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DoD Budget Cuts Spark Losses at General Dynamics

Jan. 23, 2013 - 01:14PM   |  
By SEAN REILLY   |   Comments
Phebe Novakovic, General Dynamic's chairman and chief executive officer
Phebe Novakovic, General Dynamic’s chairman and chief executive officer ()
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General Dynamics lost $2.1 billion from continuing operations in the fourth quarter of 2012, as slowing defense spending took a toll on its information technology business, the contractor reported Wednesday.

For the same period in the previous year, the company reported a $603 million profit.

For the year, General Dynamics, based in Falls Church, Va., lost $332 million compared to a $2.55 billion profit in 2011.

Driving the fourth quarter loss was a $2 billion “goodwill impairment” associated with the impact of “slowed defense spending” on General Dynamics’ information systems and technology group, the release said. Goodwill refers to the value of intangible assets such as a company’s reputation.

The results “reflect the fact that some of our markets are contracting as government budgets shrink at home and abroad,” Phebe Novakovic, the company’s chairman and chief executive officer, said in the release. “They also suggest opportunity for improvement in some areas of our performance, which we are addressing.”

In the information systems group, “I think we’ve seen the trough,” Novakovic said in a conference call with stock analysts. The group has “repositioned,” she said. “Their backlog [of work] is stable.” Novakovic also struck an upbeat note on upcoming “international opportunities” that she declined to elaborate on.

“You should see some of those opportunities drop into our backlog in the first quarter.” Novakovic also discounted the potential effect of across-the-board federal budget cuts — known as sequestration — on the company’s defense business. The reductions, which are set to begin taking effect March 1, would lop 9 percent off of anticipated defense spending this year. But even if there are “pretty significant cuts,” Novakovic said, “we see very little impact.”

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