Avalon Holdings Corporation — 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013; comparable period is 2012. This is an annual report, not a standalone fourth-quarter report. The filing incorporates the company’s 2013 Annual Report to Shareholders, but the supplied text does not include its financial statements or MD&A figures.
Business context
Avalon operates two segments: waste management services and golf and related operations. Waste services include waste brokerage and management and captive landfill management; golf operations include three facilities and related fitness, dining, recreation, and travel activities. In August 2013, Avalon formed AWMS Holdings, LLC to develop saltwater injection wells. Although outside investors may mean Avalon is not the majority owner, Avalon says managerial control will require consolidation of the entity.
Financial and operating metrics
- Waste management represented approximately 79% of total segment net operating revenues in 2013, up from 76% in 2012. Golf and related operations represented approximately 21%, down from 24%.
- Shell Western Exploration and Production accounted for 17% of waste-segment external-customer net operating revenues in 2013, versus 14% in 2012, and 13% of consolidated net operating revenues, versus 10%.
- At year-end, two saltwater injection wells and related facilities were under construction. The company expected them to begin operating by the end of the first quarter of 2014.
- Avalon had 285 employees at December 31, 2013: 31 in waste management, 229 in golf and related operations, and 25 in finance and administration.
- The supplied filing text does not provide clear values for consolidated revenue, net income or loss, cash flow, margins, debt, cash, working capital, or other liquidity measures. Those statements and detailed results are incorporated from the shareholder report.
Changes, outlook, and risks
- The principal business development was the launch of the saltwater-well initiative and the August 2013 formation of its holding company. An October 2013 Form 8-K announced a private placement of membership units to accredited investors to help fund construction.
- Management’s stated expectation was for the first two wells to be operational by the end of Q1 2014. The filing provides no consolidated earnings or cash-flow guidance.
- Golf membership growth remains a challenge; Avalon had not met its membership goals, and the company gave no assurance as to when goals would be achieved or when golf operations would become profitable. Golf results are also weather-sensitive.
- Saltwater wells are a startup business with no operating track record for Avalon. Risks include construction and customer-acquisition execution, increased competition or alternative disposal methods, more extensive regulation, and environmental contamination or seismic events that could lead to remediation costs or suspension of operations.
- Other material risks include customer retention in waste brokerage, dependence of captive landfill management on a single customer, environmental liability, changing waste-disposal regulation, competitive pricing, and potential increases in disposal costs. One waste customer’s share of consolidated revenue increased year over year.
- Avalon reports ordinary-course lawsuits and regulatory matters, including environmental matters, but does not believe uninsured ultimate liabilities, fines, or penalties would materially adversely affect liquidity, financial position, or results. The filing text does not quantify exposures.
- The company stated it intended to retain earnings and did not anticipate cash dividends in the foreseeable future. Class B holders, principally management, held approximately 66% of aggregate voting power. Management concluded disclosure controls were effective at a reasonable-assurance level; no material fourth-quarter change in internal control was reported.
Important facts for investors to verify
- Consult the incorporated 2013 Annual Report for actual revenue, earnings, cash flow, margins, balance-sheet, debt, liquidity, and segment results, and for year-over-year explanations.
- Review the saltwater-well project’s capital requirements, private-placement terms, ownership and consolidation effects, construction progress, permitting, and subsequent operating status.
- Assess the concentration and retention risks associated with Shell and the single customer of captive landfill management.
- Track golf membership levels, segment profitability, and seasonal effects, as well as environmental and regulatory contingencies and insurance coverage.