Avalon Holdings Corporation — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing was signed March 12, 2020. Avalon is a smaller reporting company with two operating segments: waste management services and golf and related operations.
Business context and key metrics
- Waste management services include waste brokerage and management, captive landfill management, and saltwater injection well operations. This segment generated approximately 71% of consolidated net operating revenue in 2019, compared with 72% in 2018.
- Golf and related operations include golf and country clubs, The Grand Resort, athletic facilities, and travel services. This segment generated approximately 29% of consolidated net operating revenue in 2019, compared with 28% in 2018. Avalon operated four golf courses by year-end.
- The supplied filing text refers to the incorporated annual report for the consolidated financial statements and management discussion, but does not provide clear values for total revenue, profit or loss, cash flow, margins, cash balances, or year-end debt and liquidity. Comparisons for those measures cannot be established from this text.
- In December 2019, Avalon entered into a new $23.0 million term loan. Proceeds refinanced existing term and mortgage debt, paid down the line of credit and related interest, covered transaction costs, and placed the remainder in a project fund for renovations and expansion at The Grand Resort and Avalon Field Club at New Castle.
Material changes and unusual items
- Avalon acquired the New Castle Country Club property in May 2019 and renamed it Avalon Field Club at New Castle. It planned to begin clubhouse renovations in 2020.
- The Grand Resort, renamed from The Avalon Inn in 2019, remained in renovation and expansion. Planned improvements included hotel-room renovations and new or expanded dining, bar, pool, and spa amenities.
- In 2018, Avalon recorded a non-cash impairment charge of approximately $3.3 million, representing the full carrying value of its saltwater injection well property and equipment. The supplied text does not report a comparable 2019 impairment charge.
- Avalon changed its independent auditor in May 2019, dismissing BDO and engaging Grant Thornton. The filing reports no disagreements with BDO on accounting or auditing matters and no reportable events.
Outlook, risks, and contingencies
- No numerical financial guidance is provided in the supplied text. Management stated that COVID-19’s potential operational and financial effects were uncertain, but that continued spread could adversely affect results.
- The two saltwater injection wells remained suspended. Following unsuccessful appeals and regulatory proceedings, Avalon continued legal efforts seeking a path to restart the wells; there was no guarantee operations would resume. The company had fully impaired their carrying value in 2018.
- Golf and resort performance depends on membership retention and growth, weather, and hospitality demand. Avalon had not met its membership goals and cautioned that it could not predict when the golf and related operations would become profitable.
- Other significant risks include waste-industry competition and regulation, environmental liabilities, customer concentration in captive landfill management, debt covenants and refinancing needs, and the possibility that insurance may not cover substantial claims. Management also identified potential adverse effects from cybersecurity breaches and changing costs.
- Avalon reported that disclosure controls and procedures were effective at a reasonable assurance level as of December 31, 2019. It stated that pending legal matters were not expected to have a material adverse effect on liquidity, financial position, or results of operations, while noting outcomes cannot be predicted with certainty.
Important facts for investors to verify
- Review the incorporated 2019 Annual Report for audited statements and MD&A to confirm revenue, earnings, cash flow, margins, cash, debt, and liquidity, including year-over-year changes.
- Examine the $23.0 million term loan’s interest rate, maturity, amortization, collateral, covenants, and remaining project-fund balance.
- Check subsequent developments in the saltwater-well litigation and any changes to suspension status or potential liabilities.
- Assess the costs, funding, and expected returns of resort and New Castle renovations, alongside golf membership trends and segment profitability.
- Evaluate the operational and financial effects of COVID-19, which were not quantifiable in the supplied filing text.