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• Quarterly revenue of $537 million brought full year revenues to $1.86 billion, compared to 1997’s $431 million and $1.71 billion, respectively.

• Solid operational gains drove significant progress towards long-term performance objectives.

NEWPORT NEWS, Va., January 28, 1999 – Newport News Shipbuilding (NYSE: NNS) today reported net earnings of $17 million, or $0.50 per diluted share, for the fourth quarter of 1998. Earnings before interest and taxes (EBIT) for the quarter were $50 million, up 16% from adjusted EBIT of $43 million in last year’s fourth quarter. The adjusted results for last year exclude a one-time charge related to commercial construction which resulted in a reported loss of $107 million.

For the full year, diluted earnings per share were $1.85, up from $1.62 on an adjusted basis in 1997. Earnings before interest and taxes for the year were $175 million on revenues of $1.86 billion, compared to adjusted EBIT of $155 million (versus a reported loss of $19 million) and revenues of $1.71 billion in 1997. Stronger results in 1998 were driven by across the board gains in the company’s core Navy programs.

"We’re very pleased with the company’s strong financial performance in 1998," said William P. Fricks, Chairman and Chief Executive Officer. "These results reflect visible progress towards our established long-term performance goals in the areas of margin expansion, EPS growth, and enhanced return on assets. We look forward to carrying this momentum into 1999."

Fourth Quarter and Annual Results

Newport News posted fourth quarter revenues of $537 million, up from $431 million in 1997. The quarter’s revenue growth was driven by solid performance in both the Construction and Overhaul and Repair segments. For the quarter, Construction revenues grew $32 million from last year’s fourth quarter as a result of increased activity on the aircraft carrier Ronald Reagan, which is scheduled for delivery in 2002. Overhaul and Repair contributed the largest year-over-year increase, rising $79 million due to increased work on the refueling and overhaul of the carrier Nimitz. The higher overall revenues drove the growth in the quarter’s EBIT to $50 million.

For the year, revenues grew $155 million to $1.86 billion. Increased activity on the Nimitz overhaul contributed the majority of the growth, with the Engineering segment also generating year-over-year gains. These increases were partially offset by lower Construction revenues with the delivery of the carrier Harry S. Truman in mid-1998. The increased revenues contributed to higher earnings for the year, rising from the adjusted $155 million in 1997 to $175 million in 1998.

During the quarter a comprehensive settlement was achieved with the U.S. Government regarding the funding status of the company’s former salaried retirement plan. As a result of the settlement, approximately $4 million of interest expense was accrued at year-end. The company also elected early adoption of AICPA Statement of Position (SOP) 97-3, which relates to worker’s compensation second injury claims, and applied the SOP 97-3 estimating process for liabilities and recoveries to postemployment and postretirement benefits. Finally, the company also completed a comprehensive analysis of contingent liabilities, including several outstanding Government claims. The impact of adopting these accounting practices was immaterial to 1998 reported results.

Operations Making Solid Gains

Newport News delivered solid operational results in 1998, with a number of significant milestones achieved. The carrier Truman was delivered to the Navy in June, marking the completion of the ninth Nimitz class carrier built by Newport News. Meanwhile, construction continues on the carrier Reagan which is approximately 45% complete. Newport News is also engaged in advance planning and procurement for the next carrier, CVN 77, scheduled to begin construction as early as 2000 with delivery anticipated in 2007.

The aircraft carrier Nimitz arrived at Newport News in May 1998 for its first and only refueling and complex overhaul. Nimitz will generate revenues of approximately $1.2 billion and is expected to require thirty-three months to complete. Nimitz marks the beginning of a series of ten refuelings for this class of ships, with future accomplishment contracts scheduled to be awarded every three to five years.

In the fourth quarter Newport News delivered three commercial product tankers to Hvide Marine and made significant progress on the two tankers remaining under construction. The first of the remaining two tankers has recently returned from successful sea trials and is on schedule for delivery next month. The final tanker will be delivered by mid-year.

In September, Newport News and its teaming partner, General Dynamics’ Electric Boat, signed a $4.2 billion contract with the U.S. Navy to build four nuclear powered New Attack Submarines (NSSN). Under the co-production arrangement, each shipyard will construct selected sections of the submarine with final assembly, testing, outfitting, and delivery alternating between the companies. Construction of the lead ship of the class, recently named Virginia, is underway with delivery scheduled in 2004.

Strong Backlog Provides Long-Term Visibility

At year-end, Newport News’ total backlog was approximately $5 billion, of which $4 billion was fully funded. "Our backlog provides a clear view of the company’s future – a future that will once again include the simultaneous production of submarines and aircraft carriers," commented Fricks. "When coupled with our recently announced merger with Avondale Industries, we believe we have a foundation for solid bottom line performance and additional top line growth."

Newport News Shipbuilding designs and constructs nuclear powered aircraft carriers and submarines for the U.S. Navy and provides life-cycle maintenance services for ships in the Navy fleet. The company employs 18,200 people and has annual revenues of approximately $1.9 billion.

 

(financial information attached)

 

*Funded backlog at 1998 year-end was $3.8 billion.