Northrop Grumman has announced plans to consolidate its Gulf Coast shipbuilding operations, resulting in an estimated pre-tax charge of US$113 million in the second quarter of 2010. In addition, in the second quarter of 2010, the company will record a tax benefit of $296 million related to the final settlement with the US Internal Revenue Service of tax returns for the years 2004 through 2006.
The net impact of the charge and the tax benefit will increase second quarter 2010 earnings from continuing operations by about $0.73 per share. Neither of these items is reflected in the financial guidance the company provided on April 28, 2010.
"Our decision to consolidate the Gulf Coast facilities is driven by the need for rationalisation of the shipbuilding industrial base to better align with the projected needs of our customers," said Wes Bush, chief executive officer and president.
"The consolidation will reduce future costs, increase efficiency, and address shipbuilding overcapacity. This difficult, but necessary decision will ensure long-term improvement in Gulf Coast program performance, cost competitiveness and quality.
"We are extremely proud of our Avondale shipbuilders and their dedicated contributions to our company and our nation. We will work with federal, state and local officials and others to explore alternate uses for Avondale as the last two ships under construction reach completion," said Bush.
Ship construction at Avondale will wind down in 2013. Future LPD-class ships will be built in a single production line at the company's Pascagoula, Mississippi facility.
As a result of the consolidation, the company expects higher costs to complete ships currently under construction in Avondale due to anticipated reductions in productivity and, as a result, is increasing the estimates to complete LPDs 23 and 25 by approximately $210 million.
