In a filing today, Australian shipbuilder Austal Limited (ASX:ASB) reports that the board of its Austal USA subsidiary has accepted the resignation of its president, Craig Perciavalle.
Austal USA has appointed its current Chief Financial Officer Rusty Murdaugh, who joined the company in March 2017, as interim Austal USA president while it undertakes a search for a permanent president.
In the filing, Austal Limited notes that it and Austal USA have been cooperating with investigations being conducted by U.S. regulatory authorities into “historical matters concerning Austal’s Littoral Combat Ship (LCS) program before July 2016.”
The investigations have been focused primarily on Austal’s U.S. operations, including the write back of work in progress (WIP) attributable to the LCS program in July 2016, the procurement of certain ship components for use in connection with U.S. Government contracts and charging and allocation of labor hours.
In addition to cooperating with the authorities, Austal and Austal USA have also engaged external lawyers in the U.S. to conduct their own detailed investigation in relation to what they understand to be the focus of the U.S. regulatory investigations.
Following the completion of that investigation, the company says that it is satisfied that the quantum of the write back of WIP that was announced to the ASX on July 4, 2016, appropriately adjusted Austal’s revenue and profit following the revision that was made to the estimated cost to complete the remaining vessels in the LCS program.
However, the company notes that:
- The LCS vessels cost more to construct than originally anticipated due in large part to additional costs incurred to meet the requirements of U.S. Naval vessel rules and mandatory shock standards. The company announced a one-off write back of WIP in July 2016 to fully reflect these additional costs.
- Prior to mid-2016, inaccuracies in Austal USA’s internally generated cost estimates understated the full costs to construct the LCS vessels, which delayed Austal Ltd’s understanding of the magnitude of those costs and the need to change those estimates. This overstated the WIP attributable to the LCS program for those periods.
- Austal says it is satisfied that the extensive review of the LCS program conducted in 2016 and the subsequent write back announced in July 2016 appropriately rectified the financial impact of these issues. The company is also satisfied that Austal USA materially complied with its reporting requirements with the U.S. Navy.
- The company has identified isolated instances of misallocation of labor hours between vessels in the early stages of the LCS program, although, no material inaccuracies have been identified regarding the total labour hours for the LCS program.
- The installation of certain valves on board LCS-10 through LCS-20 did not meet all of the required military specifications at the time of their procurement. The U.S. Navy has since agreed to modify the contract in regard to these vessels to accept the as-built condition of those valves on board the LCS vessels such that they are not required to be replaced. Austal has resolved the U.S .Navy’s contractual claims in relation to the installation of these valves and is in discussions with U.S. regulatory authorities regarding these issues.