TEXT-S&P: U.S. defense budget request does not affect ratings

Feb 14 - The national defense budget request that President Barack
Obama unveiled on Feb. 13, 2012, for fiscal 2013 (starting Oct. 1, 2012),
contained few changes from the outline Secretary of Defense Leon Panetta
provided on Jan. 26, 2012. Standard & Poor's Ratings Services does not plan to
take any immediate rating actions on the defense contractors it rates based on
the program-by-program detail in the budget request, according to a report
published earlier today on RatingsDirect, titled "The Fiscal 2013 U.S. Defense
Budget Offers Few Surprises And No Likely Effects On Ratings."

"The announcement yesterday just covered the President's request--Congress
will have the final say on funding allocations and, therefore, on what
individual programs could face further cuts or, less likely, increases," said
Standard & Poor's credit analyst Christopher DeNicolo.

The base fiscal 2013 defense budget request is $525 billion, down from $531
billion in fiscal 2012. The portions of the base defense budget that are of
most interest to defense contractors, procurement and research and development
(R&D), total $168 billion, which is down 4.3% from fiscal 2012. Operations and
maintenance funding, also a source of demand for defense contractors, actually
would increase 5.9% to $209 billion.

"Overall, these budget cuts and program changes will likely result in lower
revenues and earnings for most defense contractors, although we expect the
declines to be fairly moderate," Mr. DeNicolo said.

We expect that large defense contractors, which generally have very good
program diversity, will continue to generate good cash flow. Although smaller
contractors' operations are generally less diversified, and they have fewer
financial resources, we do not expect to take any rating actions based solely
on the changes announced in the fiscal 2013 budget.

The report is available to subscribers of RatingsDirect on the Global Credit
Portal at www.globalcreditportal.com. If you are not a RatingsDirect
subscriber, you may purchase a copy of the report by calling (1) 212-438-7280
or sending an e-mail to research_request@standardandpoors.com. Ratings
information can also be found on Standard & Poor's public Web site by using
the Ratings search box located in the left column at www.standardandpoors.com.
Members of the media may request a copy of this report by contacting the media
representative provided.

Primary Credit Analyst: Christopher DeNicolo, CFA, New York (1) 212-438-1449;
christopher_denicolo@standardandpoors.com