Leonardo DRS, Inc.DRS
Leonardo DRS, Inc. Commitments Disclosure
Commitments and Contingencies
Commitments
The Company’s commitments are primarily related to our lease agreements, purchase obligations, and credit agreements. See Note 10: Leases and Note 12: Debt for additional information on our leases and credit agreements.
Contingencies
From time to time, we are subject to certain legal proceedings and claims in the ordinary course of business. These matters are subject to many uncertainties, and it is possible that some of these matters ultimately could be decided, resolved or settled in a manner adverse to us. Although the precise amount of liability that may result from these matters is not ascertainable, the Company believes that any amounts exceeding the Company's recorded accruals should not materially adversely affect the Company's financial condition or liquidity. It is possible, however, that the ultimate resolution of those matters could result in a material adverse effect on the Company's results of operations and/or cash flows from operating activities for a particular reporting period. We establish reserves for specific legal matters when we determine that the likelihood of an unfavorable outcome is probable, and the loss is reasonably estimable. The Company reviews the developments in contingencies that could affect the amount of the reserves that have been previously recorded. The Company adjusts provisions and changes to disclosures accordingly to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and updated information. Significant judgment is required to determine both the probability and the estimated amount of any potential losses.
As a government contractor, with customers including the U.S. government as well as various state and local government entities, the Company may be subject to audits, investigations and claims with respect to its contract performance, pricing, costs, cost allocations and procurement practices. Additionally, amounts billed under such contracts, including direct and indirect costs, are subject to potential adjustments before final settlement.
Management believes that adequate provisions for such potential audits, investigations, claims and contract adjustments, if any, have been made in the Consolidated Financial Statements.
Restructuring costs
We engage in targeted restructuring initiatives in order to rationalize headcount and align our operations in a more strategic and cost-efficient structure. In connection with these restructuring initiatives, we recorded charges totaling $2 million, $8 million and $11 million for the years ended December 31, 2025, 2024 and 2023, respectively. These restructuring initiatives were within our ASC segment and were substantially completed as of December 31, 2025. 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, net, on the
Consolidated Statements of Earnings. See the table below for a breakout of restructuring costs by nature of cost incurred:
| Year Ended December 31, | |||||||||||||||||
| (Dollars in millions) | 2025 | 2024 | 2023 | ||||||||||||||
| Severance | $ | 2 | $ | 6 | $ | 9 | |||||||||||
| Facility abandonment | — | 2 | 2 | ||||||||||||||
Total | $ | 2 | $ | 8 | $ | 11 | |||||||||||
The following is a summary of changes in the restructuring provision balance during the years ended December 31, 2025 and 2024:
| (Dollars in millions) | |||||
| Balance at January 1, 2024 | $ | 10 | |||
| Additional provision | 8 | ||||
| Reversal and utilization | (17) | ||||
| Balance at December 31, 2024 | 1 | ||||
| Additional provision | 2 | ||||
| Reversal and utilization | (2) | ||||
| Balance at December 31, 2025 | $ | 1 | |||
Product Warranties
Product warranty costs generally are accrued in proportion to product revenue realized in conjunction with our over time revenue recognition policy. Product warranty expense is recognized based on the term of the product warranty, generally one year to three years, and the related estimated costs, considering historical claims expense. Accrued warranty costs are reduced as these costs are incurred and as the warranty period expires, and otherwise may be modified as specific product performance issues are identified and resolved. The following is a summary of changes in the product warranty balances during the years ended December 31, 2025 and 2024:
| (Dollars in millions) | |||||
| Balance at January 1, 2024 | $ | 26 | |||
| Additional provision | 16 | ||||
| Reversal and utilization | (13) | ||||
| Balance at December 31, 2024 | $ | 29 | |||
| Additional provision | 25 | ||||
| Reversal and utilization | (21) | ||||
| Balance at December 31, 2025 | $ | 33 | |||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 27, 2026 | Showing above |
| 2024 | Mar 3, 2025 | |
| 2023 | Feb 28, 2024 | |
| 2022 | Mar 28, 2023 | |
| 2021 | Mar 28, 2022 | |
About Commitments Disclosures
Commitments and contingencies disclosures catalog a company's off-balance-sheet obligations and legal exposures — purchase commitments, guarantee arrangements, pending litigation, and regulatory proceedings. These items represent potential future cash outflows that may not appear as liabilities on the balance sheet until they become probable and estimable.
Key signals: litigation reserves and disclosed loss ranges quantify management's estimate of legal exposure, but unquantified "reasonably possible" losses often represent the larger risk. Watch for changes in language around pending cases — shifts from "remote" to "reasonably possible" or increases in estimated loss ranges signal deteriorating outcomes. Unconditional purchase obligations and take-or-pay contracts create fixed cost structures that reduce operational flexibility. Guarantee arrangements for subsidiaries or joint ventures can create cascading obligations. Compare the total commitment schedule against projected free cash flow to assess whether the company can meet its obligations without additional financing.