TechnipFMC prepares for $2.4 billion impairment charge hit in 4Q

Oilfield services provider TechnipFMC expects $2.4 billion of non-cash asset impairment charges to impact its results in the fourth quarter of 2019.

The company said on Monday that it anticipates for the full year 2019 revenues to approach the guidance mid-point of $13.5 billion.

The company expects adjusted EBITDA margin for all segments to meet or exceed guidance of at least 11.5% for Subsea, 16.5% for Onshore/Offshore, and 10% for Surface Technologies.

As part of the company’s annual goodwill impairment test, the company’s market capitalization was compared to the company’s estimate of fair value for each reporting segment. TechnipFMC’s market capitalization on its testing date had declined significantly when compared to the prior-year’s assessment, driven in part by greater geopolitical uncertainty and lower commodity prices. As a result, the company’s estimate of business fair value could not be supported by the market capitalization on the testing date.

In Subsea, the company expects to record a goodwill impairment charge of approximately $1.3 billion due to the decline in the company’s market capitalization. The charge does not reflect a change in our outlook for 2020 or the long term.

In Surface Technologies, the company expects to record a goodwill impairment charge of approximately $0.7 billion. This charge reflects a change in our outlook for the North American market given the challenging near-term environment and reductions to our regional activities focused on improving the economic returns of our business.

In Onshore/Offshore, the company will not incur a goodwill impairment. An improved business outlook, as evidenced by significant growth in the company’s LNG-related backlog, supports the current level of goodwill attributable to the segment.

Additionally, the company expects to record other asset impairment charges totaling approximately $0.4 billion. Most of these charges will be incurred in the Subsea segment, driven by continued rationalization of global footprint. The remaining charges will be recorded in Surface Technologies and relate to the North American operations.

Also in the quarter, the company expects to record approximately $50 million of pre-tax charges and credits related to the company’s separation, restructuring, and other activities.

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