DATE: Friday, September 19, 1997            TAG: 9709190990

SECTION: BUSINESS                PAGE: D1   EDITION: FINAL 

SOURCE: BY MICHAEL CLARK, STAFF WRITER 

                                            LENGTH:   58 lines

SHIPYARD INVESTS IN ITS FUTURE COMMERCIAL SHIP COSTS ARE A PART OF LEARNING CURVE.

Newport News Shipbuilding continues to pay for the learning curve in building commercial ships.

The Peninsula shipyard, Hampton Roads' largest private employer, announced Thursday it would take a $57 million third quarter charge against earnings as part of the costs of building five domestic-class Double Eagle double-hulled petroleum product tankers.

Dave Anderson, shipyard vice president and chief financial officer, said the charge resulted from higher than expected material costs and increased costs from the learning curve.

The shipyard resumed building commercial ships in 1995, after a 15-year hiatus.

Commercial shipbuilding now accounts for 10 percent of its business while construction for the U.S. Navy generates 90 percent of its revenues.

Stronger than anticipated performance in the core Navy business will help offset the charge, shipyard officials said. Aircraft carrier production, along with a change in accounting for retirement benefits, specifically will help the shipbuilder post third-quarter earnings of $15 million before interest and taxes. Earnings per share will be ``somewhere in the single digits,'' Anderson said.

Chairman and CEO William P. Fricks called the charge ``disappointing,'' but said it ``clears the way for higher, more consistent earnings for the next few years.''

The charge also will not affect the work force of nearly 18,000 employees at the shipyard, Fricks said.

The third quarter charge comes one year after the shipbuilder announced it would take a $31 million charge on the building of three international-class commercial tankers in its first commercial contract - which also followed a charge of $14 million for the first tanker in the contract series.

The announcement came as the stock market was closing Thursday. The company's stock closed at 19.875, up 0.125.

The third-quarter charges against the tanker work won't have a dramatic impact on the shipyard's stock price, said Byron Callan, defense analyst with Merrill Lynch in New York.

``I think that, clearly, the stock's not going to get away unscathed,'' Callan said. ``But the market's still looking at commercial (construction) as not a core business.''

Callan also said it doesn't appear that the yard will make any money on commercial projects in the near future, but analysts also figure that circumstance into the stock price on an ongoing basis.

Fricks said the shipyard will stay in the commercial market.

``But prices will go up,'' he said. ``Part of this (charge) is the underpricing of material. We're not going to take additional work until we know it's profitable.''

MEMO: Staff writer Christopher Dinsmore contributed to this report. ILLUSTRATION: Graphic

SHIPYARD ACTIVITY

[For complete graphic, please see microfilm]

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