Avalon Holdings Corporation — 2017 Form 10-K
Business context and period: This annual report covers the fiscal year ended December 31, 2017; it does not provide standalone fourth-quarter results. Avalon operates two segments: waste management services and golf and related operations, including three golf courses, club facilities and The Avalon Inn. The filing incorporates its 2017 Shareholders’ Annual Report, but the financial statements and detailed MD&A are not included in the supplied text.
Financial performance and liquidity
- Revenue mix: Waste management services generated approximately 69% of consolidated net operating revenues in 2017, versus 72% in 2016. Golf and related operations represented approximately 31%, versus 28%.
- Revenue, profit, cash flow and margins: The supplied filing text does not provide clear consolidated dollar amounts or margin figures for 2017 or 2016. It also does not provide enough information to assess year-over-year changes in these measures.
- Debt and liquidity: Avalon had loan and security agreements with Laurel Capital Corporation and Home Savings Bank, including a December 2017 amendment to the Laurel agreement. Debt balances, cash, available borrowing capacity and detailed covenant headroom are not provided in the supplied text. The company warns that covenant breaches could permit accelerated repayment and that refinancing may be needed.
- Customer concentration: Koppers Holdings accounted for 12% of waste-segment external revenue and 9% of consolidated revenue in 2017. No customer individually accounted for 10% or more of consolidated revenue in 2016.
Material changes and notable items
- The mix of revenue shifted toward golf and related operations, which rose from 28% to 31% of consolidated revenue; waste management’s share declined from 72% to 69%. These are segment shares, not dollar growth rates.
- The Avalon Inn remained under renovation and expansion during 2017.
- In March 2018, after year-end, Avalon acquired the Boardman Tennis Center for approximately $1.3 million in cash and renamed it The Avalon Athletic Club at Boardman.
- The Tax Cuts and Jobs Act was enacted in December 2017. Management described its overall effects on results, cash flows and financial condition as uncertain.
Outlook, risks and contingencies
- Saltwater injection wells: Operations at AWMS #2 remained suspended following a 2014 seismic event. A trial court’s 2017 order set conditions for restarting the well, but an appellate court stayed that order; Avalon was awaiting the appellate judgment at the time of filing. Avalon also pursued a separate property-taking claim, with trial tentatively scheduled for the second quarter of 2018. The filing provides no clear estimate of the financial impact or outcome.
- Golf and hospitality: Membership retention and growth remain challenges, and Avalon had not met its membership goals at year-end. The filing gives no assurance when the golf and related operations will become profitable. Results are seasonal and sensitive to weather; loss of a facility’s liquor license could also hurt performance.
- Waste operations: Much of the brokerage business is not covered by long-term contracts. The captive landfill management business depends on a single customer. Regulation, disposal-price competition, environmental liability and restrictions on waste transportation or out-of-state disposal could adversely affect results.
- Other risks: Potential risks include impairment of long-lived assets, uninsured environmental or other liabilities, and the effects of inflation and changing accounting standards. Management stated that pending ordinary-course proceedings were not expected to have a material adverse effect, while noting outcomes cannot be predicted with certainty.
- Governance and market: Class B shares held principally by management carried ten votes per share and represented approximately 66% of aggregate voting power. Avalon did not anticipate paying cash dividends in the foreseeable future.
- Controls: Management concluded disclosure controls were effective at a reasonable assurance level as of December 31, 2017; no material fourth-quarter change in internal control over financial reporting was reported.
Important facts for investors to verify
- Review the incorporated 2017 Annual Report for exact revenue, earnings, cash-flow, margin, balance-sheet, debt and liquidity figures, and for the full year-over-year MD&A.
- Check the status and outcome of the AWMS #2 appellate proceedings and the related property-taking claim, including any restart conditions or financial exposure.
- Assess the Avalon Inn renovation costs and operating performance, golf-club membership trends, and whether the golf and related segment achieved profitability.
- Review loan balances, covenant requirements and compliance, borrowing availability, and any refinancing needs.
- Evaluate the post-year-end Boardman Tennis Center acquisition and its funding and subsequent operating contribution.