Leonardo DRS (DRS) risk factors, FY2024 10-K

Risks Relating to Our Business

1. 01Significant delays or reductions in appropriations for our programs and changes in U.S. government priorities and spending levels more broadly may negatively impact our business and could have a material adverse impact on our business, financial condition and results of operations
2. 02Our results of operations and cash flows are substantially affected by our mix of fixed-price, cost-plus and time-and-materials type contracts. In particular, fixed-price contracts subject us to the risk of loss in the event of cost overruns or higher than anticipated inflation
3. 03We operate in a highly regulated environment and are routinely audited and reviewed by the U.S. government and its agencies
4. 04Due to our reliance on government contracts, negative audit findings or reviews for one or more of these contracts could have a material adverse impact on our business, financial condition and results of operations
5. 05The U.S. government’s organizational conflict of interest rules could limit our ability to successfully compete for new contracts or may require us to exit or wind down certain existing contracts, any of which could adversely affect our business, financial condition, results of operations and prospects
6. 06The U.S. government has and may continue to implement initiatives focused on efficiencies, affordability and cost growth as well as other changes to its procurement practices
7. 07We use estimates in pricing and accounting for many of our programs, and changes in our estimates could adversely impact our business, financial condition and results of operations
8. 08We may not realize the full value of our total estimated remaining contract value or bookings, including as a result of reduction of funding or cancellation of our U.S. government contracts, which could have a material adverse impact on our business, financial condition and results of operations
9. 09Our business may be harmed if we are unable to appropriately manage our inventory
10. 10Our working capital requirements and cash flows are extremely variable and subject to fluctuation, which could have a material adverse effect on our business, financial condition and results of operations
11. 11We cannot predict future capital needs, the sufficiency of our current financing or our ability to obtain additional financing if we need it
12. 12We are subject to global and regional economic downturns, rising interest rates and related risks
13. 13The requirements of being a public company may strain our resources and divert management’s attention, and the increases in legal, accounting and compliance expenses may be greater than we anticipate
14. 14Failure to maintain an effective system of internal control over financial reporting or to remediate weaknesses could materially harm our revenues, erode stockholder confidence in our ability to pursue business and report our financial results/condition, and negatively affect the trading price of our common stock
15. 15Our financing arrangements contain restrictions, covenants and events of default that, among other things, require us to satisfy certain financial tests and maintain certain financial ratios and restrict our ability to incur additional indebtedness and to refinance our existing indebtedness
16. 16To service indebtedness and fund other cash needs, we will require a significant amount of cash, and our ability to generate cash depends on many factors beyond our control
17. 17We face intense competition and may suffer losses if we fail to compete efficiently
18. 18Preferences or set-asides for minority-owned, small and small disadvantaged businesses could impact our ability to be a prime contractor and limit our opportunity to work as a subcontractor on certain governmental procurements
19. 19We depend in part upon our relationships and alliances with industry participants in order to generate revenue, which involves risks and uncertainties
20. 20Contractual disputes with industry participants or the inability of our key suppliers to timely deliver our components, parts or services, could cause our products, systems or services to be produced or delivered in an untimely or unsatisfactory manner
21. 21We are susceptible to a security breach, through cyber-attack, cyber-intrusion, insider threats or otherwise, and to other significant disruptions of our IT networks and related systems, or those of our customers, suppliers, vendors, subcontractors, partners, or other third parties
22. 22Some of our contracts with the U.S. government are classified, which may limit investor insight into portions of our business
23. 23We may be at greater risk from terrorism and other threats to our physical security and personnel, than other companies
24. 24Uncertainty and instability in these regions can also adversely impact local and global markets, potentially leading to reduced demand for our products or fluctuations in the pricing of key inputs
25. 25Our future success will depend on our ability to respond to the rapid technological changes in the markets in which we compete, and our ability to introduce new or enhanced products and to enter into new markets
26. 26We may not be able to fully exploit or obtain patents or other intellectual property protections necessary to secure our proprietary technology
27. 27Third parties have claimed in the past and may claim in the future that we are infringing directly or indirectly upon their intellectual property rights, and third parties may infringe upon our intellectual property rights
28. 28Our reputation and ability to do business may be impacted by the improper conduct of our employees, agents, affiliates, subcontractors, suppliers, business partners or joint ventures in which we participate
29. 29Our business, financial condition, and results of operations could be materially adversely affected by climate change regulations
30. 30take such action) against a customer, supplier, former employee, subcontractor or other industry participant to protect its contractual and other legal rights. The outcome of such litigation is inherently uncertain, often costly and could adversely impact the Company’s commercial relationships and reputation
31. 31Our international business exposes us to additional risks, including risks related to geopolitical conflicts, including the war in Israel, and economic factors, laws and regulations
32. 32funding for programs, alter export authorizations, or delay purchasing decisions or customer payments. These changes may affect the defense spending priorities and procurement policies of foreign governments which may affect our international military sales
33. 33Our efforts to penetrate new territories present significant challenges and could adversely affect our growth strategy and our financial performance
34. 34We may not be successful in obtaining the export licenses necessary to conduct certain operations abroad, and Congress may prevent proposed sales to certain foreign governments
35. 35A failure to attract and retain technical and other key personnel could reduce our revenues and our operational effectiveness
36. 36Our business could be harmed in the event of difficulties with our unionized workforce, including the effects of a prolonged work stoppage
37. 37We have unfunded obligations under our pension plans, and we use estimates in accounting for our pension plans and changes in our estimates could adversely affect our financial condition and results of operations
38. 38Changes to financial accounting standards may affect our results of operations and cause us to change our business practices
39. 39Changes in future business or other market conditions could cause business investments and/or recorded goodwill or other long-term assets to become impaired, resulting in substantial losses and write-downs that would adversely affect our business, financial condition and results of operations
40. 40Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations
41. 41We could be liable for certain tax liabilities, including tax liabilities of US Holding and its subsidiaries, under tax law and the tax allocation agreement
42. 42Acquisitions could result in operating difficulties, dilution and other harmful consequences
43. 43Foreign acquisitions involve unique risks in addition to those mentioned above, including those related to integration of operations across different cultures and languages, currency risks and the particular economic, political and regulatory risks associated with specific countries and the defense industry
44. 44Pandemics, epidemics, disease outbreaks and health emergencies, such as the COVID-19 pandemic, have had, and future public health crises could have, an adverse impact on our business, financial condition and results of operations
45. 45We have significant operations in locations that could be materially and adversely impacted in the event of a natural disaster or other significant disruption
46. 46We are subject to environmental laws and regulations, and our ongoing operations may expose us to environmental liabilities affecting our reputation, business, financial condition and results of operations
47. 47Our leases may be terminated or we may be unable to renew our leases on acceptable terms and if we wish to relocate, we may incur additional costs if we terminate a lease
48. 48We cannot predict the consequences of future geopolitical events, but they may adversely affect the markets in which we operate, our ability to insure against risks, our operations or our results of operations

Risks Relating to Our Ownership and Status under the Proxy Agreement

1. 49CFIUS may modify, delay or prevent our future acquisition or investment activities
2. 50Our indirect majority stockholder, Leonardo S.p.A., may have interests that are different from, or conflict with, those of our other stockholders, and their significant ownership in us may discourage mergers and acquisitions or change of control transactions
3. 51In addition, the proxy holders may only vote to declare or suspend dividends after prior consultation with US Holding
4. 52Our amended and restated certificate of incorporation provides that we waive any interest or expectancy in corporate opportunities presented to Leonardo S.p.A
5. 53We are obligated to provide certain services to Leonardo S.p.A., which may divert human and financial resources from our business, and to rely on provision of certain services from Leonardo S.p.A., which we may be unable to replicate should the need arise