What changed in this filing

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Item 1. Business

2025-03-03 compared with 2024-02-28 · 49 added, 43 removed, 215 unchanged (30% of the section changed)

3 unchanged sentences

We specialize in the design, development and manufacture of advanced sensing, network computing, force protection and electric power and propulsion technologies and solutions.

Our innovative spirit and agility, together with our established market position in these areas have created a foundational and diverse base of programs across the DoD.

Our innovative spirit and agility inherent in a mid-sized defense company, together with our established market position in these areas have created a foundational and diverse base of programs across the DoD.

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.

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DRS is a leading provider of next-generation electrical propulsion systems for the U.S.

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.

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.

8 unchanged sentences

In March 2024, the U.S.

President’s fiscal year (“FY”) 2024 budget request was released and included $842 billion for national defense programs, which marks a 3% increase over prior year levels.

President’s fiscal year (“FY”) 2025 budget request was released and included $850 billion in base funding for national defense programs, which is largely flat over prior year levels.

Following that, the FY 2025 National Defense Authorization Act (“NDAA”) was passed by Congress late in 2024 and signed into law by the President in December 2024.

The NDAA authorizes $842 billion in defense spending, including increases in procurement, research, development, testing and engineering, as well as military assistance to Ukraine.

After partially completing the companion defense appropriations bill for FY 2024, Congress landed on a series of Continuing Resolutions (“CRs”), passing a two-part, or “laddered,” Continuing Resolution to extend FY 2023 spending and avoid a government shutdown.

The current laddered CRs expire in March 2024 and are linked to a broader agreement that may include some form of supplemental funding for foreign aid to Ukraine and Israel.

The NDAA authorizes $850 billion in defense spending, including increases in procurement, research, development, testing and engineering.

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.

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.

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.

government is our largest customer.

Revenues derived directly or indirectly from the U.S.

government represent 80%, 84% and 86% of our total revenue for full year 2023, 2022, and 2021, respectively.

government represented 79%, 80% and 84% of our total revenues for full year 2024, 2023, and 2022, respectively.

government sales are concentrated with the DoD, which constitutes the majority of our U.S.

government revenue for any given year, including the entirety of our government sales in 2024.

Our revenues with the DoD span the Navy, Army, Air Force and other DoD agencies which represent 38%, 31%, 4% and 7%, respectively, of our total revenue for 2023.

The remaining 20% of our revenues for 2023, were derived from sales to foreign governments as well as commercial type sales within the U.S.

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.

The remaining 21% of our revenues for 2024 were derived from sales to foreign governments as well as commercial sales within the U.S.

Our international sales consist primarily of transactions with foreign governments for defense applications.

3 unchanged sentences

The principal competitive factors evaluated by customers in our markets include product performance, cost, overall value, delivery schedule, embedded positions, past performance, innovation and reputation.

As a mid-tier defense company with a diverse portfolio of technology that includes offerings at the system, sub-system and component level, we approach each market opportunity with the flexibility and agility to provide the most value to our customers.

We serve as either prime contractor or a subcontractor on key contracts based on the competitive dynamics of each opportunity.

We determine our prime versus subcontract position based on our competitive position, likelihood of contract win and overall profit contribution.

For 2023 our revenue consisted of 39% as a prime contractor direct with the government and 61% as a subcontractor.

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.

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.

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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).

fixed-price contracts, cost-plus contracts and time-and-materials (“T&M”) contracts (cost-plus contracts and T&M contracts are aggregated above as flexibly priced contracts).

Our contracts are normally for production, services or development.

5 unchanged sentences

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.

price-incentive-fee contracts, if actual costs incurred in the performance of the contracts are less than estimated costs for the contracts the savings are apportioned between the customer and us.

If actual costs under such a contract exceed estimated costs, however, excess costs are apportioned between the customer and us, up to a ceiling.

9 unchanged sentences

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.

• 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.

The fixed labor rates on time-and-materials type contracts include amounts for the cost of direct labor, indirect contract costs and profit.

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.

Unfunded backlog represents the revenue value of firm orders for products and services under existing contracts for which funding has not been appropriated less funding previously recognized on these contracts.

Unfunded backlog represents the revenue value of firm orders for products and services under existing contracts for which funding has not yet been appropriated less funding previously recognized on these contracts.

(Dollars in millions) 2024 2023 2022

10 unchanged sentences

If a supplier should cease to deliver such components, generally, but not in all cases, we would expect that other sources would be available;

however, added cost and manufacturing delays might result.

We have experienced delays attributable to supply shortages and quality and other related problems with respect to certain components.

however, added

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.

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.

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

If our sources of supply are disrupted, particularly in instances where we rely on only one or two sources of supply, our ability to meet our customer commitments could be adversely impacted.

We 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.

31 unchanged sentences

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 rewards growth, agility, problem-solving, innovation and operational excellence.

We continuously strive to maintain a culture that fosters and

rewards growth, agility, problem-solving, innovation and operational excellence.

Our engineers work on programs that require advanced technology, such as sensing, electro-optical infrared systems, laser systems, network computing, cyber, communications systems, integration and power propulsion.

Some of our employees maintain security clearances which allows us to conduct business activities for our customers’ classified programs.

Our people are committed to upholding the Company’s core values of:

Our people are committed to upholding the Company’s core values of integrity;

customer focus;

diversity, equity and inclusion;

community and respect;

and innovation.

2 unchanged sentences

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 inclusive and diverse workforce.

To accomplish this, we have talent acquisition, talent management, and Diversity, Equity and Inclusion (“DE&I”) programs established to attract and retain our employees.

We recognize and reward the performance of our employees, provide equitable, market-based and competitive compensation, and offer a comprehensive suite of benefits for our employees and their families to support their health and well-being.

We strive to create an environment where all employees are treated with dignity and respect.

We recognize 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.

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 have policies, processes, and trainings in place to comply with health and safety laws and to prevent workplace hazards from occurring.

We have policies, processes, and training in place to comply with health and safety laws and to prevent workplace hazards from occurring.

Emphasis is placed on encouraging safe behaviors and creating a culture of continuous improvement to minimize or eliminate workplace incidents and illnesses.

Our strong commitment to employee and leadership development, talent management, talent development and succession planning ensures our workforce is prepared for the critical skills necessary for the work today and for future opportunities.

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.

2 unchanged sentences

We continuously strive to deliver employee programs that support employee performance, development, well-being, and health and safety.

In addition, we support our local communities, active military, and veterans through our charitable giving and volunteerism.

We are committed to fostering diversity and inclusion with our Employee Resources Groups and Me (“mERGe”) program, local diversity action teams, and by creating a workforce representative of the communities in which we live and work.

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

5 unchanged sentences

On November 28, 2022 the merger was completed and RADA became a wholly-owned subsidiary of Leonardo DRS.

As a result of the merger, we now hold an approximately 12% interest in RadSee Technologies Ltd.

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.

1 unchanged sentence

The transaction was completed on August 1, 2022 and resulted in net cash proceeds of $427 million after net working capital adjustments.

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.

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.

The transaction was completed on July 8, 2022 and resulted in proceeds of $56 million.

12 unchanged sentences

These regulations and other requirements increase our performance and compliance costs and risks and regularly evolve.

Considerable uncertainty exists regarding future legislation and regulations as the current administration has issued changing guidance on a wide array of topics including but not limited to the Executive Order issued in January 2025, which requires, in relevant part, that every Federal contract or grant award include a clause that requires the contractor or grant recipient to (1) agree that its compliance with all applicable federal anti-discrimination laws is material to the government’s payment decisions on such contract or grant for purposes of the False Claims Act, and (2) certify that it does not operate any programs promoting diversity, equity and inclusion that violate any applicable federal anti-discrimination laws.

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.

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.

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.

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.

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.

These laws and regulations include, but are not limited to, the Anti-Kickback Act, the Arms Export Control Act, including the ITAR, the Communications Act, the Defense Federal Acquisition Regulation Supplement, the Export Control Reform Act, including the EAR (which includes anti-boycott provisions), the False Claims Act, the Federal Acquisition Regulation, the FCPA, the Lobbying Disclosure Act, the Procurement Integrity Act, the Truthful Cost or Pricing Data Act, the Foreign Trade Regulations, the Foreign Investment Risk Review Modernization Act, the International Emergency Economic Powers Act, the Trading with the Enemy Act, and Executive Orders and regulations, administered by the U.S.

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.

Customs and Border Protection and the Bureau of Alcohol, Tobacco, Firearms and Explosives.

If we are found to have violated such requirements, we may be subject to:

15 unchanged sentences

Governance Structure

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.

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.

8 unchanged sentences

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.

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

Under the Cooperation Agreement, among other things, (a) Leonardo S.p.A.

has certain consent, access and cooperation rights, and (b) US Holding has certain consent rights with respect to actions taken by the Company and its subsidiaries, including with respect to the creation or issuance of any new classes or series of stock (subject to customary exceptions), listing or delisting from any securities exchange, and making material changes to the Company’s accounting policies and changing the Company’s auditor.

Our Ultimate Majority Stockholder

Our Indirect Majority Stockholder

Leonardo S.p.A., a global high-technology company, is a leading global Aerospace, Defense and Security company and one of Italy’s main industrial companies.

4 unchanged sentences

Listed on the Milan Stock Exchange (under the trading symbol “LDO”), in 2024 Leonardo S.p.A.

recorded consolidated revenues of €14.7 billion and invested €2.0 billion in R&D.

recorded preliminary consolidated revenues of €17.8 billion and invested €2.5 billion in R&D.

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.

3 unchanged sentences

Our website is https://www.leonardodrs.com.

We make available on our website, free of charge, the periodic reports that we file with or furnish to the SEC, as well as amendments to those reports, as soon as reasonably practicable after such reports are filed with or furnished to the SEC.

We are not including the information contained in our website as part of, or incorporating it by reference into, this Report.

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 are not including the information contained in our website as part of, or incorporating it by reference into, this Annual Report.

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

What changed 10-K

Item 1. Business