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Avondale

On July 13, 2010 Northrop Grumman Corporation announced plans to consolidate its Gulf Coast shipbuilding operations and explore strategic alternatives for its Shipbuilding business. 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, Miss. facility. The company anticipated some opportunities in Pascagoula for Avondale shipbuilders who wish to relocate. 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. Of this amount $113 million will be recognized as a one-time, pre-tax cumulative charge to Shipbuilding's second quarter 2010 operating income. The balance will be recognized as lower margin in future periods, principally on the LPD 25. The company also anticipates that it will incur substantial restructuring and facilities shutdown-related costs including, but not limited to, severance, relocation expense, and asset write-downs. These costs are expected to be allowable expenses under government accounting standards and recoverable in future years under the company's contracts. The company estimates that these restructuring costs will be more than offset by future savings expected to be generated by the consolidation.

Avondale Industries, a division of Northrop-Grumman, is one of the largest shipbuilders in the United States, specializing in the design, construction, conversion, repair and modernization of various types of ocean-going vessels for the military and commercial markets. A majority of Avondale's contracts in recent years has been for the construction of US Navy surface ships, although it secured its largest ever commercial contract in 1997 for the construction of two 125,000 Dead Weight Tons ("DWT") crude oil carriers for the Jones Act Trade.

Avondale Operations, which is located on the banks of the Mississippi River approximately 12 miles upriver from downtown New Orleans, has been in continuous operation since 1938 and is Louisiana's largest manufacturing employer with more than 6,000 employees.

Avondale has direct access to the Gulf of Mexico via the Mississippi River and is easily accessed by the nation's interstate highway system and by rail. Among the most diverse shipbuilders in the U.S. Avondale encompasses 268 acres, including three outfitting docks totaling more than 6,000 linear feet. In addition to the shipyard, Avondale Divisions include the Modular Construction Division and the Steel Sales Division.

Over the years, what began as a small barge repair company grew to become an imposing industrial complex known as Avondale Operations, with the company producing a wide variety of naval and commercial shipbuilding programs.

Avondale was the lead designer and builder of the WHIDBEY ISLAND (LSD 41) and HARPERS FERRY (LSD-CV) classes of amphibious assault ships, as well as other Navy ships, including the OSPREY (MHC 51) Class minehunters, DE 1037, 1040, 1052, 1078 classes of destroyer escort ships, and the ADAMS (DDG 18) Class guided missile destroyers. The company has also delivered in recent years the USNS WATERS (T-AGS 45) oceanographic survey ship, as well as the USGCC HEALY (W-AGB 20) icebreaker and research ship for the U. S. Coast Guard. In its present military shipbuilding programs, Avondale has delivered the first five of seven BOB HOPE (T-AKR 300) Class Strategic Sealift ships.

Since the mid-1970s, Avondale has delivered more than 40 new, major surface non-combatant ships into the Navy's fleet, along with several other commercial vessels, including paddlewheel gaming boats and tugs and towboats. In addition, several other naval and commercial ships have returned to Avondale over the years for either "jumboization," conversions, overhauls or repair jobs. The company also features two floating drydocks, an 80,000-ton drydock and a 20,000-ton drydock.

Avondale is continuing its commercial shipbuilding legacy. Avondale is currently under contract to Polar Tankers, Inc., to produce the first U.S.-built double-hulled tankers for carrying crude oil that meet or exceed standards of the Oil Pollution Act of 1990 and existing and proposed environmental regulations. Avondale delivered the first of five of these MILLENNIUM Class tankers, the Polar Endeavour, in early 2001. These 895-foot-long, 125,000 DWT ships are capable of carrying more than one million barrels of crude oil along the treacherous trade route from Alaska to the U.S. West Coast.

Avondale undertook a major capital improvement program as part of its commitment to remain technologically advanced and to improve efficiency everywhere in its 265-acre shipyard. The addition of 388,000-sq.-ft. under-roof steel fabrication facility is one such improvement, along with the use of second- generation robots programmed to perform complex welding and steel cutting as part of modular and assembly line production. Avondale has also developed the very latest in state-of-the-art Computer Aided Engineering, Design and Manufacturing tools and utilizes these tools in producing today's modern ships.

Through a unique partnership, Avondale, the State of Louisiana and the University of New Orleans developed and built the Maritime Technology Center of Excellence on the grounds of Avondale's main shipyard in New Orleans. The $40 million building houses Avondale's LPD 17 Alliance, the Avondale Integrated Product Development Environment Technology Division, with its state-of-the-art computer technology, and Avondale's Engineering Department. In addition, the MTCE houses faculty and students from the University of New Orleans School of Naval Architecture and Marine Engineering.

At December 31, 1997, Avondale's shipbuilding backlog was approximately $1.8 billion (including estimated contract escalation), exclusive of unexercised options aggregating approximately $1.1 billion held by the US Navy (including estimated contract escalation) and approximately $500 million held by a commercial customer for additional ship orders. The Company continues to depend on the US Navy's ship construction and conversion programs for about 80% of its marine construction and repair business.

In December 1996, an alliance led by Avondale was awarded a $641 million contract to construct the initial ship in the US Navy's LPD-17 program. In April 1997, the General Accounting Office denied a protest filed by the Ingalls Shipbuilding team and affirmed this contract award. The contract award provides for options exercisable by the US Navy for two additional LPD vessels to be built by the alliance. Under the terms of an agreement between the alliance members, Avondale will build the vessel covered by the December 1996 contract and, if the US Navy exercises the two options, Avondale would also construct the second while Bath would construct the third of the three LPD-17 vessels. Raytheon is responsible for total ship integration.

Avondale is the prime contractor in the LPD 17 Avondale Alliance to design and build 12 of the U.S. Navy's newest, most technically advanced SAN ANTONIO (LPD 17) Class of amphibious assault ships. The first LPD 17 ship is already under construction at Avondale and the company has been awarded an advanced procurement contract for the fifth and sixth ships in the program, LPD 21 and 22.

By mid-2002 the Pentagon was close to reaching an agreement with Northrop Grumman and General Dynamics to swap the workload on the USS Arleigh Burke (DDG-51)-class Flight IIA destroyers and the San Antonio (LPD-17)-class amphibious transports. The plan would consolidate Flight IIA Arleigh Burke construction at GD's Bath Iron Works facility in Maine, with Northrop Grumman's Avondale shipyard in Mississippi focusing on getting the first ships in the LPD-17 class delivered to the Navy. Under the plan four of the LPD-17s to be built by GD's Bath Iron Works would be swapped for four DDG-51s scheduled for construction at Northrop Grumman's Ingalls shipyard. The plan is intended to minimize the risks on both programs [DDG-51 and LPD-17] and minimize the risks to the Navy in terms of cost and performance.

Organized in 1938, Avondale first began building ocean-going ships in the 1950s. From 1959 to 1985, the Company operated as a subsidiary of Ogden Corporation, a diversified New York Stock Exchange listed company headquartered in New York, New York. Prior to the 1980s, Avondale built both military and commercial vessels, including the construction of 27 destroyer escorts for the US Navy. Among the US Navy vessels built or under construction during the 1980s were sixteen T-AOs, five LSDs, four LSD-CVs, five AOJs (which constituted conversions of AOs previously built by Avondale), one T-AGS 45, fifteen LCACs, four MHCs and three SL 7 conversions.

In the early 1980s, the Company was among the first of US shipyards to successfully implement modular construction techniques that had been previously perfected by Japanese shipbuilders.

The Company's corporate headquarters and main shipyard are located on the west bank of the Mississippi River at Avondale, Louisiana, approximately 15 miles from downtown New Orleans. That facility includes approximately 229 acres of Company-owned land with 174 buildings enclosing approximately 2.0 million square feet of space, approximately 41 acres of leased land, a 900-foot floating dry dock/launch platform that permits construction, conversion or repair of vessels up to approximately 1,000 feet in length, and a 650- foot floating dry dock principally used for ship repair and multiple building ways and side launching facilities. The main shipyard includes approximately 6,500 feet of wharves, 1,200 feet of launch ways and 2,900 feet of unimproved waterfront along the Mississippi River. The main shipyard is equipped to build almost any type of vessel other than nuclear submarines and surface vessels of the largest classes, such as ultra-large crude carriers.

Avondale Industries also operated several other facilities in the vicinity of the main shipyard. The Westwego Yard is located five miles down-river from the main shipyard on 16.6 acres of land leased through July 1999 and included facilities for the construction or repair of boats and vessels up to 450 feet in length. The Algiers Yard is located 19 miles down-river from the main shipyard on 22 acres of land leased through December 1999 and included construction facilities used predominantly for the repair and overhaul of large ocean-going vessels. The Steel Sales operation is located on 4.4 acres of property leased on a month-to-month basis in Harvey, Louisiana, where a steel warehouse is located.

At December 31, 1997, Avondale had approximately 5,500 employees, many of whom have been employed by the company for many years. None of Avondale's employees is currently covered by any collective bargaining agreement.

On 22 January 1999 Newport News Shipbuilding and Avondale Industries notified the Department of Justice (DoJ) Antitrust Division of their proposed merger. This transaction was not subsequently consumated.

On 03 April 2001 Northrop Grumman Corporation announced that it had completed the purchase of all tendered shares of Litton Industries Inc. common and Series B preferred stock, after receiving all required US and international governmental and regulatory approvals. The Litton acquisition created a $15 billion, top-tier global defense enterprise with 80,000 employees worldwide.



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