NEWPORT NEWS SHIPBUILDING REPORTS THIRD QUARTER RESULTS

• Third quarter revenues were $423 million, with earnings before interest and taxes of $16 million
• Earnings per share for the quarter were $0.05, reflecting commercial loss reserves announced in September
• Operating cash flow for the quarter was $56 million, driven by the underlying strength of the company’s core U.S. Navy business
• Key programs received Congressional support in FY98 defense budget

NEWPORT NEWS, Va., October 24, 1997 – Newport News Shipbuilding (NYSE: NNS) today reported net earnings of $1 million, or $0.05 per share, for the third quarter of 1997. Earnings before interest and taxes were $16 million, compared with $36 million in last year’s third quarter. Revenues for the quarter were $423 million versus $522 million a year ago.

Commenting on the third quarter results, William P. Fricks, Chairman and Chief Executive Officer, said "With the establishment of the commercial loss reserve, we have addressed the financial uncertainty associated with our commercial shipbuilding program. This action provides greater visibility for the stronger earnings performance of our core business, and should lead to improved results in the fourth quarter of 1997, and throughout 1998."

Third Quarter Results

Third quarter earnings before interest and taxes (EBIT) of $16 million reflect the establishment of the previously announced reserve on the Double Eagle product tanker program. This charge, which caused the year-over-year EBIT decline, was partially offset by improved performance in the company’s core Navy business, and accounting adjustments related to post retirement and post employment benefits. Excluding the impact of one-time items, reported EBIT would have been $40 million, with earnings per share of $0.42.

Revenues for the quarter of $423 million were $99 million less than the level reported for the same period in 1996. Commercial ship construction volume grew in comparison to last year, but overall Construction revenues dropped from $273 million in 1996 to $233 million in the third quarter of 1997 due to the absence of Sealift conversion activity and submarine construction work. Additionally, Overhaul & Repair revenues declined $64 million from $184 million to $120 million as a result of the delivery of the carrier Eisenhower earlier this year.

Operating cash flow during the third quarter was $56 million, bringing year-to-date cash flow to $149 million. The favorable cash flow results reflect improved working capital performance and the acceleration of receipts on major programs. The company anticipates normal capital spending and working capital requirements will reduce year-to-date cash flow in the fourth quarter by $20 to $30 million.

Congressional Support for Key Programs

Newport News’ core business continues to outperform expectations, and has been further strengthened by recent legislative actions. In late September, Congress approved the company’s teaming arrangement for co-production of the next class of nuclear-powered attack submarines as part of the FY1998 Defense Appropriations Bill. The teaming arrangement ensures Newport News’ early and ongoing participation in this key defense program, and provides the U.S. Navy with an innovative yet affordable plan for submarine production.

In addition to approval of submarine teaming, Congress provided incremental funding of $50 million in FY98 for the next aircraft carrier, CVN 77. Funding for this program was originally scheduled to begin in FY00, with construction of the carrier slated for FY02. "This early funding for the next carrier is a visible and important commitment on the part of Congress and the Navy to this critical program," said Fricks.

Core Business Setting the Pace

Third quarter performance was bolstered by the ongoing construction of the nuclear-powered aircraft carriers Harry S. Truman and Ronald Reagan. Truman is undergoing outfitting and testing in preparation for its 1998 delivery, while Reagan’s major structural units are progressing through fabrication. Reagan is scheduled for delivery in 2002.

The recognition of improved performance in the construction of these carriers contributed significantly to the quarter’s results. "As we integrate commercial practices into our production processes, our core Navy business has the most to gain," Fricks said. "We are beginning to see results in the form of improved performance on our aircraft carrier construction and overhaul contracts."

Overhaul & Repair activity picked up in the third quarter as work began on the year-long overhaul of the nuclear-powered aircraft carrier Theodore Roosevelt. Roosevelt arrived at Newport News on July 8, shortly before the company redelivered the carrier Enterprise to the Navy after a six-month overhaul that included a series of systems upgrades and routine maintenance items. In addition to active overhauls, Newport News continued the advance planning activities associated with the refueling and complex overhaul of the carrier Nimitz, which is scheduled to arrive in the second quarter of 1998.

The third quarter also witnessed the historic delivery of the first Double Eagle commercial product tanker, American Progress, to Mobil Oil Corporation. The ship is now in service transporting refined petroleum products along the southeastern United States. The second Double Eagle tanker, Agathonissos, is now in the final process of outfitting and testing in preparation for delivery, while the third ship is entering the outfitting stage. Construction of the fourth tanker is now well underway in Dry Dock 12.

Commercial Program on New Course

Newport News announced in September the establishment of loss reserves in the third quarter related to the Double Eagle product tanker program of $57 million, as well as the extension of construction and delivery schedules for the five domestic ships under contract. These actions reflect the completion of the detailed design for the domestic class of ships and its impact on delivery schedules, manning plans, and learning curve projections. Also contributing to the charge were increases in material procurement and subcontractor costs associated with the substantial design differences that exist between the international and domestic classes of these ships.

"With the completion of the detailed design of the domestic series, we recognized that revisions to our cost estimates would be necessary. In making those revisions, we felt it was important to address the full extent of the uncertainty associated with the commercial program," said Fricks.

Optimism for the Future

Newport News ended the third quarter with a backlog of $3.1 billion, nearly 85% of which represents carrier construction and carrier overhaul business. "With the strength of our backlog, improvements in our core business, and the uncertainty of the commercial program behind us, we are confident in our ability to deliver consistently improving performance for our shareholders," Fricks said.

Newport News Shipbuilding is America’s premier shipbuilding company with annual revenues of approximately $1.8 billion and 18,000 employees. The company is the leader in the design and construction of nuclear-powered aircraft carriers and submarines for the U.S. Navy and produces a variety of ships for domestic and international customers.