By John Stang
Valhi Inc. apparently kept former subsidiary Waste Control Specialists financially afloat with money borrowed from one of its other businesses over a number of years, according to the holding company’s latest 10-K document.
The same March 15 filing with the U.S. Securities Exchange Commission also said Valhi believes it will be in better financial shape after selling WCS on Jan. 26 to private equity firm J.F. Lehman.
Dallas-based Waste Control Specialists primarily operates a 14,900-acre complex in Andrews County, Texas, for disposal of low-level radioactive waste and other hazardous waste forms from government and commercial clients. The company has “historically struggled to generate sufficient recurring disposal volumes to generate positive operating results or cash flows. We believe the sale will enable us to focus more effort on continuing to develop our remaining segments which we believe have greater opportunity for higher returns,” Valhi’s stated.
An unnamed Valhi subsidiary loaned $19 million in 2015 and $22.7 million in 2016 to WCS, which “has borrowed substantial amounts from us over the years,” the filing said. Waste Control Specialists subsequently repaid $6 million.
As part of the January sale, Lehman assumed all of WCS’s debts, liabilities, and financial assurance obligations. The waste management company had $1.071 billion in long-term debt, according to a January filing with the Securities and Exchange Commission.
In its March 15 SEC document, Valhi said it expects to record a pre-tax gain of roughly $57 million in the first quarter of 2018 “because the carrying value of the liabilities of the business assumed by the purchaser exceeded the carrying value of the assets sold at the time of sale.”
That was largely connected to a $170.6 million long-lived asset impairment triggered when a federal judge last June blocked Waste Control Specialists’ previous proposed sale, on antitrust grounds, to rival low-level radioactive waste disposal provider EnergySolutions, of Salt Lake City. That impairment charge dropped WCS from $3.6 million in operating income to a $167 million operating loss in the first nine months of 2017.
In a March 15 press release on its fourth-quarter 2017 earnings, Valhi only briefly mentioned the sale of WCS, saying it was reclassified as a discontinued operation.
Valhi reported increased net income from continuing operations of $141.1 million, or $0.41 per diluted share, in the quarter ended Dec. 31, compared to $15.5 million, or $0.05 per diluted share, in the fourth quarter of 2016. For all of 2017, Valhi reported net income of $316.7 million, or $0.93 per diluted share, compared to $8.1 million, or $0.02 per diluted share for 2016.
The press release no longer lists Valhi’s waste management business – which was Waste Control Specialists – alongside its other branches: chemicals, component products, and real estate management and development.
Loss from discontinued operations attributable to stockholders was listed as $1 million for the fourth quarter, up from $6.3 million for 2016, and $109.2 million for 2017 as a whole, a steep spike from $24 million the year before.
In 2016, WCS filed an application with the U.S. Nuclear Regulatory Commission to build a facility for storage of up to 40,000 metric tons of spent fuel from commercial nuclear power reactors. If built, the site could help the Department of Energy meet its legal mandate to remove that waste from nuclear sites. The plan was put on hold in 2017, but Waste Control Specialists announced that under the new management it would partner with Orano USA (previously AREVA Nuclear Materials) to revive the NRC license application.
