Leonardo DRS (DRS) risk factors, FY2025 10-K

Other

1. 01government could have a material adverse impact on our business, financial condition and results of operationsNew
2. 02factors not wholly within our control. Failure to meet our contractual obligations could adversely affect our business, financial condition, results of operations, reputation and future prospectsNew

Risks Relating to Our Business

1. 03Significant delays, including from government shutdowns, or reductions in appropriations for our programs and changes in U.S. government priorities and spending levels more broadly may negatively impact our business and could have a material adverse impact on our business, financial condition and results of operations21% rewritten
2. 04Our results of operations and cash flows are substantially affected by our mix of fixed-price, cost-plus and T&M 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. 05We operate in a highly regulated environment and are routinely audited and reviewed by the U.S. government and its agencies
4. 06Due 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. 07The 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 prospects25% rewritten
6. 08The 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 practices20% rewritten
7. 09We 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 operations79% rewritten
8. 10underlying assumptions, circumstances or estimates may materially reduce our profit or cause a loss on these contracts and adversely impact our business, financial condition and results of operationsNew
9. 11We 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
10. 12Our business may be harmed if we are unable to appropriately manage our inventory
11. 13Our 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
12. 14We cannot predict future capital needs, the sufficiency of our current financing or our ability to obtain additional financing if needed, on terms acceptable to us, if at all
13. 15We are subject to global and regional economic downturns, rising interest rates and related risks
14. 16Failure 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 stock27% rewritten
15. 17covenants could have an adverse impact on our business, financial condition and results of operationsNew
16. 18To 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. 19We face intense competition and may suffer losses if we fail to compete efficiently25% rewritten
18. 20against us. Our failure to compete effectively with these smaller, innovative companies can reduce our market share and materially impact our business, financial condition, and operating resultsNew
19. 21Preferences or set-asides for small or 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
20. 22We depend in part upon our relationships and alliances with industry participants in order to generate revenue, which involves risks and uncertainties
21. 23Contractual 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 manner65% rewritten
22. 24Some of our contracts with the U.S. government are classified, which may limit investor insight into portions of our business
23. 25We may be at greater risk from terrorism and other threats to our physical security and personnel, than other companies
24. 26Uncertainty 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. 27Our 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. 28We may not be able to fully exploit or obtain patents or other intellectual property protections necessary to secure our proprietary technology
27. 29Third 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. 30Our 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. 31Our business, financial condition, and results of operations could be materially adversely affected by climate change regulations75% rewritten
30. 32programs, and renewable portfolio standards by utility companies. The cost of complying, or of failing to comply, with these and other climate change and emissions regulations could have an adverse impact on our business, financial condition and results of operationsNew
31. 33Our international business exposes us to additional risks, including risks related to geopolitical conflicts, including the war in Israel, and economic factors, laws and regulations87% rewritten
32. 34These risks differ in some respects from those associated with our U.S. business and our exposure to such risks may increase if our international business continues to growNew
33. 35Our efforts to penetrate new territories present significant challenges and could adversely affect our growth strategy and our financial performance
34. 36We 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. 37A failure to attract and retain technical and other key personnel could reduce our revenues and our operational effectiveness
36. 38Our business could be harmed in the event of difficulties with our unionized workforce, including the effects of a prolonged work stoppage
37. 39We 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. 40Changes 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 operations29% rewritten
39. 41Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations
40. 42We could be liable for certain tax liabilities, including tax liabilities of US Holding and its subsidiaries, under tax law and the tax allocation agreement
41. 43Acquisitions could result in operating difficulties, dilution and other harmful consequences
42. 44Foreign 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
43. 45Pandemics, 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
44. 46We have significant operations in locations that could be materially and adversely impacted in the event of a natural disaster or other significant disruption
45. 47We 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
46. 48Our 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
47. 49We 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 Amended and Restated Proxy Agreement

1. 50CFIUS may modify, delay or prevent our future acquisition or investment activities
2. 51Our 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. 52In addition, the proxy holders may only vote to declare or suspend dividends after prior consultation with US Holding
4. 53Our third amended and restated certificate of incorporation provides that we waive any interest or expectancy in corporate opportunities presented to Leonardo S.p.A
5. 54We 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

Risks Related to Ownership of our Common Stock

1. 55There can be no assurance that we will continue to pay or increase our dividend or to repurchase shares of our common stock. Additionally, there can be no assurance that we will not accelerate our dividend or repurchases of our common stockNew