UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
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
State or Other Jurisdiction of IRS Employer
Incorporation or Organization Identification No.
4101 Washington Avenue, Newport News, Virginia 23607
Address of Principal Executive Offices Zip Code
Registrant's Telephone Number, Including Area Code (757) 380-2000
--------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- ------------------- ---------------------
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 $925 million at February 1, 1999.
34,215,012 million shares of the registrant's Common Stock and associated
preferred stock purchase rights were outstanding at February 1, 1999.
AMENDMENT NO. 1
The undersigned registrant hereby amends and restates its 1998 Annual Report on
Form 10-K to include Part III; Items 11, 12, & 13
<PAGE>
PART I
ITEM 1. BUSINESS
The Company is the largest non-government-owned shipyard in the U.S., 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 U.S.
Navy's nuclear-powered aircraft carriers, (ii) the only non-government-owned
shipyard capable of refueling and overhauling the U.S. Navy's nuclear-powered
aircraft carriers, and (iii) one of only two shipyards capable of building the
U.S. Navy's nuclear-powered submarines. Since its inception in 1886, the Company
has developed a preeminent reputation through the construction of 265 naval
ships and 547 commercial vessels.
In January 1999, the Boards of Directors of Newport News Shipbuilding Inc. and
Avondale Industries, Inc. approved and each company executed a definitive
agreement to combine the two companies. The combined company would be named
Newport News Avondale Industries Inc. The transaction is subject to approval by
the shareholders of both companies, U.S. regulatory reviews, and other customary
closing conditions, and is scheduled for completion in the second quarter of
1999. In February 1999, the Department of Justice under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 cleared the proposed merger, satisfying one
important condition to the closing of the transaction. It is anticipated that
the transaction would be accounted for as a pooling-of-interests.
In February 1999, the Company received an offer from General Dynamics
Corporation ("General Dynamics") proposing to pay $38.50 per share in cash for
all of its outstanding shares, subject to various conditions including antitrust
clearance from the appropriate regulatory authorities in the Departments of
Justice and Defense. Under the terms of the proposed merger with Avondale
Industries, the Company is not permitted to enter into a transaction with a
party that has made a proposal to acquire Newport News unless, among other
things, the Newport News Board of Directors has determined that the General
Dynamics offer could result in a proposal superior to the proposed merger with
Avondale.
In order for a proposal to be a superior proposal, the Board of Directors must
determine that the transaction is both reasonably capable of being completed,
taking into account legal, regulatory and other factors, and its financial and
other terms are more favorable to Newport News and its shareholders. Given the
potential regulatory issues concerning the proposed General Dynamics - Newport
News combination, the Board of Directors could not determine that the General
Dynamics proposal could result in a superior proposal to the Avondale
transaction. At such time that the Department of Defense indicates that there is
a reasonable likelihood that antitrust issues would not impede negotiations, the
Board of Directors would then be prepared to evaluate the terms of the General
Dynamics proposal, including the proposed price.
In March 1999, the Company announced the formation of a worldwide business
partnership with Science Applications International Corp. ("SAIC"). The
partnership will involve a new limited liability company ("LLC") comprised of
SAIC's subsidiary, AMSEC, and the Company's life cycle engineering department.
The new organization will be named AMSEC LLC and will create a low cost fleet
services organization capable of providing logistics and life cycle services for
aircraft carriers, submarines, surface combatants, and amphibious and auxiliary
ships from 20 locations, including every major U.S. Navy port. The new
organization will employ approximately 1,500 current employees of AMSEC and the
Company. The Company will own 45% and SAIC 55% of the new organization.
Aircraft carrier and submarine construction contracts with the U.S. Navy have
generated the majority of the Company's revenues. Overall, the Company's U.S.
Navy business accounted for approximately 92%, 94%, and 94% of the Company's
revenues for 1998, 1997, and 1996, respectively. Newport News Shipbuilding has
built 10 of the 12 active aircraft carriers in the U.S. fleet, including all
nine nuclear-powered aircraft carriers. For the last 37 years, Newport News
Shipbuilding 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 service, 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 45%,
55%, and 55% of revenues for the years ended December 31, 1998, 1997, and 1996,
respectively, being generated from construction work. In recent history, the
Company has principally been engaged in designing, constructing, overhauling,
and repairing aircraft carriers and submarines for the U.S. Navy, and the
Company's strategy is to improve this focus on its core business while growing
its U.S. Navy fleet maintenance, repair, and support business.
In June 1998, the Company delivered HARRY S. TRUMAN, marking the completion of
the eighth NIMITZ class nuclear-powered aircraft carrier built by the Company.
Currently, the Company is constructing RONALD REAGAN, the ninth NIMITZ-class
carrier, scheduled for delivery in 2002. Long-lead funding for an additional
NIMITZ-class aircraft carrier, the last in its class, was originally scheduled
to begin in 2000, with full funding for the construction of the carrier slated
for 2002. The Company proposed accelerating funding as a means of reducing the
acquisition cost of the carrier, and Congress responded by providing
approximately $49 million in 1998 and $125 million in 1999 for the program. Full
funding for the carrier is expected to be awarded in 2001.
<PAGE>
As part of its continuing efforts to provide value and attract future carrier
work, the Company established its Carrier Innovation Center ("Center") in 1996.
The Center provides a state-of-the-art venue for design and systems solutions to
reduce both acquisition and life-cycle costs of ships. The Center seeks to
develop the most innovative and cost-effective designs for future aircraft
carriers built at the Company. The Center also seeks to provide an optimum
setting for integrated product and process development teams.
In June 1998, the Commonwealth of Virginia approved $98 million in funding for
the Company to construct and operate the Virginia Advanced Shipbuilding and
Carrier Integration Center ("VASCIC"). VASCIC will serve as the focal point for
the Company to advance the integration of systems, promote the application of
emerging technology into future carriers, and position the Company as the
technology and design leader for the next class of nuclear-powered aircraft
carriers. VASCIC will enhance and promote the quality and competitiveness of
Virginia's shipbuilding industry through testing and integration development
projects, research, and training of workers in the shipbuilding industry.
The Company is currently performing design concept studies for the next
generation of aircraft carriers to follow the NIMITZ-class. The first aircraft
carrier in this new class is expected to be awarded in 2006. In September 1998,
the Defense Acquisition Board announced that future aircraft carriers will be
large-deck and nuclear. Because of its position as the only shipyard capable of
building the U.S. Navy's nuclear-powered aircraft carriers, 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.
The Company is also one of two U.S. manufacturers of U.S. Navy nuclear-powered
submarines. The Company has constructed 53 nuclear-powered submarines, including
39 fast attack submarines and 14 of the larger, fleet ballistic missile
submarines. The Company delivered its final LOS ANGELES-class submarine in
August 1996.
At the urging of the U.S. Navy, the Company and Electric Boat Corporation
("Electric Boat"), a wholly-owned subsidiary of General Dynamics Corporation,
reached an agreement in February 1997 to cooperatively build the first four new
nuclear attack submarines of the VIRGINIA class ("NSSNs") included in the
President's defense budget. 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 and lead designer under the agreement. In September
1997, Congress approved the Company's teaming arrangement for co-production of
the first four NSSNs as part of the 1998 fiscal year defense authorization and
appropriations processes. The teaming arrangement ensures the Company's early
and ongoing participation in this important program. In September 1998, under
the teaming arrangement, the Company aided in the negotiation of a $4.2 billion
contract for co-production of the first four NSSNs. Design, development, and
planning work took place over the course of 1998, with the Company initiating
significant NSSN construction in early 1999. 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.
As part of a strategy introduced in the early 1990's to add to its core U.S.
Navy business, the Company pursued orders for products and services from
commercial customers. From 1994 to 1996, the Company entered into fixed price
contracts to construct a total of nine DOUBLE EAGLE product tankers. In March
1998, the Company announced changes in its commercial shipbuilding business that
will result in only six ships being built and a withdrawal from this market by
the middle of 1999. Of the six total ships, five have been delivered, and the
sixth ship will be delivered by the middle of 1999.
FLEET SERVICES (Previously "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.
<PAGE>
In an effort to enhance the Company's operations in this area, the Company
completed its Consolidated Refueling Facility ("CRF") at a cost of approximately
$20 million in early 1997. The CRF supports the Company's Naval refueling
program by, among other things, consolidating refueling operations from 13
different facilities throughout the Company. The CRF is a 58,000 square-foot
complex consisting of production, warehousing, and training areas.
The Company also began planning and construction of a $26 million Radiological
Support Facility ("RSF") in late 1997. Scheduled for completion in 2000, the RSF
will relocate radiological support activities from 23 sites in the shipyard to a
single facility. The facility will house a liquid waste treatment plant, various
laboratory functions, and capabilities for handling hazardous/radioactive
material.
Aircraft carrier work is generally assigned by the U.S. Navy based on the type
of work, location, and cost. In May 1998, the Company began refueling work on
the NIMITZ, the first refueling of a NIMITZ-class aircraft carrier. Each
NIMITZ-class aircraft carrier will be refueled once in its 50-year life. The
Company estimates that up to ten Nimitz-class aircraft carriers could be
refueled over the next 30 to 40 years, although no assurances can be given as to
the number of NIMITZ-class carriers that will be refueled and that the Company
will receive any award. In July 1998, the Company finished the yearlong overhaul
and repair of the USS THEODORE ROOSEVELT. The Company also completes "Post
Shake-Down Availabilities" on carriers and submarines, consisting of repairs and
maintenance after original delivery of a vessel to the U.S. Navy.
In August 1998, the Company began planning for the inactivation of the submarine
NARWHAL, a one-of-a-kind fast attack nuclear submarine. Work anticipated to be
performed by the Company through April 2000 will include inactivation,
defueling, and preparation of the NARWHAL for disposition by the government.
In December 1997, the Company completed its acquisition of Continental Maritime
Industries, Inc. ("CMI"), a ship repair yard in San Diego, California engaged in
repair programs for the U.S. Navy's West Coast fleet. The acquisition is a key
component of the Company's long-term strategy to broaden its base of services to
the U.S. Navy. In addition to providing an immediate presence in San Diego, the
U.S. Navy's primary homeport on the West Coast, CMI offers the Company an
experienced management team that has a successful track record in the West Coast
ship repair and fleet support markets. In October 1998, the Company began the
first Planned Incremental Availability ("PIA") for the JOHN C. STENNIS at its
homeport in San Diego, California.
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 includes new aircraft carrier research and
development, reactor plant planning, 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 for the Naval Sea Systems Command. U.S. Navy shipyards, however, have
historically received 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 and planning yard for the LOS ANGELES-class submarine and lead
design yard for the SEAWOLF-class submarine.
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 U.S.
shipyards presently engaged in ship design and construction. The reduced level
of shipbuilding activity by the U.S.Navy during the past decade has resulted in
fewer contracts and workforce reductions in the industry, but little
infrastructure consolidation. The general result has been fewer contracts
awarded to the same fixed number of large shipyards.
<PAGE>
The Company believes an existing government-owned U.S. West Coast shipyard could
refuel nuclear-powered carriers if it made substantial investments in its
facilities, personnel, and training. An existing government-owned U.S. East
Coast shipyard is presently involved in nuclear refueling, overhauling, and
de-activation of 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, repair or convert other types of vessels.
In addition to competition from other shipyards, the Company competes for
project approval and funding with firms providing other defense products and
services, such as tanks and aircraft, to other branches of the armed forces, and
with other, non-defense demands on the U.S. budget. The Company also competes in
the engineering, planning, and design market with other companies that provide
engineering support services.
GOVERNMENT CONTRACTING, CLAIMS, AND INVESTIGATIONS
More than 90% of the Company's sales involve contracts entered into with the
U.S. Government. 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 United States 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 cost incurred to the
contract target cost. The U.S. 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 the types of contracts
described above.
Contracting with the U.S. Government may also result in the Company filing
Requests for Equitable Adjustments ("REA") in connection with its contracts.
REAs represent claims against the U.S. Government for changes in the original
contract requirements and resulting delays and disruption in contract
performance. There are currently no material REAs under negotiation with the
Company's customers.
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.
As a general practice within the defense industry, the Defense Contact Audit
Agency (the "DCAA") and other government agencies continually review the cost
accounting and other practices of government contractors, including the Company,
conduct other investigations, and make specific inquiries. In the course of
those reviews and investigations, cost accounting and other issues are
identified, discussed and settled, or resolved through legal proceedings.
As with other government contractors, the U.S. Government has from time to time
recommended that certain of the Company's contract prices be reduced, or costs
allocated to its government contracts be disallowed. Some of these
recommendations involve substantial amounts. In the past, as a result of such
audits and other investigations and inquiries, the Company has on occasion made
adjustments to its contract prices and the costs allocated to its government
contracts.
The Company is currently involved in several such audits and other investigative
proceedings with the U.S. Government. Although the eventual outcome of these
audits and investigations cannot be determined at this time, management
believes, based on current information, that the ultimate resolution of these
matters will not have a material adverse effect on the Company's financial
condition or results of operations (See Note 13 - "Commitments and
Contingencies" to the Financial Statements of the Company).
<PAGE>
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
continue to incur such costs through 2000. Environmental compliance costs for
the year ended December 31, 1998 were not material to the Company's financial
position or results of operations. 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 position 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, Claims, and Investigations" on Pages 4 and
5).
BACKLOG
The Company's funded backlog at December 31, 1998 and 1997 was $3.9 billion and
$2.8 billion, respectively. Backlog levels can change and U.S. Government
contracts can be unilaterally terminated for the convenience of the U.S.
Government at any time with compensation for work completed. More than 95% of
the Company's backlog at December 31, 1998 continued to be U.S. Navy-related.
Additions anticipated in 1999 include expected awards for the NARWHAL
inactivation and the third VIRGINIA-class attack submarine construction
contract. The portion of 1998's backlog expected to remain at December 31, 1999
is $2.5 billion.
MATERIALS AND SUPPLIES
All major materials, parts, and components for the Company's products are
currently available in adequate supply from domestic and/or 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 material
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 single-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, 1998, 1997,
and 1996 were $24 million, $38 million, and $42 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. Additionally, 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. Such research and development costs incurred under specific customer
contracts during the years ended December 31, 1998, 1997, and 1996 were $57
million, $38 million, and $25 million, respectively.
<PAGE>
EMPLOYEES
At the end of 1998, the Company had approximately 18,200 employees, of whom
approximately 52% were covered by collective bargaining agreements with various
unions. The Company has entered into three collective bargaining agreements
covering nearly all of the Company's approximately 9,800 hourly employees. The
agreement with the United Steelworkers of America covers approximately 9,300
employees and expires April 4, 1999. The other agreements cover approximately
150 employees and expire by 2001. The Company and the United Steelworkers of
America are presently engaged in negotiations for a successor collective
bargaining agreement. The Company believes that its relationships with these
unions are good and that successor agreements can be negotiated without a work
stoppage. There can be no assurance, however, that the Company will not
experience labor disruptions associated with the collective bargaining
agreements.
CAUTIONARY STATEMENT FOR 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, anticipated developments and
business strategies. These forward-looking statements are identified by terms
such as "intends," "estimates," "expects," "projects," "anticipates," "goal,"
"plan," "should," "believes" and "scheduled." The Company's actual results may
differ materially from the results discussed in these forward-looking
statements. Factors that might cause such a difference include (i) the factors
discussed in Notes 2, 7, 10, and 13 to the Company's Financial Statements, (ii)
the factors addressed in Management's Discussion and Analysis of Financial
Condition and Results of Operations, and (iii) the following factors: (a)
general U.S. and international political, economic and competitive conditions;
(b) initiatives to reduce the federal budget, including further reductions in
defense spending, or the failure of anticipated increases in defense spending to
materialize in whole or in part; (c) reductions in the number or size of U.S.
Navy contracts awarded to the Company; (d) unanticipated events affecting
delivery and production schedules or design and manufacturing processes, which
could impair 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; and (e) unanticipated events affecting the
Company's efforts and the efforts of its suppliers, subcontractors, and
customers (including the U.S. Navy) to timely correct or adequately respond to
Year 2000 problems inherent in essential computer systems, which could impair
the Company's supply chain, subcontracts, liquidity or operations, or the
ability of its customers to timely pay for products and services provided.
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 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. These facilities are
pledged as collateral under terms of the Company's outstanding long-term debt
agreements (See Note 7 - "Long-Term Debt and Financing Arrangements" 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, expected to remain adequate for the near future.
ITEM 3. LEGAL PROCEEDINGS
The information set forth in Item 1 under the caption "Government Contracting,
Claims and Investigations" appearing on PAGES 4 AND 5, and in Note 13
"Commitments and Contingencies - Government Contracting and - Significant
Estimates" to the Financial Statements of the Company appearing on pages 41
THROUGH 42, 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
None.
ITEM 4.1 EXECUTIVE OFFICERS OF THE REGISTRANT
The information as to executive officers of the Company, set forth in Item 10,
appearing on pages 48 THROUGH 49 of this Annual Report on Form 10-K, is hereby
incorporated in this Item 4.1 by reference.
<PAGE>
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.
The following table reflects the range of high and low selling prices of the
Company's common stock by accounting quarter for 1998 and 1997 based on selling
prices as reported by the New York Stock Exchange.
1998
-----------------
HIGH LOW
----- -----
First Quarter.................................. $ 28 3/4 $ 22 1/2
Second Quarter................................. 28 3/4 25 1/4
Third Quarter.................................. 27 7/8 23 1/4
Fourth Quarter................................. 33 7/16 25 3/8
1997
-----------------
HIGH LOW
---- -----
First Quarter.................................. $ 17 $ 14 1/2
Second Quarter................................. 18 13
Third Quarter.................................. 22 1/8 17 1/4
Fourth Quarter................................. 26 3/8 20 3/8
Dividends of $5.6 million were paid on the common stock during 1998 and 1997. As
of December 31, 1998, the Company had 34,215,012 shares of common stock
outstanding. As of February 1, 1999, there were approximately 38,000 holders of
record of common stock. The Company's long-term debt obligations contain certain
customary restrictive covenants, including a limitation on the payment of
dividends (See Note 7 - "Long-Term Debt and Financing Arrangements" to the
Financial Statements of the Company).
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1998(a) 1997(a) 1996(a) 1995 1994
-------- ------ -------- -------- --------
<S> <C> <C> <C> <C> <C>
MILLIONS, EXCEPT PER SHARE DATA
STATEMENTS OF EARNINGS DATA:
Revenues.................................................. $ 1,862 $ 1,707 $ 1,870 $ 1,756 $ 1,753
======== ======== ======== ======== ========
Net earnings (loss)....................................... $ 66 $ (48) $ 55 $ 73 $ 91
======== ======== ======== ======== ========
Net earnings (loss) per common share (b)
Basic................................................ $ 1.91 $ (1.39) $ 1.60 N/A N/A
======== ======== ======== ======== ========
Diluted.............................................. $ 1.85 $ (1.39) $ 1.60 N/A N/A
======== ======== ======== ======== ========
BALANCE SHEET DATA:
Total assets.............................................. $ 1,600 $ 1,515 $ 1,535 $ 1,427 $ 1,311
======== ======== ======== ======== ========
Long-term obligations (c)................................. $ 591 $ 548 $ 596 $ 292 $ 287
======== ======== ======== ======== ========
Cash dividends declared per common share (d).............. $ .16 $ .16 N/A N/A N/A
======== ======== ======== ======== ========
</TABLE>
<PAGE>
(a) For a discussion of significant items affecting comparability of the
financial information as of and for the years ended December 31, 1998,
1997, and 1996, see Item 7 - "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(b) Basic net earnings (loss) per common share is based on net earnings (loss)
divided by the weighted average number of common shares outstanding for the
years ended December 31, 1998 and 1997, and the period from December 12,
1996 through December 31, 1996. Since the Company was a wholly-owned
subsidiary prior to December 12, 1996, there are no comparable results for
prior periods (See Note 14 - "Transactions With Former Parent Company -
Corporate Debt and Interest Allocation" to the Financial Statements of the
Company).
(c) Amounts prior to 1996 represent debt allocated to the Company from its
former parent (See Note 14 - "Transactions With Former Parent Company
Corporate Debt and Interest Allocation" to the Financial Statements of the
Company). Historical amounts for 1998, 1997, and 1996 represent obligations
of the Company as a separate public entity.
(d) Cash dividends declared per common share were four cents per share for each
quarter in 1998 and 1997. Since the Company was a wholly-owned subsidiary
prior to December 12, 1996, there are no comparable results for prior
periods (See Note 14 - "Transactions With Former Parent Company - Corporate
Debt and Interest Allocation" to the Financial Statements of the Company).
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.
The U.S. Navy accounted for approximately 92% of the Company's revenues in 1998,
94% in 1997, and 94% in 1996. Nearly half of the Company's principal U.S. Navy
business is currently being performed under firm fixed price or fixed price
incentive contracts, which wholly or partially cause the risk of construction
costs that exceed the contract target cost to be borne by the Company. The
accompanying table summarizes the percentage of revenues by contract type.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
- ----------------------------------------------------------------------------------------
CONTRACT TYPE 1998 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Firm Fixed Price/Fixed Price Incentive............ 50% 61% 64%
Cost Based........................................ 50 39 36
------- -------- --------
Total............................................. 100% 100% 100%
======= ======== ========
</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. Anticipated losses on contracts
are reported when first identified by the Company. 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.
1998 COMPARED TO 1997
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------------------
REVENUES 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
MILLIONS
Construction................................................. $ 833 $ 935
Fleet Services............................................... 720 500
Engineering.................................................. 282 248
Related Businesses & Other................................... 27 24
------ ------
Total........................................................ $1,862 $ 1,707
====== =======
</TABLE>
<PAGE>
The Company's revenues increased 9.1% during 1998, improving to $1.86 billion
from $1.71 billion. The higher revenue level, as detailed in the following
discussion of operations, was driven by Fleet Services and Engineering.
CONSTRUCTION - The $102 million decrease in revenues is primarily attributable
to lower carrier construction activity due to the delivery of the aircraft
carrier TRUMAN in June 1998. Revenues are also lower since the second of two
SEALIFT conversion vessels was delivered in May 1997. These decreases are
partially offset by increased construction activity on the aircraft carrier
REAGAN and the VIRGINIA class of nuclear attack submarines.
FLEET SERVICES - The $220 million increase in revenues is due to higher levels
of refueling and overhaul activity on the aircraft carrier NIMITZ, which arrived
at the shipyard in May 1998. Other improvements are generated by increased
commercial and government ship repair activity, incremental planning work on the
submarine NARWHAL inactivation, and contributions from the Company's
wholly-owned subsidiary, Continental Maritime Industries, Inc. ("CMI"), which
was acquired in December 1997. These increases are partially offset as a result
of the delivery of the aircraft carrier ROOSEVELT in July 1998 after successful
completion of the extended dry-docking selected restricted availability
("EDSRA").
ENGINEERING - Revenues improved $34 million in 1998, increasing to $282 million
from $248 million in 1997. The majority of the increase is attributable to
higher levels of activity on aircraft carrier design, the VIRGINIA class of
attack submarine, nuclear engineering, and submarine research and development.
Engineering work on SEAWOLF and LOS ANGELES class submarines decreased during
the year due to the maturity of these programs.
RELATED BUSINESSES & OTHER - Revenues from Related Businesses & Other increased
$3 million in 1998. The higher level of activity is due to miscellaneous
services for such items as valve and pump repair and consulting and technical
services.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------------
OPERATING EARNINGS 1998 1997
- --------------------------------------------------------------------------------------
<S> <C> <C>
MILLIONS
Construction.......................................... $ 92 $ (83)
Fleet Services........................................ 69 50
Engineering........................................... 21 19
Related Businesses & Other............................ (7) (5)
-------- --------
Total................................................. $ 175 $ (19)
======== ========
</TABLE>
Operating earnings of $175 million in 1998 substantially exceeded reported
performance in 1997, when a $207 million charge against operating earnings on
the DOUBLE EAGLE product tanker construction program resulted in a reported
operating loss of $19 million for the total Company. In addition to the
year-over-year gains associated with stability in the commercial tanker program,
increases were also generated through higher levels of Fleet Services and
Engineering activity and changes in the estimated future recoverability of
postretirement and postemployment benefits costs under the Company's backlog of
government contracts. Partially offsetting these increases is the decline in
income from the June 1998 delivery of the aircraft carrier TRUMAN and provisions
for government contract and other matters.
CONSTRUCTION - The $175 million increase in operating earnings is primarily
attributable to the charges recorded in 1997 on the DOUBLE EAGLE product tanker
construction program. This increase is partially offset by lower construction
activity on the aircraft carrier TRUMAN, which was delivered in June 1998.
Contributions from construction activity on the aircraft carrier REAGAN are
comparable for the two years.
<PAGE>
FLEET SERVICES - The $19 million increase in operating earnings is due to higher
levels of refueling and overhaul activity on the aircraft carrier NIMITZ,
increased commercial and government ship repair activity, incremental planning
work on the submarine NARWHAL inactivation, and contributions from CMI. These
increases are partially offset as a result of the delivery of the aircraft
carrier ROOSEVELT in July 1998 after successful completion of EDSRA work.
ENGINEERING - The $2 million increase in operating earnings for Engineering work
reflects the increased volume in aircraft carrier and nuclear engineering
activities, partially offset by favorable contract closeouts in 1997.
RELATED BUSINESSES & OTHER - Other operating losses are not material to either
period.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
- ----------------------------------------------------------------------------------------
CASH FLOWS 1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C>
MILLIONS
Net cash provided by operating activities................ $ 3 $ 105
Capital expenditures..................................... (26) (31)
Other investing cash flows............................... (10) (3)
------ -------
Subtotal................................................. (33) 71
Financing activities..................................... 33 (69)
------ -------
Net increase in cash and cash equivalents................ $ - $ 2
====== =======
</TABLE>
NET CASH PROVIDED BY OPERATING ACTIVITIES - The $102 million decrease in the
1998 comparative cash flows from operating activities is due to an increased
investment in working capital, partially offset by higher operating earnings
discussed above in "1998 Compared to 1997 - Results of Operations, Operating
Earnings." The increase in working capital is caused by normal timing
fluctuations with respect to billings, accounts receivable collections, the
recognition of contract costs, and the payment of trade accounts payable.
Additionally, 1998 reflects higher tax payments due to the recognition of income
previously deferred for tax purposes on the contract for the aircraft carriers
STENNIS and TRUMAN.
CAPITAL EXPENDITURES - The decrease in capital expenditures in 1998 as compared
to 1997 is attributable to higher expenditures in 1997 related to the completion
of major capital improvement programs, such as the development of a
state-of-the-art automated steel cutting and fabrication facility.
OTHER INVESTING CASH FLOWS -The 1998 and 1997 investing activities primarily
relate to investments in five vessel-owning limited liability companies in
partnership with a U.S. shipping firm, which will own and operate five
commercial product tankers, one of which is under construction by the Company.
Three of the ships were delivered by the Company during the fourth quarter of
1998. The Company delivered a fourth ship in February 1999.
FINANCING ACTIVITIES - In 1998, the Company received $79 million of net proceeds
from borrowing activities and $9 million from issuances of stock. These proceeds
were utilized to purchase company stock, pay off long-term debt, and pay
dividends. In 1997, the Company received $21 million from the issuance of stock.
These funds, as well as those generated from operations, enabled the Company to
pay off long-term debt, purchase Company stock on the open market for employee
benefit plans and treasury stock, and pay an annual dividend of sixteen cents
per share.
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 $34 million as of December 31, 1998. Change orders,
which make up an appreciable portion of the Company's work, sometimes require
extended periods of negotiation during which time the expended funds are not
available for other uses. In addition, the Company estimates that expenditures
aggregating approximately $18 million will be required after December 31, 1998
to complete planned projects for which substantial commitments have been made.
On November 4, 1996, the Company entered into a $415 million senior credit
facility ("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 Credit
Agreement contains customary financial and restrictive covenants which limit
borrowing capacity under the credit facility. As of December 31, 1998, the
Company had used $87 million of the credit facility for standby letters of
credit and utilized $71 million of the $125 million for advances (See Note 7 -
"Long-Term Debt and Financing Arrangements" to the Financial Statements of the
Company).
On June 9, 1998, the Company entered into a $75 million 364-Day Revolving Credit
Facility. The proceeds of this facility can be used for general corporate
purposes. As of December 31, 1998, the Company had used $10 million of this
revolving credit facility for advances (See Note 7 - "Long-Term Debt and
Financing Arrangements" to the Financial Statements of the Company).
In June 1998, the Commonwealth of Virginia ("the State")approved $98 million in
funding, comprised of $58 million for the Company to construct and $40 million
for the Company to operate the Virginia Advanced Shipbuilding and Carrier
Integration Center ("VASCIC"). The cost to build VASCIC approximates $58
million, which equals the planned construction funding amount from the State.
The Company has no legal obligation to complete the building should the State
not provide full construction funding as contemplated under passed legislation.
The State has funded $8 million to date on this project, which is expected to be
completed in the third quarter of 2001.
INTEREST AND INCOME TAXES
Interest expense is principally generated from the Company's senior notes and
term loan (See Note 7 - "Long-Term Debt and Financing Arrangements" to the
Financial Statements of the Company). Expense for 1998 is higher than the
previous year due to settlements with the U.S. Government (See Note 13
"Commitments and Contingencies" to the Financial Statements of the Company).
The effective tax rates for 1998 and 1997 are approximately 42% and 35%,
respectively. The difference between the Company's effective tax rate in 1998 as
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
During 1998, the Company adopted Financial Accounting Standards Board statement
("FAS") No. 130, "Reporting Comprehensive Income". FAS No. 130 establishes
standards for reporting and the display of comprehensive income and its
components in a full set of general purpose financial statements. The Company
does not have any comprehensive income required to be reported based on the
adoption of this new standard in 1998.
During 1998, the Company adopted FAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information". FAS No. 131 establishes standards for
reporting information about operating segments in annual financial statements
and requires selected information about operating segments in interim financial
reports issued to stockholders (See Note 15 - "Reportable Segments" to the
Financial Statements of the Company).
In December 1997, the AICPA issued Statement of Position ("SOP") 97-3,
"Accounting by Insurance and Other Enterprises for Insurance-Related
Assessments". The SOP provides, among other things, that an entity recognize a
liability for the present value of estimated future guaranty-fund and other
insurance-related assessments. As the Company has ceded certain workers'
compensation claims to a second-injury fund administered by the U.S. Department
of Labor and is subject to an annual assessment, the Company has elected to
early adopt SOP 97-3 in the fourth quarter of 1998. The adoption of SOP 97-3 did
not have a material impact on the Company's financial position or results of
operations.
<PAGE>
During the fourth quarter of 1998, the Company adopted FAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits". FAS No. 132
standardizes the disclosure requirements for pensions and other postretirement
benefits to the extent practicable, requires additional information on changes
in the benefit obligations and fair values of plan assets that will facilitate
financial analysis, and eliminates certain disclosures required in the past (See
Note 10 - "Employee Benefit Plans" to the Financial Statements of the Company).
RECENTLY ISSUED STANDARDS
In June 1998, the Financial Accounting Standards Board issued FAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". This statement
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. FAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. FAS No. 133 is effective for fiscal years
beginning after June 15, 1999. The Company engages in minimal derivative
activity and therefore the adoption of this new standard is not expected to have
a material impact on the Company's financial position or results of operations.
OTHER MATTERS
YEAR 2000 PLANNING AND PREPARATION
The Company continues to evaluate and prepare for the potential impact of the
"Year 2000" problem on its systems and operations. A Year 2000 plan has been
developed addressing Year 2000 awareness, specific problem identification, risk
and potential impact assessment (including the risk and potential impact of
noncompliance by the Company's suppliers, subcontractors and customers,
including the U.S. Navy), resource allocation, remediation work required,
failure contingencies, and a completion timetable.
The Company's Year 2000 evaluation and remediation plan is dual faceted,
focusing on both information technology ("IT") systems as well as imbedded,
non-IT systems that are integral to specific operating and support functions.
The Company is also installing new hardware and software in connection with its
new "shared data environment," which is expected to help mitigate potential Year
2000 problems.
An oversight committee consisting of members of senior management has been
established. A nationally recognized outside consultant completed a study in
July 1998 of the non-IT component of the Company's Year 2000 exposure. The
results of that study have been reported to the committee and incorporated into
the Company's Year 2000 remediation and contingency plans.
The Company's Year 2000 effort began at the end of 1994 with the identification
and remediation of systems using long lead-time dates. That work was completed
in the middle of 1996. Remediation of the Company's critical IT systems is
expected to be substantially complete in the first quarter of 1999, with the
exception of those being replaced by the initial release of the new "shared data
environment", which will occur in the second quarter of 1999. In addition, two
comprehensive, off-site integration tests of IT applications will be conducted
during the first and third quarters of 1999. It is currently anticipated that
remediation and testing of non-IT systems will be finished by mid-year 1999.
Remediation work and systems testing is being accomplished using a combination
of existing internal Company resources and outsourcing, and is being funded with
cash generated from operations and, if necessary, borrowed under existing credit
facilities. Expenditures, including consulting fees and expenses, have so far
totaled approximately $2 million since inception of the Company's Year 2000
effort in 1994. Approximately $1 million was expended in 1998. It is currently
projected that aggregate expenditures for both IT and non-IT systems remediation
and testing will total approximately $4 to $6 million when finished, based on
the results of the consultant's study of the Company's non-IT systems and on the
Company's continuing risk assessment and remediation planning; however, it
should be noted that the budget continues to develop and may from time to time
be adjusted as more systems functions requiring remediation are identified,
assessed and ranked as to criticality, and appropriate resources are allocated.
<PAGE>
In addition to addressing its own computer systems, the Company has surveyed and
continues to work with its principal teaming partners, subcontractors,
suppliers, and customers (including the U.S. Navy) to promote their Year 2000
compliance, as it may impact on the financial position or results of operations
of the Company. Nevertheless, the Company does not control, and can give no
assurances as to the substance or success of the Year 2000 compliance efforts of
such independent third parties.
In April 1998, surveys were sent to nearly 3,000 key suppliers and
subcontractors. Over 1,000 responses have been received with 100% of those
responding indicating their planned Year 2000 compliance by January 1, 2000.
Follow up letters have been sent to non-responsive subcontractors, as well as to
certain responsive vendors and subcontractors where more substantial assurances
were desired. Alternate strategies are being considered in the case of vendors
and subcontractors that remain unresponsive or that do not provide adequate
assurances of timely readiness.
Management believes that the Company will successfully implement its Year 2000
remediation plan on schedule and that it will be Year 2000 compliant before the
end of 1999. Nevertheless, management believes that there is an uncertain, but
potentially substantial risk that some of its principal customers,
subcontractors, suppliers, and others on whom the Company's finances and
operations depend to a large extent (including the U.S. Navy) will experience
Year 2000 problems that either alone or in the aggregate could materially affect
the financial position or results of operations of the Company. Without
intending to be exhaustive, these risks include the potential inability of key
subcontractors and suppliers to correctly or timely provide necessary services,
materials, and components for the Company's operations; the inability of its
customers to timely or correctly process and pay the Company's invoices; the
inability of lenders, lessors, or other sources of the Company's necessary
capital and liquidity to make funds available to the Company when required; and
the inability of computer systems service providers to maintain the Company's
essential systems due to excessive demand for their services from other clients
experiencing unanticipated or more severe than anticipated Year 2000 problems.
Although the Company is not able to quantify the likelihood that some or all of
these events will come to pass, or their potential effects, consequences could
include delayed production milestones and vessel deliveries, increases in
construction, manufacturing and administrative costs until the problems are
resolved, lost revenues and earnings, lower cash receipts, and delayed or
interrupted cash flow.
In case the Company does experience severe Year 2000 financial or operating
problems, notwithstanding its efforts to avoid or mitigate problems inherent in
its own computer systems or the adverse affects of Year 2000 problems
experienced by third parties on whom it is substantially reliant, the Company is
developing and intends to implement contingency plans. The Company is working in
cooperation with the U.S. Navy and others to ensure continued timely and
accurate payments by the U.S. Navy in the event the U.S. Government experiences
Year 2000 related payment system problems, with the goal of maintaining the
Company's principal source of cash flow uninterrupted and reducing the
likelihood that the Company will have to borrow operating capital. Additionally,
an IT team is being established to quickly respond to Year 2000 call-ins
associated with the Company's affected applications, if any. Implementation of
these contingency plans, as well as identification of other applications
requiring remediation and specific contingency plans will be a principal focus
of the Company throughout the remainder of 1999.
Although no assurances can be given, based on the information presently
available to it, management does not expect the overall costs of the Company's
efforts to correct the Year 2000 problems inherent in its IT and non-IT systems,
or a failure by some of its suppliers, subcontractors and customers to timely
anticipate and correct their Year 2000 computer systems problems, to have a
material adverse affect on the financial position or results of operations of
the Company.
As implementation of the Company's Year 2000 remediation plan progresses, and
more information becomes available to it, the Company expects to periodically
reassess the content of, as well as its strategy for implementing, that plan.
There can be no assurance that the currently estimated costs of implementing its
Year 2000 remediation plan, the schedule for completing its remediation and
contingency preparedness efforts, or the currently estimated impact of the Year
2000 problem on the Company's financial position and results of operations will
not be revised in significant respects at that time based on facts then known to
the Company.
<PAGE>
1997 COMPARED TO 1996
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
- ---------------------------------------------------------------------------------------------------
REVENUES 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
MILLIONS
Construction.................................................. $ 935 $ 1,029
Fleet Services................................................ 500 625
Engineering................................................... 248 194
Related Businesses & Other.................................... 24 22
------- --------
Total......................................................... $ 1,707 $ 1,870
======= ========
</TABLE>
The Company's revenues decreased 8.7% during 1997, declining to $1.71 billion
from $1.87 billion in 1996. The lower revenue level, as detailed in the
following discussion of operations, is driven by Construction and Fleet
Services.
CONSTRUCTION - The $94 million decrease in Construction revenues in 1997 is due
to the absence of submarine construction work, as well as decreases in SEALIFT
conversion and DOUBLE EAGLE product tanker work. These decreases are partially
offset by increased construction activity on the aircraft carrier REAGAN.
FLEET SERVICES - Overhaul and Repair revenues declined substantially in 1997 as
a result of the delivery of the aircraft carrier EISENHOWER in January. The
decrease is partially offset by increased overhaul activity on the aircraft
carrier ROOSEVELT and increased planning work for the aircraft carrier NIMITZ
refueling.
ENGINEERING - Engineering revenues improved in 1997, increasing to $248 million
from $194 million in 1996. Expanded engineering work related to the new attack
submarine (NSSN), as well as increased nuclear and R&D efforts, contributed to
the revenue growth. Requirements for SEAWOLF submarine design work have declined
due to the maturity of the production program for this class of submarines.
RELATED BUSINESSES & OTHER - Revenues from Related Businesses & Other increased
by $2 million in 1997. The higher level of activity in 1997 is due to increased
efforts with respect to valve and pump repairs and other miscellaneous work.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
- ---------------------------------------------------------------------------------------------------
OPERATING EARNINGS 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
MILLIONS
Construction.................................................. $ (83) $ 44
Fleet Services................................................ 50 88
Engineering................................................... 19 13
Related Businesses & Other.................................... (5) (5)
------ -------
Total......................................................... $ (19) $ 140
====== =======
</TABLE>
The operating loss of $19 million in 1997 represents a $159 million decline from
the 1996 level of $140 million in operating earnings. This decline is primarily
attributable to the $207 million of charges against operating earnings on the
DOUBLE EAGLE product tanker construction program. Additionally, the decline is
due to lower Fleet Services income contributions associated with the January
1997 delivery of the aircraft carrier EISENHOWER, and one-time gains in 1996
attributable to the mix of work and maturity of several contracts. Partially
offsetting the decrease is the 1997 improvement in Engineering earnings.
CONSTRUCTION - The $127 million decline in operating earnings on Construction
work in 1997 is a result of the recognition of losses associated with product
tanker construction and lower income contributions from the lack of LOS
ANGELES-class submarine construction work. The decrease is partially offset by
strong carrier contributions, particularly with respect to the REAGAN contract
and the fact that 1996 was significantly impacted by the recognition of losses
associated with SEALIFT conversion work.
FLEET SERVICES - The $38 million decrease in operating earnings for Fleet
Services work in 1997 is a result of the completion of the EISENHOWER overhaul
in January of 1997, and one-time gains in 1996 attributable to the mix of work
and maturity of several contracts. The decrease is partially mitigated by
increased overhaul activity on the ROOSEVELT and planning work for the NIMITZ
refueling.
ENGINEERING - The $6 million increase in operating earnings for Engineering work
reflects the increased volume in nuclear and submarine engineering activities,
as well as favorable contract close-outs.
RELATED BUSINESSES & OTHER - Other operating losses are comparable and not
significant to either period presented.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
- ---------------------------------------------------------------------------------------------------
CASH FLOWS 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
MILLIONS
Net cash provided (used) by operating activities.............. $ 105 $ (75)
Capital expenditures.......................................... (31) (74)
Other investing cash flows.................................... (3) (25)
------ -------
Subtotal...................................................... 71 (174)
Financing activities.......................................... (69) 173
------ -------
Net increase (decrease) in cash and cash equivalents.......... $ 2 $ (1)
====== =======
</TABLE>
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES - The $180 million increase in
the 1997 comparative cash flows from operating activities is due to a decreased
investment in working capital, partially offset by lower operating earnings. The
lower operating earnings are attributable to the factors discussed above in
"1997 Compared to 1996 Results of Operations, Operating Earnings." The decrease
in working capital is caused by normal timing fluctuations and management
initiatives, as well as efforts by the Company to reduce accounts receivable
balances. Additionally, 1997 reflects lower tax payments due to the recognition
of losses previously deferred for tax purposes on commercial tankers.
CAPITAL EXPENDITURES - The decrease in capital expenditures in 1997 compared to
1996 is attributable to higher expenditures related to major capital improvement
programs during the prior year. The Company's 1996 capital improvement program
consisted 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 Carrier
Refueling Complex. All three of these projects were substantially complete at
the end of 1996, thus explaining the current period reduction in capital
investments.
OTHER INVESTING CASH FLOWS - Other investing cash flow activities in 1997 and
1996 primarily relate to an investment for a 49% ownership interest in a
vessel-owning limited partnership with a U.S. shipping firm which will own and
operate five commercial product tankers under construction by the Company. In
addition, 1996 also included a $9.6 million investment achieving the Company's
40% equity interest in the Abu Dhabi Ship Building Company.
FINANCING ACTIVITIES - In 1997, the Company received $21 million from the
issuance of stock related to the Company's benefit plans. These funds, as well
as those generated from operations, enabled the Company to pay off long-term
debt, purchase Company stock on the open market for employee benefit plans and
treasury stock, and pay annual dividends of sixteen cents per share. The Company
also used treasury stock to acquire CMI in December 1997 (See Note 5
"Acquisition" to the Financial Statements of the Company). In 1996, the Company
received from its former parent, on a net basis, $149 million to finance
operating cash flow needs and cover costs of its capital improvement program
(See Note 14 - "Transactions With Former Parent Company" to the Financial
Statements of the Company).
<PAGE>
INTEREST AND INCOME TAXES
Prior to the spinoff, corporate debt of the Company's former parent and its
related interest expense were allocated to the Company based upon the ratio of
the Company's net assets to the parent's consolidated net assets plus debt. As
an independent company, the Company's debt level and attendant interest expense
are higher than the historical allocations. As a result, 1997 interest expense
as a separate entity is higher.
The effective tax rates for 1997 and 1996 are approximately 35% and 46%,
respectively. The difference between the Company's effective tax rate in 1996
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 FAS No. 128, "Earnings per Share," and FAS No. 129,
"Disclosure of Information about Capital Structure," in 1997. The adoption of
these new standards did not have a material impact on the Company's financial
position or results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
INTEREST RATE RISK
The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's short-term investment portfolio and the debt
outstanding under the Credit Agreement (See Note 7 - "Long-Term Debt and
Financing Arrangements" and Note 8 - "Financial Instruments" to the Financial
Statements of the Company).
The maturity, credit quality, and security class of the Company's short-term
investment portfolio are limited by both the Credit Agreement and the Company's
investment policy. The Company limits default risk by investing in only the
safest and highest credit quality securities limited to the following: direct
obligations of the United States of America including any governmental entity or
agency, commercial paper with a rating of A-1/P-1 or better, certificates of
deposit issued by major financial institutions, repurchase agreements
collateralized 102% by the aforementioned securities, and money market funds
rated AAAm by Standard & Poors. As stated in its policy, the Company is averse
to principal loss and ensures the safety and preservation of its invested funds
by limiting default risk and market risk. Additionally, the Company's investment
policy guidelines limit the credit exposure to any one issue, issuer, and type
of instrument. The Company's Credit Agreement limits the maturity of investments
held in the Company's portfolio to one year or less.
The Company's policy is to manage interest rate risk associated with its
outstanding debt obligations through the use of a combination of fixed and
floating rate debt. With the exception of the Company's Revolving Credit
Facilities (See Note 7 - "Long-Term Debt and Financing Arrangements" to the
Financial Statements of the Company), all other outstanding debt obligations are
fixed. As of December 31, 1998, approximately 64% of the Company's outstanding
debt was fixed-rate debt. Interest rate swaps may be used to adjust interest
exposure when appropriate, based upon market conditions. Additionally, the
Company may use interest rate CAPs to limit the interest rate risk on its
floating-rate debt. All of the Company's outstanding debt obligations are
denominated in U.S. Dollars. As of December 31, 1998, the Company had no
interest-rate derivative contracts outstanding.
FOREIGN CURRENCY RISK
Although the majority of the Company's transactions are in U.S. Dollars, the
Company periodically enters into foreign currency forward exchange contracts to
hedge certain specific transactions associated with the purchase of raw
materials and machinery denominated in a foreign currency. The purpose of
entering into these hedge transactions is to minimize the impact of foreign
currency fluctuations on the results of operations. Such contracts generally
mature in one year or less and the cost of replacing these contracts in the
event of nonperformance by counter parties is not significant. Unrealized gains
and losses on these contracts are deferred and recognized in the results of
operations in the period in which the hedged transaction is consummated. The
Company does not enter into foreign currency contracts for trading purposes. At
December 31, 1998, the Company had no foreign currency contracts outstanding.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Page
----
<S> <C>
FINANCIAL STATEMENTS
Report of Independent Public Accountants................................................................ 20
Statements of Earnings for each of the three years in the
period ended December 31, 1998..................................................................... 21
Consolidated Balance Sheets as of December 31, 1998 and 1997............................................ 22
Statements of Cash Flows for each of the three years in the
period ended December 31, 1998..................................................................... 23
Statements of Changes in Stockholders' Equity for each of the three years in
the period ended December 31, 1998................................................................. 24
Notes to Financial
Statements.............................................................................................. 25
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Newport News Shipbuilding Inc.:
We have audited the accompanying consolidated balance sheets of Newport News
Shipbuilding Inc. (a Delaware corporation) as of December 31, 1998 and 1997, 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, 1998. 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, 1998 and 1997, and the results of its operations and cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Washington, D.C.,
January 26, 1999
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1998 1997 1996
------------- ------------- -----------
(CONSOLIDATED) (CONSOLIDATED) (COMBINED)
<S> <C> <C> <C>
MILLIONS (EXCEPT SHARES AND PER SHARE AMOUNTS)
REVENUES......................................................... $ 1,862 $ 1,707 $ 1,870
OPERATING COSTS AND EXPENSES..................................... (1,687) (1,729) (1,729)
OTHER INCOME (EXPENSE), NET...................................... - 3 (1)
----------- ------------ ---------
OPERATING EARNINGS (LOSS)........................................ 175 (19) 140
Interest Expense, net of interest capitalized.................... (61) (55) (38)
----------- ------------ ---------
EARNINGS (LOSS) BEFORE INCOME TAXES.............................. 114 (74) 102
(Provision) Benefit for Income Taxes............................ (48) 26 (47)
----------- ------------ ---------
NET EARNINGS (LOSS).............................................. $ 66 $ (48) $ 55
=========== ============ ==========
Weighted Average Number of Common Shares Outstanding
Basic........................................................ 34,677,706 34,741,818 34,297,451
========== =========== ==========
Diluted...................................................... 35,794,090 34,741,818 34,297,451
=========== =========== ==========
Net Earnings (Loss) Per Common Share
Basic........................................................ $ 1.91 $ (1.39) $ 1.60
=========== =========== ==========
Diluted...................................................... $ 1.85 $ (1.39) $ 1.60
=========== =========== ==========
Dividends Declared Per Common Share.............................. $ .16 $ .16 $ -
=========== =========== ==========
The accompanying notes are an integral part of these
statements of earnings.
</TABLE>
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
MILLIONS (EXCEPT SHARES AND PER SHARE AMOUNTS) 1998 1997
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents.................................................... $ 3 $ 3
Accounts Receivable.......................................................... 143 136
Contracts in Process......................................................... 334 259
Inventory.................................................................... 52 44
Deferred Income Taxes........................................................ 116 89
Other Current Assets......................................................... 12 12
------- --------
Total Current Assets......................................................... 660 543
------- --------
NONCURRENT ASSETS
Property, Plant, and Equipment, net.......................................... 763 816
Other Assets................................................................. 177 156
------- --------
Total Noncurrent Assets...................................................... 940 972
------- --------
$ 1,600 $ 1,515
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade Accounts Payable....................................................... $ 129 $ 151
Short-Term Debt.............................................................. 38 30
Postretirement Benefits...................................................... 122 122
Other Accrued Liabilities.................................................... 229 202
------- -------
Total Current Liabilities.................................................... 518 505
------- -------
NONCURRENT LIABILITIES
Long-Term Debt............................................................... 591 548
Deferred Income Taxes........................................................ 235 238
Other Long-Term Liabilities.................................................. 24 41
Commitments and Contingencies (See Note 13)
------- -------
Total Noncurrent Liabilities................................................. 850 827
------- -------
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value -
authorized 70,000,000 shares; issued 35,286,386 shares at
December 31, 1998, and 34,948,663 shares at December 31, 1997........... 1 1
Paid-In Capital.............................................................. 276 256
Accumulated Deficit.......................................................... (7) (68)
Unearned/Deferred Compensation .............................................. (4) (4)
Stock Employee Compensation Trust (SECT)..................................... (34) -
Treasury Stock (84,069 shares at December 31, 1997).......................... - (2)
------- -------
Total Stockholders' Equity................................................... 232 183
------- -------
$ 1,600 $ 1,515
======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1998 1997 1996
------------- ------------- -----------
(CONSOLIDATED) (CONSOLIDATED) (COMBINED)
<S> <C> <C> <C>
MILLIONS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings (Loss).............................................. $ 66 $ (48) $ 55
Adjustments to Reconcile Net Earnings (Loss) to
Net Cash Provided (Used) by Operating Activities -
Depreciation and Amortization........................... 62 68 65
Deferred Income Taxes................................... (30) (38) (10)
Allocated Corporate Interest, net of tax................ - - 20
Loss on Asset Dispositions.............................. 17 - -
Loss On Equity Investments.............................. 1 1 2
Changes in Components of Working Capital -
Decrease (Increase) in -
Accounts Receivable............................ (7) 53 (116)
Contracts in Process........................... (75) 133 (7)
Inventory...................................... (8) 1 10
Note Receivable................................ - - 18
Other Current Assets........................... - (6) 11
Increase (Decrease) in -
Trade Accounts Payable......................... (22) 23 21
Accounts Payable to Former Parent.............. - - (67)
Other Accrued Liabilities...................... 27 (14) (35)
Other, net.............................................. (28) (68) (42)
-------- ----------- ---------
Net Cash Provided (Used) by Operating Activities................ 3 105 (75)
-------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures............................................. (26) (31) (74)
Other............................................................ (10) (3) (25)
-------- ----------- ---------
Net Cash Used by Investing Activities............................ (36) (34) (99)
-------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash Transfer from Former Parent................................. - - 149
Increase (Decrease) in Revolving Credit Facilities............... 79 (24) 24
Proceeds from Long-Term Debt..................................... - - 600
Payments on Long-Term Debt....................................... (29) (28) -
Issuance of Common, Treasury and SECT Shares..................... 9 21 -
Purchase of Common Stock......................................... (29) (32) -
Dividends Paid on Common Stock................................... (5) (6) -
Dividend Paid to Former Parent................................... - - (600)
Other............................................................ 8 - -
-------- ----------- ---------
Net Cash Provided (Used) by Financing Activities................. 33 (69) 173
-------- ----------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. - 2 (1)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD................. 3 1 2
-------- ----------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD....................... $ 3 $ 3 $ 1
======== =========== =========
CASH PAID DURING THE PERIOD FOR INCOME TAXES..................... $ 78 $ 8 $ 129
======== =========== =========
CASH PAID DURING THE PERIOD FOR INTEREST......................... $ 55 $ 54 $ 3
======== =========== =========
</TABLE>
The accompanying notes are an integral part of these
statements of cash flows.
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unearned/
Combined Common Stock Paid-In Accumulated Deferred
Equity Shares Par Capital Deficit Compensation
-------- ------ --- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
MILLIONS, EXCEPT FOR SHARES
Balance - January 1, 1996 $ 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) --
Net Loss -- -- -- -- (48) --
Cash Dividends Paid - Common Stock -- -- -- -- (6) --
Performance Share Grants -- -- -- 5 -- --
Purchase of Common Stock -- -- -- -- -- --
Issuance of Common, Treasury, and SECT Shares -- 651,212 -- 2 -- --
Unearned ESOP/Deferred Compensation -- -- -- 4 -- (4)
------------ ------------ ------------ ------------ ------------ ------------
Balance - December 31, 1997 -- 34,948,663 1 256 (68) (4)
Net Income -- -- -- -- 66 --
Cash Dividends Paid - Common Stock -- -- -- -- (5) --
Performance Share Grants -- -- -- 8 -- --
Purchase of Common Stock -- -- -- -- -- --
Issuance of Common, Treasury, and SECT Shares -- 337,723 -- 7 -- --
Adjustment of SECT to Market Value -- -- -- 5 -- --
------------ ------------ ------------ ------------ ------------ ------------
Balance - December 31, 1998 $ -- 35,286,386 $ 1 $ 276 $ (7) $ (4)
============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Treasury Stock
SECT Shares Amount
---- ------ ------
<S> <C> <C> <C>
MILLIONS, EXCEPT FOR SHARES
Balance - January 1, 1996 $ -- -- $ --
Net Earnings -- -- --
Net Cash Transfers from Former Parent -- -- --
Non-Cash Transactions with Former Parent
Net Change in Allocated Corporate Debt -- -- --
Allocated Corporate Interest, net of tax -- -- --
Other -- -- --
Dividend to Former Parent -- -- --
Issuance of Common Stock in Connection
With the Spinoff -- -- --
------------ ------------ ------------
Balance - December 11, 1996 -- --
Net Loss -- -- --
------------ ------------ ------------
Balance - December 31, 1996 -- -- --
Net Loss -- -- --
Cash Dividends Paid - Common Stock -- -- --
Performance Share Grants -- -- --
Purchase of Common Stock -- 1,448,743 (32)
Issuance of Common, Treasury, and SECT Shares -- (1,364,674) 30
Unearned ESOP/Deferred Compensation -- -- --
------------ ------------ ------------
Balance - December 31, 1997 -- 84,069 (2)
Net Income -- -- --
Cash Dividends Paid - Common Stock -- -- --
Performance Share Grants -- -- --
Purchase of Common Stock (25) 178,443 (4)
Issuance of Common, Treasury, and SECT Shares (4) (262,512) 6
Adjustment of SECT to Market Value (5) -- --
------------ ------------ ------------
Balance - December 31, 1998 $ (34) -- $ --
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
statements of changes in stockholders' equity.
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
BASIS OF PRESENTATION
Newport News Shipbuilding Inc. became an independent, publicly traded company on
December 12, 1996. Previously, 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. These financial statements represent the
combined operations of the Shipbuilding Business prior to December 12, 1996 and
the consolidated operations of Newport News Shipbuilding Inc. and its
subsidiaries thereafter.
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 $1.7 billion (92%), $1.6
billion (94%), and $1.8 billion (94%) in 1998, 1997, and 1996, respectively.
2. SUMMARY OF ACCOUNTING POLICIES
RISKS AND UNCERTAINTIES
Companies, such as Newport News Shipbuilding Inc., which are principally engaged
in supplying defense-related products and services to the U.S. Government are
subject to certain business risks specific to that industry. Sales to the U.S.
Government may be affected by changes in procurement policies, budget
considerations, changing concepts of national defense, political developments
abroad, and other factors. The Department of Defense ("DoD") budgets
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
have been subject to increasing pressure resulting in uncertainty as to the
future effects of DoD budget cuts. The Company has nonetheless maintained a
steady backlog of contracts with its primary customer, the U.S. Navy. These
factors lead management to believe that there is a high probability that the
Company's current major defense program initiatives will continue.
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 and 13 for additional information on certain estimates
included in the Company's financial statements. Actual results may differ from
estimates.
CLASSIFICATION
The Company's construction contracts range in duration up to a period of eight
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 3).
RECLASSIFICATIONS
Certain amounts for 1997 have been reclassified to conform with the 1998
classifications.
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. Anticipated losses on
contracts are reported when first identified by the Company. Costs on long-term
contracts in process represent recoverable costs incurred for production,
allocable overhead, and, where appropriate, general and administrative expenses.
The performance of contracts usually extends over several years, requiring
periodic reviews and revisions of estimated final contract revenues, costs, and
profits during the terms 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 $294 million, $263 million, and $279
million in 1998, 1997, and 1996, respectively, are included in the "Operating
Costs and Expenses" caption in the Statements of Earnings. Of the total general
and administrative expenses for 1996, $14 million represents the Company's share
of its former parent's general and administrative costs for legal, financial,
communication, and other administrative services. The Company's management
believes that the allocated 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. General and administrative expenses related to commercial
products and services essentially under commercial terms and conditions are
expensed as incurred. Such charges amounted to $22 million, $31 million, and $16
million for 1998, 1997, and 1996, respectively.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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,
1998, 1997, and 1996 were $24 million, $38 million, and $42 million,
respectively.
INCOME TAXES
The Company utilizes the asset and 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, 1998 and 1997.
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.
ACCOUNTS RECEIVABLE AND CONTRACTS IN PROCESS
Only amounts billed and currently due from customers are included in the
"Accounts Receivable" caption in the accompanying consolidated 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 3). No
significant allowance for doubtful accounts existed as of December 31, 1998 and
1997.
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 $6 million and $7 million higher at December 31, 1998 and
1997, 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 $62 million, $68 million, and $65 million for
1998, 1997, and 1996, 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,
1997 and 1996 was $1 million and $3 million, respectively. Interest capitalized
during 1998 was not material.
STOCK-BASED COMPENSATION
The Company utilizes several stock-based compensation plans as an incentive to
its employees (See Note 11). Pursuant to these plans, the Company may grant
stock options, restricted stock, performance shares, stock appreciation rights,
stock equivalent units, and dividend equivalent awards. Stock options are
generally awarded with exercise prices equal to the fair value of the Company
stock on the date of grant. As such, the Company does not record compensation
expense with respect to the award of such stock options. All other awards
generally result in the Company recognizing a pro rata portion of compensation
expense based on the vesting period of the award. The compensation expense
recognized generally varies based on the amount by which the current fair value
of the award exceeds the exercise price, if any, of such award.
<PAGE>
STOCKHOLDERS' EQUITY
At December 31, 1998, the Company had authorized (a) 70 million shares of Common
Stock, $.01 par value, of which 35.3 million were issued and 34.2 million were
outstanding, along with associated preferred stock purchase rights, (b) 10
million 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.
CHANGES IN ACCOUNTING PRINCIPLES
During 1998, the Company adopted Financial Accounting Standards Board statement
("FAS") No. 130, "Reporting Comprehensive Income". FAS No. 130 establishes
standards for reporting and the display of comprehensive income and its
components in a full set of general purpose financial statements. The Company
does not have any comprehensive income required to be reported based on the
adoption of this new standard in 1998.
During 1998, the Company adopted FAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information". FAS No. 131 establishes standards for
reporting information about operating segments in annual financial statements
and requires selected information about operating segments in interim financial
reports issued to stockholders (See Note 15).
In December 1997, the AICPA issued Statement of Position ("SOP") 97-3,
"Accounting by Insurance and Other Enterprises for Insurance-Related
Assessments". The SOP provides, among other things, that an entity recognize a
liability for the present value of estimated future guaranty-fund and other
insurance-related assessments. As the Company has ceded certain workers'
compensation claims to a second-injury fund administered by the U.S. Department
of Labor and is subject to an annual assessment, the Company has elected to
early adopt SOP 97-3 in the fourth quarter of 1998. The adoption of SOP 97-3 did
not have a material impact on the Company's financial position or results of
operations.
During the fourth quarter of 1998, the Company adopted FAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits". FAS No. 132
standardizes the disclosure requirements for pensions and other postretirement
benefits to the extent practicable, requires additional information on changes
in the benefit obligations and fair values of plan assets that will facilitate
financial analysis, and eliminates certain disclosures required in the past (See
Note 10).
In 1997, the Company adopted FAS No. 128, "Earnings per Share". The statement
establishes standards for computing and presenting earnings per share ("EPS").
The statement requires companies to present basic EPS and diluted EPS instead of
the primary and fully diluted EPS that was previously required. Basic EPS is
computed by dividing reported net earnings available to common stockholders by
the weighted average number of common shares outstanding. This EPS computation
does not include dilution. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the net earnings of the Company (See Note 12).
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. As of
December 31, 1998, the Company had no interest-rate derivative contracts
outstanding.
<PAGE>
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 material.
STOCK EMPLOYEE COMPENSATION TRUST (SECT)
In December 1997, the Company established a SECT to fund a portion of its
obligations arising from its various employee compensation and benefit plans.
The Company issued shares to the SECT from treasury stock and the SECT engages
in open market purchases. The SECT has a twenty year life. At December 31, 1998,
the SECT held 1.0 million shares of the Company's common stock.
3. CONTRACTS IN PROCESS
Contracts in process consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1998 1997
--------- ---------
<S> <C> <C>
MILLIONS
Contract costs and estimated profits............................ $ 2,310 $ 3,806
Other costs..................................................... 66 -
Less advances and progress payments............................. (2,042) (3,547)
------------ -----------
$ 334 $ 259
=========== ===========
</TABLE>
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 $2.0 billion and $3.5 billion as of December 31, 1998
and 1997, respectively. Other costs include amounts recorded under Generally
Accepted Accounting Principles ("GAAP") that are not currently allocable to
contracts, such as a portion of the Company's postretirement and postemployment
benefits, and SOP 97-3 workers' compensation related costs. These costs have
been deferred because their recognition under government contracts is considered
probable based on existing backlog. If the level of backlog in the future does
not support the continued deferral of these costs, profitability of the
Company's remaining contracts could be affected. Also included in other costs
are provisions established for certain government contract and other matters.
The increase in other costs included in contracts in process is primarily due to
the adoption of SOP 97-3 (See Note 2 ) along with a change in the estimated
future recoveries of postretirement and postemployment benefit costs of
approximately $55 million, partially offset by additional provisions established
for developments on certain government contract and other matters. Approximately
$22 million and $14 million of retainages included in contracts in process, as
of December 31, 1998 and 1997, respectively, are not expected to be billed and
collected within one year.
<PAGE>
4. PROPERTY, PLANT, AND EQUIPMENT, NET
The major classes of property, plant, and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
------ ------
<S> <C> <C>
MILLIONS
Land and improvements..................................................... $ 26 $ 28
Buildings and improvements................................................ 1,154 1,176
Machinery and equipment................................................... 428 430
------ -------
Property, plant, and equipment at cost............................... 1,608 1,634
Less accumulated depreciation............................................. (845) (818)
------ -------
Net property, plant, and equipment................................... $ 763 $ 816
====== =======
</TABLE>
5. ACQUISITION
On December 18, 1997, the Company acquired all of the outstanding capital stock
of Continental Maritime Industries, Inc. ("CMI"), a ship repair yard in San
Diego, California. The acquisition was accounted for as a purchase, and
accordingly, the results of operations of CMI for the period from the date of
the acquisition through December 31, 1998 are included in the accompanying
consolidated statement of operations. The purchase price was allocated to assets
and liabilities based on estimated fair values at the date of acquisition. At
closing, as defined in the agreement and plan of reorganization, CMI was
acquired through the issuance of 497,031 shares of the Company's common stock.
The excess of purchase price over the fair value of net tangible assets acquired
of $3.9 million was recorded as goodwill and is being amortized over 15 years.
6. DETAIL OF OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1997
------ -----
<S> <C> <C>
MILLIONS
Billings in excess of costs and profits.................................. $ 62 $ 96
Workers' compensation.................................................... 57 -
Postemployment benefits.................................................. 52 49
Employee payroll and benefits............................................ 35 33
Other.................................................................... 23 24
------ -------
$ 229 $ 202
====== =======
</TABLE>
The liability associated with the adoption of SOP 97-3 is included in accrued
workers' compensation (See Note 2).
<PAGE>
7. LONG-TERM DEBT AND FINANCING ARRANGEMENTS
LONG-TERM DEBT
A summary of long-term debt obligations of the Company at December 31, 1998 and
1997 is set forth in the following table:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
MILLIONS 1998 1997
--------- ---------
<S> <C> <C>
8.625% Senior Notes due December 1, 2006 $ 200 $ 200
9.25% Senior Subordinated Notes due December 1, 2006 200 200
Term Loan due November 4, 2002 145 172
Bank Notes due April 30, 2002 3 4
Six Year Revolving Credit Facility due November 4, 2002 71 -
Revolving Credit Facility due June 1, 2000 - 2
364 - Day Revolving Credit Facility due June 9, 1999 10 -
Less Current Maturities (38) (30)
--------- ---------
$ 591 $ 548
========= =========
</TABLE>
SENIOR AND SENIOR SUBORDINATED NOTES
On November 26, 1996, the Company issued $200 million of 8.625% Senior Notes and
$200 million of 9.25% Senior Subordinated Notes which both pay interest
semi-annually. The Company is obligated to repay these notes on December 1,
2006.
SENIOR CREDIT FACILITY
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 "Six Year 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 Six Year 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. Generally, 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 (except CMI). 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, 1998 was 6.34%.
BANK NOTES
The Company also has bank notes maturing through April 30, 2002 totaling $3
million. These notes are secured by the consolidated assets of CMI and its
subsidiary, and at December 31, 1998, accrued interest at a rate of 7.32%. The
aggregate maturities applicable to the outstanding bank notes are approximately
$1 million in 1999 through 2001 with a small remainder due in 2002.
<PAGE>
REVOLVING CREDIT FACILITIES
<TABLE>
<CAPTION>
COMMITTED CREDIT FACILITY
--------------------------------------------------------------
TERM COMMITMENTS UTILIZED AVAILABLE
--------- ----------- -------- ---------
<S> <C> <C> <C> <C>
(As of December 31, 1998)
Six Year Revolving Credit Facility 1996-2002 $215 $158 $57
Revolving Credit Facility 1998-2000 3 - 3
364-Day Revolving Credit Facility 1998-1999 75 10 65
</TABLE>
The Six Year Revolving Credit Facility requires the payment of commitment fees
of .3% on the unused portion of the credit facility. The interest rate for the
Six Year Revolving Credit Facility can vary as described above with respect to
the Term Loan. The weighted-average six year revolver interest rate at December
31, 1998 was 6.81%. At December 31, 1998, $87 million was utilized for standby
letters of credit and $71 million was borrowed to fund operating needs.
Interest would have been calculated at the rate of 7.75% if a Revolving Credit
Facility balance had existed on December 31, 1998.
On June 9, 1998, the Company entered into a $75 million 364-Day Revolving Credit
Facility ("364-Day Revolving Credit Facility"). The commitments under this
facility can be used for general corporate purposes. Generally, 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 facility.
Borrowings under the facility are secured by perfected liens on substantially
all of the Company's and the Guarantors' assets (except CMI). The security
interest in the collateral may be released if the Company meets specific
financial and other conditions. The 364-Day Revolving Credit Facility requires
the payment of commitment fees of .275% on the unused portion of the credit
facility. The interest rate for the 364-Day Revolving Credit Facility can vary
as described above with respect to the Term Loan. The weighted-average 364-Day
revolver interest rate at December 31, 1998 was 6.08%. Amounts borrowed under
the 364-Day Revolving Credit Facility of $10 million were used to fund
operations of the Company.
DEBT COVENANTS AND RESTRICTIONS
The Senior Credit Facility, 364-Day Revolving Credit Facility, Senior Notes,
Senior Subordinated Notes, and Bank Notes contain customary covenants, including
financial ratios and limitations on dividend payments, indebtedness, liens, and
corporate transactions. Debt outstanding under the Senior Credit Facility and
the Bank Notes are secured by substantially all assets of the Company as
described above.
<PAGE>
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,
-------------------
1998 1997
---------------------- ----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
MILLIONS
Asset (liability) instruments:
Cash and cash equivalents $ 3 $ 3 $ 3 $ 3
Accounts receivable 143 143 136 136
Trade accounts payable (129) (129) (151) (151)
Debt (including current maturities)
Senior and Senior Subordinated Notes (400) (423) (400) (416)
Term Loan (145) (145) (172) (172)
Bank Notes (3) (3) (4) (4)
Six Year Revolving Credit Facility (71) (71) - -
One Year Revolving Credit Facility - - (2) (2)
364-Day Revolving Credit Facility (10) (10) - -
Instruments with off-balance sheet risk:
Foreign currency contracts - - - -
</TABLE>
The fair value of cash and cash equivalents, accounts receivable, and accounts
payable in the above table was considered to be the same as, or determined not
to be materially different from, the carrying amount. The fair value of
short-term and long-term debt reflected in the December 31, 1998 and 1997
balance sheets are based on the market value of debt with the same or similar
maturities and interest rates.
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, 1998 and 1997, the Company had no significant foreign currency contracts
outstanding.
9. INCOME TAXES
The effective tax rates for 1998, 1997, and 1996 were approximately 42%, 35%,
and 46%, respectively. The differences between the Company's effective tax rate
in 1998 and 1996 as compared to the U.S. federal statutory rate of 35% are
principally due to state income taxes and miscellaneous permanent differences
for tax.
In 1996, in connection with the spinoff, the Company entered into a tax sharing
agreement with its former parent company and El Paso Natural Gas Company. The
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) benefit for income
taxes:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1998 1997 1996
------- ----- -----
<S> <C> <C> <C>
MILLIONS
Current-
Federal................................................................. $ (62) $ (12) $ (49)
State................................................................... (10) - (8)
------- ------- -------
Total Current Tax Provision........................................ (72) (12) (57)
------- ------- -------
Deferred-
Federal................................................................. 23 33 15
State................................................................... 1 5 (5)
------- ------- -------
Total Deferred Tax Benefit......................................... 24 38 10
------- ------- -------
Total Income Tax (Provision) Benefit............................................. $ (48) $ 26 $ (47)
======= ======= =======
</TABLE>
<PAGE>
Current federal income tax expense for the year ended December 31, 1996 includes
tax benefits of $11 million related to the allocation of corporate interest
expense to the Company from its former parent (See Note 14). 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) benefit for income
taxes reflected in the statements of earnings:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1998 1997 1996
------- ----- -----
<S> <C> <C> <C>
MILLIONS
Tax expense computed at the statutory U.S. federal income tax rate................ $ (40) $ 26 $ (36)
State and local taxes on income, net of federal benefit........................... (4) 3 (4)
Permanent differences............................................................. (4) (3) (7)
------- ------- -------
$ (48) $ 26 $ (47)
======= ======= =======
</TABLE>
Under FAS No. 109, deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Actual tax
liabilities are lower than tax expense reflected above for 1998 by $6 million as
a result of the stock option deduction benefits recorded as a credit to
stockholders' equity. The components of the Company's net deferred tax liability
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
------ ------
<S> <C> <C>
MILLIONS
Deferred tax assets-
Long-term shipbuilding contracts.................................................... $ 44 $ 18
Postretirement benefits............................................................. 14 33
Postemployment benefits............................................................. 12 15
Accrued vacation.................................................................... 5 5
Workers' compensation............................................................... 3 -
Other............................................................................... 43 21
------- -------
Total deferred tax assets...................................................... 121 92
------- -------
Deferred tax liabilities-
Tax over book depreciation.......................................................... 165 174
Pension............................................................................. 49 45
Other............................................................................... 26 22
------- -------
Total deferred tax liabilities................................................. 240 241
------- -------
Net deferred tax liabilities................................................................. $ 119 $ 149
======= =======
</TABLE>
10. EMPLOYEE BENEFIT PLANS
The Company provides defined pension benefits and postretirement benefits to
employees. The following is a reconciliation of the benefit obligations, plan
assets, and funded status of the Company's plans:
<TABLE>
<CAPTION>
Other
Pension Benefits Postretirement Benefits
------------------ --------------------------
CHANGE IN BENEFIT OBLIGATION (IN MILLIONS) 1998 1997 1998 1997
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Benefit obligation - beginning of period $ 357 $ 156 $ 194 $ 188
Service costs 30 25 2 2
Interest costs 27 20 15 14
Actuarial (gains) losses 70 65 1 8
Benefits paid (10) (8) (18) (18)
Plan amendments (1) - - -
Curtailments/settlements 1 - - -
Initial benefit obligation for new plans 2 99 - -
--------- -------- --------- --------
Benefit obligation - end of period $ 476 $ 357 $ 194 $ 194
========= ======== ========= ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Other
Pension Benefits Postretirement Benefits
-------------------- ------------------------
CHANGE IN PLAN ASSETS (IN MILLIONS) 1998 1997 1998 1997
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Fair value of plan assets - beginning of period $ 410 $ 325 $ - $ -
Actual return on plan assets 17 78 - -
Employer contributions 31 15 - -
Benefits paid (10) (8) - -
--------- -------- --------- --------
Fair value of plan assets - end of period $ 448 $ 410 $ - $ -
========= ======== ========= ========
</TABLE>
<TABLE>
<CAPTION>
Other
Pension Benefits Postretirement Benefits
--------------------- -------------------------
FUNDED STATUS RECONCILIATION (IN MILLIONS) 1998 1997 1998 1997
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Funded status of the plans $ (28) $ 53 $ (194) $ (194)
Contribution adjustment 8 8 - -
Amounts not recognized (32) (58) - -
Unrecognized net actuarial losses 93 29 80 84
Unrecognized prior service costs 85 91 (8) (12)
Unrecognized transition obligation (20) (22) - -
--------- -------- --------- --------
Prepaid (accrued) benefit costs $ 106 $ 101 $ (122) $ (122)
========= ======== ========= ========
</TABLE>
<TABLE>
<CAPTION>
Other
Pension Benefits Postretirement Benefits
------------------- -------------------------
Assumptions at December 31, 1998 1997 1996 1998 1997 1996
--------- --------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Discount rate 6.75% 7.50% 7.75% 6.75% 7.50% 7.75%
Expected return on plan assets 10.00% 10.00% 10.00% N/A N/A N/A
Rate of compensation increase 4.50% 4.40% 4.90% 4.50% 4.40% 4.90%
</TABLE>
Net periodic pension and other postretirement benefit costs include the
following components:
<TABLE>
<CAPTION>
Other
Pension Benefits Postretirement Benefits
-------------------- -------------------------
MILLIONS 1998 1997 1996 1998 1997 1996
--------- --------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 30 $ 25 $ 33 $ 2 $ 2 $ 4
Interest cost 27 20 66 15 14 15
Expected return on plan assets (37) (30) (90) - - -
Amortization of transition assets (3) (4) (9) - - -
Amortization of prior service costs 8 8 1 (3) (4) (4)
Amortization of loss 1 - - 5 4 5
--------- --------- --------- -------- -------- --------
Net periodic cost $ 26 $ 19 $ 1 $ 19 $ 16 $ 20
========= ========= ========= ======== ======== ========
</TABLE>
<PAGE>
PENSION BENEFITS
The Company has various defined benefit plans which cover substantially all of
its hourly and salaried employees. The hourly plan benefits are based primarily
on service with the Company as an hourly employee. The salaried plan benefits
are based on years of participation and final average compensation. 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.
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. These estimates are subject to revision in future periods given new
facts or circumstances. The net prepaid pension cost at December 31, 1998 is
composed of a $124 million prepaid hourly pension plan asset and an $18 million
accrued salaried pension plan liability. The net balance at December 31, 1997
represents a $112 million prepaid hourly pension plan asset and an $11 million
accrued salary pension plan liability.
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." 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.
OTHER 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 initial weighted average assumed health care cost trend rate used in
determining the 1998 accumulated postretirement benefit obligation was 8%,
gradually declining to 5% in 2006 and remaining at that level thereafter. The
initial weighted average assumed health care cost trend rate used in determining
the 1997 accumulated postretirement benefit obligation was 7%, declining to 5%
in 2004 and remaining at that level thereafter. The initial weighted average
assumed health care cost trend rate used in determining the 1996 accumulated
postretirement benefit obligation was 6%, 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 accumulated postretirement benefit obligations by
approximately $7 million in 1998 and 1997 and $10 million in 1996, and would
increase the aggregate of the service cost and interest cost components of the
net periodic postretirement benefit cost for 1998, 1997, and 1996 by
approximately $1 million each year.
The accrued postretirement benefits cost has been recorded based upon certain
actuarial estimates. These estimates are subject to revision in future periods
given new facts or circumstances.
<PAGE>
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.
Subsequent to the spinoff, the Company established the Newport News Shipbuilding
Inc. 401(k) Investment Plan for Salaried Employees ("Salaried Plan"). Beginning
in 1997, the Company matched 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 contributes 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 expense related to this plan was $22 million for 1998 and $21
million for 1997. The Company has authorized 3,700,000 shares of Common Stock
for possible Salaried Plan contributions. Company employees as of the spinoff
are fully vested in future matching contributions; otherwise, matching
contributions will vest after two years of service as defined in the Salaried
Plan.
ESOP
CMI (See Note 5) maintains a leveraged Employee Stock Ownership Plan ("ESOP")
for substantially all of its employees. CMI makes annual contributions to the
ESOP equal to the ESOP's debt service. The ESOP Series A Preferred stock shares
initially were pledged as collateral for its debt. The ESOP Series A Preferred
stock was exchanged for the Company's common stock concurrent with the
acquisition of CMI. As the debt is repaid, shares are released from collateral
and allocated to active employees based on the proportion of debt service paid
in the year. As shares are released from collateral, CMI reports compensation
expense equal to the current market price of the shares. ESOP compensation
expense was immaterial for the period subsequent to the acquisition in 1997 and
for 1998. The ESOP shares on December 31, 1998 were as follows:
Allocated shares 148,171
Unallocated shares 49,197
------------
Total ESOP shares 197,368
============
Fair value of unallocated shares at December 31, 1998 $ 1,645,025
============
11. STOCK COMPENSATION PLANS
The Company established the Newport News Shipbuilding Inc. Employee Stock
Purchase and Accumulation Plan ("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
employee per calendar year. The Employee Stock Purchase Plan became effective
January 1, 1998, as an amended and restated version of a predecessor plan, the
Newport News Shipbuilding Inc. 1997 Employee Stock Purchase Plan. The Employee
Stock Purchase Plan authorizes a maximum aggregate of 2,600,000 shares to be
issued under the plan. Of these shares, 1,300,000 shares have been approved for
issuance by the shareholders. The remaining 1,300,000 shares will not be issued
under the plan until shareholder approval is sought and obtained. The Company
plans to seek approval for the issuance of up to an additional 150,000 shares
under the Employee Stock Purchase Plan at its 1999 Annual Meeting of
shareholders. During 1998, employees purchased approximately 460,000 shares
under the Employee Stock Purchase Plan.
The Company established the Newport News Shipbuilding Inc. Stock Ownership Plan
("Stock Ownership Plan") for the benefit of officers and key 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
5,250,000 shares of Common Stock for issuance under this plan. In 1998,
approximately 625,000 stock options were granted. Further, approximately 463,000
performance shares, stock incentive grants, and restricted shares were awarded
in 1998. As of December 31, 1998, approximately 695,000 shares remained
available for issuance under this plan.
<PAGE>
The Company established the 1997 Stock Plan for Directors of Newport News
Shipbuilding Inc. ("1997 Stock Plan for Directors"). Under the plan as
originally adopted, one-half of the annual retainer of non-employee directors is
to be paid in 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
1997 Stock Plan for Directors was amended, effective December 15, 1998, to
increase the annual grant of stock options to 2,000, and to make 50% of the
first $25,000 of the annual retainer payable in restricted stock and any annual
retainer amounts in excess of $25,000 payable in either restricted stock or
cash, as determined by the Compensation Committee. The Company has authorized
75,000 shares for issuance under the plan. During 1998, approximately 6,000
stock options and 2,800 shares of restricted stock were granted under the plan.
As of December 31, 1998, nearly 41,000 shares remained available for issuance.
The Company established stock option plans for its active hourly employees
("Hourly Option Plans") to provide eligible employees of the Company an
opportunity to purchase shares of the Company. The Company authorized 1,100,000
shares of Common Stock for issuance under the Hourly Option Plans. During 1997,
approximately 985,000 stock options were granted under the plans.
The Company established the Newport News Shipbuilding Inc. 1998 Stock Incentive
Plan ("1998 Stock Incentive Plan"), effective October 12, 1998. The Company, at
its discretion, may select any employee of the Company for an award of
restricted stock, performance shares, or stock options under the Plan. In
addition, the 1998 Stock Incentive Plan assumed the obligation of the Hourly
Option Plans. The options granted under the Hourly Option Plans continue to be
exercisable subject to the same terms and conditions as prescribed by those
plans. The Company has authorized 4,000,000 shares for issuance under the 1998
Stock Incentive Plan. This authorization includes 1,000,000 of the shares
originally reserved for issuance under the Hourly Options Plans and reflects the
transfer of the stock options previously granted under those plans to the 1998
Stock Incentive Plan. As of December 31, 1998, approximately 925,000 options
originally issued under the Hourly Option Plans remained outstanding. No other
shares were issued under the 1998 Stock Incentive Plan during 1998 and nearly
3,000,000 shares remained for issuance under the plan as of December 31, 1998.
Stock options and restricted shares applicable to the plans above vest in
accordance with vesting periods set forth in the governing award agreements and
plan documents. The performance shares vest after specified periods and after
attaining certain performance measures, both of which vary with each grant.
Stock option activity and exercise prices for the Stock Ownership Plan, the 1997
Stock Plan for Directors, and the 1998 Stock Incentive Plan are summarized as
follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
--------------------
DECEMBER 31, 1998 DECEMBER 31, 1997
---------------- -----------------
<S> <C> <C>
NUMBER OF SHARES UNDER STOCK OPTIONS:
Outstanding at beginning of year 3,562,663 -
Converted - 2,143,979
Granted 629,663 1,871,350
Exercised (467,833) (391,678)
Options canceled (57,250) (60,988)
--------------- -------------
Outstanding at end of year 3,667,243 3,562,663
--------------- -------------
Exercisable at end of year 1,254,328 983,975
=============== =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
--------------------
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
WEIGHTED AVERAGE EXERCISE PRICE:
Outstanding at beginning of year $ 17.54 $ -
Converted - 14.65
Granted 24.85 20.21
Exercised 14.78 14.87
Options canceled 19.39 14.99
Outstanding at end of year 19.12 17.54
Exercisable at end of year 14.63 14.89
</TABLE>
<TABLE>
<CAPTION>
NUMBER WEIGHTED AVERAGE
RANGE OF OUTSTANDING AT REMAINING WEIGHTED AVERAGE
EXERCISE PRICES DECEMBER 31, 1998 CONTRACTUAL LIFE EXERCISE PRICE
--------------- ------------------ ---------------- -----------------
<S> <C> <C> <C>
$ 12.95 - 19.88 2,075,895 7.0 years $ 14.71
24.81 - 27.68 1,591,348 8.9 years 24.87
--------------------
3,667,243 7.8 years 19.12
====================
</TABLE>
<TABLE>
<CAPTION>
NUMBER
RANGE OF EXERCISABLE AT WEIGHTED AVERAGE
EXERCISE PRICES DECEMBER 31, 1998 EXERCISE PRICE
--------------- ----------------- --------------
<S> <C> <C>
$ 12.95 - 19.88 1,252,564 $ 14.62
24.81 - 27.68 1,764 25.80
---------------------
1,254,328 14.63
=====================
</TABLE>
In 1996, the Company adopted the disclosure-only option of FAS No. 123 for its
stock option plans. As of December 31, 1996, the Company's employees held
certain options in stock of the former parent that were converted to the
Company's Common Stock in early 1997 (See Note 14). For 1998 and 1997, had the
compensation costs for stock options and the Employee Stock Purchase Plan been
determined based on the fair value at the grant dates for awards under these
plans consistent with the method of FAS No. 123, the Company's net income and
basic net income per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1998 1997
--------- ---------
<S> <C> <C>
MILLIONS
Net Earnings (Loss)
As reported...................................................................... $ 66 $ (48)
Pro forma........................................................................ 60 (53)
Basic Net Earnings (Loss) per share
As reported...................................................................... $ 1.91 $ (1.39)
Pro forma........................................................................ 1.74 (1.53)
Diluted Net Earnings (Loss) per share
As reported...................................................................... $ 1.85 $ (1.39)
Pro forma........................................................................ 1.69 (1.53)
</TABLE>
<PAGE>
All options issued by the Company were issued at the estimated fair value in
effect at the date of issuance, vest ratably over the applicable vesting period,
and expire ten years after the grant date with the exception of one plan under
which the options vest two years after the award date. The fair value for
options granted in 1998 and 1997 are estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions used: dividend
yield of .48% and .66% in 1998 and 1997, respectively; expected volatility of
25% in both 1998 and 1997; risk-free interest rates ranging from 4.6% to 5.4% in
1998 and 5.7% to 6.5% in 1997; and, expected life of one year after the vesting
period for both 1998 and 1997. The assumptions used for the fair value of the
employee purchase rights from the Employee Stock Purchase Plan are the same as
above with the exception that the dividend yield calculated at the date of grant
is .48% and 1.09% for 1998 and 1997, respectively, and the average life of each
purchase right was assumed to be 90 days for both years.
12. EARNINGS PER COMMON SHARE
In 1997, the Company adopted FAS No. 128, "Earnings per Share". Basic earnings
per common share is computed by dividing net earnings by the weighted average
number of shares of common stock outstanding during the year. Diluted earnings
per share is calculated based on the basic weighted average number of common
shares outstanding, plus additional shares representing stock distributable
under stock-based plans computed using the treasury stock method. Because 1997
results reflect a loss, basic and diluted earnings per share are calculated
based on the same weighted average number of shares outstanding. There were no
stock options and other common stock equivalents for 1996. Since the Company was
a wholly-owned subsidiary of its former parent prior to the spinoff, there are
no comparable shares outstanding for the period before the spinoff.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 1998
-----------------------------
NET PER SHARE
EARNINGS SHARES AMOUNT
-------- ------ --------
<S> <C> <C> <C>
MILLIONS, EXCEPT FOR SHARES AND PER SHARE DATA
BASIC EARNINGS PER SHARE
Income available to common stockholders $ 66 34,677,706 $ 1.91
=========
Stock Options and Other Common
Stock Equivalents - 1,116,384
--------- -----------
DILUTED EARNINGS PER SHARE
Income available to common stockholders $ 66 35,794,090 $ 1.85
========= =========== =========
</TABLE>
13. COMMITMENTS AND CONTINGENCIES
GOVERNMENT CONTRACTING
As a general practice in the defense industry, the Defense Contract Audit Agency
(the "DCAA") and other government agencies continually review the cost
accounting and other practices of government contractors, including the Company,
conduct other investigations, and make specific inquiries. In the course of
those reviews and investigations, cost accounting and other issues are
identified, discussed and settled, or resolved through legal proceedings. In
some cases, recognition of the vagaries of litigation results in management
deciding to settle a matter irrespective of the merits of the Company's
position.
As with other government contractors, the U.S. Government has from time to time
recommended that certain of the Company's contract prices be reduced, or costs
allocated to its government contracts be disallowed. Some of these
recommendations involve substantial amounts. In the past, as a result of such
audits and other investigations and inquiries, the Company has on occasion
agreed to adjustments to its contract prices and the costs allocated to its
government contracts. The Company is currently involved in several such audit
and other investigative proceedings with the U.S. Government. The Company is
also engaged in settlement discussions on certain matters and has filed a
lawsuit concerning certain cost accounting issues.
<PAGE>
During 1996, 1997, and 1998 the Company and its former parent 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. Negotiations with the U.S. Government
resulted in a settlement of FPRP issues in January 1999. The settlement did not
have a material impact on the Company's financial position or results of
operations.
As previously reported, the DCAA conducted a post-award audit of the contract to
build the aircraft carrier REAGAN. In April 1998 the DCAA issued its official
audit report ("Audit Report") in which it concluded that the cost or pricing
data supplied by the Company to the U.S. Navy was not current, accurate, and
complete and, therefore, that projected labor and overhead costs were overstated
for the REAGAN contract. Accordingly, the DCAA recommended to the U.S. Navy's
contracting officer that the contract price for REAGAN be reduced.
The Company disagrees with the conclusions of the Audit Report and the DCAA's
recommendation to the contracting officer. Management believes that the Company
has substantial and meritorious grounds on which to contest any action by the
U.S. Navy seeking to reduce the REAGAN contract price and intends to pursue its
defenses to any attempt by the U.S. Navy to make such a reduction.
In addition to the DCAA audit, a civil investigation, also focused on the cost
or pricing data that the Company supplied to the U.S. Navy in connection with
the REAGAN contract, is being conducted jointly by the Department of Defense,
the Department of Justice, the U.S. Attorney's Office for the Eastern District
of Virginia, and the Naval Criminal Investigative Service. Management believes
the Company complied with all applicable laws.
During the first quarter of 1999, the Company received a letter from the U.S.
Navy Supervisor of Shipbuilding forwarding a DCAA final audit report questioning
costs allocated and billed to U.S. Government contracts as Independent Research
and Development ("IR&D"). A draft DCAA audit report issued in 1998 had
questioned the appropriateness of accounting for those costs as IR&D and alleged
such treatment was not in compliance with two Cost Accounting Standards ("CAS").
The letter requested additional comments regarding why NNS considers the
existing cost accounting practice to be CAS compliant. The Company anticipates
providing such comments in the second quarter of 1999.
Although the ultimate outcome of these issues cannot be predicted, should a
successful claim be made in any such matter, it could entail an amount material
to the Company's financial position and results of operations; however, based on
the Company's present understanding of the claims the U.S. Government might
assert, and defenses believed to be available in connection with the REAGAN
contract matter, management believes that the final resolution of these matters
will not have a material impact on the financial position or results of
operations of the Company. Management continues to assess the IR&D matter and
believes, based on current information, that it would be premature to express
any opinion as to whether or not the eventual outcome may have a material impact
on the financial position or results of operations of the Company.
During 1997, the Company submitted a request for a Shipbuilding Capability
Preservation Agreement pursuant to Section 1027 of the National Defense
Authorization Act for the Fiscal Year 1998. This section enables the Company to
recover from the U.S. Government a portion of certain indirect costs which would
have been allocated to government contracts had commercial projects not been
undertaken. During the second quarter of 1998, an agreement was reached with the
U.S. Navy whereby the Company may recover $10 to $15 million of such costs by
year-end 2000.
SIGNIFICANT ESTIMATES
From 1994 to 1996, the Company entered into fixed price contracts to construct a
total of nine DOUBLE EAGLE product tankers. The first of the nine ships was
delivered at the end of September 1997. In March 1998, the Company announced a
revised strategy for this program that will result in only five of the remaining
eight undelivered ships being built, after which the Company will withdraw from
the market. As of December 31, 1998 and December 31, 1997, the cumulative
provision for losses recorded on undelivered ships was approximately $80 million
and $325 million, respectively. The Company recorded charges against earnings of
approximately $207 million and $70 million in 1997 and 1996, respectively.
<PAGE>
The first three of the five remaining ships were delivered during the fourth
quarter of 1998. The Company delivered a fourth ship in February 1999. The final
ship should be delivered by the middle of 1999. Estimates of cancellation
charges and material disposition costs on the three canceled ships were revised
downward by approximately $10 million during 1998. The Company intends to
continue to review this program 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.
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 $18 million
will be required after December 31, 1998, 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 noncancelable operating leases as of
December 31, 1998, are as follows:
YEAR PAYMENT
---- -------
1999 $ 12 million
2000 11 million
2001 9 million
2002 5 million
2003 2 million
Thereafter 4 million
-------------
$ 43 million
=============
Rent expense recognized for the years ended December 31, 1998, 1997, and 1996,
was $19 million, $11 million, and $5 million, respectively.
OTHER COMMITMENTS
The Company's commitments under service agreements for hardware, software, and
related services as of December 31, 1998 are as follows:
YEAR PAYMENT
---- -------
1999 $ 23 million
2000 23 million
2001 22 million
2002 22 million
2003 7 million
Thereafter 3 million
-------------
$ 100 million
=============
<PAGE>
14. TRANSACTIONS WITH FORMER PARENT COMPANY
CORPORATE DEBT AND INTEREST ALLOCATION
The historical practice of the Company's former parent was generally to incur
indebtedness for its consolidated group at the parent company level. For
financial reporting purposes, corporate debt of the former parent and its
related interest expense was allocated to the Company 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% for 1996. Total
pre-tax interest expense allocated to the Company in 1996 was $31 million.
The Company had 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.
NOTES AND ADVANCES RECEIVABLE FROM FORMER PARENT
Cash Transfers 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. Historically, the former parent utilized notes and advances to
centrally manage cash funding requirements for its consolidated group.
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 (See Note 11).
Had compensation expense for stock-based compensation been determined in
accordance with FAS No. 123, based on fair value at the grant dates for awards
under applicable plans, the Company's pro forma net earnings for the year ended
December 31, 1996 would have been lower by approximately $3 million ($.09 per
share).
The fair value of each option granted was estimated using the Black-Scholes
option pricing model based on the following assumptions for grants in 1996: (i)
risk free rate of 5.4%; (ii) expected lives of 5.0 years; (iii) expected
volatility of 26.6%; and (iv) a dividend yield of 3.7%. The estimated
weighted-average fair value per option granted to the Company's employees during
1996 was $10.75. See Note 11 for a discussion of the Company's Stock
Compensation Plans.
Certain employees of the Company also participated in a pension plan provided by
its former parent. Reference is made to Note 10 for a further discussion of the
Company's pension plan.
ANCILLARY AGREEMENTS
In order to assist in the orderly transition of the Company to a separate,
publicly held company, the former parent modified, amended or entered into
certain contractual agreements with the Company in 1996. 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.
<PAGE>
15. REPORTABLE SEGMENTS
The Company adopted FAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information", during 1998. FAS No. 131 established standards for
reporting information about operating segments in annual financial statements
and requires selected information about operating segments in interim financial
reports issued to stockholders. It also established standards for related
disclosures about products and services, and geographic areas. Operating
segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker, or decision making group, in deciding how to allocate
resources and in assessing performance. The operating segments are managed
separately because each operating segment represents a strategic business unit
that offers different products and services.
The Company's reportable operating segments include three areas involving U.S.
Naval and commercial ships: (i) Construction; (ii) Fleet Services; and (iii)
Engineering. Revenues from contracts with the U.S. Navy represent approximately
92%, 94%, and 94% of the Company's consolidated revenues for the years ended
December 31, 1998, 1997, and 1996, respectively. Essentially all reportable
segments operate out of the Company's facilities located in Newport News,
Virginia.
The Company's reportable operating segments represent strategic initiatives
supporting the entire lifecycle of U.S. Navy ships - Construction, Fleet
Services, and Engineering, as well as a logical linking of similar contracts
based on funding provisions. Engineering contracts generally receive funding on
an annual basis, Fleet Services contracts typically span between one month to
two years, and Construction contracts generally span a period of two or more
years. The reportable segments are managed separately because each business has
differing customer requirements based on the nature of the services provided.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Company evaluates performance
based on profit or loss from operations before income taxes and interest, not
including nonrecurring gains and losses. A brief description of each reportable
operating segment follows:
CONSTRUCTION
The Company's primary activity is constructing ships. Currently, the Company's
major construction efforts include the aircraft carrier RONALD REAGAN, start-up
of the new attack submarine construction program (the VIRGINIA class), and
completion of the one remaining commercial product tanker (See Note 13).
FLEET SERVICES
The Company provides ongoing maintenance for the U.S. Navy's vessels through
overhauling, refueling, and repair work. The Company possesses unique expertise
in servicing nuclear naval systems, and believes it currently is the only
non-government-owned shipyard capable of refueling nuclear-powered aircraft
carriers. Additionally, the Company provides repair services for commercial
vessels.
ENGINEERING
The Company provides engineering planning and design services primarily for U.S.
Government customers. The Company maintains a stable level of funded engineering
support contracts for the U.S. Navy. Support services provided by the Company
include: new aircraft carrier research and development, aircraft carrier
non-nuclear overhaul planning, reactor plant engineering, aircraft carrier
engineering support, and training and logistics. The Company is a leader in
aircraft carrier design, accounting for the majority of ship integration and
related design development for the Naval Sea Systems Command ("NAVSEA").
<PAGE>
INFORMATION ABOUT OPERATING EARNINGS AND ASSETS
FOR THE YEAR ENDED DECEMBER 31, (IN MILLIONS)
<TABLE>
<CAPTION>
FLEET ALL
CONSTRUCTION SERVICES ENGINEERING OTHERS(1) TOTAL
------------ --------- ----------- ---------- -----
<S> <C> <C> <C> <C> <C>
1998
- ----
Revenues.................................... $ 833 $ 720 $ 282 $ 27 $ 1,862
Segment Operating Earnings.................. 92 69 21 (7) 175
Segment Assets at December 31, 1998(2)...... 119 107 27 224 477
1997
- ----
Revenues.................................... $ 935 $ 500 $ 248 $ 24 $ 1,707
Segment Operating Earnings.................. (83) 50 19 (5) (19)
Segment Assets at December 31, 1997(2)...... 86 90 36 183 395
1996
- ----
Revenues.................................... $ 1,029 $ 625 $ 194 $ 22 $ 1,870
Segment Operating Earnings.................. 44 88 13 (5) 140
Segment Assets at December 31, 1996(2)...... 156 137 40 127 460
</TABLE>
1. Other business activities include industrial products, commercial nuclear
activities including valve and pump repair and technical services, equity
investments, and corporate activities.
2. As the Company has a fully integrated production facility, its fixed assets
are commingled and not identified with specific profit centers. Therefore,
segment assets consist only of accounts receivable ("A/R") and contracts in
process ("CIP") balances applicable to identified segments.
A reconciliation of the totals reported for the operating segments to the
applicable line items in the consolidated financial statements is as follows:
RECONCILIATION OF SEGMENT INFORMATION TO CONSOLIDATED AMOUNTS
FOR THE YEAR ENDED DECEMBER 31, (IN MILLIONS)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
Revenues
- --------
Total revenues for reportable segments................................... $ 1,835 $ 1,683 $ 1,848
Other revenues........................................................... 27 24 22
--------- --------- --------
Total consolidated revenues..................................... $ 1,862 $ 1,707 $ 1,870
========= ========= ========
Operating Earnings
- ------------------
Total operating earnings for reportable segments......................... $ 182 $ (14) $ 145
Other operating earnings................................................. (7) (5) (5)
--------- --------- --------
Total consolidated operating earnings........................... $ 175 $ (19) $ 140
========= ========= ========
Assets
- ------
Total A/R and CIP for reportable segments................................ $ 253 $ 212 $ 333
Other unallocated A/R and CIP............................................ 224 183 127
Other unallocated amounts................................................ 1,123 1,120 1,075
--------- --------- --------
Total consolidated assets....................................... $ 1,600 $ 1,515 $ 1,535
========= ========= ========
</TABLE>
<PAGE>
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Earnings/ Net Earnings/
Operating (Loss) Before Net (Loss) Per Share
----------------
MILLIONS (EXCEPT SHARE AMOUNTS) Revenues Earnings (Loss) Income Taxes Earnings (Loss) Basic Diluted
-------- --------------- ------------ --------------- ----- -------
<S> <C> <C> <C> <C> <C> <C>
1998
1st Quarter.......................... $ 397 $ 40 $ 27 $ 16 $ .46 $ .44
2nd Quarter.......................... 466 42 28 16 .46 .45
3rd Quarter.......................... 462 43 29 17 .47 .46
4th Quarter.......................... 537 50 30 17 .52 .50
1997
1st Quarter.......................... $ 403 $ 35 $ 22 $ 13 $ .38 $ .38
2nd Quarter.......................... 450 37 24 14 .39 .38
3rd Quarter.......................... 423 16 2 1 .05 .04
4th Quarter.......................... 431 (107) (122) (76) (2.21) (2.21)
</TABLE>
17. SUBSEQUENT EVENTS
NEWPORT NEWS SHIPBUILDING INC. AND AVONDALE INDUSTRIES, INC. PROPOSED MERGER
In January 1999, the Boards of Directors of Newport News Shipbuilding Inc. and
Avondale Industries, Inc. approved and each company executed a definitive
agreement to combine the two companies. The combined company would be named
Newport News Avondale Industries Inc. The transaction is subject to approval by
the shareholders of both companies, U.S. regulatory reviews, and other customary
closing conditions, and is scheduled for completion in the second quarter of
1999. In February 1999, the Department of Justice under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 cleared the proposed merger, satisfying one
important condition to the closing of the transaction. It is anticipated that
the transaction would be accounted for as a pooling-of-interests.
GENERAL DYNAMICS CORPORATION OFFER TO NEWPORT NEWS SHIPBUILDING, INC.
In February 1999, the Company received an offer from General Dynamics
Corporation ("General Dynamics") proposing to pay $38.50 per share in cash for
all of its outstanding shares, subject to various conditions including antitrust
clearance from the appropriate regulatory authorities in the Departments of
Justice and Defense. Under the terms of the proposed merger with Avondale
Industries, the Company is not permitted to enter into a transaction with a
party that has made a proposal to acquire Newport News unless, among other
things, the Newport News Board of Directors has determined that the General
Dynamics offer could result in a proposal superior to the proposed merger with
Avondale.
In order for a proposal to be a superior proposal, the Board of Directors must
determine that the transaction is both reasonably capable of being completed,
taking into account legal, regulatory and other factors, and its financial and
other terms are more favorable to Newport News and its shareholders. Given the
potential regulatory issues concerning the proposed General Dynamics - Newport
News combination, the Board of Directors could not determine that the General
Dynamics proposal could result in a superior proposal to the Avondale
transaction. At such time that the Department of Defense indicates that there is
a reasonable likelihood that antitrust issues would not impede negotiations, the
Board of Directors would then be prepared to evaluate the terms of the General
Dynamics proposal, including the proposed price.
FORMATION OF BUSINESS PARTNERSHIP WITH SCIENCE APPLICATIONS INTERNATIONAL
CORP ("SAIC")
In March 1999, the Company announced the formation of a worldwide business
partnership with Science Applications International Corp. ("SAIC"). The
partnership will involve a new limited liability company ("LLC") comprised of
SAIC's subsidiary, AMSEC, and the Company's life cycle engineering department.
The new organization will be named AMSEC LLC and will create a low cost fleet
services organization capable of providing logistics and life cycle services for
aircraft carriers, submarines, surface combatants, and amphibious and auxiliary
ships from 20 locations, including every major U.S. Navy port. The new
organization will employ approximately 1,500 current employees of AMSEC and the
Company. The Company will own 45% and SAIC 55% of the new organization.
<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 1, 1999. 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, 1998) OFFICES HELD DATE OF TERM
- ------------------------------- ------------ ------------
<S> <C> <C>
William P. Fricks(54).......... Chairman and Chief Executive Officer May 1998
Chairman, President, and Chief Executive Officer January 1997
President and Chief Executive Officer November 1995
President and Chief Operating Officer September 1994
Thomas C. Schievelbein(45)..... 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(49).......... Senior Vice President and Chief Financial Officer July 1996
Stephen B. Clarkson(61)........ Vice President - General Counsel and Secretary January 1991
William G. Cridlin, Jr.(52).... Vice President and General Manager - Submarines July 1998
Vice President - Marketing January 1995
Vice President - Commercial Shipbuilding April 1992
Roger Eshelman(59)............. Vice President - Nuclear Engineering July 1998
Director and Chief Nuclear Engineer January 1995
Vice President - Naval Engineering March 1993
Chief Engineer - Naval Engineering April 1992
Robert L. Gunter, Jr.(42)...... Vice President - Engineering July 1998
Vice President - Surface Ships December 1997
Director - Surface Ships January 1997
Program Director - Ship Repair & FF21 Program June 1995
Program Director - FF21 Program December 1994
Program Manager - Submarines January 1994
Engineering Manager - Attack Submarine Program April 1993
T. Michael Hatfield(52)........ Vice President - Corporate Communications October 1995
Director - Public Relations November 1993
Alfred Little, Jr.(52)......... Vice President - Human Resources and EH&S July 1996
Marc Y. E. Pelaez(52).......... Vice President - Business & Technology Development July 1998
Vice President - Engineering August 1996
C. Michael Petters(39)......... Vice President and General Manager - Aircraft Carriers July 1998
Vice President - Aircraft Carriers December 1997
Director - Carrier Program January 1995
Manager - Strategy and Naval Program January 1994
John E. Shephard, Jr.(43)...... Vice President - Manufacturing and Materials July 1998
Vice President - Manufacturing and Process Innovation March 1997
Vice President - Strategy and Process Innovation October 1995
Patrick A. Tucker(51).......... Vice President - Government Relations December 1996
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
George A. Wade(54)............. Vice President - Assembly, Test, and Trades July 1998
Vice President - Submarines and Non-Nuclear Test October 1995
Vice President - Construction January 1995
Vice President - Submarines March 1993
Director - Submarine Construction April 1992
William B. Weaver, Jr.(53)..... Vice President - Planning and Facilities July 1998
Director - Production/Resource Planning September 1996
Director - Human Resources January 1994
Charles P. Wingfield, Jr.(45).. Vice President and Controller July 1998
Director - Operations Finance May 1998
Director - Corporate Finance September 1996
Controller & Treasurer January 1995
Controller March 1993
D. R. Wyatt(40)................ Treasurer September 1996
Assistant Treasurer August 1995
Manager - 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> <C>
David J. Anderson RJ Reynolds Corporation
Executive Vice President and Chief Financial Officer 1991 to 1996
Alfred Little, Jr. Sun Company, Inc.
Vice President - Human Resources 1992 to 1996
Director - Human Resources 1988 to 1992
Marc Y. E. Pelaez Rear Admiral United States Navy
Chief of Navy Research 1993 to 1996
Executive Assistant Secretary to the
Assistant Secretary of the Navy (RDA) 1990 to 1993
Patrick A. Tucker Tenneco
Executive Director - Government Relations 1996
Director - Federal Relations 1994 to 1996
Counsel to Senator John Warner 1993 to 1994
Minority Staff Director and Counsel to the
U.S. Senate Armed Services Committee 1983 to 1993
</TABLE>
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Prior to the Spin-off, the business of the Company and its subsidiaries was
owned and operated by Tenneco Inc. through its direct and indirect subsidiaries
and, as such, the management of the Company was employed by Tenneco and/or its
direct and indirect subsidiaries. The following Summary Compensation Table sets
forth the remuneration paid by Tenneco and/or its direct and indirect
subsidiaries prior to the Spin-off on December 11, 1996 and by the Company after
that date (i) to the Chairman and Chief Executive Officer of the Company and
(ii) to each of the four other most highly compensated executive officers of the
Company during the three fiscal years ended December 31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Restricted Securities Long-Term All
Name and Principal Stock Underlying Incentive Other
Position Year Salary($)(a) Bonus($)(a) Awards($) Options/SAR Payouts($) Compensation
(#) ($)(b)
- ------------------- ----- -------- ----------- ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
William P. Fricks 1998 $540,000 $685,000 - 68,515 - $109,850
Chairman and 1997 $525,000 $ - - 272,187(d) - $ 68,836
Chief Executive 1996 $395,500 $230,000 - 30,000 - $ 45,378
Officer
Thomas C. 1998 $365,000 $358,000 - 35,870 - $ 84,860
Schievelbein 1997 $345,000 $ 83,000 - 125,934(d) - $ 43,169
Executive Vice 1996 $238,900 $109,000 $168,875(e) 14,000 - $ 26,513
President
David J. Anderson 1998 $300,000 $300,000 $ 53,250(c) 25,390 - $ 39,586
Senior Vice 1997 $270,000 $ 74,000 - 37,300 - $ 34,652
President and 1996 $116,272(f) $ 68,000 - - - $ 297
Chief Financial
Officer
Stephen B. 1998 $231,500 $156,000 - 16,685 - $ 37,063
Clarkson 1997 $222,000 $ 56,000 - 60,514(d) - $ 30,491
Vice President, 1996 $206,565 $ 68,000 $ 86,850(e) 4,300 - $ 13,595
General Counsel
and Secretary
Alfred Little, Jr. 1998 $231,500 $165,000 - 16,685 - $ 42,452
Vice President, 1997 $218,000 $ 55,000 - 26,400 - $ 22,693
Human Resources 1996 $ 93,912(f) $149,000(g) - - - $ 382
and EH&S
</TABLE>
(a) Includes amounts contributed to the Company's 401(k) and deferred
compensation plans in the case of salary, and deferred compensation plans
in the case of bonus.
(b) Includes amounts attributable during 1998 to Company contributions to
benefit plans and dividend equivalents paid or accrued on performance
shares as follows:
(1) Amounts contributed to 401(k) and deferred compensation plans on
behalf of Messrs. Fricks, Schievelbein, Anderson, Clarkson, and Little
were $74,967, $65,701, $24,856, $19,907, and $34,247, respectively.
(2) Amounts imputed as income for federal income tax purposes under the
Company's group life insurance plan for Messrs. Fricks, Shievelbein,
Anderson, Clarkson, and Little were $8,379, $44,117, $5,046, $10,657 and
$1,706, respectively.
(3) Dividend equivalents paid or accrued on performance shares held by
Messrs. Fricks, Schievelbein, Anderson, Clarkson and Little were
$26,504, $15,042, $9,684, $6,499, and $6,499, respectively.
(c) Mr. Anderson was granted 2,000 restricted shares during 1998.
Restrictions lapse after three years of continued employment from date of
grant. As of December 31, 1998, Mr. Anderson held 2,000 restricted shares
with a value of $66,875.
(d) Includes options exchanged for previously held Tenneco options granted
prior to the Spin-off.
(e) Includes the dollar value of grants of restricted stock made pursuant
to Tenneco restricted stock plans based on the price of the common stock of
Tenneco on the date of grant. All grants of Tenneco restricted stock vested
on November 1, 1996.
(f) Messrs. Anderson and Little joined the company in 1996. The amount
reported reflects less than a full year's compensation.
<PAGE>
(g) Includes a one-time payment of $65,000 in connection with Mr. Little's
acceptance of employment with the Company.
OPTION GRANTS IN 1998
The following table sets forth the number of stock options to acquire Newport
News Shipbuilding Common Stock that were granted in 1998 to the following
persons named in the Summary Compensation Table. The Company has not granted any
SAR's.
<TABLE>
<CAPTION>
Potential Realizable Value
INDIVIDUAL GRANTS(a) at Assumed Annual Rates
------------------------------------------------------------ of Stock Price
Number of % Of Total Appreciation for Option
Securities Options Term
Underlying Granted to Exercise or --------------------------
Options Employees in Base Price
NAME Granted(#) Fiscal Year(b) Per Share Expiration Date 5% 10%
<S> <C> <C> <C> <C> <C> <C>
William P. Fricks 68,515 10.99% $24.812 1/1/08 $1,069,118 $2,709,352
Thomas C. Schievelbein 35,870 5.75% $24.812 1/1/08 $559,721 $1,418,441
David J. Anderson 25,390 4.07% $24.812 1/1/08 $396,189 $1,004,020
Stephen B. Clarkson 16,685 2.68% $24.812 1/1/08 $260,355 $659,790
Alfred Little, Jr. 16,685 2.68% $24.812 1/1/08 $260,355 $659,790
</TABLE>
(a) All options vest ratably over three years beginning with the first
anniversary of the original grant date.
(b) Based on 623,663 options granted to all employees in 1998.
AGGREGATE OPTION EXERCISES IN 1998 AND 1998 YEAR-END OPTION VALUES
The following table provides information as to options exercised by each of the
named executive officers of the Company during 1998, and the number of
securities underlying unexercised options and the value of unexercised,
in-the-money options at fiscal year-end. No options were exercised during 1998
by the individuals named in the Summary Compensation Table. The Company has not
granted any SAR's.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised In--
Options at Fiscal The-Money Options at
Shares Year-End(#) Fiscal Year-End($)(a)
Acquired on Value -------------------------- -----------------------------
NAME Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William P. Fricks -- -- 165,800 174,902 $3,137,412 $2,566,794
Thomas C. Schievelbein -- -- 71,345 90,459 $1,338,461 $1,322,559
David J. Anderson -- -- 12,433 50,257 $229,233 $677,486
Stephen B. Clarkson -- -- 38,167 39,032 $715,446 $557,990
Alfred Little, Jr. -- -- 8,800 34,285 $162,250 $468,416
</TABLE>
(a) The values shown equal the difference between the exercise price of
unexercised in-the-money options and the average of the high and low
trading prices of Newport News Shipbuilding Common Stock on December 31,
1998. Options are in the money if the fair market value of the Common Stock
exceeds the exercise price of the option.
<PAGE>
LONG-TERM INCENTIVE PLAN PERFORMANCE SHARE AWARDS IN 1998
The following table shows the value of performance shares granted during 1998
under the Newport News Shipbuilding Stock Ownership Plan that are earned pro
rata, based on the achievement of specified share price targets over a three
year performance period.
<TABLE>
<CAPTION>
Number of Performance or
Shares, Units or Other Period Until
Other Rights Maturation or Threshold Target($) Maximum Target($)
Name (#) Payout $30 Per Share $40 Per Share(a)
---- ---------------- ----------------- -------------------- -----------------
<S> <C> <C> <C> <C>
William P. Fricks 51,385 3 years $1,541,550 $2,055,400
Thomas C. Schievelbein 25,110 3 years $753,300 $1,004,400
David J. Anderson 17,775 3 years $533,250 $711,000
Stephen B. Clarkson 10,845 3 years $325,350 $433,800
Alfred Little, Jr. 10,845 3 years $325,350 $433,800
</TABLE>
(a) Earned shares will be paid in stock, cash or a combination, at the
Compensation Committee's discretion. No shares earned will vest before the
expiration of three years from the grant date (1/2/98). During this
three-year period, the awards are subject to forfeiture, should the named
executive officer cease to be employed by the Company, or one of its
subsidiaries, other than as a result of death, disability or retirement.
The three-year performance period during which the awards may be earned
ends on 1/1/2000 whether or not stock price objectives were achieved.
Dividend equivalent payments made on unvested awards during 1998 are
included in the named executive officers' other compensation for 1998.
Awards do not entail voting rights.
The following table shows the threshold, target and maximum number of shares of
Newport News Shipbuilding Common Stock, which can be earned, based on
performance shares granted during 1998. The number of shares earned depends upon
the achievement of earnings per share objectives.
<TABLE>
<CAPTION>
Performance or
Number of Other Period
Shares, Units or Until Estimated Future Payouts
Other Rights Maturation or -------------------------------------
Name (#) Payout(a) Threshold(#) Target(#) Maximum(#)
- ---- ---------------- ------------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
William P. Fricks 20,150 3 Years 6,045 20,150 40,300
Thomas C. Schievelbein 10,550 3 Years 3,165 10,550 21,100
David J. Anderson 7,470 3 Years 2,241 7,470 14,940
Stephen B. Clarkson 4,910 3 Years 1,473 4,910 9,820
Alfred Little, Jr. 4,910 3 Years 1,473 4,910 9,820
</TABLE>
(a) 1/2/98 through 12/31/2000.
The following table shows the value of performance-accelerated restricted
shares granted during 1998 under the Newport News Stock Ownership Plan. The
performance-accelerated restricted shares vest if an established stock price
target is attained prior to the expiration of a specified performance period and
if the holder of these restricted shares has continued employment for at least
two years from the date of grant. If this threshold target is not attained
during the performance period, the holder will vest after three years of
continued empoyment from the date of grant
<TABLE>
<CAPTION>
Number of Shares, Performance or Other
Units or Other Period Until Threshold Target ($)
Name Rights (#) Maturation Or Payout (a) $26 per Share (b)
- ---- ---------------- ------------------------ -----------------
<S> <C> <C> <C>
William P. Fricks 20,600 3 Years $535,600
</TABLE>
(a) January 28, 1998 through March 13, 2001
(b) The stock price objective is attained if the average closing price of
Newport News common stock is equal to or exceeds $26.00 per share
for any ten consecutvie trading days during the period January 28, 1998
through March 13, 2001.
<PAGE>
PENSION PLAN TABLE
The following table sets forth the aggregate estimated annual benefits payable
upon normal retirement pursuant to the Company's Retirement Plan (the
"Retirement Plan"), and certain non-qualified structures. The Company has
adopted non-qualified structures to provide employees with the benefits that
would be provided under the Retirement Plan but for applicable legal limits. The
numbers set forth in the following table assume payments under those structures.
<TABLE>
<CAPTION>
Years of Credited Participation
----------------------------------------------------------------------------
Remuneration 5 10 15 20 25 30 35
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 200,000 $15,700 $ 31,400 $ 47,100 $ 62,900 $ 78,600 $ 94,300 $110,000
300,000 23,600 47,100 70,700 94,300 117,900 141,400 165,000
400,000 31,400 62,900 94,300 125,700 157,100 188,600 220,000
500,000 39,300 78,600 117,900 157,100 196,400 235,700 275,000
600,000 47,100 94,300 141,400 188,600 235,700 282,900 330,000
700,000 55,000 110,000 165,000 220,000 275,000 330,000 385,000
800,000 62,900 125,700 188,600 251,400 314,300 377,100 440,000
900,000 70,700 141,400 212,100 282,900 353,600 424,300 495,000
1,000,000 78,600 157,100 235,700 314,300 392,900 471,400 550,000
1,100,000 86,400 172,900 259,300 345,700 432,100 518,600 605,000
1,200,000 94,300 188,600 282,900 377,100 471,400 565,700 660,000
1,300,000 102,100 204,300 306,400 408,600 510,700 612,900 715,000
1,400,000 110,000 220,000 330,000 440,000 550,000 660,000 770,000
1,500,000 117,900 235,700 353,600 471,400 589,300 707,100 825,000
</TABLE>
The benefits set forth above are computed as a straight life annuity and are
based on years of credited participation in the Retirement Plan and the
employee's average base salary during the final five years of credited
participation in the Plan; such benefits are subject to an offset for benefits
accrued under the Company's former parent's retirement plan but are not subject
to any deduction for Social Security. The estimated credited years of
participation for Messrs. Fricks, Schievelbein, Anderson, Clarkson, and Little
are 36, 10, 9, 7 and 11, respectively.
Messrs. Fricks, Schievelbein and Anderson have employment agreements that
provide retirement benefits based on the average of their base salary and
bonuses during the term of the agreement.
COMPENSATION OF DIRECTORS
All directors who are not also employees of the Company are paid a director's
fee of $28,000 per annum, $12,500 in cash and the remainder in restricted shares
of Company Common Stock, and an attendance fee of $1,250, plus expenses, for
each meeting of the Board of Directors and an attendance fee of $1,000, plus
expenses, for each committee meeting attended. Each director who serves as
chairman of a committee of the Board is paid an additional fee of $3,000 per
annum per chairmanship.
Directors who are not also employees of the Company each receive an initial
grant of 2,000 stock options and an additional 2,000 stock options annually.
Directors who are not also employees of the Company each receive a one-time
grant of 1,000 shares of restricted stock upon joining the Board.
EMPLOYMENT AGREEMENTS AND CHANGE-IN-CONTROL ARRANGEMENTS
The Company has an employment agreement with Mr. Fricks for a term ending
December 12, 1999. Effective January 1, 1999, Mr. Fricks will receive annual
compensation of not less than $560,000, subject to such adjustments as may, from
time to time, be approved by the Compensation Committee of the Board of
Directors, and annual financial planning services and retirement and other
benefits. The agreement provides that, upon Mr. Fricks' separation from the
Company, he will receive career transition assistance of up to $75,000. Upon
involuntary termination, or if the term of the agreement is not extended, the
Company will pay Mr. Fricks a severance benefit in an amount equal to three
times the sum of his then-current base salary and the greater of (a) his target
bonus for the calendar year in which termination occurs or (b) his most recent
awarded bonus.
Subject to approval of the Board of Directors, Mr. Fricks' outstanding
restricted stock, stock option and performance share awards will vest and/or
become exercisable in the event of his involuntary termination or, if the term
of the agreement is not extended. The agreement includes a supplemental
executive retirement plan (SERP) which provides for certain retirement benefits.
<PAGE>
The Company also has employment agreements with Messrs. Schievelbein and
Anderson for three-year terms commencing June 1, 1998. Effective January 1,
1999, Messrs. Schievelbein and Anderson will receive annual compensation of not
less than $381,000 and $330,000, respectively, subject to adjustments as may,
from time to time, be approved by the Compensation Committee of the Board of
Directors, and annual financial planning services and retirement and other
benefits. The agreements provide that upon separation from the Company, Messrs.
Schievelbein and Anderson will each receive career transition assistance of up
to $50,000. Upon involuntary termination, or if the terms of their agreements
are not extended, the Company will pay Messrs. Schievelbein and Anderson a
severance benefit in an amount equal to two times the total cash compensation
(base salary plus targeted bonus) in effect on the date of termination.
In addition, subject to the approval of the Compensation Committee of the Board
of Directors, outstanding restricted stock, stock option and performance share
awards held by Messrs. Schievelbein and Anderson will vest and/or become
exercisable in the event of their involuntary termination, or if the terms of
their agreements are not extended. The agreements also include a supplemental
executive retirement plan (SERP) which provides for certain retirement benefits.
The Company has established a severance plan for the benefit of certain
employees and officers whose positions are terminated under certain
circumstances following a change in control of the Company. Under the severance
plan, key executives of the rank of Senior Vice President and above, as well as
certain other officers, would receive three times the sum of their annual salary
and the greater of their average bonus awards, together with any special awards,
over the last three years or their targeted bonus in effect at the time of the
change in control, if they are terminated within three years of a change in
control. Certain other key employees would receive two times the sum of their
annual salary and the greater of their average bonus awards, together with any
special awards, over the last three years or their targeted bonus in effect at
the time of the change in control, if they are terminated within three years of
a change in control.
NEWPORT NEWS SHIPBUILDING INC. BOARD COMPENSATION AND BENEFITS COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The Compensation and Benefits Committee (the "Compensation Committee") of the
Board of Directors, which consists entirely of non-employee directors, provides
the following report on executive compensation. Under the Compensation
Committee's supervision, the Company has developed and implemented the executive
compensation philosophy, policies, plans, and programs described below.
COMPENSATION PHILOSOPHY
The Company has established a basic philosophy for executive compensation to
reward executives primarily based upon their ability to improve the financial
performance of the Company and increase shareholder value. The Compensation
Committee believes this pay-for-performance philosophy will appropriately link
the interest of executives with those of stockholders.
Accordingly, the Company's executive compensation program has been structured
to:
o Align the total compensation paid to the Company's executives with the
Company's business goals, including (but not limited to) operating income,
cash flow, earnings per share, stock price growth, business development,
quality of earnings, EEO, leadership development, and health, safety, and
environmental.
o Reinforce a pay-for-performance culture through significant short- and
long-term incentives. Performance-based pay constitutes the significant
majority of compensation opportunities available to all of the Company's
senior executives. For performance above target, executives have
significantly higher award opportunities. For performance below target, award
opportunities are significantly reduced and below certain levels, no award
may be earned. Greater emphasis is placed on incentives which reward
executives for sustained long-term performance.
o Strengthen the linkage between stockholders' and executives' interests
through stock-based incentives and stock ownership requirements. A
significant portion of each executive's on-going compensation will be derived
from stock-based compensation, including stock options and performance
shares, which require stock price growth and/or achievement of earnings per
share growth before any value is received by executives. Additionally, each
executive is required to achieve and maintain certain stock ownership levels,
which vary with executive level. These stock-based incentives also contain
vesting requirements, which aid in the retention of key executive talent.
<PAGE>
o Attract and retain high quality executive talent by providing competitive
total compensation. The on-going compensation program provides total
compensation levels at market medians (50th percentile) when the Company
achieves targeted performance objectives. However, Company performance above
established performance objectives can result in a total compensation package
that is above market medians. Conversely, Company performance below
established performance objectives can result in a total compensation package
significantly below market medians.
Under this structure, the Company's executive compensation program has been
designed to provide compensation from three primary sources -- base salary,
annual cash incentive awards, and long-term, stock-based incentive awards,
such as stock options and performance shares. The following is a description
of each of the components of the program.
BASE SALARY
The Compensation Committee reviews annually base salaries for senior executives.
The Company's annual salary plan is based on (i) the executive's performance
against objectives, (ii) demonstration of leadership competencies, (iii)
judgments as to the executive's past and expected future contributions to the
Company and (iv) market survey data for comparable positions. Salary
recommendations for senior executives are developed under the direction of the
Chief Executive Officer and approved by the Compensation Committee. However, the
base salary of the Chief Executive Officer is set by the Compensation Committee
alone.
The information on competitive market salaries is provided to the Compensation
Committee with the assistance of an independent executive compensation
consultant. Survey data is derived from a sample of similarly sized
organizations within the same or highly related industries (the "Comparator
Group"). The Comparator Group consists of organizations within the shipbuilding,
defense, and heavy manufacturing industries. The companies comprising the
Comparator Group are not necessarily the same companies in the peer group
indices in the performance graph included in this proxy statement. Such indices
are intended to provide a relative comparison of the Company's total return to
shareholders and are not necessarily indicative of the Company's market for
executive talent.
In keeping with the Company's performance-based compensation philosophy,
including more emphasis on variable than fixed pay, salaries for the Company's
senior executive officers, including the named executives, are at or below
market medians (50th percentile) for similar positions at companies of similar
size in the Comparator Group.
ANNUAL INCENTIVES
Annual incentive plan opportunities (targets) are also established using market
survey data. The Company's Annual Incentive Plan provides that Company
executives will receive cash payments from the Plan if they meet specified
performance goals. These goals will typically consist of (but not be limited to)
one or more of the following financial measures: operating income, operating
cash flow, earnings per share, return on equity, return on investment, and net
income. Larger payouts may be earned if Plan goals are exceeded. Conversely,
smaller payouts (or no payout) may be earned if Plan goals are not met.
In addition, the level of awards indicated by achievement of financial goals can
be adjusted, upward or downward, based on the Company's performance related to
other important business objectives including health and safety, equal
employment opportunity, environmental, leadership development, business
development and quality of earnings.
The Compensation Committee is responsible for establishing performance measures
and performance targets at the beginning of each year, for evaluating
performance against these targets, and for determining awards earned under the
Plan, as well as specific award levels for senior executives. Individual
incentive awards are based on Company performance against targets, both
financial and non-financial, and evaluations of individual performance.
For 1998, the principal financial measures were operating income (weighted 70%)
and operating cash flow (weighted 30%). Actual performance exceeded budgeted
performance for 1998 resulting in awards to executives, including all named
executives, at levels ranging from 25% to 55% above targeted levels.
<PAGE>
LONG-TERM INCENTIVES
The Company's long-term, stock-based incentive plan is designed to align a
significant portion of the executive's total compensation with stockholder
interests. The Stock Ownership Plan, and its successor Stock Incentive Plan,
provides the flexibility to grant long-term incentives in a variety of forms,
including stock options, performance shares, restricted stock, stock
appreciation rights, and other stock-based incentive vehicles. Periodically, the
Compensation Committee establishes the types and levels of long-term incentives
it believes are most likely to support the achievement of the Company's
performance and total compensation objectives. At increasing levels of executive
responsibility, it is the Compensation Committee's intent that executives derive
a larger percentage of total compensation from long-term, stock-based incentive
vehicles.
For 1998, long-term incentives were provided through a combination of stock
options and performance shares. Incentive opportunities were graduated by
executive level. Earnings per share ("EPS") was the performance measure for
determining actual performance share awards earned under the Plan. Payout levels
are based upon performance against EPS goals over a three year period. Larger
payouts are earned if EPS goals are exceeded. Conversely, smaller payouts (or no
payout) may be earned if EPS goals are not met. Based on the Company's actual
EPS for 1998, performance exceeded target for the 1997 grant and approximated
target for the 1998 grant.
The number of options and performance shares granted to each executive was based
on a review of the grant levels and practices for a Comparator Group of publicly
traded organizations of comparable size operating in similar industries. Based
on the Company's pay philosophy, the opportunities for the Company's executive
officers are targeted somewhat above the median of the market.
In consideration of its need to retain and provide incentive to key executives
and to strengthen the link between executive and stockholder interests, in 1998
the Company granted additional performance shares to key executives, including
the CEO. The grant has a minimum vesting period of three years. Beyond that
minimum, vesting is linked to stock price performance, and no vesting occurs
unless stock price targets are achieved.
EXECUTIVE STOCK OWNERSHIP
The Compensation Committee believes that stockholder interests are enhanced
through executive stock ownership. Accordingly, the Compensation Committee has
established stock ownership requirements for its key executives. The share
requirements are defined as a multiple of each executive's base salary. The
multiple varies with level of executive responsibility from four times base
salary at the highest executive level ("CEO") to one times base salary at the
lowest executive level. As of December 31, 1998, all of the named executive
officers included in the Summary Compensation Table have met and exceeded
established requirements.
CEO COMPENSATION
The Compensation Committee established the compensation level for Mr. Fricks
using data for CEOs in the Comparator Group as a benchmark. The Compensation
Committee set Mr. Fricks' cash compensation opportunities (salary plus annual
incentive) below the market median while correspondingly setting long-term,
stock-based compensation opportunities at a level above the market median. This
approach corresponds to the Company's stated philosophy of emphasizing
performance-based pay over fixed pay. Total compensation opportunities
approximate the market median. Annually, Mr. Fricks will be entitled to receive
compensation under the Annual Incentive Plan and stock-based incentive grants
consistent with the provisions of the Stock Ownership Plan.
For 1998, the Committee increased Mr. Fricks' salary to $540,000, which was a
2.9% increase from his $525,000 salary in 1997. Mr. Fricks' base salary was
increased by the Committee from $540,000 to $560,000 (3.7%), effective January
1, 1999. These increases are significantly below the average for his peers in
the "Comparator Group" and, in percentage terms, are below the average merit
increases received by other salaried employees in 1998 and 1999.
In recognition of exceptional Company performance in 1998, Mr. Fricks received
an annual incentive award of $685,000. In 1997, because of the Company's
restated financial performance and in connection with the Company's decision to
exit the commercial shipbuilding business, Mr. Fricks elected to forego his
entire annual incentive award, even though an award would have been earned under
the provisions of the Plan.
<PAGE>
Mr. Fricks was also granted 20,600 shares of performance-accelerated restricted
stock. The award was made to complete the Stock Incentive Grant approved in 1997
in connection with the Company's spin-off from Tenneco. The vesting period of
the 1998 award was extended by one year beyond the vesting period of the
original 1997 award to strengthen the retention potential of the grant. The
award also provides for earlier vesting if an additional stock price target is
achieved, thereby strengthening the performance-based nature of the award.
$1 MILLION TAX LIMITATION
The Internal Revenue Code of 1986, as amended, provides that a publicly-owned
corporation may not deduct compensation in excess of $1 million per year paid to
a corporation's Chief Executive Officer or other named executives, subject to
certain exceptions. One exception is for performance-based compensation that
satisfies certain conditions of Section 162(m) of the Code.
The Company, desiring both to compensate its executives competitively and to
protect its tax deduction for compensation, has elected to use certain
stock-based incentives (i.e., stock options and performance shares) that qualify
as "performance-based compensation." These incentives qualify as
"performance-based compensation" because their value to the executive is
determined by either increases in the Company's stock price alone or in
combination with the achievement of objective performance goals. The Company
does not expect any compensation to be non-deductible for Federal Income Tax
purposes.
The Compensation Committee believes the overall design of the compensation
program appropriately links executive and stockholder interests. The
Compensation Committee will regularly evaluate the program to ensure continued
future alignment.
COMPENSATION AND BENEFITS COMMITTEE
Joseph J. Sisco --
Chairman
Dana G. Mead
Stephen R. Wilson
<PAGE>
PERFORMANCE GRAPH
The following graph presents a comparison of the cumulative total stockholder
return for calendar years ended December 31, 1997 and 1998 as compared to the
Standard & Poors 400 Midcap Stock Index and the Standard & Poors
Aerospace/Defense 500. The Company is a component of both indices. These figures
assume that all dividends paid over the performance period were reinvested, and
that the starting value of each index and the investment in the Company Common
Stock was $100 on December 31, 1996. The graph is not, and is not intended to
be, indicative of future performance of Company Common Stock. Performance for
years prior to 1997 are not shown, because until December 11, 1996, the Company
was a wholly-owned subsidiary of Tenneco Inc.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG NEWPORT NEWS SHIPBUILDING INC.,
S&P MIDCAP AND S&P AEROSPACE/DEFENSE
[GRAPH]
Newport News Shipbuilding $100 $171 $226
S&P Aerospace/Defense 500 $100 $103 $ 79
S&P 400 (Midcap) $100 $132 $157
(1) Total return equals stock price appreciation plus reinvested dividends.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Set forth below is the ownership, as of April 1, 1999 (except as otherwise
stated), of the number of shares and percentage of Company Common Stock
beneficially owned by (i) each director of the Company, (ii) each of the
executive officers of the Company whose names are set forth on the Summary
Compensation Table, (iii) all executive officers and directors of the Company as
a group and (iv) all persons beneficially owning more than 5% of the outstanding
Company Common Stock.
<TABLE>
<CAPTION>
Shares of the Aggregate Options for
Company Common Stock Percentage Company
Owned(a) Owned(b) Common Stock
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
William P. Fricks............... 406,152 (c)(d) 1.16% 258,391
Hon. Gerald L. Baliles.......... 4,363 (c) * 1,665
Leon A. Edney, Admiral (Ret.)... 4,263 (c) * 1,665
Dr. William R. Harvey........... 4,263 (c) * 1,665
Dana G. Mead.................... 20,780 (c)(e) * 1,665
Dr. Joseph J. Sisco............. 5,362 (c) * 1,665
Stephen R. Wilson............... 4,263 (c) * 1,665
Thomas C. Schievelbein.......... 185,954 (c)(d) * 118,323
David J. Anderson............... 83,911 (c)(d) * 33,329
Stephen B. Clarkson............. 96,067 (c)(d) * 57,275
Alfred Little, Jr............... 50,953 (c)(d) * 23,161
All directors and executive
officers as a group
(23 persons)................... 1,432,575 (c)(d)(e) 4.09% 849,428
First Manhattan Co.
437 Madison Avenue
New York, New York 10022....... 2,895,814 (f) 8.26%
Massachusetts Financial Services
Company
500 Boylston Street, 15th Floor
Boston, Massachusetts 02116.... 4,431,029 (g) 12.63%
Perry Corp.
599 Lexington Avenue, 36th Floor
New York, New York 10022....... 2,049,300 (h) 5.84%
Neuberger Berman, LLC
605 Third Avenue
New York, New York 10158-3698.. 2,249,220 (i) 6.41%
</TABLE>
(a) Except as described in the notes below, each director, executive
officer and 5% holder has sole voting and dispositive power over the shares
beneficially owned, as set forth in this column.
(b) Except as indicated, each person or group beneficially owns less than
1% of the outstanding Company Common Stock. Percentages are based on
35,068,024 shares of Company Common Stock outstanding as of April 15, 1999.
(c) Includes options to acquire shares of Company Common Stock held by
Messrs. Fricks, Baliles, Edney, Harvey, Mead, Sisco, Wilson, Schievelbein,
Anderson, Clarkson and Little, which may be exercised on or before May 31,
1999, for 258,391, 1,665, 1,665, 1,665, 1,665, 1,665, 1,665, 118,323,
33,329, 57,275, and 23,161 shares of Company Common Stock, respectively.
All directors and executive officers as a group have options, which may be
exercised on or before May 31, 1999, for shares of Company Common Stock.
(d) Includes shares held under the Company's 401(k) plan. Shares in the
Company's 401(k) plan held by Messrs. Fricks, Schievelbein, Anderson,
Clarkson and Little were 10,654, 1,732, 1,122, 3,116, and 1,055,
respectively. All directors and executive officers as a group held 40,845
shares in the 401(k) plan.
(e) Includes shares held under the Tenneco Inc. 401(k) plan.
<PAGE>
(f) The number of shares owned is as reported in Schedule 13G filed by
First Manhattan Co. with the Securities and Exchange Commission on February
11, 1999. First Manhattan Co. reported sole voting and dispositive power
for 88,300 and shared voting power for 2,712,364 and shared dispositive
power for 2,807,514 of the shares beneficially owned.
(g) The number of shares owned is as reported in Schedule 13G filed by
Massachusetts Financial Services Company with the Securities and Exchange
Commission on February 11, 1999. Massachusetts Financial Services Company
reported sole voting power for 363,829 and sole dispositive power for
431,029 of the shares beneficially owned.
(h) The number of shares owned is as reported in Schedule 13G filed by
Perry Corp. with the Securities and Exchange Commission on February 16,
1999. Perry Corp. and Richard C. Perry reported sole voting and investment
power for all shares beneficially owned.
(i) The number of shares owned is as reported in Schedule 13G filed by
Neuberger Berman, LLC with the Securities and Exchange Commission on
February 9, 1999. Neuberger Berman, LLC reported sole voting power for
905,220 and shared voting power for 1,326,600 such shares and shared
dispositive power for all of such shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Governor Baliles, a director of the Company, is a partner in the law firm of
Hunton & Williams. Hunton & Williams has provided legal services to the Company
during the last two years.
<PAGE>
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 64 TO 66.
<PAGE>
(b) Reports on Form 8-K
During the fourth quarter of the year ended December 31, 1998, the Company
filed one Current Report on Form 8-K reporting the effect, in conjunction
with applicable provisions under the Company's Amended and Restated Bylaws
dated October 12, 1998, of the amendments to Rule 14a-4(c) under the
Securities Exchange Act of 1934, as amended, adopted in May 1998 by the
Securities and Exchange Commission.
<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 AMENDMENT NO. 1 ON FORM 10-K/A TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
NEWPORT NEWS SHIPBUILDING INC.
Date: 4/30/99 By: /s/ William P. Fricks
-----------------------------------------
William P. Fricks
Chairman and
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
AMENDMENT NO. 1 ON FORM 10-K/A HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON
BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE
/s/ William P. Fricks* Chairman and Date: 4/30/99
- ------------------------------- Chief Executive Officer
William P. Fricks
/s/ David J. Anderson Senior Vice President and Date: 4/30/99
- ------------------------------- Chief Financial Officer
David J. Anderson
/s/ Charles P. Wingfield, Jr. Vice President and Date: 4/30/99
- ------------------------------- Controller
Charles P. Wingfield, Jr.
/s/ Gerald L. Baliles* Director Date: 4/30/99
- -------------------------------
Hon. Gerald L. Baliles
/s/ Leon A. Edney* Director Date: 4/30/99
- -------------------------------
Leon A. Edney, Admiral (Ret.)
/s/ Dr. William R. Harvey* Director Date: 4/30/99
- -------------------------------
Dr. William R. Harvey
/s/ Dana G. Mead* Director Date: 4/30/99
- -------------------------------
Dana G. Mead
/s/ Dr. Joseph J. Sisco* Director Date: 4/30/99
- -------------------------------
Dr. Joseph J. Sisco
/s/ Stephen R. Wilson* Director Date: 4/30/99
- -------------------------------
Stephen R. Wilson
*Executed by the undersigned attorney-in-fact in the name and on behalf of the
named executive and directors pursuant to powers of attorney filed as Exhibit
24.1 to the Registrant's Annual Report on Form 10-K for the year ended December
31, 1998 (Commission File No. 1-12385).
By: /s/ Peter A. V. Huegel
__________________________
Peter A. V. Huegel
Attorney-in-fact
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1 Restated Certificate of Incorporation of the Company dated as of
December 11, 1996. (Incorporated herein by reference to the
Company's Registration Statement on Form S-4 dated January 23,
1997, as amended (Registration No. 333-20285)).
3.2 Amended and Restated By-laws of the Company dated as of
October 12, 1998. (Incorporated herein by reference to the
Company's Current Report on Form 8-K, filed on January 22, 1999
(File No. 1-12385)).
4.1 Specimen Certificate of the Company's Common Stock. (Incorporated
herein by reference to the Company's Registration Statement on
Form 10 dated October 30, 1996, as amended (Registration No.
1-12385)).
4.2 Form of Rights Agreement dated as of June 10, 1998, between the
Company and First Chicago Trust Company of New York, as Rights
Agent. (Incorporated herein by reference to the Company's
Registration Statement on Form 8A, dated June 10, 1998, (File No.
001-12385)).
4.3 Form of Certificate of Voting Powers, Designations, Preferences
and Relative Participating, Optional and Other Special Rights and
Qualifications, Limitations or Restrictions of Series A
Participating Cumulative Preferred Stock of the Company. (Attached
as Exhibit A to the Rights Agreement incorporated herein by
reference as Exhibit 4.2 hereto).
4.4 Form of Right Certificate. (Attached as Exhibit B to the Rights
Agreement incorporated herein by reference as Exhibit 4.2 hereto).
4.5 Certificate of Elimination of Newport News Shipbuilding Inc.'s
Series A Participating Junior Preferred Stock. (filed in
connection with the expiration of the Company's previous Rights
Agreement), dated June 4, 1998 (Incorporated herein by reference
to the Company's Registration Statement on Form 8A, dated June 10,
1998, (File No. 001-12385)).
4.6 Form of Senior Note issued on March 13, 1997 including Guarantees.
(Incorporated herein by reference to the Company's Registration
Statement on Form S-4 dated January 23, 1997, as amended
(Registration No. 333-20285)).
4.7 Form of Senior Subordinated Note issued on March 13, 1997
including Guarantees. (Incorporated herein by reference to the
Company's Registration Statement on Form S-4 dated January 23,
1997, as amended (Registration No. 333-20285)).
4.8 Senior Note Indenture dated as of November 26, 1996. (Incorporated
herein by reference to the Company's Registration Statement on
Form S-4 dated January 23, 1997, as amended (Registration No.
333-20285)). Senior Subordinated Note Indenture dated as of
November 26, 1996. (Incorporated herein by reference to the
Company's Registration Statement on Form S-4 dated January 23,
1997, as amended (Registration No. 333-20285)).
4.10 First Supplemental Senior Note Indenture dated as December 11,
1996. (Incorporated herein by reference to the Company's
Registration Statement on Form S-4 dated January 23, 1997, as
amended (Registration No. 333-20285)).
4.11 First Supplemental Senior Subordinated Note Indenture dated as of
December 11, 1996. (Incorporated herein by reference to the
Company's Registration Statement on Form S-4 dated January 23,
1997, as amended (Registration No. 333-20285)).
4.12 Senior Notes Registration Rights Agreement dated as of November
26, 1996. (Incorporated herein by reference to the Company's
Registration Statement on Form S-4 dated January 23, 1997, as
amended (Registration No. 333-20285)).
4.13 Senior Subordinated Notes Registration Rights Agreement dated as
of November 26, 1996. (Incorporated herein by reference to the
Company's Registration Statement on Form S-4 dated January 23,
1997, as amended (Registration No. 333-20285)).
10.1 Distribution Agreement dated as of November 1, 1996 among
Tenneco Inc., New Tenneco Inc. and the Company. (Incorporated
herein by reference to the Company's Registration Statement on
Form S-4 dated January 23, 1997, as amended (Registration No.
333-20285)).
<PAGE>
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. (Incorporated herein by reference to the Company's
Registration Statement on Form S-4 dated January 23, 1997, as
amended (Registration No. 333-20285)).
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. (Incorporated herein by reference to the
Company's Registration Statement on Form S-4 dated January 23,
1997, as amended (Registration No. 333-20285)).
10.4 Debt and Cash Allocation Agreement, dated as of December 11, 1996
among Tenneco Inc., New Tenneco Inc. and the Company.
(Incorporated herein by reference to the Company's Registration
Statement on Form S-4 dated January 23, 1997, as amended
(Registration No. 333-20285)).
10.5 Benefits Agreement, dated as of December 11, 1996 among Tenneco
Inc., New Tenneco Inc. and the Company. (Incorporated herein by
reference to the Company's Registration Statement on Form S-4
dated January 23, 1997, as amended (Registration No. 333-20285)).
10.6 Insurance Agreement, dated as of December 11, 1996 among Tenneco
Inc., New Tenneco Inc. and the Company. (Incorporated herein by
reference to the Company's Registration Statement on Form S-4
dated January 23, 1997, as amended (Registration No. 333-20285)).
10.7 Tax Sharing Agreement, dated as of December 11, 1996 among Tenneco
Inc., the Company, New Tenneco Inc. and El Paso Natural Gas
Company. (Incorporated herein by reference to the Company's
Registration Statement on Form S-4 dated January 23, 1997, as
amended (Registration No. 333-20285)).
10.8 First Amendment to the Tax Sharing Agreement, dated as of December
11, 1996 among Tenneco Inc., the Company, New Tenneco Inc., and El
Paso Natural Gas Company. (Incorporated herein by reference to the
Company's Registration Statement on Form S-4 dated January 23,
1997 as amended (Registration No. 333-20285)).
10.9* Subcontract EB-96-2100-010 between the Company and Electric Boat
Corporation, a subsidiary of General Dynamics, Inc., concerning
the construction of four Virginia Class attack submarines for the
U.S. Navy (without schedules, appendices or exhibits thereto).
10.10 Award/Contract N00024-95-C-2106, issued by Naval Sea Systems
Command to Newport News Shipbuilding for Aircraft Carrier CVN-76.
(Incorporated herein by reference to the Company's Registration
Statement on Form 10 dated October 30, 1996, as amended
(Registration No. 1-12385)).
10.11* Employment agreement dated February 4, 1999, between William P.
Fricks and the Company.
10.12 Employment Agreement between the Company and Mr. David J.
Anderson, Senior Vice President and Chief Financial Officer of the
Company, dated June 1, 1998. (Incorporated herein by reference to
the Company's Quarterly Report on Form 10-Q for the quarter ended
June 21, 1998 (File No. 1-12385)).
10.13 Employment Agreement between the Company and Mr. Thomas C.
Schievelbein, Executive Vice President of the Company, dated June
1, 1998. (Incorporated herein by reference to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 21, 1998
(File No. 1-12385)).
10.14 Newport News Shipbuilding Inc. Stock Ownership Plan.
(Incorporated herein by reference to the Company's Annual Report
on Form 10-K for the year ended December 31, 1996 (File No.
1-12385)).
10.15 Amendment No. 1 to Newport News Shipbuilding Inc. Stock
Ownership Plan, effective as of July 1, 1997. (Incorporated herein
by reference to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 21, 1997 (File No. 1-12385)).
10.16 Amendment No. 2 to Newport News Shipbuilding Inc. Stock
Ownership Plan, effective as of October 8, 1997. (Incorporated
herein by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 21, 1997 (File No. 1-12385)).
10.17 Amendment No. 3 to Newport News Shipbuilding Inc. Stock
Ownership Plan, effective as of May 16, 1997. (Incorporated herein
by reference to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 21, 1997 (File No. 1-12385)).
<PAGE>
10.18 1997 Stock Plan for Directors of Newport News Shipbuilding Inc.
and First Amendment. (Incorporated herein by reference to the
Company's Annual Report on Form 10-K for the year ended December
31, 1996 (File No. 1-12385)).
10.19 Amendment No. 2 to 1997 Stock Plan for Directors of Newport News
Shipbuilding Inc., effective as of October 9, 1997. (Incorporated
herein by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 21, 1997 (File No. 1-12385)).
10.20 Deferred Compensation Plan for Non-employee Directors.
(Incorporated herein by reference to the Company's Annual Report
on Form 10-K for the year ended December 31, 1996 (File No.
1-12385)).
10.21 Deferred Compensation Plan. (Incorporated herein by reference to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 (File No. 1-12385)).
10.22* Newport News Shipbuilding Inc. Change in Control Severance Benefit
Plan for Key Executives as Amended and Restated Effective March
23, 1999.
10.23 Newport News Shipbuilding Inc. 1998 Stock Incentive Plan.
(Incorporated herein by reference to the Company's Registration
Statement on Form S-8 filed on October 19 , 1998 (Registration No.
333-65877)).
10.24 Contract (N00024-94-C-2105) between the Company and the United
States Navy for work necessary to prepare and make ready for the
refueling, overhaul, alteration, repair, and maintenance of the
USS Nimitz (CVN 68) and its reactor plants (without schedules,
appendices or exhibits thereto). (Incorporated by reference to the
Corporation's Quarterly Report on Form 10-Q for the quarter ended
June 21, 1998 (File No.1-12385)).
10.25 Modification No. P00016 of Contract (N00024-94-C-2105), effective
April 16, 1998, between the Company and the United States Navy
(without schedules, appendices or exhibits thereto). (Incorporated
by reference to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 21, 1998 (File No. 1-12385)).
10.26 Agreement and Plan of Merger dated as of January 19, 1999, among
the Company, Ares Acquisition Corporation, a wholly-owned
subsidiary of the Company, and Avondale Industries, Inc.
(Incorporated herein by reference to the Company's Current Report
on Form 8-K, filed on January 22, 1999 (File No.
1-12385)).
10.27 Parent Stock Option Agreement dated as of January 19, 1999,
between the Company and Avondale Industries, Inc. (Incorporated
herein by reference to the Company's Current Report on Form 8-K,
filed on January 22, 1999 (File No. 1-12385)).
10.28 Company Stock Option Agreement dated as of January 19, 1999,
between Avondale Industries, Inc. and the Company (Incorporated
herein by reference to the Company's Current Report on Form 8-K,
filed on January 22, 1999 (File No. 1-12385)).
10.29* Third Amendment to the 1997 Stock Plan for Directors of Newport
News Shipbuilding Inc.
10.30* First Amendment to the Newport News Shipbuilding Inc. Deferred
Compensation Plan, effective December 15, 1998.
10.31* Newport News Shipbuilding Inc. Retirement Benefit Restoration
Plan, effective as of January 1, 1998.
10.32* First Amendment to Newport News Shipbuilding Inc. Deferred
Compensation Plan for Nonemployee Directors.
10.33* Newport News Shipbuilding Inc. Supplemental Executive Retirement
Plan
10.34* First Amendment to Newport News Shipbuilding Inc. Retirement
Benefit Restoration Plan.
21.1* Subsidiaries of the Registrant.
24.1* Powers of Attorney.
27.1* Financial Data Schedule.
* Filed herewith.
Exhibits 10.11, 10.12, 10.13, 10.14, 10.15, 10.16, 10.17, 10.18, 10.19, 10.20,
10.21, 10.22, 10.23, 10.29, 10.30, 10.31, 10.32, 10.33, and 10.34 hereto
constitute management contracts or compensatory plans or arrangements within the
meaning of Item 14(a)(3) of Form 10-K.
EXHIBIT 10.9
Subcontract EB96-2100-010 between the Company and Electric Boat Corporation
<TABLE>
<S> <C> <C> <C>
AWARD/CONTRACT 1. THIS CONTRACT IS A RATED ORDER RATING PAGE OF PAGES
UNDER DPAS (15 CFR 350) DO-A3 1 119
2. CONTRACT (PROC.INST.IDENT.) NO. 3. EFFECTIVE DATE 4. REQUISITION PURCHASE REQUEST/PROJECT NO.
EB-96-C-2100-010 SEE BLOCK 20C
5. ISSUED BY N00024 6. ADMINISTERED BY (If other than Item 5) CC CODE
ELECTRIC BOAT CORPORATION CRITICALLY DESIGNATOR
A GENERAL DYNAMICS COMPANY
EASTERN POINT ROAD
GROTON, CT 06340
PRE-AWARD SURVEY:
7. NAME AND ADDRESS OF CONTRACTOR (no, street, city, county, State and ZIP Code)
8. DELIVERY CEC NO:
( ) FOB ORIGIN (X) OTHER (See below)
NEWPORT NEWS SHIPBUILDING AND DRY DOCK COMPANY SEE SECTIONS E & F
4101 WASHINGTON AVENUE 9. DISCOUNT FOR PROMPT PAYMENT
NEWPORT NEWS, VA 23607
10. SUBMIT INVOICES ITEM 12
TIN NO: (4 copies unless otherwise specified)
CAGE CODE FACILITY CODE TO ADDRESS SHOWN IN
11. SHIP TO/MARK FOR CODE 12. PAYMENT WILL BE MADE BY CODE
SEE SECTION F SEE SECTION B
13. AUTHORITY FOR USING OTHER THAN FULL AND OPEN 14. ACCOUNTING AND APPROPRIATION DATA
COMPETITION
( ) 10 U.S.C. 2304 (c)( ) ( ) 41 U.S.C. 253(c)( )
15A ITEM NO. 15B SUPPLIES/SERVICES 15C QTY 15D UNIT 15E UNIT PRICE 15E AMOUNT
SEE SECTION B
15G. TOTAL AMOUNT OF CONTRACT $ SEE SECTION B
16. TABLE OF CONTENTS
X'd SEC. DESCRIPTION PAGE(S) X'd SEC. DESCRIPTION PAGE(S)
PART I - THE SCHEDULE PART II - CONTRACT CLAUSES
X A SOLICITATION/CONTRACT FORM 1 X I CONTRACT CLAUSES 89
X B SUPPLIES OR SERVICES AND PRICES/COSTS 4 PART III - LIST OF DOCUMENTS, EXPERTS AND
OTHER ATTACH.
X C DESCRIPTION/SPECS/WORK STATEMENT 11 X J LIST OF ATTACHEMENTS 119
X D PACKAGING AND MARKING 42 PART IV - REPRESENTATIO AND INSTRUCTIONS
X E INSPECTION AND ACCEPTANCE 44 K REPRESENTATION, CERTIFICATIONS AND OTHER
X F DELIVERIES OR PERFORMANCE 50 STATEMENTS OF OFFERORS
X G CONTRACT ADMINISTRATION DATA 53 L INSTS., CONDS., AND NOTICES TO OFFERORS
X H SPECIAL CONTRACT REQUIREMENTS 54 M EVALUATION FACTORS FOR AWARD
CONTRACTING OFFICER WILL COMPLETE ITEM 17 OF 18 AS APPLICABLE
17. ( X ) CONTRACTOR'S NEGOTIATED AGREEEMENT 18. ( ) AWARD (Contractor is not required to sign this
document)
(Contractor is required to sign this document and return copies to Your offer or Solicitation Number
issuing office.) Contractor agrees to furnish and deliver all items or including the additions or changes made by you
perform all the services set forth or otherwise identified above and on any which additions or changes are set forth in full
continuation sheets for the consideration stated herein. The rights and above, is hereby accepted as to the items listed
obligations of the parties to this contract shall be subject to and governed above and on any continuation sheets. This award
by the following documents: (a) this award/contract, (b) the solicitation, if consummates the contract which consists of the
any, and (c) such provisions, representations, certifications and following documents: (a) the Governess's
specifications as are attached or incorporated by reference herein. solicitations and your offer, and (b) this
(Attachments are listed herein.) award/contract. No further contractual
document is necessary.
19A. NAME AND TITLE OF SIGNER (Type or print) 20A. NAME AND TITLE OF SIGNER (Type or print)
T.C. SCHIEVELBEIN J.V. Leonard, Jr.
Executive Vice President Vice President - Finance
19B. NEWPORT NEWS SHIPBUILDING 19C. DATE SIGNED 20B. ELECTRIC BOAT CORPORATION 20C. DATE SIGNED
AND DRY DOCK COMPANY A GENERAL DYNAMICS COMPANY
BY /s/ T.C. Schievelbein 9/30/98 BY J.V. Leonard, Jr. 9/30/98
--------------------- -----------------
(Signature of person authorized to sign) (Signature of person authorized to sign)
</TABLE>
<PAGE>
SUBCONTRACT
KB-96-C-2100-010
SECTION B - SUPPLIES OR SERVICES AND PRICES/COSTS
ITEM SUPPLIES/SERVICES QTY UNIT
- --------------------------------------------------------------------------------
0011 NSSN-1
0011AA Construct NSSN-1 1 Ship
Target Cost $197,292,258 See Note A
0011AB Not Used
0011AC Data to Support 0011 NSP NSP
(Not Separately Priced, Costs
are included in Subline 0011AA)
0011AD Plan and Mark Material 1 Ship
(See Note D)
Estimated Cost $66,222,000 See Note A
0011AE On-Board Repair Parts 1 Ship
OPTION (See Note D)
Estimated Cost $2,703,600 See Note A
0012 NSSN-2
0012AA Construct NSSN-2 1 Ship
Target Cost $566,370,403 See Note A
0012AB Post Shakedown Availablity TBD TBD
(PSA) for NSSN-2 (See Note B)
4
<PAGE>
SUBCONTRACT
EB-96-C-2100-010
ITEM SUPPLIES/SERVICES QTY UNIT
- --------------------------------------------------------------------------------
0012AC Data to Support 0012 NSP NSP
(Not Separately Priced, Costs
are included in Subline 0012AA)
0012AD Plan and Mark Material 1 Ship
(See Note D)
Estimated Cost $107,151,000 See Note A
0012AE On-Board Repair Parts 1 Ship
OPTION (See Note C)
Estimated Cost $4,032,000 See Note A
0013 NSSN-3
0013AA Construct NSSN-3 1 Ship
Target Cost $176,966,251 See Note A
0013AB Not Used
0013AC Data to Support 0013 NSP NSP
(Not Separately Priced, Costs
are included in Subline 0013AA)
0013AD Plan and Mark Material 1 Ship
(See Note D)
Estimated Cost $110,143,200 See Note A
5
<PAGE>
SUBCONTRACT
EB-96-C-2100-010
ITEM SUPPLIES/SERVICES QTY UNIT
- --------------------------------------------------------------------------------
0013AE On-Board Repair Parts 1 Ship
OPTION (See Note C)
Estimated Cost $4,032,000 See Note A
0014 NSSN-4
0014AA Construct NSSN-3 1 Ship
Target Cost $447,058,455 See Note A
0014AB Post Shakedown Availability TBD TBD
(PSA) for NSSN-4 (See Note B)
0014AC Data to Support 0014 NSP NSP
(Not Separately Priced, Costs
are included in Subline 0014AA)
0014AD Plan and Mark Material 1 Ship
(See Note D)
Estimated Cost $113,810,700 See Note A
0014AE On-Board Repair Parts 1 Ship
OPTION (See Note C)
Estimated Cost $4,189,300 See Note A
0015 Ordering Provision for TBD TBD
NSSN Construction and
Support (See Note B)
6
Exhibit 10.11
February 4, 1999
Mr. William P. Fricks
2327 West Island Road
Williamsburg, Virginia 23185
Dear Bill:
As Chairman of the Compensation and Benefits Committee ("Compensation
Committee") of the Board of Directors of Newport News Shipbuilding Inc. ("NNS"
or "Company"), I am pleased to set forth this Amended Employment Agreement
("Agreement"). This Agreement supersedes your current employment agreement,
dated January 6, 1997, and reflects the changes approved by the Compensation
Committee at its December 15, 1998 meeting.
1. You will continue to be employed as Chairman and Chief Executive Officer
("CEO") of the Company. Your employment under this Agreement will be for a
period of three years which commenced on December 12, 1996. Thereafter,
the Agreement will be extended automatically in one-year increments unless
notice of termination is given by the Board of Directors at least 90
calendar days prior to the expiration of either the initial three-year
period or any subsequent one-year renewal period.
2. Effective January 1, 1999, you will be paid a base salary of not less than
$560,000 per year, which shall be subject to such adjustments as may, from
time to time, be approved by the Compensation Committee, and payable
according to the regular pay schedule for executives at the Company.
3. You will continue to be a participant in the Company's Annual Incentive
Plan and long-term incentive plan. You will be eligible for annual
incentive award consideration and stock-based incentives in accordance
with the terms of those plans and at the discretion of the Compensation
Committee.
4. You will receive non-cash compensation and be eligible to participate in
employee benefit programs comparable to those provided to Company senior
executives under Company policy, including, but not limited to, the
Company medical, pension, 401(k), long-term disability, and life insurance
plans.
5. You will receive reimbursement for personal financial, tax, and/or estate
planning expenditures of up to $15,000 per year.
6. On your separation from service with the Company, you will receive career
transition assistance of up to $75,000.
<PAGE>
7. You will have four weeks vacation per year.
8. Your pension benefits will be equal to whatever benefits you accrue as a
participant in the Company's qualified defined benefit pension plan for
salaried employees, subject to any applicable legal limits, and in the
Company's non-qualified retirement benefit restoration plan, but with the
following adjustment:
a. Effective January 1, 1999, your supplemental executive retirement plan
(SERP) will provide that (1) seven years will be added to your actual
service and participation credit for all purposes; (2) three years will
be added to your age; and (3) your final average compensation for
pension purposes will be deemed to be equal to the total of (a) the
final three-year average of your base salary during your tenure as
Chairman and CEO of the Company (or average base salary for years
worked as Chairman and CEO, in the event your tenure is less than three
years) plus (b) the final three-year average of either the actual
bonuses you receive or the targeted bonuses for the CEO position for
this period, whichever is greater. Further, the retirement benefit
payable to you under the SERP will be based on 60% of final average
compensation, as defined in this Section, and will be payable to you in
a lump sum (based on the same factors used to calculate lump sums under
the Newport News Shipbuilding Inc. Retirement Plan) or as an annuity,
at your option.
b. Effective January 1, 2000, five years, instead of seven, will be added
to your actual service and participation credit for all purposes;
c. Effective January 1, 2000, five years, rather than three, will be added
to your age.
Your rights under this Section 8 will survive termination of this
Agreement. If your employment is terminated prior to January 1, 2000,
other than for death, disability, or cause, or you are constructively
terminated, or if your employment is not continued after the end of the
initial three-year term of this Agreement, the provisions set forth in
subparagraphs b and c of this Section 8 will automatically vest and take
effect immediately upon the effective date of your employment termination.
9. If your employment is terminated other than for death, disability, or
cause, or you are constructively terminated, or if your employment is not
continued after the end of the initial three-year term of this Agreement
or any subsequent one-year renewal period, you will be paid a severance
benefit equal to three times your total cash compensation in effect on the
date your employment terminates. Your total cash compensation will consist
of (a) your base salary in effect on the date of termination plus (b)
either your target bonus under the Annual Incentive Plan for the calendar
year in which termination occurs or your most recent awarded bonus,
whichever is greater. This severance benefit will be paid in a lump sum
within 30 days of the effective date of your employment termination.
<PAGE>
In addition, and subject to Board approval, all outstanding restricted
stock, stock options, and performance shares will vest and/or become
exercisable in the event your employment terminates under the provisions
of this Section 9. Any vested stock options you hold will remain
exercisable for a period of not less than 90 days from your employment
termination date.
For purposes of this Section, "constructively terminated" shall be defined
identically to the term Constructive Termination, as set forth in the
Change in Control Severance Benefit Plan for Newport News Shipbuilding
Inc. Executives, as amended ("Change in Control Plan" or "Plan"), except
that, for purposes of this Agreement, such termination need not occur
after a Change in Control under the Plan.
If your employment is terminated after a Change in Control within the
meaning of the Change in Control Plan, your total cash severance benefit
shall not exceed the greater of (a) the total cash compensation provided
to you under this Section or (b) the total cash compensation provided to
you under the Change in Control Plan.
10. If you resign voluntarily from the Company, you will not be entitled to
the severance benefits or the accelerated vesting of stock awards, as set
forth in Section 9 of this Agreement.
11. As a condition of receiving the payments, benefits and rights set forth in
Section 9 of this Agreement, you will be required to execute a general
waiver and release of any claims you might have against the Company
arising from, or during the course of, your employment with the Company.
12. The rights and obligations of the Company hereunder shall inure to the
benefit of and be binding upon the successors and assigns of the Company.
The term "successors" shall mean any person, firm, corporation, or
business entity which at any time, whether by merger, purchase, or
otherwise, acquires, directly or indirectly, all of, or a controlling
interest in, the capital stock or other ownership interests, assets, or
business of NNS.
13. Nothing in this Agreement shall be construed as limiting, constraining, or
otherwise adversely affecting your right to any other benefits available
to you under any Company employee benefit plan or program, including any
employee benefit plan or program the Company makes available to its
retired salaried employees and/or executives.
14. The validity, interpretation, and performance of this Agreement shall be
controlled by, and construed under, the laws of the Commonwealth of
Virginia. Venue shall be in the applicable federal or state court in
Newport News, Virginia. In the event any provision of this Agreement is
adjudged, for any reason, to be invalid or unenforceable, the remaining
provisions shall remain in full force and effect. Further, in the event
you initiate legal action to enforce any provision of this Agreement, the
Company will pay any attorney fees and costs you incur in connection with
such legal action.
<PAGE>
15. At your separation from service with the Company, you will be deemed to
have attained the minimum age and years of service then required to
qualify immediately for all employee benefits as a salaried retiree of the
Company.
Sincerely,
Joseph J. Sisco
Chairman
Compensation and Benefits Committee
ACKNOWLEDGED AND ACCEPTED:
- ------------------------------
William P. Fricks
EXHIBIT 10.22
NEWPORT NEWS SHIPBUILDING INC.
CHANGE IN CONTROL SEVERANCE
BENEFIT PLAN FOR KEY EXECUTIVES
(AS AMENDED AND RESTATED EFFECTIVE MARCH 23, 1999)
The Newport News Shipbuilding Inc. Change in Control Severance Benefit
Plan for Key Executives was originally adopted effective December 12, 1996,
following the spinoff of Newport News Shipbuilding Inc. from Tenneco Inc.
Effective March 23, 1999, the Plan is amended and restated to incorporate
amendments adopted since the Plan's original effective date.
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 representing
fifteen percent (15%) 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 before the
acquisition occurs; notwithstanding the foregoing, a Change in Control
shall not be deemed to occur pursuant to this clause (1) solely because
fifteen (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 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
(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
<PAGE>
(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.
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 or their successors, by action or
inaction, and without the Key Executive's express written consent:
(1)diminish the Key Executive's status, position, duties or
responsibilities from those in effect immediately prior to the Change in
Control. Without limitation on the foregoing, for purposes of this
Clause (1) a diminution will be deemed to have occurred if the Key
Executive does not maintain the same or greater status, position,
duties, and responsibilities with the parent corporation of the control
group of which NNS becomes a member as a result of the transaction
constituting a 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
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.
A Constructive Termination will also be deemed to have occurred if any successor
of NNS fails to assume, in writing, all Company obligations under this Plan.
Further, a determination that a Key Executive has been constructively terminated
for purposes of benefits eligibility under this Plan shall be based solely on
the foregoing criteria, and the Key Executive's eligibility or application for,
or receipt of, any retirement benefit from the Company following separation from
service shall have no bearing on this determination.
<PAGE>
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, in either case having the effect of materially 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 at least 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, or who occupies the position of Vice President
& General Counsel; Vice President, Human Resources; Vice President &
General Manager, Aircraft Carrier Program; or Vice President and General
Manager, Submarine Program.
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, or who is
specifically named herein: Daniel L. Arczynski (Director for Strategic
Planning & Business Development); Donald L. Check (Director, Trades
Management); Stephen C. Hassell (Chief Information Officer); and Dale R.
Wyatt (Treasurer).
<PAGE>
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, as amended and restated
effective March 23, 1999.
K."NNS" means Newport News Shipbuilding Inc.
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.
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 Plan, as amended and restated, is effective as of
March 23, 1999.
<PAGE>
4. Eligibility for Benefits. (i) If within three 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 benefits:
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 greater of (i) the average of the Key Executive's annual awards
under the Newport News Shipbuilding Inc. Annual Incentive Plan 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, or (ii) the Key
Executive's targeted annual award in effect immediately prior to the
Change in Control.
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 greater of (i) the average of the
Key Executive's annual awards under the Newport News Shipbuilding Inc.
Annual Incentive Plan 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, or (ii) the Key Executive's targeted annual award in
effect immediately prior to the Change in Control.
C.The Key Executive and his or her eligible dependents, if any, will
receive continued medical, dental, vision, group life insurance, and
long-term disability coverage, on the same terms as available to active,
salaried employees of the NNS Companies, according to the following
schedule: Executive Group I three (3) years from date of termination;
Executive Group II - two (2) years from date of termination.
D.A Key Executive who is a participant in the Newport News Shipbuilding
Inc. Supplemental Executive Retirement Plan ("SERP") will have his
Accrued Benefit under the SERP calculated by adding three years to both
his Years of Service and Years of Participation, and five years to his
Age at End of Year, as defined under the SERP. Further, all
non-qualified pension payments to the Key Executive may, at the election
of the Key Executive, be paid in a lump sum, payable within 30 days
following the later of the Key Executive's separation from service or
submission of a claim as required by Section 14 of the Plan.
<PAGE>
E.Any Key Executive who has deferred compensation under the Newport News
Shipbuilding Inc. Deferred Compensation Plan will receive that portion
of the Key Executive's Company Match Account that would be subject to
forfeiture under the Deferred Compensation Plan upon termination of
employment. The Key Executive's claim to other rights and benefits under
the Deferred Compensation Plan is otherwise unaffected by this Plan.
F.During the first thirty days following the first anniversary of a Change
in Control, a member of the Executive Group I may voluntarily elect to
separate from service and will be provided with the severance benefits
described in A, C, D, and E, above.
G.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
benefits 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 an
employee with NNS Companies and submission of a claim as required by Section 14
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 ("Excise Tax") 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 and employment tax, interest and penalties and Excise Tax on the Gross-Up
Payment, shall be equal to the amount which would have been retained by the Key
Executive had the payments not been subject to the Excise Tax.
<PAGE>
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. Except for Section
1B(1), 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 of, or a
controlling interest in, the capital stock or other ownership interest, 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. Except as provided below, the
Compensation and Benefits Committee of the Board of Directors shall have the
authority to terminate or amend the Plan at any time. During the following
periods, the Plan may not be terminated and may not be amended if the effect of
such amendment, with respect to any Key Executive covered under the Plan, is to
reduce the benefits payable or that may be payable under the Plan or changes the
Plan's terms regarding eligibility for benefits: (a) for a period of three years
and thirty-one days immediately following a Change in Control; or (b) during any
period when the Board of Directors has knowledge of any proposal, offer, or
other action, which, if consummated, could constitute a Change in Control, with
such period to continue until the proposal, offer, or other action is formally
withdrawn or, in the opinion of the Board, such proposal, offer, or other action
has been abandoned or terminated.
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
Commonwealth of Virginia, except to the extent that 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.
<PAGE>
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.
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 is 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.
<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.
D.Payments from Trust. All or part of the benefits payable under the Plan
may be paid from the trust established under the Trust Agreement for
Newport News Shipbuilding Inc. Benefits Protection Plans. To the extent
a Key Executive receives benefits from the trust, the Company's
obligation under the Plan will be satisfied.
15. Legal Fees and Costs. In the event a Key Executive initiates legal
action to enforce his or her right to any benefit under this Plan, the Company
shall pay as incurred all reasonable legal fees and costs incurred by the Key
Executive in connection with such legal action.
16. Severability. If for any reason any provision or provisions of the
Plan are determined invalid or unenforceable, the validity and effect of the
other provisions of the Plan shall not be affected thereby. If for any reason
any provision or provisions of any amendment to the Plan are determined invalid
and unenforceable, the validity and effect of the other provisions of the Plan,
including those provisions in effect immediately prior to adoption of the
amendment, shall not be affected thereby.
<PAGE>
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, as amended and restated, Newport News Shipbuilding Inc., a Delaware
Corporation, as plan sponsor, has caused its 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 March, 1999.
(CORPORATE SEAL) NEWPORT NEWS SHIPBUILDING INC.
By: ________________________________
Senior Vice President
ATTEST:
- ------------------------
Secretary
EXHIBIT 10.29
THIRD AMENDMENT TO
1997 STOCK PLAN FOR DIRECTORS OF
NEWPORT NEWS SHIPBUILDING INC.
The 1997 Stock Plan for Directors of Newport News Shipbuilding Inc.
(the "Plan") is hereby amended as follows, effective December 15, 1998:
1. Section XI(a)(2) is amended to read as follows:
(2) Annually after such election, options to purchase 2,000 shares of
Common Stock.
2. Section XII(a)(1) is amended to read as follows:
(1) Fifty percent (50%) of the first $25,000 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
shareholders of the Company, subject to the conditions set forth
below. Any annual retainer amount in excess of $25,000 may be paid
in either Restricted Stock or cash, in such proportion as shall be
determined by the Committee. The number of shares of Restricted
Stock issued under this subsection shall be calculated by dividing
the applicable retainer amount by the Fair Market Value of a share
of Common Stock on the annual meeting date, with any fractional
shares paid in cash.
IN WITNESS WHEREOF, this amendment is hereby executed this _____ day of
December, 1998.
NEWPORT NEWS SHIPBUILDING INC.
By: ________________________________
Senior Vice President
ATTEST: ____________________
EXHIBIT 10.30
FIRST AMENDMENT
TO
NEWPORT NEWS SHIPBUILDING INC.
DEFERRED COMPENSATION PLAN
The Newport News Shipbuilding Inc. Deferred Compensation Plan is hereby
amended, effective December 15, 1998, in the following respects:
1. Section 2.06(i) is amended to read as follows:
(i) Any person and any of their affiliates or associates becomes the
beneficial owner, directly or indirectly, of securities representing
fifteen percent (15%) 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 before the acquisition occurs; notwithstanding the
foregoing, a Change in 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 one or more
companies, the majority of whose voting common or capital stock is
owned directly or indirectly by the Company.
2. Section 2.16 is deleted.
3. Section 5.06 is amended to read as follows:
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, 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, the Company shall, immediately following the 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 occurred.
<PAGE>
4. The third sentence of Section 8.01 is amended to read as follows:
Notwithstanding the foregoing, the Company may establish a Rabbi
Trust so that in the event of a 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").
IN WITNESS WHEREOF, these amendments are hereby executed this _____ day of
Decmber, 1998
NEWPORT NEWS SHIPBUILDING INC.
By: _______________________________
Senior Vice President
ATTEST:______________________
EXHIBIT 10.31
NEWPORT NEWS SHIPBUILDING INC.
RETIREMENT BENEFIT RESTORATION PLAN
Article I
ESTABLISHMENT & PURPOSE
1.1 Establishment. Effective as of January 1, 1998, Newport News Shipbuilding
Inc. has adopted this retirement benefit restoration plan known as the
Newport News Shipbuilding Inc. Retirement Benefit Restoration Plan for the
benefit of a select group of highly compensated employees and their
Surviving Spouses.
1.2 Purpose. The purpose of the Plan is to provide retirement income and
supplemental death benefits for eligible Participants to supplement the
benefits provided under the Newport News Shipbuilding Inc. Retirement Plan
as in effect on January 1, 1998 and as subsequently amended, and to enable
the Company and any adopting Employers to attract and retain certain key
executives.
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.
2.1 "Accrued Benefit" as of a specified date with respect to a Participant
means a monthly benefit equal to (a) minus (b) minus (c) below (but not
less than zero) where
(a) means the vested benefit that would have been payable to the
Participant under the Qualified Plan calculated as if Years of
Participation under the Qualified Plan also include "years of
participation" used to calculate the Participant's benefit under the
Tenneco Inc. Retirement Plan and calculated without applying Sections
415(b)(1)(A), 415(e), and 401(a)(17) of the Code, as adjusted by the
Secretary of the Treasury for any plan year, or the successor of such
Sections. The benefit described in this subsection (a) shall be
expressed as a Life Annuity commencing at the Participant's Normal
Retirement Date.
(b) means the sum of: (i) the vested benefit payable to the Participant
under the Qualified Plan (including any annuity purchased for him under
the provisions of the Qualified Plan); plus (ii) the vested benefit
that would be payable to the Participant under the Tenneco Inc.
Retirement Plan if the Participant commenced receiving his benefit on
the Participant's Normal Retirement Date.
<PAGE>
The benefit described in subsection (b)(i) shall be expressed as a Life
Annuity commencing on the Participant's Normal Retirement Date. The
benefit described in subsection (b)(ii) shall be the benefit that would
actually be payable under the Tenneco Inc. Retirement Plan if the
Participant commenced such benefits on his Normal Retirement Date in
the form of a Life Annuity using the appropriate interest rates and
mortality tables specified in the plan.
(c) means the vested Tenneco Restoration Benefit. The "Tenneco Restoration
Benefit" shall mean the benefit payable under the Tenneco Inc.
Supplemental Executive Retirement Plan determined as of December 31,
1996, but not more than (i) the vested benefit payable to the
Participant under the Tenneco Inc. Retirement Plan calculated without
applying Sections 415(b)(1)(A), 415(e), and 401(a)(17) of the Code less
(ii) the vested benefit payable to the Participant under the Tenneco
Inc. Retirement Plan. The amounts under subsection (c)(i) and (c)(ii)
shall likewise be determined as of December 31, 1996.
The benefit described in subsection (c)(i) shall be expressed as an
actuarially equivalent Life Annuity commencing on the Participant's
Normal Retirement Date. The benefit described in subsection (c)(ii)
shall be the benefit that would actually be payable under the Tenneco
Inc. Retirement Plan if the Participant commenced such benefits on his
Normal Retirement Date in the form of an actuarially equivalent Life
Annuity. In both instances, actuarial equivalence shall be determined
using the appropriate interest rates and mortality tables specified in
the appropriate plan.
2.2 "Actuarial Equivalent" shall mean a benefit which is of equal value at the
date of determination to the benefit for which it is to be substituted.
Actuarial Equivalence shall be based on the interest and mortality tables
used to determine actuarial equivalence under the Qualified Plan.
2.3 "Annuity Starting Date" shall mean the first day of the first period for
which an amount is payable as an annuity, or in the case of a benefit not
payable in the form of an annuity, the first day on which all events have
occurred which entitle the Participant to such a benefit and on which
payment is due under the Plan.
2.4 "Associated Employer" means any corporation which has been designated as an
Associated Employer by the Newport News Shipbuilding Inc. Board of
Directors and which has adopted the Plan.
2.5 "Beneficiary" shall mean the person or entity designated by a Participant
to receive benefits under this Plan. This designation shall be made on a
beneficiary designation form provided by the Plan Administrator, signed by
such Participant, and filed with the Plan Administrator.
<PAGE>
2.6 "Board of Directors" or "Board" shall mean the Board of Directors of
Newport News Shipbuilding Inc.
2.7 "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
fifteen percent (15%) 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 before the acquisition occurs. Notwithstanding the
foregoing, a Change in 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 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
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
(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;
provided however that the Incumbent Board may determine that any
transaction is not a Change in Control.
<PAGE>
For purposes of this Section, "Incumbent Board" shall mean the members of
the Board on the date immediately following the date on which the Company
stock was 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.
2.8 "Code" shall mean the Internal Revenue Code of 1986, as amended. Reference
to a section of the Code shall include that section and any comparable
section or sections of any future legislation that amends, supplements, or
supersedes such section.
2.9 "Committee" shall mean the Compensation and Benefits Committee of the Board
of Directors of Newport News Shipbuilding Inc.
2.10 "Company" shall mean Newport News Shipbuilding Inc.
2.11 "Death Benefit" means the Benefit described in Section 4.4 payable at the
Participant's death.
2.12 "Early Retirement Date" shall mean the date as of which the Participant
commences an Early Retirement Benefit pursuant to Section 3.2 of the
Qualified Plan.
2.13 "Effective Date" shall mean January 1, 1998.
2.14 "Employer" shall mean Newport News Shipbuilding Inc. and any Associated
Employer.
2.15 "Hour of Service" shall have the same meaning as set forth in Article I of
the Qualified Plan.
2.16 "Life Annuity" shall mean a series of monthly installments which will
continue for the lifetime of the Participant and will cease upon his death.
2.17 "Normal Retirement Date" shall have the same meaning as set forth in
Article I of the Qualified Plan.
2.18 "Participant" shall mean any employee of an Employer who becomes eligible
to participate in the Plan pursuant to Article III and who continues to be
entitled to any benefits under the Plan.
2.19 "Plan" shall mean the Newport News Shipbuilding Inc. Retirement Benefit
Restoration Plan.
<PAGE>
2.20 "Plan Year" shall mean the calendar year.
2.21 "Qualified Plan" shall mean the Newport News Shipbuilding Inc. Retirement
Plan. In the event that the Qualified Plan is subsequently amended,
reference to a Section of the Qualified Plan shall be deemed to refer to
the operational successor of such Section.
2.22 "Rabbi Trust" means a trust described in Code Section 671, which shall be
established in connection with this Plan.
2.23 "Retirement" shall mean termination of employment with all Employers at a
time when the Participant is eligible for an Early or Normal Retirement
Benefit.
2.24 "Retirement Benefit" means the Benefit described in Section 4.1 payable at
the Participant's Retirement Date.
2.25 "Retirement Date" shall mean the Participant's Early or Normal Retirement
Date.
2.26 "Spouse" shall mean the person legally married to the Participant at his
Annuity Starting Date.
2.27 "Surviving Spouse" shall mean the person legally married to the Participant
at his date of death.
2.28 "Years of Participation" shall have the same meaning as set forth in
Article I of the Qualified Plan.
2.29 "Years of Service" shall have the same meaning as set forth in Article I of
the Qualified Plan.
<PAGE>
Article III
PLAN PARTICIPATION
3.1 Eligibility to Participate in the Plan. Each participant in the Qualified
Plan who satisfies both (a) and (b) below is eligible to participate in the
Plan.
(a) The employee's accrued benefit under the Qualified Plan is reduced as a
result of the application of Section 415(b)(1)(A), 415(e), or
401(a)(17) of the Code.
(b) The employee is one of a select group of management or highly
compensated employees as per ERISA sections 201, 301, and 401.
3.2 Participation. A Participant shall remain a Participant so long as he is
entitled to current or contingent benefits under the Plan, but shall cease
to be a Participant if he terminates employment with all Employers prior to
the date he becomes eligible for payment of benefits under Article IV of
the Plan. Should a Participant cease to be an employee, but later become
re-employed by an Employer, he shall again become a Participant when he
satisfies the requirements of Section 3.1.
3.3 Select Group of Employees. The Plan is intended to qualify as a plan
maintained by the Employers primarily for the purpose of providing deferred
compensation for a select group of highly compensated employees, and, as
such, to be exempt from certain provisions of the Employee Retirement
Income Security Act of 1974, as amended. If the Company determines based on
subsequent authority or if an agency or court of competent jurisdiction
determines that the Plan benefits any person other than a member of the
select group of management or highly compensated employees as per ERISA
sections 201, 301, or 401 (and the period for appeal of such determination
has elapsed), the participation of each employee who is determined not to
be included in such group shall be terminated retroactive to the date on
which his benefit under the Qualified Plan was first reduced as a result of
the application of Section 415(b)(1)(A), 415(e), or 401(a)(17) of the Code.
Such employee shall forfeit any Accrued Benefit, regardless of whether such
benefit is otherwise vested and shall cease to accrue any additional
benefit under the Plan.
Article IV
BENEFITS
4.1 Retirement Benefits. Except as otherwise provided herein, retirement
benefits will be computed and paid as follows:
(a) Normal Retirement Benefit shall be equal to the Participant's Accrued
Benefit determined at the Participant's termination of employment on or
after his Normal Retirement Date and commencing on such termination of
employment. If the Participant remains employed after his Normal
Retirement Date, the Accrued Benefit under Section 2.1 shall be
calculated by substituting the Participant's date of termination of
employment for his Normal Retirement Date.
<PAGE>
(b) Early Retirement Benefit shall be equal to the Participant's Accrued
Benefit, reduced for early commencement using the actuarial reduction
factors set forth below, determined at the Participant's Early
Retirement Date and commencing on such date:
(1) at age 60 (or thereafter up to age 62), a .25% reduction for each
month early retirement precedes age 62; and
(2) at age 55 (or thereafter up to age 60), a .5% additional reduction
for each month early retirement precedes age 60.
4.2 Termination of Service. A Participant shall be entitled to a monthly
retirement benefit if he terminates before he is eligible to receive a
Retirement Benefit, provided that a Participant meets the vesting
requirements of Article V. The Participant's benefit on his termination of
employment shall be the Participant's Accrued Benefit at the date of
termination of employment, commencing on the Participant's Normal
Retirement Date. However, if a Participant who has completed 10 Years of
Service and whose employment terminated before age 55 elects to commence
his benefit under the Qualified Plan on a date on or after his or her 55th
birthday, the Participant's vested benefit under this Plan shall likewise
commence on that date, but shall be reduced to the Actuarial Equivalent of
the benefit that would have commenced on his Normal Retirement Date.
4.3 Form of Retirement Benefit. Except as provided in the last paragraph of
this Section the Participant's benefit under this Plan shall be paid in the
same form as the Participant's benefit under the Qualified Plan. Benefits
under this section shall be the Actuarial Equivalent of the Benefit payable
in the form of a Life Annuity.
Notwithstanding the above, a Participant who separates from service or
retires with a vested Accrued Benefit shall be paid the Actuarial
Equivalent of such benefit in a single sum as soon as practicable after his
retirement or termination of employment if such Actuarial Equivalent does
not exceed ten thousand dollars ($10,000). If the Participant subsequently
resumes participation in the Plan, such Participant's benefit at his later
date of termination shall be reduced by his prior Accrued Benefit
determined as of the date of his previous retirement or termination.
4.4 Death Benefit. If death occurs before the Participant's Annuity Starting
Date, a monthly benefit for life shall be payable to the Surviving Spouse
of the Participant. The amount of such benefit shall be equal to (a) minus
(b) minus (c) below (but not less than zero) where
(a) means the death benefit that would have been payable to the Surviving
Spouse under the Qualified Plan calculated as if Years of Participation
under the Qualified Plan also include "years of participation" used to
calculate the Participant's benefit under the Tenneco Inc. Retirement
Plan and calculated without applying Sections 415(b)(1)(A), 415(e) and
401(a)(17) of the Code, as adjusted by the Secretary of the Treasury
for any plan year, or the successor of such Section. The benefit
described in this subsection (a) shall be expressed as a Life Annuity
commencing on the date the death benefit under the Qualified Plan
commences.
<PAGE>
(b) means the sum of: (i) the vested death benefit payable to the Surviving
Spouse under the Qualified Plan (including any annuity purchased under
the provisions of the Qualified Plan); plus (ii) the vested death
benefit that would be payable to the Surviving Spouse under the Tenneco
Inc. Retirement Plan if the Surviving Spouse commenced such benefit on
the date the death benefit under the Qualified Plan commences.
The benefit described in subsection (b)(i) shall be expressed as a Life
Annuity commencing on the date the death benefit under the Qualified
Plan commences. The benefit described in subsection (b)(ii) shall be
the death benefit that would actually be payable under the Tenneco Inc.
Retirement Plan if the Surviving Spouse commenced such benefit on the
date the death benefit under the Qualified Plan commences in the form
of a Life Annuity using the appropriate interest rates and mortality
tables specified in the plan.
(c) means the vested Tenneco Restoration Death Benefit. The "Tenneco
Restoration Death Benefit" shall mean the death benefit payable under
the Tenneco Inc. Supplemental Executive Retirement Plan determined as
of December 31, 1996, but not more than (i) the vested death benefit
payable to the Surviving Spouse under the Tenneco Inc. Retirement Plan
calculated without applying Sections 415(b)(1)(A), 415(e), and
401(a)(17) of the Code less (ii) the vested death benefit payable to
the Surviving Spouse under the Tenneco Inc. Retirement Plan. The
amounts under subsection (c)(i) and (c)(ii) shall likewise be
determined as of December 31, 1996.
The death benefit described in subsection (c)(i) shall be expressed as
an actuarially equivalent Life Annuity commencing on the date the death
benefit under the Qualified Plan commences. The death benefit described
in subsection (c)(ii) shall be the death benefit that would actually be
payable under the Tenneco Inc. Retirement Plan if the Surviving Spouse
commenced such benefit on the date the death benefit under the
Qualified Plan commences in the form of an actuarially equivalent Life
Annuity. In both instances, actuarial equivalence shall be determined
using the appropriate interest rates and mortality tables specified in
the appropriate plan.
Notwithstanding the above, a Surviving Spouse shall be paid the Actuarial
Equivalent of such benefit in a single sum as soon as practicable after the
Participant's death if such Actuarial Equivalent does not exceed ten
thousand dollars ($10,000).
If death occurs on or after the Participant's Annuity Starting Date, the
only Death Benefit payable is the survivor benefit payable in accordance
with the form of payment applicable to the Participant's Retirement Benefit
in accordance with Section 4.3.
<PAGE>
4.5 Time of Payment. Except as provided in Section 4.3, payment of a
Participant's benefit under this Article shall commence on the day the
death benefit under the Qualified Plan commences.
4.6 Suspension of Benefits. In the event that benefit payments are suspended
under Section 2.3 of the Qualified Plan, benefit payments under this Plan
shall likewise be suspended. Upon the Participant's subsequent Retirement
or other termination of employment, the Participant's Accrued Benefit under
Section 2.1 shall be recalculated based on the terms of this Plan and the
Qualified Plan at the time of such subsequent Retirement or other
termination of employment without reduction for any amounts received prior
to reemployment. The Accrued Benefit under Section 2.1 shall then be
reduced by the Actuarial Equivalent of any benefits paid under this Plan
prior to reemployment.
The Plan Administrator shall establish procedures for the resumption of
benefits and the offsetting of benefit overpayments, if any.
4.7 Income and Payroll Tax Withholding. To the extent required by the laws in
effect at the time deferred compensation payments are made under this Plan,
the Employer shall withhold from such deferred compensation payments any
taxes required to be withheld for federal, state, or local government
purposes.
Article V
VESTING
5.1 Vesting. Except as provided in Section 3.3, a Participant shall be 100%
vested in his Accrued Benefit after completion of five Years of Service or
on the occurrence of a Change in Control. Provided, however, that if a
Participant's employment with an Employer is terminated for Cause prior to
Retirement the Participant's Accrued Benefit shall be forfeited.
Termination for Cause shall mean termination on account of dishonesty or
any act or conduct on the part of the Participant which is materially
injurious to the business or reputation of any Employer.
Article VI
PLAN ADMINISTRATION
6.1 Administration of the Plan. The Plan shall be administered by a Plan
Administrator, which shall be appointed by the Committee, subject, however,
to any action taken by the Committee in respect to the Plan. The Plan
Administrator shall be responsible for the administration of the Plan and
shall have all of the discretionary authority, rights and duties which are
necessary or appropriate for proper administration of the Plan including,
without limitation, the discretionary power to determine eligibility for
participation in the Plan, construe the terms of the Plan, resolve
ambiguities, supply omissions, cure defects, and determine amounts due
under the Plan. All decisions of the Plan Administrator shall be final and
binding on all parties. The Plan Administrator shall file with the
Department of Labor and distribute to the Participants any reports and
other information required by applicable law and shall be entitled to rely
conclusively upon all tables, valuations, certificates, opinions and
reports furnished by any actuary, accountant, controller, counsel or other
person employed or engaged by it with respect to the Plan. The Plan
Administrator may appoint one or more delegates to discharge any or all of
its responsibilities hereunder. Except as expressly limited by the Plan
Administrator, such delegates shall have all of the rights and
discretionary duties which are appropriate to carry out the duties that
have been delegated.
<PAGE>
Article VII
AMENDMENT AND TERMINATION
7.1 Amendment and Termination of the Plan. The Committee may amend or terminate
the Plan at any time. However, no such amendment or termination shall
deprive any Participant or Surviving Spouse of any portion of any vested
Retirement Benefit which has accrued prior to the effective date of such
amendment or termination and which would have been payable if the
Participant's employment with the Employer had terminated for any reason
(other than for Cause as specified in Section 5.1) on such effective date
or any Death Benefit which would have been payable if the Participant had
died on such effective date. Actions permitted by this Section may be taken
by any officer of the Company who has been duly authorized by the Committee
to perform acts of such kind.
Article VIII
GENERAL PROVISIONS
8.1 Funding. Benefits payable under this Plan to a Participant shall be paid
directly from the general assets of the Employer. No Employer shall be
obligated to set aside, earmark or escrow any funds or other assets to
satisfy its obligations under this Plan, and the Participant and his
Surviving Spouse shall not have any property interest in any specific
assets of any Employer other than the unsecured right to receive payments
from the Employer as provided herein. Notwithstanding the foregoing, in
the event of a Change in Control, the Company shall fund all Accrued
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.
8.2 Nonalienation of Benefits under this Plan. Except for claims of
indebtedness owing to an Employer, 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 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 Employer 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 Employer be required
to comply with the terms of such order in connection with this Plan.
<PAGE>
8.3 Plan not a Contract of Employment. This Plan shall not be deemed to
constitute a contract of employment between any Employer and any
Participant or to be a consideration or an inducement for the employment or
continued employment of any Participant or Employee. Nothing contained in
this Plan shall be deemed to give any Participant or Employee the right to
be retained in the service of any Employer or to interfere with the right
of any Employer to discharge any Participant or employee at any time
regardless of the effect which such discharge shall have upon such
individual as a Participant in the Plan.
8.4 Required Notification to Plan Administrator. Each Participant entitled to
benefits hereunder shall file with the Plan Administrator from time to time
in writing his post office address and each change of post office address.
Any check representing payment hereunder and any communication addressed to
a Participant or a former Participant hereunder 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 Employer shall be
binding on such person for all purposes of the Plan, and neither the Plan
Administrator nor the Employer or other payor 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 or former
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:
(a) All unmailed and future retirement income payments shall be henceforth
withheld until he provides the Plan Administrator with evidence of his
continued life and his proper mailing address; and
(b) His right to any retirement income whatsoever shall, at the option of
the Plan Administrator, be canceled forever, if, at the expiration of
two (2) years from the date of such mailing, he shall not have provided
the Plan Administrator with evidence of his continued life and his
proper mailing address.
8.5 Successors. The provisions of this Plan shall be binding upon each
Employer, and their successors and assigns and upon each Participant and
his heirs, spouses, estates, and legal representatives.
8.6 Facility of Payment. Whenever and as often as any person entitled to
payments hereunder shall be under a legal disability, or in the sole
judgment of the Plan Administrator shall otherwise be in any way
incapacitated so as to be unable to manage his financial affairs, the Plan
Administrator, in the exercise of its discretion, may direct that the
distribution or payments to which such person otherwise would be entitled
shall be made in any one or more of the following ways:
<PAGE>
(a) Directly to such person;
(b) To his legal curator, guardian, or conservator, or other
court-appointed or court-recognized representatives;
(c) To his Surviving Spouse, to another member of his family, or to any
other person, to be expended for his benefit; or
(d) By the Plan Administrator itself, receiving and expending, or directing
the expenditure of the same for the benefit of such person.
Any payment made in good faith in accordance with the provisions of this
Section shall be a complete discharge of any liability for the making of
such payment under the provisions of this Plan.
8.7 Required Information to Plan Administrator. Each Participant or Surviving
Spouse will furnish to the Plan Administrator such information as the Plan
Administrator considers necessary or desirable for purposes of
administering the Plan. 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.
Each Participant or Surviving Spouse will submit proof of his age and his
spouse's age to the Plan Administrator at such time as required by the Plan
Administrator. The Plan Administrator will, if such proof of age is not
submitted as required, use as conclusive evidence thereof such information
as is deemed by it to be reliable, regardless of the lack of proof, or the
misstatement of the age of persons entitled to benefits hereunder, by the
Participant or otherwise. 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, in care of the Company at:
Newport News Shipbuilding Inc.
4101 Washington Avenue
Newport News, Virginia 23607-2770
8.8 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 90
days of the date the Participant's claim for benefits is received. Any
disagreements about such interpretations and construction may be appealed
within 60 days to the Plan Administrator. The Plan Administrator shall
respond to such appeal within 60 days with a notice in writing fully
disclosing its decision and the reasons therefore. The Plan Administrator
shall have full and complete discretion to interpret the Plan and its
resolution of all claims under the Plan shall be final. The Plan
Administrator shall not be liable to any person for any action taken
hereunder, except those actions undertaken with lack of good faith.
<PAGE>
8.9 Controlling State Law. To the extent not superseded by the laws of the
United States, the Plan will be construed and enforced according to the
laws of the Commonwealth of Virginia.
8.10 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.
8.11 Adoption of Plan. Any subsidiary, affiliate company, or other entity that
satisfies the requirements of Section 2.14 of this Plan, may adopt this
Plan for all or a portion of its employees, provided that the Board of
Directors of the Company approves such participation. The administrative
powers and control of the Company as provided in the Plan shall not be
deemed diminished under the Plan by reason of the participation of other
companies in the Plan.
IN WITNESS WHEREOF, Newport News Shipbuilding Inc. has adopted this plan on this
_____ day of ________________________, 19__.
ATTEST (SEAL): NEWPORT NEWS SHIPBUILDING INC.
_____________________________ By__________________________________
EXHIBIT 10.32
FIRST AMENDMENT
TO
NEWPORT NEWS SHIPBUILDING INC.
DEFERRED COMPENSATION PLAN
FOR NONEMPLOYEE DIRECTORS
The Newport News Shipbuilding Inc. Deferred Compensation Plan For
Nonemployee Directors is hereby amended, effective March 23, 1999, as follows:
Section 5.05 is amended to read as follows:
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 (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. In the event of a Change in Control within the
meaning of the Newport News Shipbuilding Change in Control Severance
Benefit Plan for Key Executives, all amounts credited to a
Participant's Company Match Account will automatically vest and
become nonforfeitable.
IN WITNESS WHEREOF, these amendments are hereby executed this _____ day of
March, 1999
NEWPORT NEWS SHIPBUILDING INC.
By: _______________________________
Senior Vice President
ATTEST:______________________
EXHIBIT 10.33
NEWPORT NEWS SHIPBUILDING INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Article I
ESTABLISHMENT & PURPOSE
1.1 Establishment. Effective as of January 1, 1999, Newport News Shipbuilding
Inc. has adopted this supplemental retirement plan known as the Newport
News Shipbuilding Inc. Supplemental Executive Retirement Plan for the
benefit of a select group of highly compensated employees and their
Surviving Spouses.
1.2 Purpose. The purpose of the Plan is to provide supplemental retirement
income and death benefits in excess of the benefits provided by the
Newport News Shipbuilding Inc. Retirement Plan, as amended and restated
effective January 1, 1998 and the Newport News Shipbuilding Inc.
Retirement Benefit Restoration Plan as effective January 1, 1998 and as
subsequently amended, and to enable the Company and any adopting Employers
to attract and retain certain key executives.
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.
2.1 "Accrued Benefit as of a specified date with respect to a Participant means
a monthly benefit equal to the greater of (a) or (b) subject to (c) below
where:
(a) means the Accrued Benefit as defined in the Restoration Plan, except
that compensation used in the calculation of vested benefits shall be
Final Average Compensation as defined in this Plan.
(b) means one-twelfth of the following percentage of the Participant's
Final Average Compensation, where the percentage to be used is
determined by the age that the Participant attained or will attain on
the one-year anniversary of his date of birth that is coincident with
or immediately preceding the end of the calendar year which contains
the date as of which his Accrued Benefit is being calculated ("Age At
End of Year"):
<PAGE>
Age At End of Year Applicable Percentage
Less than 55 0%
55 20%
56 26%
57 32%
58 38%
59 44%
60 or more 50%
Solely for the purposes of this subsection, any Participant whose Age
At End of Year exceeded 55 on the date he became a Participant in the
Plan shall be treated as though his Age At End of Year on the date he
became a Participant was 55, and his Age At End of Year shall
increase by one on each subsequent January 1.
The benefit described in this subsection (b) shall be expressed as a
Life Annuity commencing at the Participant's Normal Retirement Date.
(c) In the event of a Change in Control, each Active Participant's
Accrued Benefit shall be calculated as follows: under (a) above by
adding three (3) years to his Years of Service and three (3) years to
his Years of Participation, and under (b) above by adding five (5)
years to his Age at End of Year.
2.2 "Actuarial Equivalent" shall have the same meaning as under the Qualified
Plan. For purposes of calculating any single sum amount that becomes due
under this Plan, the single sum amount shall be calculated using the same
factors that would be used for the same purpose under the Qualified Plan,
without regard to any limitations on the amount of a single sum payment
that apply under the Qualified Plan.
2.3 "Annuity Starting Date" shall mean the first day of the first period for
which an amount is payable as an annuity, or in the case of a benefit not
payable in the form of an annuity, the first day on which all events have
occurred which entitle the Participant to such a benefit and on which
payment is due under the Plan.
2.4 "Associated Employer" means any corporation which has been designated as
an Associated Employer by the Newport News Shipbuilding Inc. Board of
Directors and which has adopted the Plan.
2.5 "Beneficiary" shall mean the person or entity designated by a Participant
to receive benefits under this Plan. This designation shall be made on a
beneficiary designation form provided by the Plan Administrator, signed by
such Participant, and filed with the Plan Administrator.
2.6 "Board of Directors" or "Board" shall mean the Board of Directors of
Newport News Shipbuilding Inc.
2.7 "Termination for Cause" shall have the same meaning as under the
Restoration Plan.
2.8 "Change in Control" shall have the same meaning as under the Newport News
Shipbuilding Inc. Change in Control Severance Benefit Plan for Key
Executives.
2.9 "Code" shall mean the Internal Revenue Code of 1986, as amended. Reference
to a section of the Code shall include that section and any comparable
section or sections of any future legislation that amends, supplements, or
supersedes such section.
2.10 "Committee" shall mean the Compensation and Benefits Committee of the
Board of Directors of Newport News Shipbuilding Inc.
2.11 "Company" shall mean Newport News Shipbuilding Inc.
2.12 "Final Average Compensation" shall mean the average of the Participant's
Covered Compensation for any three calendar years (out of the five most
recent full calendar years) that produces the highest average. Covered
Compensation shall mean regular base compensation during the calendar year
plus actual short-term incentive compensation earned during the same
calendar year. For any calendar year in which a Participant was employed
by an Employer for only part of the year, the regular base compensation
and short-term incentive compensation earned during that year will be
converted pro rata to an annual amount. Short-term incentive compensation
shall be included as Covered Compensation with respect to the calendar
year in which it was earned by the Participant, without regard to the
calendar year in which it was paid to the Participant. Short-term
incentive compensation shall mean only annual bonuses paid or eligible to
be paid to the Participant in cash based on Company and individual
employee performance criteria, and shall not include signing bonuses,
relocation allowances, long-term incentive awards, stock options,
performance share grants, expense allowances or reimbursements, or any
other compensation.
2.13 "Death Benefit" means the Benefit described in Section 4.4 payable at the
Participant's death.
2.14 "Early Retirement Date" shall mean the first day of any month preceding
his Normal Retirement Date that is coincident with or next following the
later of: (a) the date the Participant attains age 55, (b) the fifth
anniversary of his date of employment with an Employer, and (c) the date
his employment with all Employers is terminated. Solely for Active
Participants at the time of a Change in Control, "age 50" shall be
substituted for "age 55" and "second anniversary" shall be substituted for
"fifth anniversary" in the preceding sentence.
2.15 "Effective Date" shall mean January 1, 1999.
2.16 "Employer" shall mean Newport News Shipbuilding Inc. and any Associated
Employer.
2.17 "Late Retirement Date" shall mean the first day of any month that follows
the later of (a) his Normal Retirement Date, and (b) the date his
employment with all Employers is terminated.
2.18 "Life Annuity" shall mean a series of monthly installments which will
continue for the lifetime of the Participant and will cease upon his
death.
2.19 "Normal Retirement Date" shall mean the first day of the month coincident
with or next following the later of: (a) the date the Participant attains
age 60, (b) the fifth anniversary of his date of employment with an
Employer, and (c) the date his employment with all Employers is
terminated. Solely for Active Participants at the time of a Change in
Control, "age 55" shall be substituted for "age 60" and "second
anniversary" shall be substituted for "fifth anniversary" in the preceding
sentence.
2.20 "Offset Plans" shall mean the Tenneco Inc. Retirement Plan, the Tenneco
Inc. Supplemental Executive Retirement Plan, the Qualified Plan, the
Restoration Plan, and any individual employment agreement, contract or
other arrangement between the Company and the Participant that provides
for retirement benefits.
2.21 "Offset Plan Reduction" shall mean any benefit that is or becomes payable
under any of the Offset Plans on behalf of the Participant. Such
reductions to the Accrued Benefit shall occur each time the Participant
first becomes eligible to receive a benefit from an Offset Plan, without
regard to whether the Participant actually begins to receive such benefit.
The amount of the reduction shall be the amount of benefit the Participant
would have received from the Offset Plan if he had elected to begin
receipt of the benefit as a Life Annuity at the time he was first
eligible, converted on an Actuarial Equivalent basis to the form of
benefit he elected from this Plan.
2.22 "Participant" shall mean any employee of an Employer who becomes eligible
to participate in the Plan pursuant to Article III and who continues to be
entitled to any benefits under the Plan. "Active Participant" shall mean a
Participant who is an employee of an Employer and who is eligible to
accrue additional benefits under the Plan.
2.23 "Plan" shall mean the Newport News Shipbuilding Inc. Supplemental
Executive Retirement Plan.
2.24 "Plan Year" shall mean the calendar year.
2.25 "Qualified Plan" shall mean the Newport News Shipbuilding Inc. Retirement
Plan. In the event that the Qualified Plan is subsequently amended,
reference to a Section of the Qualified Plan shall be deemed to refer to
the operational successor of such Section.
2.26 "Rabbi Trust" means a trust described in Code Section 671, which shall be
established in connection with this Plan.
2.27 "Restoration Plan" means the Newport News Shipbuilding Inc. Retirement
Benefit Restoration Plan.
2.28 "Retirement" shall mean termination of employment with all Employers at a
time when the Participant is eligible for an Early, Normal, or Late
Retirement Benefit, other than a Participant's Termination for Cause.
2.29 "Retirement Benefit" means the Benefit described in Section 4.1 payable at
the Participant's Retirement Date.
2.30 "Retirement Date" shall mean the Participant's Early, Normal, or Late
Retirement Date.
2.31 "Spouse" shall mean the person legally married to the Participant at his
Annuity Starting Date.
2.32 "Surviving Spouse" shall mean the person legally married to the
Participant at his date of death.
2.33 "Years of Participation" shall have the same meaning as under the
Restoration Plan.
2.34 "Years of Service" shall have the same meaning as under the Restoration
Plan.
Article III
PLAN PARTICIPATION
3.1 Eligibility to Participate in the Plan. All Employees of the Employer who
are employed in a position designated as ECP Level 7 or higher as of the
Effective Date shall be Participants in the plan as of the Effective Date.
Any other Employee of the Employer who is subsequently specifically
designated by the Committee shall also be eligible to participate in the
Plan.
3.2 Participation. A Participant shall remain a Participant so long as he is
entitled to current or contingent benefits under the Plan, but shall cease
to be a Participant if he terminates employment with all Employers prior
to the date he becomes eligible for payment of benefits under Article IV
of the Plan. If a Participant ceases to be an employee, but later become
re-employed by an Employer, he shall again become a Participant when he is
specifically designated a Participant by the Committee .
3.3 Select Group of Employees. The Plan is intended to qualify as a plan
maintained by the Employers primarily for the purpose of providing
deferred compensation for a select group of highly compensated employees,
and, as such, to be exempt from certain provisions of the Employee
Retirement Income Security Act of 1974, as amended. If the Company
determines based on subsequent authority or if an agency or court of
competent jurisdiction determines that the Plan benefits any person other
than a member of the select group of management or highly compensated
employees as per ERISA sections 201, 301, or 401 (and the period for
appeal of such determination has elapsed), the participation of each
employee who is determined not to be included in such group shall be
immediately terminated. Such employee shall forfeit any Accrued Benefit,
regardless of whether such benefit is otherwise vested and the employee
shall cease to accrue any additional benefit under the Plan.
Article IV
BENEFITS
4.1 Retirement Benefits. Except as otherwise provided herein, retirement
benefits will be computed and paid as follows:
(a) Normal Retirement Benefit shall be equal to the Participant's Accrued
Benefit determined at the Participant's Normal Retirement Date and
commencing on such date reduced by the Offset Plan Reduction.
(b) Early Retirement Benefit shall be equal to the Participant's Accrued
Benefit determined at the Participant's Early Retirement Date and
commencing on such date, reduced by 5/12 of 1% for each month that
his Early Retirement Date precedes his Normal Retirement Date and
further reduced by the Offset Plan Reduction
(c) Late Retirement Benefit shall be equal to the Participant's Accrued
benefit determined at the Participant's Late Retirement Date and
commencing on such date reduced by the Offset Plan Reduction.
4.2 Termination of Service. A Participant whose employment with all Employers
is terminated prior to his earliest Early Retirement Date, or a
Participant whose employment ends at any time on account of his
Termination for Cause, shall forfeit his entire Accrued Benefit under this
Plan. Notwithstanding the forgoing, in the event of a Change in Control
the rights of all Participants to their accrued Retirement Benefits and
Death Benefits shall be nonforfeitable, unless the Participant's
employment ends on account of his Discharge for Cause within the meaning
of the Newport News Shipbuilding Inc. Change in Control Severance Benefit
Plan for Key Executives.
4.3 Form of Retirement Benefit. At the election of the Participant, his
Retirement Benefit may be paid in any form of benefit available under the
Qualified Plan, except that a single sum payment option shall not be
available. Notwithstanding the prior sentence, if the single sum Actuarial
Equivalent of his Accrued Benefit is less than $50,000 after taking into
account all current and future reductions in his Accrued Benefit that are
attributable to the Offset Plans, then he shall be paid such single sum
Actuarial Equivalent in lieu of all other benefits payable to him from
this Plan. Notwithstanding the forgoing, in the event of a Change in
Control any Participant whose employment has been terminated may elect to
receive a single sum payment that is the Actuarial Equivalent of his
Accrued Benefit in lieu of all other benefits otherwise payable to him
from this Plan.
4.4 Death Benefit. If a Participant dies, the single sum Actuarial Equivalent
of his Accrued Benefit, after taking into account all current and future
reductions in his Accrued Benefit that would have been made as a result of
benefits attributable to the Offset Plans if he had not died, shall be
paid to his Beneficiary.
4.5 Time of Payment. Payment of a Participant's benefit under this Article
shall commence on the Participant's applicable Retirement Date.
4.6 Suspension of Benefits. If a retired former participant is re-employed by
an Employer, his benefit will be suspended until his employment with all
Employers is again terminated. His Retirement Benefit shall be
recalculated when his employment with all Employers again ceases. If the
retired former participant did not meet the requirements to again become
an Active Participant, his new benefit amount will be equal to the benefit
he was receiving immediately prior to his re-employment, increased by the
annuity that is the Actuarial Equivalent of the payments that were
suspended during his period of re-employment, and decreased by the annuity
that is the Actuarial Equivalent of any payments that would otherwise have
first become payable to him under an Offset Plan during his period of
re-employment. If the formerly retired Participant met the Participation
requirements of section 3.2 and again became an Active Participant prior
to his subsequent retirement, his Retirement Benefit will be recalculated
as of the date his employment with all Employers is again terminated,
increased by the annuity that is the Actuarial Equivalent of the payments
that were suspended during his period of re-employment, and decreased by
the annuity that is the Actuarial Equivalent of any payments that would
otherwise have first become payable to him under an Offset Plan during his
period of re-employment. Notwithstanding the forgoing, the Retirement
Benefit of a retired former participant who is re-employed by an Employer
can never be less than what it would have been had he never been
re-employed.
The Plan Administrator shall establish procedures for the resumption of
benefits and the offsetting of benefit overpayments, if any.
4.7 Income and Payroll Tax Withholding. To the extent required by the laws in
effect at the time deferred compensation payments are made under this
Plan, the Employer shall withhold from such deferred compensation payments
any taxes required to be withheld for federal, state, or local government
purposes.
Article V
PLAN ADMINISTRATION
5.1 Administration of the Plan. The Plan shall be administered by a Plan
Administrator, which shall be appointed by the Committee, subject,
however, to any action taken by the Committee in respect to the Plan. The
Plan Administrator shall be responsible for the administration of the Plan
and shall have all of the discretionary authority, rights and duties which
are necessary or appropriate for proper administration of the Plan
including, without limitation, the discretionary power to determine
eligibility for participation in the Plan, construe the terms of the Plan,
resolve ambiguities, supply omissions, cure defects, and determine amounts
due under the Plan. All decisions of the Plan Administrator shall be final
and binding on all parties. The Plan Administrator shall file with the
Department of Labor and distribute to the Participants any reports and
other information required by applicable law and shall be entitled to rely
conclusively upon all tables, valuations, certificates, opinions and
reports furnished by any actuary, accountant, controller, counsel or other
person employed or engaged by it with respect to the Plan. The Plan
Administrator may appoint one or more delegates to discharge any or all of
its responsibilities hereunder. Except as expressly limited by the Plan
Administrator, such delegates shall have all of the rights and
discretionary duties which are appropriate to carry out the duties that
have been delegated.
Article VI
AMENDMENT AND TERMINATION
6.1 Amendment and Termination of the Plan. The Committee may amend or
terminate the Plan at any time. However, no such amendment or termination
shall deprive any Participant or Surviving Spouse of any portion of any
Retirement Benefit or Death Benefit which has accrued prior to the
effective date of such amendment or termination. Any officer of the
Company who has been duly authorized by the Committee to perform acts of
such kind may take actions permitted by this Section.
Article VII
GENERAL PROVISIONS
7.1 Funding. Benefits payable under this Plan to a Participant shall be paid
directly from the general assets of the Employer. No Employer shall be
obligated to set aside, earmark or escrow any funds or other assets to
satisfy its obligations under this Plan, and the Participant and his
Surviving Spouse shall not have any property interest in any specific
assets of any Employer other than the unsecured right to receive payments
from the Employer as provided herein. Notwithstanding the foregoing, in
the event of a Change in Control, the Company shall fund all Accrued
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.
7.2 Nonalienation of Benefits under this Plan. Except for claims of
indebtedness owing to an Employer, 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 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
Employer may cancel and refuse to pay any portion of a benefit that 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
Employer be required to comply with the terms of such order in connection
with this Plan.
7.3 Plan Not a Contract of Employment. This Plan shall not be deemed to
constitute a contract of employment between any Employer and any
Participant or to be a consideration or an inducement for the employment
or continued employment of any Participant or Employee. Nothing contained
in this Plan shall be deemed to give any Participant or Employee the right
to be retained in the service of any Employer or to interfere with the
right of any Employer to terminate any Participant or employee at any time
regardless of the effect which such termination shall have upon such
individual as a Participant in the Plan.
7.4 Required Notification to Plan Administrator. Each Participant entitled to
benefits hereunder shall file with the Plan Administrator from time to
time in writing his post office address and each change of post office
address. Any check representing payment hereunder and any communication
addressed to a Participant or a former Participant hereunder 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
Employer shall be binding on such person for all purposes of the Plan, and
neither the Plan Administrator nor the Employer or other payor 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 or former 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:
(a) All unmailed and future retirement income payments shall be
henceforth withheld until he provides the Plan Administrator with
evidence of his continued life and his proper mailing address; and
(b) His right to any retirement income whatsoever shall, at the option of
the Plan Administrator, be canceled forever, if, at the expiration of
two (2) years from the date of such mailing, he shall not have
provided the Plan Administrator with evidence of his continued life
and his proper mailing address.
7.5 Successors. The provisions of this Plan shall be binding upon each
Employer, and their successors and assigns and upon each Participant and
his heirs, spouses, estates, and legal representatives.
7.6 Facility of Payment. Whenever and as often as any person entitled to
payments hereunder shall be under a legal disability, or in the sole
judgment of the Plan Administrator shall otherwise be in any way
incapacitated so as to be unable to manage his financial affairs, the Plan
Administrator, in the exercise of its discretion, may direct that the
distribution or payments to which such person otherwise would be entitled
shall be made in any one or more of the following ways:
(a) Directly to such person;
(b) To his legal curator, guardian, or conservator, or other
court-appointed or court-recognized representatives;
(c) To his Surviving Spouse, to another member of his family, or to any
other person, to be expended for his benefit; or
(d) By the Plan Administrator itself, receiving and expending, or
directing the expenditure of the same for the benefit of such person.
Any payment made in good faith in accordance with the provisions of this
Section shall be a complete discharge of any liability for the making of
such payment under the provisions of this Plan.
7.7 Required Information to Plan Administrator. Each Participant or Surviving
Spouse will furnish to the Plan Administrator such information as the Plan
Administrator considers necessary or desirable for purposes of
administering the Plan. 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.
Each Participant or Surviving Spouse will submit proof of his age and his
spouse's age to the Plan Administrator at such time as required by the
Plan Administrator. The Plan Administrator will, if such proof of age is
not submitted as required, use as conclusive evidence thereof such
information as is deemed by it to be reliable, regardless of the lack of
proof, or the misstatement of the age of persons entitled to benefits
hereunder, by the Participant or otherwise. 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, in care of the Company at:
Human Resources Department
Newport News Shipbuilding Inc.
4101 Washington Avenue
Newport News, Virginia 23607-2770
7.8 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 90
days of the date the Participant's claim for benefits is received. Any
disagreements about such interpretations and construction may be appealed
within 60 days to the Plan Administrator. The Plan Administrator shall
respond to such appeal within 60 days with a notice in writing fully
disclosing its decision and the reasons therefore. The Plan Administrator
shall have full and complete discretion to interpret the Plan and its
resolution of all claims under the Plan shall be final. The Plan
Administrator shall not be liable to any person for any action taken
hereunder, except those actions undertaken with lack of good faith.
7.9 Controlling State Law. To the extent not superseded by the laws of the
United States, the Plan will be construed and enforced according to the
laws of the Commonwealth of Virginia.
7.10 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.
7.11 Adoption of Plan. Any subsidiary, Affiliate Company, or other entity that
satisfies the requirements of Section 2.16 of this Plan, may adopt this
Plan for all or a portion of its employees, provided that the Committee
approves such participation. The administrative powers and control of the
Company as provided in the Plan shall not be deemed diminished under the
Plan by reason of the participation of other companies in the Plan.
IN WITNESS WHEREOF, Newport News Shipbuilding Inc. has adopted this plan on this
_____ day of March, 1999.
ATTEST (SEAL): NEWPORT NEWS SHIPBUILDING INC.
_____________________________ By__________________________________
EXHIBIT 10.34
FIRST AMENDMENT TO
NEWPORT NEWS SHIPBUILDING INC.
RETIREMENT BENEFIT RESTORATION PLAN
The Newport News Shipbuilding Inc. Retirement Benefit Restoration Plan is hereby
amended as follows, effective January 1, 1999 by deleting Section 2.1 in its
entirety and inserting the following in its place:
2.1 "Accrued Benefit" as of a specified date with respect to a
Participant means a monthly benefit equal to (a) minus (b) minus (c)
below (but less than zero) where
(a) means the monthly vested benefit that would have been payable to
the Participant under the Qualified Plan modified as follows:
(1) Years of Participation under the Qualified Plan shall be
treated as also including "years of participation" used to
calculate the Participant's benefit under the Tenneco Inc.
Retirement Plan.
(2) Compensation under the Qualified Plan shall be treated as also
including amounts deferred under the Newport News Shipbuilding
Inc. Deferred Compensation Plan.
(3) Solely for employees in positions designated as ECP Level
5 or above, the following shall be substituted for the
definitions of Covered Compensation and Final Average
Compensation under the Qualified Plan. Compensation for such
purposes shall mean the sum of (i) the average of the
Participant's regular base compensation for the five most
recent years, expressed as an annual amount, and (ii) the
average of the Participant's actual short-term incentive
compensation earned for the five most recent full calendar
years, expressed as an annual award amount. Short-term
incentive compensation shall be included as Covered
Compensation with respect to the calendar year in which it was
earned by the Participant, without regard to the calendar year
in which it was paid to the Participant. Short-term incentive
compensation shall mean only annual bonuses paid or eligible
to be paid to the Participant in cash based on Company and
individual employee performance criteria, and shall not
include signing bonuses, relocation allowances, long-term
incentive awards, stock options, performance share grants,
expense allowances or reimbursements, or any other
compensation. In the event a Participant has been employed by
an Employer for less than five years during the most recent
five years, the average of his regular base compensation and
short-term incentive compensation for the years the
Participant was employed by an Employer during the five most
recent years will be used for purposes of calculating
Compensation under this Section.
(4) The vested benefit payable under the Qualified Plan shall be
calculated without applying Sections 415(b)(1)(A), 415(e), and
401(a)(17) of the Code, as adjusted by the Secretary of the
Treasury for any plan year, or the successor of such Sections.
The benefit described in this subsection (a) shall be expressed as a
Life Annuity commencing at the Participant's Normal Retirement Date.
(b) means the sum of: (i) the monthly vested benefit payable to the
Participant under the Qualified Plan (including any annuity purchased
for him under the provisions of the Qualified Plan); plus (ii) the
monthly vested benefit that would be payable to the Participant under
the Tenneco Inc. Retirement Plan if the Participant commenced
receiving his benefit on the Participant's Normal Retirement Date.
The benefit described in subsection (b)(i) shall be expressed as a
Life Annuity commencing on the Participant's Normal Retirement Date.
The benefit described in subsection (b)(ii) shall be the benefit that
would actually be payable under the Tenneco Inc. Retirement Plan if
the Participant commenced such benefits on his Normal Retirement Date
in the form of a Life Annuity using the appropriate interest rates
and mortality tables specified in the plan.
(c) means the monthly vested Tenneco Restoration Benefit. The
"Tenneco Restoration Benefit" shall mean the monthly benefit payable
under the Tenneco Inc. Supplemental Executive Retirement Plan
determined as of December 31, 1996, but not more than (i) the
monthly vested benefit payable to the Participant under the Tenneco
Inc. Retirement Plan calculated without applying Sections
415(b)(1)(A), 415(e), and 401(a)(17) of the Code less (ii) the
monthly vested benefit payable to the Participant under the Tenneco
Inc. Retirement Plan. The amounts under subsection (c)(i) and
(c)(ii) shall likewise be determined as of December 31, 1996.
The benefit described in subsection (c)(i) shall be expressed as an
actuarially equivalent Life Annuity commencing on the Participant's
Normal Retirement Date. The benefit described in subsection (c)(ii)
shall be the benefit that would actually be payable under the Tenneco
Inc. Retirement Plan if the Participant commenced such benefits on
his Normal Retirement Date in the form of an actuarially equivalent
Life Annuity. In both instances, actuarial equivalence shall be
determined using the appropriate interest rates and mortality tables
specified in the appropriate plan.
<PAGE>
IN WITNESS WHEREOF, Newport News Shipbuilding Inc. has caused this instrument
to be executed this _____ day of March , 1999 .
Newport News Shipbuilding Inc.
ATTEST: (SEAL) By: ______________________________
EXHIBIT 21, 1998 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> <C>
NNS Delaware Management Company Delaware 100%
Newport News Shipbuilding and Dry Dock Company Virginia 100%
NNS Tanker Holding Corporation Delaware 100%
Continental Maritime of San Diego, Inc. California 100%
Newport News Reactor Services, Inc. Virginia 100%
</TABLE>
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, Charles P. Wingfield, Jr., 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, 1998,
with exhibits thereto and other documents in connection therewith, which the
Company contemplates filing with the Securities and Exchange Commission 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 23rd day of March,
1999.
/s/ Gerald L. Baliles
-----------------------------------
Gerald L. Baliles
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, Charles P. Wingfield, Jr., 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, 1998,
with exhibits thereto and other documents in connection therewith, which the
Company contemplates filing with the Securities and Exchange Commission 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 23rd day of March,
1999.
/s/ Leon A. Endey
-----------------------------------
Leon A. Endey
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, Charles P. Wingfield, Jr., 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, 1998,
with exhibits thereto and other documents in connection therewith, which the
Company contemplates filing with the Securities and Exchange Commission 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 23rd day of March,
1999.
/s/ William R. Harvey
-----------------------------------
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, Charles P. Wingfield, Jr., 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, 1998,
with exhibits thereto and other documents in connection therewith, which the
Company contemplates filing with the Securities and Exchange Commission 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 23rd day of March,
1999.
/s/ Dana G. Mead
-----------------------------------
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, Charles P. Wingfield, Jr., 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, 1998,
with exhibits thereto and other documents in connection therewith, which the
Company contemplates filing with the Securities and Exchange Commission 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 23rd day of March,
1999.
/s/ Joseph J. Sisco
-----------------------------------
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, Charles P. Wingfield, Jr., 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, 1998,
with exhibits thereto and other documents in connection therewith, which the
Company contemplates filing with the Securities and Exchange Commission 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 23rd day of March,
1999.
/s/ Stephan R. Wilson
-----------------------------------
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, Charles P. Wingfield, Jr., 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, 1998,
with exhibits thereto and other documents in connection therewith, which the
Company contemplates filing with the Securities and Exchange Commission 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 23rd day of March,
1999.
/s/ William P. Fricks
-----------------------------------
William P. Fricks
Chairman and Chief Executive 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, Charles P. Wingfield, Jr., 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, 1998,
with exhibits thereto and other documents in connection therewith, which the
Company contemplates filing with the Securities and Exchange Commission 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 23rd day of March,
1999.
/s/ David J. Anderson
-----------------------------------
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, Charles P. Wingfield, Jr., 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, 1998,
with exhibits thereto and other documents in connection therewith, which the
Company contemplates filing with the Securities and Exchange Commission 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 23rd day of March,
1999.
/s/ Charles P. Wingfield, Jr.
-----------------------------------
Charles P. Wingfield, Jr.
Vice President and Controller
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
This schedule contains summary financial information extracted from the Newport
News Shipbuilding Inc. Balance Sheet as of December 31, 1998, and the related
Statement of Earnings for the year ended December 31, 1998 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> DEC-31-1997
<PERIOD-END> DEC-31-1998
<CASH> 3
<SECURITIES> 0
<RECEIVABLES> 143
<ALLOWANCES> 0
<INVENTORY> 52
<CURRENT-ASSETS> 660
<PP&E> 1,608
<DEPRECIATION> 845
<TOTAL-ASSETS> 1,600
<CURRENT-LIABILITIES> 518
<BONDS> 400
0
0
<COMMON> 1
<OTHER-SE> 231
<TOTAL-LIABILITY-AND-EQUITY> 1,600
<SALES> 1,862
<TOTAL-REVENUES> 1,862
<CGS> 1,687
<TOTAL-COSTS> 1,687
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 61
<INCOME-PRETAX> 114
<INCOME-TAX> 48
<INCOME-CONTINUING> 66
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 66
<EPS-PRIMARY> 1.91
<EPS-DILUTED> 1.85
</TABLE>
