SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 16, 1998
NEWPORT NEWS SHIPBUILDING INC.
(Exact name of registrant as specified in its charter)
Delaware 1-12385 74-1541566
(State or other jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
4101 Washington Avenue, Newport News, Va. 23607-2770
(Address of principal executive offices) (Zip Code)
(757) 380-2000
(Registrant's telephone number, including area code)
<PAGE>
ITEM 5. Other Events.
The information contained in the Registrant's News
Release of March 16, 1998, set forth as Exhibit 20.1 to this Current Report
on Form 8-K, is hereby incorporated into this Item 5 by reference.
ITEM 7. Financial Statements and Exhibits.
(c) Exhibits
See page 2 of this Report.
20.1 News Release of Newport News Shipbuilding Inc. dated March 16, 1998
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
March 16, 1998 NEWPORT NEWS SHIPBUILDING INC.
/s/ Stephen B. Clarkson SBC
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By: Stephen B. Clarkson
Vice President, General Counsel and
Secretary
NEWPORT NEWS
SHIPBUILDING
[LOGO] NEWS RELEASE
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CONTACTS: Investors: Chuck Wingfield Media: Jerri Fuller Dickseski
(757) 380-7170 (757) 380-2341
Mike Helpinstill
(757) 688-0859
NEWPORT NEWS SHIPBUILDING TO EXIT COMMERCIAL BUSINESS,
1997 RESULTS TO INCLUDE $150 MILLION CHARGE
o NNS schedules June 1999 exit from commercial shipbuilding
market and cancels last three domestic product tankers.
o Unanticipated additional loss of $150 million to be recorded in
1997; cumulative free cash flow impact approximates $30 million in
1998-99.
o Charge includes cost growth of $75 million to build out five
remaining ships and $75 million of contract cancellation and program
close-out costs.
o NNS on track to achieve 1998 earnings targets as core U.S. Navy
business continues to strengthen.
NEWPORT NEWS, Va., March 16, 1998 - Newport News Shipbuilding (NYSE:
NNS) today announced changes in its commercial shipbuilding business that will
result in a reduction in the number of ships to be built and a withdrawal from
this market by the middle of next year. A pre-tax charge of approximately $150
million is being taken against 1997 results to include projected contract
cancellation and program close-out costs and the recognition of higher than
expected production costs on commercial ships currently under construction.
Commenting on the decision to exit the commercial shipbuilding market
and the need for the charge, Chairman and Chief Executive Officer William P.
Fricks said "A special review of the commercial operation's performance was
prompted by several recent events. This review revealed a number of issues
relating to costs of material and labor productivity. Both the existence and the
severity of the issues led us to the difficult but necessary decision to take a
substantial earnings charge, truncate this program, and exit the market."
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"The work is substantially complete on the first three of the remaining
five ships, and they will be delivered in 1998. The last two ships will be
delivered by mid-1999. To help ensure this program is completed on time and
within our revised cost projections, I have engaged an outside consulting firm
to support our commercial program management. Furthermore, I have engaged
independent auditors to assist in ascertaining why we did not have an earlier
warning of these higher than anticipated costs."
"Importantly, Newport News' core Navy programs and operations remain
solid," Fricks continued. "Aircraft carrier and submarine construction, carrier
refuelings, and Navy fleet maintenance and engineering services will continue to
drive our business going forward. Our core business is unaffected by these
difficulties in the commercial shipbuilding business, and should allow us to
deliver consistent performance while meeting 1998 earnings targets."
Explanation of Charge
The company's commercial business has contracts to construct eight
product tankers. Under agreements reached with its commercial customers, Newport
News will complete construction of five of these tankers and the remaining three
contracts will be canceled.
A very recent review of commercial cost performance revealed that
material cost and labor productivity estimates upon which the earnings
announcement of late January was based were not achievable. As a result, the
charge of $150 million includes $75 million for additional projected costs to
build out the remaining five ships:
o Increases in projected material costs of $60 million were driven by
higher painting and coating costs, the costs of schedule delays
resulting from supplier problems, and higher material requirements
associated with changes to the new domestic ship design.
o Projected labor cost growth of $15 million reflects higher labor-hour
estimates for the remaining ships under construction. Actual labor
results for January and February, which became available after the
date of the January 1998 press release, indicate that previously
anticipated productivity improvements will not be achieved.
Consequently, estimates have been modified to be consistent with
demonstrated performance. This caused labor-hour estimates for these
ships to increase by nearly 500,000 hours.
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Cancellation costs for the three canceled contracts are estimated to be
$75 million, comprised mostly of the net write-off of purchased materials. These
estimated costs, which generate $65 million of the charge, reflect moderate
recovery values for purchased material compared to the original price.
Additionally, other costs associated with the close out of commercial
shipbuilding operations, including reserves for severance and asset write-offs,
total $10 million.
Results for 1997
The charge announced today will be reflected in the company's results
for 1997. Prior to this unanticipated charge, Newport News announced earnings
before interest and taxes for 1997 of $131 million, net income of $44 million,
and diluted earnings per share of $1.23. The $150 million charge will result in
an operating loss of approximately $19 million, and a net loss of $1.36 per
share.
The net cash impact in 1998 of the increased cost projections and
one-time exit expenses is estimated to be approximately $40 million in free cash
flow. The cash outlook for 1999 actually improves by approximately $10 million
compared to previous internal estimates due to the absence of commercial
outflows and higher core business contributions.
"Although we will require waivers to certain financial covenants of the
company's bank credit facility as a result of disruptions in our commercial
business, our credit profile remains solid," said David J. Anderson, Senior Vice
President and Chief Financial Officer. "We expect strong free cash flow over the
next few years, driven by the performance of our core business. We have met with
our lead bank, they have approved an interim waiver, and we are working with
them to enlist the remaining bank group."
Fricks concluded by emphasizing the strong outlook for the company.
"While cash flow in 1998 will be affected by the charge, we remain on track to
achieve all other performance objectives for the current year. Continued
strength in our core Navy programs should drive solid margin and cash flow
contributions for the foreseeable future. Significantly, our contract backlog
stands at almost $3 billion, with pending contracts for the Nimitz refueling and
construction of the New Attack Submarine expected to double that figure later
this year."
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CAUTION WITH REGARD TO FORWARD LOOKING STATEMENTS
This news release contains forward-looking statements. These forward-looking
statements are identified by terms such as "expected," "projected," "expect,"
"should," and "anticipated." The Company's actual results may differ materially
from the results discussed in the forward-looking statements due to
unanticipated increased production costs and delayed delivery and production
schedules, inability in whole or in part to realize anticipated productivity
improvements or to implement commercial practices in the Company's core Navy
business, disruptions to materials procurement, subcontracting, manning and cost
reduction plans, or a more difficult than anticipated learning curve.
(financial information attached)
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NEWPORT NEWS SHIPBUILDING INC.
1997 CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
Fourth Quarter Twelve Months
Reported Revised Reported Revised
-------- ------- -------- -------
<S> <C>
Revenues $ 512 $ 431 $1,788 $1,707
Operating Costs and Expenses 470 539 1,660 1,729
Other Income (Expense), net 1 1 3 3
----- ------ ------ ------
Earnings Before Interest and Taxes (EBIT) 43 (107) 131 (19)
Interest Expense, net (15) (15) (55) (55)
----- ------ ------ ------
Earnings Before Income Taxes 28 (122) 76 (74)
Provision for Income Taxes 12 (46) 32 (26)
----- ------ ------ ------
Net Earnings $ 16 $ (76) $ 44 $ (48)
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Earnings Per Share
-Basic $0.44 $(2.21) $ 1.26 $(1.39)
===== ====== ====== ======
-Diluted $0.43 $(2.16) $ 1.23 $(1.36)
===== ====== ====== ======
Weighted Average Shares (In Millions) 34.9 34.9 34.7 34.7
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</TABLE>
