conflict minerals) can significantly increase our costs and risks and reduce our profitability.
If we fail to comply with procurement regulations or other requirements we may be subject to civil and/or criminal penalties and/or administrative sanctions, which may include termination or modification of contracts, forfeiture of profits, suspension of payments, fines and suspension or prohibition from doing business with the U.S.
3 unchanged sentences
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” in this Annual Report.
−Removed: We (again, including our subcontractors and others with whom we do business) also are subject to, and expected to perform in compliance with, a vast array of federal laws, regulations and requirements related to our industry, our products and the businesses we operate.
+Added: We (again, including our subcontractors and others with whom we do business) also are 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.
These laws and regulations include, but are not limited to the Anti-Kickback Act, the Arms Export Control Act, including the ITAR, the Communications Act, the Defense Federal Acquisition Regulations, the Export Control Reform Act, including the EAR (which includes anti-boycott provisions), the False Claims Act, the Federal Acquisition Regulation, the FCPA, the Lobbying Disclosure Act, the Procurement Integrity Act, the Truthful Cost or Pricing Data Act, the Foreign Trade Regulations, the Foreign Investment Risk Review Modernization Act, the International Emergency Economic Powers Act, the Trading with the Enemy Act, and Executive Orders and regulations, administered by the U.S.
15 unchanged sentences
“Risk Factors—Risks Relating to Our Business—We are subject to environmental laws and regulations, and our ongoing operations may expose us to environmental liabilities affecting our reputation, business, financial condition and results of operations” in this Annual Report.
−Removed: Except as described in Note 15 “Commitments and Contingencies” to the Consolidated Financial Statements, we believe that we have been and are in material compliance with environmental laws and regulations and that we have no liabilities under environmental requirements that would be expected to have a material adverse effect on our business, results of operations, financial condition or liquidity.
−Removed: It is possible, however, that the ultimate resolution of the matters discussed under Note 15 “Commitments and Contingencies” to the Consolidated Financial Statements could result in a material adverse effect on our results of operations for a particular reporting period, any of which could have a material adverse effect on our business.
−Removed: Our total backlog consists of funded and unfunded amounts.
−Removed: 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.
−Removed: 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.
−Removed: (Dollars in millions) 2021 2020 2019
−Removed: $ 2,510 $ 2,847 $ 2,547
−Removed: Total backlog (1)
−Removed: $ 2,861 $ 3,291 $ 2,844
−Removed: ________________
−Removed: (1) See Part I Item 1A.
−Removed: “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.
−Removed: government contracts, which could have a material adverse impact on our business, financial condition and results of operations” in this Annual Report.
−Removed: Human Capital Management
−Removed: Our company consists of approximately 6,575 people all committed to upholding the core values of the company including integrity, quality, customer focus, diversity and inclusion and innovation.
−Removed: Our commitment to ethical business practices is outlined in our Code of Ethics & Business conduct (the “Code”).
−Removed: The Code applies to all employees and establishes our expectations for appropriate business conduct is a variety of scenarios.
−Removed: Once a year, all employees must confirm their commitment to our ethics program by providing confirmation they will adhere to the Code.
−Removed: Due to the highly specialized nature of our business, our workforce is highly innovative and we maintain a culture that fosters and rewards growth, problem-solving, technology development and process improvements.
−Removed: We have approximately 1,350 engineers who work on programs in sensing, electro-optical infrared systems, laser systems, network computing, communications systems, integration and power propulsion.
−Removed: Our employees maintain over 2,000 security clearances to allow engineers and management to carry on business activities for our customers’ classified programs.
−Removed: We recognize that our success as a company depends on our ability to attract, develop and retain a qualified workforce with an emphasis on a strong commitment to diversity and inclusion.
−Removed: As such, we promote the health, welfare and safety of our employees.
−Removed: Part of our responsibility includes treating all employees with dignity and respect and providing them with fair, market-based, competitive and equitable compensation.
−Removed: We recognize and reward the performance of our employees and provide a comprehensive suite of benefit options that enables our employees and their dependents to live healthy and productive lives.
−Removed: Safety in our workplaces is paramount.
−Removed: Across our businesses, we take measures to prevent workplace hazards, encourage safe behaviors and enforce a culture of continuous improvement to ensure our processes help reduce incidents and illnesses and comply with governing health and safety laws.
−Removed: These efforts continue to be of the utmost importance as we address the ongoing challenges presented by the COVID-19 pandemic.
−Removed: Our strong commitment to diversity, inclusion, succession planning and training has fostered a highly collaborative and motivated work force.
−Removed: Our commitment to diversity includes our Diversity Advisory Group geared at improving diversity and inclusiveness so that we look like the communities in which we operate.
−Removed: We have targeted increases in minority hiring and expanding women in the workforce.
−Removed: Our values motivate us to promote strong workplace practices with opportunities for development and training.
−Removed: Our training and development efforts focus on ensuring that the workforce is appropriately trained on critical job skills as well as leadership behaviors that are consistent with our core values.
−Removed: We conduct rigorous succession planning exercises to ensure that key positions have the appropriate level of bench strength to provide for future key positions and leadership transitions.
−Removed: We listen to our workforce to assess areas of concern and levels of engagement.
+Added: Except as described in Note 18:
+Added: Commitments and Contingencies ” to the Consolidated Financial Statements, we believe that we have been and are in material compliance with environmental laws and regulations and that we have no liabilities under environmental requirements that
+Added: would be expected to have a material adverse effect on our business, results of operations, financial condition or liquidity.
+Added: It is possible, however, that the ultimate resolution of the matters discussed under Note 18:
+Added: Commitments and Contingencies to the Consolidated Financial Statements could result in a material adverse effect on our results of operations for a particular reporting period, any of which could have a material adverse effect on our business.
Governance Structure
−Removed: defense contractor with high level personal and facility security clearances, DRS, our immediate parent Leonardo US Holding and our ultimate parent Leonardo S.p.A.
−Removed: have entered into an 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 stockholder and ultimate foreign parent company of DRS, respectively.
+Added: defense contractor with high level personnel and facility security clearances, DRS, our immediate majority stockholder US Holding, LLC and our ultimate majority stockholder Leonardo S.p.A.
+Added: 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.
Specifically, US Holding has authorized certain cleared U.S.
persons to operate as its proxies and exercise the key prerogatives of stock ownership.
−Removed: The proxy agreement requires that DRS have the financial and operational ability to operate as an independent entity under an independent board of directors, subject to certain limited, enumerated consent rights of the majority stockholder (including material mergers and acquisitions and incurrence of debt).
−Removed: For additional information, see Part III., Item 13.
−Removed: “Certain Relationships and Related Transactions—Relationship with Leonardo S.p.A.—Proxy Agreement” in this Annual Report.
−Removed: Our Ultimate Parent
−Removed: Leonardo S.p.A., a global high-technology company, is among the top ten world players in Aerospace, Defense and Security and Italy’s main industrial company.
−Removed: Organized into five business divisions, Leonardo S.p.A.
−Removed: has a significant industrial presence in Italy, the United Kingdom, Poland and the USA, where it also operates through subsidiaries such as DRS (defense electronics), and joint ventures and partnerships as:
−Removed: ATR, MBDA, Telespazio, Thales Alenia Space and other minor entities.
+Added: We are currently operating under an interim proxy agreement while we seek to enter into a new proxy agreement with the DoD.
+Added: 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).
+Added: 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.
+Added: If we fail to comply with the proxy agreement our classified U.S.
+Added: 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.
+Added: At all times subject to the proxy agreement, on November 28, 2022 the Company entered into a registration rights agreement (the “Registration Rights Agreement”) as well as a cooperation agreement (the “Cooperation Agreement”) with Leonardo S.p.A and US Holding.
+Added: The Registration Rights Agreement, among other things, provides Leonardo S.p.A.
+Added: 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.
+Added: The Cooperation Agreement, among other things, (a) Leonardo S.p.A.
+Added: has certain consent, access and cooperation rights, (b) US Holding has certain consent rights with respect to actions taken by the Company and its subsidiaries, including with respect to the creation or issuance of any new classes or series of stock (subject to customary exceptions), listing or delisting from any securities exchange, and making material changes to the Company’s accounting policies and changing the Company’s auditor, and (c) neither US Holding nor Leonardo S.p.A.
+Added: has 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.
+Added: Our Ultimate Majority Stockholder
+Added: Leonardo S.p.A., a global high-technology company, is a leading global Aerospace, Defense and Security company and Italy’s main industrial company.
+Added: Organized into five business Sectors, Leonardo S.p.A.
+Added: 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 as:
+Added: GIE ATR, MBDA, Telespazio, Thales Alenia Space, Hensoldt AG and other minor entities.
Leonardo S.p.A.
−Removed: competes in the most important international markets by leveraging its areas of technological and product leadership (Helicopters, Aircraft, Aerostructures, Electronics, Cyber Security and Space).
+Added: competes in the most important international markets by leveraging its areas of technological and product leadership (Helicopters, Defense Electronics & Security, Aircraft, Aerostructures and Space).
Listed on the Milan Stock Exchange (under the trading symbol “LDO”), in 2022 Leonardo S.p.A.
−Removed: recorded consolidated revenues of €14.1 billion and invested €1.8 billion in Research and Development.
−Removed: The group has been part of the Dow Jones Sustainability Index (“DJSI”) since 2010 and was named as sustainability global leader in the Aerospace & Defense sector of DJSI for the third year in a row in 2021.
+Added: recorded consolidated revenues of €14.7 billion and invested €2.0 billion in R&D.
+Added: The group has been part of the Dow Jones Sustainability Index (“DJSI”) since 2010 and was again named as sustainability global leader in the Aerospace & Defense sector of DJSI in 2022.
Available Information
−Removed: We file reports and other information with the Securities and Exchange Commission (“SEC”) pursuant to Section 15(d) of the Securities Exchange Act of 1934, as amended.
+Added: We file reports and other information with the Securities and Exchange Commission (“SEC”).
The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information.
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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.