Leonardo DRS Inc

Previous wording

DRS is an innovative and agile provider of advanced defense technology to U.S. national security customers and allies around the world. We specialize in the design, development and manufacture of advanced sensing, network computing, force protection, as well as electric power and propulsion. The strength of our market positioning in these technology areas have created a foundational and diverse base of programs across the U.S. Department of Defense (“DoD”). We believe these technologies will not only support our customers in today’s mission but will also underpin their strategy to migrate towards more autonomous, dynamic, interconnected, and multi-domain capabilities needed to address evolving and emerging threats. We view more advanced capabilities in sensing, computing, self-protection and power as necessary to enable these strategic priorities.

Current wording

DRS is an innovative and agile provider of advanced defense technology to U.S. national security customers and allies around the world. We specialize in the design, development and manufacture of advanced sensing, network computing, force protection, as well as electric power and propulsion. The strength of our market positioning in these technology areas have created a foundational and diverse base of programs across the U.S. Department of Defense (the “DoD”). We believe these technologies will not only support our customers in today’s mission but will also underpin their strategy to migrate towards more autonomous, dynamic, interconnected, and multi-domain capabilities needed to address evolving and emerging threats. We view more advanced capabilities in sensing, computing, self-protection and power as necessary to enable these strategic priorities.

Previous wording

Our overall strategy is to be a balanced and diversified company, less vulnerable to any one budgetary platform or service decision with a specific focus on establishing strong technical and market positions in areas of priority for the DoD. The DoD is our largest customer and, for the years ended December 31, 2023 and 2022, accounted for approximately 80% and 84%, respectively, of our business as an end-user, with revenues principally derived directly or indirectly from contracts with the U.S. Navy and U.S. Army, which represented 38% and 31%, respectively, of our total revenues for the year ended December 31, 2023 and 32% and 37%, respectively, for the year ended December 31, 2022.

Current wording

Our overall strategy is to be a balanced and diversified company, less vulnerable to any one budgetary platform or service decision with a specific focus on establishing strong technical and market positions in areas of priority for the DoD. The DoD is our largest customer and, for the years ended December 31, 2024 and 2023, accounted for approximately 79% and 80%, respectively, of our business as an end-user, with revenues principally derived directly or indirectly from contracts with the U.S. Navy and U.S. Army, which represented 37% and 32%, respectively, of our total revenues for the year ended December 31, 2024 and 38% and 31%, respectively, for the year ended December 31, 2023.

Previous wording

DRS is a leading provider of next-generation electrical propulsion systems for the U.S. Navy. We provide power conversion, control, distribution and propulsion systems for the Navy’s top priority shipbuilding programs, including the Columbia Class ballistic missile submarine, the first modern U.S. electric drive submarine.

Current wording

DRS is a leading provider of next-generation electrical propulsion systems for the U.S. Navy. We provide power conversion, control, distribution and propulsion systems for the U.S. Navy’s top priority shipbuilding programs, including the Columbia Class ballistic missile submarine, the first modern U.S. electric drive submarine.

Previous wording

Part of this learning has resulted in institutionalizing our continuous improvement process through our Business Excellence initiative called Always Performing for Excellence (“APEX”) program. The APEX program’s goal is to strive for continuous improvement through unification of all of our business practices, tools and metrics, ongoing employee training and innovation. We believe that excellence is not a destination, but by constantly challenging ourselves to be better, we will improve, and ultimately approach excellence. We challenge ourselves to exceed our customers’ expectations and we partner with them to work to ensure that our execution meets their needs.

Current wording

Part of this learning has resulted in institutionalizing our continuous improvement process through our Business Excellence initiative called the Always Performing for Excellence (“APEX”) program. The APEX program’s goal is to strive for continuous improvement through unification of all of our business practices, tools and metrics, ongoing employee training and innovation. We believe that excellence is not a destination, but by constantly challenging ourselves to be better, we will improve, and ultimately approach excellence. We challenge ourselves to exceed our customers’ expectations and we partner with them to work to ensure that our execution meets their needs.

Previous wording

In February 2022, Russia escalated its war with Ukraine by invading and occupying parts of that country. Since that time, western powers, including the U.S., have pledged support with humanitarian and military aid. Some of that military aid pledged by the U.S. will result in increased efforts to replace equipment and consumables. We have received orders from the U.S. and allies to both provide equipment in support of this effort, and to replace equipment pledged. We expect that these orders will continue until that support is no longer needed and certain transferred equipment is replaced.

Current wording

In February 2022, Russia invaded and began occupying parts of Ukraine. Since that time, western powers, including the U.S., have pledged support with humanitarian and military aid. Some of that military aid pledged by the U.S. will result in increased efforts to replace equipment and consumables. We have received orders from the U.S. and allies to both provide equipment in support of this effort, and to replace equipment pledged.

Previous wording

In October 2023, Hamas militants located in Gaza launched a terrorist attack on Israel. The ensuing and ongoing conflict has the potential to evolve quickly creating uncertainty in the broader Middle East region, along with the potential for disruptions to our Israeli operations in the region, including but not limited to workforce calls for duty, transportation and other logistical impacts and reduced customer confidence. To date, the conflict has not had a material impact to our operations. The U.S. and other western powers have directed military and funding support to Israel. DRS has direct exposure to Israel principally through its RADA operations with approximately 4% of our workforce as of December 31, 2023 residing in Israel. At this time, it is unclear whether supplemental funding for Israel will impact demand for DRS products.

Current wording

The ongoing conflicts in Israel and the broader Middle East region have the potential to evolve quickly creating uncertainty, along with the potential for disruptions to our Israeli operations in the region, including, but not limited to, workforce calls for duty, transportation and other logistical impacts and reduced customer confidence. To date, the conflict has not had a material impact to our operations. The U.S. and other western powers have directed military and funding support to Israel. DRS has direct exposure to Israel principally through its RADA operations with approximately 5% of our workforce as of December 31, 2024 residing in Israel.

Previous wording

Revenues derived directly, as a prime contractor, or indirectly, as a subcontractor, from contracts with the U.S. government represented 80%, 84% and 86% of our total revenues for the years ended December 31, 2023, 2022 and 2021, respectively. Our U.S. government sales are highly concentrated within our DoD customers, which made up the overwhelming majority of our U.S. government revenue for the year ended December 31, 2023, and are principally derived directly or indirectly from contracts with the U.S. Navy and U.S. Army, which represented 38% and 31%, respectively, of our total revenues for the year ended December 31, 2023. Therefore, our revenue is highly correlated to changes in U.S. government spending levels, especially within the DoD.

Current wording

Revenues derived directly, as a prime contractor, or indirectly, as a subcontractor, from contracts with the U.S. government represented 79%, 80% and 84% of our total revenues for the years ended December 31, 2024, 2023 and 2022, respectively. Our U.S. government sales are highly concentrated within our DoD customers, which made up the overwhelming majority of our U.S. government revenue for the year ended December 31, 2024, and are principally derived directly or indirectly from contracts with the U.S. Navy and U.S. Army, which represented 37% and 32%, respectively, of our total revenues for the year ended December 31, 2024. Therefore, our revenue is highly correlated to changes in U.S. government spending levels, especially within the DoD.

Previous wording

In March 2023, the U.S. President’s fiscal year (“FY”) 2024 budget request was released and included $842 billion for national defense programs, which marks a 3% increase over prior year levels. Following that, the FY 2024 National Defense Authorization Act (“NDAA”) was passed by Congress late in 2023 and signed into law by the President in December 2023. The NDAA authorizes $842 billion in defense spending, including increases in procurement, research, development, testing and engineering, as well as military assistance to Ukraine.

Current wording

In March 2024, the U.S. President’s fiscal year (“FY”) 2025 budget request was released and included $850 billion in base funding for national defense programs, which is largely flat over prior year levels. Following that, the FY 2025 National Defense Authorization Act (“NDAA”) was passed by Congress late in 2024 and signed into law by the President in December 2024. The NDAA authorizes $850 billion in defense spending, including increases in procurement, research, development, testing and engineering.

Previous wording

To prevent a government shutdown at the end of fiscal year 2023, Congress passed three Continuing Resolutions (“CRs”) to fund the government. The President signed the most recent CR into law on January 19, 2024. The new measure creates extensions effective through March 1, 2024, for four appropriations bills and March 8, 2024, for the remaining eight appropriations bills, allowing lawmakers more time to potentially complete the fiscal year 2024 appropriations bills. In the event of a U.S. government shutdown or an extended period of CR, our business, program performance and results of operations could be impacted by the resulting disruptions to federal government offices, workers, and operations, including but not limited to program cancellations, schedule delays, production halts and other disruptions and nonpayment, which could adversely affect our results of operations. The significance of these impacts will primarily be based on the length of the CR or shutdown.

Current wording

To prevent a government shutdown at the end of fiscal year 2024, Congress passed two Continuing Resolutions (“CRs”) to fund the government. The most recent CR was passed into law on December 21, 2024. The new measure creates extensions effective through March 14, 2025, allowing lawmakers more time to potentially complete the fiscal year 2025 appropriations bills. In the event of a U.S. government shutdown or an extended period of CR, our business, program performance and results of operations could be impacted by the resulting disruptions to federal government offices, workers, and operations, including, but not limited to, program cancellations, schedule delays, production halts and other disruptions and nonpayment, which could adversely affect our results of operations. The significance of these impacts will primarily be based on the length of the CR or shutdown. Additionally, the current U.S. administration has discussed various changes to defense spending levels ranging from across-the-board percentage cuts, to a change in spending allocations in favor of new priorities, and potential increases in the top-line spending profile. It remains unclear whether and to what extent the DoD’s budget may change and, if it does, to what extent our business, financial condition and results of operations may be affected.

Previous wording

Under U.S. GAAP, contract costs, including allowable general and administrative expenses on certain government contracts, are charged to work in progress inventory and are written off to costs and expenses as revenues are recognized. The Federal Acquisition Regulations (“FAR”) and the defense supplement (“DFARS”), incorporated by reference in U.S. government contracts, provide that internal research and development costs are allowable general and administrative expenses. Unallowable costs, pursuant to the FAR, are excluded from costs accumulated on U.S. government contracts.

Current wording

Under U.S. GAAP, contract costs are charged to work in progress inventory and are expensed as revenues are recognized. The Federal Acquisition Regulation (“FAR”) and the Defense Federal Acquisition Regulation Supplement (“DFARS”), incorporated by reference in U.S. government contracts, provide that internal research and development costs are allowable general and administrative expenses. Unallowable costs, pursuant to the FAR, are excluded from costs accumulated on U.S. government contracts.

Previous wording

Revenue consists primarily of product related revenue, generating 93%, 91% and 87% of our total revenues for the periods ended December 31, 2023, 2022 and 2021, respectively. The remaining revenue is generated from service-related contracts. Additionally, 84%, 87% and 87% of our revenue generation for December 31, 2023, 2022 and 2021, respectively, is derived from firm-fixed priced contracts. For a firm-fixed price contract, customers agree to pay a fixed amount, negotiated in advance, for a specified scope of work. Revenue on fixed-price contracts is generally recognized over time using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying our performance obligations. Incurred costs represent work performed that corresponds with and thereby best depicts the transfer of control to the customer.

Current wording

Revenue consists primarily of product related revenue, which represented 94%, 93% and 91% of our total revenues for the periods ended December 31, 2024, 2023 and 2022, respectively. The remaining revenue was generated from service related contracts. Additionally, 84%, 84% and 87% of our revenue for December 31, 2024, 2023 and 2022, respectively, was derived from firm-fixed price contracts. For a firm-fixed price contract, customers agree to pay a fixed amount, negotiated in advance, for a specified scope of work. Revenue on fixed-price contracts is generally recognized over time using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying our performance obligations. Incurred costs represent work performed that corresponds with and thereby best depicts the transfer of control to the customer.

Previous wording

Under flexibly priced contracts, which consists of 16%,13% and 13% of our total revenues for December 31, 2023, 2022 and 2021, respectively, we are reimbursed for allowable or otherwise defined total costs (defined as cost of revenues plus allowable general and administrative expenses) incurred, plus a fee. The contracts may also include incentives for various performance criteria, including quality, timeliness, cost-effectiveness or other factors. In addition, costs are generally subject to review by clients and regulatory audit agencies, and such reviews could result in costs being disputed as non-reimbursable under the terms of the contract. Revenue for flexibly priced contracts are generally recognized as services are performed and are contractually billable.

Current wording

Under flexibly priced contracts, which consisted of 16%, 16% and 13% of our total revenues for December 31, 2024, 2023 and 2022, respectively, we are reimbursed for allowable or otherwise defined total costs (defined as cost of revenues plus allowable general and administrative expenses) incurred, plus a fee. The contracts may also include incentives for various performance criteria, including quality, timeliness, cost-effectiveness or other factors. In addition, costs are generally subject to review by clients and regulatory audit agencies, and such reviews could result in costs being disputed as non-reimbursable under the terms of the contract. Revenue for flexibly priced contracts are generally recognized as services are performed and are contractually billable.

Previous wording

Please refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” and Note 3: Revenue from Contracts with Customers in the Notes to our Consolidated Financial Statements.

Current wording

Refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” and Note 3: Revenue from Contracts with Customers to the Consolidated Financial Statements for additional information.

Previous wording

General and administrative expenses include general and administrative expenses not included within cost of revenues such as salaries, wages and fringe benefits, facility costs and other costs related to these indirect functions. Additionally, general and administrative expenses include internal research and development costs as well as expenditures related to bid and proposal efforts.

Current wording

General and administrative (“G&A”) expenses include general and administrative expenses not included within cost of revenues such as salaries, wages and fringe benefits, facility costs and other costs related to these indirect functions. Additionally, general and administrative expenses include internal research and development costs as well as expenditures related to bid and proposal efforts.

Previous wording

(1)Gives effect to a 1,450,000-for-1 forward stock split on our common stock effected on February 25, 2021 and a 1.451345331-for-1 forward stock split on our common stock effected November 23, 2022.

Current wording

(1)Gives effect to a 1.451345331-for-1 forward stock split on our common stock effected November 23, 2022.

Previous wording

Our backlog of $7.8 billion at December 31, 2023 represents a diversified, balanced portfolio supported by foundational programs strongly aligned in areas of, in our view, growing importance within the DoD budget priorities. Our backlog position is highlighted by the recent awards received to support the electric power and propulsion system for the Columbia Class production program as well as continued demand in our Force Protection, Network Computing and Advanced sensing programs. We believe the performance on these and other programs within our portfolio will support continued revenue growth while the transition from development efforts to production will continue our trend of earnings growth and margin expansion.

Current wording

Our operating results for the year ended December 31, 2024, are highlighted by our record $8.5 billion of backlog and over $4 billion of new orders, demonstrating the strong customer demand for our mission critical technologies. Embedded in the record backlog is a diversified, balanced portfolio supported by foundational programs strongly aligned in areas of, in our view, growing importance within the DoD budget priorities. Our backlog position is highlighted by the recent awards received to support the electric power and propulsion system for the Columbia Class production program as well as continued demand in our Force Protection, Network Computing and Advanced Sensing programs. We believe the performance on these and other programs within our portfolio will support continued revenue growth while the transition from development efforts to production will continue our trend of earnings growth and margin expansion.

Previous wording

For the year ended December 31, 2023, revenue increased by $133 million, or 4.9%, to $2,826 million from $2,693 million for year ended December 31, 2022. The revenue increase in 2023 was attributed to increased customer demand across our portfolio. The growth is highlighted by airborne and ground vehicle sensing programs within our ASC segment and our Columbia Class as well as other surface and subsurface naval power efforts within our IMS segment. The growth was partially offset by a decline in tactical computing and short-range air defense revenue contribution during the period.

Current wording

For the year ended December 31, 2024, revenue increased by $408 million, or 14.4%, to $3,234 million from $2,826 million for year ended December 31, 2023. The revenue increase in 2024 was attributed to increased customer demand across our portfolio, including our increased revenue contribution from international customers as well as a stabilized supply chain enabling more efficient execution. The revenue growth is attributed to both of our operating segments and is highlighted by our Force Protection and Electric Power and Propulsion programs within our IMS segment and Advanced Sensing in our ASC segment. See “—Review of Operating Segments” below for additional detail.

Previous wording

Cost of revenues increased $60 million, or 2.8%, from $2,118 million to $2,178 million for the year ended December 31, 2023, due to the 4.9% increase in revenue as described above. The increase was offset by improved program performance within our naval computing and power and propulsion programs as well as the impact of favorable program mix across the portfolio, including the high margin contribution generated from our tactical radar portfolio. Despite the improved program performance, however we did realize adjustments on cost at completion estimates which negatively impacted earnings with charges totaling 1% of revenue for the year ended December 31, 2023, consistent with the prior year (see Note 3: Revenue from Contracts with Customers for further detail).

Current wording

Cost of revenues increased $320 million, or 14.7%, from $2,178 million to $2,498 million for the year ended December 31, 2024, due to the 14.4% increase in revenue as described above. The increase was further impacted by realized adjustments on cost at completion estimates which negatively impacted earnings with net charges totaling approximately 1% of revenue for the year ended December 31, 2024, relatively consistent with the prior year (see Note 3: Revenue from Contracts with Customers to the Consolidated Financial Statements for further detail), which includes the aforementioned ground vehicle surveillance program noted above. Additionally, revenue mix and the impact of cost increases tied to germanium used in our optics and infrared programs increased our cost of revenues for the period within our ASC segment. This impact was largely offset by improved performance on our Columbia Class submarine program efforts.

Previous wording

Gross profit increased $73 million, or 12.7%, from $575 million for the year ended December 31, 2022, to $648 million for the year ended December 31, 2023 attributed to increased volume, favorable program performance and program mix as noted above.

Current wording

Gross profit increased $88 million, or 13.6%, from $648 million for the year ended December 31, 2023, to $736 million for the year ended December 31, 2024 attributed to increased volume offset by the program impacts noted above.

Previous wording

Amortization of intangibles for the year ended December 31, 2023, of $22 million increased $12 million as compared with the year ended December 31, 2022. This is attributed to the increased amortization generated from the RADA acquired intangible assets.

Current wording

Amortization of intangibles for the year ended December 31, 2024 of $22 million remained consistent with the year ended December 31, 2023.

Previous wording

Other, net increased to $3 million for the year ended December 31, 2023, from $2 million for the year ended December 31, 2022.

Current wording

Other, net increased to $8 million for the year ended December 31, 2024, from $3 million for the year ended December 31, 2023 driven by higher foreign exchange rate impacts.

Previous wording

Earnings before taxes decreased by $333 million to $192 million for the year ended December 31, 2023, from $525 million for the year ended December 31, 2022. This was primarily due to decreased operating earnings of $330 million, driven by the gain realized on our 2022 dispositions of GES and AAC, the increase of $2 million in interest expenditures and the increase in other, net costs of $1 million as described above.

Current wording

Earnings before taxes increased by $72 million to $264 million for the year ended December 31, 2024, from $192 million for the year ended December 31, 2023. This was primarily due to increased operating earnings of $62 million, the decrease of $15 million in interest expense and the increase in other, net costs of $5 million as described above.

Previous wording

Income tax provision decreased by $96 million to $24 million for the year ended December 31, 2023, from $120 million for the year ended December 31, 2022. This was primarily due to a decrease in earnings before taxes and the favorable impact realized for R&D tax credits in the period. The R&D tax credits assisted in reducing our overall effective tax rate of 12.5% compared to 22.9% in 2022.

Current wording

Income tax provision increased by $27 million to $51 million for the year ended December 31, 2024, from $24 million for the year ended December 31, 2023. This was primarily due to an increase in earnings before taxes and the absence of a multi-year catch-up on the R&D tax credit that benefited 2023. These two items resulted in an increase in our overall effective tax rate of 19.3% compared to 12.5% in 2023.

Previous wording

Net earnings decreased by $237 million to $168 million for the year ended December 31, 2023, when compared to the year ended December 31, 2022. This was driven by decreased earnings before taxes of $333 million offset by a decreased income tax provision of $96 million as described above.

Current wording

Net earnings increased by $45 million to $213 million for the year ended December 31, 2024, when compared to the year ended December 31, 2023. This was driven by increased earnings before taxes of $72 million offset by the increased income tax provision of $27 million as described above.

Previous wording

As of December 31, 2023, there were 262,525,390 shares of common stock outstanding, increasing 2,291,357 shares from the December 31, 2022, shares outstanding of 260,234,033. The increased share count is attributed to equity vesting and stock option exercises. For the year ended December 31, 2023, the weighted average shares outstanding totaled 261,454,010 and 264,175,239 for basic and diluted shares, respectively. The weighted average basic and diluted share count increased 46,510,402 and 49,041,882 as compared to the prior year basic and diluted weighted average shares outstanding, respectively. The increase in weighted average shares outstanding is attributed to the timing of the incremental shares issued to consummate the RADA merger, see Note 2: Business Acquisition for further detail. The increased shares outstanding resulted in $0.64 for both basic and diluted EPS as compared to the prior year results of $1.88 for both basic and diluted EPS. The decrease in EPS is attributed to the net earnings decline described above as well as the increased weighted average shares outstanding.

Current wording

For the year ended December 31, 2024, the weighted average shares outstanding totaled 263.7 million and 267.7 million for basic and diluted shares, respectively. The weighted average basic and diluted share count increased approximately 2 million and 4 million shares, respectively, as compared to the prior year basic and diluted weighted average shares outstanding, respectively. The increase in weighted average shares outstanding is attributed to equity vesting and stock option exercises. The increased shares outstanding resulted in $0.81 and $0.80 for basic and diluted EPS, respectively, as compared to the prior year results of $0.64 for both basic and diluted EPS. The increase in basic and diluted EPS is attributed to the increased net earnings described above, partially offset by the increased weighted average shares outstanding.

Previous wording

Backlog increased by $3,482 million, or 81.6%, from $4,269 million as of December 31, 2022, to $7,751 million as of December 31, 2023. The backlog increase was attributed to increased demand across both of our operating segments. The backlog increase is largely attributed to the receipt of multi-submarine contracts to support the electric propulsion efforts on the Columbia Class submarine program with the U.S. Navy resulting in an additional approximately $3 billion of unfunded backlog. In addition to the Columbia effort we also realized a funded backlog increase driven by our Airborne, Dismounted and Ground Vehicle sensing programs as well as Naval Computing programs within our ASC segment. Please see “—Review of Operating Segments” below for a more detailed analysis.

Current wording

Backlog increased by $758 million, or 9.8%, from $7,751 million as of December 31, 2023, to $8,509 million as of December 31, 2024. The backlog increase was attributed to increased demand across both of our operating segments. The backlog increase is largely attributed to increased demand in airborne, naval and dismounted soldier sensing programs as well as naval and land based computing efforts within our ASC segment. Within the IMS segment backlog increased in both our Naval power and propulsion programs and for our Short-Range Air Defense solutions with the U.S. Army. See “—Review of Operating Segments” below for a more detailed analysis.

Previous wording

For the year ended December 31, 2023, we generated bookings of $3,516 million, an 11.4% increase over the $3,156 million realized during the year ended December 31, 2022. The bookings increase is attributed to increased customer demand across both of our segments with our IMS and ASC segments realizing bookings growth of 2.4% and 16.8%, respectively. The bookings increase was most notable in our airborne and ground vehicle sensing programs as well as naval and ground tactical computing and network programs within our ASC segment. The growth in the IMS segment is attributed to our Columbia Class efforts. These increases were offset in part by lower new awards received on certain short-range air defense programs. Please see “—Review of Operating Segments” below for a more detailed analysis.

Current wording

For the year ended December 31, 2024, we generated bookings of $4,077 million, a 16.0% increase over the $3,516 million realized during the year ended December 31, 2023. The bookings increase is attributed to increased customer demand across both of our segments with our IMS and ASC segments realizing bookings growth of 21.4% and 13.1%, respectively. The bookings increase was most notable in our airborne and naval sensing programs as well as naval and ground tactical computing and network programs within our ASC segment. The growth in the IMS segment is attributed to our Columbia Class efforts along with increased demand for surface ship power solutions. These increases were offset in part by lower new awards received on certain infrared counter measures that were accelerated into the prior year. See “—Review of Operating Segments” below for a more detailed analysis.

Previous wording

The Company recognizes revenue for each separately identifiable performance obligation in a contract representing an obligation to transfer a distinct good or service to a customer. In most cases, goods and services provided under the Company’s contracts are accounted for as single performance obligations due to the complex and integrated nature of our products and services. These contracts generally require significant integration of a group of goods and/or services to deliver a combined output. In some contracts, the Company provides multiple distinct goods or services to a customer. In those cases, the Company accounts for the distinct contract deliverables as separate performance obligations and allocates the transaction price to each performance obligation based on its relative standalone selling price, which is generally estimated using cost plus a reasonable margin. We classify revenues as products or services on our Consolidated Statements of Earnings based on the predominant attributes of the performance obligations. While the Company provides warranties on certain contracts, we typically do not provide for services beyond standard assurances and therefore do not consider warranties to be separate performance obligations. Typically, we enter into three types of contracts: fixed-price contracts, cost-plus contracts and T&M contracts (cost-plus contracts and T&M contracts are aggregated below as flexibly priced contracts). The majority of our total revenues are derived from fixed-price contracts; refer to the revenue disaggregation disclosures in Note 3: Revenue from Contracts with Customers to the Consolidated Financial Statements.

Current wording

The Company recognizes revenue for each separately identifiable performance obligation in a contract representing an obligation to transfer a distinct good or service to a customer. In most cases, goods and services provided under the Company’s contracts are accounted for as single performance obligations due to the complex and integrated nature of our products and services. These contracts generally require significant integration of a group of goods and/or services to deliver a combined output. In some contracts, the Company provides multiple distinct goods or services to a customer. In those cases, the Company accounts for the distinct contract deliverables as separate performance obligations and allocates the transaction price to each performance obligation based on its relative standalone selling price, which is generally estimated using cost plus a reasonable margin. While the Company provides warranties on certain contracts, we typically do not provide for services beyond standard assurances and therefore do not consider warranties to be separate performance obligations.

Previous wording

Revenues for the majority of our contracts are measured using the over time, percentage of completion cost-to-cost method of accounting to calculate percentage of completion. We believe this is an appropriate measure of progress toward satisfaction of performance obligations as this measure most accurately depicts the progress of our work and transfer of control to our customers. Due to the long-term nature of many of our contracts, developing the estimated total cost at completion often requires judgment. Factors that must be considered in estimating the cost of the work to be completed include the nature and complexity of the work to be performed, subcontractor performance and the risk and impact of delayed performance.

Current wording

Revenues for the majority of our contracts are measured using the over time, percentage of completion cost-to-cost method of accounting to calculate percentage of completion. We believe this is an appropriate measure of progress toward satisfaction of performance obligations as this measure most accurately depicts the progress of our work and transfer of control to our customers. Due to the long-term nature of many of our contracts, developing the estimated transaction price and total cost at completion often requires judgment. The estimated transaction price may include variable consideration such as performance incentives, requests for equitable adjustment (“REAs”) and claims. Variable consideration is included in the estimated transaction price only to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Factors that must be considered in estimating the cost of the work to be completed include the nature and complexity of the work to be performed, subcontractor performance and the risk and impact of delayed performance.

Previous wording

After establishing the estimated total cost at completion, we follow a standard Estimate at Completion (“EAC”) process in which we review the progress and performance on our ongoing contracts on a routine basis. Adjustments to original estimates for a contract's revenue, estimated costs at completion and estimated profit or loss often are required as work progresses under a contract, as experience is gained and as more information is obtained, even though the scope of work required under the contract may not change and are also required if contract modifications occur. When adjustments in estimated total costs at completion are determined, the related impact on revenue and operating income are recognized using the cumulative catch-up method, which recognizes in the current period the cumulative effect of such adjustments for all prior periods. Any anticipated losses on these contracts are fully recognized in the period in which the losses become evident.

Current wording

After establishing the estimated total cost at completion, we follow a standard Estimate at Completion (“EAC”) process in which we review the progress and performance on our ongoing contracts on a routine basis. Adjustments to original estimates for a contract's revenue, estimated costs at completion and estimated profit or loss often are required as work progresses under a contract, as experience is gained and as more information is obtained, even though the scope of work required under the contract may not change and are also required if contract modifications occur. When adjustments in estimated total costs at completion are determined, the related impact on revenue and operating earnings are recognized using the cumulative catch-up method, which recognizes in the current period the cumulative effect of such adjustments for all prior periods. Any anticipated losses on these contracts are fully recognized in the period in which the losses become evident.

Previous wording

The following represents the impact that changes in our estimates, particularly those regarding our fixed-price development programs, have had on our revenues for the 2023, 2022 and 2021 periods, respectively:

Current wording

The following represents the net impact that changes in our estimates, particularly those regarding our fixed-price development programs, have had on our revenues for the 2024, 2023 and 2022 periods, respectively:

Previous wording

International revenue, including foreign military sales, foreign military financing, and direct commercial sales, accounted for approximately 10%, 7% and 5% of our revenue for the years ended December 31, 2023, 2022 and 2021, respectively. The increase is due in part to incremental demand resulting from higher defense spending within Eastern Europe, compounded by continued military aid programs in support of Ukraine in its conflict with Russia. These efforts are highlighted by demand for our battle management and C-UAS products. Since our focus is primarily with the DoD and our investments are focused as such, we anticipate that international sales will continue to account for a similar percentage of revenue in the future. We remain subject to the spending levels, pace and priorities of the U.S. government as well as international governments and commercial customers, and to general economic conditions that could adversely affect us, our customers and our suppliers.

Current wording

International revenue, including foreign military sales, foreign military financing, and direct commercial sales, accounted for approximately 13%, 10% and 7% of our revenue for the years ended December 31, 2024, 2023 and 2022, respectively. The increase is due in part to incremental demand resulting from higher defense spending within Eastern Europe, compounded by continued military aid programs in support of Ukraine in its conflict with Russia. These efforts are highlighted by demand for our battle management, weapon sights and tactical radar solutions. Since our focus is primarily with the DoD and our investments are focused as such, we anticipate that international sales will continue to account for a similar percentage of revenue in the future. We remain subject to the spending levels, pace and priorities of the U.S. government as well as international governments and commercial customers, and to general economic conditions that could adversely affect us, our customers and our suppliers.

Previous wording

The total purchase consideration for RADA was $511 million and is comprised of Company’s shares issued in exchange for all issued and outstanding common shares of RADA, as well as the portion of replacement stock compensation awards’ fair value attributable to pre-combination services. See Note 2: Business Acquisition for additional information regarding the transaction.

Current wording

The total purchase consideration for RADA was $511 million and is comprised of Company’s shares issued in exchange for all issued and outstanding common shares of RADA, as well as the portion of replacement stock compensation awards’ fair value attributable to pre-combination services. See Note 2: Business Acquisition to the Consolidated Financial Statements for additional information regarding the transaction.

Previous wording

On March 21, 2022, the Company entered into a definitive agreement to sell its GES business to SES Government Solutions, Inc., a wholly-owned subsidiary of SES S.A., for $450 million subject to certain working capital adjustments. The transaction was completed on August 1, 2022 and resulted in cash proceeds of $427 million after net working capital adjustments. The transaction netted an aggregate pretax gain net of transaction costs of $309 million ($239 million after tax) of which $323 million, was included in other operating income (expenses), net partially reduced by aggregate transaction costs of $14 million included in general and administrative costs and tax expenses of $70 million. GES, which was part of the ASC segment, provides commercial satellite communications to the U.S. government and delivers satellite communications and security solutions to customers worldwide.

Current wording

On March 21, 2022, the Company entered into a definitive agreement to sell its GES business to SES Government Solutions, Inc., a wholly-owned subsidiary of SES S.A., for $450 million subject to certain working capital adjustments. The transaction was completed on August 1, 2022 and resulted in cash proceeds of $427 million after net working capital adjustments. The transaction netted an aggregate pretax gain net of transaction costs of $309 million ($239 million after tax) of which $323 million, was included in other operating expenses, net partially reduced by aggregate transaction costs of $14 million included in general and administrative costs and tax expenses of $70 million. GES, which was part of the ASC segment, provides commercial satellite communications to the U.S. government and delivers satellite communications and security solutions to customers worldwide.

Previous wording

The Company recorded operating income for the GES business of $13 million and $29 million for the years ended December 31, 2022 and 2021, respectively.

Current wording

The Company recorded operating earnings for the GES business of $13 million for the year ended December 31, 2022.

Previous wording

On April 19, 2022, we entered into a definitive sales agreement to divest our share of our equity investment in AAC for $56 million to Thales Defense & Security, Inc., the minority partner in this joint venture. The transaction was completed on July 8, 2022 and resulted in proceeds of $56 million. The transaction netted an aggregate pretax gain of $31 million ($22 million net of taxes). The aggregate gain of $31 million is included in other operating income (expenses), net offset by tax expense of $9 million.

Current wording

On April 19, 2022, we entered into a definitive sales agreement to divest our share of our equity investment in AAC for $56 million to Thales Defense & Security, Inc., the minority partner in this joint venture. The transaction was completed on July 8, 2022 and resulted in proceeds of $56 million. The transaction netted an aggregate pretax gain of $31 million ($22 million net of taxes). The aggregate gain of $31 million is included in other operating expenses, net offset by tax expense of $9 million.

Previous wording

The following is a discussion of operating results for each of our operating segments. We have elected to use revenue, adjusted EBITDA, adjusted EBITDA margin, bookings and backlog to provide detailed information on our segment performance. Additional information regarding our segments can be found in Note 19: Segment Information within the Consolidated Financial Statements.

Current wording

The following is a discussion of operating results for each of our operating segments. We have elected to use revenue, operating earnings, operating margin, bookings and backlog to provide detailed information on our segment performance. Additional information regarding our segments can be found in Note 19: Segment Information within the Consolidated Financial Statements.

Previous wording

In total, ASC segment revenue increased $98 million, or 5.7%, from $1,733 million for the year ended December 31, 2022 to $1,831 million for the year ended December 31, 2023. The increase is primarily attributed to the increased demand realized throughout the segment. Major drivers include continued expansion of our airborne and ground vehicle sensing programs as well as incremental sales of tactical radar and tactical communication programs. The increased sales were partially offset by the divestiture of GES.

Current wording

In total, ASC segment revenue increased $287 million, or 15.7%, from $1,831 million for the year ended December 31, 2023 to $2,118 million for the year ended December 31, 2024. The increase is primarily attributed to the increased demand realized throughout the segment. Major drivers include continued expansion of dismounted sensing and tactical radar programs in both our domestic and international markets. This was offset in part by a reduction in infrared counter measure programs which were accelerated into 2023.

Previous wording

The increase in adjusted EBITDA is driven by the increase in overall revenue contribution noted above as well as favorable contract mix, largely attributed to increased tactical radar sales as compared to the prior year. This was offset in part by increased G&A expenditures driven by allocated public company costs and increased IR&D investments during the period.

Current wording

The increase in operating earnings is driven by the increase in overall revenue contribution noted above. This was offset in part by increased G&A expenditures and increased IR&D investments during the period.

Previous wording

ASC’s bookings increased by $332 million, or 16.8%, from $1,975 million for the year ended December 31, 2022 to $2,307 million for the year ended December 31, 2023. The increase in new awards is driven by our alignment of customer priorities to combat the emerging threats our service men and women face in today’s environment, driving a book to bill ratio of 1.3 to 1 for the year. The increase vs the prior year is highlighted by increased demand for our airborne, dismounted and ground vehicle sensing programs, new awards realized on our naval network and computing, IRCM and next generation tactical communications programs, as well as increase in bookings attributed to tactical radar demand. The combination of these awards more than offset a reduction in new awards for our tactical computing programs and the contribution of the GES awards realized in the prior year.

Current wording

ASC’s bookings increased by $302 million, or 13.1%, from $2,307 million for the year ended December 31, 2023 to $2,609 million for the year ended December 31, 2024. The increase in new awards is driven by our alignment of customer priorities to combat the emerging threats our service men and women face in today’s environment, driving a book to bill ratio of 1.2 to 1 for the year. The increase compared to the prior year is highlighted by increased demand across nearly all of our sensing domains, including airborne, dismounted soldier, naval and electronic warfare. Additionally we saw increased demand for our tactical computing programs. These results were offset in part by a reduction on infrared counter measure (IRCM) and ground vehicle sensing programs where awards were accelerated into the prior year.