Waste Control Specialists increased both sales and operating income for the third quarter of 2017, its parent company reported Thursday. The Dallas-based waste disposal provider’s year-to-date earnings numbers were also up through Sept. 30, but were dragged down by a $170.6 million long-lived asset impairment charge linked to its foiled buyout by rival EnergySolutions.
There was also word this week, unconfirmed at deadline for RadWaste Monitor, that the latest potential deal to sell Waste Control Specialists had fallen through.
In its earnings report, holding company Valhi Inc. reported $18.4 million in quarterly net sales and $4 million in operating income from its waste management segment – that is solely Waste Control Specialists (WCS), which operates a disposal complex for various types of waste in Andrews County, Texas. The results are up from $13.6 million in sales and a $5.1 million operating income loss in the same period of 2016.
In a press release, Valhi attributed the sales increase to higher disposal volumes at the WCS waste site, as well as increased revenue from waste transport.
Those trends also applied to the first nine months of the year, during which WCS brought in $60.4 million in net sales (up from $29.9 million in 2016) and $3.6 million in operating income (a major spike from a $23 million loss at that point last year). However, the asset charge pulled that down to a $167 million loss for the waste business.
“Following the previously-reported June 2017 termination of the agreement to sell our Waste Management Segment, the Company concluded the long-lived assets associated with the Waste Management Segment were impaired,” according to a Valhi press release. “Accordingly, the Company recognized an aggregate $170.6 million pre-tax impairment charge as of June 30, 2017 ($105.5 million, or $.31 per diluted share, net of income tax benefit), to reduce the carrying value of the Waste Management Segment’s long-lived assets recognized for financial reporting purposes to their estimated fair value.”
Waste Control Specialists has struggled with financial losses for years, and in 2015 Valhi secured an agreement to sell the business to EnergySolutions, a Salt Lake City-based rival in the low-level radioactive waste (LLRW) disposal space. The U.S. Justice Department sued in November 2016 to block the merger, arguing it would undermine competition in the LLRW disposal industry in 36 states, Puerto Rico, and the District of Columbia. A federal judge found in favor of the Justice Department in June following a two-week trial, and the companies canceled their deal rather than appeal.
The termination of the sale triggered a recoverability assessment of WCS’ long-lived assets, which Valhi broke down Thursday in its 10-Q filing with the U.S. Securities and Exchange Commission: $127.5 million in net property and equipment, $42 million in operating permits for its waste disposal facility; and $1.1 million in other assets.
Valhi has said it is seeking another buyer for its waste business, and Waste Control Specialists President and CEO Rod Baltzer in October reportedly said an announcement on a new deal was expected by the end of the month. That did not happen, and a Valhi spokeswoman said this week there was nothing yet to report.
An industry source said Friday that Texas billionaire Paul Foster, founder of Western Refining (now Andeavor), had considered acquiring Waste Control Specialists, but ultimately decided against it because it was far outside his oil and gas industry expertise. Foster and WCS could not be reached for comment to confirm the report.
The source acknowledged WCS’ financial struggles, but said the company is worth acquiring, particularly as more low-level radioactive waste is produced in coming years as more U.S. nuclear power plants are decommissioned. The company operates just one of four LLRW disposal sites licensed by the Nuclear Regulatory Commission.
“That facility is going to make somebody a lot of money,” the source said.
In its 10-Q filing, Valhi reaffirmed that it is “actively pursuing” buyers for its waste management business. Despite the long-lived asset impairment charge, “we believe it is possible a third party would find our Waste Management Segment’s business (including the existing disposal facilities and associated licenses and permits) to be an attractive acquisition opportunity for such third party, particularly to the extent such third party had existing operations, or current or future business plans, that were related to, or complementary with, the existing or possible future operations, licenses and permits of our Waste Management Segment,” the company said. “However, there can be no assurance that any such third party.”
The 10-Q and press release made no mention of Waste Control Specialists’ April 2016 license application with the Nuclear Regulatory Commission to build and operate a consolidated interim storage facility with capacity for up to 40,000 metric tons of spent fuel from U.S. commercial nuclear reactors. The company in April 2017 asked the NRC to suspend review of the application pending its merger with EnergySolutions.
While management at the time expressed optimism that Waste Control Specialists would ultimately forge ahead with the project, it has since then largely been silent on the matter. In a 10-Q issued in May, Valhi said the license was “no longer probable.”
Waste Control Specialists is among the smaller of Valhi’s four business segments: chemicals, component products, waste management, and real estate and management. Strength in the company’s chemicals business – far and away its largest – drove improvement in company-wide earnings for the quarter. The company reported $45.9 million in net income, $0.13 per diluted share for the quarter, up sharply from $3 million, $0.01 per diluted share, in the same period of 2016. In its nine-month numbers, Valhi reported $67.4 million in net income. $0.20 per diluted share, up from a $25 million net loss, $0.07 per diluted share, last year.
