Impairments drag McDermott into the red

U.S. offshore engineering and construction company McDermott reported a loss for the third quarter of 2019 compared to a profit in the same period last year mostly due to charges of $1.5 billion related to impairment. 

McDermott on Monday reported revenues of $2.1 billion, a net loss of $1.9 billion, and an operating loss of $1.7 billion for the third quarter of 2019.

In the third quarter 2018, McDermott reported revenues of $2.3 billion, a profit of $2 million, and an operating income of $129 million.

According to the company, the net loss was due primarily to non-cash accounting charges of $1.5 billion related to impairments of goodwill and intangible assets and $256 million of changes in project gross profit on specified projects identified in a covenant of the company’s new Superpriority Credit Agreement.

The goodwill impairment of $1.4 billion primarily resulted from updates to the 2019 management budget and increases in discount rate assumptions driven by increases in cost of capital and risk premium assumptions associated with forecasted cash flows. The intangible assets impairment of $0.1 billion primarily resulted from a reduction in the estimated remaining useful life of the trade names associated with the NCSA segment, causing a decrease in future attributable cash flow expectations.

McDermott said that, operationally, four of five operating segments reported solid performance during the third quarter, led by the Middle East and North Africa (MENA), which reported operating income of $69 million and an operating margin of 13.3%, both sharply improved from the second quarter of 2019.

Additionally, the company reported backlog of $20.1 billion, new awards of $1.7 billion and a revenue opportunity pipeline of a near-record $89.1 billion for the third quarter of 2019.

David Dickson, President and Chief Executive Officer of McDermott, said: “We experienced continued strong backlog, with several significant customer project awards, including the Ichthys Phase 2a Gas Field Development Project in Australia, which we developed in conjunction with our integrated subsea-solutions partner, Baker Hughes, as well as a large LNG tank project on the U.S. Gulf Coast. We also achieved solid operating results in our MENA, Asia Pacific (APAC), Europe, Africa, Russia and Caspian (EARC) and Technology segments.

“At the same time, our capital structure continues to be pressured by certain legacy CB&I projects. Our recently announced $1.7 billion financing agreement with our lenders signals their confidence in our underlying business.”

Offshore Energy Today Staff

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