Leonardo DRS, Inc 10-Q for FY2022 Q1

Leonardo DRS, Inc. (DRS)

10-Q 2022-05-16 For: 2022-03-31

Added on April 09, 2026

About this 10-Q

Leonardo DRS, Inc filed this 10-Q on May 16, 2022, covering the quarter ended March 31, 2022 (FY2022 Q1).

Headline figures

Quarter ended March 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $612M; down 10.1% from $681M a year earlier
Net income: $36M; up 24.1% from net income of $29M a year earlier
Diluted EPS: $0.25; up 25.0% from $0.20 a year earlier

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Delaware			13-2632319
(State or Other Jurisdiction of Incorporation or Organization)			(I.R.S. Employer Identification Number)


			Page
PART I. Financial Information			1
ITEM 1. Financial Statements (Unaudited)			1
Consolidated Statements of Earnings			1
Consolidated Statements of Comprehensive Income			2
Consolidated Balance Sheets			3
Consolidated Statements of Cash Flows			5
Consolidated Statements of Shareholder’s Equity			6
Notes to Consolidated Financial Statements			7
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			27
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk			42
ITEM 4. Controls and Procedures			43
PART II. Other Information			44
ITEM 1. Legal Proceedings			44
ITEM 1A. Risk Factors			45
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds			45
ITEM 3. Defaults Upon Senior Securities			45
ITEM 4. Mine Safety Disclosures			45
ITEM 5. Other Information			45
ITEM 6. Exhibits			46
Signatures			47


	Three Months Ended March 31,
(Dollars in millions, except per share amounts)	2022		2021
Revenues:
Products	$	541	$	570
Services	71		111
Total revenues	612		681
Cost of revenues:
Products	(422)		(460)
Services	(56)		(85)
Total cost of revenues	(478)		(545)
Gross profit	134		136
General and administrative expenses	(76)		(79)
Amortization of intangibles	(2)		(2)
Other operating expenses, net	—		(4)
Operating earnings	56		51
Interest expense	(8)		(9)
Other, net	—		(1)
Earnings before taxes	48		41
Income tax provision	12		12
Net earnings	$	36	$	29

Net earnings per share from common stock:
Basic and diluted earnings per share:	$	0.25	$	0.20


	Three Months Ended March 31,
(Dollars in millions)	2022		2021
Net earnings	$	36	$	29
Other comprehensive income (loss):
Foreign currency translation gain, net of income taxes	1		—
Gain from pension settlements	3		—
Net unrecognized gain (loss) on postretirement obligations, net of income taxes	2		(1)
Other comprehensive income (loss), net of income tax	6		(1)
Total comprehensive income	$	42	$	28


	(Unaudited)
(Dollars in millions, except per share amounts)	March 31, 2022		December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	113	$	240
Accounts receivable, net	130		156
Contract assets	823		743
Inventories	231		205
Related party note receivable	—		—
Prepaid expenses	18		23
Other current assets	25		22
Held for sale	$	177	$	—
Total current assets	1,517		1,389
Noncurrent assets:
Property, plant and equipment, net	367		364
Intangible assets, net	50		52
Goodwill	954		1,071
Deferred tax assets	48		56
Other noncurrent assets	97		137
Total noncurrent assets	1,516		1,680
Total assets	$	3,033	$	3,069
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Short-term borrowings and current portion of long-term debt	$	186	$	41
Accounts payable	248		479
Contract liabilities	172		174
Other current liabilities	275		295
Held for sale	$	42	$	—
Total current liabilities	923		989
Noncurrent liabilities:
Long-term debt	354		352
Pension and other postretirement benefit plan liabilities	56		61
Other noncurrent liabilities	65		74
Total noncurrent liabilities	475		487
Shareholder's equity:
Preferred stock, $0.01 par value: 10,000,000 shares authorized; none issued	$	—	$	—
Common stock, $0.01 par value: 300,000,000 shares authorized; 145,000,000 shares issued and outstanding	1		1
Additional paid-in capital	4,633		4,633
Accumulated deficit	(2,947)		(2,983)
Accumulated other comprehensive loss	(52)		(58)
Total shareholder's equity	1,635		1,593
Total liabilities and shareholder's equity	$	3,033	$	3,069


(Dollars in millions, except per share amounts)	Common stock		Additional paid- in capital		Accumulated other comprehensive loss		Accumulated deficit		Total
Balance as of December 31, 2020	$	1	$	4,633	$	(70)	$	(3,137)	$	1,427
Total comprehensive income (loss)	—		—		(1)		29		28
Balance as of March 31, 2021	$	1	$	4,633	$	(71)	$	(3,108)	$	1,455


Balance as of December 31, 2021	$	1	$	4,633	$	(58)	$	(2,983)	$	1,593
Total comprehensive income	—		—		6		36		42
Balance as of March 31, 2022	$	1	$	4,633	$	(52)	$	(2,947)	$	1,635


Backlog:	March 31, 2022
(Dollars in millions)
Total Backlog	$	2,995


	Defined Benefit Pension Plans				Postretirement Benefit Plan				Supplemental Retirement Plans
(Dollars in millions)	March 31, 2022		March 31, 2021		March 31, 2022		March 31, 2021		March 31, 2022		March 31, 2021
Service cost	$	—	$	—	$	—	$	—	$	—	$	—
Interest cost	$	2	$	1	$	—	$	—	$	—	$	—
Less Expected return on plan assets	$	(2)	$	(2)	$	—	$	—	$	—	$	—
Amortization of net actuarial loss (gain)	$	—	$	1	$	—	$	—	$	—	$	—
Amortization of prior service cost	$	—	$	—	$	—	$	—	$	—	$	—
Settlement expense (income)	$	1	$	—	$	—	$	—	$	—	$	—
Net periodic benefit cost	$	1	$	—	$	—	$	—	$	—	$	—


(Dollars in millions)
Balance at December 31, 2021	$	19
Additional provision	3
Reversal and utilization	(2)
Balance at March 31, 2022	20


	Three Months Ended						March 31, 2022 vs. March 31,2021
(Dollars in millions, except per share amounts)	March 31, 2022			March 31, 2021			$			%
Total revenues	$	612		$	681		$	(69)		(10.1)	%
Total cost of revenues	(478)			(545)			67			(12.3)	%
Gross profit	$	134		$	136		(2)			(1.5)	%
Gross margin	21.9		%	20.0		%	1.9		%	9.6	%
General and administrative expenses	(76)			(79)			3			(3.8)	%
Amortization of intangibles	(2)			(2)			—			—	%
Other operating expenses, net	—			(4)			4			(100.0)	%
Operating earnings	$	56		$	51		5			9.8	%
Interest expense	(8)			(9)			1			(11.1)	%
Other, net	—			(1)			1			(100.0)	%
Earnings before taxes	$	48		$	41		7			17.1	%
Income tax provision	12			12			—			—	%
Net earnings	$	36		$	29		7			24.1	%
Shares outstanding(1)	145			145			$	—		—	%
Basic EPS(1)	$	0.25		$	0.20		$	0.05		24.1	%
Diluted EPS(1)	$	0.25		$	0.20		$	0.05		24.1	%
Adjusted EPS(1,2)	$	0.26		$	0.25		$	0.01		5.6	%
Adjusted EBITDA(2)	$	73		71			2			2.8	%
Adjusted EBITDA Margin(2)	11.9		%	10.4		%	1.5		%	14.4	%
Backlog(2)	$	2,995		2,945			50			1.7	%
Bookings(2)	747			715			32			4.5	%
Free cash flow(2)	$	(268)		$	(262)		$	(6)		2.3	%


	Three Months Ended March 31,						March 31, 2022 vs. March 31, 2021 Variance
(Dollars in millions)	2022			2021
Revenue:
ASC	$	396		$	483		$	(87)		(17.9)	%
IMS	218			201			17			8.5	%
Corporate & Eliminations	(2)			(3)			1			(28.6)	%
Total revenue	$	612		$	681		$	(69)		(10.1)	%
Adjusted EBITDA:
ASC	$	32		$	54		$	(22)		(40.7)	%
IMS	41			18			23			127.8	%
Corporate & Eliminations	—			(1)			1			(100.0)	%
Total Adjusted EBITDA	$	73		$	71		$	2		2.8	%
Adjusted EBITDA Margin:
ASC	8.1		%	11.2		%	(3.1)		%	(27.8)	%
IMS	18.8		%	9.0		%	9.8		%	109.9	%
Bookings:
ASC	$	388		$	493		$	(105)		(21.3)	%

IMS	359			222			137			61.9	%
Total bookings	$	747		$	715		$	32		4.5	%


Exhibit Number						Exhibit Description
2.1						Stock Purchase A g reement, dated as of March 21, 2022, by and among SES Government Solutions, Inc., as Buyer, SES S.A., as Buyer Guarantor, DRS Defense Solutions, LLC, as Seller, DRS Global Enterprise Solutions, Inc. and Leonardo DRS, Inc.
31.1						Certification by principal executive officer pursuant to Rule 13A-14(a) or 15D-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2						Certification by principal financial officer pursuant to Rule 13A-14(a) or 15D-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1						Certification by principal executive officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2						Certification by principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS						XBRL Instance Document – the instance document does not appear on the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH						XBRL Taxonomy Extension Schema Document
101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF						XBRL Taxonomy Extension Definition Linkbase Document
101.LAB						XBRL Taxonomy Extension Label Linkbase Document
101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document
104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


LEONARDO DRS, INC.


By:			/s/ William J. Lynn III
			Name: William J. Lynn III
			Title: Chief Executive Officer


ARTICLE 1. DEFINITIONS			1
Section 1.1. Definitions			1
Section 1.2. Computation of Time Periods			16
Section 1.3. Accounting Terms			16
Section 1.4. Certain Terms			17
ARTICLE 2. SALE AND TRANSFER OF SHARES; CLOSING			18
Section 2.1. Shares			18
Section 2.2. Calculation of the Purchase Price			18
Section 2.3. Payment of Purchase Price and Other Payables on the Closing Date			18
Section 2.4. Closing			18
Section 2.5. Closing Obligations			18
Section 2.6. Estimated Purchase Price Adjustment			20
Section 2.7. Final Purchase Price Adjustment			20
Section 2.8. Payments			23
Section 2.9. Calculations			23
ARTICLE 3. REPRESENTATIONS AND WARRANTIES REGARDING THE ACQUIRED COMPANIES			23
Section 3.1. Organization and Good Standing			23
Section 3.2. Capital			24
Section 3.3. Authority and Enforceability			25
Section 3.4. No Conflict			25
Section 3.5. Governmental Consents and Approvals			26
Section 3.6. Financial Statements; Financial Indebtedness			26
Section 3.7. Absence of Change			27
Section 3.8. No Undisclosed Liabilities			29
Section 3.9. Litigation			29
Section 3.10. Title and Sufficiency of Assets			30
Section 3.11. Real Estate			30
Section 3.12. Contracts			31
Section 3.13. Compliance with Legal Requirements			33
Section 3.14. Governmental Authorizations			33
Section 3.15. Environmental Matters			33
Section 3.16. Intellectual Property			34
Section 3.17. Tax Matters			36
Section 3.18. Employment Matters			37
Section 3.19. Employee Benefit Matters			38
Section 3.20. Insurance			39
Section 3.21. Transactions with Affiliates			40
Section 3.22. Certain Payments			40
Section 3.23. Accounts Receivable and Payable			41


Section 3.24. Customers and Suppliers			41
Section 3.25. Ground Stations			42
Section 3.26. Encryption and Other Restricted Technology			42
Section 3.27. Brokers			42
Section 3.28. Government Contracts			42
Section 3.29. Compliance with Trade Control Laws			45
Section 3.30. Acquired Company Proxy Agreement			45
Section 3.31. No Other Representations and Warranties			45
ARTICLE 4. REPRESENTATIONS AND WARRANTIES REGARDING SELLER AND PARENT			46
Section 4.1. Organization			46
Section 4.2. Authority and Enforceability			46
Section 4.3. No Conflict			47
Section 4.4. Governmental Consents and Approvals			47
Section 4.5. Title to Company Shares			48
Section 4.6. Litigation			48
Section 4.7. Brokers			48
Section 4.8. No Other Representations and Warranties			48
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF BUYER AND BUYER GUARANTOR			49
Section 5.1. Organization			49
Section 5.2. Authority and Enforceability			49
Section 5.3. No Conflict			49
Section 5.4. Governmental Consents and Approvals			50
Section 5.5. Brokers			50
Section 5.6. Solvency			50
Section 5.7. Litigation			50
Section 5.8. Investment Intent			51
Section 5.9. Sufficiency of Funds			51
Section 5.10. Independent Investigation			51
Section 5.11. Buyer Proxy Agreement			52
Section 5.12. No Other Representations and Warranties			52
ARTICLE 6. RESTRICTIVE COVENANTS			52
Section 6.1. Non-Competition			52
Section 6.2. Non-Solicitation			53
ARTICLE 7. CERTAIN COVENANTS AND AGREEMENTS			54
Section 7.1. Certain Pre-Closing Restrictions			54
Section 7.2. Access to Information			56
Section 7.3. Employee Benefits After Closing			57
Section 7.4. WARN Act			59
Section 7.5. [Reserved]			59


	Three Months Ended March 31,
(Dollars in millions)	2022		2021
Revenue by Geographical Region
United States	$	372	$	445
International	22		35
Intersegment Sales	2		3
Total	$	396	$	483
Revenue by Customer Relationship
Prime contractor	$	232	$	277
Subcontractor	162		203
Intersegment Sales	2		3
Total	$	396	$	483
Revenue by Contract Type
Firm Fixed Price	$	342	$	426
Flexibly Priced(1)	52		54
Intersegment Sales	2		3
Total	$	396	$	483


	March 31, 2022						December 31, 2021
(Dollars in millions)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Customer relationships	$	957	$	(910)	$	47	$	957	$	(908)	$	49
Patents and licenses	9		(6)		3		9		(6)		3
Total intangible assets	$	966	$	(916)	$	50	$	966	$	(914)	$	52


(Dollars in millions)	March 31, 2022		December 31, 2021
7.5% Term loan due November 30, 2023(1)	139		139
5.0% Daylight term loan due October 15, 2024(1)	78		78
Borrowings under revolving credit facility(1)	150		—
Finance lease and other	164		161
Short-term borrowings	9		15
Total debt principal	540		393
Less unamortized debt issuance costs and discounts	—		—
Total debt, net	540		393
Less short-term borrowings and current portion of long-term debt	(186)		(41)
Total long-term debt	$	354	$	352


Section 7.6. Reasonable Best Efforts; HSR Act; Governmental Authorizations; and Consents			59
Section 7.7. Notification of Certain Matters			62
Section 7.8. Confidentiality			63
Section 7.9. Publicity and Other Communications			64
Section 7.10. Termination of Affiliate Contracts; Enterprise-Wide Contracts			64
Section 7.11. [Reserved]			64
Section 7.12. Books and Records			65
Section 7.13. Payoff Letters			65
Section 7.14. Transfer of Permits			65
Section 7.15. Insurance			66
Section 7.16. Release			66
Section 7.17. Assignment of Host Nation Agreement			67
ARTICLE 8. CONDITIONS PRECEDENT TO EACH PARTY’S OBLIGATION TO CLOSE			67
Section 8.1. HSR Act			67
Section 8.2. CFIUS Approval			67
Section 8.3. FCC Consent			67
Section 8.4. Governmental Approvals			67
Section 8.5. No Restraints			67
ARTICLE 9. CONDITIONS PRECEDENT TO BUYER’S OBLIGATION TO CLOSE			67
Section 9.1. Accuracy of Seller’s Representations			67
Section 9.2. Company’s Performance			68
Section 9.3. Seller’s Performance			68
Section 9.4. Material Adverse Effect			68
Section 9.5. Closing Deliveries			68
ARTICLE 10. CONDITIONS PRECEDENT TO SELLER’S OBLIGATION TO CLOSE			68
Section 10.1. Accuracy of Buyer’s Representations			68
Section 10.2. Buyer’s Performance			69
Section 10.3. Closing Deliveries			69
ARTICLE 11. TERMINATION			69
Section 11.1. Termination			69
Section 11.2. Termination Fee			70
Section 11.3. Effect of Termination			71
ARTICLE 12. TAX MATTERS			71
Section 12.1. Straddle Period			71
Section 12.2. Responsibility for Filing Tax Returns			72
Section 12.3. Cooperation of Tax Matters			72
Section 12.4. Tax Refunds			73
Section 12.5. Tax Proceeding			73
Section 12.6. Transfer Taxes			73
Section 12.7. Treatment of Indemnity Claims			74


Section 12.8. No Section 338 Election			74
Section 12.9. Tax Sharing Agreement			74
Section 12.10. Post-Closing Tax Actions			74
Section 12.11. Tax Indemnity			74
Section 12.12. Withholding			75
ARTICLE 13. GENERAL PROVISIONS			75
Section 13.1. Expenses			75
Section 13.2. Notices			75
Section 13.3. Governing Law; Venue; Waiver of Jury Trial			76
Section 13.4. Further Assurances			77
Section 13.5. Waiver			78
Section 13.6. Entire Agreement And Modification			78
Section 13.7. Assignments, Successors, and No Third Party Rights			78
Section 13.8. Severability			78
Section 13.9. Time of Essence			79
Section 13.10. Specific Performance			79
Section 13.11. Counterparts			79
Section 13.12. Guarantee			79
Section 13.13. Survival			80


Exhibits

Exhibit A			Items Constituting Current Assets and Current Liabilities
Exhibit B			Form of Transition Services Agreement

Schedules

Schedule 1			Disclosure Schedule
Schedule 2.5(a)(ix)			Certain Governmental Authorizations
Schedule 2.5(a)(xi)			Contracts to be Assigned to the Acquired Companies
Schedule 7.1			Certain Pre-Closing Actions
Schedule 7.6(c)			Buyer Antitrust Law Filings
Schedule 7.10(a)			Excluded Affiliate Contracts
Schedule 8.4			Required Governmental Approvals


BUYER:
SES GOVERNMENT SOLUTIONS, INC. By: __/s/ Peter F. Hoene__________ Name: Peter F. Hoene Title: President and Chief Executive Officer
BUYER GUARANTOR:
SES S.A. By: _/s/ Mr. Sandeep Jalan________ Name: Sandeep Jalan Title: Chief Financial Officer


SELLER:
DRS DEFENSE SOLUTIONS, LLC
By: __/s/ Michael D. Dippold_____ Name: Michael D. Dippold Title: Treasurer


COMPANY:

DRS GLOBAL ENTERPRISE SOLUTIONS, INC. By: __/s/ David Fields___________ Name: David Fields Title: SVP, General Manager

PARENT:

LEONARDO DRS, INC. By: __/s/ William J. Lynn, III_____ Name: William J. Lynn, III Title: President and Chief Executive Officer




/s/ William J. Lynn, III
William J. Lynn III
Chief Executive Officer
(Principle Executive Officer)


/s/ Michael D. Dippold
Michael D. Dippold
Chief Financial Officer
(Principle Financial Officer)