Avalon Holdings Corporation — 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. This is an annual report, not a standalone fourth-quarter report. Avalon operates waste management services and golf and related businesses, including country clubs, a hotel, fitness and athletic facilities, and a travel agency.
Financial performance and position
- Revenue mix: Waste management services generated approximately 72% of consolidated net operating revenue in 2018, compared with 69% in 2017. Golf and related operations contributed approximately 28%, compared with 31%.
- Revenue, earnings, margins, cash flow, debt, and liquidity: The supplied filing text refers to financial statements and management discussion incorporated from the 2018 Annual Report to Shareholders, but does not provide clear values for these measures. Verify them in the incorporated statements and MD&A.
- Impairment: Avalon recorded a non-cash, pre-tax charge of approximately $3.3 million in Q4 2018, writing off the full carrying value of its saltwater injection-well property and equipment. The filing says the charge did not affect compliance with debt covenants.
- Investment: In March 2018, Avalon acquired the Boardman Tennis Center for approximately $1.3 million in cash; renovations were completed in Q1 2019.
Changes and material developments
- Waste management’s share of revenue increased and golf and related operations’ share decreased year over year; the filing text does not provide segment dollar amounts or explain the full drivers of the mix change.
- The saltwater injection wells remained suspended. After the Ohio Supreme Court declined review of the company’s appeal in November 2018, management concluded that a near-term restart was unlikely and recorded the impairment.
- The hotel remained under renovation and expansion during 2018. The newly acquired athletic club was also being renovated.
- One waste-management customer accounted for 12% of that segment’s external revenue and 9% of consolidated revenue in 2017; no customer accounted for 10% or more of waste-management segment revenue in 2018.
Outlook, risks, and contingencies
- No numerical earnings, revenue, or cash-flow guidance is provided in the supplied text. Avalon says it will continue pursuing available avenues to restart the injection well under reasonable conditions, but gives no assurance that operations will resume.
- The company is pursuing a legal action seeking compensation related to the suspension of the wells; the hearing date had not been rescheduled as of the filing. Outcomes and potential recoveries are uncertain.
- Key business risks include environmental liability, tighter waste-disposal regulation, competition and pricing pressure, customer retention, weather-dependent golf activity, and the challenge of achieving club membership goals. Management says golf and related operations may not become profitable on a predictable timetable.
- Avalon’s loan and security agreements include covenants and events of default that could permit accelerated repayment. The filing warns that refinancing or additional financing may not be available; debt balances and liquidity amounts are not clear in the supplied text.
- The Tax Cuts and Jobs Act changed tax accounting; Avalon states it has a full valuation allowance on federal deferred tax assets.
- Management concluded disclosure controls and procedures were effective at a reasonable assurance level as of December 31, 2018. The filing reports no material fourth-quarter change in internal control over financial reporting.
Important facts for investors to verify
- Consolidated revenue, operating income or loss, net income or loss, EPS, margins, and year-over-year drivers in the incorporated annual report.
- Operating cash flow, capital expenditures, cash and working capital, debt balances, maturities, interest costs, and covenant headroom.
- The financial performance and funding needs of the golf, hotel, and athletic-club operations, including membership trends and renovation spending.
- Whether the saltwater well legal proceedings or regulatory developments change restart prospects, impairment assumptions, or the potential for recovery.
- Environmental, litigation, and other contingencies and the extent to which insurance may cover related losses.