As part of its second-quarter earnings update, Otter Tail Corp. has announced that it is selling wind tower manufacturer DMI Industries for $20 million.
Otter Tail entered into a non-binding letter of interest in June to sell DMI's property, plant and equipment for $20 million, with the corporation retaining DMI's net working capital of approximately $66 million on June 30.
The company cites reduced demand and an unfavorable policy environment as the reasons for its decision to divest DMI.
"The market value for DMI's assets has been significantly impacted by reduced demand for wind towers due to adverse market conditions affecting the industry, including uncertainty regarding renewal or extension of the federal production tax credit for investments in renewable energy resources," Otter Tail said in a statement.
DMI recorded a non-cash asset impairment charge of $45.6 million ($27.5 million net-of-tax), or $0.76 per share, in the second quarter of this year. Under the terms of the non-binding letter of interest, DMI must complete its current backlog of towers ordered for delivery in 2012 before closing can occur.
Under these circumstances, accounting rules require that DMI's assets and results of operations be reported as continuing operations. However, upon completion of all remaining tower orders, DMI's assets will be considered available for immediate sale, and Otter Tail expects that DMI's results and any remaining assets will be reported as discontinued operations at the end of the year.
If the transaction is not completed, Otter Tail plans to close DMI's plants in West Fargo, N.D., and Tulsa, Okla., as well as sell DMI's fixed assets, after DMI finishes its backlog of orders for this year.
"Our decision to divest DMI is consistent with the course we've set to optimize our portfolio of companies, reduce risk and create a more predictable earnings stream to support the dividend and future growth," explains Otter Tail President and CEO Jim McIntyre. "The decision to sell notwithstanding, we are pleased with recent productivity and quality-control improvements at DMI that have had a positive impact on earnings over last year's second-quarter results and partially offset the impact of the non-cash asset impairment charge taken by DMI.”
In the second quarter, the company’s wind energy revenues and net loss were $62.6 million and $24.9 million, respectively, compared with revenues of $55.0 million and a net loss of $6.6 million for the second quarter of 2011.
At DMI's U.S. plants, revenues and net income - excluding the asset impairment charge -increased as a result of an 8.8% increase in towers produced at those locations in combination with productivity improvements, cost controls and the implementation of quality-control measures that eliminated the need for outsourced quality-assurance staffing, Otter Tail notes. However, revenues and net losses were down at DMI's Canadian plant as a result of the plant being idled in the fourth quarter of 2011.
Otter Tail expects to complete a sale of its wind energy segment assets by early 2013.