Leonardo DRS, Inc.DRS
Leonardo DRS, Inc. Leases Disclosure
Leases
The Company leases various real estate for manufacturing facilities, administrative offices, warehouses and machinery under both finance leases and operating leases. In addition, the Company leases vehicles and office equipment under operating leases. We determine whether our contracts are or contain a lease at the inception of such arrangements. A contract is or contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
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 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. The remaining lease cost is amortized over the remaining life of the lease on a straight-line basis. We evaluate ROU assets for impairment consistent with the treatment of other long-lived assets.
Some of our leases include options to extend the lease terms or to terminate the lease early. We include the impact of the option in the determination of the ROU assets and liabilities when it is
reasonably certain that we will exercise the option. Our U.S. 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. dollars on the general ledger. These leases are recalculated each quarter to recognize the changes in both the CPI and the ISL. The Company’s lease agreements do not contain any material residual value guarantees or restrictive covenants.
We elected not to recognize a ROU asset and lease liability for leases with an initial term of twelve months or less. These leases are expensed on a straight-line basis over the lease term. The Company elected the practical expedient to not separate lease and non-lease components and to instead account for them as a single component. 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.
Lease Cost
The Company’s total lease cost consists of the following:
| Year Ended December 31, | |||||||||||||||||
| (Dollars in millions) | 2025 | 2024 | 2023 | ||||||||||||||
Operating lease cost(1) | $ | 29 | $ | 24 | $ | 26 | |||||||||||
Finance lease cost(2): | |||||||||||||||||
| Amortization of right-of-use assets | 12 | 12 | 10 | ||||||||||||||
| Interest on lease liabilities | 6 | 6 | 5 | ||||||||||||||
Total lease cost | $ | 47 | $ | 42 | $ | 41 | |||||||||||
________________
(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 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.
Supplemental Balance Sheet Information
Supplemental balance sheet information related to leases is as follows:
| December 31, | |||||||||||
| (Dollars in millions) | 2025 | 2024 | |||||||||
| ROU assets | |||||||||||
Operating leases(1) | $ | 107 | $ | 79 | |||||||
Finance leases(2) | 89 | 97 | |||||||||
Total leased assets | $ | 196 | $ | 176 | |||||||
| Lease liabilities | |||||||||||
| Current lease liabilities: | |||||||||||
Operating(1) | $ | 28 | $ | 27 | |||||||
Finance(2) | 10 | 10 | |||||||||
| Noncurrent lease liabilities: | |||||||||||
Operating(1) | 95 | 66 | |||||||||
Finance(2) | 96 | 103 | |||||||||
Total lease liabilities | $ | 229 | $ | 206 | |||||||
________________
(1)Operating lease ROU assets are included within and operating lease liabilities are included within (current portion) and (noncurrent portion) in the Consolidated Balance Sheets.
(2)Finance lease ROU assets are included within and finance lease liabilities are included within and in the Consolidated Balance Sheets.
Supplemental Cash Flow Information
Supplemental cash flow information related to leases is as follows:
| Year Ended December 31, | |||||||||||||||||
| (Dollars in millions) | 2025 | 2024 | 2023 | ||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||||||||
| Operating cash flows from operating leases | $ | 24 | $ | 26 | $ | 28 | |||||||||||
| Operating cash flows from finance leases | 6 | 6 | 5 | ||||||||||||||
| Financing cash flows from finance leases | 10 | 9 | 8 | ||||||||||||||
| Right-of-use assets obtained in exchange for new lease liabilities: | |||||||||||||||||
| Operating leases | 47 | 25 | 17 | ||||||||||||||
| Finance leases | 2 | 11 | 6 | ||||||||||||||
Weighted Average Lease Term and Discount Rate
Lease terms and discount rates related to leases are as follows:
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Weighted average remaining lease term: | |||||||||||
| Operating leases | 6 years | 5 years | |||||||||
| Finance leases | 13 years | 14 years | |||||||||
| Weighted average discount rate: | |||||||||||
| Operating leases | 5.5 | % | 4.6 | % | |||||||
| Finance leases | 5.9 | % | 5.2 | % | |||||||
Maturity of Lease Liabilities
As of December 31, 2025, future minimum rental payments on leases with initial non-cancellable lease terms in excess of one year were due as follows:
(Dollars in millions) Year Ending December 31, | Operating Leases | Finance Leases | ||||||||||||
| 2026 | $ | 27 | $ | 16 | ||||||||||
| 2027 | 26 | 13 | ||||||||||||
| 2028 | 24 | 12 | ||||||||||||
| 2029 | 18 | 11 | ||||||||||||
| 2030 | 14 | 11 | ||||||||||||
| Thereafter | 29 | 95 | ||||||||||||
Total lease payments | 138 | 158 | ||||||||||||
| Less: imputed interest | 15 | 52 | ||||||||||||
Present value of lease liabilities | 123 | 106 | ||||||||||||
| Less: current maturities | 28 | 10 | ||||||||||||
Long-term lease obligations | $ | 95 | $ | 96 | ||||||||||
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 Leases Disclosures
Lease disclosures under ASC 842 provide a comprehensive view of a company's leased asset portfolio, including the split between operating and finance leases, discount rates used to present-value future payments, and the maturity schedule of lease obligations. This section reveals a significant source of off-balance-sheet commitments that were largely hidden before the current standard.
Key signals: the weighted-average discount rate affects the size of recorded lease liabilities — a higher rate reduces the reported obligation, so compare the chosen rate against the company's incremental borrowing rate. The operating versus finance lease mix affects both EBITDA and operating income presentation. Watch the maturity table for concentration risk: large payment cliffs in specific years may create cash flow pressure. Variable lease payments excluded from the liability measurement represent real obligations that do not appear on the balance sheet. Compare total lease costs against prior-year operating lease expense to assess the true economic burden.