Business context and reporting period
Avalon Holdings Corporation’s Form 10-K covers the fiscal year ended December 31, 2015. Avalon operates two segments: waste management services, including waste brokerage, captive-landfill management and saltwater injection wells; and golf and related operations, including three golf courses, club facilities, a hotel and related services.
Financial performance and liquidity
- Waste management generated approximately 72% of consolidated net operating revenue in 2015, versus 75% in 2014. Golf and related operations generated approximately 28%, versus 25%.
- One waste-segment customer accounted for 11% of that segment’s external revenue and 8% of consolidated revenue in 2015; no customer accounted for 10% or more of consolidated revenue in 2014.
- The supplied filing text does not provide clear values for total revenue, operating income, net income, cash flow, margins, debt balances, cash, or liquidity measures. Those financial statements and management’s discussion are incorporated from the 2015 Annual Report to Shareholders, which is not included in the supplied text.
Material changes and notable events
- The golf and related segment’s share of revenue increased by three percentage points, while waste management’s share declined by three points. The filing text does not provide the absolute revenue amounts needed to determine the segments’ dollar growth.
- The Avalon Inn, acquired in 2014, operated during 2015 while undergoing renovation and expansion.
- After a 2014 seismic event, Ohio regulators suspended operations at both injection wells. AWMS #1 had resumed operations in September 2014, but Avalon later temporarily suspended it; AWMS #2 remained suspended. Both were temporarily suspended at the end of 2015 pending regulatory and legal developments.
- In July 2015, Avalon replaced Grant Thornton with BDO as its independent registered public accounting firm. The filing reports no accounting or audit-scope disagreements or reportable events with Grant.
- A May 2015 revolving credit facility was modified in December 2015 to extend its maturity from June 30, 2016 to March 31, 2017. The facility amount and outstanding balance are not clear in the supplied text.
Outlook, risks and contingencies
- Management’s outlook is not provided in the supplied text. The filing says Avalon had not achieved its golf-club membership goals and gives no assurance as to when the golf operations will become profitable. Membership retention and adverse golf-season weather are key risks.
- The suspension of AWMS #2 followed a regulatory review of possible injection-related seismicity. Avalon disputed the suspension and appealed; a trial-court dismissal based on untimely filing was appealed in January 2016. The filing says operations would remain suspended pending further developments.
- Other significant risks include tighter waste-transport and disposal regulation, environmental liability, competition and potential disposal-cost increases, customer concentration and limited long-term contracts. Avalon also disclosed possible liability from environmental contamination and ordinary-course legal proceedings, but said it did not expect uninsured outcomes to materially affect liquidity, financial position or results.
- Avalon reported that management considered disclosure controls and procedures effective at a reasonable-assurance level as of December 31, 2015, and that no material change in internal control over financial reporting occurred during the fourth quarter.
Important facts for investors to verify
- Review the incorporated annual report for full-year revenue, earnings, cash flows, margins, balance-sheet details, debt, liquidity and segment results.
- Confirm the status and financial impact of the injection-well suspensions, related appeals and evolving Ohio regulations.
- Review the credit facility’s amount, utilization, collateral, covenants and repayment terms.
- Assess hotel renovation costs and progress, golf membership trends, and whether golf operations are approaching profitability.
- Check the 2015 audited financial statements and notes, including any impairment assessments, contingencies and other unusual items.