What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2026-02-27 compared with 2025-03-03 · 319 added, 427 removed, 1007 unchanged (43% of the section changed)

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Consolidated Statements of Cash Flows

Consolidated Statements of Shareholders’ Equity

Consolidated Statements of Stockholders’ Equity

Notes to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Leonardo DRS, Inc.

To the Stockholders and the Board of Directors of Leonardo DRS, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Leonardo DRS, Inc.

(the Company) as of December 31, 2024 and 2023, the related consolidated statements of earnings, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”).

(the Company) as of December 31, 2025 and 2024, the related consolidated statements of earnings, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2025, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025, in conformity with U.S.

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 3, 2025 expressed an unqualified opinion thereon.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 26, 2026 expressed an unqualified opinion thereon.

Basis for Opinion

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Revenue recognition – Estimates to complete for certain long-term contracts

Description of the Matter As described in Note 3 to the consolidated financial statements, revenues for the majority of contracts are recognized using the over-time percentage of completion cost-to-cost method of accounting measured by the ratio of cumulative costs incurred to date to estimated contract costs at completion (the “cost-to-cost method of accounting”).

Description of the Matter

As described in Note 2 to the consolidated financial statements, revenues for the majority of contracts are recognized using the over-time percentage of completion cost-to-cost method of accounting measured by the ratio of cumulative costs incurred to date to estimated contract costs at completion (the “cost-to-cost method of accounting”).

Under this method, the costs incurred represent an appropriate measure of progress toward satisfaction of performance obligations as this measure most accurately depicts the progress of work performed and transfer of control to the customers.

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Estimates of total cost at completion for long-term contracts are affected by management’s assessment of the current status of the contract and expectation for performance on the contract, as well as historical experience.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of the relevant internal controls related to the Company’s revenue recognition process.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design, and tested the operating effectiveness of the relevant internal controls related to the Company’s revenue recognition process.

For example, we tested internal controls over management’s review of the estimate at completion analysis and the estimated total costs at completion for certain long-term contracts.

We also tested management’s controls to validate that the data used in the estimate at completion analysis was complete and accurate.

To test the Company’s estimates of the costs at completion for certain long-term contracts, our audit procedures included, among other things, evaluating management’s cost estimates by comparing planned costs to actual costs incurred to date and meeting with program management to confirm our understanding of the risks associated with the contract and current contract performance.

To test the Company’s estimates of the costs at completion for certain long-term contracts, our audit procedures included, among other things, evaluating management’s cost estimates by comparing planned costs to actual costs incurred to date and historical cost experience of similar contracts, agreeing underlying data to source documents, and meeting with program management to confirm our understanding of the risks associated with the contract and current contract performance.

/s/ Ernst & Young LLP

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Tysons, Virginia

March 3, 2025

February 26, 2026

LEONARDO DRS, INC.

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General and administrative expenses ( 497 ) ( 414 ) ( 384 )

Amortization of intangibles ( 22 ) ( 22 ) ( 10 )

Other operating (expenses) income, net

( 7 ) ( 11 ) 353

Amortization of acquired intangible assets ( 22 ) ( 22 ) ( 22 )

Other operating expenses, net ( 2 ) ( 7 ) ( 11 )

Operating earnings

Interest expense ( 21 ) ( 36 ) ( 34 )

Interest expense, net ( 8 ) ( 21 ) ( 36 )

Other, net ( 4 ) ( 8 ) ( 3 )

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$ 278 $ 213 $ 168

Other comprehensive income (loss):

Foreign currency translation (loss) gain, net of income taxes

( 1 ) 1 ( 2 )

Pension and other postretirement benefit plan adjustments, net of income taxes — 1 11

Other, net of income taxes

Other comprehensive income (loss), net of income taxes:

Foreign currency translation (loss) gain — ( 1 ) 1

Pension and other postretirement benefit plan adjustments 2 — 1

Net unrealized gain on derivative instruments 4 1 —

Other comprehensive income, net of income taxes

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$ 4,486 $ 4,184

LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

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Commitments and contingencies (Note 16)

Shareholders' equity:

Stockholders' equity:

Preferred stock, $ 0.01 par value:

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Accumulated other comprehensive loss ( 41 ) ( 47 )

Total shareholders' equity 2,557 2,325

Total liabilities and shareholders' equity

Total stockholders' equity 2,730 2,557

Total liabilities and stockholders' equity

$ 4,486 $ 4,184

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Deferred income taxes 28 23 ( 52 )

Gain from sale of business

Share-based compensation expense 22 17 5

Stock-based compensation expense 32 22 17

Changes in assets and liabilities:

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Capital expenditures ( 139 ) ( 85 ) ( 60 )

Business acquisitions, net of cash acquired — — 19

Proceeds from sales of assets — 1 1

Proceeds from sales of businesses — — 482

Net cash (used in) provided by investing activities ( 84 ) ( 59 ) 436

Purchases of investments ( 15 ) — —

Net cash used in investing activities ( 154 ) ( 84 ) ( 59 )

Financing activities

Net (decrease) increase in third party borrowings (maturities of 90 days or less)

( 32 ) 20 ( 8 )

Repayment of third party debt ( 291 ) ( 727 ) —

Borrowings of third party debt 280 715 223

Repayment of related party debt — — ( 992 )

Borrowings from related parties — — 775

Dividend to US Holding — — ( 396 )

Dividend from investment — — 3

Net increase (decrease) in borrowings (maturities of 90 days or less) 1 ( 32 ) 20

Repayments of borrowings ( 11 ) ( 291 ) ( 727 )

Proceeds from borrowings — 280 715

Proceeds from stock issuance

Cash outlay to reacquire equity instruments

( 19 ) ( 1 ) —

Repurchases of common stock ( 35 ) — —

Payments of employee taxes withheld from stock-based awards ( 21 ) ( 19 ) ( 1 )

Dividends paid ( 28 ) — —

Dividends paid to related party ( 68 ) — —

Other ( 10 ) ( 10 ) ( 4 )

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LEONARDO DRS, INC.

Consolidated Statements of Shareholders’ Equity

Consolidated Statements of Stockholders’ Equity

(Dollars in millions)

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— — 2 168 170

Share-based compensation expense

Issuance of stock in business combination 1 510 — — 511

Dividend to US Holding — — — ( 396 ) ( 396 )

Stock-based compensation activity — 28 — — 28

Balance as of December 31, 2023 3 5,175 ( 47 ) ( 2,806 ) 2,325

Total comprehensive income — — — 213 213

Share-based compensation activity — 28 — — 28

Stock-based compensation activity — 19 — — 19

Balance as of December 31, 2024 3 5,194 ( 47 ) ( 2,593 ) 2,557

Total comprehensive income — — 6 278 284

Share-based compensation activity

Stock-based compensation activity — 14 — — 14

Issuances of stock under employee stock purchase plan — 6 — — 6

Cash dividends of $ 0.36 per share

— ( 96 ) — — ( 96 )

Repurchases of common stock — ( 35 ) — — ( 35 )

Balance as of December 31, 2025 $ 3 $ 5,083 $ ( 41 ) $ ( 2,315 ) $ 2,730

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Leonardo DRS, Inc., together with its wholly owned subsidiaries (hereinafter, “DRS,” “the Company,” “us,” “our,” or “we”) is a supplier of defense electronics products, systems and military support services.

The Company’s largest shareholder is Leonardo S.p.A, an Italian multi-national aerospace, defense and security company headquartered in Rome, Italy, through its ultimate sole ownership of Leonardo US Holding, LLC (“US Holding”).

The Company’s largest stockholder is Leonardo S.p.A, an Italian multi-national aerospace, defense and security company headquartered in Rome, Italy, through its ultimate sole ownership of Leonardo US Holding, LLC (“US Holding”).

US Holding is the majority stockholder of the Company.

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These capabilities directly align with our two reportable operating segments:

Advanced Sensing and Computing and Integrated Mission Systems.

Department of Defense (the “DoD”) is our largest customer and accounts for approximately 79 %, 80 %, and 84 % of our total revenues as an end-user for the years ended December 31, 2024, 2023 and 2022, respectively.

Advanced Sensing and Computing (“ASC”) and Integrated Mission Systems (“IMS”).

government is our largest customer and accounts for approximately 80 %, 79 %, and 80 % of our total revenues as an end-user for the years ended December 31, 2025, 2024 and 2023, respectively.

government revenues are highly concentrated with the U.S.

Department of War, also known as the U.S.

Department of Defense (the “DoW”).

Specific international and commercial market opportunities exist within these segments and comprise approximately 20 %, 21 %, and 20 % of our total revenues for the years ended December 31, 2025, 2024 and 2023, respectively.

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Advanced Sensing and Computing

Our Advanced Sensing and Computing (“ASC”) segment designs, develops and manufactures sensing and network computing technology that enables real-time situational awareness required for enhanced operational decision making and execution by our customers.

Our leading sensing capabilities span applications including missions requiring advanced detection, precision targeting and surveillance sensing, long range electro-optic/infrared (“EO/IR”), signals intelligence (“SIGINT”) and other intelligence systems, electronic warfare (“EW”), ground vehicle sensing, next generation active electronically scanned array tactical radars, dismounted soldier sensing and space sensing.

Across our offerings, we are focused on advancing sensor distance, precision, clarity, definition, spectral depth and effectiveness.

Furthermore, we seek to leverage our multi-decade experience to optimize size, weight, power and cost tailored to our customers’ specific mission requirements, including in space-based applications for earth surveillance and missile tracking.

Our sensing capabilities are complemented by our rugged, trusted and cyber resilient network computing products.

Our network computing offering is utilized across a broad range of mission applications including platform computing on ground and shipboard (both surface ship and submarine) for advanced battle management, combat systems, radar, command and control (“C2”), tactical networks, tactical computing and communications.

Our network computing products support the DoD’s need for greater situational understanding at the tactical edge and permits data to be rapidly transmitted securely from command centers to forward-positioned defense assets.

Integrated Mission Systems

Our Integrated Mission Systems (“IMS”) segment designs, develops, manufactures and integrates power conversion, control and distribution systems, ship propulsion systems, motors and variable

Our ASC segment designs, develops and manufactures sensing and network computing technology that enables real-time situational awareness required for enhanced operational decision making and execution by our customers across increasingly complex and contested operating environments.

Our sensing capabilities span numerous applications, including missions requiring advanced detection, precision targeting and surveillance sensing, long range electro-optic/infrared (“EO/IR”), signals intelligence (“SIGINT”) and other intelligence systems, electronic warfare (“EW”), ground vehicle sensing, next generation active electronically scanned array tactical radars, dismounted soldier sensing and space sensing.

Across our offerings, we are focused on advancing sensor range and enhancing the precision, clarity, definition, spectral depth and effectiveness of our sensors to deliver actionable information in time-sensitive mission scenarios in combination with artificial intelligence (“AI”), enabled by our advanced edge processing solutions.

We also seek to leverage the knowledge and expertise built through our decades of experience to optimize size, weight, power and cost for our customers’ specific mission requirements and to support integration onto a wide range of tactical platforms, including mobile and power-constrained systems.

Our sensing capabilities are complemented by our rugged, trusted and cyber resilient network edge computing products that support data processing, fusion, and dissemination at the tactical edge.

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.

These products help support the DoW’s need for greater situational understanding and

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

frequency drives, force protection systems, transportation and logistics systems for the U.S.

and allied defense customers.

Our naval power and propulsion systems are providing next-generation power capabilities for the future fleet.

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

faster decision-making at the tactical edge by leveraging AI and AI-optimized open architecture software, SAGEcore™, to rapidly share, synthesize and transmit data securely between command centers and forward-positioned defense assets and personnel, while supporting reduced latency, operational continuity, and interoperability through modular, open-system architectures.

Within ASC, we are increasingly combining sensing, computing, and software to support applications such as C-UAS, electronic warfare, and networked sensing, where performance depends on the ability to detect, process, and act on data in real time.

These integrated capabilities are designed to support evolving operational concepts that emphasize distributed operations, resilient communications, and decision advantage at the tactical edge.

Integrated Mission Systems

Our IMS segment designs, develops, manufactures and integrates power conversion, control and distribution systems, ship propulsion systems, motors and variable frequency drives, force protection systems, and transportation and logistics systems for the U.S.

military and allied defense customers.

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

We provide power conversion, control, distribution and propulsion systems for the U.S.

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electric drive submarine.

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.

We believe DRS is well positioned to meet the needs of an increasingly electrified and power-intensive fleet through high-efficiency, power-dense permanent magnet motors, energy storage systems, and associated rugged and compact power conversion, electrical actuation, and advanced thermal management technologies.

These capabilities support higher onboard power demands, improved efficiency, and enhanced platform performance across next-generation naval systems.

DRS has a long history of providing a number of other critical products to the U.S.

Navy with a significant installed base on submarines, aircraft carriers and other surface ships including motor controllers, instrumentation and control equipment, electrical actuation systems, and thermal management systems for electronics and ship stores refrigeration.

Our technologies and systems help protect U.S.

forces and assets against increasingly sophisticated and proliferating threats.

DRS is an integrator of systems in ground vehicles for short-range air defense, counter-unmanned aerial systems (“C-UAS”), and vehicle survivability and protection.

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.

Our force protection systems, including solutions for C-UAS, short-range air defense systems and active protection systems used to defend ground combat vehicles, help protect personnel and defense assets from these growing threats.

DRS is also an integrator of complex systems in ground vehicles for short-range air defense, C-UAS, and vehicle survivability and protection.

Our short-range air defense systems integrate advanced active electronically scanned array (“AESA”) radars, EW equipment, reconnaissance and surveillance systems, mission command capabilities, modular combat vehicle turrets, and stabilized sensor suites, as well as kinetic countermeasures to protect against evolving threats.

Our force protection systems, including solutions for C-UAS, help protect personnel and defense assets from enemy combatants.

The Company separately presents the unallocable general and administrative costs associated with corporate functions and certain non-operating subsidiaries of the Company as Corporate & Eliminations.

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All intercompany transactions and balances have been eliminated in consolidation.

LEONARDO DRS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Use of Estimates

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Actual results could differ from these estimates.

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Revenue Recognition

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Research and Development Expenses

We conduct research and development (“R&D”) activities using our own funds (referred to as company-funded R&D or independent research and development (“IR&D”)) and under contractual arrangements with our customers (referred to as customer-funded R&D) to enhance existing products and services and to develop future technologies.

We conduct research and development (“R&D”) activities using our own funds (referred to as company-funded independent research and development (“IR&D”)) and under contractual arrangements with our customers (referred to as customer-funded R&D) to enhance existing products and services and to develop future technologies.

R&D costs include basic research, applied research, concept formulation studies, design, development, and related test activities.

IR&D costs are allocated to customer contracts as part of the general and administrative overhead costs and generally recoverable on our customer contracts with the U.S.

Customer-funded R&D costs are charged directly to the related customer contract.

Customer-funded R&D costs are charged directly to the related

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customer contract.

R&D costs are expensed as incurred.

Company-funded R&D charged to general and administrative expenses totaled $ 92 million, $ 82 million, and $ 58 million in 2024, 2023 and 2022, respectively.

IR&D charged to general and administrative expenses totaled $ 129 million, $ 92 million, and $ 82 million in 2025, 2024 and 2023, respectively.

Foreign Currency

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dollars using weighted average rates of exchange during each monthly period.

The rates of exchange at each balance sheet date are used for translating certain balance sheet accounts and gains or losses resulting from these

LEONARDO DRS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

translation adjustments are included in the accompanying Consolidated Balance Sheets as a component of other comprehensive income.

The rates of exchange at each balance sheet date are used for translating certain balance sheet accounts and gains or losses resulting from these translation adjustments are included in the accompanying Consolidated Balance Sheets as a component of accumulated other comprehensive loss.

Cash and Cash Equivalents

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Goodwill is assigned to reporting units and is reviewed for impairment at the reporting unit level on an annual basis, or whenever changes in circumstances indicate that the carrying amount may not be recoverable.

A reporting unit is an operating segment, or one level below that operating segment (the component level) if discrete financial information is prepared and regularly reviewed by the segment manager.

A reporting unit is an operating segment, or one level below that operating segment (the component level) if discrete financial information is prepared and regularly reviewed by the

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segment manager.

Two or more components of an operating segment may be aggregated and deemed a single reporting unit if the components have similar economic characteristics.

Based upon the aggregation criteria the Company concluded it had six reporting units at December 31, 2024 and 2023.

The Company uses quantitative assessments and qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value.

If the optional qualitative assessment is performed (Step 0) and the Company concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, an additional quantitative fair value test (Step 1) is performed.

When performing the Step 1 goodwill impairment test, we compare the fair values of each of our reporting units to their respective carrying values.

If a qualitative assessment is performed and the Company concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then a quantitative assessment is performed.

When performing a quantitative assessment, we compare the fair values of each of our reporting units to their respective carrying values.

In order to compute the fair value of our reporting units, we primarily use the income approach based on the discounted cash flows that each reporting unit expects to generate in the future, consistent with our operating plans.

Determining the fair value of our

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reporting units requires significant judgments, including the timing and amount of future cash flows, long-term growth rates, determination of the weighted average cost of capital and terminal value assumptions.

If, based on the quantitative fair value test, the Company concludes that the carrying value of the reporting unit exceeds its fair value, the Company will recognize a goodwill impairment loss in an amount equal to that excess.

The Company completed impairment tests as of October 1, 2024 and 2023, and December 31, 2022 and no adjustment to the carrying value of goodwill was deemed to be necessary.

Determining the fair value of our reporting units requires significant judgments, including the timing and amount of future cash flows, long-term growth rates, determination of the weighted average cost of capital and terminal value assumptions.

If, based on the quantitative assessment, the Company concludes that the carrying value of the reporting unit exceeds its fair value, the Company will recognize a goodwill impairment loss in an amount equal to that excess.

The Company completed impairment tests as of October 1, 2025, 2024, and 2023 and no adjustment to the carrying value of goodwill was deemed to be necessary.

Goodwill for additional information regarding goodwill.

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Pension and Other Postretirement Benefits for further information regarding our pension and postretirement plans.

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Beginning October 4, 2022, DRS began filing a consolidated return with only DRS and subsidiaries for federal and state purposes.

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The agreement provided for the method of computing and allocating the consolidated U.S.

federal tax liability of the affiliated group among its members and of allocating any state group tax liabilities among the state members for the taxable year

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ending December 31, 2008 and each subsequent year in which the parties are members of a group (whether federal or state).

federal tax liability of the affiliated group among its members and of allocating any state group tax liabilities among the state members for the taxable year ending December 31, 2008 and each subsequent year in which the parties are members of a group (whether federal or state).

The agreement also provided for reimbursement of US Holding and/or DRS for payment of such tax liabilities, for compensation of any member for use of its “net operating loss” or “tax credits” in arriving at such tax liabilities and the allocation and payment of any refund arising from a carryback of net operating losses or tax credits from subsequent taxable years.

Under the agreement, the parties agreed to calculate and allocate their respective tax liabilities and other tax attributes for taxable years beginning with the first consolidated taxable year that included DRS (i.e., the taxable year ended December 31, 2008) as if the agreement was then in effect.

Although DRS will file its federal consolidated return outside of US Holding post October 3, 2022, the Tax Allocation Agreement will remain in effect for all historic unaudited periods (federal or state) and all applicable prospective periods where the expanded affiliated relationship may warrant it.

Although DRS filed its federal consolidated return outside of US Holding post October 3, 2022, the Tax Allocation Agreement will remain in effect for all historic unaudited periods (federal or state) and all applicable prospective periods where the expanded affiliated relationship may warrant it.

The provision for income taxes is determined using the asset and liability approach of accounting for income taxes.

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Those positions are evaluated to determine whether they will more likely than not be sustained upon examination by the relevant taxing authorities.

Liabilities for unrecognized tax benefits are measured based on the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.

Liabilities for unrecognized tax benefits are measured based on the largest amount of benefit that is greater than 50%

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likely of being realized upon ultimate settlement.

These unrecognized tax benefits are recorded as a component of income tax expense.

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Income Taxes for additional information regarding income taxes.

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Earnings Per Share (“EPS”)

Basic EPS is computed by dividing net earnings by the weighted average number of shares of common stock outstanding during each period.

The computation of diluted EPS includes the dilutive effect of outstanding share-based compensation awards, only in periods in which such effect would have been dilutive for the period.

On November 23, 2022, the Company completed a forward stock split of 1.451345331 -for-1 share of common stock.

The Consolidated Financial Statements were retroactively adjusted as necessary to reflect the November 23, 2022 forward stock split for all periods presented.

There were 145 million and 210 million basic and diluted common shares outstanding before and after the November 23, 2022 forward stock split, respectively.

In addition, 49,742,187 shares of common stock were issued in connection with the RADA merger on November 28, 2022.

The computation of diluted EPS includes the dilutive effect of outstanding stock-based compensation awards, only in periods in which such effect would have been dilutive for the period.

See Note 15 :

Earnings Per Share for additional information regarding earnings per share.

Earnings Per Share, Stock Repurchases, and Dividends for additional information regarding earnings per share.

Fair Value Measurements

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Financial instruments are reported in the Consolidated Balance Sheets at carrying value, which approximates fair value, as of December 31, 2025 and 2024.

Acquisitions, Investments, Variable Interest Entities and Divestitures

Acquisitions, Investments, and Variable Interest Entities

Our Consolidated Financial Statements include the operations of acquired businesses from the date of acquisition.

We account for acquired businesses using the acquisition method of accounting, which requires that any assets acquired, and liabilities assumed be measured at their respective fair values on the acquisition date.

The accounting for business combinations requires the Company to make significant

We account for acquired businesses using the acquisition method of accounting, which requires that any assets acquired, and liabilities assumed be measured at their respective fair values on

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judgments and estimates.

the acquisition date.

The accounting for business combinations requires the Company to make significant judgments and estimates.

Any excess of the fair value of consideration transferred over the assigned values of the net assets acquired is recognized as goodwill.

On November 28, 2022, the Company announced the successful completion of the all-stock merger between Leonardo DRS and RADA Electronic Industries Ltd.

(“RADA”), a leading Israel-based provider of small-form tactical radar, to become a combined public company.

At the time of the transaction, RADA shareholders retained approximately 19 % ownership in the combined Company with Leonardo DRS’s parent company, Leonardo S.p.A., (MIL:

LDO), owning the remaining 81 %.

The acquisition of RADA has been accounted for using the acquisition method of accounting in accordance with ASC 805, Business Combinations , with the Company as the accounting acquirer, which requires the assets acquired and liabilities assumed be recognized at their acquisition date fair value.

The acquisition was completed on November 28, 2022, when each issued and outstanding ordinary share of RADA was converted and exchanged for one share of common stock of the Company.

The total purchase consideration for RADA was $ 511 million and is comprised of the Company’s shares issued in exchange for all issued and outstanding common shares of RADA, as well as the portion of replacement stock compensation awards’ fair value attributable to pre-combination services.

Business Acquisition for additional information regarding the transaction.

Investments where we have the ability to exercise significant influence, but do not control, are accounted for under the equity method of accounting and are included in other noncurrent assets on our Consolidated Balance Sheets.

Significant influence typically exists if we have a 20% to 50% ownership interest in the investee.

Under this method of accounting, our share of the net earnings or losses of the investee is included in operating profit in other operating income, net on our Consolidated Statements of Earnings since the activities of the investee are closely aligned with the operations of the business segment holding the investment.

We evaluate our equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may be impaired.

If a decline in the value of an equity method investment is determined to be other than temporary, a loss is therefore recorded during the current period.

The Company sold its interest in its only investment accounted for under the equity method, Advanced Acoustic Concepts, LLC, on July 8, 2022.

Our share of net earnings related to our equity method investments was $ 1 million for the year ended December 31, 2022, which was included in our Advanced Sensing and Computing business segment operating profit.

The Company has an investment in a private company in which we do not have the ability to exercise significant influence.

This investment is carried at cost and we evaluate for possible impairment quarterly.

The Company has an equity investment in the preferred stock of a private company of $ 21 million at December 31, 2025 that is included in other noncurrent assets in our Consolidated Balance Sheets.

As there is not a readily determinable fair value, the investment is recorded at cost and will be adjusted if we identify an observable price change or an impairment when a qualitative impairment assessment is performed.

Variable Interest Entities

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The Company did not have any investments in VIEs as of December 31, 2025 and 2024.

On March 21, 2022, the Company entered into a definitive agreement to sell its Global Enterprise Solutions (“GES”) business to SES Government Solutions, Inc., a wholly-owned subsidiary of SES S.A., for a selling price of $ 450 million subject to certain working capital adjustments.

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

The transaction netted an aggregate pretax gain net of transaction costs of $ 309 million ($ 239 million after tax) of which $ 323 million was included in other operating (expenses) income, net

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partially reduced by aggregate transaction costs of $ 14 million included in general and administrative costs and tax expenses of $ 70 million.

GES, which was part of the ASC segment, provides commercial satellite communications to the U.S.

government and delivers satellite communications and security solutions to customers worldwide.

has guaranteed the payment of the purchase price and performance of all other obligations of SES Government Solutions, Inc.

under the agreement.

The Company recorded operating earnings for the GES business of $ 13 million for the year ended December 31, 2022.

In February 2022, the Company’s Board of Directors approved the strategic initiative to divest of the Company’s interest in Advanced Acoustic Concepts, LLC (“AAC”).

On April 19, 2022, we entered into a definitive sales agreement to divest our share of our equity investment in AAC for $ 56 million to Thales Defense & Security, Inc., the minority partner in the joint venture.

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

The transaction netted an aggregate pretax gain of $ 31 million ($ 22 million net of taxes).

The aggregate gain of $ 31 million is included in other operating (expenses) income, net offset by tax expense of $ 9 million.

The proceeds generated from the GES and AAC divestitures resulted in a $ 396 million dividend to US Holding, at the time, our sole shareholder.

The $ 396 million represents the proceeds generated net of our costs to sell and estimated tax obligations.

The dividend was issued on August 5, 2022.

Share-based Compensation

Stock-based Compensation

The fair value of stock awards is determined based on the closing market price of the Company's common stock on the grant date.

Compensation expense for stock awards is measured based on the grant date fair value and recognized over the vesting period.

Compensation expense for stock awards is recorded based on the grant date fair value and recognized over the vesting period.

For purposes of measuring compensation expense, the amount of shares ultimately expected to vest is estimated at each reporting date based on Company's expectations regarding the relevant service or performance criteria.

For awards with a service condition only, the Company recognizes the compensation expense on a straight-line basis.

Share-based Compensation Plans for further information regarding our share-based compensation plans.

Stock-based Compensation Plans for further information regarding our stock-based compensation plans.

Derivative Instruments

Derivative instruments are recorded on the Consolidated Balance Sheets at fair value.

Unrealized gains and losses on derivatives designated as cash flow hedges are reported in other comprehensive income (loss) and reclassified to earnings in a manner that matches the timing of the earnings impact of the hedged transactions.

Settlement amounts related to derivatives designated as cash flow hedges are presented within operating activities on the Consolidated Statements of Cash Flows.

New Accounting Pronouncements

Recently Adopted Accounting Pronouncements

Improvements to Reportable Segment Disclosures

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures , which requires enhanced disclosures about significant segment expenses.

We adopted the new standard effective December 31, 2024 and applied the disclosure requirements on a retrospective basis to all prior periods presented in the Consolidated Financial Statements.

Segment Information .

Accounting Guidance Issued but Not Yet Adopted as of December 31, 2024

Improvements to Income Tax Disclosures

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

In December 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures , which requires additional disclosures regarding rate reconciliation, income taxes paid, and other income tax disclosures.

The new standard is effective for fiscal years beginning after December 15, 2024, on a prospective basis.

We are currently evaluating the impact of adopting this new pronouncement and plan to adopt these amendments using the prospective approach for annual disclosures in fiscal year 2025.

We adopted the new standard effective December 31, 2025 and applied the disclosure requirements on a prospective basis.

Income Taxes .

LEONARDO DRS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Accounting Guidance Issued but Not Yet Adopted as of December 31, 2025

Disaggregation of Income Statement Expenses

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We are currently evaluating the impact of adopting this new pronouncement.

Business Acquisition

On June 21, 2022, the Company, entered into an Agreement and Plan of Merger (the “Merger Agreement”) with RADA, a leading Israel-based provider of small-form tactical radar, for an all-stock merger, with RADA surviving as a wholly owned subsidiary of the Company.

The Company acquired RADA as part of the Company’s goal to become a market leader in advanced sensing and force protection.

The acquisition of RADA has been accounted for using the acquisition method of accounting in accordance with ASC 805, Business Combinations, with the Company as the accounting acquirer, which requires the assets acquired and liabilities assumed be recognized at their acquisition date fair value.

The acquisition was completed on November 28, 2022, when each issued and outstanding ordinary share of RADA was converted and exchanged for one share of common stock of the Company.

The total purchase consideration for RADA was $ 511 million and is comprised of the Company’s shares of common stock issued in exchange for all issued and outstanding ordinary shares of RADA, as well as the portion of replacement stock compensation awards’ fair value attributable to pre-combination services.

The Company recognized transaction costs of $ 27 million in the year ended December 31, 2022.

These costs were associated with advisory, legal, and consulting services and are presented in general and administrative expense in the Consolidated Statements of Earnings.

Purchase consideration - The following summarizes the purchase consideration transferred to RADA shareholders:

(in millions, except per share data)

RADA ordinary shares outstanding as of November 28, 2022 50

Share exchange ratio 1

Total Company shares issued 50

Fair value of the Company common stock (RADA share price on November 28, 2022) $ 9.87

Total fair value of the Company common stock issued $ 491

Replacement share-based payment awards pre-combination vesting expense 20

Aggregate purchase consideration $ 511

LEONARDO DRS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Purchase price allocation - The allocation of the purchase consideration to assets acquired and liabilities assumed is based on the estimated fair values as follows:

(Dollars in millions)

Cash and cash equivalents

Accounts receivable, net 12

Inventories 72

Prepaid expenses 3

Other current assets 4

Property, plant and equipment, net 26

Intangible assets

Other noncurrent assets 14

Total identifiable assets acquired $ 281

Accounts payable $ 6

Contract liabilities 2

Other current liabilities 21

Deferred tax liabilities 5

Other noncurrent liabilities 22

Total liabilities assumed $ 56

Net assets acquired, excluding goodwill $ 225

Goodwill $ 286

During 2023, the Company completed the purchase price allocation for this transaction and adjusted the preliminary purchase price allocation to increase other current liabilities and goodwill by $ 2 million.

The excess of the total consideration over the tangible assets, identifiable intangible assets, and assumed liabilities is recorded as goodwill.

Identifiable intangibles assets of $ 131 million consist of $ 90 million of technology related assets while the remaining $ 41 million consists of customer and contractual relationships.

The goodwill of $ 286 million arising from the acquisition is primarily attributable to the growth opportunities related to the RADA business.

None of the goodwill resulting from the acquisition is deductible for tax purposes.

All of the goodwill recognized related to the RADA acquisition was assigned to the ASC segment.

Targeted Improvements to the Accounting for Internal-Use Software

In September 2025, the FASB issued ASU 2025-06, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40):

Targeted Improvements to the Accounting for Internal-Use Software , which removes references to project stages, requiring companies to capitalize internal-use software costs when management commits to funding the software project and it is probable the project will be completed.

The new standard is effective for fiscal years beginning after December 15, 2027 and interim periods within those fiscal years, and may be applied on a prospective, modified transition, or retrospective transition basis.

We are currently evaluating the impact of adopting this new pronouncement.

Accounting for Government Grants Received by Business Entities

In December 2025, the FASB issued ASU 2025-10, Government Grants (Topic 832)—Accounting for Government Grants Received by Business Entities , which establishes the accounting for government grants received by business entities.

The new standard is effective for fiscal years beginning after December 15, 2028 and interim periods within those fiscal years, and may be applied on a modified prospective, modified retrospective, or retrospective transition basis.

We are currently evaluating the impact of adopting this new pronouncement.

Revenue from Contracts with Customers

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fixed-price contracts, cost-plus contracts and T&M contracts (cost-plus contracts and T&M contracts are aggregated below as flexibly priced contracts).

LEONARDO DRS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

majority of our total revenues are derived from fixed-price contracts.

The majority of our total revenues are derived from fixed-price contracts.

Refer to the revenue disaggregation disclosures that follow.

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The contracts may also include incentives for various performance criteria, including quality, timeliness and cost-effectiveness.

In addition, costs are generally subject to review by clients and regulatory audit agencies, and such reviews could result in costs being disputed as non-reimbursable under the terms of the contract.

In addition, costs are generally subject to review by clients and regulatory audit

LEONARDO DRS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

agencies, and such reviews could result in costs being disputed as non-reimbursable under the terms of the contract.

T&M contracts provide for reimbursement of labor hours expended at a contractual fixed labor rate per hour, plus the actual costs of material and other direct non-labor costs.

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Impact on diluted earnings per share $ ( 0.17 ) $ ( 0.07 ) $ ( 0.07 )

The impacts noted above are attributed primarily to changes in our fixed-price development type programs as well as the impacts of inflation and production inefficiencies on certain fixed-price production programs.

In 2025, the adjustments are largely attributed to a negotiated conclusion of a legacy ground surveillance program triggering a revision in the anticipated recovery on the contract as well as the impact of raw material pricing on certain fixed price programs.

These impacts were partially offset by improved contractual performance realized on our propulsion contracts on the Columbia Class submarine contracts.

Conversely, if the requirements for the recognition of contracts over time are not met, revenue is recognized at a point in time when control transfers to the customer, which is generally upon transfer of

LEONARDO DRS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The impacts noted above are attributed primarily to changes in our firm-fixed-price development type programs as well as the impacts of inflation and production inefficiencies on certain fixed price production programs.

In 2024 the adjustments consist largely of changes in the designs required to achieve contractual specifications for fixed price development programs and increased material cost within our IMS and ASC segments that resulted in a change in the programs’ estimates and related profitability.

The reductions to revenue for the year ended December 31, 2024, were related to certain masted surveillance and surface ship power and propulsion programs within our IMS segment as well as soldier sensing programs within our ASC segment.

These impacts were partially offset by improved contractual performance realized on our propulsion contracts on the Columbia Class submarine contracts.

In such cases, the production that is in progress and costs that will be recognized at a future point in time are reported within inventories.

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Value of Remaining Performance Obligations

The value of remaining performance obligations, which we also refer to as total backlog, includes the following components:

• Funded - Funded backlog represents the revenue value of orders for services under existing contracts for which funding is appropriated or otherwise authorized less revenue previously recognized on these contracts.

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

As of December 31, 2024 and 2023, our total backlog was $ 8,509 million and $ 7,751 million, respectively.

We expect to recognize approximately 29 % of our December 31, 2024 backlog as revenue

LEONARDO DRS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

over the next twelve months , with the remainder to be recognized thereafter.

Approximately 50 % of our total backlog relates to long-term contracts on electric power and propulsion programs with the U.S.

As of December 31, 2025 the total value of our remaining performance obligations was $ 8,448 million.

We expect to recognize approximately 33 % of our December 31, 2025 remaining performance obligations as revenue over the next twelve months , with the remainder to be recognized thereafter.

Approximately 50 % of our remaining performance obligations relates to long-term contracts on electric power and propulsion programs with the U.S.

Navy, which are expected to be recognized as revenue over a span of up to 11 years.

At December 31, 2025, we changed our remaining performance obligations.

The change had an immaterial impact on the prior year amount and there was no impact on the Consolidated Financial Statements.

Disaggregation of Revenue

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government development and production contracts and is generally recognized using the over time, percentage of completion cost-to-cost method of accounting.

We disaggregate ASC revenue by geographical region, customer relationship and contract type.

We disaggregate ASC revenue by geographical region, customer relationship and contract

LEONARDO DRS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

We believe these categories best depict how the nature, amount, timing and uncertainty of ASC revenue and cash flows are affected by economic factors.

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(1) Includes revenue derived from cost-type and time-and-materials contracts.

IMS revenue is primarily derived from U.S.

government development and production contracts and is generally recognized using the over time, percentage of completion cost-to-cost method of accounting.

We disaggregate IMS revenue by geographical region, customer relationship and contract

LEONARDO DRS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

IMS revenue is primarily derived from U.S.

government development and production contracts and is generally recognized using the over time, percentage of completion cost-to-cost method of accounting.

We disaggregate IMS revenue by geographical region, customer relationship and contract type.

We believe these categories best depict how the nature, amount, timing and uncertainty of IMS revenue and cash flows are affected by economic factors.

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Accounts Receivable

Accounts receivable consist of the following:

Accounts receivable, net consists of the following:

(Dollars in millions) 2025 2024

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Accounts receivable, net

The Company records accounts receivable that is not expected to be collected within one year as other noncurrent assets.

As of December 31, 2025, the Company had $ 53 million of noncurrent accounts receivable.

The Company maintains certain agreements with financial institutions to sell certain trade receivables.

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The receivables sold under the factoring facilities are without recourse for any customer credit risk and result in a true sale.

Receivables are derecognized in their entirety when sold, and the Company’s continuing involvement is limited to their servicing, for which the Company receives a fee commensurate with the service provided and therefore no servicing asset or liability related to these receivables was recognized for any period presented.

The fair value of the sold receivables approximated their book value due to their short-term nature.

Proceeds from the sold receivables are primarily reflected in operating cash flows on the Consolidated Statements of Cash Flows.

Receivables are derecognized in their entirety when sold, and the Company’s continuing involvement is limited to their servicing, for which the Company receives a fee commensurate

LEONARDO DRS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

with the service provided and therefore no servicing asset or liability related to these receivables was recognized for any period presented.

The fair value of the sold receivables approximated their book value due to their short-term nature.

Proceeds from the sold receivables are primarily reflected in operating cash flows on the Consolidated Statements of Cash Flows.

During the years ended December 31, 2025, 2024 and 2023, the Company incurred purchase discount fees of $ 1 million, $ 2 million, and $ 5 million, respectively, which are presented in general and administrative expenses on the Consolidated Statements of Earnings.

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Depreciation expense related to property, plant and equipment was $ 71 million, $ 69 million, and $ 63 million for the years ended December 31, 2025, 2024 and 2023, respectively.

LEONARDO DRS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Land, buildings and improvements include assets under finance leases in the amount of $ 89 million and $ 97 million as of December 31, 2025 and 2024, respectively.

Leases for additional information.

As of December 31, 2024 and 2023, the Company accounted for our manufacturing facility in Menomonee Falls, WI as a financing arrangement and is included in land, building, and improvements in the above table.

As of December 31, 2025 and 2024, the Company accounted for our manufacturing facility in Menomonee Falls, WI as a financing arrangement and is included in land, buildings and improvements in the above table.

Debt for additional information.

LEONARDO DRS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Other Liabilities

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Fringe benefits 60 63

Restructuring costs 1 10

Provision for contract losses 35 43

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Total other noncurrent liabilities

Changes in the carrying amount of goodwill by reportable segment are as follows:

A summary of the carrying amount of goodwill by reportable segment follows:

(Dollars in millions) ASC IMS Total

Balance at January 1, 2023 (1)

$ 817 $ 419 $ 1,236

Purchase price adjustments for the year ended December 31, 2023 2 — 2

Balance at December 31, 2024 $ 819 $ 419 $ 1,238

819 419 1,238

Balance at December 31, 2025 $ 819 $ 419 $ 1,238

819 419 1,238

________________

(1) Goodwill is reported net of $ 2,362 million and $ 606 million of accumulated impairments as of January 1, 2023 for the ASC and IMS segments, respectively.

Goodwill as of the periods presented is reported net of $ 2,362 million and $ 606 million of accumulated impairments for the ASC and IMS segments, respectively.

Intangible Assets

Intangible assets mainly refer to the fair value of existing customer contractual relationships attributable to the acquired business and patents which are being amortized over their respective lives.

Intangible assets mainly refer to the fair value of existing customer contractual relationships attributable to an acquired business and patents and licenses which are being amortized over their respective lives.

The fair value of intangible assets typically is determined, as of the date of acquisition, based on estimates and judgments regarding expectations for the estimated future after-tax earnings and cash flows (including cash flows for working capital) arising from backlog and follow-on sales to the customer over their estimated lives, including the probability of expected future contract renewals and sales, less a contributory assets charge, all of which is discounted to present value.

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$ 1,105 $ ( 993 ) $ 112 $ 1,101 $ ( 969 ) $ 132

Amortization expense related to intangible assets was $ 22 million, $ 22 million, and $ 10 million for the years ended December 31, 2024, 2023 and 2022, respectively.

Amortization expense related to acquired intangible assets was $ 22 million, $ 22 million, and $ 22 million for the years ended December 31, 2025, 2024 and 2023, respectively.

Acquired intangible assets are amortized on a straight-line basis over their estimated useful lives of 10 to 15 years.

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Right-of-use (“ROU”) assets and lease liabilities are recorded on the Consolidated Balance Sheets as of the lease commencement based on the present value of the future lease payments over the lease term.

As our leases do not generally explicitly state the discount rate implicit in the lease, we use our incremental borrowing rate, which is determined based on the rate of interest that the Company would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term as of the lease commencement date.

As our leases generally do not provide an implicit rate, we use our incremental borrowing rate, which is determined based on the rate of interest that the Company would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term as of the lease commencement date.

In addition to the present value of the future lease payments, the calculation of the ROU asset also includes lease payments made at or before the commencement date of the lease, less any lease incentives received.

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reasonably certain that we will exercise the option.

and Canadian lease payments are largely fixed, but may include variable payments that do not depend on an index or rate, such as usage-based amounts, and are recorded as a lease expense in the period incurred.

The lease payments in Israel are tied to the Consumer Price Index (“CPI”) as published by Israel’s Central Bureau of Statistics.

and Canadian lease payments are largely fixed, but may include variable payments that do not depend on an index or rate, such as usage-based amounts, and are recorded as a lease cost in the period incurred.

Lease payments in Israel are tied to the Consumer Price Index (“CPI”) as published by Israel’s Central Bureau of Statistics.

These leases are paid in Israeli New Shekels (“ISL”) but are recorded in U.S.

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The Company’s lease agreements do not contain any material residual value guarantees or restrictive covenants.

As of December 31, 2024, the Company has not entered into any significant leases that have not yet commenced.

We elected not to recognize a ROU asset and lease liability for leases with an initial term of twelve months or less.

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We have elected this practical expedient for all classes of assets.

As of December 31, 2025, the Company had approximately $ 28 million of operating lease commitments for a facility lease that has not yet commenced.

The lease is expected to commence in 2028 with a lease term of 10 years.

The Company’s total lease cost consists of the following:

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________________

(1) Operating lease expense is included within cost of revenues or general and administrative expenses, dependent upon the nature and use of the ROU asset, in the Consolidated Statements of Earnings.

(1) Operating lease cost is included within cost of revenues or general and administrative expenses, dependent upon the nature and use of the ROU asset, in the Consolidated Statements of Earnings.

Operating lease cost includes short-term leases of approximately $ 1 million, $ 2 million, and $ 3 million and an insignificant amount of variable lease cost for 2025, 2024 and 2023, respectively.

(2) Finance lease expense is recorded as depreciation and amortization expense within cost of revenues or general and administrative expenses, dependent upon the nature and use of the ROU asset, and interest expense in the Consolidated Statements of Earnings.

(2) Finance lease cost is recorded as depreciation and amortization expense within cost of revenues or general and administrative expenses, dependent upon the nature and use of the ROU asset, and interest expense, net in the Consolidated Statements of Earnings.

LEONARDO DRS, INC.

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Total leased assets

Lease liabilities

Current lease liabilities:

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________________

(1) Operating lease assets are included within other noncurrent assets and operating lease liabilities are included within other current liabilities (current portion) and other noncurrent liabilities (noncurrent portion) in the Consolidated Balance Sheets.

(2) Finance lease assets are included within property, plant and equipment, net and finance lease liabilities are included within short-term borrowings and current portion of long-term debt (current portion) and long-term debt (noncurrent portion) in the Consolidated Balance Sheets.

(1) Operating lease ROU assets are included within other noncurrent assets and operating lease liabilities are included within other current liabilities (current portion) and other noncurrent liabilities (noncurrent portion) in the Consolidated Balance Sheets.

(2) Finance lease ROU assets are included within property, plant and equipment, net and finance lease liabilities are included within short-term borrowings and current portion of long-term debt (current portion) and long-term debt (noncurrent portion) in the Consolidated Balance Sheets.

Supplemental Cash Flow Information

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$ 58 $ 51 $ 24

The reconciliation from the statutory federal income tax rate to our effective income tax rate follows:

The reconciliation from the statutory federal income tax rate to our effective income tax rate for the year ended December 31, 2025 follows:

Year Ended December 31, 2025

(Dollars in millions) $ %

federal statutory income tax rate $ 71 21.0 %

Domestic state & local, net of federal benefit (1)

Research and development ( 20 ) ( 5.8 ) %

Other ( 4 ) ( 1.3 ) %

Nontaxable and nondeductible items, net:

Excess tax benefit on stock-based compensation ( 8 ) ( 2.4 ) %

Nondeductible officer compensation 6 1.8 %

Other 1 0.3 %

Cross-border taxes:

Global intangible low-taxed income 3 1.0 %

Other ( 1 ) ( 0.3 ) %

Foreign reconciling items:

Changes in valuation allowance 3 1.0 %

Rate differential ( 2 ) ( 0.6 ) %

Other ( 2 ) ( 0.6 ) %

Income tax provision and effective tax rate $ 58 17.3 %

________________

(1) State taxes in Connecticut, Florida, and Pennsylvania comprise the majority (greater than 50 percent) of the taxes in this category.

LEONARDO DRS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The reconciliation from the statutory federal income tax rate to our effective income tax rate for the years ended December 31, 2024 and 2023 (as previously disclosed, prior to the adoption of ASU 2023-09) follows:

Year Ended December 31,

Statutory federal rate 21.0 % 21.0 %

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Foreign rate differential ( 1.5 ) % 0.1 %

Research & development credit, net of reserves ( 7.1 ) % ( 18.0 ) % ( 0.5 ) %

Excess tax benefits from share-based compensation ( 1.2 ) % ( 0.1 ) % — %

Research and development credit, net of reserves ( 7.1 ) % ( 18.0 ) %

Excess tax benefit on stock-based compensation ( 1.2 ) % ( 0.1 ) %

Nondeductible officer compensation 1.2 % 0.8 %

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Accrued expenses 4 3

Pension and post-retirement plans 12 13

Pension and postretirement plans 9 12

Inventory capitalization 9 8

Disallowed interest — 1

Total gross deferred tax assets

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Our foreign net operating losses have expirations ranging from 2041 to indefinite.

In 2024, we recorded an additional valuation allowance in Canada of $ 2 million.

We recorded an additional valuation allowance in Canada of $ 4 million and $ 2 million in 2025 and 2024, respectively.

As of December 31, 2025 and 2024, we had apportioned state net operating loss carryforwards of $ 108 million and $ 105 million, respectively, which are associated with jurisdictions in which we currently file and the Company expects to utilize prior to expiration except for those for which we have recorded a valuation allowance.

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These credits were used to offset the Company’s federal tax liability for 2023.

Cash paid for income taxes, net of refunds was $ 71 million, $ 45 million, and $ 89 million in 2024, 2023 and 2022, respectively.

On July 4, 2025, the reconciliation bill, commonly referred to as the One Big Beautiful Bill Act (the “OBBBA”), was enacted, which includes a broad range of tax reform provisions.

The OBBBA provides for an elective deduction for domestic research and development expenses starting in 2025, a reinstatement

LEONARDO DRS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

of elective 100% first-year bonus depreciation, and changes to existing international tax provisions.

Due to the nature of the tax law changes, the Company has not realized a material impact in the Consolidated Statements of Earnings for the year ended December 31, 2025.

For the year ended December 31, 2025 the Company reduced both income taxes payable and deferred tax assets by approximately $ 66 million as a result of the election to deduct a portion of previously capitalized research and development costs.

We will continue to monitor the impact of the OBBBA and the range of potential outcomes, which will depend on our circumstances in each year and anticipated guidance from the U.S.

Department of the Treasury.

Cash paid for income taxes, net of refunds, in 2025 consists of the following:

(Dollars in millions) Year Ended December 31, 2025

State and local

Pennsylvania 4

Cash paid for income taxes, net of refunds $ 24

Cash paid for income taxes, net of refunds, was $ 71 million, and $ 45 million in 2024 and 2023, respectively (as previously disclosed, prior to the adoption of ASU 2023-09).

Tax Uncertainties

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Approximately $ 2 million, $ 2 million and $ 2 million as of December 31, 2025, 2024 and 2023, respectively, was recorded within (and as an offset to) deferred tax assets.

In addition, the Company does not believe there are any tax positions for which it is reasonably possible that the unrecognized tax benefits will vary significantly over the next twelve months.

The table below summarizes the activity associated with our unrecognized tax benefits:

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Decreases related to prior year tax positions ( 2 ) — ( 1 )

Lapse of statute of limitations — — ( 1 )

Balance at December 31,

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We intend to indefinitely reinvest these earnings.

Should the Company’s undistributed earnings from its investment in non‐U.S.

subsidiaries be distributed in the future in the form of dividends or otherwise, the Company may be subject to foreign and domestic income taxes and withholding taxes.

Should the Company’s undistributed earnings from its

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

investment in non‐U.S.

subsidiaries be distributed in the future in the form of dividends or otherwise, the Company may be subject to foreign and domestic income taxes and withholding taxes.

The Company’s debt consists of the following:

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2022 Term Loan A $ 191 $ 203

Outstanding revolver — —

Finance lease and other 152 159

Short-term borrowings 4 35

Short-term borrowings related to factoring facilities (Note 4) 5 4

Total debt principal

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In November 2022, the Company entered into a senior unsecured credit agreement with Bank of America in the amount of $ 500 million (the “2022 Credit Agreement”) with a maturity of November 29, 2027.

The 2022 Credit Agreement provides for a term loan (“2022 Term Loan A”) of $ 225 million bearing interest at a variable rate generally based on the Secured Overnight Financing Rate (“SOFR”), plus a spread ranging from 1.48 % to 2.10 % depending on the leverage ratio, as defined in the 2022 Credit Agreement, or an alternative variable rate based on the higher of the Bank of America prime rate, the federal funds rate, or a rate generally based on the SOFR, in each case subject to an additional basis point spread as defined in the 2022 Credit Agreement.

The 2022 Credit Agreement provides for a term loan (the “2022 Term Loan A”) of $ 225 million bearing interest at a variable rate generally based on the Secured Overnight Financing Rate (“SOFR”), plus a spread ranging from 1.48 % to 2.10 % depending on the leverage ratio, as defined in the 2022 Credit Agreement, or an alternative variable rate based on the higher of the Bank of America prime rate, the federal funds rate, or a rate generally based on the SOFR, in each case subject to an additional basis point spread as defined in the 2022 Credit Agreement.

Interest is payable quarterly in arrears.

The outstanding balance of the 2022 Term Loan A at December 31, 2025 was $ 191 million.

The fair value of the 2022 Term Loan A at December 31, 2024 was approximately $ 199 million, however the Company has the ability to prepay the outstanding principal balance without penalty.

In January 2009, the Company entered into a credit agreement with Finmeccanica S.p.A.

(presently Leonardo S.p.A.

and indirect majority stockholder) in the amount of $ 2 billion (the “2009 Credit Agreement”).

The 2009 Credit Agreement was subsequently assigned to US Holding and had a maturity of November 30, 2023.

The 2009 Credit Agreement provided for a term loan that bore interest at a rate of 7.5 %, with interest payments due semi-annually on June 20 and December 20 in each year.

In November 2022, the Company repaid the aggregate principal amount of $ 139 million.

Upon repayment the 2009 Credit Agreement was terminated.

In June 2017, the Company entered into an unsecured term loan with US Holding in the principal amount of $ 138 million, the proceeds of which were used to finance the acquisition of Daylight Solutions, Inc.

(the “Daylight Term Loan”).

The Daylight Term Loan had a maturity of October 15, 2024 and had an interest rate of 5.0 %, with interest payments due semi-annually on April 15 and October 15.

During 2022, the Company repaid the aggregate principal amount of $ 78 million.

Upon repayment the Daylight Term Loan was terminated.

The fair value of the 2022 Term Loan A was approximately $ 190 million and $ 199 million at December 31, 2025 and 2024, respectively;

however the Company has the ability to prepay the outstanding principal balance without penalty.

Subsequent to year-end, in January 2026, the Company repaid the remaining outstanding balance of the 2022 Term Loan A in the amount of $ 191 million.

The was no prepayment penalty or other fee associated with prepaying the principal balance.

Credit Facilities

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As of December 31, 2025, the 2022 Revolving Credit Facility had a limit of $ 275 million.

Loans under the 2022 Revolving Credit Facility bear interest at a variable rate generally based on the SOFR, plus a spread ranging from 1.48 % to 2.10 % depending on the leverage ratio, as defined in the 2022 Credit Agreement, or an alternative variable rate based on the higher of the Bank of America prime rate, the federal funds rate, or a rate generally based

The Company also pays a commitment fee ranging between 0.20 % and 0.35 % depending on the Company’s leverage ratio applied to the unused balance of the 2022 Revolving Credit Facility.

There was no outstanding balance on the 2022 Revolving Credit Facility as of December 31, 2025 and 2024.

The weighted average interest rate on the 2022 Revolving Credit Facility as of December 31, 2024 was 6.72 %.

Subsequent to year-end, in January 2026, the Company terminated the 2022 Credit Agreement and entered into a new senior unsecured credit agreement (the “2026 Credit Agreement”).

The 2026 Credit

LEONARDO DRS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

on the SOFR, in each case subject to an additional basis point spread as defined in the 2022 Credit Agreement, The Company also pays a commitment fee ranging between 0.20 % and 0.35 % depending on the Company’s leverage ratio applied to the unused balance of the 2022 Revolving Credit Facility.

There was no outstanding balance on the 2022 Revolving Credit Facility as of December 31, 2024 and 2023.

The weighted average interest rate on the 2022 Revolving Credit Facility as of December 31, 2024 and 2023 was 6.72 % and 6.41 %, respectively.

The 2009 Credit Agreement provided for a revolving credit facility available for the working capital needs of the Company (the “Revolving Credit Facility”).

As of December 31, 2021, the Revolving Credit Facility had a credit limit of $ 450 million, and an interest rate of LIBOR plus 3.5 %.

There was a commitment fee of 0.25 % applied to the unused balance of the Revolving Credit Facility and there were no compensating balance requirements.

There was no balance on the Revolving Credit Facility as of December 31, 2021.

The 2009 Credit Agreement was terminated in November 2022.

Agreement provides for a revolving credit facility available for working capital requirements of the Company (the “2026 Revolving Credit Facility”).

The 2026 Revolving Credit Facility has a limit of $ 500 million and expires in January 2031.

Loans under the 2026 Revolving Credit Facility bear interest at a variable rate generally based on the SOFR, plus a spread ranging from 1.25 % to 1.63 % depending on the leverage ratio, as defined in the 2026 Credit Agreement, or an alternative variable rate based on the higher of the prime rate, as defined in the 2026 Credit Agreement, the federal funds rate, or a rate generally based on the SOFR, in each case subject to an additional basis point spread as defined in the 2026 Credit Agreement.

The Company also pays a commitment fee ranging between 0.15 % and 0.30 % depending on the Company’s leverage ratio applied to the unused balance of the 2026 Revolving Credit Facility.

The Company also maintains uncommitted working capital credit facilities with certain financial institutions in the aggregate of $ 105 million and $ 130 million at December 31, 2025 and 2024, respectively (the “Financial Institution Credit Facilities”).

The Financial Institution Credit Facilities were guaranteed by Leonardo S.p.A, through approximately January 2023.

As of December 31, 2024, none of the Financial Institution Credit facilities are guaranteed by Leonardo S.p.A.

The sole purpose of the Financial Institution Credit Facilities is to support standby letter of credit issuances on contracts with customers.

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Approximately $ 10 million has been recognized as the current portion of long-term debt for the finance lease liabilities and aforementioned financing arrangement.

Short-term Borrowings

As of December 31, 2024 and 2023, the Company recognized $ 4 million and $ 35 million, respectively, related to our factoring facilities as short-term borrowings and current portion of long-term debt in the Consolidated Balance Sheets.

Sale of Receivables for more information.

Interest Paid

2 unchanged sentences

The interest expense attributable to the amortization of debt issuance costs in 2025, 2024 and 2023 was not material.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Maturities of debt as of December 31, 2025 are as follows:

6 unchanged sentences

The Company maintains multiple pension plans, both contributory and non-contributory, covering employees at certain locations.

Eligibility requirements for participation in the plans vary and benefits generally are based on the participant's compensation and years of service, as defined in the respective plan.

Eligibility requirements for participation in the plans vary and benefits

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

generally are based on the participant's compensation and years of service, as defined in the respective plan.

The Company's funding policy generally is to contribute in accordance with cost accounting standards that affect government contractors, subject to the Tax Code and regulations thereunder.

2 unchanged sentences

For all periods presented, the Company made no discretionary pension contributions.

Plan assets are invested primarily in equities, bonds (both corporate and U.S.

Plan assets are invested primarily in collective trust funds, which are primarily invested in bonds (both corporate and U.S.

government), U.S.

government-sponsored entity instruments, cash and cash equivalents and real estate.

government-sponsored entity instruments, and cash and cash equivalents.

The Company also provides postretirement medical benefits for certain retired employees and dependents at certain locations.

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Settlement charges related to these activities were immaterial.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following tables provide certain information regarding the Company's pension, postretirement and supplemental retirement plans as of December 31, 2024 and 2023:

Defined Benefit Pension Plans Postretirement Benefit Plans Supplemental Retirement Plans

The following tables provide certain information regarding the Company's pension plans as of December 31, 2025 and 2024.

In addition to the defined benefit pension plan information shown below, pension and other postretirement benefit plan liabilities on the Consolidated Balance Sheets includes other immaterial postretirement benefit plan and supplemental retirement plan liabilities.

Defined Benefit Pension Plans

(Dollars in millions) 2025 2024

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Interest cost 7 7

Actuarial (gain) loss ( 4 ) 6 — — — —

Actuarial loss (gain) 3 ( 4 )

Benefits paid (1)

( 41 ) ( 12 ) — — ( 1 ) ( 1 )

Loss due to settlement — 1 — — — —

Benefit obligation at end of year $ 129 $ 127

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Benefits paid (1)

( 41 ) ( 12 ) — — ( 1 ) ( 1 )

Fair value of plan assets at end of year 112 100

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(1) The 2024 amounts include the purchase of group annuity contracts to transfer certain benefit obligations and related plan assets of $ 24 million to an insurance company and lump sum payments to certain participants of $ 8 million.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The amounts recognized in the Consolidated Balance Sheets as of December 31, 2025 and 2024 consist of:

Defined Benefit Pension Plans Postretirement Benefit Plans Supplemental Retirement Plans

Defined Benefit Pension Plans

(Dollars in millions) 2025 2024

3 unchanged sentences

$ ( 17 ) $ ( 27 )

Amounts recognized in accumulated other comprehensive income (before taxes) at December 31, 2024 and 2023 consist of:

Defined Benefit Pension Plans Postretirement Benefit Plans Supplemental Retirement Plans

Amounts recognized in accumulated other comprehensive loss (before taxes) at December 31, 2025 and 2024 consist of:

Defined Benefit Pension Plans

(Dollars in millions) 2025 2024

Net actuarial loss (gain) $ 28 $ 30

Total amount recognized in accumulated other comprehensive losses (earnings) $ 30 $ 31 $ ( 1 ) $ ( 1 ) $ 1 $ 2

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Total amount recognized in accumulated other comprehensive loss $ 28 $ 30

The aggregate accumulated benefit obligation (“ABO”) for the Company's defined benefit pension plans combined was $ 119 million and $ 144 million at December 31, 2025 and 2024, respectively.

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The following table summarizes the weighted average actuarial assumptions used to determine our benefit obligations at December 31, 2025 and 2024:

Defined Benefit Pension Plans Postretirement Benefit Plans Supplemental Retirement Plans

2024 2023 2024 2023 2024 2023

Defined Benefit Pension Plans

Rate assumptions

Discount rate 5.2 % 5.5 %

Expected long-term return on plan assets 6.4 % 6.5 % 6.4 % 6.5 % N/A N/A

Health care trend rate assumed for next year N/A N/A 6.1 % 5.9 % N/A N/A

Ultimate health care trend rate N/A N/A 4.2 % 4.2 % N/A N/A

Year rate reaches ultimate trend rate N/A N/A 2037 2037 N/A N/A

The following table summarizes the components of net periodic benefit cost for the Company's pension, postretirement and supplemental retirement plans for the years ended December 31, 2024, 2023 and 2022.

Net actuarial gains and losses are amortized to expense when they exceed the 10% accounting corridor, based on the greater of the plan assets or benefit obligations, over the average future lifetime for all plans that are frozen, and over the average remaining service period for active plans.

Defined Benefit Pension Plans Postretirement Benefit Plans Supplemental Retirement Plans

Expected long-term return on plan assets 5.8 % 6.4 %

The following table summarizes the components of net periodic benefit cost for the Company's pension plans for the years ended December 31, 2025, 2024 and 2023.

Net actuarial gains and losses are amortized to expense when they exceed the 10% accounting corridor, based on the greater of the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

plan assets or benefit obligations, over the average future lifetime for all plans that are frozen, and over the average remaining service period for active plans.

Defined Benefit Pension Plans

(Dollars in millions) 2025 2024 2023

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Amortization of net actuarial loss 1 1 1

Settlement expense — — 1 — — — — — —

Net periodic benefit cost

$ 3 $ 2 $ 1 $ — $ — $ — $ 1 $ 1 $ 1

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following table summarizes the other changes in plan assets and benefit obligations recognized in other comprehensive earnings for the Company's pension, postretirement and supplemental retirement benefit plans for the years ended December 31, 2024, 2023 and 2022:

Defined Benefit Pension Plans Postretirement Benefit Plans Supplemental Retirement Plans

The following table summarizes the other changes in plan assets and benefit obligations recognized in other comprehensive income for the Company's pension plans for the years ended December 31, 2025, 2024 and 2023:

Defined Benefit Pension Plans

(Dollars in millions) 2025 2024 2023

Net actuarial loss (gain) $ 1 $ 1 $ ( 8 ) $ — $ — $ — $ — $ — $ ( 4 )

Net actuarial (gain) loss $ ( 1 ) $ 1 $ 1

Amortization of net actuarial loss from prior years

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$ ( 2 ) $ — $ —

The following table summarizes the weighted average actuarial assumptions used to determine our net periodic cost of the plans for the years ended December 31, 2024, 2023 and 2022:

Defined Benefit Pension Plans Postretirement Benefit Plans Supplemental Retirement Plans

The following table summarizes the weighted average actuarial assumptions used to determine our net periodic benefit cost of the pension plans for the years ended December 31, 2025, 2024 and 2023:

Defined Benefit Pension Plans

2025 2024 2023

1 unchanged sentence

Discount rate 5.5 % 4.8 % 5.0 %

Expected long-term return on plan assets 6.5 % 7.2 % 5.9 % 6.5 % 7.2 % 5.9 % N/A N/A N/A

Health care trend rate assumed for next year N/A N/A N/A 6.0 % 5.3 % 5.5 % N/A N/A N/A

Ultimate health care trend rate N/A N/A N/A 4.2 % 4.2 % 4.2 % N/A N/A N/A

Year rate reaches ultimate trend rate N/A N/A N/A 2037 2037 2031 N/A N/A N/A

Expected long-term return on plan assets 6.4 % 6.5 % 7.2 %

The expected long-term return on plan assets assumption represents the average rate that the Company expects to earn over the long-term on the assets of the Company's benefit plans, including those from dividends, interest income and capital appreciation.

The assumption has been determined based on expectations regarding future rates of return for the plans' investment portfolio, with consideration given to the allocation of investments by asset class and historical rates of return for each individual asset class.

Pension related expenses are reflected in cost of revenues and general and administrative expenses on the Consolidated Statements of Earnings.

A one percentage increase or decrease in healthcare trend rates in the table above would have an insignificant impact to our service and interest cost and the postretirement medical obligations.

Pension related expenses, other than service cost, are reflected in other, net on the Consolidated Statements of Earnings.

The Retirement Committee has been authorized by the Company’s management to manage the strategic oversight of our defined benefit plan assets held in trust.

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Presently all of the plans are governed by a single investment policy and are uniformly invested.

As part of the policy statement the Company has implemented a glide path which adjusts the percentage of assets invested in

As part of the policy statement the Company has implemented a glide path which adjusts the percentage of assets invested in return seeking assets based upon the attainment of specific funding percentages.

The non-return seeking assets are invested primarily in bonds with maturities closely matching the anticipated payment of

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

return seeking assets based upon the attainment of specific funding percentages.

The non-return seeking assets are invested primarily in bonds with maturities closely matching the anticipated payment of benefits.

As the funding percentage increases the glide path reduces the amount of the assets invested in return seeking assets.

The table below represents all of the Company's funded pension plans' and postretirement benefit plans' weighted average asset allocation at December 31, 2024 and 2023 by asset category:

The table below represents all of the Company's funded pension plans' weighted average asset allocation at December 31, 2025 and 2024 by asset category:

Asset Allocation

2 unchanged sentences

Debt securities 94 % 72 %

Real estate — % 4 %

Other, primarily cash and cash equivalents, and hedge funds 6 % 10 %

The table below presents the target allocation ranges for each major asset category for the Company's benefit plans for the years ended December 31, 2024 and 2023:

The table below presents the target allocation ranges for each major asset category for the Company's pension plans for the years ended December 31, 2025 and 2024:

Target Asset Allocation Range

2 unchanged sentences

Debt securities 96 % - 100 %

Real estate 0 % - 0 %

Other, primarily cash and cash equivalents and hedge funds 0 % - 4 %

The following tables provides the fair value of plan assets held by our defined benefit plan by asset category and by fair value hierarchy level.

The following tables provides the fair value of plan assets held by our pension plans by asset category and by fair value hierarchy level.

December 31, 2025

2 unchanged sentences

Investments measured at fair value:

Cash and cash equivalents $ 8 $ — $ — $ 8

Equity securities 6 — — 6

Collective trust funds $ — $ 112 $ — $ 112

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Prior year amounts for investments in collective trust funds, previously categorized as not subject to leveling in the fair value hierarchy, have been corrected to categorize these investments as Level 2.

For collective trust funds not traded on a public exchange, the trustee obtains quotes from the fund manager, which are based on the net asset value of the funds, which is the price the funds stand ready to purchase and sell units of the fund.

This change is not material as it did not affect the prior year financial statements nor the total plan assets previously reported.

For the year ended December 31, 2025, the Company expects to contribute $ 6 million to its pension plans and an inconsequential amount to its postretirement plans.

The following table presents expected pension and postretirement benefit payments over the next ten years:

For the year ended December 31, 2026, the Company expects to contribute $ 6 million to its pension plans.

The following table presents expected pension benefit payments over the next ten years:

(Dollars in millions)

Year Ending December 31,

Defined Benefit Pension Plans Postretirement Benefit Plans Supplemental Retirement Plans

2025 $ 11 $ — $ 1

2030-2034 50 — 6

Defined Benefit Pension Plans

Defined Contribution Plans

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The Company's contributions to these plans for the years ended December 31, 2025, 2024 and 2023, amounted to $ 35 million, $ 31 million, and $ 28 million, respectively.

Share-based Compensation Plans

In November 2022, the Company established the 2022 Omnibus Equity Compensation Plan (the “2022 Equity Plan”).

The 2022 Equity Plan allows for grants of stock options, stock appreciation rights, restricted shares, restricted stock units and performance-based awards.

Stock-based Compensation Plans

The Company’s 2022 Omnibus Equity Compensation Plan (the “2022 Equity Plan”) allows for grants of stock options, stock appreciation rights, restricted shares, restricted stock units (“RSUs”) and performance-based awards.

In May 2024, the 2022 Equity Plan was amended and restated to increase the common stock available for issuance under the plan by 8,100,000 shares and to extend the terms of the plan to expire on the tenth anniversary of the amended and restated plan’s effective date.

As of December 31, 2025, there were 9 million shares of the Company’s common stock reserved for future issuances under the 2022 Equity Plan.

Under the 2022 Equity Plan, the Company granted restricted stock units (“RSUs”) and performance-based restricted stock units (“PRSUs”), referred to as a one-time founders award.

The RSUs are subject to time-based vesting over a two-year period.

The PRSUs are subject to both time and performance-based vesting based on the Company’s share price metric market condition over a two-year period.

In November 2022, in conjunction with the acquisition of RADA, the Company assumed 5.4 million stock options.

In accordance with the Merger Agreement, the outstanding stock options were exchanged into options to purchase the Company’s common stock.

In November 2022, in conjunction with the acquisition of RADA Electronic Industries Ltd (“RADA”), the Company assumed 5.4 million stock options.

The outstanding stock options were exchanged into options to purchase the Company’s common stock.

The assumed stock options are subject to the same terms and conditions as the original awards, including time-based vesting.

The options are generally exercisable for 48 months following the date of vesting.

In November 2022, in conjunction with the acquisition of RADA, the Company converted the 2022 long-term incentive (“LTI”) program from a cash-based plan to an equity plan.

The conversion was treated as a liability to equity modification.

Following the modification, equity awards were granted in the form of RSUs and PRSUs.

The RSUs are subject to annual time-based vesting over a three-year period.

The PRSUs are subject to both time and performance-based vesting based upon the achievement of three

LEONARDO DRS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

financial metrics over a three-year period:

Relative Total Shareholder Return (“rTSR”), Revenue Growth, and Return on Invested Capital (“ROIC”).

During 2023, the Company granted equity awards in the form of RSUs and PRSUs under the LTI program.

During 2023, the Company granted equity awards in the form of RSUs and performance-based restricted stock units (“PRSUs”) under the 2022 Equity Plan.

The RSUs are subject to annual time-based vesting over a three-year period.

The PRSUs are subject to both time and performance-based vesting based upon the achievement of three financial metrics over a three-year period:

rTSR, Revenue Growth, and ROIC.

During 2024, the Company granted equity awards in the form of RSUs and PRSUs under the LTI program.

Relative Total Shareholder Return (“rTSR”), Revenue Growth, and Return on Invested Capital (“ROIC”).

During 2024 and 2025, the Company granted equity awards in the form of RSUs and PRSUs under the 2022 Equity Plan.

The RSUs are subject to annual time-based vesting over a three-year period.

6 unchanged sentences

In May 2024, the Company established the Employee Stock Purchase Plan (the “ESPP”).

The ESPP allows eligible employees to purchase shares of the Company’s stock at 90 % of the fair market value on the date of purchase.

The ESPP allows eligible employees to purchase shares of the Company’s stock at 90 % of the fair market value on

LEONARDO DRS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

the date of purchase.

As of December 31, 2025, there were 2 million shares of the Company’s common stock reserved for future issuances under the ESPP.

Share-based compensation, which was recorded in the Consolidated Statements of Earnings within general and administrative expenses, and the related tax benefits recognized for the periods presented consists of the following:

Stock-based compensation, which was recorded in the Consolidated Statements of Earnings within general and administrative expenses, and the related tax benefits recognized for the periods presented consists of the following:

Year Ended December 31,

(Dollars in millions) 2025 2024 2023

Total share-based compensation expense $ 22 $ 17 $ 5

Tax benefits recognized from share-based compensation 6 2 1

Total stock-based compensation expense $ 32 $ 22 $ 17

Tax benefits recognized from stock-based compensation 6 6 2

Stock Options

The assumptions used in valuing stock options during the periods presented are set forth in the following table:

Year Ended December 31,

Expected term (1)

0.04 – 5.18 years

Expected volatility (2)

Risk-free interest rate (3)

Expected dividend yield (4)

(1) The expected term is based upon historical experience and represents the period of time between when the options are granted and when they are expected to be exercised.

(2) The computation of expected volatility is based on a blend of historical RADA volatility and leverage-adjusted historical volatility of the Company’s publicly traded peers.

(3) The risk-free interest rate is based on the bootstrap adjusted U.S.

Treasury Rate Yield Curve Rate as of the valuation date, term matched with expected life of the awards.

(4) The expected dividend yield is based on the Company’s historical experience and expectation of future dividend payouts and may be subject to changes in the future.

The weighted average valuation date fair values for options assumed during the year ended December 31, 2022 was $ 4.58 .

There were no stock options granted or assumed during the years ended December 31, 2024 and 2023.

LEONARDO DRS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following table shows a summary of all option activity under the 2022 Equity Plan for the year ended December 31, 2025:

10 unchanged sentences

Vested and expected to vest as of December 31, 2025 1.19 $ 10.42 2 $ 28

As of December 31, 2024, total compensation expense not yet recognized related to unvested options was approximately $ 1 million, which is expected to be recognized over a weighted average period of 1 year.

There were no stock options granted or assumed during 2025.

As of December 31, 2025, total compensation expense not yet recognized related to unvested options was approximately $ 1 million, which is expected to be recognized over a weighted average period of less than one year .

The total intrinsic value of stock options exercised during the year ended December 31, 2025, was $ 11 million.

20 unchanged sentences

Forfeited ( 0.04 ) 25.61

Performance adjustments 0.39 10.68

Unvested as of December 31, 2025 1.15 $ 21.74

8 unchanged sentences

The fair value of PRSUs that vested in 2025 was $ 19 million.

Earnings Per Share

Earnings Per Share, Stock Repurchases, and Dividends

Year Ended December 31,

2 unchanged sentences

Basic weighted average number of shares outstanding 265.9 263.7 261.5

Impact of dilutive share-based awards 4.0 2.7 0.2

Impact of dilutive stock-based awards 2.8 4.0 2.7

Diluted weighted average number of shares outstanding 268.7 267.7 264.2

Earnings per share attributable to common shareholders - basic $ 0.81 $ 0.64 $ 1.88

Earnings per share attributable to common shareholders - diluted $ 0.80 $ 0.64 $ 1.88

The computation of diluted EPS includes the dilutive effect of outstanding share-based compensation awards (which primarily consist of employee stock options, RSUs and PRSUs).

Basic earnings per share $ 1.05 $ 0.81 $ 0.64

Diluted earnings per share $ 1.03 $ 0.80 $ 0.64

The computation of diluted EPS includes the dilutive effect of outstanding stock-based compensation awards (which primarily consist of employee stock options, RSUs and PRSUs).

Stock Repurchases

On February 20, 2025, the Company announced that its Board of Directors (the “Board”) approved a stock repurchase program that allows the Company to purchase up to $ 75 million of its outstanding common stock through March 4, 2027, subject to market conditions.

As of December 31, 2025, the

LEONARDO DRS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Company has repurchased approximately $ 35 million under the program.

The Company retires its common stock upon repurchase with the excess over par value allocated to additional paid-in capital.

The Company declared and paid a quarterly dividend of $ .09 per share of its common stock each quarter during 2025.

Subsequent to quarter end, the Company’s Board declared a cash dividend of $ .09 per share of common stock payable on March 24, 2026 to stockholders of record as of the close of business on March 10, 2026.

Commitments and Contingencies

3 unchanged sentences

Debt for additional information on our leases and credit agreements.

LEONARDO DRS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Contingencies

16 unchanged sentences

Costs incurred were related to employee termination and severance costs, as well as costs related to discontinuing product lines or closing down of locations.

Charges were recorded within other operating (expenses) income, net, on the Consolidated Statements of Earnings.

Charges were recorded within other operating expenses, net, on the

LEONARDO DRS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Consolidated Statements of Earnings.

See the table below for a breakout of restructuring costs by nature of cost incurred:

3 unchanged sentences

Facility abandonment — 2 2

LEONARDO DRS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following is a summary of changes in the restructuring provision balance during the years ended December 31, 2025 and 2024:

21 unchanged sentences

Related Party Transactions

Although we operate largely independently from Leonardo S.p.A.

and the proxy agreement contains limitations on services that we may provide to and receive from Leonardo S.p.A.

Although we operate largely independently from Leonardo S.p.A., our indirect majority stockholder, and the amended and restated proxy agreement contains limitations on services that we may provide to and receive from Leonardo S.p.A.

and its affiliates, we have historically provided, and expect to continue to provide, certain services to Leonardo S.p.A.

3 unchanged sentences

The Company also has related party sales and purchases with the indirect majority stockholder and its other affiliates that occur in the regular course of business.

Related party sales are included in revenues and were $ 30 million, $ 40 million and $ 59 million for the years ended December 31, 2024, 2023 and 2022, respectively.

Related party sales are included in revenues and were $ 29 million, $ 30 million and $ 40 million for the years ended December 31, 2025, 2024

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

and 2023, respectively.

Related party purchases are included in cost of revenues and were $ 7 million, $ 7 million and $ 4 million for the years ended December 31, 2025, 2024 and 2023, respectively.

The receivables with the indirect majority stockholder and its other affiliates of $ 5 million and $ 19 million, respectively, and payables of $ 5 million and $ 4 million, respectively, as of December 31, 2025 and 2024, are included in accounts receivable, net and accounts payable in our Consolidated Balance Sheets.

In addition, there was a related party balance in contract assets of $ 12 million at December 31, 2024.

In addition, there was a related party balance in contract assets of $ 16 million and $ 12 million, respectively, as of December 31, 2025 and 2024.

The Company entered into a Tax Allocation Agreement with US Holding, dated as of November 16, 2020.

Summary of Significant Accounting Policies for more information.

LEONARDO DRS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company has an investment in the preferred stock of a private company and holds two board seats in the investee.

Related party sales to this company were $ 6 million for the year ended December 31, 2025.

The Company also had $ 6 million of related party balances in contract assets with this company at December 31, 2025.

Segment Information

Operating segments represent components of an enterprise for which separate financial information is available that is regularly reviewed by the CODM in determining how to allocate resources and assess performance.

Our Chief Executive Officer is our CODM, and he uses a variety of measures to assess the performance of the Company as a whole, depending on the nature of the activity.

Beginning in the first quarter of 2022, the Company’s operating and reportable segments were revised into two reportable segments, ASC and IMS, to align our market strategy and capital allocation decision making with our operating structure.

Prior year information was revised to reflect the new segment structure.

Our Chief Executive Officer is our CODM.

The Company’s operating and reportable segments consist of ASC and IMS.

All other operations, which consists primarily of DRS corporate headquarters and certain non-operating subsidiaries of the Company, are grouped in Corporate & Eliminations.

Effective for the fourth quarter of 2024, operating earnings is the segment profit measure the CODM primarily uses to manage the Company and allocate resources.

Summary of Significant Accounting Policies for a description of our reportable segments.

The CODM primarily uses operating earnings to manage the Company and allocate resources.

Operating earnings is used to facilitate a comparison of the ordinary, ongoing and customary course of our operations on a consistent basis from period to period and provide an additional understanding of factors and trends affecting our business segments.

Prior year information was revised to reflect operating earnings as the segment profit measure.

Certain information related to our segments for the years ended December 31, 2025, 2024 and 2023, is presented in the following tables.

Consistent accounting policies have been applied by all segments within the Company, within all reporting periods.

A description of our reportable segments as of December 31, 2024 and 2023, has been included in Note 1:

Summary of Significant Accounting Policies .

Intersegment sales are generally transferred at cost to the buying segment, and the sourcing segment does not recognize a profit.

Such intercompany operating income is eliminated in consolidation, so that the Company’s total revenues and operating earnings reflect only those transactions with external customers.

Such intercompany operating earnings is eliminated in consolidation, so that the Company’s total revenues and operating earnings reflect only those transactions with external customers.

Revenues, expenses, and operating earnings by segment and the reconciliation to earnings before taxes for the years ended December 31, 2025, 2024 and 2023, consists of the following:

5 unchanged sentences

$ 3,648 $ 3,234 $ 2,826

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Cost of revenues

$ 1,727 $ 1,598 $ 1,370

1,066 922 834

Corporate & Eliminations

7 unchanged sentences

$ 368 $ 322 $ 302

LEONARDO DRS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Company-funded research and development

Company-funded independent research and development

$ 104 $ 74 $ 66

Corporate & Eliminations

Total company-funded research and development

$ 92 $ 82 $ 58

Amortization of intangibles

Total company-funded independent research and development $ 129 $ 92 $ 82

Amortization of acquired intangible assets

$ 22 $ 22 $ 22

Corporate & Eliminations

Total amortization of intangibles

$ 22 $ 22 $ 10

Total amortization of acquired intangible assets $ 22 $ 22 $ 22

Other segment items

$ 7 $ 11 $ ( 353 )

Corporate & Eliminations

Total other segment items (1)

$ 7 $ 11 $ ( 353 )

Operating earnings

10 unchanged sentences

________________

(1) Includes ASC restructuring costs for 2024, 2023 and 2022 and ASC gain on divestitures for 2022.

(1) Includes ASC restructuring costs for the periods presented.

LEONARDO DRS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Total intersegment revenues by segment for the years ended December 31, 2025, 2024 and 2023, consists of the following:

8 unchanged sentences

$ 71 $ 69 $ 63

LEONARDO DRS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Total assets by segment as of December 31, 2025 and 2024, consists of the following:

4 unchanged sentences

$ 4,486 $ 4,184

Subsequent Events

Share Repurchase Program

On February 20, 2025, the Company announced that its Board of Directors approved a share repurchase program that allows the Company to purchase up to $ 75 million of its outstanding common stock through March 4, 2027, subject to market conditions.

All repurchased shares are expected to be retired.

Payment of Dividends

On February 20, 2025, the Company announced that its Board of Directors approved a cash dividend of $ .09 per share of common stock payable on March 27, 2025 to shareholders of record as of the close of business on March 13, 2025.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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 8. Financial Statements and Supplementary Data