Austal USA President Craig Perciavalle has resigned following an investigation into the company's Littoral Combat Ship program, Austal announced today.
The company said it hired lawyers to conduct an investigation into three issues also being investigated by the Justice Department and the Securities and Exchange Commission: "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,” the company said.
Austal said the investigation by its outside counsel has concluded, and the company is confident the July 2016 WIP appropriately adjusted sales and profit after the estimated cost to complete the remaining LCS vessels.
Austal announced in 2016 it would record a $115 million downward sales adjustment as the cost of building the LCS to meet the shock rating standard and U.S. naval vessel rules was more than previously estimated.
"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," the company said. "This overstated the WIP attributable to the LCS program for those periods."
The company said the 2016 WIP "rectified the financial impact of these issues" and that it complied with the Navy's reporting requirements.
While Austal identified a misallocation of labor hours between vessels in early stages of the program, the total labor hours for the program were accurate, according to the company.
Austal also acknowledged some valves on LCS-10 through LCS-20 did not meet the required specifications at the time of their procurement. The Navy agreed to modify the contract so the valves would not need 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," the company said.
Austal said it is cooperating with the federal regulators' investigations.
"The company is 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," Austal said.
Perciavalle was named president of Austal USA in December 2012, after serving as a senior vice president of operations.
Rusty Murdaugh, the company's chief financial officer, will serve as interim president during the search for a permanent president.