UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
COMMISSION FILE NUMBER 1-12385
NEWPORT NEWS SHIPBUILDING INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 74-1541566
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STATE OR OTHER JURISDICTION OF IRS EMPLOYER
INCORPORATION OR ORGANIZATION IDENTIFICATION NO.
4101 WASHINGTON AVENUE, NEWPORT NEWS, VIRGINIA 23607
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ADDRESS OF PRINCIPAL EXECUTIVE OFFICES ZIP CODE
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (757) 380-2000
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-------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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COMMON STOCK, $0.01 PAR VALUE NEW YORK STOCK EXCHANGE
(AND ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) CHICAGO STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment of this
Form 10-K. [ X ]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant was $526,930,841 at March 10, 1997.
34,601,227 shares of the registrant's Common Stock were outstanding at March 10,
1997.
DOCUMENTS INCORPORATED BY REFERENCE:
Part III incorporates information from certain portions of the registrant's
definitive Proxy Statement in connection with its Annual Meeting of Stockholders
to be held on May 16, 1997.
<PAGE>
PART I
ITEM 1. BUSINESS
The Company is the largest non-government-owned shipyard in the United States,
as measured by each of revenues, size of facilities and number of employees. Its
primary business is the design, construction, repair, overhaul and refueling of
nuclear-powered aircraft carriers and submarines for the U.S. Navy. The
Company believes it currently is: (i) the only shipyard capable of building the
Navy's nuclear-powered aircraft carriers, (ii) the only non-government-owned
shipyard capable of refueling and overhauling the Navy's nuclear-powered
aircraft carriers, and (iii) one of only two shipyards capable of building
nuclear-powered submarines. Since its inception in 1886, the Company has
developed a preeminent reputation through the construction of 264 naval ships
and 542 commercial vessels.
Aircraft carrier and submarine construction contracts with the U.S. Navy have
generated the majority of the Company's revenues. Overall, the Company's core
U.S. Navy business accounted for approximately 94%, 97%, and 97% of the
Company's revenues for 1996, 1995, and 1994, respectively. Newport News has
built nine of the 12 active aircraft carriers in the U.S. fleet, including all
eight nuclear-powered aircraft carriers. For the last 35 years, Newport News has
been the sole designer and builder of the U.S. Navy's aircraft carriers.
On December 11, 1996, in connection with a corporate reorganization, the
Company's former parent and its subsidiaries undertook and completed various
intercompany transfers and distributions designed to restructure, divide and
separate their then existing businesses, assets, liabilities and operations so
that, among other things, the shipbuilding business of the Company's former
parent ("Shipbuilding Business") would be owned by the Company. The former
parent subsequently distributed (the "spinoff") pro rata to holders of the
parent company's common stock all of the outstanding common stock of the
Company.
Unless the context otherwise requires, as used herein, the term "Company"
refers: (i) for periods prior to the spinoff to Newport News Shipbuilding and
Dry Dock Company ("Newport News"), a Virginia corporation, and certain other
subsidiaries through which the former parent conducted its Shipbuilding Business
during such periods, and (ii) for periods after the spinoff, to Newport News
Shipbuilding Inc. ("NNS") , a Delaware corporation, and its consolidated
subsidiaries, including Newport News.
For a summary of the Company's revenues and operating earnings by classes of
products and services, see Item 7 - "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
CONSTRUCTION
The Company's primary activity is constructing ships, with approximately 55%,
63%, and 65% of revenues for the years ended December 31, 1996, 1995, and 1994,
respectively, being generated from construction work. In recent history, the
Company has principally been engaged in constructing aircraft carriers and
submarines for the U.S. Navy, but the Company's current objective is to
selectively add to its core business in related markets such as U.S. Navy
non-nuclear surface ship construction, selected commercial opportunities, and
foreign military sales.
Currently, the Company is constructing two NIMITZ-class nuclear-powered aircraft
carriers, HARRY S. TRUMAN and RONALD REAGAN, which are scheduled for delivery in
1998 and 2002, respectively. A contract for an additional NIMITZ-class aircraft
carrier, the last in its class, is anticipated to be awarded in or before 2002,
for delivery in 2009.
The Company is currently performing design concept studies for the next
generation of aircraft carriers to follow the NIMITZ-class. The first carrier in
this new class, the CVX-78, is expected to be awarded in 2006. Because of its
past experience in manufacturing aircraft carriers, and the lack of direct
competitors, the Company believes it is in a strong competitive position to be
awarded these contracts, although no assurances can be given that it will
receive any award, that the project will not be delayed, or that the project
will be funded by Congress.
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The Company is also one of two U.S. manufacturers of nuclear-powered submarines.
The Company has constructed 53 nuclear-powered submarines, including 39 attack
submarines and 14 of the larger, fleet ballistic missile submarines. The final
LOS ANGELES-class submarine was delivered on August 15, 1996. The Company's bid
to be one of two builders of the U.S. Navy's new nuclear attack submarine
("NSSN"), the class of submarines following the SEAWOLF, was affirmed during the
first quarter of 1996, when legislation directing the second and fourth NSSNs to
the Company became law.
At the urging of the Navy, the Company and Electric Boat Corporation, a
wholly-owned subsidiary of General Dynamics Corporation, reached an agreement in
February 1997 to cooperatively build the four NSSNs included in the President's
defense budget, as well as future procurements of NSSNs. The teaming agreement
calls for each company to construct certain portions of each submarine, with
final assembly, testing, outfitting, and delivery alternating between the two
yards. Electric Boat will act as the prime contractor under the agreement. This
arrangement will require an alteration to existing law, contained in last year's
Defense Authorization Act, which directs independent submarine construction by
the two companies. The Company estimates that the NSSN program could total up to
30 submarines, although no assurances can be given as to the number of NSSNs
that ultimately will be procured and built by the Company, either alone or in
cooperation with Electric Boat.
The Company is also completing the complex conversion of the second of two
container ships to roll- on, roll-off heavy armored vehicle SEALIFT
transportation ships for the U.S. Navy. The first ship was delivered in August
1996 and the second ship is scheduled to be delivered during the second quarter
of 1997.
As part of its strategy to selectively add to its core Navy business, the
Company has pursued orders for products and services from commercial customers.
In 1994 and 1995, the Company entered into fixed price contracts to construct a
total of nine DOUBLE EAGLE product tankers. Six of these double-hull tankers are
intended to serve the domestic Jones Act (consisting of the Merchant Marine Act
of 1920, as amended, and the Shipping Act of 1916, as amended) market currently
served by single-hull product carriers whose retirement is mandated by the Oil
Pollution Act of 1990 (the "OPA 90"). The OPA 90 requires, among other things,
that existing single-hull ships must be retired from domestic transportation of
petroleum products between 1995 and 2015 unless retrofitted with double hulls.
Several U.S. allies overseas have embarked or plan to embark on navy
modernization programs. Most of these programs anticipate the purchase of one or
more frigate-size ships. The Company has designed a flexible, multi-mission
frigate called the FF-21 and has submitted bids for the construction of these
ships to the United Arab Emirates and Kuwait, and is in the process of
developing bids for Norway and the Philippines. A number of international
companies compete for these revenues, and this market would represent a new
market for the Company.
OVERHAUL AND REPAIR
The Company provides ongoing maintenance for the U.S. Navy's vessels through
overhaul, refueling and repair work. The Company possesses unique expertise in
servicing nuclear naval systems, and believes it is the only
non-government-owned shipyard presently capable of refueling nuclear-powered
aircraft carriers. The Company has had a leading share of the market in aircraft
carrier refueling and overhauls.
Aircraft carrier work is generally assigned by the U.S. Navy based on the type
of work, location, and cost. The Company finished overhauling and refueling USS
ENTERPRISE in 1994 and the overhaul and repair of USS DWIGHT D. EISENHOWER in
early 1997. The Company also completes "Post Shake-Down Availabilities" on
carriers and submarines, consisting of repairs and maintenance after original
delivery of the vessel to the Navy.
The Company diversified its overhaul work in 1994 with its first contract to
overhaul a guided missile destroyer, USS THORN. The Company has completed a
series of destroyer repair jobs since that time. In the first quarter of 1997,
the Company completed its first overhaul of an Aegis radar-equipped ship, USS
MONTEREY.
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ENGINEERING
The Company provides engineering planning and design services primarily to the
U.S. Navy. The Company maintains a stable level of funded engineering support
services for the U.S. Navy, which include new aircraft carrier research and
development, the reactor plant planning yard, aircraft carrier engineering
support, and training and logistics. The Company is a leader in aircraft carrier
design, performing a majority of the ship integration and related design
development work of the Naval Sea Systems Command ("NAVSEA"). Navy shipyards,
however, are typically assigned the design contracts for the non-nuclear
portions of the aircraft carriers. The Company has been able to apply its
engineering capabilities in a variety of projects for the U.S. Navy, including
being the lead design yard for the LOS ANGELES- and SEAWOLF-class submarines.
GOVERNMENT CONTRACTING
The Company's principal U.S. Government business is currently performed under
fixed price ("FP"), fixed price plus incentive fee ("FPIF"), cost plus incentive
fee ("CPIF"), and cost plus fixed fee ("CPFF") contracts. The risk to the
Company of not being reimbursed for its costs varies with the type of contract.
Under FP contracts, the contractor retains all cost savings on completed
contracts, but is liable for the full amount of all expenditures in excess of
the contract price. FPIF contracts, on the other hand, provide for cost sharing
between the U.S. Government and the contractor. The contractor's fee is
increased or decreased according to a formula set forth in the contract, which
generally compares the amount of costs incurred to the contract target cost. The
Government is liable for all allowable costs up to a ceiling price. Under CPIF
contracts, the contractor's profit is determined by a contractually specified
formula, which essentially compares allowable incurred costs to the contract
target cost. Under CPFF contracts, with few exceptions, the fee is the same
without regard to the amount of cost incurred. The Company currently constructs
aircraft carriers pursuant to FPIF contracts, but it performs work for the U.S.
Government under all of the types of contracts described above.
Contracting with the U.S. Government can also result in the Company filing a
Request for Equitable Adjustment ("REA") in connection with a contract. REAs
represent claims against the U.S. Government for changes in the original
contract specifications and resulting delays and disruption in contract
performance.
The U.S. Government has the right to suspend or debar a contractor from
government contracting for violations of certain statutes or government
procurement regulations. The U.S. Government may also unilaterally terminate
contracts at its convenience with compensation for work completed.
COMPETITION
In the Company's opinion, the number of programs currently planned by the U.S.
Navy over the next several years will increase competitive pressures among the
U.S. shipyards presently engaged in ship construction. The reduced level of
shipbuilding activity by the U.S. Navy during the past decade has resulted in
significant workforce reductions in the industry, but almost no other
significant consolidations. The general result has been fewer contracts awarded
to the same fixed number of large shipyards.
The Company believes one government-owned U.S. West Coast shipyard could refuel
nuclear-powered carriers if it made substantial investments in its facilities
and personnel training. One government-owned U.S. East Coast shipyard is
presently involved in nuclear refueling, overhauling and de-activating LOS
ANGELES-class submarines. With respect to the market for U.S. military contracts
for other types of vessels, there are principally six major private U.S.
shipyards, including the Company, that compete for contracts to construct,
overhaul or convert other types of surface combatant vessels. The Company is
also directly dependent upon the allocation of defense monies to the U.S. Navy.
With respect to the domestic commercial shipbuilding market, the Jones Act
currently requires that all vessels transporting products between U.S. ports be
constructed by U.S. shipyards. There are approximately 16 private U.S. shipyards
that can accommodate the construction of vessels up to 400 feet in length, five
of which the Company considers to be its direct competitors for commercial
contracts. With respect to the international commercial shipbuilding market, a
current overcapacity of suppliers worldwide has favored buyers and hindered the
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<PAGE>
profitability of shipyards. While the percentage of the Company's total business
for commercial shipbuilding could increase, the U.S. Navy has historically been
and for the foreseeable future is expected to continue to be the Company's
primary customer.
REGULATION
The Company is subject to stringent environmental laws and regulations in all
jurisdictions in which it operates. Management of the Company believes that the
Company is in substantial compliance with all applicable environmental laws and
regulations. Historically, environmental compliance costs incurred by the
Company have not been material. Like all of its U.S. competitors, the Company
will be required to upgrade its air emission control facilities pursuant to
recently drafted regulations under the Clean Air Act Amendments of 1990. These
regulations call for a phased-in compliance program so that the Company will
spread its costs over the years from 1997 through 2000. Although there can be no
assurances, management does not believe that future environmental compliance
costs will have a material adverse effect on the Company's financial condition
or results of operations.
The Nuclear Regulatory Commission, the Department of Energy and the Department
of Defense regulate and control various matters relating to nuclear materials
handled by the Company. Subject to certain requirements and limitations, the
Company's government contracts generally provide for indemnity by the U.S.
Government for any loss arising out of or resulting from certain nuclear risks.
(See also "Government Contracting" on page 3.)
BACKLOG
The Company's firm backlog at December 31, 1996 and 1995 was $3.5 billion and
$4.6 billion, respectively. Backlog levels can change and U.S. Government
contracts can be unilaterally terminated at the convenience of the U.S.
Government at any time with compensation for work completed. More than 90% of
the Company's backlog at December 31, 1996 continued to be U.S. Navy-related.
The portion of 1996's backlog expected to remain at December 31, 1997 is $2.2
billion.
MATERIALS AND SUPPLIES
All major materials, parts, and components for the Company's products are
currently available in adequate supply from domestic and foreign sources.
Through the cost escalation provisions contained in some of its U.S. Government
contracts, the Company is generally protected from increases in its materials
costs to the extent that the increases in the Company's costs are in line with
industry indices. In connection with its government contracts, the Company is
required to procure certain materials and component parts from supply sources
approved by the U.S. Government. The Company has not generally been dependent
upon any one supply source; however, due largely to the consolidation of the
defense industry, there are currently several components for which there is only
one supplier. The Company believes that these sole source suppliers as well as
its overall supplier base are adequate to meet its foreseeable future needs.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to operating costs and expenses as
incurred. The amounts charged during the years ended December 31, 1996, 1995,
and 1994 were $42 million, $20 million and $14 million, respectively. Under
current regulations, research and development costs can be charged to the U.S.
Government as allowable overhead allocated across all of the Company's
contracts. The actual amount of research and development costs allowed to pass
through U.S. Navy contracts is reviewed annually. Research and development costs
can also be directly funded by the U.S. Government through specific contracts.
These contracts produce quantifiable deliverables for the U.S. Navy, for
example, certain research and development projects on aircraft carriers.
Research and development costs incurred under specific customer contracts during
the years ended December 31, 1996, 1995, and 1994 were $25 million, $27 million,
and $32 million, respectively.
4
<PAGE>
EMPLOYEES
At the end of 1996, the Company had approximately 18,000 employees, of whom
approximately 60% were covered by collective bargaining agreements with various
unions. The Company has entered into four collective bargaining agreements
covering all of the Company's approximately 10,400 hourly employees. The
agreement with the United Steelworkers of America covers approximately 10,100
employees and expires April 4, 1999. The other agreements cover approximately
300 employees and expire by 2001. Although the Company believes that its
relationships with these unions are good, there can be no assurance that the
Company will not experience labor disruptions associated with the collective
bargaining agreements.
CAUTIONARY STATEMENT OF PURPOSES OF "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
This Annual Report on Form 10-K contains forward-looking statements concerning,
among other things, the Company's prospects, developments and business
strategies. These forward-looking statements are identified by their use of such
terms and phrases as "intends," "estimates," "expects," "projects,"
"anticipates," "should," "believes" and "scheduled." The Company's actual
results may differ materially from the results discussed in the forward-looking
statements. Factors that might cause such a difference include (i) the factors
discussed in this Item 1 and Notes 10, 11, and 12 to the Company's Financial
Statements, and (ii) the following factors: (a) general political, economic and
competitive conditions; (b) initiatives to reduce the federal budget deficit and
reductions in defense spending; (c) reductions in the volume of U.S. Navy
contracts awarded to the Company; and (d) unanticipated events affecting
delivery and production schedules or design and manufacturing processes, thus
impairing the Company's efforts to deliver its products on time or to reduce
production costs and cycle time or realize in a timely manner some or all of the
benefits, if any, of such reductions.
ITEM 2. PROPERTIES
The Company's principal facilities are located in Newport News, Virginia on
approximately 550 acres owned by the Company at the mouth of the James River.
Its facilities include seven graving docks, a floating dry dock, two outfitting
berths, five outfitting piers, a module outfitting facility, and various other
shops. Dry Dock 12 is the largest in the Western Hemisphere, and has recently
been extended to 662 meters. Dry Dock 12 is serviced by a 900 metric ton
capacity gantry crane that spans the dry dock and work platen. The majority of
these facilities are pledged as collateral under terms of the Company's
outstanding long-term debt agreements (See Note 7 to the Financial Statements of
the Company). The Company believes that substantially all of its productive
assets are, in general, well maintained, in good operating condition, considered
adequate for present needs and, as supplemented by planned construction, are
expected to remain adequate for the near future.
ITEM 3. LEGAL PROCEEDINGS
The information in Note 12-"Commitments and Contingencies - Government
Contracting and - Significant Estimates" to the Financial Statements appearing
on pages 33 through 34 of this Annual Report on Form 10-K is incorporated herein
by reference in response to this item.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Pursuant to consents dated October 14, 1996, October 31, 1996, November 30,
1996, and December 11, 1996, the Company's parent company and sole stockholder
at the time, approved, among other things, the following matters: (i) the
election of Messers. Fricks, Sisco and Mead as the sole Directors of the
Company; (ii) the transfer of $600,000,000 to NNS Delaware Management Company, a
wholly owned subsidiary of the Company, as a contribution to capital; (iii) a
cash dividend on December 11, 1996 to its former parent in the amount of
$600,000,000; (iv) distribution of all shares of capital stock of two
subsidiaries owned by the Company; (v) the adoption of certain employee benefit
plans of the Company; (vi) the authorization of actions necessary to consummate
the Agreement and Plan of Merger, the Distribution Agreement, and the Debt and
Cash Allocation Agreement in connection with the spinoff; (vii) the adoption of
the Restated Certificate of Incorporation and the Amended and Restated By-laws
of the Company; (viii) the distribution of Common Stock, par value $0.01 per
share, of the Company; and (ix) certain other former parent company
reorganization transactions and matters related to the spinoff.
ITEM 4.1 EXECUTIVE OFFICERS OF THE REGISTRANT
The information as to executive officers of the Company, set forth in Item 10
of this Annual Report on Form 10K, is hereby incorporated in this Item 4.1
by reference.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The common stock, par value $.01 per share (the "Common Stock"), of the Company
is listed on the New York and Chicago Stock Exchanges. Options in the Company's
stock are traded on the American Stock Exchange.
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The high and low sale prices of Common Stock from the inception of trading on
December 12, 1996, on the New York Stock Exchange Composite Transactions Tape,
through December 31, 1996, were $17 and $13 7/8, respectively. No dividends
were paid on the Common Stock during 1996. There were approximately 71,000
record holders of Common Stock as of March 10, 1997.
The Company's long-term debt obligations contain certain customary restrictive
covenants, including a limitation on the payment of dividends. (See Note 7 to
the Financial Statements of the Company.)
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
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1996(A) 1995(A) 1994(A) 1993 1992
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MILLIONS, EXCEPT PER SHARE DATA
STATEMENTS OF EARNINGS DATA:
<S> <C>
Revenues.................................................... $ 1,870 $ 1,756 $ 1,753 $ 1,861 $ 2,265
========= ========= ========= ========= =========
Net income from continuing operations....................... $ 55 $ 73 $ 91 $ 111 $ 50
========= ========= ========= ========= =========
Net income from continuing operations per common share (b).. $ 1.60 N/A N/A N/A N/A
========= ========= ========= ========= =========
BALANCE SHEET DATA:
Total assets................................................ $ 1,489 $ 1,380 $ 1,263 $ 1,235 $ 1,450
========= ========= ========= ========= =========
Long-term obligations (c)................................... $ 596 $ 292 $ 287 $ 423 $ 761
========= ========= ========= ========= =========
</TABLE>
(a) For a discussion of significant items affecting comparability of the
financial information as of and for the years ended December 31, 1996, 1995, and
1994, see Item 7 - "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
(b) Net income from continuing operations per common share is based on net
income from continuing operations divided by the weighted average number of
common shares outstanding for the period from December 12, 1996 through December
31, 1996 (34,297,451 shares). Since the Company was a wholly-owned subsidiary
prior to the spinoff, there are no comparable results for prior periods.
(c) Amounts prior to 1996 represent debt allocated to the Company from its
former parent (See Note 3 - "Transactions With Former Parent Company, Corporate
Debt and Interest Allocation" to the Financial Statements of the Company).
Historical amounts for 1996 represent obligations incurred by the Company as a
separate public entity.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following review of the results of operations and financial condition of the
Company should be read in conjunction with the Financial Statements and related
notes contained herein.
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The U.S. Navy accounted for approximately 94% of the Company's revenues in 1996,
and 97% in both 1995 and 1994. The Company's principal U.S. Navy business is
currently being performed under fixed price or fixed price incentive contracts,
which wholly or partially shift the risk of construction costs that exceed the
contract target cost to the Company. The accompanying table summarizes the
percentage of revenues by contract type.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
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CONTRACT TYPE 1996 1995 1994
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<S> <C>
Fixed Price......................................................... 64% 75% 75%
Cost-Based.......................................................... 36 25 25
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Total............................................................... 100% 100% 100%
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</TABLE>
The Company reports revenues and profits on its long-term contracts using the
percentage-of-completion method of accounting, determined on the basis of
incurred costs to estimated final total costs. Losses on contracts are reported
when first estimated. The performance of contracts usually extends over several
years, requiring periodic reviews and revisions of estimated final contract
prices and costs. The effect of revisions to estimates is included in earnings
in the period the revisions are made.
1996 COMPARED TO 1995
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
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REVENUES 1996 1995
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MILLIONS
<S> <C>
Construction........................................................................ $ 1,029 $ 1,107
Overhaul and Repair................................................................. 625 414
Engineering......................................................................... 194 202
Related Businesses & Other.......................................................... 22 33
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Total............................................................................... $ 1,870 $ 1,756
========= =========
</TABLE>
The Company's revenues increased 6.5% during 1996, growing to $1.87 billion from
$1.76 billion in 1995. The higher revenue level, as detailed in the following
discussion of operations, is driven by Overhaul and Repair.
CONSTRUCTION - The $78 million decrease in Construction revenues in 1996 is due
to the delivery of the aircraft carrier STENNIS in late 1995, the decline in LOS
ANGELES-class submarine production attendant with the completion of that program
in 1996, and lower levels of activity on SEALIFT conversions. These decreases
are partially offset by increased construction activity on the aircraft carriers
TRUMAN and REAGAN as well as DOUBLE EAGLE product tankers.
OVERHAUL AND REPAIR - The $211 million increase in Overhaul and Repair revenues
in 1996 is primarily attributable to the aircraft carrier EISENHOWER. Revenues
generated by the EISENHOWER overhaul were up due to (i) the ship being in the
yard for the full year (versus six months in 1995), and (ii) the period of
performance being compressed from 24 to 18 months.
ENGINEERING - Engineering revenues were marginally lower in 1996, declining to
$194 million from $202 million in 1995. Requirements for SEAWOLF and LOS
ANGELES-class submarine design work have declined due to the maturity of the
production programs for these submarines.
RELATED BUSINESSES & OTHER - Revenues from Related Businesses & Other declined
by $11 million in 1996. The higher level of activity in 1995 was due to a
variety of nonrecurring jobs for miscellaneous services.
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<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
- ---------------------------------------------------------------------------------------------------------------------------------
OPERATING EARNINGS 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
MILLIONS
<S> <C>
Construction........................................................................ $ 44 $ 95
Overhaul and Repair................................................................. 88 45
Engineering......................................................................... 13 13
Related Businesses & Other.......................................................... (5) 7
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Total............................................................................... $ 140 $ 160
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</TABLE>
Operating earnings of $140 million in 1996 represent a 12.5% decline from 1995's
level of $160 million. This decline in earnings is primarily attributable to
losses recognized in Construction, offset by improved performance in Overhaul
and Repair.
CONSTRUCTION - The $51 million decrease in operating earnings on Construction
work in 1996 relates to (i) the delivery of the carrier STENNIS in late 1995,
and (ii) increases in loss accruals for commercial product tanker construction
and SEALIFT conversions (See Note 12 to the Financial Statements of the
Company). The decreases in operating earnings for the period are partially
offset by (i) increased activity and productivity improvements on the aircraft
carriers REAGAN and TRUMAN, and (ii) the favorable settlement of contract change
orders on delivered submarines.
OVERHAUL AND REPAIR - The $43 million increase in operating earnings for
Overhaul and Repair work in 1996 is a result of (i) higher volume on EISENHOWER,
(ii) increased activity on carrier overhaul planning work, and (iii) increased
margins on submarine, carrier, and non-nuclear surface ship overhaul and repair
work.
ENGINEERING - Operating earnings from Engineering work remained stable, as 1996
earnings contributions matched those reported in 1995.
RELATED BUSINESSES & OTHER - The decrease in operating earnings in 1996 is
primarily the result of the recognition of certain professional and
administrative costs associated with NNS becoming an independent company.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
- ---------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
MILLIONS
<S> <C>
Net cash (used) provided by operating activities.................................... $ (75) $ 63
Capital expenditures................................................................ (74) (77)
Other investing cash flows.......................................................... (25) (10)
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Subtotal............................................................................ (174) (24)
Financing activities................................................................ 173 25
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Net increase (decrease) in cash and cash equivalents................................ $ (1) $ 1
====== ======
</TABLE>
NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES - The $138 million decrease in
1996's comparative cash flows from operating activities is due to lower
operating earnings and an increased investment in working capital. The lower
operating earnings are attributable to the factors discussed above in "1996
Compared to 1995 - Results of Operations, Operating Earnings." The increase in
working capital is caused by normal timing fluctuations in billings and
collections. Additionally, prices on certain commercial construction contracts
are not billable until delivery, and as such, attendant working capital costs
incurred throughout the year were not billable during 1996.
8
<PAGE>
CAPITAL EXPENDITURES - Capital expenditures in 1996 remained relatively level
with 1995 and reflect the Company's continuing investment in a strategic
capital improvement program consisting principally of three separate projects:
(i) development of a state-of-the-art automated steel cutting and fabrication
facility; (ii) extension of a dry dock facility; and (iii) construction of the
Consolidated Refueling Facility. The automated steel cutting and fabrication
facility, which is fully functional, should directly support the Company's goal
of reducing its production cost structure. The extension of the dry dock
facility was completed in June 1996 and allows for concurrent, multiple-ship
construction within the same dry dock. This improvement is expected to enable
construction resources to be utilized on multiple projects. Lastly, the
Consolidated Refueling Facility was completed in July 1996. This cost-efficient
facility is strategically located next to the dry docks used to refuel
nuclear-powered ships.
OTHER INVESTING CASH FLOWS - Other investing cash flow activities in 1996 and
1995 include for each year a $9.6 million investment representing the Company's
40% equity interest in the Abu Dhabi Ship Building Company. The remaining 1996
activity consists of a $15 million investment in a vessel-owning limited
partnership with a U.S. shipping firm. A former subsidiary of Newport News, NNS
Tanker Holding Corporation, now a subsidiary of NNS, has a 49% ownership
interest in this partnership.
FINANCING ACTIVITIES - The Company received from its former parent, on a net
basis, $149 million in 1996 and $25 million in 1995 to finance operating cash
flow needs and cover costs of its capital improvement program. (See Note 3 to
the Financial Statements of the Company). Additionally, $24 million was borrowed
under the Company's credit facility (See "Capital Requirements and Resources"
below) for working capital needs at 1996 year-end. The Company also received
$600 million in long-term debt proceeds during 1996, which were used to pay a
dividend to its former parent in conjunction with the spinoff. (See Note 7 to
the Financial Statements of the Company).
CAPITAL REQUIREMENTS AND RESOURCES - The Company requires that adequate working
capital be available at all times. While construction and conversion contracts
provide for progress payments, they generally require extensive investment in
contracts-in-process because of contract progress payment retentions and change
orders. Retentions, generally due upon completion or acceptance of the
contracted work, amounted to $57 million as of December 31, 1996. Change orders,
which make up an appreciable portion of the Company's work, sometimes require
long periods of negotiation during which time the expended funds are not
available for other uses.
The Company estimates that expenditures aggregating approximately $33 million
will be required after December 31, 1996, to complete planned projects for which
substantial commitments have been made. The Company also believes it will be
required to make tax payments in the range of $100 million to $124 million in
1998 upon completion of the STENNIS-TRUMAN aircraft carrier contract.
On November 4, 1996, the Company entered into a $415 million Credit Agreement
which includes a $215 million six-year Revolving Credit Facility, of which $125
million may be used for advances and letters of credit and $90 million may be
used for standby letters of credit. This Agreement contains customary
restrictive covenants which could affect borrowing capacity under the credit
facility. As of December 31, 1996 the Company had used $24 million of the credit
facility. (See Note 7 to the Financial Statements of the Company.)
Management believes that capital requirements as described above for its overall
operations, payment of dividends, taxes, and debt service can be met by existing
cash, internally generated funds, and the Revolving Credit Facility.
9
<PAGE>
INTEREST AND INCOME TAXES
Corporate debt of the Company's former parent and its related interest expense
were allocated to NNS based upon the ratio of the Company's net assets to the
parent's consolidated net assets plus debt. As an independent company, NNS'
weighted average cost of debt is higher than the historical allocations. As a
result, interest expense as a separate entity will initially be higher.
The effective tax rates for 1996 and 1995 were approximately 46% and 44%,
respectively. The difference between the Company's effective tax rate in these
periods compared to the U.S. federal statutory rate of 35% is principally due to
state income taxes and miscellaneous permanent differences for tax.
CHANGES IN ACCOUNTING PRINCIPLES
The Company adopted Statement of Financial Accounting Standards ("FAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," and FAS No. 123, "Accounting for Stock-Based Compensation," in
1996. The adoption of these new standards did not have any impact on the
Company's financial position or results of operations.
1995 COMPARED TO 1994
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
- ---------------------------------------------------------------------------------------------------------------------------------
REVENUES 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
MILLIONS
<S><C>
Construction........................................................................ $1,107 $1,144
Overhaul and Repair................................................................. 414 383
Engineering......................................................................... 202 204
Related Businesses & Other.......................................................... 33 22
------ ------
Total............................................................................... $1,756 $1,753
====== ======
</TABLE>
Revenues in 1995 remained flat in comparison with prior year performance. As
detailed below, a nominal reduction in Construction revenues was offset by
increased volume in the Overhaul and Repair and Related Businesses & Other
areas.
CONSTRUCTION - The $37 million decrease in Construction revenues in 1995 is
attributable to lower submarine construction activity, as the LOS ANGELES-class
program neared completion. The decrease in submarine work is partially offset by
increased aircraft carrier construction, SEALIFT conversion work, and commercial
shipbuilding activity.
OVERHAUL AND REPAIR - The $31 million increase in Overhaul and Repair revenues
in 1995 relates primarily to work on the destroyer THORN, as well as
miscellaneous other U.S. Navy repair work. These increases were partially offset
by a reduction in commercial ship repair.
ENGINEERING - Engineering revenues declined $2 million in 1995 primarily due to
less work on the SEAWOLF-class submarine design program.
RELATED BUSINESSES & OTHER - Revenues increased $11 million in 1995 due to a
variety of nonrecurring jobs for miscellaneous services.
10
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
- ---------------------------------------------------------------------------------------------------------------------------------
OPERATING EARNINGS 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
MILLIONS
<S> <C>
Construction........................................................................ $ 95 $ 181
Overhaul and Repair................................................................. 45 13
Engineering......................................................................... 13 11
Related Businesses & Other.......................................................... 7 (5)
------ ------
Total............................................................................... $ 160 $ 200
====== ======
</TABLE>
Operating earnings totaled $160 million in 1995, a 20% decline from 1994's
earnings level of $200 million. The drop in earnings was attributable to
Construction programs, with Overhaul and Repair generating partially offsetting
gains.
CONSTRUCTION - The $86 million decrease in operating earnings on Construction
work in 1995 relates to (i) lower contributions from aircraft carrier work as a
result of productivity gains realized in 1994, (ii) loss accruals established as
a result of the Company's re-entry into the highly competitive commercial
shipbuilding market, and (iii) additional costs incurred on SEALIFT conversion
work (See Note 12 to the Financial Statements of the Company).
OVERHAUL AND REPAIR - The $32 million increase in operating earnings for
Overhaul and Repair work in 1995 is due primarily to work performed on the LONG
BEACH deactivation, coupled with the fact the Company experienced losses on some
U.S. Navy and commercial repair jobs in 1994.
ENGINEERING - 1995 operating earnings from Engineering work improved $2 million
over 1994 levels because of improved margins on miscellaneous contracts.
RELATED BUSINESSES & OTHER - The improved operating earnings in 1995 are
primarily the result of reduced expenses for pensions and other employee
benefits.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
- ---------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
MILLIONS
<S> <C>
Net cash provided by operating activities........................................... $ 63 $ 182
Capital expenditures................................................................ (77) (29)
Other investing cash flows.......................................................... (10) --
-------- ------
Subtotal............................................................................ (24) 153
Financing activities................................................................ 25 (154)
-------- ------
Net increase (decrease) in cash and cash equivalents................................ $ 1 $ (1)
======== ======
</TABLE>
NET CASH PROVIDED BY OPERATING ACTIVITIES - The $119 million decrease in net
cash flow from operating activities is due to several factors, including lower
operating earnings, increased contracts in process, and higher payments for
federal and state income taxes. The lower operating earnings are attributable to
the factors discussed above in "1995 Compared to 1994 - Results of Operations,
Operating Earnings." The additional costs accumulated in contracts in process
are largely caused by higher costs on SEALIFT conversion work and the start-up
of commercial shipbuilding projects. The higher level of 1995 income tax
payments to the Company's former parent is attributable to NNS paying its
allocation of 1994 income taxes during 1995. The payment of a significant
portion of taxes allocated to the Company has historically occurred in the year
subsequent to when the taxes are incurred and billed. Thus, the higher level of
1994 current income taxes, due to higher 1994 pretax earnings, is reflected as a
1995 cash outflow.
11
<PAGE>
CAPITAL EXPENDITURES - Capital expenditures increased to $77 million in 1995
from $29 million in 1994 due to the initiation of a strategic capital
improvement program. Details of the program are provided in the "1996 Compared
to 1995 - Liquidity and Capital Resources" discussion.
FINANCING ACTIVITIES - During 1994, the Company was able to generate and
distribute $154 million to its former parent, on a net basis, due to higher
operating earnings, lower working capital requirements, and lower levels of
capital expenditures. (See Note 3 to the Financial Statements of the Company).
INTEREST AND INCOME TAXES
For a discussion of the historical treatment of debt and interest, see "1996
Compared to 1995 - Interest and Income Taxes" above. The effective tax rate for
both 1995 and 1994 was approximately 44%. The difference between the Company's
effective rate and the U.S. federal statutory rate of 35% is principally due to
state income taxes and miscellaneous permanent differences for tax.
CHANGES IN ACCOUNTING PRINCIPLES
The Company adopted FAS No. 112, "Employers' Accounting for Postemployment
Benefits" effective January 1, 1994. Adoption of this standard resulted in the
Company recording an after-tax charge of $4 million in 1994, which was reported
as a cumulative effect of change in accounting principle.
12
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Page
----
FINANCIAL STATEMENTS
<S> <C>
Report of Independent Public Accountants.................................................................................. 14
Combined Statements of Earnings for each of the three years in the
period ended December 31, 1996............................................................................................ 15
Balance Sheets as of December 31, 1996 and 1995........................................................................... 16
Combined Statements of Cash Flows for each of the three years in the
period ended December 31, 1996............................................................................................ 17
Statements of Changes in Stockholders' Equity for each of the three years in
the period ended December 31, 1996........................................................................................ 18
Notes to Financial Statements............................................................................................. 19
</TABLE>
13
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Newport News Shipbuilding Inc.:
We have audited the accompanying balance sheets of Newport News Shipbuilding
Inc. (a Delaware corporation) (refer to Note 1 for basis of presentation) as of
December 31, 1996 and 1995, and the related statements of earnings, cash flows
and changes in stockholders' equity for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Newport News Shipbuilding Inc.
as of December 31, 1996 and 1995, and the results of its operations and cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
As discussed in Note 2 to the financial statements, effective January
1, 1994, Newport News Shipbuilding Inc. changed its method of accounting for
postemployment benefits.
ARTHUR ANDERSEN LLP
Washington, D.C.,
January 31, 1997
14
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
COMBINED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1995 1994
--------- --------- ---------
MILLIONS (EXCEPT SHARES AND PER SHARE AMOUNTS)
<S> <C>
REVENUES........................................................................ $ 1,870 $ 1,756 $ 1,753
OPERATING COSTS AND EXPENSES.................................................... 1,729 1,599 1,552
OTHER INCOME (EXPENSE), NET..................................................... (1) 3 (1)
--------- --------- ---------
OPERATING EARNINGS.............................................................. 140 160 200
Interest Expense, net of interest capitalized................................... (38) (29) (30)
--------- --------- ---------
EARNINGS BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE............................................................ 102 131 170
Provision for Income Taxes...................................................... 47 58 75
--------- --------- ---------
EARNINGS BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE.................................................. 55 73 95
Cumulative Effect of Change in Accounting Principle,
net of tax...................................................................... - - (4)
--------- --------- ---------
NET EARNINGS.................................................................... $ 55 $ 73 $ 91
========= ========= =========
PER SHARE
Weighted Average Number of Common Shares Outstanding............................. 34,297,451 N/A N/A
========== ========= =========
Net Earnings Per Common Share................................................... $ 1.60 N/A N/A
========== ========= =========
</TABLE>
The accompanying notes are an integral part of these combined statements of
earnings.
15
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
-------------- ----------
(consolidated) (combined)
MILLIONS (EXCEPT SHARES AND PER SHARE AMOUNTS)
ASSETS
CURRENT ASSETS
<S> <C>
Cash and Cash Equivalents...................................................... $ 1 $ 2
Accounts Receivable............................................................ 182 67
Contracts in Process........................................................... 258 263
Inventory...................................................................... 45 54
Note Receivable................................................................ - 18
Other Current Assets........................................................... 5 15
------ ------
Total Current Assets........................................................... 491 419
------ ------
NONCURRENT ASSETS
Property, Plant and Equipment, net............................................. 836 820
Other Assets................................................................... 162 141
------ ------
Total Noncurrent Assets........................................................ 998 961
------ ------
$1,489 $1,380
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade Accounts Payable....................................................... $ 123 $ 99
Accounts Payable to Former Parent............................................. - 67
Short-Term Debt............................................................... 28 68
Deferred Income Taxes......................................................... 4 39
Other Accrued Liabilities..................................................... 101 165
------ ------
Total Current Liabilities..................................................... 256 438
------ ------
NONCURRENT LIABILITIES
Long-Term Debt................................................................ 596 292
Deferred Income Taxes......................................................... 183 138
Postretirement Benefits....................................................... 109 101
Other Long-Term Liabilities................................................... 113 139
Commitments and Contingencies (See Note 12)
------ ------
Total Noncurrent Liabilities.................................................. 1,001 670
------ ------
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value -
authorized 70,000,000 shares; issued
and outstanding 34,297,451 shares at December 31, 1996.................. 1 -
Paid-In Capital............................................................... 245 -
Accumulated Deficit........................................................... (14) -
Combined Equity............................................................... - 272
------ ------
Total Stockholders' Equity.................................................... 232 272
------ ------
$1,489 $1,380
====== ======
</TABLE>
The accompanying notes are an integral part of these balance sheets.
16
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994
------ ------ ------
MILLIONS
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C>
Net Earnings.................................................................. $ 55 $ 73 $ 91
Cumulative Effect of Change in Accounting Principle........................... - - 4
Adjustments to Reconcile Net Earnings Before Accounting Changes to Net
Cash (Used) Provided by Operating Activities -
Depreciation...................................................... 65 67 70
Deferred Income Taxes............................................. (10) (2) (46)
Allocated Corporate Interest, net of tax.......................... 20 18 17
Equity Investments (Income)/Loss.................................. 2 - -
Changes in Components of Working Capital -
Decrease(Increase) in -
Accounts Receivable......................................... (116) 22 (15)
Contracts in Process........................................ (7) (95) (20)
Inventory................................................... 10 (9) (1)
Note Receivable............................................. 18 - -
Other Current Assets........................................ 11 (4) (6)
Increase(Decrease) in -
Trade Accounts Payable...................................... 21 36 (1)
Accounts Payable to Former Parent........................... (67) (50) 58
Other Accrued Liabilities................................... (35) 8 29
Other, net........................................................ (42) (1) 2
------ ------ ------
Net Cash (Used) Provided by Operating Activities.............................. (75) 63 182
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures.......................................................... (74) (77) (29)
Other......................................................................... (25) (10) -
------ ------ ------
Net Cash Used by Investing Activities......................................... (99) (87) (29)
------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash Transfer (to) from Former Parent......................................... 149 25 (154)
Proceeds from Issue of Long-Term Debt......................................... 600 - -
Dividend Paid to Former Parent................................................ (600) - -
Net Increase in Revolving Credit Facility..................................... 24 - -
------ ------ ------
Net Cash (Used) Provided by Financing Activities.............................. 173 25 (154)
------ ------ ------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.......................... (1) 1 (1)
Effect of Exchange Rate Changes on Cash and Cash Equivalents.................. - - -
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............................. 2 1 2
------ ------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................................... $ 1 $ 2 $ 1
====== ====== ======
CASH PAID DURING THE PERIOD FOR INCOME TAXES.................................. $ 129 $ 122 $ 53
====== ====== ======
CASH PAID DURING THE PERIOD FOR INTEREST...................................... $ 3 $ - $ -
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these combined statements of cash
flows.
17
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
Combined --------------------- Paid-In Accumulated
Equity Shares Par Capital Deficit
-------- ---------- -------- ------- ---------
MILLIONS, EXCEPT FOR SHARES
<S> <C>
Balance - January 1, 1994........................ $ 105 - $ - $ - $ -
Net Earnings..................................... 91 - - - -
Net Cash Transfers to Former Parent.............. (154) - - -
Non-Cash Transactions With Former Parent
Net Change in Allocated Corporate Debt..... 140 - - - -
Allocated Corporate Interest, net of tax... 17 - - - -
-------- ------- -------- ----- -------
Balance - December 31, 1994...................... 199 - - - -
Net Earnings..................................... 73 - - - -
Net Cash Transfers from Former Parent............ 25 - - - -
Non-Cash Transactions With Former Parent
Net Change in Allocated Corporate Debt..... (43) - - - -
Allocated Corporate Interest, net of tax... 18 - - - -
-------- ------- --------- ----- -------
Balance - December 31, 1995...................... 272 - - - -
Net Earnings..................................... 69 - - - -
Net Cash Transfers from Former Parent............ 149 - - - -
Non-Cash Transactions With Former Parent
Net Change in Allocated Corporate Debt..... 360 - - - -
Allocated Corporate Interest, net of tax... 20 - - - -
Other...................................... (24) - - - -
Dividend to Former Parent........................ (600) - - - -
Issuance of Common Stock in Connection
With the Spinoff........................... (246) 34,297,451 1 245 -
-------- ---------- ------- ----- -------
Balance - December 11, 1996...................... - 34,297,451 1 245 -
Net Loss......................................... - - - - (14)
-------- ---------- -------- ----- -------
Balance - December 31, 1996...................... $ - 34,297,451 $ 1 245 $ (14)
======== ========== ======== ===== =======
</TABLE>
The accompanying notes are an integral part of these statements of changes in
stockholders' equity.
18
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
BASIS OF PRESENTATION
On December 11, 1996, in connection with a corporate reorganization, the
Company's former parent and its subsidiaries undertook and completed various
intercompany transfers and distributions designed to restructure, divide and
separate their then existing businesses, assets, liabilities and operations so
that, among other things, the shipbuilding business of the former parent
("Shipbuilding Business") would be owned by the Company (as defined below). The
former parent subsequently distributed (the "spinoff") pro rata to holders of
the parent company's common stock all of the outstanding common stock of the
Company.
Unless the context otherwise requires, as used herein, the term "Company"
refers: (i) for periods prior to the spinoff to Newport News Shipbuilding and
Dry Dock Company, a Virginia corporation, and certain other subsidiaries through
which its former parent conducted its Shipbuilding Business during such periods,
and (ii) for periods after the spinoff, to Newport News Shipbuilding Inc., a
Delaware corporation, and its consolidated subsidiaries, including Newport News
Shipbuilding and Dry Dock Company.
Prior to the spinoff, all of the outstanding common stock of the Company was
owned directly or indirectly by the former parent. These financial statements
present the financial position, results of operations and cash flows of the
Company as if it were a separate entity for all periods. The former parent's
historical basis in the assets and liabilities of the Company has been carried
over.
Investments in 20% to 50% owned companies where the Company has the ability to
exert significant influence over operating and financial policies are carried at
cost plus equity in undistributed earnings since the date of acquisition.
Earnings recognized and distributions received from equity method investees were
not significant during any of the periods presented in the accompanying
financial statements. All significant intercompany transactions and balances
have been eliminated.
DESCRIPTION OF BUSINESS
The Company is the largest non-government-owned shipyard in the United States.
Its principal business is designing, constructing, repairing, overhauling and
refueling nuclear-powered aircraft carriers and submarines for the U.S.
Government. The Company's largest single customer is the U.S. Government.
Revenues from contracts with the U.S. Government were $1,753 million (94%),
$1,697 million (97%) and $1,700 million (97%) in 1996, 1995, and 1994,
respectively.
2. SUMMARY OF ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions in
determining the reported amounts of the Company's assets, liabilities, revenues
and expenses. Reference is made to the "Revenue Recognition" section of this
footnote and Notes 10, 11 and 12 for additional information on certain estimates
included in the Company's financial statements.
19
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
REVENUE RECOGNITION
The Company reports revenues and profits on its long-term contracts using the
percentage-of-completion method of accounting, determined on the basis of total
costs incurred to date to estimated final total costs. Losses on contracts are
reported when first estimated. Costs on long-term contracts in process represent
recoverable costs incurred for production, allocable overhead, and, where
appropriate, general and administrative expenses. General and administrative
expenses related to commercial products and services essentially under
commercial terms and conditions are expensed as incurred. The performance of
contracts usually extends over several years, requiring periodic reviews and
revisions of estimated final contract prices and costs during the term of the
contracts. The effect of these revisions to estimates is included in earnings in
the period the revisions are made. Revenue arising from the claims process is
not recognized either as income or as an offset against a potential loss until
it can be reliably estimated and its realization is probable.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses of $279 million, $254 million, and $271
million in 1996, 1995, and 1994, respectively, are included in the "Operating
Costs and Expenses" caption in the Combined Statements of Earnings. Of the total
general and administrative expenses for 1996, 1995, and 1994, $14 million, $12
million, and $13 million, respectively, represent the Company's share of its
former parent's general and administrative costs for legal, financial,
communication and other administrative services. The allocation of corporate
general and administrative expenses to the Company has been based on estimated
levels of effort devoted to the Company's operations and the relative size of
the Company based on revenues, gross property and payroll. The Company's
management believes the method for allocating corporate general and
administrative expenses is reasonable and that the general and administrative
expenses reflected in the accompanying financial statements are generally
representative of the total general and administrative costs the Company would
have incurred as a separate public entity.
INCOME TAXES
The Company utilizes the liability method of accounting for income taxes whereby
it recognizes deferred tax assets and liabilities for the future tax
consequences of temporary differences between the tax basis of assets and
liabilities and their reported amounts in the financial statements. Deferred tax
assets are reduced by a valuation allowance when, based upon management's
estimates, it is more likely than not that a portion of the deferred tax assets
will not be realized in a future period. No deferred tax valuation allowances
were recorded by the Company as of December 31, 1996 and 1995.
EARNINGS PER SHARE OF COMMON STOCK
Net earnings per common share is based on net earnings divided by the weighted
average number of common shares outstanding for the period from December 12,
1996 through December 31, 1996 (34,297,451 shares). Since the Company was a
wholly-owned subsidiary of its former parent prior to the spinoff, there are no
comparable shares outstanding for periods before the spinoff.
CASH AND CASH EQUIVALENTS
The Company considers highly-liquid investments with an original maturity of
three months or less when purchased to be cash equivalents.
20
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
ACCOUNTS RECEIVABLE AND CONTRACTS IN PROCESS
Only amounts billed and currently due from customers are included in the "Trade
Accounts Receivable" caption in the accompanying balance sheets. Recoverable
costs and accrued earnings related to long-term contracts on which revenue has
been recognized, but for which billings have not been made to the customer, are
included in the "Contracts in Process" caption (see Note 4). No significant
allowance for doubtful accounts existed as of December 31, 1996 and 1995.
INVENTORY
Inventory principally consists of raw materials and supplies which have not been
allocated to specific contracts. Inventory is stated at the lower of cost or
market. Substantially all inventory is costed using the "last-in, first-out"
method. If the first-in, first-out or average cost method of inventory
accounting had been used by the Company for all inventory, inventory would have
been approximately $10 million and $8 million higher at December 31, 1996 and
1995, respectively.
PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment is carried at cost, net of accumulated
depreciation. The Company provides for depreciation on a straight-line basis in
amounts which, in the opinion of management, are adequate to allocate the cost
of depreciable assets over their estimated useful lives. Estimated useful lives
for significant classes of assets are as follows.
Buildings................................... 30 to 60 years
Machinery and equipment..................... 8 to 45 years
Total depreciation expense was $65 million, $67 million, and $70 million for
1996, 1995, and 1994, respectively. Depreciation expense is included as a
component of "Operating Costs and Expenses" in the statements of earnings.
Interest capitalized on constructed assets during the years ended
December 31, 1996, 1995, and 1994 was $3 million, $2 million, and $1
million, respectively.
CHANGES IN ACCOUNTING PRINCIPLES
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("FAS") No. 123, "Accounting for Stock-Based
Compensation." This statement defines a fair value based method of accounting
for stock-based awards issued to employees and others, but also allows companies
to choose to continue to measure compensation cost for such plans as it would be
measured currently while providing that certain additional pro forma disclosures
be made. The Company has elected the disclosure only option. Consequently, FAS
No. 123 had no impact on the Company's financial position or results of
operations.
The Company adopted FAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," in the first quarter of
1996. FAS No. 121 establishes new accounting standards for measuring the
impairment of long-lived assets. The adoption of this new standard did not have
any impact on the Company's financial position or results of operations.
21
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Effective January 1, 1994, the Company adopted FAS No. 112, "Employers'
Accounting for Postemployment Benefits." This new accounting rule requires
employers to account for postemployment benefits for former or inactive
employees, after employment but before retirement, on the accrual versus cash
basis of accounting. The postemployment benefit liability, which is based on
actuarial estimates, is recorded at its discounted present value, using discount
rates similar to those used for postretirement liabilities (See Note 10). The
Company recorded an after-tax charge of $4 million, which was reported as a
cumulative effect of change in accounting principle.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to "Operating Costs and Expenses" as
incurred. The amounts charged to operations during the years ended December 31,
1996, 1995, and 1994 were $42 million, $20 million, and $14 million,
respectively.
RISK MANAGEMENT ACTIVITIES
The Company periodically utilizes foreign currency contracts to hedge its
exposure to changes in foreign currency exchange rates for firm purchase
commitments. Net gains or losses on these contracts are deferred and recognized
when the offsetting gains or losses are recognized on the hedged items. Cash
receipts or payments related to these financial instruments are classified
consistent with the cash flows from the transactions being hedged.
FOREIGN CURRENCY TRANSLATION
Financial statements of equity investments in international entities are
translated into U.S. dollars using the exchange rate at each balance sheet date
for assets and liabilities and the weighted-average exchange rate for each
applicable period for amounts included in the statements of earnings. The amount
of cumulative translation adjustments is not significant.
STOCKHOLDERS' EQUITY
At December 31, 1996, the Company had authorized (a) 70,000,000 shares of Common
Stock, $.01 par value, 34,297,451 of which were outstanding, (b) 10,000,000
shares of preferred stock, $.01 par value, none of which had been issued and (c)
700,000 shares of Series A participating junior preferred stock, $.01 par value,
none of which had been issued.
CLASSIFICATION
The Company's construction contracts range in duration up to a period of 8 years
from the signing of the contract until delivery. Because of the varying nature
of the Company's operating cycle, and consistent with industry practice, assets
and liabilities relating to long-term contracts are classified as current,
although a portion of these amounts is not expected to be realized or paid
within one year (see Note 4).
RECLASSIFICATIONS
Prior years' financial statements have been reclassified where appropriate to
conform to 1996 presentations.
22
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. TRANSACTIONS WITH FORMER PARENT COMPANY
COMBINED EQUITY
The "Combined Equity" caption in the accompanying financial statements
represents the Company's former parent's cumulative net investment in the
combined businesses of the Company for periods prior to the spinoff. Changes in
the "Combined Equity" caption represent the net earnings of the Company, net
cash transfers (to) from its former parent, cumulative translation adjustments,
changes in allocated corporate debt, allocated corporate interest, net of tax,
and other non-cash transactions associated with the spinoff of the Company from
its former parent.
CORPORATE DEBT AND INTEREST ALLOCATION
The historical practice of the Company's former parent was to incur indebtedness
for its consolidated group at the parent company level or at a limited number of
subsidiaries, rather than at the operating company level, and to centrally
manage various cash functions. Consequently, corporate debt of the former parent
and its related interest expense have been allocated to the Company based on the
portion of such parent's investment in the Company which is deemed to be debt,
generally based upon the ratio of the Company's net assets to the former
parent's consolidated net assets plus debt. Interest expense was allocated at a
rate equivalent to the weighted-average cost of all corporate debt, which was
9.2%, 7.7%, and 8.3% for 1996, 1995, and 1994, respectively. Total pre-tax
interest expense allocated to the Company in 1996, 1995, and 1994 was $31
million, $28 million, and $26 million, respectively.
The Company has also been allocated tax benefits approximating 35% of the
allocated pre-tax interest expense. Although interest expense, and the related
tax effects, have been allocated to the Company for financial reporting on a
historical basis, the Company was not billed for these amounts. The changes in
allocated corporate debt and the after-tax allocated interest have been included
as a component of the Company's Combined Equity.
INCOME TAXES
See Note 9 for a discussion of income taxes.
NOTES AND ADVANCES RECEIVABLE FROM FORMER PARENT
"Cash transfers (to) from Former Parent" in the Statements of Changes in
Stockholders' Equity consist of net cash changes in notes and advances
receivable with the former parent which have been included in Combined Equity.
Historically, the former parent utilized notes and advances to centrally manage
cash funding requirements for its consolidated group.
23
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
ACCOUNTS PAYABLE TO FORMER PARENT
Historically, certain costs incurred by its former parent were allocated to the
Company. The "Accounts Payable to Former Parent" balance consists of unpaid
billings for these allocated costs and other services.
EMPLOYEE BENEFITS
Certain employees of the Company participated in the employee stock ownership
and employee stock purchase plans offered by its former parent prior to the
spinoff. The employee stock ownership plan provided for grants of a variety of
awards, including stock options and restricted stock to officers and key
employees of the Company. The employee stock purchase plan allowed employees to
purchase common stock of its former parent at a 15% discount subject to certain
thresholds. In connection with the spinoff, all options held by employees of the
Company were canceled as of December 11, 1996 and were replaced in January 1997
with approximately 2.1 million options granted under the Newport News
Shipbuilding Inc. Stock Ownership Plan.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," to its stock-based compensation plans. Stock-based
compensation expense recognized by the Company in 1996, 1995, and 1994 was not
material. Had compensation expense for stock-based compensation been determined
in accordance with FAS No. 123, "Accounting for Stock-Based Compensation," based
on the fair value at the grant dates for awards under applicable plans, the
Company's pro forma net earnings for the years ended December 31, 1996 and 1995
would have been lower by approximately $3 million ($.09 per share) and $2
million, respectively.
The fair value of each option granted was estimated using the Black-Scholes
option pricing model based on the following weighted-average assumptions for
grants in 1996 and 1995, respectively: (i) risk free rates of 5.4% and 7.9%;
(ii) expected lives of 5.0 years and 5.0 years; (iii) expected volatility of
26.6% and 29.0%; and (iv) a dividend yield of 3.7% and 3.7%. The estimated
weighted-average fair value per option granted to the Company's employees during
1996 and 1995 was $10.75 and $11.81, respectively.
Certain employees of the Company also participated in a pension plan provided
by its former parent. Reference is made to Note 11 for a further discussion of
this plan.
ANCILLARY AGREEMENTS
In order to assist in the orderly transition of the Company into a separate,
publicly held company, the former parent modified, amended or entered into
certain contractual agreements with the Company. Such agreements include the tax
sharing agreement discussed in Note 9, an employee benefits agreement, an
insurance agreement, an administrative services agreement, and other ancillary
agreements.
4. CONTRACTS IN PROCESS
Contracts in process includes production costs and related overhead, including
general and administrative expenses allocable to U.S. Government contracts, net
of progress payments of $3.9 billion and $3.0 billion as of December 31, 1996
and 1995, respectively. Approximately $28 million and $24 million of retainages
included in contracts in process, as of December 31, 1996 and 1995,
respectively, are not expected to be billed and collected within one year.
Under the contractual arrangements by which progress payments are received, the
U.S. Government asserts that it has a security interest in the Contracts in
Process identified with the related contracts.
24
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. PROPERTY, PLANT AND EQUIPMENT, NET
The major classes of property, plant, and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1995
--------- ----------
MILLIONS
<S> <C>
Land and improvements......................................................................... $ 27 $ 26
Buildings and improvements.................................................................... 1,182 1,150
Machinery and equipment....................................................................... 397 376
--------- ---------
Property, plant, and equipment at cost................................................... 1,606 1,552
Less accumulated depreciation................................................................. (770) (732)
--------- ---------
Net property, plant, and equipment....................................................... $ 836 $ 820
========= =========
</TABLE>
6. DETAIL OF OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
--------- ---------
MILLIONS
<S> <C>
Accrued vacation.............................................................................. $ 18 $ 43
Employee payroll and benefits................................................................. 31 40
Current postretirement benefits............................................................... 15 16
Current postemployment benefits............................................................... 7 7
Accrued taxes................................................................................. - 18
Other......................................................................................... 30 41
--------- ---------
$ 101 $ 165
========= =========
</TABLE>
7. LONG-TERM DEBT AND FINANCING ARRANGEMENTS
LONG-TERM DEBT
A summary of long-term debt obligations of the Company at December 31, 1996
(refer to Note 3 for a discussion of allocated corporate debt as of December
31, 1995) is set forth in the following table:
MILLIONS
8.625% Senior Notes due December 1, 2006 $200
9.25% Senior Subordinated Notes due December 1, 2006 200
Term Loan 200
6 Year Revolving Credit Facility due through 2002 24
Less-Current Maturities (28)
-----
$596
=====
25
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
CREDIT AGREEMENT
On November 4, 1996, the Company entered into a $415 million senior credit
facility (the "Senior Credit Facility") consisting of a $200 million six-year
amortizing term loan (the "Term Loan") and a $215 million six-year revolving
credit facility (the "Revolving Credit Facility"). The Term Loan will amortize
in 24 quarterly installments, commencing March 31, 1997, with an annual
aggregate payment amount of $27.5 million in each of 1997 through 2001, and
$62.5 million in 2002. Of the Revolving Credit Facility, $125 million may be
used for advances and letters of credit and $90 million may be used only for
standby letters of credit. Each of the Company's present and future subsidiaries
having consolidated assets exceeding $10 million, excluding foreign subsidiaries
and NNS Tanker Holding Corporation (each, a "Guarantor" and collectively, the
"Guarantors") guarantee the Senior Credit Facility. Borrowings under the Senior
Credit Facility are secured by perfected liens on substantially all of the
Company's and the Guarantors' assets. After January 1, 1998, the security
interest in the collateral may be released if the Company meets specific
financial and other conditions.
TERM LOAN
- ---------
The interest rates on the term loan vary based on the one, two, three, six,
nine, and twelve month LIBOR plus 1.125% or a base rate. The base rate is
defined as the higher of prime (as defined in the credit facility) or the
federal funds rate plus 0.5%. The weighted-average term loan interest rate at
December 31, 1996 was 6.7%. The aggregate maturities applicable to the
outstanding term loan balance at December 31, 1996, are $27.5 million in each of
1997, 1998, 1999, 2000, and 2001, and $62.5 million in 2002.
REVOLVING CREDIT FACILITY
- -------------------------
<TABLE>
<CAPTION>
COMMITTED CREDIT FACILITY
---------------------------------------------------------------------------------
<S> <C>
Revolving Credit Facility TERM COMMITMENTS UTILIZED AVAILABLE
(as of December 31, 1996) ----------- ----------- -------- ---------
1996-2002 $215 $24 $191
</TABLE>
This facility requires the payment of commitment fees of .3% on the unused
portion of the credit facility. The interest rate for the revolving credit
facility can vary as described above with respect to the term loan. At December
31, 1996, interest was being calculated at the base rate of 8.375%.
DEBT COVENANTS AND RESTRICTIONS
The Senior Credit Facility, Senior Notes and Senior Subordinated Notes contain
customary covenants, including financial ratios and limitations on dividend
payments, indebtedness, liens and corporate transacations. Debt outstanding
under the Senior Credit Facility is secured by substantially all assets of the
Company as described above.
26
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. FINANCIAL INSTRUMENTS
The carrying amount and estimated fair values of the Company's financial
instruments by class are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------
1996 1995
------------------------------ ------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------ ------ ------ -------
MILLIONS
<S> <C>
Asset (liability) instruments
Cash and cash equivalents $ 1 $ 1 $ 2 $ 2
Accounts receivable, trade 182 182 67 67
Note receivable - - 18 18
Accounts payable, trade (123) (123) (166) (166)
Long-term debt (including current maturities)
Revolving Credit Facility (24) (24) - -
Senior & Senior Subordinated Notes (400) (411) - -
Term Loan (200) (200) - -
Instruments with off-balance sheet risk
Foreign currency contracts - - - -
</TABLE>
The fair value of cash and cash equivalents, accounts receivable, notes
receivable, and accounts payable in the above table was considered to be the
same as, or was not determined to be materially different from, the carrying
amount. The fair value of short-term and long-term debt reflected in the
December 31, 1996 balance sheet is based on the market value of debt with the
same or similar maturities and interest rates. The short-term and long-term debt
reflected in the December 31, 1995 balance sheet represents corporate debt
allocated to the Company for financial reporting purposes by its former parent.
As such, an estimate of fair value has not been provided.
The Company periodically utilizes foreign currency contracts to hedge certain
specific foreign currency transactions, principally the purchase of raw
materials and machinery denominated in a foreign currency. Such contracts
generally mature in one year or less and the cost of replacing these contracts
in the event of nonperformance by counterparties is not significant. At December
31, 1996 and 1995, the Company had no significant foreign currency contracts
outstanding.
9. INCOME TAXES
The effective tax rates for 1996, 1995, and 1994 were approximately 46%, 44%,
and 44%, respectively. The difference between the Company's effective tax rate
in all periods compared to the U.S. federal statutory rate of 35% is principally
due to state income taxes and miscellaneous permanent differences for tax.
27
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In connection with the spinoff, the Company entered into a new tax sharing
agreement with its former parent company and El Paso Natural Gas Company. The
new tax sharing agreement provides, among other things, for the allocation of
tax liabilities among the parties to the spinoff arising prior to, as a result
of, and subsequent to the spinoff. Generally, the Company is liable for taxes
imposed on the Company and its affiliates engaged in the Shipbuilding Business.
In the case of federal income taxes imposed on the combined activities of the
consolidated group of the Company's former parent, the Company is liable for
federal income taxes attributable to its activities, and has been allocated an
agreed-upon share of estimated tax payments made by the consolidated group of
the Company's former parent.
The Company's earnings before income taxes were principally domestic for all
years presented in the accompanying financial statements. Following is a
comparative analysis of the components of the provision for income taxes:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1995 1994
----- ----- -----
MILLIONS
<S> <C>
Current-
Federal....................................................................... $ 49 $ 51 $ 101
State......................................................................... 8 9 20
----- ----- -----
57 60 121
----- ----- -----
Deferred-
Federal....................................................................... (15) (2) (46)
State......................................................................... 5 - -
----- ----- -----
$ 47 $ 58 $ 75
===== ===== =====
</TABLE>
Current federal tax expense for the years ended December 31, 1996, 1995, and
1994 include tax benefits of $11 million, $10 million, and $9 million,
respectively, related to the allocation of corporate interest expense to the
Company from its former parent (see Note 3).
The following is a reconciliation of income taxes computed using the statutory
U.S. federal income tax rate (35% for all years presented) to the provision for
income taxes reflected in the statements of earnings:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1995 1994
----- ----- -----
MILLIONS
<S> <C>
Tax expense computed at the statutory U.S. Federal income tax rate......................... $ 36 $ 46 $ 60
State and local taxes on income, net of Federal benefit.................................... 4 6 14
Permanent differences...................................................................... 7 6 1
----- ----- -----
$ 47 $ 58 $ 75
===== ===== =====
</TABLE>
28
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The components of the Company's net deferred tax liability are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1995
---- ----
MILLIONS
<S> <C>
Deferred tax assets--
Postretirement benefits....................................................................... $ 43 $ 36
Postemployment benefits....................................................................... 16 14
Accrued vacation.............................................................................. 5 13
Other ........................................................................................ 47 13
---- ----
Total deferred tax assets............................................................... 111 76
---- ----
Deferred tax liabilities--
Tax over book depreciation.................................................................... 195 179
Long-term shipbuilding contracts.............................................................. 59 62
Pension....................................................................................... 38 4
Other ........................................................................................ 6 8
---- ----
Total deferred tax liabilities.......................................................... 298 253
---- ----
$187 $177
==== ====
</TABLE>
10. POSTRETIREMENT BENEFITS
The Company has postretirement health care and life insurance plans which cover
its employees who meet certain eligibility requirements. For salaried employees,
the plans cover employees retiring from the Company on or after attaining age 55
who have had at least 10 years of service with the Company after attaining age
45. For hourly employees, the postretirement benefit plans generally cover
employees who retire pursuant to one of the Company's hourly employee retirement
plans. All of these benefits may be subject to deductibles, copayment provisions
and other limitations, and the Company has reserved the right to modify these
benefits. The Company's postretirement benefit plans are funded on a
pay-as-you-go basis.
The funded status of the postretirement benefit plans reconciles with amounts
recognized in the accompanying balance sheet as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1995
------ ------
MILLIONS
<S> <C>
Actuarial present value of accumulated postretirement benefit obligation at
September 30:
Retirees...................................................................................... $ 138 $ 109
Fully eligible active plan participants....................................................... 24 24
Other active plan participants................................................................ 31 28
----- -----
Total accumulated postretirement benefit obligation................................................. 193 161
Plan assets at fair value at September 30........................................................... - -
----- -----
</TABLE>
29
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
<S> <C>
Accumulated postretirement benefit obligation in excess of plan assets at September 30.............. 193 161
Claims paid during the fourth quarter............................................................... (5) (4)
Unrecognized reduction of prior service obligations resulting from plan amendments.................. 16 20
Unrecognized net loss resulting from plan experience and changes in actuarial assumptions........... (80) (60)
----- -----
Accrued postretirement benefit cost at December 31.................................................. $ 124 $ 117
===== =====
</TABLE>
The accrued postretirement benefit cost has been recorded based upon certain
actuarial estimates as described below. Those estimates are subject to revision
in future periods given new facts or circumstances.
The net periodic postretirement benefit cost consists of the following
components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1995 1994
---- ----- ----
MILLIONS
<S> <C>
Service cost for benefits earned during the year.................................... $ 4 $ 3 $ 3
Interest cost on accumulated postretirement benefit obligation...................... 15 13 11
Net amortization of unrecognized amounts............................................ 1 1 -
----- ----- -----
Net periodic postretirement benefit cost...................................... $ 20 $ 17 $ 14
===== ===== =====
</TABLE>
The initial weighted average assumed health care cost trend rate used in
determining the 1996, 1995, and 1994 accumulated postretirement benefit
obligation was 6%, 7%, and 8%, respectively, declining to 5% in 1997 and
remaining at that level thereafter.
Increasing the assumed health care cost trend rate by one percentage point in
each year would increase the 1996, 1995, and 1994 accumulated postretirement
benefit obligations by approximately $10 million each year and would increase
the aggregate of the service cost and interest cost components of the net
periodic postretirement benefit cost for 1996, 1995, and 1994 by approximately
$1 million each year.
The discount rates (which are based on long-term market rates) used in
determining the 1996, 1995, and 1994 accumulated postretirement benefit
obligations were 7.75%, 7.75%, and 8.25%, respectively.
30
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
11. OTHER BENEFIT PLANS
PENSION PLANS
The Company has various defined benefit plans which cover substantially all of
its hourly employees. These benefits are based primarily on years of service.
The Company's funding policies are to contribute to the plans amounts necessary
to satisfy the funding requirements of federal laws and regulations. Plan assets
consist principally of listed equity and fixed income securities.
Certain salaried employees of the Company participated in the former parent's
retirement plan ("FPRP") prior to the spinoff. In connection with the spinoff,
the Company's former parent became the sole sponsor of the FPRP. The benefits
accrued by Company employees in the FPRP were frozen as of December 31, 1996,
and the Company's former parent amended the FPRP to provide that all benefits
accrued through that day by Company employees were fully vested, non-forfeitable
and the responsibility of the Company's former parent.
The funded status of the plans reconcile with amounts recognized on the balance
sheets at December 31, 1996 and 1995, as follows:
<TABLE>
<CAPTION>
All Plans
-----------------------
1996 1995
------- -------
MILLIONS
<S> <C>
Actuarial present value of benefits based on service to date and
present pay levels at September 30:
Vested benefit obligation..................................................................... $ (137) $ (570)
Non-vested benefit obligation................................................................. (19) (43)
------- -------
Accumulated benefit obligation.................................................................. (156) (613)
Additional amounts related to projected salary increases........................................ - (104)
------- -------
Total projected benefit obligation at September 30.............................................. (156) (717)
Plan assets at fair value at September 30....................................................... 325 767
------- -------
Plan assets in excess of total projected benefit obligation at September 30..................... 169 50
Contributions during the fourth quarter......................................................... - -
Unrecognized net (gain) or loss resulting from plan experience and changes
in actuarial assumptions........................................................................ (46) 4
Unrecognized prior service obligations resulting from plan amendments........................... - 7
Remaining unrecognized net asset at initial adoption............................................ (25) (49)
------- -------
Prepaid pension cost at December 31............................................................. $ 98 $ 12
======= =======
</TABLE>
Assets of one plan may not be utilized to pay benefits of other plans.
Additionally, the pension cost has been recorded based upon certain actuarial
estimates as described below. Those estimates are subject to revision in future
periods given new facts or circumstances.
31
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Company measures pension cost according to independent actuarial valuations.
The projected unit credit actuarial cost method is used to determine pension
cost for financial accounting purposes consistent with the provisions of FAS No.
87, "Employers' Accounting for Pensions." Net periodic pension cost for the
years ended December 31, 1996, 1995, and 1994 consist of the following
components:
<TABLE>
<CAPTION>
1996 1995 1994
------------------ ------------------ ---------------
MILLIONS
<S> <C>
Service cost--benefits earned during the
year........................................................ $ 33 $ 23 $ 27
Interest on prior year's projected benefit
obligation.................................................. 66 52 50
Return on plan assets....................................... (121) (132) 9
Unrecognized excess (deficiency) of actual
return over expected return................................. 31 65 (76)
Net amortization of unrecognized amounts.................... (8) (6) (5)
--------- --------- ---------
Net pension (income) cost................................... $ 1 $ 2 $ 5
========= ========= =========
</TABLE>
The weighted average discount rates (which are based on long-term market rates)
used in determining the 1996, 1995, and 1994 actuarial present value of the
benefit obligations were 7.75%, 7.75%, and 8.25%, respectively. The rate of
increase in future compensation was 4.9% in 1996, 1995, and 1994. The weighted
average expected long-term rate of return on plan assets was 10.0% in 1996,
1995, and 1994. Unrecognized prior service obligations are being amortized on a
straight-line basis over the average remaining estimated service period of
employees expected to receive benefits under the plans.
401(K) PLANS
The Company sponsors the Newport News Shipbuilding Savings (401(k)) Plan for
Union Eligible Employees (the "Savings Plan") for certain of its hourly
employees. Contributions are made to the Savings Plan by participants, with the
Company providing for administration of the Savings Plan.
The Company established the Newport News Shipbuilding Inc. 401(k) Investment
Plan for Salaried Employees ("Salaried Plan"). Beginning in 1997, the Company
will match one half of the first 8% of a participant's contribution in either
cash or Common Stock at the Company's discretion. In addition, the Company will
contribute a fixed percentage of each salaried employee's salary per pay period
in either cash or Common Stock, also at the Company's discretion. The Company
has authorized 1,700,000 shares of Common Stock for possible Salaried Plan
contributions. Company employees as of the spinoff will be fully vested in
future matching contributions; otherwise, matching contributions will vest after
two years of service as defined in the Salaried Plan.
STOCK PLANS
The Company established the Newport News Shipbuilding Inc. Stock Ownership Plan
("Stock Ownership Plan") for the benefit of certain salaried and management
employees. At the Company's discretion, restricted stock, performance shares,
stock options, stock appreciation rights, stock equivalent units, and dividend
equivalents can be granted to eligible employees pursuant to this plan. The
Company has authorized 4,000,000 shares of Common Stock for such purposes in the
future. At December 31, 1996, there were no shares issued and outstanding for
this plan.
32
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Company established the 1997 Stock Plan for Directors of Newport News
Shipbuilding Inc. ("Stock Plan for Directors"). Half of the compensation of
non-employee directors is to be paid in the form of restricted stock. In
addition, non-employee directors receive an initial grant of 2,000 stock options
and 1,000 shares of restricted stock, upon joining the Board of Directors, and
an annual grant of 1,000 stock options. The Company has authorized 75,000 shares
of Common Stock for these purposes. At December 31, 1996, there were no shares
issued and outstanding for this plan.
The Company established the Newport News Shipbuilding Inc. 1997 Employee Stock
Purchase Plan ("1997 Employee Stock Purchase Plan") to provide eligible
employees of the Company an opportunity to purchase shares of the Company at a
15% discount, not to exceed $21,250 in payroll deductions per year. The Company
has authorized 700,000 shares of Common Stock for these purposes. At December
31, 1996, there were no shares issued and outstanding for this plan. This plan
becomes effective on April 1, 1997.
Stock options and restricted shares applicable to the plans above vest in
accordance with vesting periods set forth in the governing award agreements. The
performance shares vest after specified periods and after attaining certain
performance measures, both of which vary with each grant.
12. COMMITMENTS AND CONTINGENCIES
GOVERNMENT CONTRACTING
As a general practice within the defense industry, the Defense Contract Audit
Agency (the "DCAA") and other agencies continually review the cost accounting
practices of government contractors and conduct other various investigations. In
the course of those reviews, cost accounting and other issues are identified,
discussed and settled, or resolved through legal proceedings. The Company is
currently engaged in discussions on several cost accounting and other matters
the likely resolution of which, management believes, will not have a material
adverse effect on the Company's financial position or results of operations.
For example, the Company and its former parent have received letters from the
DCAA inquiring about certain aspects of the spinoff, including the disposition
of the former parent's retirement plan (the "FPRP"), which covers salaried
employees of the Company. In the event there is a determination that an amount
is due to the Government related to the FPRP, the Company and its former parent
will share its obligation for such amount, plus the amount of related defense
expenses, in the ratio of 20% and 80%, respectively. Also, in March 1995, the
DCAA informed the Company that it would conduct a post-award audit of the
contract to build the aircraft carrier REAGAN. The audit concerns the Company's
submission to the U.S. Navy of data relating to labor and overhead costs in
connection with the REAGAN contract. The audit is ongoing, the DCAA has not
issued its audit report, and the Government has not asserted any formal claims
against the Company related to this contract matter.
All major Requests for Equitable Adjustments ("REAs") filed by the Company in
connection with its contracts have been settled as of June 1996 for
approximately the same amount recorded previously by the Company. Through 1995,
costs of $18 million were recognized on the SEALIFT REA in excess of the
adjudicated REA price. Cost growth of $65 million that was not recoverable
through that REA was recognized in 1996. Due to uncertainties inherent in the
estimation process there can be no assurance that the projection of costs to be
incurred will not be revised in the future. The first of two SEALIFT ships was
delivered in August 1996. Management expects this contract to be substantially
complete by the end of the second quarter of 1997.
33
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SIGNIFICANT ESTIMATES
In 1994 and 1995, the Company entered into fixed price contracts to construct a
total of nine DOUBLE EAGLE product tankers. In January 1997, the Company, one of
the original purchasers and Mobil Oil Corporation ("Mobil") entered into an
agreement whereby Mobil agreed to acquire the first ship. In accordance with the
terms of the agreement, the first ship is being modified at Mobil's expense for
use in the domestic market in compliance with the Merchant Marine Act of 1920,
as amended, and the Shipping Act of 1916, as amended (collectively, the "Jones
Act"). The Jones Act currently requires that all vessels transporting products
between U.S. ports be constructed by U.S. shipyards.
In connection with the construction of these nine tankers, the Company estimated
that it would incur costs of approximately $102 million in excess of the fixed
contract prices on undelivered vessels as of December 31, 1996. The full amount
of the excess costs has been reserved for by charges against earnings of $68
million, $29 million, and $5 million in 1996, 1995, and 1994, respectively. The
ships are scheduled for delivery in 1997, 1998, and 1999. The Company's
estimates are based on improved design producibility and the utilization of a
different building strategy going forward. The Company believes that these
factors, as well as the experience gained in the construction of the first ship,
should result in a significant reduction in the man-hours necessary to construct
each of the remaining vessels. The Company intends to review this situation at
the end of each quarter. There can be no assurance that the estimate of costs to
be incurred on these contracts will not be revised at that time based on the
facts then known to the Company.
On-going discussions between the Company and the original purchaser of the
first four vessels, concerning certain contract specification issues, have
resolved a significant number of such issues, although some remain, and there
can be no assurance as to the outcome of future discussions.
LITIGATION
The Company is a defendant in matters of varying nature related to the normal
conduct of its business. In the opinion of management, the outcome of these
proceedings should not have a material adverse effect on the financial position
or results of operations of the Company.
CAPITAL COMMITMENTS
The Company estimates that expenditures aggregating approximately $33 million
will be required after December 31, 1996, to complete facilities and projects
authorized at such date, and substantial commitments have been made in
connection therewith.
LEASE COMMITMENTS
The Company holds certain equipment under long-term operating leases. Future
minimum lease payments under existing operating leases as of December 31, 1996,
are $3 million and $1 million for 1997 and 1998, respectively.
Rent expense recognized for the years ended December 31, 1996, 1995, and 1994,
was $5 million, $14 million, and $14 million, respectively.
34
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Earnings
Before
Income Earnings
Taxes & Before
Cumulative Cumulative
Effect of Effect of
Change In Change In
Operating Accounting Accounting Net
Revenues Earnings Principle Principle Earnings
-------- --------- ---------- ---------- --------
MILLIONS
1996
<S> <C>
1st Quarter............................ $438 $41 $32 $19 $19
2nd Quarter............................ 477 40 32 18 18
3rd Quarter............................ 522 36 28 15 15
4th Quarter............................ 433 23 10 3 3
------ ---- ---- ---
$1,870 $140 $102 $55 $55
====== ==== ==== === ===
1995
1st Quarter............................ $421 $44 $37 $20 $20
2nd Quarter............................ 424 46 33 21 21
3rd Quarter............................ 445 35 29 17 17
4th Quarter............................ 466 35 32 15 15
------ ------ ------ ---- ----
$1,756 $160 $131 $73 $73
====== ==== ==== === ===
</TABLE>
35
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth a list of the executive officers of Newport News
Shipbuilding Inc. at March 10, 1997. Each such officer has served in the
capacities indicated below with Newport News Shipbuilding Inc. (or, for periods
prior to the spinoff, with the Company's former parent) since the dates
indicated below. Unless otherwise indicated all offices held are with the
Company.
<TABLE>
<CAPTION>
EFFECTIVE
NAME (AGE AT DECEMBER 31, 1996) OFFICES HELD DATE OF TERM
- ------------------------------- ------------ ------------
<S> <C>
William P. Fricks(52).................. Chairman, President and Chief Executive Officer January 1997
President and Chief Executive Officer November 1995
President and Chief Operating Officer January 1995
Executive Vice President January 1992
Senior Vice President September 1988
Thomas C. Schievelbein(43)............. Executive Vice President - Operations October 1995
Vice President - Human Resources and Administration January 1995
Vice President - Strategy and Naval Program Development January 1994
Vice President - Naval Marketing March 1993
Director - Naval Marketing March 1992
Director - Marketing Field Office January 1990
David J. Anderson(47).................. Senior Vice President and Chief Financial Officer July 1996
Thomas J. Bradburn(53)................. Vice President - Finance and Corporate Controller September 1996
Vice President - Finance September 1986
Stephen B. Clarkson(59)................ Vice President - General Counsel and Secretary January 1991
Whylen G. Cooper(47)................... Vice President - Materials March 1997
Vice President - Sourcing November 1995
William G. Cridlin, Jr.(50)............ Vice President - Marketing January 1995
Vice President - Commercial Shipbuilding April 1992
Vice President - Manufacturing September 1988
T. Michael Hatfield(50)................ Vice President - Communications October 1995
Director - Public Relations November 1993
Robert C. Hoard(57).................... Vice President - Waterfront Trades and Facilities March 1997
Vice President - Trades Management and Manufacturing October 1995
Director - Trades and Manufacturing January 1994
Director - Trades August 1993
Director - Steel Fabrication April 1991
Alfred Little, Jr.(50)................. Vice President - Human Resources July 1996
James A. Palmer(60).................... Vice President - Commercial Nuclear October 1995
Vice President - Engineering January 1995
Vice President - Aircraft Carriers April 1992
Director - Engineering Administration January 1991
Marc Y. E. Pelaez(50).................. Vice President - Engineering August 1996
John E. Shephard, Jr.(41).............. Vice President - Manufacturing and Process Innovation March 1997
Vice President - Strategy and Process Innovation October 1995
Director - Strategic Planning August 1993
Patrick A. Tucker(49).................. Vice President - Government Relations December 1996
</TABLE>
36
<PAGE>
<TABLE>
<S><C>
George A. Wade(52)..................... Vice President - Submarines and Non-Nuclear Test October 1995
Vice President - Construction January 1995
Vice President - Submarines March 1993
Director - Submarine Construction April 1992
Director - Construction Engineering January 1990
D. R. Wyatt(38)........................ Treasurer September 1996
Assistant Treasurer August 1995
Manager of Finance April 1989
</TABLE>
Each of the executive officers of the Company has been continuously engaged in
the business of the Company, its affiliates or predecessor companies during the
past five years except for:
<TABLE>
<CAPTION>
NAME PREVIOUS EMPLOYMENT AND OFFICE HELD PERIOD
- ---- ----------------------------------- ------
<S> <C>
David J. Anderson RJ Reynolds Corporation
Executive Vice President and Chief Financial Officer 1991 to 1996
The Quaker Oats Co.
Senior Vice President - Finance and Customer Service 1987 to 1991
Whylen G. Cooper GE Power Systems
Manager of Sourcing 1991 to 1996
T. Michael Hatfield Lockheed Co.
Director of Communications 1989 to 1993
Alfred Little, Jr. Sun Company, Inc.
Vice President - Human Resources 1992 to 1996
Director - Human Resources 1988 to 1992
Marc Y. E. Pelaez United States Navy
Chief of Naval Research 1968 to 1996
Executive Assistant Secretary to the
Assistant Secretary of the Navy (RDA) 1990 to 1993
John E. Shephard, Jr. U.S. Army Reserves
Individual Mobilization Augmentee 1991 to 1993
United States Army
Assistant G3, Operations of the 101st Airborne Division 1977 to 1991
Patrick A. Tucker Tenneco
Executive Director - Government Relations 1996
Director - Federal Relations 1994 to 1997
Counsel to Senator John Warner 1993
Minority Staff Director and Counsel to the
U.S. Senate Armed Services Committee 1983 to 1993
</TABLE>
37
<PAGE>
The information as to Directors of the Company, required to be set forth in this
Item, is included on pages 2 and 3, under the caption "Election of Directors,"
of the Company's definitive Proxy Statement to be filed with the Securities and
Exchange Commission in connection with its 1997 Annual Meeting of Shareholders,
which information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is included on page 4, under the caption
"Compensation of Directors," and pages 6 through 15, under the caption
"Executive Compensation," of the Company's definitive Proxy Statement to be
filed with the Securities and Exchange Commission in connection with its 1997
Annual Meeting of Shareholders, which information is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is included on pages 4 through 6, under
the caption "Security Ownership of Certain Beneficial Owners and Management," of
the Company's definitive Proxy Statement to be filed with the Securities and
Exchange Commission in connection with its 1997 Annual Meeting of Shareholders,
which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is included on page 15, under the caption
"Certain Transactions," of the Company's definitive Proxy Statement to be filed
with the Securities and Exchange Commission in connection with its 1997 Annual
Meeting of Shareholders, which information is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a). 1. Financial Statements
Financial Statements required by this Item have been included in
Item 8. Refer to the "Index to Financial Statements" set forth in Item 8.
2. Financial Statement Schedules
No financial statement schedules are submitted because
they are either not applicable, not required, or not material.
3. Exhibits - See Index on pages 40 and 41.
(b) Reports on Form 8-K
During the fourth quarter of the fiscal year ended December 31,
1996, Newport News Shipbuilding Inc. filed one current report on Form 8-K on
December 20, 1996, and subsequently amended that report on December 23, 1996.
These reports were issued to (1) announce the completion of the spinoff, (2)
announce the award of the LPD-17 non-nuclear amphibious assault ship
construction contract by the Navy to an alliance which did not include the
Company, and (3) subsequently update pro forma financial statements of the
Company to September 30, 1996 from June 30, 1996.
38
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934, NEWPORT NEWS SHIPBUILDING INC., A DELAWARE CORPORATION, HAS DULY
CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED.
NEWPORT NEWS SHIPBUILDING INC.
Date: 3/25/97 By: /s/ WILLIAM P. FRICKS
_________________________________
William P. Fricks
Chairman of the Board, President
and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT
HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND
IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ WILLIAM P. FRICKS Chairman of the Board, President
Date: 3/25/97 ______________________________ and Chief Executive Officer
William P. Fricks
/s/ DAVID J. ANDERSON
Date: 3/25/97 ______________________________ Senior Vice President and
David J. Anderson Chief Financial Officer
/s/ THOMAS J. BRADBURN Vice President--Finance and
Date: 3/25/97 ______________________________ Corporate Controller
Thomas J. Bradburn
Date: _______ ______________________________ Director
Hon. Gerald L. Baliles
/s/ LEON A. EDNEY
Date: 3/25/97 ______________________________ Director
Leon A. Edney, Admiral (Ret.)
/s/ DR. WILLIAM R. HARVEY
Date: 3/25/97 ______________________________ Director
Dr. William R. Harvey
/s/ DANA G. MEAD
Date: 3/25/97 ______________________________ Director
Dana G. Mead
/s/ DR. JOSEPH J. SISCO
Date: 3/25/97 ______________________________ Director
Dr. Joseph J. Sisco
/s/ STEPHEN R. WILSON
Date: 3/25/97 ______________________________ Director
Stephen R. Wilson
</TABLE>
39
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
*3.1 Restated Certificate of Incorporation of the Company dated as
of December 11, 1996.
*3.2 Amended and Restated By-laws of the Company dated as of
December 11, 1996.
***4.1 Specimen Certificate of the Company's Common Stock.
**4.2 Rights Agreement dated as of December 11, 1996 between the
Company and First Chicago Trust Company of New York, as
Rights Agent.
*4.5 Form of Senior Note issued on March 13, 1997 including
Guarantees.
*4.6 Form of Senior Subordinated Note issued on March 13, 1997
including Guarantees.
*4.7 Senior Note Indenture dated as of November 26, 1996 among
NNS, Newport News and The Bank of New York, as Trustee.
*4.8 Senior Subordinated Note Indenture dated as of November 26,
1996 among NNS, Newport News and The Bank of New York, as
Trustee.
*4.9 First Supplemental Senior Note Indenture dated as of December
11, 1996 among NNS, the Guarantors and The Bank of New York,
as Trustee.
*4.10 First Supplemental Senior Subordinated Note Indenture dated
as of December 11, 1996 among NNS, the Guarantors and The
Bank of New York, as Trustee.
*4.11 Senior Notes Registration Rights Agreement dated as of
November 26, 1996 among NNS, the Guarantors and the Initial
Purchasers.
*4.12 Senior Subordinated Notes Registration Rights Agreement dated
as of November 26, 1996 among NNS, the Guarantors and the
Initial Purchasers.
*10.1 Distribution Agreement dated as of November 1, 1996 among
Tenneco Inc., New Tenneco Inc. and the Company.
*10.2 Amendment No. 1 to Distribution Agreement dated as of
December 11, 1996 by and among Tenneco Inc., New Tenneco Inc.
and the Company.
*10.3 Amended and Restated Agreement and Plan of Merger, dated as
of June 19, 1996, among El Paso Natural Gas Company, El Paso
Merger Company and Tenneco Inc.
*10.4 Debt and Cash Allocation Agreement, dated as of December 11,
1996, by and among Tenneco Inc., New Tenneco Inc. and the
Company.
*10.5 Benefits Agreement, dated as of December 11, 1996, by and
among Tenneco Inc., New Tenneco Inc. and the Company.
*10.6 Insurance Agreement, dated as of December 11, 1996, by and
among Tenneco Inc., New Tenneco Inc. and the Company.
*10.7 Tax Sharing Agreement, dated as of December 11, 1996, by and
among Tenneco Inc., the Company, New Tenneco Inc. and El Paso
Natural Gas Company.
*10.8 First Amendment to the Tax Sharing Agreement, dated as of
December 11, 1996, by and among Tenneco Inc., the Company,
New Tenneco Inc., and El Paso Natural Gas Company.
*10.9 Trademark Transition License Agreement, dated as of December
11, 1996, by and between Tenneco Management Company and the
Company.
***10.10 Award/Contract N0024-95-C-2106, issued by Naval Sea Systems
Command to Newport News Shipbuilding for Aircraft Carrier
CVN-76.
***10.11 Professional Services Agreement, dated August 22, 1996, by
and between Tenneco Business Services Inc. and the Company.
*10.12 Employment agreement dated as of December 12, 1996 between
William P. Fricks and the Company.
+10.13 Newport News Shipbuilding Inc. Stock Ownership Plan.
+10.14 1997 Stock Plan for Directors of Newport News Shipbuilding
Inc. and First Amendment.
+10.15 Deferred Compensation Plan for Directors.
+10.16 Deferred Compensation Plan for Executive Officers.
+10.17 Newport News Shipbuilding Inc. Change in Control Severance
Plan and First Amendment.
+21.1 Subsidiaries of the Registrant.
40
<PAGE>
+23.1 Consent of Arthur Andersen LLP.
+24.1 Power of Attorney.
+27.1 Financial Data Schedule.
+Filed herewith.
*Incorporated herein by reference to the Company's Registration Statement on
Form S-4 dated January 23, 1997, as amended (Registration No. 333-20285).
**Incorporated herein by reference to the Company's Registration Statement on
Form S-8 dated February 27, 1997 (Registration No. 333-22503).
***Incorporated herein by reference to the Company's Registration Statement on
Form 10 dated October 30, 1996, as amended (Registration No. 1-12385)
Exhibits 10.12, 10.13, 10.14, 10.15, 10.16 and 10.17 hereto constitute
management contracts or compensatory plans or arrangements within the meaning of
Item 14(a)(3) of Form 10-K.
41
Exhibit 10.13
NEWPORT NEWS SHIPBUILDING INC. STOCK OWNERSHIP PLAN
1. Purpose
The purpose of the Plan is to promote the long-term success of the
Company for the benefit of shareholders by encouraging its officers and key
employees to have meaningful investments in the Company so that, as stockholders
themselves, those individuals will be more likely to represent the views and
interest of other stockholders and by providing incentives to such officers and
key employees for continued service. The Company believes that the possibility
of participation under the Plan will provide this group of officers and
employees an incentive to perform more effectively and will assist the Company
in attracting and retaining people of outstanding training, experience and
ability.
2. Definitions
"Authorized Plan Shares" has the meaning set forth in Section 6(a).
"Award" means an award or grant made to a Participant under Section 8.
"Award Agreement" means the agreement provided in connection with an
Award under Section 12.
"Award Date" means the date that an Award is made, as specified in an
Award Agreement.
"Board of Directors" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor legislation.
"Company" means Newport News Shipbuilding Inc.
"Committee" means the Compensation and Benefits Committee of the Board
of Directors, or any successor committee thereto.
"Common Stock" means the Company's common stock, $.01 par value per
share.
"Covered Employees" shall have the meaning specified in Section
162(m)(3) of the Code.
"Dividend Equivalent" means an amount equal to the amount of the cash
dividends that are declared and become payable after the Award Date for the
Award to which it relates and on or before the Settlement Date for such Award.
<PAGE>
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" on any date means the average of the highest and
the lowest sales prices of a share of Common Stock on the Composite Tape for
such date, as reported by the National Quotation Bureau Incorporated, provided
that if (i) no sales of Common Stock are included on the Composite Tape for such
date, or (ii) in the opinion of the Committee, the sales of Common Stock on such
date are insufficient to constitute a representative market, then the Fair
Market Value of a share of Common Stock on such date shall be deemed to be the
average of the highest and lowest prices of a share of Common Stock as reported
on said Composite Tape for the next preceding day on which (x) sales of Common
Stock are included and (y) the circumstances described in this clause (ii) do
not exist.
"ISO" means any Stock Option designated in an Award Agreement as an
"Incentive Stock Option" within the meaning of Section 422 of the Code.
"Non-Qualified Stock Option" means any Stock Option that is not an ISO.
"Option Price" means the purchase price of one share of Common Stock
under a Stock Option.
"Participant" means an employee or officer of Newport News who has been
selected by the Committee to receive an Award under the Plan.
"Performance Unit" means an Award denominated in cash, the amount of
which may be based on performance of the Participant or of Newport News or of
any subsidiary or division thereof.
"Plan" means this Newport News Shipbuilding Inc. Stock Ownership Plan,
as amended from time to time.
"Reload Stock Option" means a Stock Option (i) that is awarded, either
automatically in accordance with the terms of an Award Agreement in which one or
more other Awards are made or by separate Award, upon the exercise of a stock
option granted under this Plan or otherwise where the option price is paid by
the option holder by delivery of shares of Common Stock on the Settlement Date
for such exercise and (ii) that entitles such holder to purchase the number of
shares so delivered for an Option Price equal to the Fair Market Value of a
share of Common Stock on such Settlement Date.
-2-
<PAGE>
"Restricted Stock" means shares of Common Stock subject to restrictions
and conditions pursuant to Section 8(c).
"Rule 16b-3" means Regulation ' 240.16b-3 of the rules and regulations
of the Securities and Exchange Commission promulgated under the Exchange Act.
"Settlement Date" means, (i) with respect to any Stock Option that has
been exercised in whole or in part, the date or dates upon which shares of
Common Stock are to be delivered to the Participant and the Option Price
therefor paid, (ii) with respect to any SARs that have been exercised, the date
or dates upon which a cash payment is to be made to the Participant, or in the
case of SARs that are to be settled in shares of Common Stock, the date or dates
upon which such shares are to be delivered to the Participant, (iii) with
respect to Performance Units, the date or dates upon which cash or shares of
Common Stock are to be delivered to the Participant, (iv) with respect to
Dividend Equivalents, the date upon which payment thereof is to be made, and (v)
with respect to Stock Equivalent Units, the date upon which payment thereof is
to be made, in each case, determined in accordance with the terms of the Award
Agreement under which any such Award was made.
"Stock Appreciation Right" or "SAR" means an Award that entitles the
Participant to receive on the Settlement Date an amount equal to the excess of
(i) the Fair Market Value of a share of Common Stock on
the date of exercise of the SAR over
(ii) the Fair Market Value of one share of Common Stock on the
Award Date or any other higher amount specified in the Award Agreement.
"Stock Equivalent Unit" means an Award that entitles the Participant to
receive on the Settlement Date an amount equal to the Fair Market Value of one
share of Common Stock on such date.
"Stock Option" or "Option" means any right to purchase shares of Common
Stock (including a Reload Stock Option) awarded pursuant to Section 8(a).
"Newport News" means the Company, any stock corporation of which a
majority of the capital stock generally entitled to vote for directors is owned
directly or indirectly by the Company, and any other company designated as such
by the Committee, but only during the period of such ownership or designation.
-3-
<PAGE>
3. Term
The Plan shall be effective as of October 8, 1996, and shall remain in
effect though December 31, 2001. After termination of the Plan, no further
Awards may be granted other than Reload Stock Options granted in accordance with
Award Agreement existing as of December 31, 2001, but outstanding Awards shall
remain effective in accordance with their terms and the terms of the Plan.
4. Plan Administration
(a) The Committee shall be responsible for administering
the Plan.
(i) Composition of the Committee. The Committee
shall be comprised of two or more members of the Board of Directors, all of whom
shall be "non-employee directors" as defined in Rule 16b-3 and "outside
directors" as that term is used in Section 162 of the Code and the regulations
promulgated thereunder.
(ii) Powers. The Committee shall have full and
exclusive discretionary power to interpret the Plan and to determine
eligibility for benefits and to adopt such rules, regulations and guidelines for
administering the Plan as the Committee may deem necessary or proper. Such power
shall include, but not be limited to, selecting Award recipients, establishing
all Award terms and conditions and, subject to Section 13, adopting
modifications and amendments to the Plan or any Award Agreement, including
without limitation, any that are necessary to comply with the laws of the
countries in which the Company or its affiliates operate.
(iii) Delegation. The Committee may delegate
to one or more of its members or to one or more agents or advisors such
non-discretionary administrative duties as it may deem advisable, and the
Committee or any person to whom it has delegated duties as aforesaid may employ
or more persons to render advice with respect to any responsibility the
Committee or such person may have under the Plan.
(b) The Committee may employ attorneys, consultants,
accountants and other persons, and the Committee, the Company and its officers
and directors shall be entitled to rely upon the advice, opinions, or valuations
of any such persons. All actions take and all interpretations and determinations
made by the Committee in good faith shall be final and binding upon the
Participants, the Company and all other interested persons. No member of the
Committee shall be personally liable for any action, determination, or
interpretation made in good faith with respect to the Plan or Awards,
-4-
<PAGE>
and all members of the Committee shall be fully protected by the Company, to the
fullest extent permitted by applicable law, in respect of any such action,
determination or interpretation.
5. Eligibility
Awards will be limited to persons who are officers or key employees of
Newport News. In determining the persons to whom Awards shall be made, the
Committee shall, in its discretion, take into account the nature of the person's
duties, past and potential contributions to the success of Newport News and such
other factors as the Committee shall deem relevant in connection with
accomplishing the purposes of the Plan. A person who has received an Award or
Awards may receive an additional Award or Awards. For purposes of this Section
5, the terms "employee" and "officer" shall also include any former employee or
former officer of Newport News eligible to receive a replacement award as
contemplated in the third sentence of Section 8.
6. Authorized Awards; Limitations
(a) Except for adjustments pursuant to Section 7, the
maximum number of shares of Common Stock that shall be available for issuance
under the Plan (the "Authorized Plan Shares") shall be 4,000,000 (approximately
12% of the issued and outstanding shares of Common Stock on the effective date
of the Plan).
(b) Except for adjustments pursuant to Section 7, in no
event (i) shall more than 1 million of the Authorized Plan Shares be available
for issuance pursuant to the exercise of ISOs awarded under the Plan; and (ii)
shall more than 800,000 of the Authorized Plan Shares be available for issuance
pursuant to Restricted Stock Awards.
(c) If an Award expires unexercised or is forfeited,
surrendered, canceled, terminated or settled in cash in lieu of Common Stock,
the shares of Common Stock that were theretofore subject (or potentially
subject) to such Award may again be made subject to an Award Agreement.
(d) Common Stock that may be issued under the Plan may be
either authorized and unissued shares, or issued shares that have been
reacquired by the Company and that are being held as treasury shares. No
fractional shares of Common Stock shall be issued under the Plan; provided,
however, that cash, in an amount equal to the Fair Market Value of a fractional
share of Common Stock as of the Settlement Date of the Award, shall be paid in
lieu of any fractional shares in the settlement of Awards payable in shares of
Common stock.
-5-
<PAGE>
(e) In no event shall the number of shares of Common Stock
subject to Stock Options plus the number of shares underlying SARs awarded to
any one Participant during the period from October 8, 1996, through December 31,
2001, exceed 10% of the Authorized Plan Shares. In all events, determinations
under the preceding sentence shall be made in a manner that is consistent with
Code Section 162 and the regulations promulgated thereunder.
7. Adjustments and Reorganizations
The Committee may make such adjustments to Awards granted under the
Plan (including the terms, exercise price and otherwise) as it deems appropriate
in the event of changes that impact the Company, the Company's share price, or
share status, provided that any such actions are consistently and equitably
applied to all affected Participants; provided, that, notwithstanding any other
provision hereof, insofar as any Award is subject to performance goals
established to qualify payments thereunder as "performance-based compensation"
as described in Section 162(m) of the Code, the Committee shall have no power to
adjust such Awards other than (i) negative discretion and (ii) the power to
adjust Awards for corporate transactions, in either case to the extent
permissible under regulations interpreting Code Section 162(m).
In the event of any merger, reorganization, consolidation,
recapitalization, separation, liquidation, stock dividend, extraordinary
dividend, spin-off, split-up, rights offering, share combination, or other
change in the corporate structure of the Company affecting the Common Stock, the
number and kind of shares that may be delivered under the Plan shall be subject
to such equitable adjustment as the Committee, in its sole discretion, may deem
appropriate in order to preserve the benefits or potential benefits to be made
available under the Plan, and the number and kind and price of shares subject to
outstanding Awards and any other terms of outstanding Awards shall be subject to
such equitable adjustment as the Committee, in its sole discretion, may deem
appropriate in order to prevent dilution or enlargement of outstanding Awards.
8. Awards
The Committee shall determine the type and amount of any Award
to be made to any Participant; provided, however, that, except as provided in
paragraph (g), no Award granted pursuant to this Plan shall vest in less than
six months after the date the Award is granted. Awards may be granted singly, in
combination, or in tandem. Awards may also be made in combination or in tandem
with, in replacement of, as alternatives to, or as the payment form for, grants
or rights under any other employee benefit or compensation plan of Newport News,
including any such employee benefit or compensation plan of any acquired entity.
-6-
<PAGE>
(a) Stock Options.
(i) Grants. Stock Options (including Reload
Stock Options) granted under this Plan may be either of the following:
(1) an ISO or
(2) a Non-Qualified Stock Option
The Committee may grant any Participant one or more ISOs,
Non-Qualified Stock Options, or both types of Stock Options, in each case with
or without SARs or Reload Stock Options or any other form of Award. Stock
Options granted pursuant to this Plan shall be subject to such additional terms,
conditions, or restrictions as may be provided in the Award Agreement relating
to such Stock Option.
(ii) Option Price. The Option Price of a Stock
Option shall be not less than 100% of the Fair Market Value of a share of Common
Stock on the Award Date; provided, however, that in the case of a Stock Option
granted retroactively in tandem with or as a substitution for another Award, the
Option Price shall be not less than 100% of the Fair Market Value of a share of
Common Stock on the date of such other Award; and provided further that in any
case ISOs shall have a price equal to 100% of the Fair Market Value of a share
of Common Stock on the Award Date.
(iii) ISOs. Anything in this Plan to the contrary
notwithstanding, no term of this Plan relating to ISOs shall be interpreted,
amended or altered, nor shall any discretion or authority awarded under the Plan
be exercised, so as to disqualify this Plan under Section 422 of the Code, or,
without the consent of the Participants affected, to disqualify any ISO under
Section 422 of the Code.
An ISO shall not be granted to an individual who, on the date of grant,
owns stock possessing more than 10% of the total combined voting power of all
classes of stock of the employing Company or of its parent or any subsidiary
corporation.
The aggregate Fair Market Value, determined on the Award Date, of the
shares of Common Stock or other stock with respect to which one or more ISOs (or
other "incentive stock options," within the meaning of Subsection (b) of Section
422 of the Code, under all other stock option plans of the Participant's
employing Company and its parent and subsidiary corporation) that are
exercisable for the first time by the Participant during any particular calendar
year shall not exceed the $100,000 limitation imposed by Section 422(d) of the
Code.
(iv) Manner of Payment of Option Price. The
Option Price shall be paid in full at the time of the exercise of the Stock
Option and may be paid in any of the following methods or combinations thereof:
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(A) In United States dollars in cash, check, bank
draft or money order payable to the order of the Company;
(B) By the delivery of shares of Common Stock having an
aggregate Fair Market Value on the date of such exercise equal to the Option
Price;
(C) Participants may simultaneously exercise Stock Options
and sell their shares of Common Stock acquired thereby and apply the proceeds to
the payment of the Option Price pursuant to the procedures established by the
Committee; and
(D) In any other manner that the committee shall approve.
(E) Any shares of Common Stock required or permitted to be
sold by an executive officers of the Company in connection with the payment of
the Option Price shall be transferred to the Company.
(v) Reload Stock Options. The Committee may award Reload
Stock Options to any Participant either in combination with other Awards or in
separate Award Agreements that grant Reload Stock Options upon exercise of
outstanding stock options granted under this Plan or otherwise.
(b) Stock Appreciation Rights.
(i) Grants. The Committee may award any Participant SARs,
which shall be subject to such additional terms, conditions, or restrictions as
may be provided in the Award Agreement relating to such SAR Award, including any
limits on aggregate appreciation. SARs may be settled in Common Stock or cash or
both.
(ii) Award Price. The Award Price per share of Common Stock
of a SAR shall be fixed in the Award Agreement and shall be not less than 100%
of the Fair Market Value of a share of Common Stock on the date of the award;
provided, however, that in the case of a SAR awarded retroactively in tandem
with or as a substitution for another Award, the Award Price per share of a SAR
shall be not less than 100% of the Fair Market Value of a share of Common Stock
on the date of such other Award.
(iii) Distribution of SARs. SARs shall be exercisable in
accordance with the conditions and procedures set out in the Award Agreement
relating to such SAR Award.
(c) Restricted Stock. The Committee may award Restricted Stock to
any Participant. Awards of Restricted Stock shall be subject to such conditions
and restrictions as are established by the Committee and set forth in the Award
Agreement, which may include, but are not limited to, continued service with the
Company, achievement of specific business objectives, and other measurements of
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<PAGE>
individual or business unit or Company performance.
(d) Stock Equivalent Units. The Committee may award Stock
Equivalent Units to any Participant. All or part of any Stock Equivalent Units
Award may be subject to conditions and restrictions established by the
Committee, and set forth in the Award Agreement, which may include some or all
of the following; continued service with the Company, achievement of specific
business objects, and other measurements of individual or business unit or
Company performance that may include but shall not be limited to, earnings per
share, net profits, total shareholder return, cash flow, return on shareholders'
equity, EVA, and cumulative return on net assets employed. Without limiting the
generality of the foregoing, it is intended that the Committee shall establish
performance goals applicable to Stock Equivalent Units granted to Participants
who, in the judgment of the Committee, may be Covered Employees in such manner
as shall permit it to qualify as "performance-based compensation" as described
in Section 162(m)(4)(C) of the Code. The maximum number of Stock Equivalent
Units that may be granted to any Participant in any one calendar year shall not
exceed 100,000.
(e) Dividend Equivalents. The Committee may provide in any Award
Agreement in which Stock Equivalent Units are awarded that such Stock Equivalent
Units may accrue Dividend Equivalents. In lieu of awarding Dividend Equivalents,
the Committee may provide for automatic awards of additional Stock Equivalent
Units on each date that cash dividends are paid on the Common Stock in an amount
equal to (i) the product of the dividend per share on the Common Stock times the
total number of Stock Equivalent Units then held by the Participant, divided by
(ii) the Fair Market Value of the Common Stock on the dividend payment date.
(f) Performance Units. Performance Units shall be based on
attainment over a specified period of individual performance targets or on other
parameters that may include but shall not be limited to, earnings per share, net
profits, total shareholder return, cash flow, return on shareholders' equity,
EVA, and cumulative return on net assets employed. Performance Units may be
settled in Common Stock or cash or both. Without limiting the generality of the
foregoing, it is intended that the Committee shall establish performance goals
applicable to Performance Units granted to Participants who, in the judgment of
the Committee, may be Covered Employees in such a manner as shall permit
payments with respect thereto to qualify as "performance-based compensation" as
described in Section 162(m)(4)(C) of the Code. The maximum amount of
compensation that may be paid to any one Participant with respect to any one
year shall be $2,000,000.
(g) The Committee may also, in its sole discretion, shorten or
terminate the restricted period or waive any other conditions for the lapse of
restrictions with respect to all or any portion of any Award. Notwithstanding
the foregoing, all restricted periods shall terminate and the Awards shall be
fully vested with respect to any Participant upon the Participant's Retirement,
death, or Total Disability, coincident with termination of employment with
Newport News. For purposes of this Section 8:
"Retirement" means the Participant's termination of employment with
Newport News at a
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time when, under the Newport News Retirement Plan or under any other retirement
plan that is maintained by Newport News and that is determined by the Committee
to be the functional equivalent of the Newport News Retirement Plan, the
Participant is eligible to receive an immediately payable normal retirement
benefit, or, if approved by the Committee, the Participant is eligible to
receive an immediately payable early retirement benefit under such plan; and
"Total Disability" means the permanent inability of the Participant,
which is a result of accident or sickness, to perform such Participant's
occupation or employment for which the Participant is suited by reason of the
Participant's previous training, education and experience and which results in
the termination of the Participant's employment with Newport News.
9. Dividends
The Committee may provide in the appropriate Award Agreement that
dividends on Restricted Stock may be paid currently in cash or credited to a
Participant's account for subsequent distribution as determined by the
Committee. The Award Agreement may provide for the reinvestment of dividends
paid on Restricted Stock in shares of Common Stock.
10. Deferrals and Settlements
Settlement of Awards may be in the form of cash, Common Stock, other
Awards, or in combinations therof as the Committee shall determine, and with
such other restrictions as it may impose. The Committee may also require or
permit Participants to defer the issuance or vesting of shares or the settlement
of Awards under such rules and procedures as it may establish under the Plan.
The Committee may also provide that deferred settlements include the payment of,
or crediting of interest on, the deferral amounts or the payment or crediting of
Dividend Equivalents on deferred settlements denominated in shares.
11. Transferability and Beneficiaries
No Awards under the Plan shall be assignable, alienable,
saleable or otherwise transferable other than by will or the laws of descent and
distribution, or pursuant to a qualified domestic relations order (as defined by
the Code) or Title I of the Employee Retirement Income Security Act, or the
rules thereunder unless otherwise determined by the Committee.
12. Award Agreements
Awards under the Plan shall be evidenced by Award Agreements
that set forth the details, conditions and limitations for each Award, which may
include the term of an Award (except that (i) except as provided in Section
8(g), no Award shall vest in less than six months after the date the Award is
granted and (ii) in no event shall the term of any ISO exceed a period of ten
years from the date of its grant), the provisions applicable in the event the
Participant's employment terminates, and the Company's authority to unilaterally
or bilaterally amend, modify,
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suspend, cancel or rescind any Award.
13. Amendments; Compliance with Rule 16b-3
The Committee may suspend, terminate, or amend the Plan as it
deems necessary or appropriate to better achieve the purposes of the Plan,
except that, without the approval of the Company's shareholders, no such
amendment shall be made for which shareholder approval is necessary to comply
with any applicable tax or regulatory requirement, including for these purposes
any approval requirement which is a prerequisite for exemptive relief under
Section 16b of the Exchange Act.
14. Tax Withholding
The Company shall have the right to (i) make deductions from
any settlement of an Award made under the Plan, including the delivery or
vesting of shares, or require shares or cash or both be withheld from any Award,
in each case in an amount sufficient to satisfy withholding of any federal,
state or local taxes required by law, or (ii) take such other action as may be
necessary or appropriate to satisfy any such withholding obligations. The
Committee may determine the manner in which such tax withholding may be
satisfied, and may permit shares of Common Stock (rounded up to the next whole
number) to be used to satisfy required tax withholding based on the Fair Market
Value of any such shares of Common Stock, as of the Settlement Date of the
applicable Award.
15. Other Company Benefit and Compensation Programs
Unless otherwise specifically determined by the Committee,
settlements of Awards received by a Participant under the Plan shall not be
deemed a part of the Participant's regular, recurring compensation for purposes
of calculating payments or benefits from any Company benefit plan, severance
program or severance pay law of any country. Further, the Company may adopt
other compensation programs, plans or arrangements as it deems appropriate or
necessary.
16. Unfunded Plan
Unless otherwise determined by the Committee, the Plan shall
be unfunded and shall not create (or be construed to create) a trust or a
separate fund or funds. The Plan shall not establish any fiduciary relationship
between the Company and any Participant or other person. To the extent any
person holds any rights by virtue of a grant awarded under the Plan, such right
(unless otherwise determined by the Committee) shall be no greater than the
right of an unsecured general creditor of the Company.
17. Future Rights
No person shall have any claim or right to be granted an award
under the Plan, and
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no Participant shall have any right under the Plan to be retained in the
employment of the Company or its affiliates.
18. Governing Law
The validity, construction and effect of the Plan, and any
actions taken or relating to the Plan, shall be determined in accordance with
the laws of the State of Delaware and applicable federal law.
19. Successors and Assigns
The Plan shall be binding on all successors and assigns of a
Participant, including, without limitation, the estate of such Participant and
the executor, administrator or trustee of such estate, or any receiver or
trustee in bankruptcy or representative of the Participant's creditors.
20. Rights as a Shareholder
Except as otherwise provided in any Award Agreement, a
Participant shall have no rights as a shareholder of the Company until he or she
becomes the holder of record of Common Stock.
21.
No Award or other transaction shall be permitted under this
Plan which would have the effect of imposing liability for a participant under
Section 16 of the Exchange Act. Irrespective of any other provision of this Plan
or Award Agreement, any such Award or other transaction purportedly made under
or pursuant to this Plan shall be void, ab initio.
NEWPORT NEWS SHIPBUILDING INC.
By:________________________________
ATTEST: ____________________________
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Exhibit 10.14
1997 Stock Plan for Directors of
Newport News Shipbuilding Inc.
<PAGE>
1997 Stock Plan for Directors of
Newport News Shipbuilding Inc.
I. Purpose.
The purposes of the Plan are to promote the interests of Newport News
Shipbuilding Inc. (the Company) and its stockholders by (i) attracting and
retaining directors of outstanding ability; (ii) aligning the interests of
directors with the interests of the Company's stockholders; and (iii) enabling
such directors to participate in the long-term growth and financial success of
the Company.
II. Administration.
The Plan shall be administered by the Compensation and Benefits Committee which
shall consist of not less than two members of the Board of Directors. The
members of the Committee shall be appointed by the Board of Directors and shall
be "nonemployee directors" within the meaning of Rule 16b-3 of the Exchange Act
as in effect on August 15, 1996 and as may be amended from time to time. The
Committee shall have sole and complete authority to adopt, alter and repeal such
administrative guidelines and practices governing the operation of the Plan as
it shall from time to time deem advisable, and to interpret the terms and
provisions of the Plan. The Committee's decisions are binding upon all parties.
No member of the Committee shall be liable for any action or determination made
in good faith with respect to the Plan.
III. Definitions.
(a) "Award" means a Stock Option or Restricted Stock grant under the Plan.
(b) "Board of Directors" means the Board of Directors of the Company.
(c) "Committee" means the Committee appointed pursuant to Section II of the
Plan.
(d) "Common Stock" means the $.01 par value common stock of the Company.
(e) "Company" means Newport News Shipbuilding Inc.
(f) "Disability" has the same meaning as such term under the long-term
disability plan maintained by the Company for its management employees.
(g) "Effective Date" means the date specified in Section IX(a) of the Plan.
(h) "Eligible Director" means a member of the Board of Directors who
satisfied the requirements of Section V of the Plan.
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(i) "Exchange Act" means the Securities Exchange Act of 1934 as in effect
on August 15, 1996 and as may be amended from time to time.
(j) "Fair Market Value" means the closing price of the Common Stock on the
applicable Grant Date, as published by the national securities exchange
on which the Common Stock is traded. If such price is not published for
the Grant Date, such value shall mean the closing price on the trading
date occurring nearest to and before the Grant Date.
(k) "Grant Date" means the date an Award is granted.
(l) "Plan" means the 1997 Stock Plan for Directors of Newport News
Shipbuilding Inc.
(m) "Restricted Stock" means shares of Common Stock granted pursuant to
Section XII of the Plan.
(n) "Stock Option" means an option granted pursuant to Section XI of the
Plan.
IV. Stock.
(a) As of the Effective Date, there shall be reserved for issuance pursuant
to the Plan a total of 75,000 shares of Common Stock. In the event that
a Stock Option expires, is canceled, or is terminated unexercised as to
any shares covered thereby, or shares of Restricted Stock are forfeited
for any reason under the Plan, such shares shall thereafter be
available for issuance pursuant to the Plan and shall be considered as
part of the 75,000 shares of Common Stock authorized for issuance
pursuant to the Plan.
(b) In the event of any change in the outstanding shares of Common Stock by
reason of any stock dividend or split, recapitalization, merger,
consolidation, spin-off, combination or exchange of shares or other
corporate change, or any distributions to holders of Common Stock other
than normal cash dividends, the Committee shall make such substitution
or adjustment, if any, as it deems to be equitable, as to the number of
shares of Common Stock or other securities issued or reserved for
issuance pursuant to the Plan, the number of outstanding Stock Options
and the option price thereof and the number of outstanding shares of
Restricted Stock. Also, in instances where another corporation or
other business entity is being acquired by the Company, and the Company
has assumed outstanding employee option grants and/or the obligation to
make future or potential grants under a prior existing plan of the
acquired entity, similar adjustments are permitted at the discretion of
the Committee.
V. Eligibility.
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The only persons eligible to receive awards under the Plan shall be those
members of the Company's Board of Directors who are not employees of the
Company.
VI. Tax Withholding.
In the case of payments of Awards in the form of Common Stock, at the
Committee's discretion, the Eligible Director may be required to pay to the
Company the amount of any taxes required to be withheld with respect to such
Common Stock, or, in lieu thereof, the Company shall have the right to retain
the number of shares of Common Stock whose Fair Market Value equals the amount
required to be withheld.
VII. Construction of the Plan.
The validity, construction, interpretation, administration and effect of the
Plan and of its rules and regulations, and rights relating to the Plan, shall be
determined in accordance with the laws of the Commonwealth of Virginia. It is
intended that the Plan comply with Rule 16b-3 under the Exchange Act as in
effect on August 15, 1996 and as may be amended from time to time and, so far as
possible the Plan shall be construed, interpreted, and administered in a manner
consistent with this intent.
VIII. Amendment.
(a) The Board of Directors may amend, suspend or terminate the Plan or any
portion thereof at any time, provided that no amendment, suspension or
termination shall alter or impair any right theretofore awarded or
granted to any Eligible Director, without the consent of such Eligible
Director.
(b) With the consent of the Eligible Director affected thereby, the
Committee may amend, cancel, or modify any outstanding Award in any
manner not inconsistent with the terms of the Plan, including without
limitation, to change the date or dates as of which (i) a Stock Option
becomes exercisable or is forfeited if not exercised, or (ii) the
restrictions on shares of Restricted Stock are removed.
(c) Notwithstanding subsections (a) and (b) above, awards of Stock Options
and Restricted Stock under this Plan are intended to be eligible for
the exemption from Section 16(b) of the Exchange Act provided for
grants, awards and other acquisitions from the issuer that have been
approved or ratified by the issuer's shareholders. Any amendment to
this Plan that would change any provision required to be approved or
ratified by the Company's shareholders to be eligible for such
exemption must likewise be approved by the Company's shareholders in
accordance with Section IX(b).
IX. Effective Date.
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(a) The Plan shall be effective December 11, 1996 if approved by
shareholders at a meeting of the shareholders of the Company before
such date. No Award may be granted after termination of the Plan, but
all Awards granted prior to termination may be exercised in accordance
with their terms.
(b) Subsequent amendments to the Plan shall be effective as provided in
such amendments. If shareholder approval is required by Section
VIII(c), the effective date of such amendment shall not precede
approval by shareholders at a meeting of shareholders of the Company.
X. General Provisions.
(a) Transfer and Registration. The obligation of the Company to issue,
transfer or deliver common Stock under the Plan shall be subject to (i)
the effectiveness of a registration statement under the Securities Act
of 1933, as amended, with respect to such issue, transfer or delivery,
if deemed necessary or appropriate by counsel for the Company, (ii) the
condition that the shares of Common Stock reserved for issuance, if
any, shall have been listed (or authorized for listing upon official
notice of issuance) upon each stock exchange on which outstanding
shares of the same class may then be listed and (iii) all other
applicable laws, regulations, rules and orders which shall then be in
effect.
(b) Successors. The provisions of this Plan shall be binding upon the
Company and its successors and assigns and upon every participant and
his heirs, beneficiaries, estate and legal representatives.
(c) Severability. In case any provision of this Plan shall be held illegal
or invalid for any reason, such illegality or invalidity shall not
affect the remaining provisions of the Plan, and the Plan shall be
construed and enforced as if such illegal and invalid provisions had
never been set forth.
XI. Stock Options.
(a) Authorized Options. An eligible director shall be granted the
following options under the Plan, subject to the conditions set forth
below.
(1) Upon initial election to the Board of Directors of the
Company, options to purchase 2,000 shares of Common Stock.
(2) Upon each anniversary of such election thereafter, options to
purchase 1,000 shares of Common Stock.
(b) Option Price. The option price shall be one hundred percent (100%) of
the Fair Market Value of the Common Stock on the Grant Date. The option
price shall be subject to adjustment in accordance with the provisions
of Section IV(b) hereof.
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(c) Expiration Date. Stock Options granted under this Plan shall expire on
the date that is ten years from the Grant Date.
(d) Exercise of Option. Subject to other terms of this Plan regarding
exercisability of Stock Options, Stock Options granted on any Grant
Date shall become vested and may be exercised in accordance with the
following schedule.
Years From Grant Date Percentage Exercisable
--------------------- ----------------------
1 33.33%
2 66.67%
3 100.00%
(e) Payment of Purchase Price. The option price of each share as to which
a Stock Option is exercised shall be paid in full at the time of such
exercise. Such payment shall be made in cash, by tender of shares of
Common Stock owned by the Eligible Director valued at Fair Market Value
as of the date of exercise or by a combination of cash and shares of
Common Stock, at the Committee's discretion. The Committee in its sole
discretion may also provide that the purchase price may be paid by
delivering a properly executed exercise notice in a form approved by
the Committee together with irrevocable instructions to a broker to
promptly deliver to the Company (or its designated agent) the amount of
applicable sale or loan proceeds to pay the purchase price. Any
proceeds from the exercise of Stock Options will be used for general
corporate purposes.
(f) Exercise Upon Death, Disability, Retirement or Termination of Service.
(1) In the event of the death of the Eligible Director while a
director of the Company, Stock Options shall become vested and
may be exercised, to the extent the Eligible Director was
entitled to do so (had they been vested) on the date of his
death, by the person or persons to whom the Eligible
Director's rights under this Stock Option pass by will or
applicable law, or if no such person has such right, by his
executors or administrators, at any time, or from time to
time, but not later than the expiration date specified in
subsection (c) of this Section XI or three years after the
Eligible Director's death, whichever date is earlier.
(2) In the event the Eligible Director ceases to be a director of
the Company because of Disability or after reaching age 65,
Stock Options shall become vested and may be exercised on the
date he ceases to be a director, at any time, or from time to
time, but not later than the expiration date specified in
subsection (c) of this Section XI or three years after the
Eligible Director ceases to be a director, whichever date is
earlier.
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(3) If the Eligible Director ceases to be a director for any
reason other than death, disability, or retirement at or after
age 65, as aforesaid, all right to exercise this Stock Option
shall terminate at the expiration date specified in subsection
(c) of this Section XI or three years after he ceases to be a
director, whichever is earlier. Stock Options shall be
forfeited if the Participant ceases to be a director before
the date on which such shares become vested pursuant to this
Section or Section XI(d).
(g) Nontransferability. No right or interest of any Eligible Director in
any Stock Option shall be subject to any lien, obligation or liability
of the Eligible Director. No Stock Option shall be assignable or
transferable except by will, the laws of descent and distribution or
the designation of a beneficiary by the Eligible director and a Stock
Option shall be exercisable during the Eligible Director's life only by
such Eligible Director or the guardian or legal representative of such
Eligible Director. Provided however, in the Committee's discretion, a
Stock Option agreement may permit the optionee to transfer Stock
Options to (i) any member of the optionee's immediate family which
shall include the optionee's spouse and children or (ii) an entity
contributions to which are deductable pursuant to Code section 170.
After the Eligible Director's death, a Stock Option shall be
exercisable by the beneficiary designated by the Eligible Director, the
executor or executrix of the Eligible Director's estate or the person
or persons to whom rights under the Stock Option shall pass by will or
the laws of descent and distribution in accordance with the provisions
of the Stock Option and Plan.
XII. Restricted Stock Grants.
(a) Authorized Restricted Stock Grants. An Eligible Director shall be
granted Restricted Stock under the Plan, subject to the conditions set
forth below.
(1) Fifty percent (50%) of the annual retainer paid to an Eligible
Director shall be paid in shares of Restricted Stock within
thirty (30) days after the annual meeting of the Board of
Directors, subject to the conditions set forth below. The
remaining annual retainer shall be paid at such time(s) and in
accordance with such procedures established by the Board of
Directors. The number of shares of Restricted Stock so issued
shall be equal to fifty percent (50%) of the Eligible
Director's annual retainer divided by the Fair Market Value of
a share of Common Stock on such date, with any fractional
shares paid in cash.
(2) Each Eligible Director shall receive a one-time grant of 1,000
shares of restricted Common Stock. Stock grants to newly
elected directors will be awarded each year on the date of the
annual meeting.
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<PAGE>
(b) Vesting.
(1) Restricted Stock granted under Section XII(a)(1) on any Grant
Date shall become vested in accordance with the following
schedule.
Years From Grant Date Percentage Vested
--------------------- -----------------
1 33.33%
2 66.67%
3 100.00%
(2) Restricted Stock granted under Section XII(a)(2) on any Grant
Date shall become vested on the date that is five (5) years
after the Grant Date.
(3) Restricted Stock granted under XII(a)(1) or (2) shall be
forfeited if the Participant ceases to be a member of the
Board of Directors of the Company before the date on which
such shares become vested pursuant to this Section.
(c) Restrictions. Shares of Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered, except as herein
provided, prior to becoming vested. The Eligible Director shall receive
his or her Restricted Stock in certificates issued in respect of shares
of Restricted Stock which shall be registered in the name of the
Eligible Director and deposited by him or her together with a stock
power endorsed in blank with the Company. After a share of Restricted
Stock becomes vested, all restrictions shall lapse and the Eligible
Director or his or her legal representative shall have full and
complete discretion with respect to such shares.
(d) Rights of Holder. Except as otherwise provided in this Section XII, the
Eligible Director shall have all the rights of a holder of Common
Stock, including but not limited to the rights to receive dividends and
to vote, regardless of whether shares of Restricted Stock are vested.
(e) Death or Disability. In the event an Eligible Director's death, or
Disability prior to becoming vested, all restrictions shall lapse and
the Eligible Director or his or her legal representative shall have
full and complete discretion with respect to such shares.
IN WITNESS WHEREOF, this Plan is hereby executed this ___ day of ______________,
1996.
NEWPORT NEWS SHIPBUILDING INC.
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<PAGE>
By: ___________________________________
ATTEST:
__________________________________
8
<PAGE>
FIRST AMENDMENT TO{PRIVATE}
1997 STOCK PLAN FOR DIRECTORS OF
NEWPORT NEWS SHIPBUILDING INC.
The 1997 Stock Plan for Directors of Newport News Shipbuilding Inc. is hereby
amended as follows, effective as of December 11, 1996:
1. Section XI(f) is amended to read as follows:
(f) Exercise Upon Death, Disability, Retirement or Termination of
Service.
(1) In the event of the death of the Eligible Director
while a director of the Company, Stock Options shall
become vested and may be exercised, to the extent the
Eligible Director was entitled to do so (had they
been vested) on the date of his death, by the person
or persons to whom the Eligible Director's rights
under this Stock Option pass by will or applicable
law, or if no such person has such right, by his
executors or administrators, at any time, or from
time to time, but not later than the expiration date
specified in subsection (c) of this Section XI or
five years after the Eligible Director's death,
whichever date is earlier.
(2) In the event the Eligible Director ceases to be a
director of the Company because of Disability, Stock
Options shall become vested and may be exercised on
the date he ceases to be a director, at any time, or
from time to time, but not later than the expiration
date specified in subsection (c) of this Section XI
or five years after the Eligible Director ceases to
be a director, whichever date is earlier.
(3) In the event the Eligible Director ceases to be a
director of the Company due to retirement on or after
reaching age 65, Stock Options shall become vested
and may be exercised, to the extent the Eligible
Director was entitled to do so (had they been vested)
on the date he ceases to be a director, at any time,
or from time to time, but not later than the
expiration date specified in subsection (c) of this
Section XI or five years after the Eligible Director
ceases to be a director, whichever date is earlier.
(4) If the Eligible Director ceases to be a director for
any reason other than death, disability, or
retirement on or after age 65, as aforesaid, all
rights to exercise this Stock Option shall terminate
on the date he ceases to be a director unless
extended by the disinterested members of the
Committee, but in no event shall the exercise period
extend beyond the expiration date specified in
subsection (c) of this Section XI or five years after
the Director ceases to be a director. Stock Options
shall be forfeited if the Participant
<PAGE>
ceases to be a director before the date on which such shares become vested
pursuant to this Section or Section XI(d).
2. Section XII(b)(2) is amended to read as follows:
The Restricted Stock granted under Section XII(a)(2) on any Grant Date
shall become vested, unless the disinterested members of the Committee
shall determine otherwise, on the earliest of the Eligible Director's
(i) death; (ii) total disability; or (iii) retirement from the Board,
after reaching the mandatory retirement age provided by Article II of
the By Laws of the Company.
3. Section XII(e) is amended to read as follows:
(e) Death or Disability. In the event an Eligible Director's death
or Disability prior to becoming vested, all restrictions shall
lapse and the Eligible Director or his or her legal
representative shall have full and complete discretion with
respect to such shares.
IN WITNESS WHEREOF, this amendment is hereby executed this _____ day of
_________________, 19___.
NEWPORT NEWS SHIPBUILDING INC.
ATTEST: (SEAL) By: ________________________________
Exhibit 10.15
NEWPORT NEWS SHIPBUILDING INC.
DEFERRED COMPENSATION PLAN
FOR NONEMPLOYEE DIRECTORS
<PAGE>
TABLE OF CONTENTS
Page
Article I Establishment and Purpose 1
Article II Definitions 2
Article III Eligibility 2
Article IV Deferral Election 2
Article V Accounts 3
Article VI Payment of Benefits 4
Article VII Sources of Payments 5
Article VIII Plan Administrator 6
Article IX Amendment and Termination 6
Article X General Provisions 6
<PAGE>
NEWPORT NEWS SHIPBUILDING
DEFERRED COMPENSATION PLAN FOR NONEMPLOYEE DIRECTORS
ARTICLE I
Establishment and Purpose
Establishment. Effective as of January 1, 1997, Newport News Shipbuilding Inc.
("the Company") hereby adopts this deferred compensation plan to be known as the
"Newport News Shipbuilding Deferred Compensation Plan For Nonemployee Directors"
(the "Plan").
Purpose. To provide Directors, who are not employees of the Company, an
opportunity to defer cash fees paid for participation on the Board.
ARTICLE II
Definitions
Definitions. As used herein, the following words and phrases have the meanings
ascribed to them in Article II unless a different meaning is plainly required by
the context. Some of the words and phrases used in the Plan are not defined in
this Article II, but, for convenience, are defined as they are introduced into
the text. Words in the masculine gender shall be deemed to include the feminine
gender and words in the feminine gender shall be deemed to include the masculine
gender. Any headings used herein are included for ease of reference only, and
are not to be construed so as to alter any of the terms of the Plan.
2.01 "Board" means the Board of Directors of the Company.
2.02 "Company" means Newport News Shipbuilding Inc.
2.03 "Code" means the Internal Revenue Code of 1986, as amended from time to
time.
2.04 "Deferred Compensation Account" means the account established for each
Participant to which contributions described in Sections 4.01 and 4.02
and the earnings thereon are credited.
1
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2.05 "Disability" shall mean permanent and total disability, within the
meaning of Code Section 22(e)(3), as determined by the Committee in the
exercise of good faith and reasonable judgment, upon receipt of and in
reliance on sufficient competent medical advice from one or more
individuals, selected by the Committee, who are qualified to give
professional medical advice.
2.06 "Participant" means a nonemployee member of the Company's Board of
Directors who chooses to participate in this Plan.
2.07 "Plan Administrator" means the Compensation and Benefits Committee of
the Board of Directors of Newport News Shipbuilding Inc.
2.08 "Plan Year" means the 12-month period beginning each January 1 and
ending on the following December 31.
2.09 "Valuation Date" shall mean the last day of each March, June, September
and the last day of the Plan Year and any other date designated by the
Committee.
ARTICLE III
Eligibility
3.01 Eligibility to Participate. All members of the Board who are not
employees of the Company shall be eligible to participate in this Plan.
ARTICLE IV
Deferral Election
4.01 Deferrals. Each nonemployee director will have the option of deferring
a portion of his cash fees (retainer and/or meeting fees). Directors
wishing to defer prospective fees must elect to defer said fees, on a
form furnished by the Plan Administrator, during the following periods:
a. Within 30 days of the adoption of this Plan, or
b. Within 30 days after their first election as a member of the
Board, or
c. Prior to the first day of each calendar year.
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The choice to defer will be irrevocable for the applicable calendar
year, and must include an irrevocable decision as to the method of
distribution of that deferral as described in Section 6.01 of this
Plan. A Director may defer 25% (twenty-five percent), 50% (fifty
percent), 75% (seventy-five percent), or 100% (one hundred percent) of
the portion of his fees that are payable in cash.
4.02 Deferral Period. Participants shall elect a deferral period of at
least two years. The maximum deferral period available under this Plan
is a deferral until the Participant is no longer a member of the Board.
ARTICLE V
Accounts
5.01 Investment Gain. Money deferred will be commingled in Company cash
assets. Participants may choose among investment indices offered under
this Plan; and their deferred compensation accounts will be adjusted to
reflect gains, losses, and earnings, as if the deferred amounts had
been so invested.
5.02 Establishment of Accounts. The Plan Administrator, or his delegee,
shall establish a Deferred Compensation Account for each Participant to
which the contributions described in Sections 4.01 and 4.02 and the
earnings thereon, if any, will be credited. The Plan Administrator may
establish subaccounts for Participants, as he deems appropriate.
5.03 Account Earnings. Participant's Deferred Compensation Account will be
adjusted for earnings, gains, and losses as of each Valuation Date on
the basis of his hypothetical investment elections under Section 5.04.
5.04 Hypothetical Investment Elections. A Participant may direct the
hypothetical investment of his Deferred Compensation Account. The most
recently provided investment directions shall remain in effect until
changed by the Participant. The timing and ability to change investment
choices may be impacted by a Participant's "insider" status for
Securities and Exchange purposes and may also depend on the fund
alternatives available. Participants will be informed of any
limitations to changing investments. The investment alternatives used
in determining account earnings are:
(i) The prime rate of interest reported monthly by the Chase
Manhattan Bank,
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(ii) Newport News Shipbuilding Inc. Stock Index (stock equivalent
unit account) based on the performance of the Company's common
stock (including dividend reinvestment), and
(iii) Other alternatives which may be offered from time to time,
which may include some of the funds currently offered in the
Newport News Shipbuilding Inc. 401(k) Investment Plan for
Salaried Employees:
The Participant may select more than one investment alternative in
increments of at least twenty-five percent (25%).
The Company reserves the right to change or amend the hypothetical
investment alternatives offered under this Plan at any time.
5.05 Company Match
In order to encourage stock ownership among Plan Participants, the
Company shall credit to the Participant's Company Match Account an
amount equal to thirty percent (30%) of the Participant's annual cash
fee deferrals for which the Participant elects the Newport News
Shipbuilding Inc. Stock Index as the Hypothetical Investment
Alternative, and provided that the Participant elects a deferral period
of at least three (3) years under Section 4.02 with respect to the
deferral.
5.06 Participant Reports. The Plan Administrator, or his delegee, shall
provide a statement to the Participant periodically concerning the
status of his Deferred Compensation Account.
ARTICLE VI
Payment of Benefits
6.01 Participant Elections. Coincident with each election to defer fees, a
Participant shall elect a method of distribution for such amounts.
Distributions must be in a single lump sum or in approximately equal
annual installments over a period not to exceed ten (10) years. Payment
shall based on the amount credited to the account as of the Valuation
Date immediately preceding or coincident with the date of distribution.
6.02 Death. The Beneficiary of a Participant who dies shall receive the
amount credited to the Participant's Deferred Compensation Account as
of the Valuation Date immediately following or coincident with the
death. Payment shall be made in a single lump sum within 60 days after
such Valuation Date.
4
<PAGE>
6.03 Disability. If a Participant's service on the Board is terminated
because of his Disability, the total amount of his Participant
Contribution Account shall be distributed to him in the form or forms
elected under Section 6.01. Whether or not a participant has suffered a
Disability will be determined by the Plan Administrator or his delegee
on the basis of medical evidence satisfactory to it that the
Participant is totally disabled, mentally or physically, so as to be
prevented from serving on the Board and that such Disability will be
permanent and continuous during the remainder of his life.
Notwithstanding the election made under Sections 5.04 and 6.01,
distribution shall commence within 60 days of the Quarterly Valuation
Date immediately following the date a Participant is determined to be
disabled. Such distribution will be made in a single lump sum.
6.04 Hardship. Notwithstanding the election made under Section 6.01, a
Participant who suffers a "hardship" or "unforeseeable emergency" may
make a withdrawal from his Participant Contribution Account because of
the unforeseeable emergency, in an amount reasonable needed to satisfy
the emergency need. An "unforeseeable emergency" shall mean a severe
financial hardship to the Participant resulting from a sudden and
unexpected illness or accident of the Participant of his dependent (as
defined in Code Section 152 (a)), loss of the Participant's property
due to casualty, or other similar extraordinary and unforeseeable
circumstances arising as the result of events beyond the Participant's
control.
The circumstances that will constitute an unforeseeable emergency will
depend upon individual facts and circumstances, as determined by the
Plan Administrator or his delegee; but, in any case, payment may not be
made to the extent that such hardship is or may be relieved (i) through
reimbursement or compensation, insurance or otherwise; (ii) by
liquidation of the Participant's assets to the extent the liquidation
of such assets would not cause severe financial hardship, or (iii) by
cessation of deferrals under the Plan. The amount of any hardship
distribution will be limited to an amount reasonably necessary to
satisfy the financial need.
6.05 Form of Payment. All benefits under the Plan shall be paid in cash and,
to the extent required by law, shall be subject to withholding of
Federal, state and local taxes.
ARTICLE VII
Sources of Payments
All benefits payable under this Plan shall be paid directly from the general
assets of the Company. The Participant and/or his designated Beneficiaries shall
not have any property interest in any specific assets of the Company other than
the unsecured right to receive payments from the Company, as provided herein.
5
<PAGE>
ARTICLE VIII
Plan Administrator
The Plan shall be administered by the Compensation and Benefits Committee ("the
Committee") of the Board. The Committee shall act by a majority of its members
and such action may be taken either by vote at a meeting or in writing without a
meeting. The Plan Administrator may appoint one or more delegate(s) to discharge
any or all of his responsibilities hereunder. The Plan Administrator and his
delegate(s) shall have all of the discretionary authority, rights and duties
which are necessary or appropriate for proper administration of the Plan. The
decisions of the Plan Administrator, or his delegate(s), including but not
limited to interpretations and determinations of amounts due under this Plan,
shall be final and binding on all parties.
ARTICLE IX
Amendment and Termination
The Committee reserves the right to amend, alter or discontinue this Plan at any
time, including the right to terminate this Plan and distribute any and all
benefits payable hereunder. Such action may be taken by any officer of the
Company who has been duly authorized by the Board to perform acts of such kind.
However, no such amendment shall deprive any Participant or Beneficiary of any
portion of any benefit payable immediately prior to the adoption date of such
amendment or termination.
ARTICLE X
General Provisions
10.01 Facility of Payment. When a person entitled to a distribution under
this Plan is under a legal disability, or, in the opinion of the Plan
Administrator or his designee, is in any way incapacitated so as to be
unable to manage his financial affairs, the Plan Administrator, or his
designee, may direct that the distribution to which such person
otherwise would be entitled shall be made to such person's legal
representative(s), or the Plan Administrator may direct the application
of such distribution for the benefit of such person in such manner as
the Plan Administrator considers advisable. Any payment made in good
faith in accordance with provisions of this Section 10.01 shall be a
complete discharge of any liability for the making of such payment
under the provisions of this Plan.
6
<PAGE>
10.02 Successors. The provisions of this Plan shall be binding upon the
Company and its successors and assigns and upon every Participant and
his heirs, Beneficiaries, estates and legal representatives.
10.03 Required Notification to Plan Administrator. Each Participant entitled
to benefits hereunder shall keep the Plan Administrator, or his
delegee, informed in writing of his current mailing address. Any check
representing payment hereunder and any communication addressed to a
Participant or a former Participant at his last address filed with the
Plan Administrator, or if no such address has been filed, then at his
last address as indicated on the records of the Company, shall be
binding on such person for all purposes of the Plan, and neither the
Plan Administrator nor the Company or other payer shall be obliged to
search for or ascertain the location of any such person. If the Plan
Administrator, or his delegee, for any reason is in doubt as to the
address of any Participant entitled to benefits hereunder or as to
whether benefit payments are being received by the person entitled
thereto, he shall, by registered mail addressed to the person concerned
at his address last known to the Plan Administrator, notify such person
that:
(i) All unmailed and future payments from the Plan shall be
henceforth withheld until he provides the Plan Administrator
or his delegee with evidence of his continued life and his
proper mailing address; and
(ii) His right to any payments from the Plan whatsoever shall, at
the option of the Plan Administrator, be canceled forever, if,
at the expiration of five (5) years from the date of such
mailing, he shall not have provided the Plan Administrator or
his delegee with evidence of his continued life and his proper
mailing address.
10.04 Required Information to Plan Administrator. Each Participant will
furnish to the Plan Administrator or his delegee such information as
the Plan Administrator considers necessary or desirable for purposes of
administering the Plan, and the provisions of the Plan respecting any
payments thereunder are conditional upon the Participant's furnishing
promptly such true, full and complete information as the Plan
Administrator may request. Any notice or information which, according
to the terms of the Plan or the rules of the Plan Administrator, must
be filed with the Plan Administrator, shall be deemed so filed if
addressed and either delivered in person or mailed to and received by
the Plan Administrator, or his delegee, in care of the Company at:
Human Resources Department
Newport News Shipbuilding
4101 Washington Avenue
Newport News, Virginia 23607
7
<PAGE>
10.05 No Alienation. Benefits under this Plan may not be assigned, sold,
transferred, or encumbered, and any attempt to do so shall be void. A
Participant's or Beneficiary's interest in benefits under the Plan
shall not be subject to debts or liabilities of any kind and shall not
be subject to attachment, garnishment, or other legal process.
10.06 Designation of a Beneficiary. Each Participant shall inform the Plan
Administrator or his delegee, in writing, the Beneficiary(ies) who
shall receive any benefits which might be payable after his death. Such
designation may be made at any time satisfactory to the Plan
Administrator or his delegee.
A designation of a Beneficiary may be changed or revoked without the
consent of the Beneficiary at any time or from time to time in such
manner as may be provided by the Plan Administrator, and the Plan
Administrator shall have no duty to notify any person designated as a
Beneficiary of any change in any such designation which might affect
such person's present or future rights hereunder. If the designated
Beneficiary does not survive the Participant, all amounts which would
have been paid to such deceased Beneficiary shall be paid to the
Participant's estate. Any payment under this Plan which may be made to
a Beneficiary after the death of a Participant shall be made only to
the person(s) or trust(s) designated pursuant to this section by the
Participant.
10.07 Controlling State Law. The laws of the Commonwealth of Virginia shall
be controlling in all matters relating to this Plan.
10.08 Severability. In case any provision of this Plan shall be held illegal
or invalid for any reason, such illegality or invalidity shall not
affect the remaining provisions of the Plan, and the Plan shall be
construed and enforced as if such illegal and invalid provisions had
never been set forth.
IN WITNESS WHEREOF, Newport News Shipbuilding Inc. has adopted the foregoing
instrument effective as of January 1, 1997.
NEWPORT NEWS SHIPBUILDING INC.
By: _______________________________
ATTEST:
_____________________________
8
Exhibit 10.16
NEWPORT NEWS SHIPBUILDING INC.
DEFERRED COMPENSATION PLAN
<PAGE>
TABLE OF CONTENTS
Page
Article I Establishment and Purpose 1
Article II Definitions 1
Article III Eligibility 4
Article IV Accounts 5
Article V Contributions 6
Article VI Vesting 8
Article VII Payment of Benefits 8
Article VIII Sources of Benefits 10
Article IX Plan Administrator 10
Article X Nonalienation of Benefits 10
Article XI Amendment and Termination 11
Article XII General Provisions 11
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
DEFERRED COMPENSATION PLAN
ARTICLE I
Establishment and Purpose
1.01 Establishment. Effective as of January 1, 1997, Newport News
Shipbuilding Inc. (hereinafter referred to as the "Company") hereby
adopts this deferred compensation plan to be known as the "Newport News
Shipbuilding Deferred Compensation Plan" (the "Plan").
1.02 Purpose. The Plan is intended to provide for elective deferred
compensation for certain individuals who are key employees of the
Company.
ARTICLE II
Definitions
Definitions. As used herein, the following words and phrases have the meanings
ascribed to them in Article II unless a different meaning is plainly required by
the context. Some of the words and phrases used in the Plan are not defined in
this Article II, but, for convenience, are defined as they are introduced into
the text. Words in the masculine gender shall be deemed to include the feminine
gender and words in the feminine gender shall be deemed to include the masculine
gender. Any headings used herein are included for ease of reference only, and
are not to be construed so as to alter any of the terms of the Plan.
2.01 "Account" means a Participant's Deferred Compensation Account and his
Company Match Account, according to the context in which the terms are
used.
2.02 "Annual Earnings" means a Participant's annual base salary including
any salary which the Participant elects to defer as a contribution
under any program qualified under Sections 401(k) and 125 of the Code
and/or any other program of nonqualified deferred compensation which
may be sponsored by the Company from time to time.
2.03 "Beneficiary" means a person or entity designated by a Participant in
accordance with Section 12.06.
2.04 "Board" means the Board of Directors of Newport News Shipbuilding Inc.
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2.05 "Annual Bonus" means any award that becomes payable to a Participant by
reason of the Company's annual incentive plan.
2.06 "Change in Control" shall mean the first to occur of the following
events (but no event other than the following events), except as
otherwise provided below:
(i) Any person and any of their affiliates or associates becomes
the beneficial owner, directly or indirectly, of securities
representing twenty-five percent (25%) or more of the combined
voting power of the Company's then outstanding securities
having general voting rights, and a majority of the Incumbent
Board does not approve the acquisition (other than in response
to a Threatened Change in Control under circumstances making
it reasonably apparent that a change in control of the Company
has become inevitable) before the acquisition occurs,
notwithstanding the foregoing, a Change in Control shall not
be deemed to occur pursuant to this clause (i) solely because
twenty-five percent (25%) or more of the combined voting power
of the Company's then outstanding securities having general
voting rights is acquired by one or more employee benefit
plans maintained by the Company or one or more companies, the
majority of whose voting common or capital stock is owned
directly or indirectly by the Company.
(ii) Members of the Incumbent Board cease to constitute a majority
of the Board; or
(iii) The consummation of any plan of merger, consolidation or
combination between the Company and any person including
becoming a subsidiary of any other person without members of
the Incumbent Board, as continued immediately prior to the
merger, consolidation or combination constituting a majority
of the board of directors of (a) the surviving or successor
corporation, or, (b) if the surviving or successor corporation
is a majority-owned subsidiary of another corporation or
corporations, the ultimate parent company of the surviving or
successor corporation; or
(iv) The consummation of any sale, exchange or other disposition of
all or substantially all of the Company's assets without
members of the Incumbent Board immediately prior to any sale,
exchange or disposition of all or substantially all of the
Company's assets constituting a majority of the board of
directors of (a) the corporation which holds such assets after
such disposition, or (b) if such corporation is a
majority-owned subsidiary of another corporation or
corporations, the ultimate parent company of the successor
corporation; or
(v) If any person and any of their affiliates and associates,
shall elect or have elected, during any period not exceeding
24 months, at least 25% of the members of the Board, without
the approval of the Incumbent Board and such members are
comprised of persons not serving as members of the Board
immediately prior to the formation of such group or the first
solicitation of proxies by such shareholder;
2
<PAGE>
provided however that the Incumbent Board may determine that any
transaction is not a Change in Control.
For purposes of this Section, "Incumbent Board" shall mean the members
of the Board on the the date immediately following the date on which
the Company stock is issued to the shareholders of Tenneco, Inc., to
the extent they continue to serve as members of the Board; and any
individual who becomes a member of the Board after the date specified
in the preceding clause, provided his or her election to the Board is
approved by a vote of at least three-quarters of the members of the
then serving Incumbent Board.
For purposes of this Section, the terms "person" and "beneficial owner"
shall have the meaning set forth in Sections 3(a) and 13(d) of the
Securities Exchange Act of 1934, as amended and the regulations
promulgated thereunder.
2.07 "Code" means the Internal Revenue Code of 1986, as amended from time to
time.
2.08 "Company Match Account" means the Account established for each
Participant to which the amounts described in Section 5.03 and the
earnings thereon are credited.
2.09 "Deferred Compensation Account" means the account established for each
Participant to which the amounts described in Sections 5.01 and 5.02
and the earnings thereon are credited.
2.10 "Disability" shall mean permanent and total disability, within the
meaning of Code Section 22(e)(3), as determined by the Committee, or
its delegee, in the exercise of good faith and reasonable judgment,
upon receipt of and in reliance on sufficient competent medical advice
from one or more individuals, selected by the Committee, who are
qualified to give professional medical advice.
2.11 "Participant" means any individual who becomes eligible to participate
in the Plan pursuant to Article III.
2.12 "Plan Administrator" means the person or persons designated to oversee
the operation and administration of the Plan pursuant to Article IX.
2.13 "Plan Year" means the 12-month period beginning each January 1 and
ending on the following December 31.
2.14 "Quarterly Valuation Date" means March 31, June 30, September 30, and
December 31 of each calendar year.
2.15 "Rabbi Trust" means a trust described in Code Section 671, which shall
be established in connection with this Plan.
3
<PAGE>
2.16 "Threatened Change in Control" shall mean each of the following events
(but no event other than the following events), except as otherwise
provided below:
(i) Any person and any of their affiliates or associates, without
the prior approval of a majority of the Incumbent Board (a)
becomes the beneficial owner, directly or indirectly, of
securities of the Company representing fifteen percent (15%)
or more of the combined voting power of the Company's then
outstanding securities having general voting rights, or (b)
initiates a tender offer to acquire (as the beneficial owner)
securities of the Company representing fifteen percent (15%)
or more of the combined voting power of the Company's then
outstanding securities having general voting rights.
Notwithstanding the foregoing, a Threatened Change in the
Control shall not be deemed to occur pursuant to this clause
(i) solely because fifteen percent (15%) or more of the
combined voting power of the Company's then outstanding
securities having general voting rights is acquired by one or
more employee benefit plans maintained by the Company; or
(ii) Three or more directors, whose election or nomination for
election is not approved by a majority of the Incumbent Board,
are elected within any single twelve-month period to serve on
the Board; or
(iii) The Incumbent Board has determined that a Threatened Change in
Control exists;
provided however the Incumbent Board may determine that any transaction
is not a Threatened Change in Control.
For purposes of this Section, the terms "beneficial owner," "Incumbent
Board," and "person" shall have the meanings assigned to them in
Section 2.06.
ARTICLE III
Eligibility
3.01 Eligibility to Participate. Each individual who participates in the
Newport News Shipbuilding Inc. Executive Compensation Plan in Executive
Levels E3 and above shall be eligible to participate in this Plan.
3.02 Participation. A Participant shall remain a Participant so long as he
is entitled to receive benefits under the Plan.
3.03 Select Group of Employees. The Plan is intended to qualify as a plan
maintained by the Company primarily to provide deferred compensation
for a select group of management or highly compensated employees. If
the Company determines based on subsequent authority, or if an agency
or court of competent jurisdiction determines that the Plan benefits
4
<PAGE>
any person other than a member of the select group of management or
highly compensated employees, the participation of each employee who is
determined not to be included in such group shall be terminated
immediately and such employee shall cease to accrue any benefit under
the Plan. Provided that in the case of a determination by an agency or
court, the employee's participation shall terminate only after the
period for appeal of such determination has elapsed. As soon as
practicable after such determination, each such Participant shall
receive a single lump sum distribution equal to the amount then
credited to his Accounts and he shall cease to be a Participant in this
Plan.
ARTICLE IV
Accounts
4.01 Establishment of Accounts. The Plan Administrator, or his delegee,
shall establish a Deferred Compensation Account and a Company Match
Account for each Participant to which the amounts described in Sections
5.01, 5.02, and 5.03 and the earnings thereon, if any, will be
credited. The Plan Administrator, or his delegee, may establish
subaccounts for Participants, as he deems appropriate.
4.02 Account Earnings. Earnings will be credited to a Participant's
Accounts as of each Valuation Date on the basis of his hypothetical
investment elections under Section 4.03.
4.03 Hypothetical Investment Elections. Once each calendar quarter, a
Participant may direct the hypothetical investment of his Deferred
Compensation Account and so much of the Match Account attributable to
amounts described in Section 5.03(a). The hypothetical investment
alternatives available, and any administrative restrictions on his
ability to make such elections, shall be established by the Plan
Administrator, or his designee, and communicated to Participants and
eligible individuals. Company Match amounts credited under Section 5.03
shall be credited with earnings in accordance with the Newport News
Shipbuilding Inc. stock index Hypothetical Investment.
4.04 Hypothetical Investment Alternatives. The investment alternatives used
in determining account earnings are:
(i) The prime rate of interest reported monthly by the Chase
Manhattan Bank,
(ii) Newport News Shipbuilding Inc. Stock Index (stock equivalent
unit account) based on the performance of the Company's common
stock (including dividend reinvestment),
(iii) Barclay's Bond Index, and
(iv) Barclay's Equity Index.
5
<PAGE>
The Participant may select more than one investment alternative in
increments of at least twenty-five percent (25%).
The Company reserves the right to change or amend the hypothetical
investment alternatives offered under this Plan at any time.
4.05 Participant Reports. The Plan Administrator shall provide a statement
to the Participant periodically concerning the Participant's account
status.
ARTICLE V
Contributions
5.01 Annual Earnings Deferrals. During the 30-day period following the
adoption of this Plan, each Participant who elects to defer a portion
of his Annual Earnings for 1997 must make a written election to reduce
his or her Earnings by a percentage thereof or by a flat dollar amount,
and to have such amounts contributed to his deferred Compensation
Account. Thereafter, prior to each October 1 (or in the case of a new
employee or an employee who has first become eligible for this Plan
through promotion, within thirty (30) days after his first day of
employment, or first day of eligibility, as applicable), each
Participant who elects to defer a portion of his Annual Earnings must
make a written election to reduce his Annual Earnings, for the
succeeding calendar year (or in the case of a new employee or an
employee who has first become eligible for the Plan through promotion,
the remainder of the calendar year in which the employee is hired or
promoted, as applicable) by a percentage thereof or by a flat dollar
amount and to have such amounts contributed to his Deferred
Compensation Account.
Such election shall be made on a form provided by the Plan
Administrator, or his delegee, and must be returned to the Plan
Administrator or his delegee prior to October 1 or the expiration of
the thirty-day period, as the case may be. Such election form shall
state the percentage or amount by which the Participant desires to
reduce his Annual Earnings. If the amount of the reduction is expressed
as a percentage of compensation, such percentage must be in whole
numbers and increments of five percent (5%), not less than five percent
(5%), and not more than twenty-five percent (25%). If the amount of the
reduction is expressed as a flat dollar amount, such amount must be at
least $1,000 and an even multiple of one thousand dollars ($1000) and
may not exceed twenty-five percent (25%) of the Participant's Annual
Earnings for the calendar year. Such amounts shall be withheld ratably
from the Participant's Annual Earnings throughout the calendar year.
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5.02 Annual Incentive Deferrals. Prior to each October 1 (or in the case of
a new employee hired on or after October 1 and prior to December 31,
within thirty (30) days after his first day of employment), each
Participant must make a written election to reduce any Annual Bonus for
such calendar year by a percentage thereof or by a flat dollar amount
and to have such amounts contributed to his Deferred Compensation
Account.
Such election shall be made on a form provided by the Plan
Administrator, and must be returned to the Plan Administrator prior to
the applicable October 1 or the expiration of the thirty-day period, as
the case may be. Such election form shall state the percentage or
amount by which the Participant desires to reduce his Annual Bonus. If
the amount of the reduction is expressed as a percentage such
percentage must be in whole numbers in increments of ten percent (10%),
not less than ten percent (10%), and not more than one hundred percent
(100%). If the amount of the reduction is expressed as a flat dollar
amount, such amount must be at least $1,000 and an even multiple of one
thousand dollars ($1000) and may not exceed the Participant's Annual
Bonus for the calendar year. Such amounts shall be withheld from the
Participant's Bonus.
5.03 Company Match.
(a) 401(k) Restoration Match
The Company shall credit to a Participant's Company Match
Account an amount equal to 50% of the Participant's Annual
Earnings Deferrals but not greater than (i) the maximum
permitted to be contributed to the Company's 401(k) plan as a
matching contribution determined before applying the
limitations on matching contributions and deferrals imposed by
the Internal Revenue code minus (ii) the amount contributed to
the 401(k) plan as a company match, expressed as a percentage
of the Participant's Compensation.
(b) Annual Deferral Match
In order to encourage stock ownership among Plan Participants
the Company shall credit to a Participant's Company Match
Account an amount equal to thirty percent (30%) of the
Participant's Annual Incentive Deferrals for which the
Participant elects the Newport News Shipbuilding Inc. Stock
Index as the Hypothetical Investment Alternative, and provided
that the Participant elects a deferral period of at least
three (3) years under Section 5.05 with respect to the
deferral.
5.04 Approval Required for Certain Deferrals. An election to defer income
into or to transfer previous deferrals into or out of a "Newport News
Shipbuilding Inc. Stock Index Account," as specified in Section 4.04,
shall not be effective with respect to a Participant who is subject to
the reporting and short swing profits liability provisions of Section
16 of the Securities Exchange Act of 1934, as amended, until such
election and transactions contemplated thereby have been specifically
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approved by the Compensation and Benefits Committee.
5.05 Deferral Period. Coincident with each election to contribute, a
Participant shall elect a deferral period applicable to Annual Earnings
Deferrals, Annual Incentive Deferrals and any related Company Match.
The deferral period shall be at least two years and shall not continue
beyond the last day of the calendar year in which the Participant
attains age sixty-five (65).
5.06 Nature of the Company's Obligation. The Company's obligation under this
Plan shall be limited to an unfunded and unsecured promise to pay. The
Company may establish a Rabbi Trust to hold assets in connection with
this Plan. However, except as provided in the event of a Change in
Control or Threatened Change of Control, the Company shall not be
obligated to make contributions to the Rabbi Trust or otherwise fund
its financial obligations under the Plan.
In the event that a Rabbi Trust has been established, upon a Change in
Control or Threatened Change in Control, the Company shall, immediately
following the Change in Control or Threatened Change in Control, as
defined herein, make an irrevocable contribution to the Rabbi Trust in
an amount that is sufficient to pay each Plan Participant or
Beneficiary the benefits to which Plan Participants or their
Beneficiaries would be entitled pursuant to the terms of the Plan as of
the date on which the Change in Control or Threatened Change in Control
occurred.
ARTICLE VI
Vesting
6.01 Vesting. The amount credited to a Participant's Deferred Compensation
Accounts and so much of the Company Match Account as is attributable to
contributions made pursuant to Section 5.03(a) shall be at all times
and in all events one hundred percent (100%) vested and nonforfeitable.
Unless otherwise authorized by the Plan Administrator or his delegee,
the amounts credited to a Participant's Company Match Account
attributable to contributions made pursuant to Section 5.03(b) shall be
forfeited upon retirement, termination of employment or death prior to
the end of the Deferral Period elected pursuant to Section 5.05 with
respect to such amounts.
ARTICLE VII
Payment of Benefits
7.01 Participant Elections. Distributions under this Plan may be made in a
single lump sum or in approximately equal annual installments over a
period not to exceed ten (10) years. Participants shall elect the form
of benefit payment with respect to a Plan distribution no less than one
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(1) year prior to the date of such distribution. Payment shall be made
from the Participant's Accounts based on the amount credited to such
Accounts as of the Quarterly Valuation Date immediately preceding or
coincident with the dates of distribution.
7.02 Death. The Beneficiary of a Participant who dies shall receive the
amount credited to the Participant's Accounts as of the Quarterly
Valuation Date immediately following or coincident with the death.
Payment shall be made in a single lump sum within 60 days after such
Valuation Date.
7.03 Disability. Notwithstanding the elections made under Sections 5.05 and
7.01, distribution of a Participant's Accounts shall commence within 60
days of the Quarterly Valuation Date immediately following the date a
Participant is determined to be disabled in accordance with Section
2.10. Such distributions will be made in a single lump sum.
7.04 Hardship. Notwithstanding the election made under Section 7.01, a
Participant may request, in writing, to withdraw a lump sum amount from
his Deferred Compensation Account in the event of a hardship. The
determination that a hardship exists shall be made by the Plan
Administrator. For this purpose, hardship shall mean a severe financial
hardship of the Participant resulting from:
(i) A sudden and unexpected illness or accident of the Participant
or of a dependent of the Participant;
(ii) The loss of the Participant's property due to casualty; or
(iii) Other similar extraordinary and unforeseeable circumstances
arising as a result of events beyond the control of the
Participant.
Notwithstanding the above, a hardship distribution shall not be granted
to a Participant to the extent that such hardship is or may be relieved
through reimbursement or compensation by insurance or otherwise, or by
liquidation of the Participant's assets, to the extent such liquidation
of assets would not itself cause severe financial hardship.
The amount of any hardship distribution will be limited to an amount
reasonably necessary to satisfy the financial need.
7.05 Termination of Employment. Notwithstanding the elections made under
Sections 5.05 and 7.01, in the event a Participant terminates
employment with the Company for reasons other than Death, Disability,
or Retirement, distribution of such Participant's Accounts shall
commence within 60 days of the Quarterly Valuation Date immediately
following his termination of employment with the Company. Such
distributions will be made in a single lump sum.
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7.06 Form of Payment. All vested benefits under the Plan shall be paid in
cash and, to the extent required by law, shall be subject to
withholding of Federal, state and local taxes. Payment shall be made as
soon as practicable after the end of the deferral period or, if
earlier, the date specified in Section 7.02, 7.03, 7.04 or 7.05, as
applicable.
ARTICLE VIII
Source of Benefits
8.01 Benefits under this Plan shall be paid solely from the general assets
of the Company. The rights of a Participant and his or her spouse or
Beneficiary with respect to benefits under this Plan are the same of
those of an unsecured creditor of the Company, and neither the
Participant nor his or her spouse or Beneficiary shall have a secured
interest in any assets that may be designated by the Company to pay
such benefits. Notwithstanding the foregoing, the Company may establish
a Rabbi Trust so that in the event of a Change in Control or Threatened
Change in Control, the Company shall fund all benefits payable under
this Plan through a trust described in Code section 671 with respect to
which the Company is the grantor (a "Rabbi Trust"). Prior to a Change
in Control, the Company shall not be obligated to deposit funds into
such Rabbi Trust.
ARTICLE IX
Plan Administrator
9.01 The Plan Administrator shall be the Compensation and Benefits Committee
( the "Committee") of the Board. The Committee shall act by a majority
of its members and such action may be taken either by vote at a meeting
or in writing without a meeting. The Plan Administrator may appoint one
or more delegate(s) to discharge any or all of his responsibilities
hereunder. The Plan Administrator and his delegate(s) shall have all of
the discretionary authority, rights and duties which are necessary or
appropriate for proper administration of the Plan. The decisions of the
Plan Administrator, or his delegate(s), including but not limited to
interpretations and determinations of amounts due under this Plan,
shall be final and binding on all parties.
ARTICLE X
Nonalienation of Benefits
10.01 The interests of Participants and their Beneficiaries under this Plan
are not subject to the claims of their creditors and may not be
voluntarily or involuntarily sold, transferred, alienated, assigned,
pledged, anticipated, or encumbered. Any attempt by a Participant, his
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Beneficiary, or any other person to sell, transfer, alienate, assign,
pledge, anticipate, encumber, charge or otherwise dispose of any right
to benefits payable hereunder shall be void. The Company may cancel and
refuse to pay any portion of a benefit which is sold, transferred,
alienated, assigned, pledged, anticipated or encumbered. Additionally,
the benefits which a Participant may accrue under this Plan are not
subject to the terms of any Qualified Domestic Relations Order (as that
term is defined in Section 414(p) of the Code) with respect to any
Participant, nor shall the Plan Administrator or the Company be
required to comply with the terms of such order in connection with this
Plan.
ARTICLE XI
Amendment and Termination
11.01 The Board reserves the right to amend, alter or discontinue this Plan
at any time, including the right to terminate this Plan and distribute
any and all benefits payable hereunder. Such action may be taken by any
officer of the Company who has been duly authorized by the Board to
perform acts of such kind. However, no such amendment shall deprive any
Participant or Beneficiary of any portion of any benefit which would
have been payable had the Participant's employment with the Company
terminated on the adoption date of such amendment or termination.
ARTICLE XII
General Provisions
12.01 Facility of Payment. When a person entitled to a distribution under
this Plan is under a legal disability, or, in the opinion of the Plan
Administrator, is in any way incapacitated so as to be unable to manage
his financial affairs, the Plan Administrator may direct that the
distribution to which such person otherwise would be entitled shall be
made to such person's legal representative(s) for such person's
benefit, or the Plan Administrator may direct the application of such
distribution for the benefit of such person in such manner as the Plan
Administrator considers advisable. Any payment made in good faith in
accordance with provisions of this Section 12.1 shall be a complete
discharge of any liability for the making of such payment under the
provisions of this Plan.
12.02 Plan Not a Contract of Employment. This Plan does not constitute a
contract of employment, and participation in the Plan will not give any
Participant the right to be retained in the employment of the Company
or its affiliates.
12.03 Successors. The provisions of this Plan shall be binding upon the
Company and its successors and assigns and upon every Participant and
his heirs, Beneficiaries, estates and legal representatives.
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12.04 Required Notification to Plan Administrator. Each Participant entitled
to benefits hereunder shall inform the Plan Administrator or his
delegee in writing of any change in address. Any check representing
payment hereunder and any communication addressed to a Participant or a
former Participant at his last address filed with the Plan
Administrator, or if no such address has been filed, then at his last
address as indicated on the records of the Company, shall be binding on
such person for all purposes of the Plan, and neither the Plan
Administrator nor the Company or other payer shall be obliged to search
for or ascertain the location of any such person. If the Plan
Administrator for any reason is in doubt as to the address of any
Participant entitled to benefits hereunder or as to whether benefit
payments are being received by the person entitled thereto, it shall,
by registered mail addressed to the person concerned at his address
last known to the Plan Administrator, notify such person that:
(i) All unmailed and future payments from the Plan shall be
henceforth withheld until he provides the Plan Administrator
or his delegee with evidence of his continued life and his
proper mailing address; and
(ii) A right to any payments from the Plan whatsoever shall, at the
option of the Plan Administrator, be canceled forever, if, at
the expiration of five (5) years from the date of such
mailing, the Participant shall not have provided the Plan
Administrator with evidence of his continued life and his
proper mailing address.
12.05 Required Information to Plan Administrator. Each Participant will
furnish to the Plan Administrator or his delegee such information as
the Plan Administrator considers necessary or desirable for purposes of
administering the Plan, and the provisions of the Plan respecting any
payments thereunder are conditional upon the Participant's furnishing
promptly such true, full and complete information as the Plan
Administrator may request. Any notice or information which, according
to the terms of the Plan or the rules of the Plan Administrator, must
be filed with the Plan Administrator or his delegee, shall be deemed so
filed if addressed and either delivered in person or mailed to and
received by the Plan Administrator, in care of the Company at:
Human Resources Department
Newport News Shipbuilding
4101 Washington Avenue
Newport News, Virginia 23607
12.06 Designation of a Beneficiary. In the event of the Participant's death,
the beneficiary(ies) to receive any payment under the Plan shall be the
same beneficiary(ies) designated by the Participant to receive proceeds
from the Company-provided life insurance policy held by the Participant
under the Company's benefits program.
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Participants desiring to designate a different beneficiary(ies) under
the Plan must notify the Plan Administrator or his delegee in writing
at the address indicated in Section 12.05. The Plan Administrator shall
have no duty to notify any person designated as a Beneficiary of any
change in any such designation which might affect such person's present
or future rights hereunder. If the designated Beneficiary does not
survive the Participant, all amounts which would have been paid to such
deceased Beneficiary shall be paid to the Participant's estate. Any
payment under this Plan which may be made to a Beneficiary after the
death of a Participant shall be made only to the person(s) or trust(s)
designated pursuant to this section by the Participant.
12.07 Claims Procedure. Any claim for benefits must initially be submitted in
writing to the Plan Administrator. If such claim is denied (in whole or
in part), the claimant shall receive from the Plan Administrator
notice, in writing, written in a manner calculated to be understood by
the claimant, setting forth the specific reasons for denial, with
specific reference to pertinent provisions of this Plan. Such notice
shall be provided within ninety (90) days of the date the claim for
benefits is received. Any disagreements about such interpretations and
construction may be appealed within sixty (60) days to the Plan
Administrator. The Plan Administrator shall respond to such appeal
within sixty (60) days, with a notice in writing fully disclosing his
decision and the reasons therefor. The Plan Administrator shall not be
liable to any person for any action taken hereunder. The Plan
Administrator's decisions and all interpretations and constructions of
the Plan by the Plan Administrator shall be conclusive, and final and
binding upon the Claimant.
12.08 Controlling State Law. To the extent not superseded by the laws of the
United States, the laws of the Commonwealth of Virginia shall be
controlling in all matters relating to this Plan.
12.09 Severability. In case any provision of this Plan shall be held illegal
or invalid for any reason, such illegality or invalidity shall not
affect the remaining provisions of the Plan, and the Plan shall be
construed and enforced as if such illegal and invalid provisions had
never been set forth.
IN WITNESS WHEREOF, Newport News Shipbuilding Inc. has adopted the foregoing
instrument effective as of January 1, 1997.
NEWPORT NEWS SHIPBUILDING INC.
By:_____________________________________
ATTEST:
___________________________________
13
Exhibit 10.17
NEWPORT NEWS SHIPBUILDING INC.
CHANGE IN CONTROL SEVERANCE
BENEFIT PLAN FOR KEY EXECUTIVES
1. Definitions
A. "Change in Control" shall mean that the first to occur of the
following events (but no event other than the following events),
except as otherwise provided below:
(1) any person and any of their affiliates or associates
becomes the beneficial owner, directly or indirectly, of
securities of representing twenty-five percent (25%) or
more of the combined voting power of NNS' then
outstanding securities having general voting rights, and
a majority of the Incumbent Board does not approve the
acquisition (other than in response to a Threatened
Change in Control under circumstances making it
reasonably apparent that a change in control of NNS has
become inevitable) before the acquisition occurs,
notwithstanding the foregoing, a Change in Control shall
not be deemed to occur pursuant to this clause (i)
solely because twenty-five (25%) or more of the combined
voting power of NNS' then outstanding securities having
general voting rights is acquired by one or more
employee benefit plans maintained by one or more NNS
Companies;
(2) members of the Incumbent Board cease to constitute a
majority of the NNS Board; or
(3) The consummation of any plan of merger, consolidation or
combination between NNS and any person including
becoming a subsidiary of any other person without
members of the Incumbent Board, as constituted
immediately prior to the merger, consolidation or
combination constituting a majority of the board of
directors of (a) the surviving or successor corporation,
or, (b) if the surviving or successor corporation is a
majority-owned subsidiary of another corporation or
corporations, the ultimate parent company of the
surviving or successor corporation; or
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(4) the consummation of any sale, exchange or other
disposition of all or substantially all of NNS' assets
without members of the Incumbent Board immediately prior
to any sale, exchange or disposition of all or
substantially all of NNS' assets constituting a majority
of the board of directors of (a) the corporation which
holds such assets after such disposition, or, (b) if
such corporation is a majority-owned subsidiary of
another corporation or corporations, the ultimate parent
company of the successor corporation; or
(5) if any person and any of their affiliates and
associates, shall elect or have elected, during any
period not exceeding 24 months, at least 25% of the
members of the NNS Board, without the approval of the
Incumbent Board and such members are comprised of
persons not serving as members of the NNS Board
immediately prior to the formation of such group or the
first solicitation of proxies by such shareholder;
provided however that the Incumbent Board may determine that any
transaction is not a Change in Control.
B. "Constructive Termination" will be deemed to have occurred if,
following the Change in Control, a Key Executive separates from service
with all NNS Companies after the NNS Companies, by action or inaction,
and without the Key Executive's express written consent:
(1) diminish the Key Executive's status, position, duties or
responsibilities with NNS Companies from those in effect
immediately prior to the Change in Control;
(2) reduce the Key Executive's current annual cash
compensation from NNS Companies below the sum of (a) the
Key Executive's annual base salary or annual base
compensation from NNS Companies in effect immediately
prior to the Change in Control and (b) the Key
Executive's average annual award under the Newport News
Shipbuilding Inc. and Tenneco Inc. Executive Incentive
Compensation Plans for the three calendar year periods
completed immediately prior to the Change in Control;
(3) cause a material reduction in (a) the level of aggregate
NNS Companies-paid medical benefit, life insurance and
disability plan
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coverages; or (b) the aggregate rate of NNS
Companies-paid thrift/savings plan contributions and of
NNS Companies-paid defined benefit retirement plan
benefit accrual, from those coverages and rates in
effect immediately prior to the Change in Control; or
(4) effectively require the Key Executive to relocate
because of transfer of the Key Executive's place of
employment with NNS Companies.
C. "Discharge for Cause" shall be deemed to have occurred only if,
following the Change in Control, a Key Executive is discharged
by NNS Companies from employment or as a non-employee officer
because:
(1) the Key Executive has engaged in dishonesty or other
serious misconduct in his or her capacity as an employee
or non-employee officer of NNS Companies having the
effect of injuring the reputation or business of NNS
Companies, monetarily or otherwise; or
(2) the Key Executive has willfully and continually failed
(unless due to incapacity resulting from physical or
mental illness) to perform either his or her duties as a
non-employee officer or the duties of his or her
employment by NNS Companies after written demand for
substantial performance is delivered to the Key
Executive by NNS Companies specifically identifying the
manner in which the Key Executive has not substantially
performed such duties.
Notwithstanding the foregoing, a Key Executive who, immediately
prior to the Change in Control, is a member of Executive Group
1 shall not be deemed to have been Discharged for Cause unless
a written notice has been delivered to the Key Executive
stating that either the NNS Companies have terminated the Key
Executive's employment or status as a non-employee officer,
which notice shall include a resolution, adopted by a
three-quarter's vote of the Incumbent Board (after the Key
Executive has been provided with reasonable notice and an
opportunity, together with counsel, for a hearing before the
entire Incumbent Board), finding that the Key Executive has
engaged in the conduct set forth in clauses "(1)" or "(2)" of
the preceding sentence.
D. "Executive Group I" shall consist of each individual who,
immediately prior to a Change in Control, is an officer of NNS
of the rank of Senior Vice President or above.
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E. Executive Group II" shall consist of each individual
(1) who is not a member of Executive Group I; and
(2) is an officer of NNS of the rank of Vice President or
above.
F. [RESERVED]
G. "Incumbent Board" means
(1) the members of the NNS Board on the date immediately
following the date on which NNS stock is issued to the
shareholders of Tenneco Inc., to the extent that they
continue to serve as members of the NNS Board; and
(2) any individual who becomes a member of the NNS Board
after the date specified in (1) if his or her election
or nomination for election as a director is approved by
a vote of at least three-quarters of the then Incumbent
Board.
H. "Internal Revenue Code" means the Internal Revenue Code of
1986, as amended.
I. "Key Executive" means an individual who, immediately prior to
the Change in Control, is a member of Executive Group I or
Executive Group II.
J. "Plan" means the Newport News Shipbuilding Inc. Change in
Control Severance Benefit Plan for Key Executives.
K. "NNS" means Newport News Shipbuilding
L. "NNS Board" means the Board of Directors of NNS
M. "NNS Company" means NNS and any stock corporation of which a
majority of the voting common or capital stock is owned
directly or indirectly by NNS.
N. "Threatened Change in Control" shall mean each of the following
events (but no event other than the following events), except
as otherwise provided below:
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(1) any person and any of their affiliates or associates,
without the prior approval of a majority of the
Incumbent Board (a) becomes the beneficial owner,
directly or indirectly, of securities of NNS
representing fifteen percent (15%) or more of the
combined voting power of NNS' then outstanding
securities having general voting rights, or (b)
initiates a tender offer to acquire (as the beneficial
owner) securities of NNS representing fifteen percent
(15%) or more of the combined voting power of NNS' then
outstanding securities having general voting rights,
notwithstanding the foregoing, a Threatened Change in
the Control shall not be deemed to occur pursuant to
this clause (i) solely because fifteen percent (15%) or
more of the combined voting power of NNS' then
outstanding securities having general voting rights is
acquired by one or more employee benefit plans
maintained by a NNS Inc. or
(2) three or more directors, whose election or nomination
for election is not approved by a majority of the
Incumbent Board, are elected within any single
twelve-month period to serve on the NNS Board; or
(3) the Incumbent Board has determined that a Threatened
Change in Control exists;
provided however the Incumbent Board may determine that any transaction
is not a Threatened Change in Control.
O. "Threatened Change in Control Period" shall mean the period
beginning on the date a Threatened Change in Control occurs and
ending on the earliest of
(1) if the Threatened Change in Control was caused by an
event described in clause (i) of the definition of
"Threatened Change on Control", on the date first
subsequent to the date on which the person referred to
therein does not own securities of NNS representing
fifteen percent (15%) or more of the combined voting
power of NNS' then outstanding securities having general
voting rights, or terminates the tender offer instituted
by him as the case may be; or
(2) if the Threatened Change in Control was caused by an
event described in clause (ii) of the definition of
"Threatened Change in Control", on the date first
subsequent to the date on which each member of the NNS
Board shall be either a member of the Incumbent Board or
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an individual whose election or nomination for election
as a director was approved by a majority of the
Incumbent Board.
(3) if the Threatened Change in Control shall be deemed to
have occurred by reason of the determination described
in clause (iii) of the definition of "Threatened Change
in Control", on the date the Incumbent Board has
determined that the circumstances which constituted the
Threatened Change in Control no longer exists; or
(4) the date the Change in Control occurs.
For purposes of the foregoing definitions, the terms "person" and
"beneficial owner" shall have the meaning set forth in Sections 3(a)
and 13(d) of the Securities Exchange Act of 1934, as amended, and the
regulations promulgated thereunder.
2. Plan Purpose. The purpose of the Plan is to induce Key Executives to
enter into, or continue their services or employment with, and to
steadfastly serve NNS Companies if and when a Change in Control is
threatened, despite attendant career uncertainties, by committing NNS
to provide severance benefits in the event their employment with NNS
Companies terminates as a result of a Change in Control.
3. Effective Date. The date immediately following the date on which NNS
stock is distributed to shareholders of Tenneco Inc.
4. Eligibility for Benefits. (i) If within two years after a Change in
Control, a Key Executive is separated from service as an employee with
NNS Companies because (a) the Key Executive is discharged by the NNS
Companies, provided, such discharge is not Discharge for Cause, or (b)
because of Constructive Termination, and (ii) throughout the period
beginning with the Change in Control and ending with such separation
from service with NNS Companies, the Key Executive remains an employee
of NNS Companies, then the Key Executive shall be paid the following
severance benefit:
A. If the Key Executive is a member of the Executive Group I
immediately prior to the Change in Control -- an amount equal
to 3 times the sum of (a) the Key Executive's annual base
salary or other annual base compensation in effect immediately
prior to the Change in Control, plus (b) the average of the Key
Executive's annual awards under the Newport News Shipbuilding
Inc. and Tenneco Inc. Executive Incentive Compensation Plans,
together with any special awards from NNS Companies or Tenneco
Companies, for the last three years of the Key Executive's
employment.
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B. If the Key Executive is a member of Executive Group II
immediately prior to the Change in Control -- an amount equal
to 2 times the sum of (a) the Key Executive's annual base
salary in effect immediately prior to the Change in Control,
plus (b) the average of the Key Executive's annual awards under
the Newport News Shipbuilding Inc. and Tenneco Inc. Executive
Incentive Compensation Plans, together with any special awards
from NNS Companies or Tenneco Companies, for the last three
years of the Key Executive's employment with NNS Companies.
C. [RESERVED]
D. During the first thirty days following the first anniversary of
a Change in Control, a member of the Executive Group I on the
date of the Change in Control, may voluntarily elect to
separate from service and will be provided with the severance
benefit described in A. above.
E. The foregoing constitute minimum severance benefit amounts and,
if a Key Executive receives other cash severance benefits from
NNS Companies, the amount of severance benefit to which the Key
Executive is entitled under the Plan shall be considered to be
satisfied to the extent of such other cash severance payment.
5. Method of Payment. NNS shall pay, or cause to be paid, the severance
benefit under the Plan to the Key Executive in a single cash sum within
30 days following the later of the Key Executive's separation from
service as either an employee with NNS Companies and submission of a
claim as required by Section 13 of the Plan. Except for withholdings
required by law to satisfy local, state, and federal tax withholding
requirements, no offset nor any other reduction shall be taken in paying
such a benefit.
6. Gross-Up Payment. If any portion of the severance payments described
herein, and/or other payments, shall be subject to the tax imposed by
Section 4999 of the Internal Revenue Code on account of any transaction
which is a Change in Control, (the portion of such payments which are
subject to the Excise Tax being referred to herein as the "Payments")
NNS shall pay to the affected Key Executive, not later than the 30th day
following the date the Key Executive becomes subject to the Excise Tax
an additional amount (the "Gross-Up Payment"), such that the net amount
retained by the Key Executive after deduction of the Excise Tax on such
Payments, and all federal, state and local income tax, interest and
penalties and Excise Tax on the Gross-Up Payment, shall be equal to the
amount which would
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have been retained by the Key Executive Individual had the payments not
been subject to the Excise Tax.
7. Assignment. No Key Executive may assign, transfer, convey, mortgage,
hypothecate, or any way encumber any severance benefit payable under the
Plan, nor shall the Key Executive have any right to receive any
severance benefit under the Plan except at the time, in the amount and
in the manner provided in the Plan.
The Plan may and shall be assigned or transferred to, and shall be
binding upon and shall inure to the benefit of, any successor of NNS,
and any such successor shall be deemed substituted for all purposes of
"NNS" under the provisions of the Plan. As used in the preceding
sentence, the term, "successor" shall mean any person, firm,
corporation, or business entity which at any time, whether by merger,
purchase or otherwise, acquires all, or essentially all, of the assets
or business of NNS. Notwithstanding such assignment, NNS shall remain,
with such successor, jointly and severally liable for all obligations
under the Plan, which, except as herein provided, may not be assigned by
NNS.
8. Plan Amendment and Termination. The Plan may be terminated or amended
at any time by the Board of Directors except during a Threatened Change
in Control Period. However, in the event of a Change in Control, no
amendment, or termination, made on or after the date of the Change in
Control shall apply to any Key Executive until the expiration of two
years and thirty-one days from the date of the Change in Control.
9. Funding. NNS shall pay, or cause to be paid, any severance benefit
under the Plan out of general assets of NNS Companies.
10. Controlling Law. The Plan shall be interpreted under the laws of the
State of Virginia, except to the extent that the federal law preempts.
11. Named Fiduciary and Plan Administrator. The Company is the plan
administrator, and it shall have the authority to control and manage
the operation of this Plan with the authority to interpret the Plan.
The Plan Administrator shall make all reports and disclosures required
by law.
12. Plan Sponsor. The Plan sponsor is Newport News Shipbuilding Inc., 4101
Washington Avenue, Newport News, Va. 23607.
13. Agent for Service of Process. Legal process may be served on the Plan
Administrator.
8
<PAGE>
14. Making a Claim.
A. Submission of a Claim. In order to claim a severance benefit
under this Plan, a Key Executive need only advise the Plan
Administrator in writing that the Key Executive's employment
with NNS Companies has terminated, that the Key Executive claims
a severance benefit under the Plan and of the mailing address to
which the severance benefit or related correspondence is to be
sent.
B. Denial of a Claim. If a Key Executive has made a claim for
benefits under this Plan and any portion of the claim is denied,
the Plan Administrator will furnish the Key Executive with a
written notice stating the specific reasons for the denial,
specific reference to pertinent Plan provisions upon which the
denial was based, a description of any additional information or
material necessary to perfect the claim and an explanation of
why such information or material as necessary, and appropriate
information concerning steps to take if the Key Executive wishes
to submit the claim for review.
The claim will be deemed denied if the Plan Administrator does
not approve the claim and fails to notify the Key Executive
within 90 days after receipt of the claim, plus any extension of
time for processing the claim, not to exceed 90 additional days,
as special circumstances require. To obtain an extension, the
Plan Administrator must advise the Key Executive in writing
during the initial 90 days if an extension is necessary, stating
the special circumstances requiring the extension and the date
by which the Key Executive can expect the Plan Administrator's
decision regarding the claim.
C. Review Procedure. Within 60 days after the date of written
notice denying any benefits, the Key Executive or the Key
Executive's authorized representative may write to the Plan
Administrator requesting a review of that decision.
The request for review may contain such issues and comments as
the Key Executive wishes considered in the review. The Key
Executive may also review pertinent documents in the Plan
Administrator's possession. The Plan Administrator will make a
final determination with respect to the claim as soon as
practicable. The Plan Administrator will advise the Key
Executive of the determination in writing and will set forth the
specific reasons for the determination and the specific
references to any pertinent Plan provisions upon which the
determination is based.
9
<PAGE>
The claim will be deemed denied on review if the Plan
Administrator fails to give the Key Executive written
notice of final determination within 60 days after
receipt of the request for review, plus any extension of
time for completing the review, not to exceed 60
additional days, as special circumstances require. To
obtain an extension, the Plan Administrator must advise
the Key Executive in writing during the initial 60 days
if any extension is necessary, stating the special
circumstances requiring the extension and the date by
which the Key Executive can expect the Plan
Administrator's decision regarding the review of the
claim.
IN WITNESS WHEREOF, and as conclusive evidence of the adoption of the
Newport News Shipbuilding Inc. Change in Control Severance Benefit Plan for Key
Executives, Newport News Shipbuilding Inc., a Delaware Corporation, as plan
sponsor, has caused it corporate seal to be affixed hereto and these presents to
be duly executed in its name and behalf by its proper officers thereunto duly
authorized, this _____ day of _______________, 1997.
(CORPORATE SEAL) NEWPORT NEWS SHIPBUILDING INC.
By: ________________________________
Senior Vice President
ATTEST:
- ----------------------------
Secretary
10
<PAGE>
FIRST AMENDMENT TO
NEWPORT NEWS SHIPBUILDING INC.
CHANGE IN CONTROL SEVERANCE
BENEFIT PLAN FOR KEY EXECUTIVES
The Newport News Shipbuilding Inc. Change in Control Severance Benefit Plan for
Key Executives is hereby amended as follows effective ______________, 1997.
1. Section 1.D is amended to read as follows:
D. "Executive Group I" shall consist of each individual who,
immediately prior to a Change in Control, is an officer of NNS
of the rank of Senior Vice President or above, or who occupies
the position of Vice President & General Counsel; Vice
President, Human Resources; or Vice President, Marketing.
2. Section 1.E is amended to read as follows:
E. "Executive Group II" shall consist of each individual who,
immediately prior to a Change in Control,
(1) is not a member of Executive Group I; and
(2) is an officer of NNS of the rank of Vice President
or above, or who is specifically named in Appendix
A to this Amendment.
3. Section 4.A is amended to read as follows:
A. If the Key Executive is a member of Executive Group I
immediately prior to the Change in Control -- an amount equal
to 3 times the sum of (a) the Key Executive's annual base
salary or other annual base compensation in effect immediately
prior to the Change in Control, plus (b) the average of the
Key Executive's targeted bonus awards or actual bonus awards
under the Newport News Shipbuilding Inc. and/or Tenneco Inc.
Executive Incentive Compensation Plans, whichever average is
higher, together with any special awards from NNS Companies or
Tenneco Companies, for the last three years of the Key
Executive's employment with those Companies.
B. If the Key Executive is a member of Executive Group II
immediately prior to the
<PAGE>
Change in Control -- an amount equal to 2 times the sum of (a)
the Key Executive's annual base salary or other annual base
compensation in effect immediately prior to the Change in
Control, plus (b) the average of the Key Executive's targeted
bonus awards or actual bonus awards under the Newport News
Shipbuilding Inc. and/or Tenneco Inc. Executive Incentive
Compensation Plans, whichever average is higher, together with
any special awards from NNS Companies or Tenneco Companies,
for the last three years of the Key Executive's employment
with those Companies.
IN WITNESS WHEREOF, this amendment is hereby adopted this _____ day of
___________, 1997.
Corporate Seal Newport News Shipbuilding Inc.
By:________________________
ATTEST:_____________________
EXHIBIT 21.1
1996 ANNUAL REPORT
FORM 10-K, COMMISSION FILE
NEWPORT NEWS SHIPBUILDING INC.
SUBSIDIARIES
<TABLE>
<CAPTION>
Subsidiaries of Newport News Shipbuilding Inc. Place of Percent of
(Parent and Registrant) Incorporation Voting Power
- ----------------------------------------------- ------------- ------------
<S> <C>
NNS Delaware Management Company Delaware 100%
Newport News Shipbuilding and Dry Dock Company Virginia 100%
</TABLE>
42
EXHIBIT 23.1
1996 ANNUAL REPORT
FORM 10-K, COMMISSION FILE
NEWPORT NEWS SHIPBUILDING INC.
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K, into the Company's
previously filed Registration Statement file numbers 333-20285, 333-17449,
333-22503, 333-22501, 333-22537, 333-17447, and 333-22539.
ARTHUR ANDERSEN LLP
Washington, D.C.,
March 28, 1997
43
Exhibit 24.1
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
The undersigned does hereby make, constitute and appoint William P.
Fricks, David J. Anderson, Thomas J. Bradburn, Stephen B. Clarkson and Peter A.
V. Huegel, jointly and severally, my true and lawful attorneys-in-fact, with
full power of substitution in each, for me and in my name, place and stead to
execute for me and on my behalf in each or any one of my offices and capacities
with Newport News Shipbuilding Inc., (the "Company"), as shown below, the
Company's Annual Report on Form 10-K for the year ended December 31, 1996, with
exhibits thereto and other documents in connection therewith, which the Company
contemplates filing with the Securities and Exchange Commission on or about
March 31, 1997, under the Securities Exchange Act of 1934, as amended, and any
and all amendments to said Form 10-K, hereby ratifying, approving and confirming
all that any such attorney-in-fact may do by virtue of these presents.
IN WITNESS WHEREOF, I have executed these presents this 25th day of
March, 1997.
----------------------------------
Leon A. Edney
Director
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
The undersigned does hereby make, constitute and appoint William P.
Fricks, David J. Anderson, Thomas J. Bradburn, Stephen B. Clarkson and Peter A.
V. Huegel, jointly and severally, my true and lawful attorneys-in-fact, with
full power of substitution in each, for me and in my name, place and stead to
execute for me and on my behalf in each or any one of my offices and capacities
with Newport News Shipbuilding Inc., (the "Company"), as shown below, the
Company's Annual Report on Form 10-K for the year ended December 31, 1996, with
exhibits thereto and other documents in connection therewith, which the Company
contemplates filing with the Securities and Exchange Commission on or about
March 31, 1997, under the Securities Exchange Act of 1934, as amended, and any
and all amendments to said Form 10-K, hereby ratifying, approving and confirming
all that any such attorney-in-fact may do by virtue of these presents.
IN WITNESS WHEREOF, I have executed these presents this 25th day of
March, 1997.
----------------------------------
William R. Harvey
Director
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
The undersigned does hereby make, constitute and appoint William P.
Fricks, David J. Anderson, Thomas J. Bradburn, Stephen B. Clarkson and Peter A.
V. Huegel, jointly and severally, my true and lawful attorneys-in-fact, with
full power of substitution in each, for me and in my name, place and stead to
execute for me and on my behalf in each or any one of my offices and capacities
with Newport News Shipbuilding Inc., (the "Company"), as shown below, the
Company's Annual Report on Form 10-K for the year ended December 31, 1996, with
exhibits thereto and other documents in connection therewith, which the Company
contemplates filing with the Securities and Exchange Commission on or about
March 31, 1997, under the Securities Exchange Act of 1934, as amended, and any
and all amendments to said Form 10-K, hereby ratifying, approving and confirming
all that any such attorney-in-fact may do by virtue of these presents.
IN WITNESS WHEREOF, I have executed these presents this 25th day of
March, 1997.
----------------------------------
Dana G. Mead
Director
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
The undersigned does hereby make, constitute and appoint William P.
Fricks, David J. Anderson, Thomas J. Bradburn, Stephen B. Clarkson and Peter A.
V. Huegel, jointly and severally, my true and lawful attorneys-in-fact, with
full power of substitution in each, for me and in my name, place and stead to
execute for me and on my behalf in each or any one of my offices and capacities
with Newport News Shipbuilding Inc., (the "Company"), as shown below, the
Company's Annual Report on Form 10-K for the year ended December 31, 1996, with
exhibits thereto and other documents in connection therewith, which the Company
contemplates filing with the Securities and Exchange Commission on or about
March 31, 1997, under the Securities Exchange Act of 1934, as amended, and any
and all amendments to said Form 10-K, hereby ratifying, approving and confirming
all that any such attorney-in-fact may do by virtue of these presents.
IN WITNESS WHEREOF, I have executed these presents this 25th day of
March, 1997.
----------------------------------
Joseph J. Sisco
Director
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
The undersigned does hereby make, constitute and appoint William P.
Fricks, David J. Anderson, Thomas J. Bradburn, Stephen B. Clarkson and Peter A.
V. Huegel, jointly and severally, my true and lawful attorneys-in-fact, with
full power of substitution in each, for me and in my name, place and stead to
execute for me and on my behalf in each or any one of my offices and capacities
with Newport News Shipbuilding Inc., (the "Company"), as shown below, the
Company's Annual Report on Form 10-K for the year ended December 31, 1996, with
exhibits thereto and other documents in connection therewith, which the Company
contemplates filing with the Securities and Exchange Commission on or about
March 31, 1997, under the Securities Exchange Act of 1934, as amended, and any
and all amendments to said Form 10-K, hereby ratifying, approving and confirming
all that any such attorney-in-fact may do by virtue of these presents.
IN WITNESS WHEREOF, I have executed these presents this 25th day of
March, 1997.
----------------------------------
Stephen R. Wilson
Director
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
The undersigned does hereby make, constitute and appoint William P.
Fricks, David J. Anderson, Thomas J. Bradburn, Stephen B. Clarkson and Peter A.
V. Huegel, jointly and severally, my true and lawful attorneys-in-fact, with
full power of substitution in each, for me and in my name, place and stead to
execute for me and on my behalf in each or any one of my offices and capacities
with Newport News Shipbuilding Inc., (the "Company"), as shown below, the
Company's Annual Report on Form 10-K for the year ended December 31, 1996, with
exhibits thereto and other documents in connection therewith, which the Company
contemplates filing with the Securities and Exchange Commission on or about
March 31, 1997, under the Securities Exchange Act of 1934, as amended, and any
and all amendments to said Form 10-K, hereby ratifying, approving and confirming
all that any such attorney-in-fact may do by virtue of these presents.
IN WITNESS WHEREOF, I have executed these presents this 25th day of
March, 1997.
----------------------------------------
Thomas J. Bradburn
Vice President Finance and Corporate Controller
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
The undersigned does hereby make, constitute and appoint William P.
Fricks, David J. Anderson, Thomas J. Bradburn, Stephen B. Clarkson and Peter A.
V. Huegel, jointly and severally, my true and lawful attorneys-in-fact, with
full power of substitution in each, for me and in my name, place and stead to
execute for me and on my behalf in each or any one of my offices and capacities
with Newport News Shipbuilding Inc., (the "Company"), as shown below, the
Company's Annual Report on Form 10-K for the year ended December 31, 1996, with
exhibits thereto and other documents in connection therewith, which the Company
contemplates filing with the Securities and Exchange Commission on or about
March 31, 1997, under the Securities Exchange Act of 1934, as amended, and any
and all amendments to said Form 10-K, hereby ratifying, approving and confirming
all that any such attorney-in-fact may do by virtue of these presents.
IN WITNESS WHEREOF, I have executed these presents this 25th day of
March, 1997.
-----------------------------------------
David J. Anderson
Senior Vice President and Chief Financial Officer
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
The undersigned does hereby make, constitute and appoint William P.
Fricks, David J. Anderson, Thomas J. Bradburn, Stephen B. Clarkson and Peter A.
V. Huegel, jointly and severally, my true and lawful attorneys-in-fact, with
full power of substitution in each, for me and in my name, place and stead to
execute for me and on my behalf in each or any one of my offices and capacities
with Newport News Shipbuilding Inc., (the "Company"), as shown below, the
Company's Annual Report on Form 10-K for the year ended December 31, 1996, with
exhibits thereto and other documents in connection therewith, which the Company
contemplates filing with the Securities and Exchange Commission on or about
March 31, 1997, under the Securities Exchange Act of 1934, as amended, and any
and all amendments to said Form 10-K, hereby ratifying, approving and confirming
all that any such attorney-in-fact may do by virtue of these presents.
IN WITNESS WHEREOF, I have executed these presents this 25th day of
March, 1997.
----------------------------------
William P. Fricks
Chairman of the Board, President, Chief
Executive Officer
and Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Newport
News Shipbuilding Inc. Balance Sheet as of December 31, 1996, and the related
Combined Statement of Earnings for the year ended December 31, 1996 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1
<SECURITIES> 0
<RECEIVABLES> 182
<ALLOWANCES> 0
<INVENTORY> 45
<CURRENT-ASSETS> 491
<PP&E> 1,606
<DEPRECIATION> 770
<TOTAL-ASSETS> 1,489
<CURRENT-LIABILITIES> 256
<BONDS> 400
0
0
<COMMON> 1
<OTHER-SE> 231
<TOTAL-LIABILITY-AND-EQUITY> 1,489
<SALES> 1,870
<TOTAL-REVENUES> 1,870
<CGS> 1,729
<TOTAL-COSTS> 1,729
<OTHER-EXPENSES> 1
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38
<INCOME-PRETAX> 102
<INCOME-TAX> 47
<INCOME-CONTINUING> 55
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 55
<EPS-PRIMARY> 1.60
<EPS-DILUTED> 0
</TABLE>
