Austal USA President Craig Perciavalle has resigned. His resignation comes after investigations by U.S. regulatory authorities that focused primarily on the Mobile, Ala., shipyard'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.

Craig Perciavalle

Austal USA has appointed its current CFO, Rusty Murdaugh, as interim president while it searches for a permanent replacement.  Murdaugh has been Austal's CFO since March 2017.

Austal and its wholly owned subsidiary Austal USA have been cooperating with U.S. regulatory authorities in these investigations. Austal has also engaged external lawyers in the U.S. to conduct their own detailed investigation into the focus of the investigations.

Following the completion of that external investigation, Austal said that "it is satisfied that the quantum of the write back of WIP that was announced 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 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 labor 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.

Austal and Austal USA are engaging with U.S. regulatory authorities regarding these investigations. It is not possible at this stage to predict what action (if any) they may take in relation to these matters, Austal said. However, Austal said they are "confident that the proactive steps it has already implemented to strengthen its internal reporting and compliance practices will be taken into account in determining whether there are any potential consequences arising from matters identified by the investigation, as well as ensuring such circumstances do not happen again."

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