Avalon Holdings Corporation — 2011 Form 10-K Summary
Business context and reporting period
For the fiscal year ended December 31, 2011, Avalon operated two segments: waste management services and golf and related operations. Waste services include waste brokerage and management and captive-landfill management; golf operations include courses, fitness, tennis, spa, dining, banquet and travel services. The company filed as a smaller reporting company. Financial statements and management’s discussion are incorporated from its 2011 Annual Report to Shareholders, which is not included in the supplied filing text.
Financial performance and position
- Revenue: Waste management represented approximately 81% of total segment net operating revenues in 2011, compared with 78% in 2010; golf and related operations represented 19%, compared with 22%. The filing text does not provide clear dollar revenue values.
- Profit, margins and cash flow: The supplied text does not provide clear values for net income or loss, operating income, margins, earnings per share, or cash flows.
- Debt and liquidity: The supplied text does not provide clear balances for debt, cash, working capital, or credit availability.
- Customer concentration: One waste-segment customer, Los Alamos Technical Associates, accounted for 22% of that segment’s external-customer net operating revenues and 18% of consolidated net operating revenues in 2011. In 2010, one customer accounted for 12% and 9%, respectively.
Material changes and notable items
- Waste management’s share of segment revenues increased by about 3 percentage points, while golf and related operations’ share declined by about 3 percentage points.
- Avalon reported that golf-club membership was retained and increased slightly in 2011, but membership goals remained unmet; management gave no timetable for achieving them or for golf operations to become profitable.
- On December 15, 2011, Avalon announced receipt of a one-time initial bonus payment of $0.4 million for leasing approximately 200 acres for oil and gas drilling.
- Avalon was exploring deep-well disposal of oil- and gas-drilling brine water in the Marcellus and Utica Shale regions and had purchased options on several properties. No completed project or expected financial contribution is specified in the supplied text.
Outlook, risks and contingencies
- Management’s stated waste-segment strategy emphasizes internal growth, sales and marketing, customer retention, longer-term customer agreements, and selective development opportunities. The company also may consider country-club acquisitions; none was pending at filing.
- Key risks include customer concentration and limited long-term contracts in waste services; dependence of captive-landfill management on one customer; competition and potentially higher disposal costs; and regulation that could restrict waste transportation or out-of-state disposal.
- Golf operations depend on annual membership renewals, member growth, weather, and liquor licenses. Adverse weather or a material membership decline could hurt results.
- Environmental liabilities, uninsured claims, impairment of long-lived assets, seasonality, and the ability to obtain insurance at reasonable cost are additional risks. Management stated that pending legal matters were not expected to have a material adverse effect, individually or in aggregate, although outcomes cannot be predicted with certainty.
- Avalon said it intended to retain earnings and did not anticipate cash dividends in the foreseeable future. Management concluded disclosure controls were effective at a reasonable assurance level; no material fourth-quarter change in internal control over financial reporting was reported.
Important facts for investors to verify
- Review the incorporated 2011 Annual Report for actual revenue, earnings, margins, cash flow, balance-sheet, debt and liquidity figures, and segment results.
- Assess the exposure to the LATA customer and the single customer supporting captive-landfill management, including contract terms and retention prospects.
- Verify the economics, conditions and any continuing payments associated with the $0.4 million land-lease bonus and the status and funding needs of proposed brine-disposal wells.
- Evaluate golf membership trends, segment profitability, weather sensitivity, and the company’s progress toward stated membership goals.
- Review environmental, legal, insurance and asset-impairment disclosures in the incorporated financial statements and notes.