HOUSTON, Feb. 17, 2014 /PRNewswire/ -- Dresser-Rand Group Inc. ("Dresser-Rand" or the "Company") (NYSE: DRC) announced today that it is planning to suspend operations at its pig manure treatment facilities in Spain as a result of the potential implementation of a new Spanish regulation that, if adopted, would significantly reduce beneficial tariffs for its plants in Spain.
The Company owns and operates six pig manure treatment facilities in Spain, which operated under the Electrical Special Regime tariffs. The Spanish government recently published a draft regulation that reflects a reduction in the tariffs of approximately 37%, which, if enacted, would be retroactive to July 2013. In view of the pending change in the tariffs, the Company has decided to suspend the operations at its six facilities, although discussions with the Spanish government are ongoing.
The Company noted that these facilities were part of Grupo Guascor's renewables business acquired in May 2011. At the time, in its valuation of the assets, The Company did not record any specific intangibles for these facilities.
If the draft regulation is enacted as proposed, or in the event of no material change in the status of the proposed regulation before the Company files its 2013 Form 10-K, the Company would be required under U.S. GAAP to reduce 2013 operating income by (1) approximately $25 million due to the retroactive reduction of the tariffs and (2) up to approximately $50 million due to asset impairments. Without taking into account the possible impact of the proposed regulation, 2013 revenues and operating income associated with the six facilities is estimated to be approximately $138.0 million and $5.7 million, respectively.The Company is also updating its guidance based on its preliminary and unaudited results for the fourth quarter, which is subject to change. The Company noted two items previously discussed in its third quarter 2013 earnings call and that were included in its guidance for the fourth quarter that did not occur. First, it did not sell the three photovoltaic power plants (Kaggio) to MBB Clean Energy AG. Second, the Company was unable to recognize revenue in the fourth quarter on its shipment of equipment for a pipeline project in Central Asia due to pending contractual and administrative matters. The impact of these two items is approximately $19 million of operating income. If these two items had occurred in the fourth quarter, the Company believes its operating income for full year 2013 would have been between $400 million and $410 million. Further, if there is no material change in the status of the proposed Spanish regulation before the Company files its 2013 Form 10-K, the Company will be required to reduce its 2013 operating income by up to an estimated $75 million. In that event, its full year 2013 operating income could be between approximately $306 million and $316 million. Vincent R. Volpe Jr., President and Chief Executive Officer of Dresser-Rand, said, "Our fourth quarter operating income before the potential impact of the proposed Spanish regulation is expected to be at a record level for our Company; however, it will be lower than our earlier expectation due primarily to the two items mentioned above. Additionally, we expect to report a record level of aftermarket bookings for 2013, and while new unit bookings for 2013 were affected by project delays during the course of the year, especially in the upstream part of the business, we had a strong level of bookings in the fourth quarter 2013. We also saw in the fourth quarter improvement in our net working capital and operating margins." Before any impact of the proposed Spanish regulation, the Company expects revenues for 2014 to be approximately $3.0 billion to $3.2 billion, with operating income approximately 3% to 5% higher than 2013 due to productivity gains from its operational excellence initiatives. The Company noted that because the Spanish regulation has not yet been finalized there is the possibility that plant operations remain suspended and it currently believes the impact on 2014 results would be to reduce revenues and operating income by approximately $125 million and $15 million (including estimated restructuring costs), respectively. Conversely, if there is a need to restructure and the Spanish government subsequently adopts more favorable regulations, the Company's 2014 results could be positively impacted by reinstated operations, the possible recovery of part or all of the above mentioned approximately $25 million charge and a lower cost base. Further information will be provided by the Company during its upcoming quarterly earnings release and teleconference expected to take place at the end of February 2014.
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