UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                   FORM 10-K

            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996

                                       OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
                                  ACT OF 1934

                For the transition period from               to

                         COMMISSION FILE NUMBER 1-12385


                         NEWPORT NEWS SHIPBUILDING INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE                                                     74-1541566
--------                                                     ----------
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 $526,930,841 at March 10, 1997.

34,601,227 shares of the registrant's Common Stock were outstanding at March 10,
1997.

                      DOCUMENTS INCORPORATED BY REFERENCE:

Part III incorporates information from certain portions of the registrant's
definitive Proxy Statement in connection with its Annual Meeting of Stockholders
to be held on May 16, 1997.


<PAGE>


                                     PART I

ITEM 1.  BUSINESS

The Company is the largest non-government-owned shipyard in the United States,
as measured by each of revenues, size of facilities and number of employees. Its
primary business is the design, construction, repair, overhaul and refueling of
nuclear-powered aircraft carriers and submarines for the U.S. Navy. The
Company believes it currently is: (i) the only shipyard capable of building the
Navy's nuclear-powered aircraft carriers, (ii) the only non-government-owned
shipyard capable of refueling and overhauling the Navy's nuclear-powered
aircraft carriers, and (iii) one of only two shipyards capable of building
nuclear-powered submarines. Since its inception in 1886, the Company has
developed a preeminent reputation through the construction of 264 naval ships
and 542 commercial vessels.

Aircraft carrier and submarine construction contracts with the U.S. Navy have
generated the majority of the Company's revenues. Overall, the Company's core
U.S. Navy business accounted for approximately 94%, 97%, and 97% of the
Company's revenues for 1996, 1995, and 1994, respectively. Newport News has
built nine of the 12 active aircraft carriers in the U.S. fleet, including all
eight nuclear-powered aircraft carriers. For the last 35 years, Newport News has
been the sole designer and builder of the U.S. Navy's aircraft carriers.

On December 11, 1996, in connection with a corporate reorganization, the
Company's former parent and its subsidiaries undertook and completed various
intercompany transfers and distributions designed to restructure, divide and
separate their then existing businesses, assets, liabilities and operations so
that, among other things, the shipbuilding business of the Company's former
parent ("Shipbuilding Business") would be owned by the Company. The former
parent subsequently distributed (the "spinoff") pro rata to holders of the
parent company's common stock all of the outstanding common stock of the
Company.

Unless the context otherwise requires, as used herein, the term "Company"
refers: (i) for periods prior to the spinoff to Newport News Shipbuilding and
Dry Dock Company ("Newport News"), a Virginia corporation, and certain other
subsidiaries through which the former parent conducted its Shipbuilding Business
during such periods, and (ii) for periods after the spinoff, to Newport News
Shipbuilding Inc. ("NNS") , a Delaware corporation, and its consolidated
subsidiaries, including Newport News.

For a summary of the Company's revenues and operating earnings by classes of
products and services, see Item 7 - "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

CONSTRUCTION

The Company's primary activity is constructing ships, with approximately 55%,
63%, and 65% of revenues for the years ended December 31, 1996, 1995, and 1994,
respectively, being generated from construction work. In recent history, the
Company has principally been engaged in constructing aircraft carriers and
submarines for the U.S. Navy, but the Company's current objective is to
selectively add to its core business in related markets such as U.S. Navy
non-nuclear surface ship construction, selected commercial opportunities, and
foreign military sales.

Currently, the Company is constructing two NIMITZ-class nuclear-powered aircraft
carriers, HARRY S. TRUMAN and RONALD REAGAN, which are scheduled for delivery in
1998 and 2002, respectively. A contract for an additional NIMITZ-class aircraft
carrier, the last in its class, is anticipated to be awarded in or before 2002,
for delivery in 2009.

The Company is currently performing design concept studies for the next
generation of aircraft carriers to follow the NIMITZ-class. The first carrier in
this new class, the CVX-78, is expected to be awarded in 2006. Because of its
past experience in manufacturing aircraft carriers, and the lack of direct
competitors, the Company believes it is in a strong competitive position to be
awarded these contracts, although no assurances can be given that it will
receive any award, that the project will not be delayed, or that the project
will be funded by Congress.

                                       1

<PAGE>

The Company is also one of two U.S. manufacturers of nuclear-powered submarines.
The Company has constructed 53 nuclear-powered submarines, including 39 attack
submarines and 14 of the larger, fleet ballistic missile submarines. The final
LOS ANGELES-class submarine was delivered on August 15, 1996. The Company's bid
to be one of two builders of the U.S. Navy's new nuclear attack submarine
("NSSN"), the class of submarines following the SEAWOLF, was affirmed during the
first quarter of 1996, when legislation directing the second and fourth NSSNs to
the Company became law.

At the urging of the Navy, the Company and Electric Boat Corporation, a
wholly-owned subsidiary of General Dynamics Corporation, reached an agreement in
February 1997 to cooperatively build the four NSSNs included in the President's
defense budget, as well as future procurements of NSSNs. The teaming agreement
calls for each company to construct certain portions of each submarine, with
final assembly, testing, outfitting, and delivery alternating between the two
yards. Electric Boat will act as the prime contractor under the agreement. This
arrangement will require an alteration to existing law, contained in last year's
Defense Authorization Act, which directs independent submarine construction by
the two companies. The Company estimates that the NSSN program could total up to
30 submarines, although no assurances can be given as to the number of NSSNs
that ultimately will be procured and built by the Company, either alone or in
cooperation with Electric Boat.

The Company is also completing the complex conversion of the second of two
container ships to roll- on, roll-off heavy armored vehicle SEALIFT
transportation ships for the U.S. Navy. The first ship was delivered in August
1996 and the second ship is scheduled to be delivered during the second quarter
of 1997.

As part of its strategy to selectively add to its core Navy business, the
Company has pursued orders for products and services from commercial customers.
In 1994 and 1995, the Company entered into fixed price contracts to construct a
total of nine DOUBLE EAGLE product tankers. Six of these double-hull tankers are
intended to serve the domestic Jones Act (consisting of the Merchant Marine Act
of 1920, as amended, and the Shipping Act of 1916, as amended) market currently
served by single-hull product carriers whose retirement is mandated by the Oil
Pollution Act of 1990 (the "OPA 90"). The OPA 90 requires, among other things,
that existing single-hull ships must be retired from domestic transportation of
petroleum products between 1995 and 2015 unless retrofitted with double hulls.

Several U.S. allies overseas have embarked or plan to embark on navy
modernization programs. Most of these programs anticipate the purchase of one or
more frigate-size ships. The Company has designed a flexible, multi-mission
frigate called the FF-21 and has submitted bids for the construction of these
ships to the United Arab Emirates and Kuwait, and is in the process of
developing bids for Norway and the Philippines. A number of international
companies compete for these revenues, and this market would represent a new
market for the Company.

OVERHAUL AND REPAIR

The Company provides ongoing maintenance for the U.S. Navy's vessels through
overhaul, refueling and repair work. The Company possesses unique expertise in
servicing nuclear naval systems, and believes it is the only
non-government-owned shipyard presently capable of refueling nuclear-powered
aircraft carriers. The Company has had a leading share of the market in aircraft
carrier refueling and overhauls.

Aircraft carrier work is generally assigned by the U.S. Navy based on the type
of work, location, and cost. The Company finished overhauling and refueling USS
ENTERPRISE in 1994 and the overhaul and repair of USS DWIGHT D. EISENHOWER in
early 1997. The Company also completes "Post Shake-Down Availabilities" on
carriers and submarines, consisting of repairs and maintenance after original
delivery of the vessel to the Navy.

The Company diversified its overhaul work in 1994 with its first contract to
overhaul a guided missile destroyer, USS THORN. The Company has completed a
series of destroyer repair jobs since that time. In the first quarter of 1997,
the Company completed its first overhaul of an Aegis radar-equipped ship, USS
MONTEREY.

                                       2

<PAGE>

ENGINEERING

The Company provides engineering planning and design services primarily to the
U.S. Navy. The Company maintains a stable level of funded engineering support
services for the U.S. Navy, which include new aircraft carrier research and
development, the reactor plant planning yard, aircraft carrier engineering
support, and training and logistics. The Company is a leader in aircraft carrier
design, performing a majority of the ship integration and related design
development work of the Naval Sea Systems Command ("NAVSEA"). Navy shipyards,
however, are typically assigned the design contracts for the non-nuclear
portions of the aircraft carriers. The Company has been able to apply its
engineering capabilities in a variety of projects for the U.S. Navy, including
being the lead design yard for the LOS ANGELES- and SEAWOLF-class submarines.

GOVERNMENT CONTRACTING

The Company's principal U.S. Government business is currently performed under
fixed price ("FP"), fixed price plus incentive fee ("FPIF"), cost plus incentive
fee ("CPIF"), and cost plus fixed fee ("CPFF") contracts. The risk to the
Company of not being reimbursed for its costs varies with the type of contract.
Under FP contracts, the contractor retains all cost savings on completed
contracts, but is liable for the full amount of all expenditures in excess of
the contract price. FPIF contracts, on the other hand, provide for cost sharing
between the U.S. Government and the contractor. The contractor's fee is
increased or decreased according to a formula set forth in the contract, which
generally compares the amount of costs incurred to the contract target cost. The
Government is liable for all allowable costs up to a ceiling price. Under CPIF
contracts, the contractor's profit is determined by a contractually specified
formula, which essentially compares allowable incurred costs to the contract
target cost. Under CPFF contracts, with few exceptions, the fee is the same
without regard to the amount of cost incurred. The Company currently constructs
aircraft carriers pursuant to FPIF contracts, but it performs work for the U.S.
Government under all of the types of contracts described above.

Contracting with the U.S. Government can also result in the Company filing a
Request for Equitable Adjustment ("REA") in connection with a contract. REAs
represent claims against the U.S. Government for changes in the original
contract specifications and resulting delays and disruption in contract
performance.

The U.S. Government has the right to suspend or debar a contractor from
government contracting for violations of certain statutes or government
procurement regulations. The U.S. Government may also unilaterally terminate
contracts at its convenience with compensation for work completed.

COMPETITION

In the Company's opinion, the number of programs currently planned by the U.S.
Navy over the next several years will increase competitive pressures among the
U.S. shipyards presently engaged in ship construction. The reduced level of
shipbuilding activity by the U.S. Navy during the past decade has resulted in
significant workforce reductions in the industry, but almost no other
significant consolidations. The general result has been fewer contracts awarded
to the same fixed number of large shipyards.

The Company believes one government-owned U.S. West Coast shipyard could refuel
nuclear-powered carriers if it made substantial investments in its facilities
and personnel training. One government-owned U.S. East Coast shipyard is
presently involved in nuclear refueling, overhauling and de-activating LOS
ANGELES-class submarines. With respect to the market for U.S. military contracts
for other types of vessels, there are principally six major private U.S.
shipyards, including the Company, that compete for contracts to construct,
overhaul or convert other types of surface combatant vessels. The Company is
also directly dependent upon the allocation of defense monies to the U.S. Navy.

With respect to the domestic commercial shipbuilding market, the Jones Act
currently requires that all vessels transporting products between U.S. ports be
constructed by U.S. shipyards. There are approximately 16 private U.S. shipyards
that can accommodate the construction of vessels up to 400 feet in length, five
of which the Company considers to be its direct competitors for commercial
contracts. With respect to the international commercial shipbuilding market, a
current overcapacity of suppliers worldwide has favored buyers and hindered the

                                       3

<PAGE>

profitability of shipyards. While the percentage of the Company's total business
for commercial shipbuilding could increase, the U.S. Navy has historically been
and for the foreseeable future is expected to continue to be the Company's
primary customer.

REGULATION

The Company is subject to stringent environmental laws and regulations in all
jurisdictions in which it operates. Management of the Company believes that the
Company is in substantial compliance with all applicable environmental laws and
regulations. Historically, environmental compliance costs incurred by the
Company have not been material. Like all of its U.S. competitors, the Company
will be required to upgrade its air emission control facilities pursuant to
recently drafted regulations under the Clean Air Act Amendments of 1990. These
regulations call for a phased-in compliance program so that the Company will
spread its costs over the years from 1997 through 2000. Although there can be no
assurances, management does not believe that future environmental compliance
costs will have a material adverse effect on the Company's financial condition
or results of operations.

The Nuclear Regulatory Commission, the Department of Energy and the Department
of Defense regulate and control various matters relating to nuclear materials
handled by the Company. Subject to certain requirements and limitations, the
Company's government contracts generally provide for indemnity by the U.S.
Government for any loss arising out of or resulting from certain nuclear risks.
(See also "Government Contracting" on page 3.)

BACKLOG

The Company's firm backlog at December 31, 1996 and 1995 was $3.5 billion and
$4.6 billion, respectively. Backlog levels can change and U.S. Government
contracts can be unilaterally terminated at the convenience of the U.S.
Government at any time with compensation for work completed. More than 90% of
the Company's backlog at December 31, 1996 continued to be U.S. Navy-related.
The portion of 1996's backlog expected to remain at December 31, 1997 is $2.2
billion.

MATERIALS AND SUPPLIES

All major materials, parts, and components for the Company's products are
currently available in adequate supply from domestic and foreign sources.
Through the cost escalation provisions contained in some of its U.S. Government
contracts, the Company is generally protected from increases in its materials
costs to the extent that the increases in the Company's costs are in line with
industry indices. In connection with its government contracts, the Company is
required to procure certain materials and component parts from supply sources
approved by the U.S. Government. The Company has not generally been dependent
upon any one supply source; however, due largely to the consolidation of the
defense industry, there are currently several components for which there is only
one supplier. The Company believes that these sole source suppliers as well as
its overall supplier base are adequate to meet its foreseeable future needs.

RESEARCH AND DEVELOPMENT

Research and development costs are charged to operating costs and expenses as
incurred. The amounts charged during the years ended December 31, 1996, 1995,
and 1994 were $42 million, $20 million and $14 million, respectively. Under
current regulations, research and development costs can be charged to the U.S.
Government as allowable overhead allocated across all of the Company's
contracts. The actual amount of research and development costs allowed to pass
through U.S. Navy contracts is reviewed annually. Research and development costs
can also be directly funded by the U.S. Government through specific contracts.
These contracts produce quantifiable deliverables for the U.S. Navy, for
example, certain research and development projects on aircraft carriers.
Research and development costs incurred under specific customer contracts during
the years ended December 31, 1996, 1995, and 1994 were $25 million, $27 million,
and $32 million, respectively.

                                       4

<PAGE>

EMPLOYEES

At the end of 1996, the Company had approximately 18,000 employees, of whom
approximately 60% were covered by collective bargaining agreements with various
unions. The Company has entered into four collective bargaining agreements
covering all of the Company's approximately 10,400 hourly employees. The
agreement with the United Steelworkers of America covers approximately 10,100
employees and expires April 4, 1999. The other agreements cover approximately
300 employees and expire by 2001. Although the Company believes that its
relationships with these unions are good, there can be no assurance that the
Company will not experience labor disruptions associated with the collective
bargaining agreements.

CAUTIONARY STATEMENT OF PURPOSES OF "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995


This Annual Report on Form 10-K contains forward-looking statements concerning,
among other things, the Company's prospects, developments and business
strategies. These forward-looking statements are identified by their use of such
terms and phrases as "intends," "estimates," "expects," "projects,"
"anticipates," "should," "believes" and "scheduled." The Company's actual
results may differ materially from the results discussed in the forward-looking
statements. Factors that might cause such a difference include (i) the factors
discussed in this Item 1 and Notes 10, 11, and 12 to the Company's Financial
Statements, and (ii) the following factors: (a) general political, economic and
competitive conditions; (b) initiatives to reduce the federal budget deficit and
reductions in defense spending; (c) reductions in the volume of U.S. Navy
contracts awarded to the Company; and (d) unanticipated events affecting
delivery and production schedules or design and manufacturing processes, thus
impairing the Company's efforts to deliver its products on time or to reduce
production costs and cycle time or realize in a timely manner some or all of the
benefits, if any, of such reductions.

ITEM 2.  PROPERTIES

The Company's principal facilities are located in Newport News, Virginia on
approximately 550 acres owned by the Company at the mouth of the James River.
Its facilities include seven graving docks, a floating dry dock, two outfitting
berths, five outfitting piers, a module outfitting facility, and various other
shops. Dry Dock 12 is the largest in the Western Hemisphere, and has recently
been extended to 662 meters. Dry Dock 12 is serviced by a 900 metric ton
capacity gantry crane that spans the dry dock and work platen. The majority of
these facilities are pledged as collateral under terms of the Company's
outstanding long-term debt agreements (See Note 7 to the Financial Statements of
the Company). The Company believes that substantially all of its productive
assets are, in general, well maintained, in good operating condition, considered
adequate for present needs and, as supplemented by planned construction, are
expected to remain adequate for the near future.

ITEM 3.  LEGAL PROCEEDINGS

The information in Note 12-"Commitments and Contingencies - Government
Contracting and - Significant Estimates" to the Financial Statements appearing
on pages 33 through 34 of this Annual Report on Form 10-K is incorporated herein
by reference in response to this item.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Pursuant to consents dated October 14, 1996, October 31, 1996, November 30,
1996, and December 11, 1996, the Company's parent company and sole stockholder
at the time, approved, among other things, the following matters: (i) the
election of Messers. Fricks, Sisco and Mead as the sole Directors of the
Company; (ii) the transfer of $600,000,000 to NNS Delaware Management Company, a
wholly owned subsidiary of the Company, as a contribution to capital; (iii) a
cash dividend on December 11, 1996 to its former parent in the amount of
$600,000,000; (iv) distribution of all shares of capital stock of two
subsidiaries owned by the Company; (v) the adoption of certain employee benefit
plans of the Company; (vi) the authorization of actions necessary to consummate
the Agreement and Plan of Merger, the Distribution Agreement, and the Debt and
Cash Allocation Agreement in connection with the spinoff; (vii) the adoption of
the Restated Certificate of Incorporation and the Amended and Restated By-laws
of the Company; (viii) the distribution of Common Stock, par value $0.01 per
share, of the Company; and (ix) certain other former parent company
reorganization transactions and matters related to the spinoff.

ITEM 4.1  EXECUTIVE OFFICERS OF THE REGISTRANT

The information as to executive officers of the Company, set forth in Item 10
of this Annual Report on Form 10K, is hereby incorporated in this Item 4.1
by reference.

                                    PART II

ITEM 5.  MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

The common stock, par value $.01 per share (the "Common Stock"), of the Company
is listed on the New York and Chicago Stock Exchanges. Options in the Company's
stock are traded on the American Stock Exchange.

                                       5

<PAGE>



The high and low sale prices of Common Stock from the inception of trading on
December 12, 1996, on the New York Stock Exchange Composite Transactions Tape,
through December 31, 1996, were $17 and $13 7/8, respectively.  No dividends
were paid on the Common Stock during 1996.  There were approximately 71,000
record holders of Common Stock as of March 10, 1997.

The Company's long-term debt obligations contain certain customary restrictive
covenants, including a limitation on the payment of dividends. (See Note 7 to
the Financial Statements of the Company.)

ITEM 6.  SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                                   YEARS ENDED DECEMBER 31,
                                                              -----------------------------------------------------------------
                                                               1996(A)       1995(A)       1994(A)        1993           1992
                                                              ---------     ---------     ---------     ---------     ---------
MILLIONS, EXCEPT PER SHARE DATA
STATEMENTS OF EARNINGS DATA:
<S> <C>
Revenues....................................................  $   1,870     $   1,756     $   1,753     $   1,861     $   2,265
                                                              =========     =========     =========     =========     =========

Net income from continuing operations.......................  $      55     $      73     $      91     $     111     $      50
                                                              =========     =========     =========     =========     =========

Net income from continuing operations per common share (b)..  $    1.60           N/A           N/A           N/A           N/A
                                                              =========     =========     =========     =========     =========

BALANCE SHEET DATA:
Total assets................................................  $   1,489     $   1,380     $   1,263     $   1,235     $   1,450
                                                              =========     =========     =========     =========     =========

Long-term obligations (c)...................................  $     596     $     292     $     287     $     423     $     761
                                                              =========     =========     =========     =========     =========
</TABLE>

(a) For a discussion of significant items affecting comparability of the
financial information as of and for the years ended December 31, 1996, 1995, and
1994, see Item 7 - "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

(b) Net income from continuing operations per common share is based on net
income from continuing operations divided by the weighted average number of
common shares outstanding for the period from December 12, 1996 through December
31, 1996 (34,297,451 shares). Since the Company was a wholly-owned subsidiary
prior to the spinoff, there are no comparable results for prior periods.

(c) Amounts prior to 1996 represent debt allocated to the Company from its
former parent (See Note 3 - "Transactions With Former Parent Company, Corporate
Debt and Interest Allocation" to the Financial Statements of the Company).
Historical amounts for 1996 represent obligations incurred by the Company as a
separate public entity.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following review of the results of operations and financial condition of the
Company should be read in conjunction with the Financial Statements and related
notes contained herein.

                                       6

<PAGE>


The U.S. Navy accounted for approximately 94% of the Company's revenues in 1996,
and 97% in both 1995 and 1994. The Company's principal U.S. Navy business is
currently being performed under fixed price or fixed price incentive contracts,
which wholly or partially shift the risk of construction costs that exceed the
contract target cost to the Company. The accompanying table summarizes the
percentage of revenues by contract type.

<TABLE>
<CAPTION>

                                                                                      FOR THE YEAR ENDED DECEMBER 31
-----------------------------------------------------------------------------------------------------------------------------------
CONTRACT TYPE                                                                          1996          1995           1994
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Fixed Price.........................................................                     64%           75%            75%
Cost-Based..........................................................                     36            25             25
                                                                                   --------      --------       --------

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. Losses on contracts are reported
when first estimated. The performance of contracts usually extends over several
years, requiring periodic reviews and revisions of estimated final contract
prices and costs. The effect of revisions to estimates is included in earnings
in the period the revisions are made.

1996 COMPARED TO 1995


RESULTS OF OPERATIONS

<TABLE>
<CAPTION>

                                                                                                  FOR THE YEAR ENDED DECEMBER 31
-----------------------------------------------------------------------------------------------------------------------------------
REVENUES                                                                                            1996                1995
-----------------------------------------------------------------------------------------------------------------------------------
MILLIONS
<S> <C>
Construction........................................................................              $   1,029          $   1,107
Overhaul and Repair.................................................................                    625                414
Engineering.........................................................................                    194                202
Related Businesses & Other..........................................................                     22                 33
                                                                                                  ---------            -------

Total...............................................................................              $   1,870          $   1,756
                                                                                                  =========          =========
</TABLE>

The Company's revenues increased 6.5% during 1996, growing to $1.87 billion from
$1.76 billion in 1995. The higher revenue level, as detailed in the following
discussion of operations, is driven by Overhaul and Repair.

CONSTRUCTION - The $78 million decrease in Construction revenues in 1996 is due
to the delivery of the aircraft carrier STENNIS in late 1995, the decline in LOS
ANGELES-class submarine production attendant with the completion of that program
in 1996, and lower levels of activity on SEALIFT conversions. These decreases
are partially offset by increased construction activity on the aircraft carriers
TRUMAN and REAGAN as well as DOUBLE EAGLE product tankers.

OVERHAUL AND REPAIR - The $211 million increase in Overhaul and Repair revenues
in 1996 is primarily attributable to the aircraft carrier EISENHOWER. Revenues
generated by the EISENHOWER overhaul were up due to (i) the ship being in the
yard for the full year (versus six months in 1995), and (ii) the period of
performance being compressed from 24 to 18 months.

ENGINEERING - Engineering revenues were marginally lower in 1996, declining to
$194 million from $202 million in 1995. Requirements for SEAWOLF and LOS
ANGELES-class submarine design work have declined due to the maturity of the
production programs for these submarines.

RELATED  BUSINESSES & OTHER - Revenues from Related Businesses & Other declined
by $11 million in 1996.  The higher level of activity in 1995 was due to a
variety of nonrecurring jobs for miscellaneous services.

                                       7

<PAGE>

<TABLE>
<CAPTION>

                                                                                            FOR THE YEAR ENDED DECEMBER 31
---------------------------------------------------------------------------------------------------------------------------------
OPERATING EARNINGS                                                                             1996                1995
---------------------------------------------------------------------------------------------------------------------------------

MILLIONS
<S> <C>
Construction........................................................................         $   44              $   95
Overhaul and Repair.................................................................             88                  45
Engineering.........................................................................             13                  13
Related Businesses & Other..........................................................            (5)                   7
                                                                                             ------              ------

Total...............................................................................         $  140              $  160
                                                                                             ======              ======
</TABLE>

Operating earnings of $140 million in 1996 represent a 12.5% decline from 1995's
level of $160 million. This decline in earnings is primarily attributable to
losses recognized in Construction, offset by improved performance in Overhaul
and Repair.

CONSTRUCTION - The $51 million decrease in operating earnings on Construction
work in 1996 relates to (i) the delivery of the carrier STENNIS in late 1995,
and (ii) increases in loss accruals for commercial product tanker construction
and SEALIFT conversions (See Note 12 to the Financial Statements of the
Company). The decreases in operating earnings for the period are partially
offset by (i) increased activity and productivity improvements on the aircraft
carriers REAGAN and TRUMAN, and (ii) the favorable settlement of contract change
orders on delivered submarines.

OVERHAUL AND REPAIR - The $43 million increase in operating earnings for
Overhaul and Repair work in 1996 is a result of (i) higher volume on EISENHOWER,
(ii) increased activity on carrier overhaul planning work, and (iii) increased
margins on submarine, carrier, and non-nuclear surface ship overhaul and repair
work.

ENGINEERING - Operating earnings from Engineering work remained stable, as 1996
earnings contributions matched those reported in 1995.

RELATED BUSINESSES & OTHER - The decrease in operating earnings in 1996 is
primarily the result of the recognition of certain professional and
administrative costs associated with NNS becoming an independent company.

LIQUIDITY AND CAPITAL RESOURCES

<TABLE>
<CAPTION>
                                                                                             FOR THE YEAR ENDED DECEMBER 31
---------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS                                                                                        1996             1995
---------------------------------------------------------------------------------------------------------------------------------

MILLIONS
<S> <C>
Net cash (used) provided by operating activities....................................            $ (75)          $  63
Capital expenditures................................................................              (74)            (77)
Other investing cash flows..........................................................              (25)            (10)
                                                                                                ------          ------

Subtotal............................................................................             (174)            (24)
Financing activities................................................................              173              25
                                                                                                ------          ------

Net increase (decrease) in cash and cash equivalents................................            $  (1)          $   1
                                                                                                ======          ======
</TABLE>

NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES - The $138 million decrease in
1996's comparative cash flows from operating activities is due to lower
operating earnings and an increased investment in working capital. The lower
operating earnings are attributable to the factors discussed above in "1996
Compared to 1995 - Results of Operations, Operating Earnings." The increase in
working capital is caused by normal timing fluctuations in billings and
collections. Additionally, prices on certain commercial construction contracts
are not billable until delivery, and as such, attendant working capital costs
incurred throughout the year were not billable during 1996.

                                       8
<PAGE>

CAPITAL EXPENDITURES - Capital expenditures in 1996 remained relatively level
with 1995 and reflect the Company's continuing investment in a strategic
capital improvement program consisting principally of three separate projects:
(i) development of a state-of-the-art automated steel cutting and fabrication
facility; (ii) extension of a dry dock facility; and (iii) construction of the
Consolidated Refueling Facility. The automated steel cutting and fabrication
facility, which is fully functional, should directly support the Company's goal
of reducing its production cost structure. The extension of the dry dock
facility was completed in June 1996 and allows for concurrent, multiple-ship
construction within the same dry dock. This improvement is expected to enable
construction resources to be utilized on multiple projects. Lastly, the
Consolidated Refueling Facility was completed in July 1996. This cost-efficient
facility is strategically located next to the dry docks used to refuel
nuclear-powered ships.

OTHER INVESTING CASH FLOWS - Other investing cash flow activities in 1996 and
1995 include for each year a $9.6 million investment representing the Company's
40% equity interest in the Abu Dhabi Ship Building Company. The remaining 1996
activity consists of a $15 million investment in a vessel-owning limited
partnership with a U.S. shipping firm. A former subsidiary of Newport News, NNS
Tanker Holding Corporation, now a subsidiary of NNS, has a 49% ownership
interest in this partnership.

FINANCING ACTIVITIES - The Company received from its former parent, on a net
basis, $149 million in 1996 and $25 million in 1995 to finance operating cash
flow needs and cover costs of its capital improvement program. (See Note 3 to
the Financial Statements of the Company). Additionally, $24 million was borrowed
under the Company's credit facility (See "Capital Requirements and Resources"
below) for working capital needs at 1996 year-end. The Company also received
$600 million in long-term debt proceeds during 1996, which were used to pay a
dividend to its former parent in conjunction with the spinoff. (See Note 7 to
the Financial Statements of the Company).

CAPITAL REQUIREMENTS AND RESOURCES - The Company requires that adequate working
capital be available at all times. While construction and conversion contracts
provide for progress payments, they generally require extensive investment in
contracts-in-process because of contract progress payment retentions and change
orders. Retentions, generally due upon completion or acceptance of the
contracted work, amounted to $57 million as of December 31, 1996. Change orders,
which make up an appreciable portion of the Company's work, sometimes require
long periods of negotiation during which time the expended funds are not
available for other uses.

The Company estimates that expenditures aggregating approximately $33 million
will be required after December 31, 1996, to complete planned projects for which
substantial commitments have been made. The Company also believes it will be
required to make tax payments in the range of $100 million to $124 million in
1998 upon completion of the STENNIS-TRUMAN aircraft carrier contract.

On November 4, 1996, the Company entered into a $415 million Credit Agreement
which includes a $215 million six-year Revolving Credit Facility, of which $125
million may be used for advances and letters of credit and $90 million may be
used for standby letters of credit. This Agreement contains customary
restrictive covenants which could affect borrowing capacity under the credit
facility. As of December 31, 1996 the Company had used $24 million of the credit
facility. (See Note 7 to the Financial Statements of the Company.)

Management believes that capital requirements as described above for its overall
operations, payment of dividends, taxes, and debt service can be met by existing
cash, internally generated funds, and the Revolving Credit Facility.

                                       9

<PAGE>


INTEREST AND INCOME TAXES

Corporate debt of the Company's former parent and its related interest expense
were allocated to NNS based upon the ratio of the Company's net assets to the
parent's consolidated net assets plus debt. As an independent company, NNS'
weighted average cost of debt is higher than the historical allocations. As a
result, interest expense as a separate entity will initially be higher.

The effective tax rates for 1996 and 1995 were approximately 46% and 44%,
respectively. The difference between the Company's effective tax rate in these
periods compared to the U.S. federal statutory rate of 35% is principally due to
state income taxes and miscellaneous permanent differences for tax.

CHANGES IN ACCOUNTING PRINCIPLES

The Company adopted Statement of Financial Accounting Standards ("FAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," and FAS No. 123, "Accounting for Stock-Based Compensation," in
1996. The adoption of these new standards did not have any impact on the
Company's financial position or results of operations.

1995 COMPARED TO 1994

RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                                                                  FOR THE YEAR ENDED DECEMBER 31
---------------------------------------------------------------------------------------------------------------------------------
REVENUES                                                                                            1995                1994
---------------------------------------------------------------------------------------------------------------------------------
MILLIONS
<S><C>
Construction........................................................................              $1,107              $1,144
Overhaul and Repair.................................................................                 414                 383
Engineering.........................................................................                 202                 204
Related Businesses & Other..........................................................                  33                  22
                                                                                                  ------              ------

Total...............................................................................              $1,756              $1,753
                                                                                                  ======              ======
</TABLE>

Revenues in 1995 remained flat in comparison with prior year performance. As
detailed below, a nominal reduction in Construction revenues was offset by
increased volume in the Overhaul and Repair and Related Businesses & Other
areas.

CONSTRUCTION - The $37 million decrease in Construction revenues in 1995 is
attributable to lower submarine construction activity, as the LOS ANGELES-class
program neared completion. The decrease in submarine work is partially offset by
increased aircraft carrier construction, SEALIFT conversion work, and commercial
shipbuilding activity.

OVERHAUL AND REPAIR - The $31 million increase in Overhaul and Repair revenues
in 1995 relates primarily to work on the destroyer THORN, as well as
miscellaneous other U.S. Navy repair work. These increases were partially offset
by a reduction in commercial ship repair.

ENGINEERING - Engineering revenues declined $2 million in 1995 primarily due to
less work on the SEAWOLF-class submarine design program.

RELATED BUSINESSES & OTHER - Revenues increased $11 million in 1995 due to a
variety of nonrecurring jobs for miscellaneous services.

                                       10

<PAGE>

<TABLE>
<CAPTION>

                                                                                                  FOR THE YEAR ENDED DECEMBER 31
---------------------------------------------------------------------------------------------------------------------------------
OPERATING EARNINGS                                                                                  1995                1994
---------------------------------------------------------------------------------------------------------------------------------

MILLIONS
<S> <C>
Construction........................................................................              $   95              $  181
Overhaul and Repair.................................................................                  45                  13
Engineering.........................................................................                  13                  11
Related Businesses & Other..........................................................                   7                  (5)
                                                                                                  ------              ------
Total...............................................................................              $  160              $  200
                                                                                                  ======              ======

</TABLE>

Operating earnings totaled $160 million in 1995, a 20% decline from 1994's
earnings level of $200 million. The drop in earnings was attributable to
Construction programs, with Overhaul and Repair generating partially offsetting
gains.

CONSTRUCTION - The $86 million decrease in operating earnings on Construction
work in 1995 relates to (i) lower contributions from aircraft carrier work as a
result of productivity gains realized in 1994, (ii) loss accruals established as
a result of the Company's re-entry into the highly competitive commercial
shipbuilding market, and (iii) additional costs incurred on SEALIFT conversion
work (See Note 12 to the Financial Statements of the Company).

OVERHAUL AND REPAIR - The $32 million increase in operating earnings for
Overhaul and Repair work in 1995 is due primarily to work performed on the LONG
BEACH deactivation, coupled with the fact the Company experienced losses on some
U.S. Navy and commercial repair jobs in 1994.

ENGINEERING - 1995 operating earnings from Engineering work improved $2 million
over 1994 levels because of improved margins on miscellaneous contracts.

RELATED BUSINESSES & OTHER - The improved operating earnings in 1995 are
primarily the result of reduced expenses for pensions and other employee
benefits.

LIQUIDITY AND CAPITAL RESOURCES

<TABLE>
<CAPTION>
                                                                                                  FOR THE YEAR ENDED DECEMBER 31
---------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS                                                                                          1995                1994
---------------------------------------------------------------------------------------------------------------------------------

MILLIONS
<S> <C>
Net cash provided by operating activities...........................................            $     63              $  182
Capital expenditures................................................................                 (77)                (29)
Other investing cash flows..........................................................                 (10)                 --
                                                                                                 --------              ------

Subtotal............................................................................                 (24)                153
Financing activities................................................................                  25                (154)
                                                                                                 --------              ------

Net increase (decrease) in cash and cash equivalents................................            $      1              $   (1)
                                                                                                ========              ======
</TABLE>


NET CASH PROVIDED BY OPERATING ACTIVITIES - The $119 million decrease in net
cash flow from operating activities is due to several factors, including lower
operating earnings, increased contracts in process, and higher payments for
federal and state income taxes. The lower operating earnings are attributable to
the factors discussed above in "1995 Compared to 1994 - Results of Operations,
Operating Earnings." The additional costs accumulated in contracts in process
are largely caused by higher costs on SEALIFT conversion work and the start-up
of commercial shipbuilding projects. The higher level of 1995 income tax
payments to the Company's former parent is attributable to NNS paying its
allocation of 1994 income taxes during 1995. The payment of a significant
portion of taxes allocated to the Company has historically occurred in the year
subsequent to when the taxes are incurred and billed. Thus, the higher level of
1994 current income taxes, due to higher 1994 pretax earnings, is reflected as a
1995 cash outflow.

                                       11
<PAGE>

CAPITAL EXPENDITURES - Capital expenditures increased to $77 million in 1995
from $29 million in 1994 due to the initiation of a strategic capital
improvement program. Details of the program are provided in the "1996 Compared
to 1995 - Liquidity and Capital Resources" discussion.

FINANCING ACTIVITIES - During 1994, the Company was able to generate and
distribute $154 million to its former parent, on a net basis, due to higher
operating earnings, lower working capital requirements, and lower levels of
capital expenditures. (See Note 3 to the Financial Statements of the Company).

INTEREST AND INCOME TAXES

For a discussion of the historical treatment of debt and interest, see "1996
Compared to 1995 - Interest and Income Taxes" above. The effective tax rate for
both 1995 and 1994 was approximately 44%. The difference between the Company's
effective rate and the U.S. federal statutory rate of 35% is principally due to
state income taxes and miscellaneous permanent differences for tax.

CHANGES IN ACCOUNTING PRINCIPLES

The Company adopted FAS No. 112, "Employers' Accounting for Postemployment
Benefits" effective January 1, 1994. Adoption of this standard resulted in the
Company recording an after-tax charge of $4 million in 1994, which was reported
as a cumulative effect of change in accounting principle.



                                       12

<PAGE>


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
                                                                                                                             Page
                                                                                                                             ----
FINANCIAL STATEMENTS
<S> <C>
Report of Independent Public Accountants..................................................................................     14
Combined Statements of Earnings for each of the three years in the
period ended December 31, 1996............................................................................................     15
Balance Sheets as of December 31, 1996 and 1995...........................................................................     16
Combined Statements of Cash Flows for each of the three years in the
period ended December 31, 1996............................................................................................     17
Statements of Changes in Stockholders' Equity for each of the three years in
the period ended December 31, 1996........................................................................................     18
Notes to Financial Statements.............................................................................................     19

</TABLE>

                                       13
<PAGE>


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Newport News Shipbuilding Inc.:


We have audited the accompanying balance sheets of Newport News Shipbuilding
Inc. (a Delaware corporation) (refer to Note 1 for basis of presentation) as of
December 31, 1996 and 1995, and the related statements of earnings, cash flows
and changes in stockholders' equity for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Newport News Shipbuilding Inc.
as of December 31, 1996 and 1995, and the results of its operations and cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.

As discussed in Note 2 to the financial statements, effective January
1, 1994, Newport News Shipbuilding Inc. changed its method of accounting for
postemployment benefits.



                                                            ARTHUR ANDERSEN LLP

Washington, D.C.,
January 31, 1997


                                       14


<PAGE>


                         NEWPORT NEWS SHIPBUILDING INC.

                        COMBINED STATEMENTS OF EARNINGS

<TABLE>
<CAPTION>

                                                                                                 YEAR ENDED DECEMBER 31,
                                                                                      ---------------------------------------
                                                                                           1996           1995           1994
                                                                                      ---------      ---------      ---------


MILLIONS (EXCEPT SHARES AND PER SHARE AMOUNTS)
<S> <C>

REVENUES........................................................................      $   1,870      $   1,756      $   1,753
OPERATING COSTS AND EXPENSES....................................................          1,729          1,599          1,552
OTHER INCOME (EXPENSE), NET.....................................................             (1)             3             (1)
                                                                                      ---------      ---------      ---------

OPERATING EARNINGS..............................................................            140            160            200
Interest Expense, net of interest capitalized...................................            (38)           (29)           (30)
                                                                                      ---------      ---------      ---------

EARNINGS BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE............................................................            102            131            170
Provision for Income Taxes......................................................             47             58             75
                                                                                      ---------      ---------      ---------

EARNINGS BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE..................................................             55             73             95
Cumulative Effect of Change in Accounting Principle,
net of tax......................................................................              -              -             (4)
                                                                                      ---------      ---------      ---------

NET EARNINGS....................................................................      $      55      $      73      $      91
                                                                                      =========      =========      =========

PER SHARE
Weighted Average Number of Common Shares Outstanding.............................     34,297,451           N/A            N/A
                                                                                      ==========      =========      =========
Net Earnings Per Common Share...................................................      $     1.60           N/A            N/A
                                                                                      ==========      =========      =========
</TABLE>



The accompanying notes are an integral part of these combined statements of
earnings.


                                       15

<PAGE>


                         NEWPORT NEWS SHIPBUILDING INC.

                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                                DECEMBER 31,
                                                                                    ------------------------------------
                                                                                         1996                    1995
                                                                                    --------------            ----------
                                                                                    (consolidated)            (combined)
MILLIONS (EXCEPT SHARES AND PER SHARE AMOUNTS)

ASSETS
CURRENT ASSETS
<S> <C>

Cash and Cash Equivalents......................................................        $    1                  $    2
Accounts Receivable............................................................           182                      67
Contracts in Process...........................................................           258                     263
Inventory......................................................................            45                      54
Note Receivable................................................................             -                      18
Other Current Assets...........................................................             5                      15
                                                                                       ------                  ------


Total Current Assets...........................................................           491                     419
                                                                                       ------                  ------

NONCURRENT ASSETS
Property, Plant and Equipment, net.............................................           836                     820
Other Assets...................................................................           162                     141
                                                                                       ------                  ------

Total Noncurrent Assets........................................................           998                     961
                                                                                       ------                  ------

                                                                                       $1,489                  $1,380
                                                                                       ======                  ======

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade Accounts Payable.......................................................          $  123                  $   99
Accounts Payable to Former Parent.............................................              -                      67
Short-Term Debt...............................................................             28                      68
Deferred Income Taxes.........................................................              4                      39
Other Accrued Liabilities.....................................................            101                     165
                                                                                       ------                  ------

Total Current Liabilities.....................................................            256                     438
                                                                                       ------                  ------

NONCURRENT LIABILITIES
Long-Term Debt................................................................            596                     292
Deferred Income Taxes.........................................................            183                     138
Postretirement Benefits.......................................................            109                     101
Other Long-Term Liabilities...................................................            113                     139
Commitments and Contingencies (See Note 12)
                                                                                       ------                  ------

Total Noncurrent Liabilities..................................................          1,001                     670
                                                                                       ------                  ------

STOCKHOLDERS' EQUITY
Common Stock, $.01 par value -
      authorized 70,000,000 shares; issued
      and outstanding 34,297,451 shares at December 31, 1996..................              1                       -
Paid-In Capital...............................................................            245                       -
Accumulated Deficit...........................................................            (14)                      -
Combined Equity...............................................................              -                     272
                                                                                       ------                  ------
Total Stockholders' Equity....................................................            232                     272
                                                                                       ------                  ------
                                                                                       $1,489                  $1,380
                                                                                       ======                  ======
</TABLE>

      The accompanying notes are an integral part of these balance sheets.

                                       16

<PAGE>


                         NEWPORT NEWS SHIPBUILDING INC.

                       COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                                 YEAR ENDED DECEMBER 31,
                                                                                      -------------------------------------------
                                                                                       1996              1995               1994
                                                                                      ------            ------             ------
MILLIONS
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C>
Net Earnings..................................................................         $   55            $  73              $  91
Cumulative Effect of Change in Accounting Principle...........................              -                -                  4
Adjustments to Reconcile Net Earnings Before Accounting Changes to Net
      Cash (Used) Provided by Operating Activities -
            Depreciation......................................................             65               67                 70
            Deferred Income Taxes.............................................            (10)              (2)               (46)
            Allocated Corporate Interest, net of tax..........................             20               18                 17
            Equity Investments (Income)/Loss..................................              2               -                   -
            Changes in Components of Working Capital -
               Decrease(Increase) in -
                  Accounts Receivable.........................................           (116)              22                (15)
                  Contracts in Process........................................             (7)             (95)               (20)
                  Inventory...................................................             10               (9)                (1)
                  Note Receivable.............................................             18                -                  -
                  Other Current Assets........................................             11               (4)                (6)
               Increase(Decrease) in -
                  Trade Accounts Payable......................................             21               36                 (1)
                  Accounts Payable to Former Parent...........................            (67)             (50)                58
                  Other Accrued Liabilities...................................            (35)               8                 29
            Other, net........................................................            (42)              (1)                 2
                                                                                       ------           ------             ------
Net Cash (Used) Provided by Operating Activities..............................            (75)              63                182
                                                                                       ------           ------             ------

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures..........................................................            (74)             (77)               (29)
Other.........................................................................            (25)             (10)                 -
                                                                                       ------           ------             ------
Net Cash Used by Investing Activities.........................................            (99)             (87)               (29)
                                                                                       ------           ------             ------

CASH FLOWS FROM FINANCING ACTIVITIES:
Cash Transfer (to) from Former Parent.........................................            149               25               (154)
Proceeds from Issue of Long-Term Debt.........................................            600               -                   -
Dividend Paid to Former Parent................................................           (600)              -                   -
Net Increase in Revolving Credit Facility.....................................             24               -                   -
                                                                                       ------          ------              ------
Net Cash (Used) Provided by Financing Activities..............................            173              25                (154)
                                                                                       ------          ------              ------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..........................             (1)              1                  (1)
Effect of Exchange Rate Changes on Cash and Cash Equivalents..................              -               -                   -
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD..............................              2               1                   2
                                                                                       ------          ------              ------

CASH AND CASH EQUIVALENTS AT END OF PERIOD....................................         $    1          $    2              $    1
                                                                                       ======          ======              ======

CASH PAID DURING THE PERIOD FOR INCOME TAXES..................................         $  129          $  122              $   53
                                                                                       ======          ======              ======

CASH PAID DURING THE PERIOD FOR INTEREST......................................         $    3          $    -              $    -
                                                                                       ======          ======              ======

</TABLE>

The accompanying notes are an integral part of these combined statements of cash
flows.

                                       17
<PAGE>


                         NEWPORT NEWS SHIPBUILDING INC.

                 STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>

                                                                          Common Stock
                                                         Combined     ---------------------        Paid-In    Accumulated
                                                          Equity        Shares        Par          Capital      Deficit
                                                         --------     ----------   --------        -------      ---------

MILLIONS, EXCEPT FOR SHARES
<S> <C>
Balance - January 1, 1994........................        $    105              -   $      -        $     -      $     -
Net Earnings.....................................              91              -          -              -            -
Net Cash Transfers to Former Parent..............            (154)             -                         -            -
Non-Cash Transactions With Former Parent
      Net Change in Allocated Corporate Debt.....             140              -          -              -            -
      Allocated Corporate Interest, net of tax...              17              -          -              -            -
                                                         --------        -------   --------          -----      -------
Balance - December 31, 1994......................             199              -          -              -            -
Net Earnings.....................................              73              -          -              -            -
Net Cash Transfers from Former Parent............              25              -          -              -            -
Non-Cash Transactions With Former Parent
      Net Change in Allocated Corporate Debt.....             (43)             -          -              -            -
      Allocated Corporate Interest, net of tax...              18              -          -              -            -
                                                         --------        -------  ---------          -----      -------
Balance - December 31, 1995......................             272              -          -              -            -
Net Earnings.....................................              69              -          -              -            -
Net Cash Transfers from Former Parent............             149              -          -              -            -
Non-Cash Transactions With Former Parent
      Net Change in Allocated Corporate Debt.....             360              -          -              -            -
      Allocated Corporate Interest, net of tax...              20              -          -              -            -
      Other......................................             (24)             -          -              -            -
Dividend to Former Parent........................            (600)             -          -              -            -
Issuance of Common Stock in Connection
      With the Spinoff...........................            (246)    34,297,451          1            245            -
                                                         --------     ----------    -------          -----      -------
Balance - December 11, 1996......................               -     34,297,451          1            245            -
Net Loss.........................................               -              -          -              -          (14)
                                                         --------     ----------   --------          -----      -------
Balance - December 31, 1996......................        $      -     34,297,451   $      1            245      $   (14)
                                                         ========     ==========   ========          =====      =======


</TABLE>












The accompanying notes are an integral part of these statements of changes in
stockholders' equity.

                                       18

<PAGE>


                         NEWPORT NEWS SHIPBUILDING INC.

                         NOTES TO FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS

BASIS OF PRESENTATION

On December 11, 1996, in connection with a corporate reorganization, the
Company's former parent and its subsidiaries undertook and completed various
intercompany transfers and distributions designed to restructure, divide and
separate their then existing businesses, assets, liabilities and operations so
that, among other things, the shipbuilding business of the former parent
("Shipbuilding Business") would be owned by the Company (as defined below). The
former parent subsequently distributed (the "spinoff") pro rata to holders of
the parent company's common stock all of the outstanding common stock of the
Company.

Unless the context otherwise requires, as used herein, the term "Company"
refers: (i) for periods prior to the spinoff to Newport News Shipbuilding and
Dry Dock Company, a Virginia corporation, and certain other subsidiaries through
which its former parent conducted its Shipbuilding Business during such periods,
and (ii) for periods after the spinoff, to Newport News Shipbuilding Inc., a
Delaware corporation, and its consolidated subsidiaries, including Newport News
Shipbuilding and Dry Dock Company.

Prior to the spinoff, all of the outstanding common stock of the Company was
owned directly or indirectly by the former parent. These financial statements
present the financial position, results of operations and cash flows of the
Company as if it were a separate entity for all periods. The former parent's
historical basis in the assets and liabilities of the Company has been carried
over.

Investments in 20% to 50% owned companies where the Company has the ability to
exert significant influence over operating and financial policies are carried at
cost plus equity in undistributed earnings since the date of acquisition.
Earnings recognized and distributions received from equity method investees were
not significant during any of the periods presented in the accompanying
financial statements. All significant intercompany transactions and balances
have been eliminated.

DESCRIPTION OF BUSINESS

The Company is the largest non-government-owned  shipyard in the United States.
Its principal business is designing,  constructing,  repairing,  overhauling and
refueling nuclear-powered aircraft carriers and submarines for the U.S.
Government.  The Company's  largest single customer is the U.S.  Government.
Revenues from contracts with the U.S. Government were $1,753 million (94%),
$1,697 million (97%) and $1,700 million (97%) in 1996, 1995, and 1994,
respectively.

2. SUMMARY OF ACCOUNTING POLICIES

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions in
determining the reported amounts of the Company's assets, liabilities, revenues
and expenses. Reference is made to the "Revenue Recognition" section of this
footnote and Notes 10, 11 and 12 for additional information on certain estimates
included in the Company's financial statements.

                                       19

<PAGE>


                         NEWPORT NEWS SHIPBUILDING INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

REVENUE RECOGNITION

The Company reports revenues and profits on its long-term contracts using the
percentage-of-completion method of accounting, determined on the basis of total
costs incurred to date to estimated final total costs. Losses on contracts are
reported when first estimated. Costs on long-term contracts in process represent
recoverable costs incurred for production, allocable overhead, and, where
appropriate, general and administrative expenses. General and administrative
expenses related to commercial products and services essentially under
commercial terms and conditions are expensed as incurred. The performance of
contracts usually extends over several years, requiring periodic reviews and
revisions of estimated final contract prices and costs during the term of the
contracts. The effect of these revisions to estimates is included in earnings in
the period the revisions are made. Revenue arising from the claims process is
not recognized either as income or as an offset against a potential loss until
it can be reliably estimated and its realization is probable.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses of $279 million, $254 million, and $271
million in 1996, 1995, and 1994, respectively, are included in the "Operating
Costs and Expenses" caption in the Combined Statements of Earnings. Of the total
general and administrative expenses for 1996, 1995, and 1994, $14 million, $12
million, and $13 million, respectively, represent the Company's share of its
former parent's general and administrative costs for legal, financial,
communication and other administrative services. The allocation of corporate
general and administrative expenses to the Company has been based on estimated
levels of effort devoted to the Company's operations and the relative size of
the Company based on revenues, gross property and payroll. The Company's
management believes the method for allocating corporate general and
administrative expenses is reasonable and that the general and administrative
expenses reflected in the accompanying financial statements are generally
representative of the total general and administrative costs the Company would
have incurred as a separate public entity.

INCOME TAXES

The Company utilizes the liability method of accounting for income taxes whereby
it recognizes deferred tax assets and liabilities for the future tax
consequences of temporary differences between the tax basis of assets and
liabilities and their reported amounts in the financial statements. Deferred tax
assets are reduced by a valuation allowance when, based upon management's
estimates, it is more likely than not that a portion of the deferred tax assets
will not be realized in a future period. No deferred tax valuation allowances
were recorded by the Company as of December 31, 1996 and 1995.

EARNINGS PER SHARE OF COMMON STOCK

Net earnings per common share is based on net earnings divided by the weighted
average number of common shares outstanding for the period from December 12,
1996 through December 31, 1996 (34,297,451 shares). Since the Company was a
wholly-owned subsidiary of its former parent prior to the spinoff, there are no
comparable shares outstanding for periods before the spinoff.

CASH AND CASH EQUIVALENTS

The Company considers highly-liquid investments with an original maturity of
three months or less when purchased to be cash equivalents.

                                       20

<PAGE>


                         NEWPORT NEWS SHIPBUILDING INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)


ACCOUNTS RECEIVABLE AND CONTRACTS IN PROCESS

Only amounts billed and currently due from customers are included in the "Trade
Accounts Receivable" caption in the accompanying balance sheets. Recoverable
costs and accrued earnings related to long-term contracts on which revenue has
been recognized, but for which billings have not been made to the customer, are
included in the "Contracts in Process" caption (see Note 4). No significant
allowance for doubtful accounts existed as of December 31, 1996 and 1995.

INVENTORY

Inventory principally consists of raw materials and supplies which have not been
allocated to specific contracts. Inventory is stated at the lower of cost or
market. Substantially all inventory is costed using the "last-in, first-out"
method. If the first-in, first-out or average cost method of inventory
accounting had been used by the Company for all inventory, inventory would have
been approximately $10 million and $8 million higher at December 31, 1996 and
1995, respectively.

PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment is carried at cost, net of accumulated
depreciation. The Company provides for depreciation on a straight-line basis in
amounts which, in the opinion of management, are adequate to allocate the cost
of depreciable assets over their estimated useful lives. Estimated useful lives
for significant classes of assets are as follows.

Buildings...................................    30 to 60 years
Machinery and equipment.....................     8 to 45 years

Total depreciation expense was $65 million, $67 million, and $70 million for
1996, 1995, and 1994, respectively. Depreciation expense is included as a
component of "Operating Costs and Expenses" in the statements of earnings.

Interest  capitalized  on  constructed  assets  during the years  ended
December  31,  1996,  1995,  and 1994 was $3 million,  $2 million,  and $1
million, respectively.

CHANGES IN ACCOUNTING PRINCIPLES

In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("FAS") No. 123, "Accounting for Stock-Based
Compensation." This statement defines a fair value based method of accounting
for stock-based awards issued to employees and others, but also allows companies
to choose to continue to measure compensation cost for such plans as it would be
measured currently while providing that certain additional pro forma disclosures
be made. The Company has elected the disclosure only option. Consequently, FAS
No. 123 had no impact on the Company's financial position or results of
operations.

The Company adopted FAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," in the first quarter of
1996. FAS No. 121 establishes new accounting standards for measuring the
impairment of long-lived assets. The adoption of this new standard did not have
any impact on the Company's financial position or results of operations.

                                       21

<PAGE>


                         NEWPORT NEWS SHIPBUILDING INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)


Effective January 1, 1994, the Company adopted FAS No. 112, "Employers'
Accounting for Postemployment Benefits." This new accounting rule requires
employers to account for postemployment benefits for former or inactive
employees, after employment but before retirement, on the accrual versus cash
basis of accounting. The postemployment benefit liability, which is based on
actuarial estimates, is recorded at its discounted present value, using discount
rates similar to those used for postretirement liabilities (See Note 10). The
Company recorded an after-tax charge of $4 million, which was reported as a
cumulative effect of change in accounting principle.

RESEARCH AND DEVELOPMENT COSTS

Research and development costs are charged to "Operating Costs and Expenses" as
incurred. The amounts charged to operations during the years ended December 31,
1996, 1995, and 1994 were $42 million, $20 million, and $14 million,
respectively.

RISK MANAGEMENT ACTIVITIES

The Company periodically utilizes foreign currency contracts to hedge its
exposure to changes in foreign currency exchange rates for firm purchase
commitments. Net gains or losses on these contracts are deferred and recognized
when the offsetting gains or losses are recognized on the hedged items. Cash
receipts or payments related to these financial instruments are classified
consistent with the cash flows from the transactions being hedged.

FOREIGN CURRENCY TRANSLATION

Financial statements of equity investments in international entities are
translated into U.S. dollars using the exchange rate at each balance sheet date
for assets and liabilities and the weighted-average exchange rate for each
applicable period for amounts included in the statements of earnings. The amount
of cumulative translation adjustments is not significant.

STOCKHOLDERS' EQUITY

At December 31, 1996, the Company had authorized (a) 70,000,000 shares of Common
Stock, $.01 par value, 34,297,451 of which were outstanding, (b) 10,000,000
shares of preferred stock, $.01 par value, none of which had been issued and (c)
700,000 shares of Series A participating junior preferred stock, $.01 par value,
none of which had been issued.

CLASSIFICATION

The Company's construction contracts range in duration up to a period of 8 years
from the signing of the contract until delivery. Because of the varying nature
of the Company's operating cycle, and consistent with industry practice, assets
and liabilities relating to long-term contracts are classified as current,
although a portion of these amounts is not expected to be realized or paid
within one year (see Note 4).

RECLASSIFICATIONS

Prior years' financial statements have been reclassified where appropriate to
conform to 1996 presentations.

                                       22


<PAGE>


                         NEWPORT NEWS SHIPBUILDING INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)


3. TRANSACTIONS WITH FORMER PARENT COMPANY

COMBINED EQUITY

The "Combined Equity" caption in the accompanying financial statements
represents the Company's former parent's cumulative net investment in the
combined businesses of the Company for periods prior to the spinoff. Changes in
the "Combined Equity" caption represent the net earnings of the Company, net
cash transfers (to) from its former parent, cumulative translation adjustments,
changes in allocated corporate debt, allocated corporate interest, net of tax,
and other non-cash transactions associated with the spinoff of the Company from
its former parent.

CORPORATE DEBT AND INTEREST ALLOCATION

The historical practice of the Company's former parent was to incur indebtedness
for its consolidated group at the parent company level or at a limited number of
subsidiaries, rather than at the operating company level, and to centrally
manage various cash functions. Consequently, corporate debt of the former parent
and its related interest expense have been allocated to the Company based on the
portion of such parent's investment in the Company which is deemed to be debt,
generally based upon the ratio of the Company's net assets to the former
parent's consolidated net assets plus debt. Interest expense was allocated at a
rate equivalent to the weighted-average cost of all corporate debt, which was
9.2%, 7.7%, and 8.3% for 1996, 1995, and 1994, respectively. Total pre-tax
interest expense allocated to the Company in 1996, 1995, and 1994 was $31
million, $28 million, and $26 million, respectively.

The Company has also been allocated tax benefits approximating 35% of the
allocated pre-tax interest expense. Although interest expense, and the related
tax effects, have been allocated to the Company for financial reporting on a
historical basis, the Company was not billed for these amounts. The changes in
allocated corporate debt and the after-tax allocated interest have been included
as a component of the Company's Combined Equity.

INCOME TAXES

See Note 9 for a discussion of income taxes.

NOTES AND ADVANCES RECEIVABLE FROM FORMER PARENT

"Cash transfers (to) from Former Parent" in the Statements of Changes in
Stockholders' Equity consist of net cash changes in notes and advances
receivable with the former parent which have been included in Combined Equity.
Historically, the former parent utilized notes and advances to centrally manage
cash funding requirements for its consolidated group.

                                       23

<PAGE>


                         NEWPORT NEWS SHIPBUILDING INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)


ACCOUNTS PAYABLE TO FORMER PARENT

Historically, certain costs incurred by its former parent were allocated to the
Company. The "Accounts Payable to Former Parent" balance consists of unpaid
billings for these allocated costs and other services.

EMPLOYEE BENEFITS

Certain employees of the Company participated in the employee stock ownership
and employee stock purchase plans offered by its former parent prior to the
spinoff. The employee stock ownership plan provided for grants of a variety of
awards, including stock options and restricted stock to officers and key
employees of the Company. The employee stock purchase plan allowed employees to
purchase common stock of its former parent at a 15% discount subject to certain
thresholds. In connection with the spinoff, all options held by employees of the
Company were canceled as of December 11, 1996 and were replaced in January 1997
with approximately 2.1 million options granted under the Newport News
Shipbuilding Inc. Stock Ownership Plan.

The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," to its stock-based compensation plans. Stock-based
compensation expense recognized by the Company in 1996, 1995, and 1994 was not
material. Had compensation expense for stock-based compensation been determined
in accordance with FAS No. 123, "Accounting for Stock-Based Compensation," based
on the fair value at the grant dates for awards under applicable plans, the
Company's pro forma net earnings for the years ended December 31, 1996 and 1995
would have been lower by approximately $3 million ($.09 per share) and $2
million, respectively.

The fair value of each option granted was estimated using the Black-Scholes
option pricing model based on the following weighted-average assumptions for
grants in 1996 and 1995, respectively: (i) risk free rates of 5.4% and 7.9%;
(ii) expected lives of 5.0 years and 5.0 years; (iii) expected volatility of
26.6% and 29.0%; and (iv) a dividend yield of 3.7% and 3.7%. The estimated
weighted-average fair value per option granted to the Company's employees during
1996 and 1995 was $10.75 and $11.81, respectively.

Certain  employees of the Company also participated in a pension plan provided
by its former parent.  Reference is made to Note 11 for a further  discussion of
this plan.

ANCILLARY AGREEMENTS

In order to assist in the orderly transition of the Company into a separate,
publicly held company, the former parent modified, amended or entered into
certain contractual agreements with the Company. Such agreements include the tax
sharing agreement discussed in Note 9, an employee benefits agreement, an
insurance agreement, an administrative services agreement, and other ancillary
agreements.

4. CONTRACTS IN PROCESS

Contracts in process includes production costs and related overhead, including
general and administrative expenses allocable to U.S. Government contracts, net
of progress payments of $3.9 billion and $3.0 billion as of December 31, 1996
and 1995, respectively. Approximately $28 million and $24 million of retainages
included in contracts in process, as of December 31, 1996 and 1995,
respectively, are not expected to be billed and collected within one year.

Under the contractual arrangements by which progress payments are received, the
U.S. Government asserts that it has a security interest in the Contracts in
Process identified with the related contracts.

                                       24

<PAGE>


                         NEWPORT NEWS SHIPBUILDING INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

5. PROPERTY, PLANT AND EQUIPMENT, NET

The major classes of property, plant, and equipment are as follows:

<TABLE>
<CAPTION>
                                                                                                             DECEMBER 31,
                                                                                                    ----------------------------
                                                                                                       1996              1995
                                                                                                    ---------         ----------

MILLIONS
<S> <C>
Land and improvements.........................................................................      $      27         $       26
Buildings and improvements....................................................................          1,182              1,150
Machinery and equipment.......................................................................            397                376
                                                                                                    ---------          ---------
     Property, plant, and equipment at cost...................................................          1,606              1,552
Less accumulated depreciation.................................................................           (770)              (732)
                                                                                                    ---------          ---------
     Net property, plant, and equipment.......................................................      $     836          $     820
                                                                                                    =========          =========
</TABLE>

6. DETAIL OF OTHER ACCRUED LIABILITIES

Other accrued liabilities consist of the following:
<TABLE>
<CAPTION>
                                                                                                            DECEMBER 31,
                                                                                                    --------------------------
                                                                                                       1996              1995
                                                                                                    ---------         ---------
MILLIONS
<S> <C>
Accrued vacation..............................................................................      $      18         $      43
Employee payroll and benefits.................................................................             31                40
Current postretirement benefits...............................................................             15                16
Current postemployment benefits...............................................................              7                 7
Accrued taxes.................................................................................              -                18
Other.........................................................................................             30                41
                                                                                                    ---------         ---------

                                                                                                    $     101         $     165
                                                                                                    =========         =========
</TABLE>

7. LONG-TERM DEBT AND FINANCING ARRANGEMENTS

LONG-TERM DEBT

A summary of long-term  debt  obligations  of the Company at December 31, 1996
(refer to Note 3 for a discussion of allocated  corporate debt as of December
31, 1995) is set forth in the following table:


            MILLIONS
            8.625% Senior Notes due December 1, 2006                      $200
            9.25% Senior Subordinated Notes due December 1, 2006           200
            Term Loan                                                      200
            6 Year Revolving Credit Facility due through 2002               24
            Less-Current Maturities                                        (28)
                                                                         -----
                                                                          $596
                                                                         =====

                                       25
<PAGE>


                         NEWPORT NEWS SHIPBUILDING INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

CREDIT AGREEMENT

On November 4, 1996, the Company entered into a $415 million senior credit
facility (the "Senior Credit Facility") consisting of a $200 million six-year
amortizing term loan (the "Term Loan") and a $215 million six-year revolving
credit facility (the "Revolving Credit Facility"). The Term Loan will amortize
in 24 quarterly installments, commencing March 31, 1997, with an annual
aggregate payment amount of $27.5 million in each of 1997 through 2001, and
$62.5 million in 2002. Of the Revolving Credit Facility, $125 million may be
used for advances and letters of credit and $90 million may be used only for
standby letters of credit. Each of the Company's present and future subsidiaries
having consolidated assets exceeding $10 million, excluding foreign subsidiaries
and NNS Tanker Holding Corporation (each, a "Guarantor" and collectively, the
"Guarantors") guarantee the Senior Credit Facility. Borrowings under the Senior
Credit Facility are secured by perfected liens on substantially all of the
Company's and the Guarantors' assets. After January 1, 1998, the security
interest in the collateral may be released if the Company meets specific
financial and other conditions.


TERM LOAN
---------

The interest rates on the term loan vary based on the one, two, three, six,
nine, and twelve month LIBOR plus 1.125% or a base rate. The base rate is
defined as the higher of prime (as defined in the credit facility) or the
federal funds rate plus 0.5%. The weighted-average term loan interest rate at
December 31, 1996 was 6.7%. The aggregate maturities applicable to the
outstanding term loan balance at December 31, 1996, are $27.5 million in each of
1997, 1998, 1999, 2000, and 2001, and $62.5 million in 2002.

REVOLVING CREDIT FACILITY
-------------------------
<TABLE>
<CAPTION>
                                                                     COMMITTED CREDIT FACILITY
                                         ---------------------------------------------------------------------------------
<S> <C>
Revolving Credit Facility                    TERM                 COMMITMENTS              UTILIZED             AVAILABLE
(as of December 31, 1996)                -----------              -----------              --------             ---------
                                          1996-2002                   $215                    $24                 $191
</TABLE>

This facility requires the payment of commitment fees of .3% on the unused
portion of the credit facility. The interest rate for the revolving credit
facility can vary as described above with respect to the term loan. At December
31, 1996, interest was being calculated at the base rate of 8.375%.

DEBT COVENANTS AND RESTRICTIONS

The Senior Credit Facility, Senior Notes and Senior Subordinated Notes contain
customary covenants, including financial ratios and limitations on dividend
payments, indebtedness, liens and corporate transacations. Debt outstanding
under the Senior Credit Facility is secured by substantially all assets of the
Company as described above.

                                       26

<PAGE>


                         NEWPORT NEWS SHIPBUILDING INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

8. FINANCIAL INSTRUMENTS

The carrying amount and estimated fair values of the Company's financial
instruments by class are as follows:
<TABLE>
<CAPTION>

                                                                                           DECEMBER 31,
                                                                ------------------------------------------------------------------
                                                                             1996                                 1995
                                                                ------------------------------      ------------------------------
                                                                  CARRYING            FAIR            CARRYING            FAIR
                                                                   AMOUNT             VALUE            AMOUNT             VALUE
                                                                   ------            ------            ------           -------
            MILLIONS
            <S> <C>
            Asset (liability) instruments
                  Cash and cash equivalents                        $    1            $    1            $    2           $     2
                  Accounts receivable, trade                          182               182                67                67
                  Note receivable                                       -                 -                18                18
                  Accounts payable, trade                            (123)             (123)             (166)             (166)
                  Long-term debt (including current maturities)
                        Revolving Credit Facility                     (24)              (24)                -                 -
                        Senior & Senior Subordinated Notes           (400)             (411)                -                 -
                        Term Loan                                    (200)             (200)                -                 -
            Instruments with off-balance sheet risk
                  Foreign currency contracts                            -                 -                 -                 -

</TABLE>


The fair value of cash and cash equivalents, accounts receivable, notes
receivable, and accounts payable in the above table was considered to be the
same as, or was not determined to be materially different from, the carrying
amount. The fair value of short-term and long-term debt reflected in the
December 31, 1996 balance sheet is based on the market value of debt with the
same or similar maturities and interest rates. The short-term and long-term debt
reflected in the December 31, 1995 balance sheet represents corporate debt
allocated to the Company for financial reporting purposes by its former parent.
As such, an estimate of fair value has not been provided.

The Company periodically utilizes foreign currency contracts to hedge certain
specific foreign currency transactions, principally the purchase of raw
materials and machinery denominated in a foreign currency. Such contracts
generally mature in one year or less and the cost of replacing these contracts
in the event of nonperformance by counterparties is not significant. At December
31, 1996 and 1995, the Company had no significant foreign currency contracts
outstanding.

9. INCOME TAXES

The effective tax rates for 1996, 1995, and 1994 were approximately 46%, 44%,
and 44%, respectively. The difference between the Company's effective tax rate
in all periods compared to the U.S. federal statutory rate of 35% is principally
due to state income taxes and miscellaneous permanent differences for tax.

                                       27

<PAGE>


                         NEWPORT NEWS SHIPBUILDING INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

In connection with the spinoff, the Company entered into a new tax sharing
agreement with its former parent company and El Paso Natural Gas Company. The
new tax sharing agreement provides, among other things, for the allocation of
tax liabilities among the parties to the spinoff arising prior to, as a result
of, and subsequent to the spinoff. Generally, the Company is liable for taxes
imposed on the Company and its affiliates engaged in the Shipbuilding Business.
In the case of federal income taxes imposed on the combined activities of the
consolidated group of the Company's former parent, the Company is liable for
federal income taxes attributable to its activities, and has been allocated an
agreed-upon share of estimated tax payments made by the consolidated group of
the Company's former parent.

The Company's earnings before income taxes were principally domestic for all
years presented in the accompanying financial statements. Following is a
comparative analysis of the components of the provision for income taxes:


<TABLE>
<CAPTION>
                                                                                                 YEAR  ENDED  DECEMBER 31,
                                                                                                ---------------------------
                                                                                                  1996      1995       1994
                                                                                                 -----     -----      -----
MILLIONS
<S> <C>
Current-
            Federal.......................................................................       $  49     $  51      $ 101
            State.........................................................................           8         9         20
                                                                                                 -----     -----      -----
                                                                                                    57        60        121
                                                                                                 -----     -----      -----

Deferred-
            Federal.......................................................................         (15)       (2)       (46)
            State.........................................................................           5         -          -
                                                                                                 -----     -----      -----
                                                                                                 $  47     $  58      $  75
                                                                                                 =====     =====      =====
</TABLE>

Current  federal tax expense for the years ended  December 31, 1996,  1995,  and
1994  include tax  benefits of $11  million,  $10 million,  and $9 million,
respectively, related to the allocation of corporate interest expense to the
Company from its former parent (see Note 3).

The following is a reconciliation of income taxes computed using the statutory
U.S. federal income tax rate (35% for all years presented) to the provision for
income taxes reflected in the statements of earnings:

<TABLE>
<CAPTION>
                                                                                                 YEAR  ENDED  DECEMBER 31,
                                                                                                ---------------------------
                                                                                                  1996      1995       1994
                                                                                                 -----     -----      -----
MILLIONS
<S> <C>
Tax expense computed at the statutory U.S. Federal income tax rate.........................      $  36     $  46      $  60
State and local taxes on income, net of Federal benefit....................................          4         6         14
Permanent differences......................................................................          7         6          1
                                                                                                 -----     -----      -----
                                                                                                 $  47     $  58      $  75
                                                                                                 =====     =====      =====
</TABLE>
                                       28


<PAGE>


                         NEWPORT NEWS SHIPBUILDING INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

The components of the Company's net deferred tax liability are as follows:

<TABLE>
<CAPTION>

                                                                                                                 DECEMBER 31,
                                                                                                                --------------
                                                                                                                1996      1995
                                                                                                                ----      ----

MILLIONS
<S> <C>
Deferred tax assets--
            Postretirement benefits.......................................................................      $ 43      $ 36
            Postemployment benefits.......................................................................        16        14
            Accrued vacation..............................................................................         5        13
            Other ........................................................................................        47        13
                                                                                                                ----      ----
                  Total deferred tax assets...............................................................       111        76
                                                                                                                ----      ----

Deferred tax liabilities--
            Tax over book depreciation....................................................................       195       179
            Long-term shipbuilding contracts..............................................................        59        62
            Pension.......................................................................................        38         4
            Other ........................................................................................         6         8
                                                                                                                ----      ----
                  Total deferred tax liabilities..........................................................       298       253
                                                                                                                ----      ----
                                                                                                                $187      $177
                                                                                                                ====      ====
</TABLE>

10. POSTRETIREMENT BENEFITS

The Company has postretirement health care and life insurance plans which cover
its employees who meet certain eligibility requirements. For salaried employees,
the plans cover employees retiring from the Company on or after attaining age 55
who have had at least 10 years of service with the Company after attaining age
45. For hourly employees, the postretirement benefit plans generally cover
employees who retire pursuant to one of the Company's hourly employee retirement
plans. All of these benefits may be subject to deductibles, copayment provisions
and other limitations, and the Company has reserved the right to modify these
benefits. The Company's postretirement benefit plans are funded on a
pay-as-you-go basis.

The funded status of the postretirement benefit plans reconciles with amounts
recognized in the accompanying balance sheet as follows:

<TABLE>
<CAPTION>
                                                                                                                  DECEMBER 31,
                                                                                                              ------------------
                                                                                                                1996        1995
                                                                                                              ------      ------
MILLIONS
<S> <C>
Actuarial present value of accumulated postretirement benefit obligation at
September 30:
      Retirees......................................................................................          $ 138        $ 109
      Fully eligible active plan participants.......................................................             24           24
      Other active plan participants................................................................             31           28
                                                                                                              -----        -----

Total accumulated postretirement benefit obligation.................................................            193          161
Plan assets at fair value at September 30...........................................................              -            -
                                                                                                              -----        -----
</TABLE>
                                       29

<PAGE>


                         NEWPORT NEWS SHIPBUILDING INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
<S> <C>
Accumulated postretirement benefit obligation in excess of plan assets at September 30..............            193          161
Claims paid during the fourth quarter...............................................................             (5)          (4)
Unrecognized reduction of prior service obligations resulting from plan amendments..................             16           20
Unrecognized net loss resulting from plan experience and changes in actuarial assumptions...........            (80)         (60)
                                                                                                              -----        -----

Accrued postretirement benefit cost at December 31..................................................          $ 124        $ 117
                                                                                                              =====        =====

</TABLE>


The accrued postretirement benefit cost has been recorded based upon certain
actuarial estimates as described below. Those estimates are subject to revision
in future periods given new facts or circumstances.

The net periodic postretirement benefit cost consists of the following
components:

<TABLE>
<CAPTION>
                                                                                                         YEAR ENDED DECEMBER 31,
                                                                                                      --------------------------
                                                                                                      1996       1995       1994
                                                                                                      ----       -----      ----
MILLIONS
<S> <C>
Service cost for benefits earned during the year....................................                 $   4      $   3      $   3
Interest cost on accumulated postretirement benefit obligation......................                    15         13         11
Net amortization of unrecognized amounts............................................                     1          1          -
                                                                                                     -----      -----      -----

      Net periodic postretirement benefit cost......................................                 $  20      $  17      $  14
                                                                                                     =====      =====      =====
</TABLE>

The initial weighted average assumed health care cost trend rate used in
determining the 1996, 1995, and 1994 accumulated postretirement benefit
obligation was 6%, 7%, and 8%, respectively, declining to 5% in 1997 and
remaining at that level thereafter.

Increasing the assumed health care cost trend rate by one percentage point in
each year would increase the 1996, 1995, and 1994 accumulated postretirement
benefit obligations by approximately $10 million each year and would increase
the aggregate of the service cost and interest cost components of the net
periodic postretirement benefit cost for 1996, 1995, and 1994 by approximately
$1 million each year.

The discount rates (which are based on long-term market rates) used in
determining the 1996, 1995, and 1994 accumulated postretirement benefit
obligations were 7.75%, 7.75%, and 8.25%, respectively.

                                       30


<PAGE>


                         NEWPORT NEWS SHIPBUILDING INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

11. OTHER BENEFIT PLANS

PENSION PLANS

The Company has various defined benefit plans which cover substantially all of
its hourly employees. These benefits are based primarily on years of service.
The Company's funding policies are to contribute to the plans amounts necessary
to satisfy the funding requirements of federal laws and regulations. Plan assets
consist principally of listed equity and fixed income securities.

Certain salaried employees of the Company participated in the former parent's
retirement plan ("FPRP") prior to the spinoff. In connection with the spinoff,
the Company's former parent became the sole sponsor of the FPRP. The benefits
accrued by Company employees in the FPRP were frozen as of December 31, 1996,
and the Company's former parent amended the FPRP to provide that all benefits
accrued through that day by Company employees were fully vested, non-forfeitable
and the responsibility of the Company's former parent.

The funded status of the plans reconcile with amounts recognized on the balance
sheets at December 31, 1996 and 1995, as follows:

<TABLE>
<CAPTION>


                                                                                                             All Plans
                                                                                                      -----------------------
                                                                                                         1996            1995
                                                                                                      -------         -------
MILLIONS
<S> <C>
Actuarial present value of benefits based on service to date and
present pay levels at September 30:
   Vested benefit obligation.....................................................................     $  (137)         $ (570)
   Non-vested benefit obligation.................................................................         (19)            (43)
                                                                                                      -------         -------

Accumulated benefit obligation..................................................................         (156)           (613)
Additional amounts related to projected salary increases........................................            -            (104)
                                                                                                      -------         -------

Total projected benefit obligation at September 30..............................................         (156)           (717)
Plan assets at fair value at September 30.......................................................          325             767
                                                                                                      -------         -------

Plan assets in excess of total projected benefit obligation at September 30.....................          169              50
Contributions during the fourth quarter.........................................................            -               -
Unrecognized net (gain) or loss resulting from plan experience and changes
in actuarial assumptions........................................................................          (46)              4
Unrecognized prior service obligations resulting from plan amendments...........................            -               7
Remaining unrecognized net asset at initial adoption............................................          (25)            (49)
                                                                                                      -------         -------

Prepaid pension cost at December 31.............................................................      $    98         $    12
                                                                                                      =======         =======

</TABLE>


Assets of one plan may not be utilized to pay benefits of other plans.
Additionally, the pension cost has been recorded based upon certain actuarial
estimates as described below. Those estimates are subject to revision in future
periods given new facts or circumstances.

                                       31

<PAGE>


                         NEWPORT NEWS SHIPBUILDING INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

The Company measures pension cost according to independent actuarial valuations.
The projected unit credit actuarial cost method is used to determine pension
cost for financial accounting purposes consistent with the provisions of FAS No.
87, "Employers' Accounting for Pensions." Net periodic pension cost for the
years ended December 31, 1996, 1995, and 1994 consist of the following
components:

<TABLE>
<CAPTION>
                                                                        1996                       1995                  1994
                                                                 ------------------         ------------------     ---------------

MILLIONS
<S> <C>
Service cost--benefits earned during the
year........................................................       $      33                  $      23                  $      27
Interest on prior year's projected benefit
obligation..................................................              66                         52                         50
Return on plan assets.......................................            (121)                      (132)                         9
Unrecognized excess (deficiency) of actual
return over expected return.................................              31                         65                        (76)
Net amortization of unrecognized amounts....................              (8)                        (6)                        (5)
                                                                   ---------                  ---------                  ---------
Net pension (income) cost...................................       $       1                  $       2                  $       5
                                                                   =========                  =========                  =========
</TABLE>

The weighted average discount rates (which are based on long-term market rates)
used in determining the 1996, 1995, and 1994 actuarial present value of the
benefit obligations were 7.75%, 7.75%, and 8.25%, respectively. The rate of
increase in future compensation was 4.9% in 1996, 1995, and 1994. The weighted
average expected long-term rate of return on plan assets was 10.0% in 1996,
1995, and 1994. Unrecognized prior service obligations are being amortized on a
straight-line basis over the average remaining estimated service period of
employees expected to receive benefits under the plans.

401(K) PLANS

The Company sponsors the Newport News Shipbuilding Savings (401(k)) Plan for
Union Eligible Employees (the "Savings Plan") for certain of its hourly
employees. Contributions are made to the Savings Plan by participants, with the
Company providing for administration of the Savings Plan.

The Company established the Newport News Shipbuilding Inc. 401(k) Investment
Plan for Salaried Employees ("Salaried Plan"). Beginning in 1997, the Company
will match one half of the first 8% of a participant's contribution in either
cash or Common Stock at the Company's discretion. In addition, the Company will
contribute a fixed percentage of each salaried employee's salary per pay period
in either cash or Common Stock, also at the Company's discretion. The Company
has authorized 1,700,000 shares of Common Stock for possible Salaried Plan
contributions. Company employees as of the spinoff will be fully vested in
future matching contributions; otherwise, matching contributions will vest after
two years of service as defined in the Salaried Plan.

STOCK PLANS

The Company established the Newport News Shipbuilding Inc. Stock Ownership Plan
("Stock Ownership Plan") for the benefit of certain salaried and management
employees. At the Company's discretion, restricted stock, performance shares,
stock options, stock appreciation rights, stock equivalent units, and dividend
equivalents can be granted to eligible employees pursuant to this plan. The
Company has authorized 4,000,000 shares of Common Stock for such purposes in the
future. At December 31, 1996, there were no shares issued and outstanding for
this plan.

                                       32

<PAGE>


                         NEWPORT NEWS SHIPBUILDING INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

The Company established the 1997 Stock Plan for Directors of Newport News
Shipbuilding Inc. ("Stock Plan for Directors"). Half of the compensation of
non-employee directors is to be paid in the form of restricted stock. In
addition, non-employee directors receive an initial grant of 2,000 stock options
and 1,000 shares of restricted stock, upon joining the Board of Directors, and
an annual grant of 1,000 stock options. The Company has authorized 75,000 shares
of Common Stock for these purposes. At December 31, 1996, there were no shares
issued and outstanding for this plan.

The Company established the Newport News Shipbuilding Inc. 1997 Employee Stock
Purchase Plan ("1997 Employee Stock Purchase Plan") to provide eligible
employees of the Company an opportunity to purchase shares of the Company at a
15% discount, not to exceed $21,250 in payroll deductions per year. The Company
has authorized 700,000 shares of Common Stock for these purposes. At December
31, 1996, there were no shares issued and outstanding for this plan. This plan
becomes effective on April 1, 1997.

Stock options and restricted shares applicable to the plans above vest in
accordance with vesting periods set forth in the governing award agreements. The
performance shares vest after specified periods and after attaining certain
performance measures, both of which vary with each grant.

12. COMMITMENTS AND CONTINGENCIES

GOVERNMENT CONTRACTING

As a general practice within the defense industry, the Defense Contract Audit
Agency (the "DCAA") and other agencies continually review the cost accounting
practices of government contractors and conduct other various investigations. In
the course of those reviews, cost accounting and other issues are identified,
discussed and settled, or resolved through legal proceedings. The Company is
currently engaged in discussions on several cost accounting and other matters
the likely resolution of which, management believes, will not have a material
adverse effect on the Company's financial position or results of operations.

For example, the Company and its former parent have received letters from the
DCAA inquiring about certain aspects of the spinoff, including the disposition
of the former parent's retirement plan (the "FPRP"), which covers salaried
employees of the Company. In the event there is a determination that an amount
is due to the Government related to the FPRP, the Company and its former parent
will share its obligation for such amount, plus the amount of related defense
expenses, in the ratio of 20% and 80%, respectively. Also, in March 1995, the
DCAA informed the Company that it would conduct a post-award audit of the
contract to build the aircraft carrier REAGAN. The audit concerns the Company's
submission to the U.S. Navy of data relating to labor and overhead costs in
connection with the REAGAN contract. The audit is ongoing, the DCAA has not
issued its audit report, and the Government has not asserted any formal claims
against the Company related to this contract matter.

All major Requests for Equitable Adjustments ("REAs") filed by the Company in
connection with its contracts have been settled as of June 1996 for
approximately the same amount recorded previously by the Company. Through 1995,
costs of $18 million were recognized on the SEALIFT REA in excess of the
adjudicated REA price. Cost growth of $65 million that was not recoverable
through that REA was recognized in 1996. Due to uncertainties inherent in the
estimation process there can be no assurance that the projection of costs to be
incurred will not be revised in the future. The first of two SEALIFT ships was
delivered in August 1996. Management expects this contract to be substantially
complete by the end of the second quarter of 1997.

                                       33

<PAGE>


                         NEWPORT NEWS SHIPBUILDING INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

SIGNIFICANT ESTIMATES

In 1994 and 1995, the Company entered into fixed price contracts to construct a
total of nine DOUBLE EAGLE product tankers. In January 1997, the Company, one of
the original purchasers and Mobil Oil Corporation ("Mobil") entered into an
agreement whereby Mobil agreed to acquire the first ship. In accordance with the
terms of the agreement, the first ship is being modified at Mobil's expense for
use in the domestic market in compliance with the Merchant Marine Act of 1920,
as amended, and the Shipping Act of 1916, as amended (collectively, the "Jones
Act"). The Jones Act currently requires that all vessels transporting products
between U.S. ports be constructed by U.S. shipyards.

In connection with the construction of these nine tankers, the Company estimated
that it would incur costs of approximately $102 million in excess of the fixed
contract prices on undelivered vessels as of December 31, 1996. The full amount
of the excess costs has been reserved for by charges against earnings of $68
million, $29 million, and $5 million in 1996, 1995, and 1994, respectively. The
ships are scheduled for delivery in 1997, 1998, and 1999. The Company's
estimates are based on improved design producibility and the utilization of a
different building strategy going forward. The Company believes that these
factors, as well as the experience gained in the construction of the first ship,
should result in a significant reduction in the man-hours necessary to construct
each of the remaining vessels. The Company intends to review this situation at
the end of each quarter. There can be no assurance that the estimate of costs to
be incurred on these contracts will not be revised at that time based on the
facts then known to the Company.

On-going discussions between the Company and the original purchaser of the
first four vessels, concerning certain contract specification issues, have
resolved a significant number of such issues, although some remain, and there
can be no assurance as to the outcome of future discussions.

LITIGATION

The Company is a defendant in matters of varying nature related to the normal
conduct of its business. In the opinion of management, the outcome of these
proceedings should not have a material adverse effect on the financial position
or results of operations of the Company.

CAPITAL COMMITMENTS

The Company estimates that expenditures aggregating approximately $33 million
will be required after December 31, 1996, to complete facilities and projects
authorized at such date, and substantial commitments have been made in
connection therewith.

LEASE COMMITMENTS

The Company holds certain equipment under long-term operating leases. Future
minimum lease payments under existing operating leases as of December 31, 1996,
are $3 million and $1 million for 1997 and 1998, respectively.

Rent expense recognized for the years ended December 31, 1996, 1995, and 1994,
was $5 million, $14 million, and $14 million, respectively.

                                       34

<PAGE>


                         NEWPORT NEWS SHIPBUILDING INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

13. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>

                                                                                     Earnings
                                                                                      Before
                                                                                      Income           Earnings
                                                                                      Taxes &           Before
                                                                                    Cumulative        Cumulative
                                                                                     Effect of         Effect of
                                                                                     Change In         Change In
                                                                   Operating        Accounting        Accounting              Net
                                                Revenues           Earnings          Principle         Principle           Earnings
                                                --------           ---------        ----------        ----------           --------
MILLIONS
1996
<S> <C>
1st Quarter............................             $438               $41               $32               $19               $19
2nd Quarter............................              477                40                32                18                18
3rd Quarter............................              522                36                28                15                15
4th Quarter............................              433                23                10                 3                 3
                                                  ------              ----              ----               ---
                                                  $1,870              $140              $102               $55               $55
                                                  ======              ====              ====               ===               ===

1995
1st Quarter............................             $421               $44               $37               $20               $20
2nd Quarter............................              424                46                33                21                21
3rd Quarter............................              445                35                29                17                17
4th Quarter............................              466                35                32                15                15
                                                  ------            ------            ------              ----              ----
                                                  $1,756              $160              $131               $73               $73
                                                  ======              ====              ====               ===               ===

</TABLE>
                                       35

<PAGE>


ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth a list of the executive officers of Newport News
Shipbuilding Inc. at March 10, 1997. Each such officer has served in the
capacities indicated below with Newport News Shipbuilding Inc. (or, for periods
prior to the spinoff, with the Company's former parent) since the dates
indicated below. Unless otherwise indicated all offices held are with the
Company.
<TABLE>
<CAPTION>

                                                                                                                EFFECTIVE
NAME (AGE AT DECEMBER 31, 1996)                  OFFICES HELD                                                   DATE OF TERM
-------------------------------                  ------------                                                   ------------

<S> <C>
William P. Fricks(52)..................    Chairman, President and Chief Executive Officer                        January 1997
                                           President and Chief Executive Officer                                  November 1995
                                           President and Chief Operating Officer                                  January 1995
                                           Executive Vice President                                               January 1992
                                           Senior Vice President                                                  September 1988
Thomas C. Schievelbein(43).............    Executive Vice President - Operations                                  October 1995
                                           Vice President - Human Resources and Administration                    January 1995
                                           Vice President - Strategy and Naval Program Development                January 1994
                                           Vice President - Naval Marketing                                       March 1993
                                           Director - Naval Marketing                                             March 1992
                                           Director - Marketing Field Office                                      January 1990
David J. Anderson(47)..................    Senior Vice President and Chief Financial Officer                      July 1996
Thomas J. Bradburn(53).................    Vice President - Finance and Corporate Controller                      September 1996
                                           Vice President - Finance                                               September 1986
Stephen B. Clarkson(59)................    Vice President - General Counsel and Secretary                          January 1991
Whylen G. Cooper(47)...................    Vice President - Materials                                             March 1997
                                           Vice President - Sourcing                                              November 1995
William G. Cridlin, Jr.(50)............    Vice President - Marketing                                             January 1995
                                           Vice President - Commercial Shipbuilding                               April 1992
                                           Vice President - Manufacturing                                         September 1988
T. Michael Hatfield(50)................    Vice President - Communications                                        October 1995
                                           Director - Public Relations                                            November 1993
Robert C. Hoard(57)....................    Vice President - Waterfront Trades and Facilities                      March 1997
                                           Vice President - Trades Management and Manufacturing                   October 1995
                                           Director - Trades and Manufacturing                                    January 1994
                                           Director - Trades                                                      August 1993
                                           Director - Steel Fabrication                                           April 1991
Alfred Little, Jr.(50).................    Vice President - Human Resources                                       July 1996
James A. Palmer(60)....................    Vice President - Commercial Nuclear                                    October 1995
                                           Vice President - Engineering                                           January 1995
                                           Vice President - Aircraft Carriers                                     April 1992
                                           Director - Engineering Administration                                  January 1991
Marc Y. E. Pelaez(50)..................    Vice President - Engineering                                           August 1996
John E. Shephard, Jr.(41)..............    Vice President - Manufacturing and Process Innovation                  March 1997
                                           Vice President - Strategy and Process Innovation                       October 1995
                                           Director - Strategic Planning                                          August 1993
Patrick A. Tucker(49)..................    Vice President - Government Relations                                  December 1996
</TABLE>

                                       36

<PAGE>

<TABLE>
<S><C>
George A. Wade(52).....................    Vice President - Submarines and Non-Nuclear Test                       October 1995
                                           Vice President - Construction                                          January 1995
                                           Vice President - Submarines                                            March 1993
                                           Director - Submarine Construction                                      April 1992
                                           Director - Construction Engineering                                    January 1990
D. R. Wyatt(38)........................    Treasurer                                                              September 1996
                                           Assistant Treasurer                                                    August 1995
                                           Manager of Finance                                                     April 1989

</TABLE>

Each of the executive officers of the Company has been continuously engaged in
the business of the Company, its affiliates or predecessor companies during the
past five years except for:

<TABLE>
<CAPTION>

NAME                                            PREVIOUS EMPLOYMENT AND OFFICE HELD                                  PERIOD
----                                            -----------------------------------                                  ------
<S> <C>
David J. Anderson                               RJ Reynolds Corporation
                                                Executive Vice President and Chief Financial Officer                 1991 to 1996

                                                The Quaker Oats Co.
                                                Senior Vice President - Finance and Customer Service                 1987 to 1991

Whylen G. Cooper                                GE Power Systems
                                                Manager of Sourcing                                                  1991 to 1996

T. Michael Hatfield                             Lockheed Co.
                                                Director of Communications                                           1989 to 1993

Alfred Little, Jr.                              Sun Company, Inc.
                                                Vice President - Human Resources                                     1992 to 1996
                                                Director - Human Resources                                           1988 to 1992

Marc Y. E. Pelaez                               United States Navy
                                                Chief of Naval Research                                              1968 to 1996

                                                Executive Assistant Secretary to the
                                                Assistant Secretary of the Navy (RDA)                                1990 to 1993

John E. Shephard, Jr.                           U.S. Army Reserves
                                                Individual Mobilization Augmentee                                    1991 to 1993

                                                United States Army
                                                Assistant G3, Operations of the 101st Airborne Division              1977 to 1991

Patrick A. Tucker                               Tenneco
                                                Executive Director - Government Relations                            1996
                                                Director - Federal Relations                                         1994 to 1997

                                                Counsel to Senator John Warner                                       1993

                                                Minority Staff Director and Counsel to the
                                                U.S. Senate Armed Services Committee                                 1983 to 1993

</TABLE>

                                       37

<PAGE>

The information as to Directors of the Company, required to be set forth in this
Item, is included on pages 2 and 3, under the caption "Election of Directors,"
of the Company's definitive Proxy Statement to be filed with the Securities and
Exchange Commission in connection with its 1997 Annual Meeting of Shareholders,
which information is incorporated herein by reference.

ITEM 11.  EXECUTIVE COMPENSATION

The information required by this Item is included on page 4, under the caption
"Compensation of Directors," and pages 6 through 15, under the caption
"Executive Compensation," of the Company's definitive Proxy Statement to be
filed with the Securities and Exchange Commission in connection with its 1997
Annual Meeting of Shareholders, which information is incorporated herein by
reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item is included on pages 4 through 6, under
the caption "Security Ownership of Certain Beneficial Owners and Management," of
the Company's definitive Proxy Statement to be filed with the Securities and
Exchange Commission in connection with its 1997 Annual Meeting of Shareholders,
which information is incorporated herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item is included on page 15, under the caption
"Certain Transactions," of the Company's definitive Proxy Statement to be filed
with the Securities and Exchange Commission in connection with its 1997 Annual
Meeting of Shareholders, which information is incorporated herein by reference.



                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a).        1.          Financial Statements

            Financial Statements required by this Item have been included in
Item 8. Refer to the "Index to Financial Statements" set forth in Item 8.

            2.          Financial Statement Schedules

                        No financial statement schedules are submitted because
they are either not applicable, not required, or not material.

            3.          Exhibits - See Index on pages 40 and 41.

(b)         Reports on Form 8-K

            During the fourth quarter of the fiscal year ended December 31,
1996, Newport News Shipbuilding Inc. filed one current report on Form 8-K on
December 20, 1996, and subsequently amended that report on December 23, 1996.
These reports were issued to (1) announce the completion of the spinoff, (2)
announce the award of the LPD-17 non-nuclear amphibious assault ship
construction contract by the Navy to an alliance which did not include the
Company, and (3) subsequently update pro forma financial statements of the
Company to September 30, 1996 from June 30, 1996.

                                       38

<PAGE>


                                   SIGNATURES

PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934, NEWPORT NEWS SHIPBUILDING INC., A DELAWARE CORPORATION, HAS DULY
CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED.

                                    NEWPORT NEWS SHIPBUILDING INC.

Date:  3/25/97                            By: /s/ WILLIAM P. FRICKS
                                              _________________________________
                                                      William P. Fricks
                                              Chairman of the Board, President
                                                 and Chief Executive Officer

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT
HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND
IN THE CAPACITIES AND ON THE DATES INDICATED.

<TABLE>
<CAPTION>

                                 SIGNATURE                                         TITLE
                                 ---------                                         -----
<S> <C>
                            /s/ WILLIAM P. FRICKS                        Chairman of the Board, President
Date: 3/25/97            ______________________________                  and Chief Executive Officer
                                William P. Fricks

                           /s/ DAVID J. ANDERSON
Date: 3/25/97            ______________________________                  Senior Vice President and
                                David J. Anderson                        Chief Financial Officer

                           /s/ THOMAS J. BRADBURN                        Vice President--Finance and
Date: 3/25/97            ______________________________                  Corporate Controller
                               Thomas J. Bradburn

Date: _______            ______________________________                  Director
                             Hon. Gerald L. Baliles

                          /s/ LEON A. EDNEY
Date: 3/25/97            ______________________________                  Director
                          Leon A. Edney, Admiral (Ret.)

                          /s/ DR. WILLIAM R. HARVEY
Date: 3/25/97            ______________________________                  Director
                              Dr. William R. Harvey

                           /s/ DANA G. MEAD
Date: 3/25/97            ______________________________                  Director
                                   Dana G. Mead

                           /s/ DR. JOSEPH J. SISCO
Date: 3/25/97            ______________________________                  Director
                                Dr. Joseph J. Sisco

                           /s/ STEPHEN R. WILSON
Date: 3/25/97            ______________________________                  Director
                                 Stephen R. Wilson

</TABLE>
                                       39

<PAGE>


                                 EXHIBIT INDEX

EXHIBIT
NUMBER                          DESCRIPTION
-------                         -----------

*3.1               Restated Certificate of Incorporation of the Company dated as
                   of December 11, 1996.

*3.2               Amended and Restated By-laws of the Company dated as of
                   December 11, 1996.

***4.1             Specimen Certificate of the Company's Common Stock.

**4.2              Rights Agreement dated as of December 11, 1996 between the
                   Company and First Chicago Trust Company of New York, as
                   Rights Agent.

*4.5               Form of Senior Note issued on March 13, 1997 including
                   Guarantees.

*4.6               Form of Senior Subordinated Note issued on March 13, 1997
                   including Guarantees.

*4.7               Senior Note Indenture dated as of November 26, 1996 among
                   NNS, Newport News and The Bank of New York, as Trustee.

*4.8               Senior Subordinated Note Indenture dated as of November 26,
                   1996 among NNS, Newport News and The Bank of New York, as
                   Trustee.

*4.9               First Supplemental Senior Note Indenture dated as of December
                   11, 1996 among NNS, the Guarantors and The Bank of New York,
                   as Trustee.

*4.10              First Supplemental Senior Subordinated Note Indenture dated
                   as of December 11, 1996 among NNS, the Guarantors and The
                   Bank of New York, as Trustee.

*4.11              Senior Notes Registration Rights Agreement dated as of
                   November 26, 1996 among NNS, the Guarantors and the Initial
                   Purchasers.

*4.12              Senior Subordinated Notes Registration Rights Agreement dated
                   as of November 26, 1996 among NNS, the Guarantors and the
                   Initial Purchasers.

*10.1              Distribution Agreement dated as of November 1, 1996 among
                   Tenneco Inc., New Tenneco Inc. and the Company.

*10.2              Amendment No. 1 to Distribution Agreement dated as of
                   December 11, 1996 by and among Tenneco Inc., New Tenneco Inc.
                   and the Company.

*10.3              Amended and Restated Agreement and Plan of Merger, dated as
                   of June 19, 1996, among El Paso Natural Gas Company, El Paso
                   Merger Company and Tenneco Inc.

*10.4              Debt and Cash Allocation Agreement, dated as of December 11,
                   1996, by and among Tenneco Inc., New Tenneco Inc. and the
                   Company.

*10.5              Benefits Agreement, dated as of December 11, 1996, by and
                   among Tenneco Inc., New Tenneco Inc. and the Company.

*10.6              Insurance Agreement, dated as of December 11, 1996, by and
                   among Tenneco Inc., New Tenneco Inc. and the Company.

*10.7              Tax Sharing Agreement, dated as of December 11, 1996, by and
                   among Tenneco Inc., the Company, New Tenneco Inc. and El Paso
                   Natural Gas Company.

*10.8              First Amendment to the Tax Sharing Agreement, dated as of
                   December 11, 1996, by and among Tenneco  Inc., the Company,
                   New Tenneco Inc., and El Paso Natural Gas Company.

*10.9              Trademark Transition License Agreement, dated as of December
                   11, 1996, by and between Tenneco Management Company and the
                   Company.

***10.10           Award/Contract N0024-95-C-2106, issued by Naval Sea Systems
                   Command to Newport News Shipbuilding for Aircraft Carrier
                   CVN-76.

***10.11           Professional Services Agreement, dated August 22, 1996, by
                   and between Tenneco Business Services Inc. and the Company.

*10.12             Employment agreement dated as of December 12, 1996 between
                   William P. Fricks and the Company.

+10.13             Newport News Shipbuilding Inc. Stock Ownership Plan.

+10.14             1997 Stock Plan for Directors of Newport News Shipbuilding
                   Inc. and First Amendment.

+10.15             Deferred Compensation Plan for Directors.

+10.16             Deferred Compensation Plan for Executive Officers.

+10.17             Newport News Shipbuilding Inc. Change in Control Severance
                   Plan and First Amendment.

+21.1              Subsidiaries of the Registrant.

                                       40

<PAGE>

+23.1              Consent of Arthur Andersen LLP.

+24.1              Power of Attorney.

+27.1              Financial Data Schedule.

+Filed herewith.

*Incorporated herein by reference to the Company's Registration Statement on
Form S-4 dated January 23, 1997, as amended (Registration No. 333-20285).

**Incorporated herein by reference to the Company's Registration Statement on
Form S-8 dated February 27, 1997 (Registration No. 333-22503).

***Incorporated herein by reference to the Company's Registration Statement on
Form 10 dated October 30, 1996, as amended (Registration No. 1-12385)

Exhibits 10.12, 10.13, 10.14, 10.15, 10.16 and 10.17 hereto constitute
management contracts or compensatory plans or arrangements within the meaning of
Item 14(a)(3) of Form 10-K.

                                       41