2017
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2017
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the transition period from to
Commission File Number 1-14105
AVALON HOLDINGS CORPORATION
(Exact name of registrant as specified in its charter)
| Ohio | 34-1863889 |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
One American Way, Warren, Ohio 44484-5555
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (330) 856-8800
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class |
Name of Each Exchange on Which Registered |
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Class A Common Stock, $.01 par value |
NYSE Amex |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes No X
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes No X
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer _____ | Accelerated filer _____ |
| Non-accelerated filer _____ (Do not check if a smaller reporting company) | Smaller reporting company X |
| Emerging growth company _____ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ____
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No X
The aggregate market value of Class A Common Stock held by non-affiliates of the registrant on March 2, 2018 was $6.4 million. Assuming that the market value of Avalon Holdings Corporation’s Class B Common Stock was the same as its Class A Common Stock by reason of its one-to-one conversion rights, the market value of Class B Common Stock held by non-affiliates of the registrant on March 2, 2018 was approximately $2,300. The registrant had 3,191,100 shares of its Class A Common Stock and 612,231 shares of its Class B Common Stock outstanding as of March 2, 2018.
Documents Incorporated by Reference
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1. |
Portions of the Avalon Holdings Corporation Annual Report to Shareholders for the year ended December 31, 2017 (Parts I and II of Form 10-K). |
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2. |
Portions of the Avalon Holdings Corporation Proxy Statement for the 2018 Annual Meeting of Shareholders are incorporated by reference herein into Part III. |
AVALON HOLDINGS CORPORATION AND SUBSIDIARIES
_________________________________
As used in this report, the terms “Avalon,” “Company,” and “Registrant” mean Avalon Holdings Corporation, its wholly owned subsidiaries and variable interest entities when it has been determined that Avalon is the primary beneficiary of those company’s operations, taken as a whole, unless the context indicates otherwise.
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TABLE OF CONTENTS
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Part I |
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Page |
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Item 1. |
Business |
1 |
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Item 1A. |
Risk Factors |
5 |
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Item 1B. |
Unresolved Staff Comments |
10 |
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Item 2. |
Properties |
10 |
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Item 3. |
Legal Proceedings |
10 |
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Item 4. |
Mine Safety Disclosures |
10 |
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Part II |
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Item 5. |
Market for the Registrant’s Common Equity and Related Stockholder Matters |
11 |
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Item 6. |
Selected Financial Data |
11 |
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Item 7. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
11 |
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Item 7A. |
Quantitative and Qualitative Disclosures about Market Risk |
11 |
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Item 8. |
Financial Statements and Supplementary Data |
11 |
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Item 9. |
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
12 |
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Item 9A. |
Controls and Procedures |
12 |
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Item 9B. |
Other Information |
12 |
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Part III |
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Item 10. |
Directors and Executive Officers of the Registrant |
13 |
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Item 11. |
Executive Compensation |
14 |
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Item 12. |
Security Ownership of Certain Beneficial Owners and Management |
14 |
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Item 13. |
Certain Relationships and Related Transactions |
14 |
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Item 14. |
Principal Accountant Fees and Services |
14 |
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Part IV |
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Item 15. |
Exhibits, Financial Statement Schedules, and Reports on Form 8-K |
15 |
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Item 16. |
Form 10-K Summary |
17 |
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Signatures |
18 |
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Note on Incorporation by Reference
Throughout this report various information and data are incorporated by reference from Avalon’s 2017 Annual Report to Shareholders (hereinafter referred to as the “Annual Report to Shareholders”). Any reference in this report to disclosures in the Annual Report to Shareholders shall constitute incorporation by reference of that specific material into this Form 10-K.
PART 1
ITEM 1. BUSINESS
General
Avalon Holdings Corporation (“Avalon” or the “Company”) was formed on April 30, 1998 as a subsidiary of American Waste Services, Inc. (“AWS”). On June 17, 1998, AWS distributed, as a special dividend, all of the outstanding shares of capital stock of Avalon to the holders of AWS common stock on a pro rata and corresponding basis (the “Spin-off”). The history and organization of the remaining operations, some of which were contributed to Avalon as a result of the Spin-off, are described below.
In June 1990, AWS purchased approximately 5.6 acres of real estate located in Warren, Ohio on which it constructed Avalon’s corporate headquarters. In connection with the acquisition of such property, Avalon Lakes Golf, Inc. (“ALGI”), a former subsidiary of AWS and now an indirect wholly owned subsidiary of Avalon, acquired the real and personal property associated with the Avalon Lakes Golf Course, an 18-hole golf course adjacent to the office property. The corporate headquarters and ALGI were contributed to Avalon by AWS. The Avalon corporate headquarters building includes a clubhouse, restaurant, golf simulators and a pro shop for the Avalon Golf and Country Club at Avalon Lakes Golf Course.
In 1995, American Waste Management Services, Inc. (“AWMS”) commenced its waste disposal brokerage and management operations and in 1997, American Landfill Management, Inc. (“ALMI”) started its captive landfill management operations. Both companies were contributed to Avalon by AWS and now are wholly owned subsidiaries of Avalon.
In November 2003, TBG, Inc. (“TBG”), a subsidiary of ALGI, entered into a long-term lease agreement with Squaw Creek Country Club to lease and operate its golf course and related facilities. As a result of the transaction, Avalon created a newly organized subsidiary, Avalon Golf and Country Club, Inc. (“AGCC”) which manages all the golf courses and related operations.
In October 2006, Avalon, through a newly created subsidiary, Avalon Country Club at Sharon, Inc. (“Sharon”), completed the acquisition of the Sharon Country Club assets. The primary assets of the Sharon club include the golf course and clubhouse. Avalon renovated the clubhouse and constructed additional recreational facilities and operates the Sharon facilities as part of its Avalon Golf and Country Club.
In June 2011, AWMS Water Solutions, LLC was formed to acquire options on properties for the purpose of operating salt water injection wells. AWMS Water Solutions, LLC, a wholly owned subsidiary of Avalon, manages all the salt water injection well operations, including the marketing and sales function and all decisions regarding the well operations for a percentage of the gross revenues.
In August 2013, Avalon created a new Ohio limited liability company, AWMS Holdings, LLC, to act as a holding company to form and own a series of wholly owned subsidiaries that will own and operate salt water injection wells and facilities (together the “facilities”). AWMS Holdings, LLC, offers investment opportunities to accredited investors by selling membership units of AWMS Holdings, LLC through private placement offerings. The monies received from these offerings, along with internally contributed capital, are used to construct the facilities necessary for the operation of salt water injection wells. As a result of the private placement offering, Avalon is not the majority owner of AWMS Holdings, LLC; however, due to the managerial control of AWMS Water Solutions, LLC, AWMS Holdings, LLC is a variable interest entity (“VIE”), and the financial statements of AWMS Holdings, LLC and subsidiaries are included in Avalon’s consolidated financial statements.
In August 2013, AWMS Holdings, LLC formed its first wholly owned subsidiary, AWMS Rt. 169, LLC, to own and operate two salt water injection wells. AWMS Rt. 169, LLC leases 5.2 acres on which the salt water injection wells are located. As further described below, based on the Chief of the Division of Oil and Gas Resources Management’s decision, the operations of the two salt water injection wells are temporarily suspended.
In August 2014, Avalon, through a newly created subsidiary, The Avalon Resort and Spa LLC, completed the acquisition of The Magnuson Grand Hotel in Howland, Ohio. Subsequent to the acquisition, The Magnuson Grand Hotel was renamed and now operates as The Avalon Inn. The primary assets of The Avalon Inn include the hotel, indoor junior Olympic size swimming pool, fitness center, restaurants, bars, banquet and conference facilities and adjoining tennis center. The Avalon Inn is located adjacent to Avalon’s corporate headquarters and the Avalon Lakes Golf Course. In 2017, The Avalon Inn was in operation but still in the process of being renovated and expanded. The renovations and expansion include the complete renovation of the existing facility and the addition of new restaurants, bars, extensive banquet and conference facilities. The Avalon Inn operates in conjunction with the Avalon Golf and Country Club.
In July 2016, the Company formed Avalon Resorts and Clubs, Inc. (“ARCI”), a wholly owned subsidiary of Avalon, the purpose of which is to hold the corporate activity of Avalon Clubs, Inc. and Avalon Resorts, Inc., both formed concurrently with ARCI. Avalon Clubs, Inc. was formed to hold the wholly owned subsidiaries of the Avalon Golf and Country Club, while Avalon Resorts, Inc. holds the operations of The Avalon Inn.
In March 2018, Avalon, through a newly created subsidiary, Avalon Mahoning Sports Center, Inc., completed the acquisition of the Boardman Tennis Center in Boardman, Ohio for approximately $1.3 million in cash. Subsequent to the acquisition, the Boardman Tennis Center was renamed The Avalon Athletic Club at Boardman. The primary assets of The Avalon Athletic Club at Boardman include the acquired real property consisting of the tennis building and associated land. The Avalon Athletic Club at Boardman will operate as part of its Avalon Golf and Country Club.
Business Segments Information
Avalon’s business segments are waste management services and golf and related operations. The waste management services segment includes waste disposal brokerage and management services, captive landfill management operations and salt water injection well operations. The golf and related operations segment includes the operation and management of three golf courses and related clubhouses, a hotel, fitness centers, tennis courts, spa services, dining, banquet and conference facilities and a travel agency. In 2017, one customer of the waste management services segment, Koppers Holdings Inc., accounted for 12% of the waste management services segment’s net operating revenues to external customers and 9% of the consolidated net operating revenues. In 2016, no customer individually accounted for 10% or more of Avalon’s consolidated net operating revenues.
Waste Management Services
Avalon’s waste management subsidiaries provide hazardous and nonhazardous waste disposal brokerage and management services, captive landfill management services and salt water injection well operations. Waste management services are provided to industrial, commercial, municipal and governmental customers primarily in selected northeastern and midwestern United States markets. For the years 2017 and 2016, the net operating revenues of the waste management services segment represented approximately 69% and 72%, respectively, of Avalon’s total consolidated net operating revenues.
AWMS assists customers with managing and disposing of wastes at approved treatment and disposal sites based upon a customer’s needs.
Because waste generators remain liable for their waste, both before and after disposal, they require assurance that their waste will be safely and properly transported, treated and disposed of. To give customers this confidence, as well as to limit its own potential liability, AWMS has instituted procedures designed to minimize the risks of improper handling or disposal of waste.
Before AWMS will provide waste brokerage or management services, a potential customer must complete a detailed waste profile setting forth the amount, chemical composition and any unique characteristics for each type of waste to be handled. Representative samples of the waste are analyzed by a state or federally certified laboratory. In addition, an AWMS representative generally inspects the process generating the waste, the location where the waste may be temporarily stored or the site of the remediation project producing the waste, and interviews representatives of the generator familiar with the waste. This inspection, along with the laboratory results, allows AWMS to determine whether the waste is within acceptable parameters for disposal and, if so, what special handling and treatment procedures must be instituted. If the waste is continuously generated, new representative samples are tested on a periodic basis.
These procedures are important to both AWMS and its customers because the key to proper handling of waste is accurate identification. Hazardous waste which is not identified as such, and thus, improperly disposed of can result in substantial liability to the waste generator, the disposal facility, AWMS and potentially to all other waste generators that have used the disposal site. Conversely, waste that could safely and legally be disposed of in a solid waste landfill, but is instead sent to a hazardous waste facility for treatment and disposal, will result in substantial and unnecessary expense to the generator.
ALMI is a landfill management company that provides technical and operational services to customers owning captive disposal facilities. A captive disposal facility only disposes of waste generated by the owner of such facility. ALMI provides turnkey services, including daily operations, facilities management and management reporting for its customers. Currently, ALMI manages one captive disposal facility located in Ohio. In addition, American Construction Supply, Inc., a wholly owned subsidiary of ALMI, sells construction mats.
AWMS Holdings, LLC, is a holding company that was created to form and own a series of wholly owned subsidiaries that own and operate salt water injection wells and facilities. AWMS Holdings, LLC, offers investment opportunities to accredited investors by selling membership units of AWMS Holdings, LLC through private placement offerings. The monies received from these offerings, along with internally contributed capital, are used to construct the facilities necessary for the operation of salt water injection wells. AWMS Water Solutions, LLC, a wholly owned subsidiary of Avalon, manages the operations, including the marketing and sales function and all the decisions regarding the well operations for a percentage of the gross revenues. As a result of the private placement offering, Avalon is not the majority owner of AWMS Holdings, LLC; however, due to the managerial control of AWMS Water Solutions, LLC, AWMS Holdings, LLC is a VIE, and the financial statements of AWMS Holdings, LLC and subsidiaries are included in Avalon’s consolidated financial statements.
AWMS Holdings, LLC formed its first wholly owned subsidiary, AWMS Rt. 169, LLC, to own and operate two salt water injection wells. AWMS Rt. 169, LLC leases 5.2 acres on which the salt water injection wells are located. As further described below, based on the Chief of the Division of Oil and Gas Resources Management’s decision, the operations of the two salt water injection wells are temporarily suspended.
Golf and Related Operations
Avalon’s golf and related operations segment includes the operation and management of three golf courses and related country clubs and facilities, a hotel and its associated amenities and a travel agency. For the years 2017 and 2016, the net operating revenues of the golf and related operations segment represented approximately 31% and 28%, respectively, of Avalon’s total consolidated net operating revenues.
ALGI owns and operates a Pete Dye designed championship golf course located in Warren, Ohio. ALGI generates revenue from membership dues, greens fees, cart rentals, merchandise, and food and beverage sales.
TBG, a subsidiary of ALGI, entered into a long-term agreement with Squaw Creek Country Club to lease and operate its golf course and related facilities. The lease, which commenced on November 1, 2003, has an initial term of ten (10) years with four (4) consecutive ten (10) year renewal term options unilaterally exercisable by TBG. In addition to a championship golf course, the Squaw Creek facilities include a swimming pool, tennis courts and a clubhouse that includes a fitness center, dining and banquet facilities. TBG generates its revenue in the same manner as ALGI, but also generates revenues from tennis and swimming.
Avalon Travel, Inc., a subsidiary of ALGI, owns and operates a travel agency which generates its revenue from booking travel reservations.
In October 2006, Avalon, through its subsidiary, Avalon Country Club of Sharon, Inc., completed the acquisition of the Sharon Country Club assets. The primary assets of Sharon include the golf course and clubhouse which includes, dining and banquet facilities, a swimming pool, spa services and a fitness center. Sharon generates its revenue in the same manner as ALGI and TBG, but also generates revenues from its fitness center and spa services.
In November 2003, Avalon formed the Avalon Golf and Country Club to manage its golf courses and the related operations. Members of the Avalon Golf and Country Club are entitled to privileges at all the facilities. Membership requires payment of annual dues. Members receive several benefits including reduced greens fees, preferential tee times and discounts on merchandise. In addition, members of the Avalon Golf and Country Club also have access to all of the amenities offered by The Avalon Inn. The Avalon Golf and Country Club competes with many public courses and country clubs in the area. Although the golf courses continue to be available to the general public, the primary source of revenues is derived from the members of the Avalon Golf and Country Club. Avalon believes that the combination of its three golf facilities and The Avalon Inn will result in additional memberships in the Avalon Golf and Country Club. The ability to retain current members and attract new members has been an ongoing challenge. Although Avalon was able to increase the number of members of the Avalon Golf and Country Club, as of December 31, 2017, Avalon has not attained its membership goals. There can be no assurance as to when such goals will be attained and when the golf and related operations will ultimately become profitable. Avalon is continually using different marketing strategies to attract new members, such as local television advertising and various membership promotions. A significant decline in members could adversely affect the future financial performance of Avalon.
In August 2014, Avalon, through a newly created subsidiary, The Avalon Resort and Spa LLC, completed the acquisition of The Magnuson Grand Hotel in Howland, Ohio. Subsequent to the acquisition, The Magnuson Grand Hotel was renamed and now operates as The Avalon Inn. The primary assets of The Avalon Inn include the hotel, indoor junior Olympic size swimming pool, fitness center, restaurants, bars, banquet and conference facilities and adjoining tennis center. The Avalon Inn is located adjacent to Avalon’s corporate headquarters and the Avalon Lakes Golf Course. The Avalon Inn provides guests with a self-contained vacation experience, offering hotel guests golf packages to all of the golf courses of the Avalon Golf and Country Club and allows its guests to utilize the facilities at each of the clubhouses. Members of the Avalon Golf and Country Club also have access to all of the amenities offered by The Avalon Inn. The Avalon Inn earns revenues through room rentals, food and beverage sales, merchandise sales, tennis and fitness activities. In 2017, The Avalon Inn was in operation but still in the process of being renovated and expanded. The renovations and expansion include the complete renovation of the existing facility and the addition of new restaurants, bars, extensive banquet and conference facilities. The Avalon Inn operates in conjunction with the Avalon Golf and Country Club.
In July 2016, the Company formed ARCI, a wholly owned subsidiary of Avalon, the purpose of which is to hold the corporate activity of Avalon Clubs, Inc. and Avalon Resorts, Inc., both formed concurrently with ARCI. Avalon Clubs, Inc. was formed to hold the wholly owned subsidiaries of the Avalon Golf and Country Club, while Avalon Resorts, Inc. holds the operations of The Avalon Inn.
In March 2018, Avalon, through a newly created subsidiary, Avalon Mahoning Sports Center, Inc., completed the acquisition of the Boardman Tennis Center in Boardman, Ohio for approximately $1.3 million in cash. Subsequent to the acquisition, the Boardman Tennis Center was renamed The Avalon Athletic Club at Boardman. The primary assets of The Avalon Athletic Club at Boardman include the acquired real property consisting of the tennis building and associated land. Members of the Avalon Golf and Country Clubs will have access to all the tennis, athletic and fitness related activities that will be offered by The Avalon Athletic Club at Boardman. In addition, hotel guests at The Avalon Inn will also be able to utilize the facility during their stay. The Avalon Athletic Club at Boardman will earn revenue through membership fees, tennis, athletic and fitness related activities. The Avalon Athletic Club at Boardman will operate as part of its Avalon Golf and Country Club.
The golf courses are significantly dependent upon weather conditions during the golf season as a result of being located in northeast Ohio and western Pennsylvania. Avalon’s financial performance is adversely affected by adverse weather conditions.
Governmental regulations
The federal government and numerous state and local governmental bodies are continuing to consider legislation or regulations to either restrict or impede the disposal and/or transportation of waste. A portion of Avalon’s waste brokerage and management services revenues is derived from the disposal and/or transportation of out-of-state waste. Any law or regulation restricting or impeding the transportation of waste or the acceptance of out-of-state waste for disposal could have a negative effect on Avalon. Avalon’s waste brokerage and management services may also be affected by the trend toward laws requiring the development of waste reduction and recycling or other programs.
All three of Avalon’s golf course operations and The Avalon Inn currently hold liquor licenses for their respective facilities. If, for some reason, any one of these facilities were to lose their liquor license, the financial performance of the golf and related operations would be adversely affected.
On December 22, 2017, the Tax Cuts and Jobs Act (“Tax Act”) was signed into law. The Tax Act contains significant changes to corporate taxation, including reduction of the corporate tax rate from 35% to 21%, additional limitations on the tax deductibility of interest, immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modification or repeal of many business deductions and credits. Notwithstanding the reduction in the corporate income tax rate, the overall impact of the Tax Act is uncertain, and our results of operations, cash flows and financial condition, as well as the trading price of our common stock, could be adversely affected.
Sales and marketing
Avalon’s sales and marketing approach is decentralized, with each business segment being responsible for its own sales and marketing efforts. Each business segment employs its own sales force which concentrates on expanding its business.
Competition
The hazardous and nonhazardous waste disposal brokerage and management business is highly competitive and fragmented. Avalon’s waste disposal brokerage and management business competes with other brokerage companies, as well as, with companies which own treatment and disposal facilities. In addition to price, knowledge and service are key factors when competing for waste disposal brokerage and management business. Avalon’s waste disposal brokerage and management operations obtain and retain customers by providing services and identifying cost-efficient disposal options unique to a customer’s needs. Consolidation within the solid waste industry has resulted in a reduction in the number of disposal options available to waste generators and may cause disposal pricing to increase. Avalon may need to absorb all or a portion of these cost increases depending upon competitive conditions at the time.
Avalon’s golf courses are located in Warren, Ohio, Vienna, Ohio and Sharon, Pennsylvania and compete with many public courses and country clubs in the area.
The Avalon Inn’s principal competitors are operators of full service, select service and extended stay properties, including major hospitality chains with well-established and recognized brands. We also compete against small chains and independent and local owners and operators. We compete for guests based primarily on the resort complex and country club experience created through the combination of the resort and country club operations.
Insurance
Avalon carries $11,000,000 of liability insurance coverage. This insurance includes coverage for comprehensive general liability, automobile liability and other customary coverage. In addition, Avalon also carries $5,000,000 of separate liability insurance coverage for the golf courses and related operations. Avalon carries comprehensive property damage coverage and, also, professional liability insurance for its fitness, swimming and spa activities. No assurance can be given that such insurance will be available in the future or, if available, that the premiums for such insurance will be reasonable.
If Avalon were to incur a substantial liability for damages not covered by insurance or in excess of its policy limits or at a time when Avalon no longer is able to obtain appropriate liability insurance, its financial condition could be materially adversely affected.
Employees
As of December 31, 2017, Avalon had 423 employees, 31 of whom were employed by the waste management services segment, 369 of whom were employed by the golf and related operations and 23 of whom were employed in financial and administrative activities. Avalon believes that it has a good relationship with its employees.
Other business factors
None of Avalon’s business segments is materially dependent on patents, trademarks, licenses, franchises or concessions, other than permits, licenses and approvals issued by regulatory agencies. Avalon does not sponsor significant research and development activities.
ITEM 1A. RISK FACTORS
The following factors, as well as, factors described elsewhere in the Form 10-K, or in other filings by Avalon with the Securities and Exchange Commission, could adversely affect Avalon’s consolidated financial position, results of operations or cash flows. Other factors not presently known to us or that we presently believe are not material could also affect our business operations and financial results.
Voting control by management
Avalon has two classes of common stock, Class A and Class B. Each share of Class A Common Stock is entitled to one vote and each share of Class B Common Stock is entitled to ten votes on all matters submitted to a vote of the shareholders. Except for the election of Avalon’s Board of Directors, the Class A Common Stock and the Class B Common Stock vote together as a single class on all matters presented for a vote to the shareholders. The holders of the Avalon Class B Common Stock, which consists principally of the management of Avalon, have approximately 66 percent of the aggregate voting power of the outstanding Avalon Common Stock. Currently, the holders of the Avalon Class A Common Stock will not, either alone or acting collectively, be able to elect a majority of the members of Avalon’s Board of Directors (the “Avalon Board”) or control many corporate actions. However, the holders of the Avalon Class A Common Stock, voting as a separate class, have the right to elect the number of directors equal to at least 25 percent of the total Board of Directors of Avalon until the outstanding Avalon Class B Common Stock constitutes less than 50 percent of the total voting power of the outstanding Avalon Common Stock, after which time the holders of the Avalon Class A and Class B Common Stock will vote as a single class for the election of directors and all matters presented for a vote to the shareholders. The holders of a majority of all outstanding shares of Class A Common Stock or Class B Common Stock, voting as separate classes, must also approve amendments to the Articles of Incorporation that adversely affect the shares of their class.
Each share of Class B Common Stock is convertible, at any time, at the option of the shareholder, into one share of Class A Common Stock. Shares of Class B Common Stock are also automatically converted into shares of Class A Common Stock on the transfer of such shares to any person other than Avalon, another holder of Class B Common Stock or a Permitted Transferee, as defined in Avalon’s Articles of Incorporation.
Certain anti-takeover provisions of Articles of Incorporation, Code of Regulations and Ohio Law
The Articles of Incorporation and Code of Regulations of Avalon, as well as, Ohio statutory law, contain provisions that may have the effect of discouraging an acquisition of control of Avalon not approved by the Avalon Board. Such provisions may also have the effect of discouraging third parties from making proposals involving an acquisition or change of control of Avalon, even though such proposals, if made, might be considered desirable by a majority of the Avalon stockholders. Such provisions could also have the effect of making it more difficult for third parties to cause the replacement of the current management of Avalon without the concurrence of the Avalon Board. These provisions have been designed to enable Avalon to develop its business and foster its long-term growth without disruptions caused by the threat of a takeover not deemed by the Avalon Board to be in the best interest of Avalon and its stockholders.
Dividend policy
The dividend policy of Avalon is determined by the Avalon Board. Avalon presently intends to retain earnings for use in the operation and expansion of its business and, therefore, does not anticipate paying cash dividends in the foreseeable future.
Avalon’s market for shares may be subject to greater volatility and limited daily activity
Market fluctuations, as well as economic conditions, may adversely affect the market price of the Avalon Class A Common Stock. Given the relatively small market capitalization of Avalon, the market for its Class A Common Stock may be subject to greater volatility than would be the case for a large company. In addition, the selling and buying of shares on a daily basis may be limited because of the relatively small capitalization of Avalon.
A majority of Avalon’s business is not subject to long-term contracts
A significant portion of Avalon’s business is generated from waste brokerage and management services provided to customers and is not subject to long-term contracts. In light of current economic, regulatory and competitive conditions, there can be no assurance that Avalon’s current customers will continue to transact business with Avalon at historical levels. Failure by Avalon to retain its current customers or to replace lost business could adversely impact the future financial performance of Avalon.
Avalon’s captive landfill management business is dependent upon a single customer as its sole source of revenue. If the captive landfill management business is unable to retain this customer, Avalon’s future financial performance could be adversely impacted.
The golf operations primary source of revenues is derived from the members of the Avalon Golf and Country Club. Members are obligated to pay dues for a one year period. As such, the golf operations are primarily dependent on the sale and renewal of memberships in the Avalon Golf and Country Club, on a year to year basis.
Avalon's loan and security agreement may obligate it to repay debt before its maturity
The Company’s loan and security agreement contains certain covenants and events of default. Should Avalon be unable to meet one or more of these covenants, its lender may require it to repay any outstanding balance prior to the expiration date of the agreement. Our ability to comply with the financial and other covenants in our loan and security agreement may be affected by worsening economic or business conditions, or other events that may be beyond our control. We cannot provide assurance that our business will generate sufficient cash flow from operating activities in amounts sufficient to enable us to service debt and meet these covenants. We may need to refinance all or a portion of our indebtedness, on or before maturity. The Company cannot assure that additional sources of financing would be available to pay off any long-term borrowings under the loan and security agreement, so as to avoid default.
Long-lived asset impairment
Certain events or changes in circumstances may indicate that the recoverability of the carrying value of long-lived assets should be assessed. Such events or changes may include a significant decrease in market value, a significant change in the business climate in a particular market, or a current-period operating or cash flow loss combined with historical losses or projected future losses. If an event occurs or changes in circumstances are present, Avalon estimates the future cash flows expected to result from the use of the applicable groups of long-lived assets and their eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying value, Avalon would recognize an impairment loss to the extent the carrying value of the groups of long-lived assets exceeds their fair value. Avalon would determine the fair value by using quoted market prices, if available, for such assets; or if quoted market prices are not available, Avalon would discount the expected estimated future cash flows.
The ability to accurately predict future cash flows may impact the determination of fair value. Avalon’s assessments of cash flows represent management’s best estimate at the time of the impairment review. Avalon estimates the future cash flows expected to result from the use and, if applicable, the eventual disposition of the assets. The key variables that management must estimate include, among other factors, sales, costs, inflation and capital spending. Significant management judgment is involved in estimating these variables, and they include inherent uncertainties. If different cash flows had been estimated in the current period, the value of the long-lived assets could have been materially impacted. Furthermore, Avalon’s accounting estimates may change from period to period as conditions in markets change, and this could materially impact financial results in future periods.
Seasonality
Avalon’s operations are somewhat seasonal in nature since a significant portion of those operations are primarily conducted in selected northeastern and midwestern states. Additionally, Avalon’s golf courses are located in northeast Ohio and western Pennsylvania and are significantly dependent upon weather conditions during the golf season. As a result, Avalon’s financial performance could be adversely affected by adverse weather conditions.
Saltwater disposal wells
Saltwater disposal wells are regulated by the Ohio Department of Natural Resources (“ODNR”), with portions of the disposal facilities regulated by the Ohio EPA. As exploitation of the Marcellus and Utica shale formations by the hydrofracturing process develops, regulatory and public awareness of the environmental risks of saltwater brine and its disposal in saltwater disposal wells is growing and consequently, it is expected that regulation governing the construction and operation of saltwater disposal wells will increase in scope and complexity. Increased regulation may result in increased construction and/or operating costs, which could adversely affect the financial results of Avalon.
There is a continuing risk during the saltwater disposal well’s operation of an environmental event causing contamination to the water tables in the surrounding area, or seismic events. The occurrence of a spill or contamination at a disposal well site could result in remedial expenses and/or result in the operations at the well site being suspended and/or terminated by the Ohio EPA or the ODNR. Incurring remedial expenses and/or a suspension or termination of Avalon’s right to operate one or more saltwater disposal wells at the well site could have an adverse effect on Avalon’s financial results.
As a result of a seismic event with a magnitude of 2.1 occurring on August 31, 2014, the Chief of the Division of Oil and Gas Resources Management (“Chief” or “Division”) issued Orders on September 3, 2014, to immediately suspend all operations of both of Avalon’s saltwater injection wells. The Orders were based on the findings that the two saltwater injection wells were located in close proximity to an area of known seismic activity and also that the saltwater injection wells pose a risk of increasing or creating seismic activity. The two saltwater injection wells are located approximately 112 feet apart. Based on these findings, the Chief ordered the immediate suspension of all operations of the two saltwater injection wells, until the Division could further evaluate the wells.
On September 5, 2014, Avalon submitted the information required by the Chief’s Order in regards to its AWMS #1 injection well, and the Chief lifted the suspension for that well on September 18, 2014. On September 19, 2014, Avalon submitted information and a written plan required by the Chief’s Order proposing the establishment of certain operations and management controls on injections at the AWMS #2 injection well. To date, the Division has not responded to that plan despite Avalon’s requests for feedback.
On October 2, 2014, Avalon filed an appeal with the Ohio Oil and Gas Commission (the “Commission”) disputing the basis for suspending operations of AWMS #2 and also the authority of the Chief to immediately suspend such operations. On March 11, 2015, an appeal hearing was held. The Chief stated during the hearing that the suspension is only temporary, and that he expects that AWMS #2 will be allowed to inject once the state’s final policymaking is complete.
On August 12, 2015, the Commission upheld the temporary suspension of injection operations of AWMS #2 stating that the temporary suspension will allow the Chief to more fully evaluate the facts in anticipation of the Division’s implementation of a comprehensive regulatory plan that will specifically address injection-induced seismicity. Avalon appealed that decision in September 2015 to the Franklin County Court of Common Pleas, but that appeal was dismissed on a filing technicality. Avalon appealed the dismissal to the Ohio 10th Circuit Court of Appeals, which found the Commission erred in its filing of their decision. Following the Commission’s proper notice, Avalon appealed again to the Franklin County Court of Common Pleas (the “Court”).
On November 1, 2016 an appeal hearing was held in that Court. On December 23, 2016, the Court issued its Decision and Order in Avalon’s favor, and vacated the Commission’s decision. The Court found that the Division’s suspension and refusal to work with the Company for over 26 months was arbitrary and not in accordance with reason. Subsequent to the ruling, and in accordance with the Court’s Decision and Order, both Avalon and the Division submitted their proposed restart plans to the Court. Avalon’s plan sets forth both the initial volumes and pressures and increases in volume and pressure while continuously monitoring seismicity and addressing the concerns of public health and safety.
On February 21, 2017, the Court issued its Final Decision and Order. The Court’s Final Decision and Order sets conditions for the restarting of AWMS #2 in accordance with the proposed restart plans filed by Avalon with minor revisions. While the Company was making preparations for restarting the well and opening the facility, the Division appealed the Final Decision and Order and filed a Motion to Stay the Court Order on February 22, 2017. The Motion to Stay was granted by the Ohio 10th Circuit Court of Appeals on March 21, 2017. On September 14, 2017, an appeal hearing was held. The Company is currently awaiting judgment from the court. In the event the suspension order is lifted, Avalon will make preparations for restarting the well and opening the facility in accordance with the restart plans. In the event that the temporary suspension is not lifted by the Ohio 10th Circuit Court of Appeals, Avalon will continue in its effort to receive a favorable ruling lifting the temporary suspension.
In addition, on August 26, 2016, Avalon filed a complaint in the 11th Appellate District Court in Trumbull County, Ohio for a Peremptory Writ of Mandamus to compel the Director of the Ohio Department of Natural Resources (“ODNR”) to initiate appropriations procedures to determine damages from the illegal regulatory taking of the Company’s property, or issue an alternative remedy at law. There is currently no implemented state-wide policy on induced seismicity and The ODNR has refused to communicate with the Company regarding the status and requirements of any policymaking. The Company believes that the actions, and lack of responsible actions, by ODNR, which were triggered by a seismic event that presented no hazard or risk to any individual or to the environment, is a clear violation of the Company’s property rights and a violation of the Fifth and Fourteenth Amendments to the U.S. Constitution; Article I, Section 19 of the Ohio Constitution; and Ohio Revised Code Chapter 163. The trial is tentatively scheduled to occur in the second quarter of 2018. The Company intends to vigorously pursue the Complaint and obtain due process and fair compensation.
Environmental liabilities
Avalon may be subject to liability for environmental contamination caused by pollutants, the transportation, treatment or disposal of which was arranged for by Avalon or one of its predecessors.
Although Avalon has compliance guidelines for its waste brokerage and management services business, Avalon could still incur a substantial liability for environmental damage not covered by or in excess of its insurance policy limits and, as such, its financial condition could be adversely affected.
Competitive pressures
The hazardous and nonhazardous waste disposal brokerage and management business is highly competitive and fragmented. Avalon’s waste disposal brokerage and management business competes with other brokerage companies, as well as, with companies which own treatment and disposal facilities. In addition to price, knowledge and service are key factors when competing for waste disposal brokerage and management business. Avalon’s waste disposal brokerage and management business obtains and retains customers by providing services and identifying cost-efficient disposal options unique to a customer’s needs. Consolidation within the solid waste industry has resulted in reducing the number of companies offering disposal options available to waste generators and may cause disposal pricing to increase. Avalon may need to absorb all or a portion of these cost increases depending upon competitive conditions at the time.
Golf memberships and liquor licenses
The Avalon Golf and Country Club operates golf courses and related clubhouses at each of its three facilities. The Avalon Golf and Country Club facilities also offer swimming pools, fitness centers, tennis courts, dining and banquet facilities and spa services. In addition, The Avalon Inn provides guests with a self-contained vacation experience, offering hotel guests golf packages to all of the golf courses of the Avalon Golf and Country Club and allows its guests to utilize the facilities at each of the clubhouses. Members of the Avalon Golf and Country Club also have access to all of the amenities offered by The Avalon Inn. The Avalon Golf and Country Club competes with many public courses and country clubs in the area. Although the golf courses continue to be available to the general public, the primary source of revenues is derived from the members of the Avalon Golf and Country Club. Avalon believes that the combination of its three golf facilities and The Avalon Inn will result in additional memberships in the Avalon Golf and Country Club. The ability to retain current members and attract new members has been an ongoing challenge. Although Avalon was able to increase the number of members of the Avalon Golf and Country Club, as of December 31, 2017, Avalon has not attained its membership goals. There can be no assurance as to when such goals will be attained and when the golf and related operations will ultimately become profitable. Avalon is continually using different marketing strategies to attract new members, such as local television advertising and various membership promotions. A significant decline in members could adversely affect the future financial performance of Avalon.
All three of Avalon’s golf course operations and The Avalon Inn currently hold liquor licenses for their respective facilities. If, for some reason, any one of these facilities were to lose their liquor license, the financial performance of the golf and related operations would be adversely affected.
Government regulations
The federal government and numerous state and local governmental bodies are continuing to consider legislation or regulations to either restrict or impede the disposal and/or transportation of waste. A portion of Avalon’s waste management services revenues is derived from the brokerage of the disposal and/or transportation of out-of-state waste. Any law or regulation restricting or impeding the transportation of waste or the acceptance of out-of-state waste for disposal could have a negative effect on Avalon. Avalon’s waste brokerage and management services may also be affected by the trend toward laws requiring the development of waste reduction and recycling or other programs.
On December 22, 2017, the Tax Cuts and Jobs Act (“Tax Act”) was signed into law. The Tax Act contains significant changes to corporate taxation, including reduction of the corporate tax rate from 35% to 21%, additional limitations on the tax deductibility of interest, immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modification or repeal of many business deductions and credits. Notwithstanding the reduction in the corporate income tax rate, the overall impact of the Tax Act is uncertain, and our results of operations, cash flows and financial condition, as well as the trading price of our common stock, could be adversely affected.
Changes in laws, regulations and accounting standards
Our implementation of new accounting rules and interpretations or compliance with changes in existing accounting rules could adversely affect our balance sheet or results of operations or cause unanticipated fluctuations in our results of operations in future periods.
Accounting estimates and judgments
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and subsequent adjustments could have a material adverse effect on operating results for the period or periods in which the change is identified.
Inflation
Avalon has not entered into any long-term fixed price contracts that could have a material adverse impact upon its financial performance in periods of inflation. In general, management believes that rising costs resulting from price inflation could be passed on to customers; however, Avalon may need to absorb all or a portion of these cost increases depending upon competitive conditions at the time.
ITEM 1B. UNRESOLVED STAFF COMMENTS
There were no unresolved comments from the Staff of the U. S. Securities and Exchange Commission at December 31, 2017.
ITEM 2. PROPERTIES
Avalon owns a 37,000 square foot headquarters building located on approximately 5.6 acres of property in Warren, Ohio adjacent to the Avalon Lakes Golf Course. The corporate and administrative offices of ALMI, AWMS and all the golf operations are located at the headquarters building of Avalon in Warren, Ohio. Avalon’s corporate headquarters building also includes a clubhouse, restaurant, golf simulators and a pro shop for the Avalon Golf and Country Club at Avalon Lakes Golf Course.
ALGI owns an 18-hole golf course and practice facility on approximately 200 acres, a maintenance and storage building of approximately 12,000 square feet and a restaurant building of approximately 10,400 square feet. All of ALGI’s facilities are located in Warren, Ohio.
TBG, Inc. leases and operates the Avalon Golf and Country Club at Squaw Creek in Vienna, Ohio, which includes an 18-hole golf course and practice facility on approximately 224 acres, an outdoor swimming pool, 4 outdoor tennis courts, 4 indoor tennis courts and a 67,000 square foot clubhouse that includes a pro shop, fitness center, restaurants and banquet facilities.
Avalon Country Club at Sharon, Inc. owns an 18-hole golf course on approximately 130 acres. The clubhouse and recreational facilities are approximately 80,000 square feet and include a pro shop, dining and banquet facilities, an outdoor swimming pool, a spa and fitness center.
The Avalon Resort and Spa LLC owns a 127,000 square foot hotel that includes an indoor junior Olympic size swimming pool, fitness center, dining, banquet and conference facilities, a separate banquet facility of approximately 7,000 square feet, and 3 indoor tennis courts of approximately 4,500 square feet. The Avalon Inn is located on approximately 9.3 acres in Warren, Ohio adjacent to the Avalon Lakes Golf Course.
The Avalon Mahoning Sports Center, Inc. owns a 55,000 square foot tennis and athletic facility that includes 8 indoor tennis courts, on approximately 3.5 acres in Youngstown, Ohio.
The captive landfill management operations use four pieces of equipment (bulldozers, excavators and backhoes) and two pieces of rolling stock, all of which are owned or leased by ALMI.
AWMS Rt. 169, LLC leases 5.2 acres on which the salt water injection wells and related facilities are located.
Generally, Avalon’s fixed assets are in good condition and are satisfactory for the purposes for which they are intended.
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of conducting its business, Avalon becomes involved in lawsuits, administrative proceedings and governmental investigations, including those related to environmental matters. Some of these proceedings may result in fines, penalties or judgments being assessed against Avalon which, from time to time, may have an impact on its business and financial condition. Although the outcome of such lawsuits or other proceedings cannot be predicted with certainty, Avalon does not believe that any uninsured ultimate liabilities, fines or penalties resulting from such pending proceedings, individually or in the aggregate, would have a material adverse effect on its liquidity, financial position or results of operations. See Item 1. “Business—Insurance.”
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
Information with respect to the following items can be found on the indicated pages of Exhibit 13.1, the 2017 Annual Report to Shareholders, if not otherwise included herein.
|
ITEM 5. |
MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS |
|
|
Page(s) |
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Common stock information |
45 |
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Dividend policy |
45 |
|
ITEM 6. |
SELECTED FINANCIAL DATA |
Not required for Smaller Reporting Company
|
ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations | 3-18 |
|
ITEM 7A. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Not required for Smaller Reporting Company.
|
ITEM 8. |
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
|
Report of Independent Registered Public Accounting Firm |
41 |
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|
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Financial Statements: |
|
|
Consolidated Balance Sheets as of December 31, 2017 and 2016 |
19 |
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Consolidated Statements of Operations for the years ended December 31, 2017 and 2016 |
20 |
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Consolidated Statements of Cash Flows for the years ended December 31, 2017 and 2016 |
21 |
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Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2017 and 2016 |
22 |
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|
|
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Notes to Consolidated Financial Statements |
23-40 |
Information regarding financial statement schedules is contained in Item 15(a) of Part IV of this report.
The consolidated financial statements and schedule listed in items 15(a)(1) and (a)(2) hereof are incorporated herein by reference and are filed as part of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON accounting and FINANCIAL DISCLOSURE
None
item 9A. controls and procedures
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15 under the Securities Exchange Act of 1934 (the “Exchange Act”), Avalon’s management conducted an evaluation, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by the 2017 Annual Report. For purposes of the foregoing, the term disclosure controls and procedures means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s (“SEC”) rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Avalon’s disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives as outlined above. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that they believe that, as of December 31, 2017, our disclosure controls and procedures were effective at a reasonable assurance level.
Management's Report on Internal Control Over Financial Reporting
Management’s Annual Report on Internal Control over Financial Reporting is set forth on page 42 of our 2017 Annual Report, which is incorporated herein by reference.
Changes in Internal Control over Financial Reporting
During the fourth fiscal quarter ended December 31, 2017, there was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. Other INFORMATION
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 regarding Directors is contained under the caption “Election of Directors” in the Registrant’s definitive Proxy Statement for its 2018 Annual Meeting of Shareholders (the “Proxy Statement”) which will be filed with the Securities and Exchange Commission, pursuant to Regulation 14A, not later than 120 days after the end of the fiscal year, which information under such caption is incorporated herein by reference. The following information with respect to the Executive Officers of Avalon is included pursuant to Instruction 3 of Item 401(b) of Regulation S-K:
|
Name |
Age |
Position |
|
Ronald E. Klingle |
70 |
Chairman of the Board, Chief Executive Officer and a Director |
|
Bryan P. Saksa |
41 |
Chief Financial Officer, Treasurer, Secretary and a Director |
|
Frances R. Klingle |
71 |
Chief Administrative Officer |
|
Clifford P. Davis |
55 |
Chief Technology Officer |
|
Kenneth J. McMahon |
65 |
Chief Executive Officer and President of American Waste Management Services, Inc. |
The above-listed individuals have been elected to the offices set opposite their names to hold office at the discretion of the Board of Directors of Avalon or its subsidiaries, as the case may be.
Ronald E. Klingle has been a director and Chairman of the Board of the Company since June 1998. He was Chief Executive Officer from June 1998 until December 2002. He reassumed and held the position of Chief Executive Officer from March 15, 2004 until February 28, 2010. On February 16, 2011 he again assumed the position of Chief Executive Officer. Mr. Klingle has over 30 years of environmental experience and received his Bachelor of Engineering degree in Chemical Engineering from Youngstown State University. Mr. Klingle is the spouse of Frances R. Klingle who is the Chief Administrative Officer of the Company.
Bryan P. Saksa was appointed Chief Financial Officer and Treasurer of the Company in December 2014. He has been a director of the Company since April 2015 and was appointed Secretary in November 2015. Mr. Saksa has been a Certified Public Accountant since 2001 and previously worked for a national public accounting firm and publicly owned companies in financial accounting and reporting roles. He received a Bachelor of Business Administration degree in Accounting from Cleveland State University.
Frances R. Klingle has been Chief Administrative Officer since June 1998. She was Controller of Avalon from June 1998 to April 2002. Ms. Klingle received a Bachelor of Arts degree in French from Kent State University and has completed postgraduate work in accounting at Youngstown State University. Mrs. Klingle is the spouse of Ronald E. Klingle who is Chairman of the Board and a director of Avalon.
Clifford P. Davis was appointed Chief Technology Officer in August 2016. Mr. Davis had previously been Director of Information Technology of the Company from November 1999 to July 2016. Mr. Davis received a Bachelor of Science degree in Electrical Engineering from Kent State University.
Kenneth J. McMahon has been Chief Executive Officer and President of American Waste Management Services, Inc. since June 1998. Mr. McMahon had previously been Executive Vice President, Sales and a director of American Waste Services, Inc. from September 1996 to June 1998. Mr. McMahon received a Bachelor of Business Administration degree in finance and his Master of Business Administration degree from Youngstown State University.
CODE OF ETHICS
Avalon has adopted a Code of Ethics in the form of Standards of Business Ethics and Conduct. Such code applies to all employees of Avalon including its principal executive officer, principal financial officer, principal accounting officer, controller and persons performing similar functions. The Code of Ethics is posted on our website at http://www.avalonholdings.com.
Copies of Avalon’s Code of Ethics may be obtained without charge by any shareholder. Written requests for copies should be directed to the Secretary of Avalon Holdings Corporation, One American Way, Warren, Ohio 44484.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is contained under the captions “Executive Compensation,” and “Compensation of Directors and Executive Officers” in the Proxy Statement. The information under such captions is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is contained under the captions “Voting Securities and Principal Holders Thereof” and “Stock Ownership of Management” in the Proxy Statement which information under such captions is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is contained under the captions “Certain Relationships and Related Transactions” in the Proxy Statement which information under such captions is incorporated herein by reference.
item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by Item 14 is contained under the caption “Independent Public Accountants” in the Proxy Statement which information under such captions is incorporated herein by reference.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
|
1. |
Financial Statements and Report of Independent Registered Public Accounting Firm (See Part II, Item 8 of this report regarding incorporation by reference from the 2017 Annual Report to Shareholders). |
|
2. |
Financial Statement Schedule required to be filed by Item 8 and Paragraph (d) of this Item 15. |
The following financial statement schedule, which is applicable for years ended December 31, 2017 and 2016, should be read in conjunction with the previously referenced financial statements.
Schedule II - Valuation and Qualifying Accounts
The financial statement schedule is located on page 19 of this report. The other schedules are omitted because of the absence of conditions under which they are required or because the information required is shown in the consolidated financial statements or the notes thereto.
|
3. |
Exhibits. |
Registrant will furnish to any shareholder, upon written request, any of the following exhibits upon payment by such shareholder of the Registrant’s reasonable expenses in furnishing any such exhibit.
Exhibit No.
|
2.1 |
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2.2 |
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3.1 |
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3.2 |
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4.1 |
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4.2 |
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10.1 |
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10.2 |
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10.3 |
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10.4 |
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10.5 |
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10.6 |
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10.7 |
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10.8 |
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10.9 |
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10.10 |
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10.11 |
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10.12 |
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10.13 |
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10.14 |
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10.15 |
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11.1 |
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13.1 |
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14.1 |
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21.1 |
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23.1 |
Consent of Independent Registered Public Accounting Firm – BDO USA, LLP |
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31.1 |
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2 |
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
32.1 |
|
32.2 |
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(b) |
Reports on Form 8-K |
On December 5, 2017, Avalon reported that the Company entered into an amendment to its existing Loan and Security Agreement dated December 20, 2016, with Laurel Capital Corporation to restate the definition of “Total Fixed Charges” in Section 1.1 of the Loan and Security Agreement, amend Section 10.1 of the Loan and Security Agreement by restating the notice addresses for the Lender and amending page 1 of the Loan and Security Agreement by replacing, in the first and second lines of the first paragraph, the words “30th day of November, 2016” with “20th day of December, 2016.”
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(c) |
Reference is made to Item 15 (a)(3) above for the index of Exhibits. |
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(d) |
Reference is made to Item 15 (a)(2) above for the index to the financial statements and financial statement schedules. |
ITEM 16. Form 10-K Summary
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, on the 15th day of March, 2018.
AVALON HOLDINGS CORPORATION
(Registrant)
/s/ Bryan P. Saksa
Bryan P. Saksa - Chief Financial Officer and Treasurer
__________________________
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated, on the 15th day of March, 2018.
|
Signatures |
Title |
|
|
|
|
|
|
|
|
|
|
/s/ Ronald E. Klingle |
Chairman of the Board, Chief Executive Officer |
|
|
Ronald E. Klingle |
and Director |
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|
|
|
|
|
|
|
|
|
/s/ Bryan P. Saksa |
Chief Financial Officer, Treasurer, Secretary |
|
|
Bryan P. Saksa |
and Director |
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|
|
|
|
|
|
|
|
|
/s/ Kurtis D. Gramley |
Director |
|
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Kurtis D. Gramley |
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/s/ Stephen L. Gordon |
Director |
|
|
Stephen L. Gordon |
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/s/ David G. Bozanich |
Director |
|
|
David G. Bozanich |
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AVALON HOLDINGS CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(in thousands)
|
Additions |
||||||||||||||||||||
|
DESCRIPTION |
Balance at Beginning of Year |
Charged (Credited) to Costs and Expenses |
Charged to Other Accounts |
Deductions / (Recoveries) |
Balance at End of Year |
|||||||||||||||
|
Year ended December 31, 2017 |
||||||||||||||||||||
|
Allowance for doubtful accounts |
$ | 235 | $ | 6 | $ | - | $ | 4 | (1) | $ | 237 | |||||||||
|
Deferred tax asset valuation allowance |
$ | 1,453 | $ | (140 | )(2) | $ | - | $ | - | $ | 1,313 | |||||||||
|
Year ended December 31, 2016 |
||||||||||||||||||||
|
Allowance for doubtful accounts |
$ | 235 | $ | 115 | $ | - | $ | 115 | (1) | $ | 235 | |||||||||
|
Deferred tax asset valuation allowance |
$ | 1,651 | $ | (198 | )(2) | $ | - | $ | - | $ | 1,453 | |||||||||
|
(1) Accounts receivable written-off as uncollectible, net of recoveries. |
|
(2) Change in valuation allowance primarily for deferred tax assets when it is more likely than not that the deferred tax assets will not be realized. |
AVALON HOLDINGS CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX
__________________________
Exhibit
|
13.1 |
2017 Annual Report to Shareholders |
|
21.1 |
Subsidiaries of Avalon Holdings Corporation |
|
| 23.1 | Consent of Independent Registered Public Accounting Firm –BDO USA, LLP |
|
31.1 |
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
31.2 |
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
32.1 |
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
32.2 |
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
Exhibit 101.INS* XBRL Instance
Exhibit 101.SCH* XBRL Taxonomy Extension Schema
Exhibit 101.CAL* XBRL Taxonomy Extension Calculation
Exhibit 101.DEF* XBRL Taxonomy Extension Definition
Exhibit 101.LAB* XBRL Taxonomy Extension Labels
Exhibit 101.PRE* XBRL Taxonomy Extension Presentation
* XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
20
Exhibit 13.1
Financial Highlights
(in thousands, except for per share amounts)
|
For the year |
2017 |
2016 |
||||||
|
Net operating revenues |
$ | 55,848 | $ | 61,352 | ||||
|
Loss before income taxes |
(694 | ) | (284 | ) | ||||
|
Net loss attributable to Avalon Holdings Corporation common shareholders |
(307 | ) | (69 | ) | ||||
|
Net loss per share attributable to Avalon Holdings Corporation common shareholders |
(0.08 | ) | (0.02 | ) | ||||
|
At year-end |
2017 |
2016 |
||||||
|
Working capital (deficit) |
$ | (197 | ) | $ | 242 | |||
|
Total assets |
65,378 | 67,898 | ||||||
|
Avalon Holdings Corporation Shareholders' Equity |
38,446 | 38,741 | ||||||
The Company
Avalon Holdings Corporation provides waste management services to industrial, commercial, municipal and governmental customers in selected northeastern and midwestern U.S. markets, captive landfill management services and salt water injection well operations. Avalon Holdings Corporation also owns Avalon Resorts and Clubs Inc., which includes the operation of a hotel and its associated amenities, three golf courses and related country clubs and facilities.
Contents
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Financial Highlights |
1 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
3 |
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Consolidated Balance Sheets |
19 |
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Consolidated Statements of Operations |
20 |
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Consolidated Statements of Cash Flows |
21 |
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Consolidated Statements of Shareholders’ Equity |
22 |
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Notes to Consolidated Financial Statements |
23 |
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Report of Independent Registered Public Accounting Firm |
41 |
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Management’s Annual Report on Internal Controls over Financial Reporting |
42 |
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Company Location Directory |
43 |
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Directors and Officers |
44 |
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Shareholder Information |
45 |
| Avalon Holdings Corporation and Subsidiaries |
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion provides information which management believes is relevant to an assessment and understanding of the operations and financial condition of Avalon Holdings Corporation and its Subsidiaries (collectively “Avalon” or the “Company”). As used in this report, the term “Avalon” or the “Company” means Avalon Holdings Corporation, its wholly owned subsidiaries and variable interest entities when it has been determined that Avalon is the primary beneficiary of those company’s operations, taken as a whole, unless the context indicates otherwise. This discussion should be read in conjunction with the consolidated financial statements and accompanying notes.
Statements included in Management’s Discussion and Analysis of Financial Condition and Results of Operations which are not historical in nature are intended to be, and are hereby identified as, ‘forward looking statements.’ Avalon cautions readers that forward looking statements, including, without limitation, those relating to Avalon’s future business prospects, revenues, working capital, liquidity, capital needs, interest costs, and income, are subject to certain risks and uncertainties that could cause actual results to differ materially from those indicated in the forward looking statements, due to risks and factors identified herein and from time to time in Avalon’s reports filed with the Securities and Exchange Commission.
Liquidity and Capital Resources
For the year ended December 31, 2017, Avalon utilized existing cash and cash provided by operations to meet operating needs, make required monthly cash payments on the term loan facility and to fund capital expenditures which included the continued renovation and expansion of The Avalon Inn as described below.
On March 7, 2018, Avalon, through a newly created subsidiary, Avalon Mahoning Sports Center, Inc., completed the acquisition of the Boardman Tennis Center in Boardman, Ohio for approximately $1.3 million in cash. Subsequent to the acquisition, the Boardman Tennis Center was renamed The Avalon Athletic Club at Boardman. The primary assets of The Avalon Athletic Club at Boardman include the acquired real property consisting of the tennis building and associated land.
The acquisition is consistent with the Company’s athletics and fitness business strategy. Members of the Avalon Golf and Country Clubs will have access to all the tennis, athletic and fitness related activities that will be offered by The Avalon Athletic Club at Boardman. In addition, hotel guests at The Avalon Inn will also be able to utilize the facility during their stay. The Avalon Athletic Club at Boardman will earn revenue through membership fees, tennis, athletic and fitness related activities. The operating results will be included in the Company’s Consolidated Statements of Operations and within Avalon’s golf and related operations segment from the date of acquisition.
In July 2016, the Company formed Avalon Resorts and Clubs, Inc. (“ARCI”), a wholly owned subsidiary of Avalon, the purpose of which is to hold the corporate activity of Avalon Clubs, Inc. and Avalon Resorts, Inc., both formed concurrently with ARCI. Avalon Clubs, Inc. was formed to hold the wholly owned subsidiaries of the Avalon Golf and Country Club, while Avalon Resorts, Inc. holds the operations of The Avalon Inn. ACRI, Avalon Clubs, Inc. and Avalon Resorts, Inc. are included within Avalon’s golf and related operations segment.
In 2017, Avalon incurred capital expenditures of $2.5 million of which $1.8 million of such expenditures was paid to vendors and primarily related to the continued renovation and expansion of The Avalon Inn and $0.7 million of such expenditures related to equipment acquired under new capital lease agreements. In 2016, Avalon incurred capital expenditures of $3.4 million and paid vendors $3.0 million for such expenditures which principally related to the renovation and expansion of The Avalon Inn. In 2017 and 2016, The Avalon Inn was in operation but still in the process of being renovated and expanded. The renovations and expansion include a complete renovation of the existing facility and the addition of new restaurants, bars, extensive banquet and conference facilities. Avalon’s aggregate capital expenditures in 2018 are expected to be in the range of $3.0 million to $4.0 million, funded with cash in our project fund account, further described below, and cash generated from operations. Capital expenditures principally relate to the continued renovation and expansion of The Avalon Inn, building improvements and equipment purchases.
| Avalon Holdings Corporation and Subsidiaries |
On December 20, 2016, Avalon and certain direct and indirect wholly owned subsidiaries entered into a loan and security agreement (the “Term Loan Agreement”) with Laurel Capital Corporation which provides for a $12.0 million term loan. At closing, $9.1 million of the proceeds were used to pay off the existing line of credit agreement and associated accrued interest with Home Savings Bank (formerly The Home Savings and Loan Company of Youngstown, Ohio), dated May 21, 2015, as amended, and pay related transaction costs associated with the Term Loan Agreement. The line of credit agreement with Home Savings Bank was terminated in conjunction with the repayment. Remaining proceeds of $2.9 million under the Term Loan Agreement were deposited in a project fund account to fund costs of renovating and expanding The Avalon Inn. On December 4, 2017 the Term Loan Agreement was amended to restate the definition of “Total Fixed Charges” utilized in the calculation of the “Fixed Charge Coverage Ratio.”
The $12.0 million term loan amount is payable in 119 equal monthly installments of principal and interest, based on a fifteen (15) year maturity schedule which commenced on January 20, 2017. The Term Loan Agreement matures on December 20, 2026 at which time the final balloon payment equal to the remaining outstanding principal, interest and fees are due. Borrowings under the Term Loan Agreement bear interest at a fixed rate of 5.35% until the fifth anniversary date of the closing at which time the interest rate will be reset to a fixed rate equal to the greater of (a) 5.35% per annum or (b) the sum of the Index Rate on the date two (2) business days prior to the reset date and 3.95%, provided that the applicable rate shall in no event exceed 7.50% per annum.
Avalon has the right to prepay the amount outstanding under the Term Loan Agreement, in whole or in part, at any time upon payment of the principal amount of the loan to be prepaid plus accrued unpaid interest thereon to the prepayment date, plus an applicable prepayment penalty. The prepayment penalty, expressed as a percentage of the principal of the loan being prepaid, is five percent (5%) on any prepayment in the first five years; four percent (4%) on any prepayment in the sixth and seventh year; three percent (3%) on any prepayment in the eighth and ninth year; and two percent (2%) on any prepayment in the tenth year.
Borrowings are secured by certain real property and related business assets as defined in the Term Loan Agreement. The Term Loan Agreement also contains certain financial and other covenants, customary representations, warranties and events of default. Avalon was in compliance with the Term Loan Agreement covenants at December 31, 2017 and 2016.
Concurrently with the Term Loan Agreement, Avalon entered into a new business loan agreement with Home Savings Bank (the “Line of Credit Agreement”) which provides for a line of credit of up to $4.0 million with an original maturity date of May 31, 2017. On April 25, 2017, the Line of Credit Agreement was amended to increase the available line of credit from $4.0 million to $5.0 million and extend the maturity date to May 31, 2019. The amendment also has the option to request a one year extension of maturity in 2018 based on certain terms and conditions. Under the Line of Credit Agreement, borrowings in excess of $1.0 million are subject to a borrowing base which is calculated based off a specific level of eligible accounts receivable of the waste management business as defined in the agreement. No amounts were drawn under the Line of Credit Agreement at December 31, 2017 and 2016.
Outstanding borrowings under the Line of Credit Agreement bear interest at Prime Rate plus .25%. At December 31, 2017, the interest rate on the Line of Credit Agreement was 4.50%.
Borrowings under the Line of Credit Agreement are secured by certain business assets of the Company including accounts receivable, inventory and equipment. The Line of Credit Agreement also contains certain covenants, customary representations, warranties and events of default. Avalon was in compliance with the Line of Credit Agreement covenants at December 31, 2017 and 2016.
During the years ended December 31, 2017 and 2016, the weighted average interest rate on outstanding borrowings was 5.35% and 3.80%, respectively.
| Avalon Holdings Corporation and Subsidiaries |
In November 2003, Avalon entered into a long-term agreement with Squaw Creek Country Club to lease and operate its golf course and related facilities. The lease has an initial term of ten (10) years with four (4) consecutive ten (10) year renewal term options unilaterally exercisable by Avalon. Under the lease, Avalon is obligated to pay $15,000 in annual rent and make leasehold improvements of $150,000 per year. Amounts expended by Avalon for leasehold improvements during a given year in excess of $150,000 will be carried forward and applied to future leasehold improvement obligations. Based upon the amount of leasehold improvements already made, Avalon expects to exercise all of its remaining renewal options.
At December 31, 2017, there was a working capital deficit of $0.2 million compared with working capital of $0.2 million at December 31, 2016. Working capital was negatively impacted by a decrease in cash and cash equivalents and accounts receivable partially offset by a decrease in accounts payable.
Accounts receivable decreased to $10.5 million at December 31, 2017 compared with $11.3 million at December 31, 2016. The decrease was primarily the result of decreased sales related to the waste management services segment in the fourth quarter of 2017 compared with the fourth quarter of 2016 and the timing of receipt on those associated receivables. Net operating revenues related to the waste management segment were $10.5 million in the fourth quarter of 2017 compared with $11.7 million in the fourth quarter of 2016.
Accounts payable decreased to $7.8 million at December 31, 2017 compared with $9.4 million at December 31, 2016. The decrease in accounts payable is primarily due to a decrease in the amounts due to disposal facilities and transportation carriers of the waste brokerage and management services business associated with the decrease in net operating revenues in the fourth quarter of 2017 compared with the fourth quarter of 2016 and the associated timing of those vendor payments in the ordinary course of business.
Deferred revenue relating to membership dues was approximately $2.7 million at December 31, 2017 and 2016, respectively. The increase in deferred revenues resulting from an increase in membership dues rates was offset by the decrease in the average number of members during 2017 compared to the prior year. During the third quarter of 2016, annual membership dues rates were increased. The increased rates became effective on the member’s annual renewal date. The average number of members during 2017 was 4,531 compared to 4,615 in the prior year. Revenues related to annual membership dues are recognized proportionately over the membership term.
Management believes that anticipated cash provided from future operations, will be, for the foreseeable future, sufficient to meet operating requirements and make required monthly payments under our term loan facility. If business conditions warrant additional monies needed to fund capital expenditure programs, Avalon will take actions such as refinancing or restructuring our current debt agreements, incurring additional indebtedness, issuance of common stock or issuance of a security with characteristics of both debt and equity.
Growth Strategy
Waste Management Segment
Our growth strategy for the waste management services segment focuses on increasing revenue, gaining market share and enhancing shareholder value through internal growth. Although we are a waste management services company, we do not own any landfills or provide waste collection services. However, because of our many relationships with various disposal facilities and transporters, we are able to be more flexible and provide alternative solutions to a customer’s waste disposal or recycling needs. We intend to capitalize on our management and sales staff which has extensive experience in all aspects of the waste business. As such, we intend to manage our internal growth as follows:
• Sales and Marketing Activities. We will focus on retaining existing customers and obtaining new business through our well-managed sales and marketing activities. We seek to manage our sales and marketing activities to enable us to capitalize on our position in many of the markets in which we operate. We provide a tailored program to all of our customers in response to their particular needs. We accomplish this by centralizing services to effectively manage their needs, such as minimizing their procurement costs.
| Avalon Holdings Corporation and Subsidiaries |
We currently have a number of professional sales and marketing employees in the field who are compensated using a commission structure that is focused on generating high levels of quality revenue. For the most part, these employees directly solicit business from existing and prospective customers. We emphasize our rate and cost structures when we train new and existing sales personnel. We intend to hire additional qualified professional sales personnel to expand into different geographical areas.
• Development Activities. We will seek to identify opportunities to further position us as an integrated service provider in markets where we provide services. In addition, we will continue to utilize the extensive experience of our management and sales staff to bid on significant one-time projects and those that require special expertise. Where appropriate, we may seek to obtain permits that would provide vertically integrated waste services or expand the service offerings or leverage our existing volumes with current vendors to provide for long term, cost competitive strategic positioning within our existing markets.
Golf and Related Operations Segment
In August 2014, the Company acquired The Avalon Inn which was integrated into the golf and related operations segment. The acquisition is consistent with the Company's business strategy in that The Avalon Inn provides guests with a self-contained vacation experience, offering hotel guests golf packages to all of the golf courses of the Avalon Golf and Country Club and allows its guests to utilize the facilities at each of the clubhouses. Members of the Avalon Golf and Country Club also have access to all of the amenities offered by The Avalon Inn. The Avalon Inn is open year-round and provides a consistent, comfortable environment where our guests can enjoy our various amenities and activities. Avalon believes that the combination of its three golf facilities and The Avalon Inn will result in additional memberships in the Avalon Golf and Country Club.
On March 7, 2018, Avalon acquired The Avalon Athletic Club at Boardman which was integrated into the golf and related operations segment. The acquisition is consistent with the Company’s athletics and fitness business strategy. Members of the Avalon Golf and Country Clubs will have access to all the tennis, athletic and fitness related activities that will be offered by The Avalon Athletic Club at Boardman. In addition, hotel guests of The Avalon Inn will also be able to utilize the facility during their stay.
In addition, several private country clubs in the northeast Ohio area are experiencing economic difficulties. Avalon believes some of these clubs may represent an attractive investment opportunity. While Avalon has not entered into any pending agreements for acquisitions, it may do so at any time and will continue to consider acquisitions that make economic sense.
Results of Operations
Avalon’s primary business segment, the waste management services segment, provides hazardous and nonhazardous waste brokerage and management services, captive landfill management services and salt water injection well operations. The golf and related operations segment includes the operation and management of three golf courses and related country clubs and facilities, a hotel and its associated amenities and a travel agency.
Performance in 2017 compared with 2016
Overall Performance
Net operating revenues decreased to $55.8 million in 2017 compared with $61.4 million in 2016. This decrease was due to a decrease in net operating revenues of the waste management services segment. Net operating revenues of the waste management services segment were $38.4 million in 2017 compared with $44.3 million in 2016. The decrease in net operating revenues attributable to the waste management services segment during 2017 compared to 2016 was slightly offset by an increase in revenue attributable to the golf and related operations segment. Net operating revenues of the golf and related operations segment were approximately $17.4 million in 2017 compared with $17.1 million in 2016.
| Avalon Holdings Corporation and Subsidiaries |
Costs of operations related to the waste management segment decreased to $30.5 million in 2017 compared with $36.4 million in 2016. The decrease in the cost of operations between years for the waste management segment is primarily due to the decreased net operating revenues between periods as these costs vary directly with the associated net operating revenues. Cost of operations for the golf and related operations segment increased to $14.2 million in 2017 compared with $14.1 million in 2016. The increase was primarily a result of higher employee related costs and increased use of lawn care maintenance products for the golf courses.
Depreciation and amortization expense was approximately $3.0 million in 2017 compared with $2.8 million in 2016. The increase is primarily the result of depreciation expense associated with The Avalon Inn.
Consolidated selling, general and administrative expenses were $8.5 million in 2017 compared with $8.2 million in 2016. The increase in selling, general and administrative costs was primarily due to increased legal costs incurred relating to Avalon’s appeal and mandamus processes associated with the Company’s salt water injection wells.
Interest expense was $0.7 million in 2017 compared with $0.4 million in 2016. The increase in interest expense was due to higher average outstanding borrowings at a higher weighted average interest rate during 2017 compared to the prior year.
Net loss attributable to Avalon Holdings Corporation common shareholders was $0.3 million, or $0.08 per share, in 2017 compared with a net loss attributable to Avalon Holdings Corporation common shareholders of $0.1 million, or $0.02 per share, in 2016.
Segment Performance
Segment performance should be read in conjunction with Note 12 to the Consolidated Financial Statements.
Waste Management Services Segment
The net operating revenues of the waste management services segment decreased to approximately $38.4 million in 2017 compared with $44.3 million in 2016. The waste management services segment includes waste disposal brokerage and management services, captive landfill management operations and salt water injection well operations.
The net operating revenues of the waste brokerage and management services business decreased to $36.2 million in 2017 from $42.2 million in 2016. This decrease was primarily due to a decrease of $8.8 million, or a 40% decrease, in net operating revenues attributable to event work relating to multiple projects. Event work is defined as bid projects under contract that occurs on a one-time basis over a short period of time. Such work can fluctuate significantly from year to year. Net operating revenues related to event work were $13.4 million in 2017 compared with $22.2 million in 2016. In addition, net operating revenues related to managerial, consulting and clerical services decreased to $1.3 million in 2017 compared with $1.7 million in 2016. Net operating revenue relating to managerial, consulting and clerical services, which is performed for one customer, is entirely dependent on that customer’s needs. The decreases noted above were partially offset by an increase in net operating revenues relating to continuous work of the waste disposal brokerage business. Continuous work of the waste disposal brokerage business increased approximately $3.2 million, or a 17% increase between years related to increased work from multiple customers. Net operating revenues related to continuous work were $21.5 million in 2017 compared with $18.3 million in 2016.
The net operating revenues of the captive landfill management operations were approximately $2.2 million in 2017 compared to $2.1 million in 2016. The net operating revenues of the captive landfill operations are almost entirely dependent upon the volume of waste generated by the owner of the landfill for whom Avalon manages the facility.
Due to the temporary suspension of the salt water injections wells described below, there were no operating revenues during 2017 and 2016.
| Avalon Holdings Corporation and Subsidiaries |
As a result of a seismic event with a magnitude of 2.1 occurring on August 31, 2014, the Chief of the Division of Oil and Gas Resources Management (“Chief” or “Division”) issued Orders on September 3, 2014, to immediately suspend all operations of both of Avalon’s saltwater injection wells. The Orders were based on the findings that the two saltwater injection wells were located in close proximity to an area of known seismic activity and also that the saltwater injection wells pose a risk of increasing or creating seismic activity. The two saltwater injection wells are located approximately 112 feet apart. Based on these findings, the Chief ordered the immediate suspension of all operations of the two saltwater injection wells, until the Division could further evaluate the wells.
On September 5, 2014, Avalon submitted the information required by the Chief’s Order in regards to its AWMS #1 injection well, and the Chief lifted the suspension for that well on September 18, 2014. On September 19, 2014, Avalon submitted information and a written plan required by the Chief’s Order proposing the establishment of certain operations and management controls on injections at the AWMS #2 injection well. To date, the Division has not responded to that plan despite Avalon’s requests for feedback.
On October 2, 2014, Avalon filed an appeal with the Ohio Oil and Gas Commission (the “Commission”) disputing the basis for suspending operations of AWMS #2 and also the authority of the Chief to immediately suspend such operations. On March 11, 2015, an appeal hearing was held. The Chief stated during the hearing that the suspension is only temporary, and that he expects that AWMS #2 will be allowed to inject once the state’s final policymaking is complete.
On August 12, 2015, the Commission upheld the temporary suspension of injection operations of AWMS #2 stating that the temporary suspension will allow the Chief to more fully evaluate the facts in anticipation of the Division’s implementation of a comprehensive regulatory plan that will specifically address injection-induced seismicity. Avalon appealed that decision in September 2015 to the Franklin County Court of Common Pleas, but that appeal was dismissed on a filing technicality. Avalon appealed the dismissal to the Ohio 10th Circuit Court of Appeals, which found the Commission erred in its filing of their decision. Following the Commission’s proper notice, Avalon appealed again to the Franklin County Court of Common Pleas (the “Court”).
On November 1, 2016 an appeal hearing was held in that Court. On December 23, 2016, the Court issued its Decision and Order in Avalon’s favor, and vacated the Commission’s decision. The Court found that the Division’s suspension and refusal to work with the Company for over 26 months was arbitrary and not in accordance with reason. Subsequent to the ruling, and in accordance with the Court’s Decision and Order, both Avalon and the Division submitted their proposed restart plans to the Court. Avalon’s plan sets forth both the initial volumes and pressures and increases in volume and pressure while continuously monitoring seismicity and addressing the concerns of public health and safety.
On February 21, 2017, the Court issued its Final Decision and Order. The Court’s Final Decision and Order sets conditions for the restarting of AWMS #2 in accordance with the proposed restart plans filed by Avalon with minor revisions. While the Company was making preparations for restarting the well and opening the facility, the Division appealed the Final Decision and Order and filed a Motion to Stay the Court Order on February 22, 2017. The Motion to Stay was granted by the Ohio 10th Circuit Court of Appeals on March 21, 2017. On September 14, 2017, an appeal hearing was held. The Company is currently awaiting judgment from the court. In the event the suspension order is lifted, Avalon will make preparations for restarting the well and opening the facility in accordance with the restart plans. In the event that the temporary suspension is not lifted by the Ohio 10th Circuit Court of Appeals, Avalon will continue in its effort to receive a favorable ruling lifting the temporary suspension.
| Avalon Holdings Corporation and Subsidiaries |
In addition, on August 26, 2016, Avalon filed a complaint in the 11th Appellate District Court in Trumbull County, Ohio for a Peremptory Writ of Mandamus to compel the Director of the Ohio Department of Natural Resources (“ODNR”) to initiate appropriations procedures to determine damages from the illegal regulatory taking of the Company’s property, or issue an alternative remedy at law. There is currently no implemented state-wide policy on induced seismicity and The ODNR has refused to communicate with the Company regarding the status and requirements of any policymaking. The Company believes that the actions, and lack of responsible actions, by ODNR, which were triggered by a seismic event that presented no hazard or risk to any individual or to the environment, is a clear violation of the Company’s property rights and a violation of the Fifth and Fourteenth Amendments to the U.S. Constitution; Article I, Section 19 of the Ohio Constitution; and Ohio Revised Code Chapter 163. The trial is tentatively scheduled to occur in the second quarter of 2018. The Company intends to vigorously pursue the Complaint and obtain due process and fair compensation.
Costs of operations related to the waste management segment decreased $5.9 million, or 16%, to $30.5 million in 2017 compared with $36.4 million in 2016. The decrease in the cost of operations between years for the waste management segment is primarily due to the decreased net operating revenues between periods as these costs vary directly with the associated net operating revenues.
Income before income taxes for the waste management services segment decreased to approximately $2.7 million in 2017 compared with $2.8 million in 2016. Income before income taxes of the waste brokerage and management services business was approximately $3.3 million in 2017 compared to $3.1 million in 2016. The gross margins associated with continuous work are typically higher than gross margins from event work and managerial, consulting and clerical services, and although total net operating revenues for the waste management brokerage and services business decreased $6.0 million between years, the higher gross profit generated on the increased net operating revenues related to continuous work between years offset the lower gross profit generated from the decreased event work net operating revenues between years. The overall gross margin percentage of the waste brokerage and management services business was approximately 21% in 2017 compared with 18% in 2016. Income before income taxes of the captive landfill operations was approximately $0.3 million in 2017 and 2016. During 2017, the salt water injection wells incurred a loss before income taxes of approximately $0.9 million compared with a loss before income taxes of $0.6 million in 2016. The increased loss between years was due to legal costs incurred relating to Avalon’s appeal and mandamus processes described above.
Golf and Related Operations Segment
Net operating revenues of the golf and related operations segment increased approximately 2% to $17.4 million in 2017 compared with $17.1 million in 2016. Avalon’s golf and related operations segment consists of the operation and management of three golf courses and related country clubs which provide dining and banquet facilities, a hotel which provides lodging, dining, banquet and conference facilities and a travel agency.
Food, beverage and merchandise sales were $7.3 million in 2017 and 2016. The increase in food and beverage revenue related to The Avalon Inn between periods was partially offset by a decrease in food and beverage revenue at the clubs during 2017 compared to 2016.
Other net operating revenues related to the golf and related operations were $10.1 million in 2017 compared with $9.8 million in 2016. This increase was primarily attributable to an increase in annual membership dues revenue and, to a lesser extent, an increase in room rental at The Avalon Inn. Membership dues revenue increased approximately $0.4 million in 2017 when compared with the prior year. The increase was primarily due to an increase in annual membership dues which was slightly offset by a decrease in the average number of members between periods. During the third quarter of 2016, annual membership dues rates were increased. The increased rates become effective for existing members on the member’s renewal date. The average number of members during 2017 was 4,531 compared with 4,615 in the comparable prior year. Net operating revenues related to room rental was approximately $2.0 million in 2017 compared with $1.9 million in 2016. The increase in net operating revenues related to room rental was due to higher average room rates during 2017 compared with the prior year. The increases noted above were slightly offset by a decrease of approximately $0.2 million in greens fees and associated cart rentals and fitness related revenue. Due to adverse weather conditions, net operating revenues relating to the golf courses, which are located in northeast Ohio and western Pennsylvania, were minimal during the first three months of 2017 and 2016.
| Avalon Holdings Corporation and Subsidiaries |
Cost of operations for the golf and related operations segment increased to $14.2 million in 2017 compared with $14.1 million in 2016. Cost of food, beverage and merchandise was approximately $3.2 million in 2017 and 2016. Golf and related operations operating costs increased approximately $0.1 million between years from $11.0 million in 2017 compared with $10.9 million in 2016. The increase was primarily a result of higher employee related costs and increased use of lawn care maintenance products for the golf courses.
Income before income taxes for the golf and related operations was $0.3 million in 2017 and 2016. During 2017, the increased employee related and lawn care maintenance operating costs and the additional depreciation expense attributable to The Avalon Inn were offset by an increase in membership dues revenue and room rental revenue noted above.
The ability to attract new members and retain members is very important to the success of the golf and related operations segment. Avalon is continually using different marketing strategies to attract and retain members, such as local television advertising and/or various membership promotions. A significant decline in members could adversely impact the financial results of the golf and related operations segment.
General Corporate Expenses
General corporate expenses were $3.0 million in 2017 and 2016. The increase in general corporate expenses related to increased legal costs were offset with decreased employee related costs and an accumulated net decrease in various corporate administrative expenses.
Interest Expense
Interest expense was $0.7 million in 2017 compared to $0.4 million in 2016. The increase in interest expense was due to higher average outstanding borrowings at a higher weighted average interest rate during 2017 compared to the prior year. During 2017 and 2016, the weighted average interest rate on outstanding borrowings was 5.35% and 3.80%, respectively.
Net Loss
Net loss attributable to Avalon Holdings Corporation common shareholders was $0.3 million in 2017 compared with a net loss attributable to Avalon Holdings Corporation common shareholders of $0.1 million in 2016. Avalon recorded a state income tax provision in both 2017 and 2016, which was related entirely to the waste management and brokerage operations. The effective tax rate related to the waste management and brokerage operations was approximately 6% in 2017 and 7% in 2016. Due to the recording of a full valuation allowance against the Company’s federal net deferred tax assets, the overall effective tax rate in both periods reflects taxes owed in certain U.S state jurisdictions. Avalon’s income benefit on the loss before taxes was offset by a change in the valuation allowance. A valuation allowance is provided when it is more likely than not that deferred tax assets relating to certain federal and state loss carryforwards will not be realized. Avalon continues to maintain a valuation allowance against the majority of its deferred tax amounts until it is evident that the deferred tax asset will be utilized in the future.
| Avalon Holdings Corporation and Subsidiaries |
Trends and Uncertainties
In the ordinary course of conducting its business, Avalon becomes involved in lawsuits, administrative proceedings and governmental investigations, including those relating to environmental matters. Some of these proceedings may result in fines, penalties or judgments being assessed against Avalon which, from time to time, may have an impact on its business and financial condition. Although the outcome of such lawsuits or other proceedings cannot be predicted with certainty, management assesses the probability of loss and accrues a liability as appropriate. Avalon does not believe that any uninsured ultimate liabilities, fines or penalties resulting from such pending proceedings, individually or in the aggregate, will have a material adverse effect on its liquidity, financial position or results of operations.
On December 22, 2017, the Tax Cuts and Jobs Act (“Tax Act”) was signed into law. The Tax Act contains significant changes to corporate taxation, including reduction of the corporate tax rate from 35% to 21%, additional limitations on the tax deductibility of interest, immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modification or repeal of many business deductions and credits. Notwithstanding the reduction in the corporate income tax rate, the overall impact of the Tax Act is uncertain, and our results of operations, cash flows and financial condition, as well as the trading price of our common stock, could be adversely affected.
The federal government and numerous state and local governmental bodies are continuing to consider legislation or regulations to either restrict or impede the disposal and/or transportation of waste. A portion of Avalon’s waste brokerage and management services revenues is derived from the disposal and/or transportation of out-of-state waste. Any law or regulation restricting or impeding the transportation of waste or the acceptance of out-of-state waste for disposal could have a negative effect on Avalon.
Avalon’s waste brokerage and management services business obtains and retains customers by providing services and identifying cost-efficient disposal options unique to a customer’s needs. Consolidation within the solid waste industry has resulted in reducing the number of disposal options available to waste generators and may cause disposal pricing to increase. Avalon’s waste brokerage and management services business may not be able to pass these price increases onto some of its customers, which, in turn, may adversely impact Avalon’s future financial performance.
A significant portion of Avalon’s business is generated from waste brokerage and management services provided to customers that are not subject to long-term contracts. In light of current economic, regulatory and competitive conditions, there can be no assurance that Avalon’s current customers will continue to transact business with Avalon at historical levels. Failure by Avalon to retain its current customers or to replace lost business could adversely impact the future financial performance of Avalon.
Avalon’s captive landfill management business is dependent upon a single customer as its sole source of revenue. If the captive landfill management business is unable to retain this customer, Avalon’s future financial performance could be adversely impacted.
Saltwater disposal wells are regulated by the Ohio Department of Natural Resources (“ODNR”), with portions of the disposal facilities regulated by the Ohio EPA. As exploitation of the Marcellus and Utica shale formations by the hydrofracturing process develops, regulatory and public awareness of the environmental risks of saltwater brine and its disposal in saltwater disposal wells is growing and consequently, it is expected that regulation governing the construction and operation of saltwater disposal wells will increase in scope and complexity. Increased regulation may result in increased construction and/or operating costs, which could adversely affect the financial results of Avalon.
| Avalon Holdings Corporation and Subsidiaries |
There is a continuing risk during the saltwater disposal well’s operation of an environmental event causing contamination to the water tables in the surrounding area, or seismic events. The occurrence of a spill or contamination at a disposal well site could result in remedial expenses and/or result in the operations at the well site being suspended and/or terminated by the Ohio EPA or the ODNR. Incurring remedial expenses and /or a suspension or termination of Avalon’s right to operate one or more saltwater disposal wells at the well site could have an adverse effect on Avalon’s financial results.
As a result of a seismic event with a magnitude of 2.1 occurring on August 31, 2014, the Chief of the Division of Oil and Gas Resources Management (“Chief” or “Division”) issued Orders on September 3, 2014, to immediately suspend all operations of both of Avalon’s saltwater injection wells. The Orders were based on the findings that the two saltwater injection wells were located in close proximity to an area of known seismic activity and also that the saltwater injection wells pose a risk of increasing or creating seismic activity. The two saltwater injection wells are located approximately 112 feet apart. Based on these findings, the Chief ordered the immediate suspension of all operations of the two saltwater injection wells, until the Division could further evaluate the wells.
On September 5, 2014, Avalon submitted the information required by the Chief’s Order in regards to its AWMS #1 injection well, and the Chief lifted the suspension for that well on September 18, 2014. On September 19, 2014, Avalon submitted information and a written plan required by the Chief’s Order proposing the establishment of certain operations and management controls on injections at the AWMS #2 injection well. To date, the Division has not responded to that plan despite Avalon’s requests for feedback.
On October 2, 2014, Avalon filed an appeal with the Ohio Oil and Gas Commission (the “Commission”) disputing the basis for suspending operations of AWMS #2 and also the authority of the Chief to immediately suspend such operations. On March 11, 2015, an appeal hearing was held. The Chief stated during the hearing that the suspension is only temporary, and that he expects that AWMS #2 will be allowed to inject once the state’s final policymaking is complete.
On August 12, 2015, the Commission upheld the temporary suspension of injection operations of AWMS #2 stating that the temporary suspension will allow the Chief to more fully evaluate the facts in anticipation of the Division’s implementation of a comprehensive regulatory plan that will specifically address injection-induced seismicity. Avalon appealed that decision in September 2015 to the Franklin County Court of Common Pleas, but that appeal was dismissed on a filing technicality. Avalon appealed the dismissal to the Ohio 10th Circuit Court of Appeals, which found the Commission erred in its filing of their decision. Following the Commission’s proper notice, Avalon appealed again to the Franklin County Court of Common Pleas (the “Court”).
On November 1, 2016 an appeal hearing was held in that Court. On December 23, 2016, the Court issued its Decision and Order in Avalon’s favor, and vacated the Commission’s decision. The Court found that the Division’s suspension and refusal to work with the Company for over 26 months was arbitrary and not in accordance with reason. Subsequent to the ruling, and in accordance with the Court’s Decision and Order, both Avalon and the Division submitted their proposed restart plans to the Court. Avalon’s plan sets forth both the initial volumes and pressures and increases in volume and pressure while continuously monitoring seismicity and addressing the concerns of public health and safety.
On February 21, 2017, the Court issued its Final Decision and Order. The Court’s Final Decision and Order sets conditions for the restarting of AWMS #2 in accordance with the proposed restart plans filed by Avalon with minor revisions. While the Company was making preparations for restarting the well and opening the facility, the Division appealed the Final Decision and Order and filed a Motion to Stay the Court Order on February 22, 2017. The Motion to Stay was granted by the Ohio 10th Circuit Court of Appeals on March 21, 2017. On September 14, 2017, an appeal hearing was held. The Company is currently awaiting judgment from the court. In the event the suspension order is lifted, Avalon will make preparations for restarting the well and opening the facility in accordance with the restart plans. In the event that the temporary suspension is not lifted by the Ohio 10th Circuit Court of Appeals, Avalon will continue in its effort to receive a favorable ruling lifting the temporary suspension.
| Avalon Holdings Corporation and Subsidiaries |
In addition, on August 26, 2016, Avalon filed a complaint in the 11th Appellate District Court in Trumbull County, Ohio for a Peremptory Writ of Mandamus to compel the Director of the Ohio Department of Natural Resources (“ODNR”) to initiate appropriations procedures to determine damages from the illegal regulatory taking of the Company’s property, or issue an alternative remedy at law. There is currently no implemented state-wide policy on induced seismicity and The ODNR has refused to communicate with the Company regarding the status and requirements of any policymaking. The Company believes that the actions, and lack of responsible actions, by ODNR, which were triggered by a seismic event that presented no hazard or risk to any individual or to the environment, is a clear violation of the Company’s property rights and a violation of the Fifth and Fourteenth Amendments to the U.S. Constitution; Article I, Section 19 of the Ohio Constitution; and Ohio Revised Code Chapter 163. The trial is tentatively scheduled to occur in the second quarter of 2018. The Company intends to vigorously pursue the Complaint and obtain due process and fair compensation.
Avalon assessed the recoverability of the carrying values of the salt water injection wells based on the Chief of the Division of Oil and Gas Resources Management’s decision to temporarily suspend operations of the wells. Avalon estimated future cash flows directly associated with and which are expected to arise as a direct result of the wells once the temporary suspension is lifted. The assumptions used by management in developing the estimates of future cash flows were based on current market conditions and comparable prior periods while in operation. Based on the estimated undiscounted sum of the future cash flows, the net book value of the property, plant and equipment relating to the wells of approximately $3.7 million at December 31, 2017 was recoverable in less than the estimated remaining useful lives of those assets.
Management will continue to consider whether indicators of impairment are present and test for recoverability, as necessary. If management concludes that the carrying amount of the salt water injection wells are not recoverable, Avalon may record an impairment charge up to $3.7 million, the carrying value of the salt water injection wells.
Economic challenges throughout the industries served by Avalon may result in payment defaults by customers. While Avalon continuously endeavors to limit customer credit risks, customer-specific financial downturns are not controllable by management. Significant customer payment defaults would have a material adverse impact upon Avalon’s future financial performance.
The Avalon Golf and Country Club operates golf courses and related clubhouses at each of its three facilities. The Avalon Golf and Country Club facilities also offer swimming pools, fitness centers, tennis courts, dining and banquet facilities and spa services. In addition, The Avalon Inn provides guests with a self-contained vacation experience, offering hotel guests golf packages to all of the golf courses of the Avalon Golf and Country Club and allows its guests to utilize the facilities at each of the clubhouses. Members of the Avalon Golf and Country Club also have access to all of the amenities offered by The Avalon Inn. The Avalon Golf and Country Club competes with many public courses and country clubs in the area. Although the golf courses continue to be available to the general public, the primary source of revenues is derived from the members of the Avalon Golf and Country Club. Avalon believes that the combination of its three facilities and The Avalon Inn will result in additional memberships in the Avalon Golf and Country Club. The ability to retain current members and attract new members has been an ongoing challenge. Although Avalon was able to increase the number of members of the Avalon Golf and Country Club, as of December 31, 2017, Avalon has not attained its membership goals. There can be no assurance as to when such goals will be attained and when the golf and related operations will ultimately become profitable. Avalon is continually using different marketing strategies to attract new members, such as local television advertising and various membership promotions. A significant decline in members could adversely affect the future financial performance of Avalon.
All three of Avalon’s golf course operations and The Avalon Inn currently hold liquor licenses for their respective facilities. If, for some reason, any one of these facilities were to lose their liquor license, the financial performance of the golf and related operations would be adversely affected.
| Avalon Holdings Corporation and Subsidiaries |
Avalon’s operations are somewhat seasonal in nature since a significant portion of those operations are primarily conducted in selected northeastern and midwestern states. Additionally, Avalon’s golf courses are located in northeast Ohio and western Pennsylvania and are significantly dependent upon weather conditions during the golf season. As a result, Avalon’s financial performance is adversely affected by adverse weather conditions.
Inflation Impact
Avalon has not entered into any long-term fixed price contracts that could have a material adverse impact upon its financial performance in periods of inflation. In general, management believes that rising costs resulting from inflation could be passed on to customers; however, Avalon may need to absorb all or a portion of these cost increases depending upon competitive conditions at the time.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management to make judgments, assumptions, and estimates that affect reported amounts. Significant accounting policies used in the preparation of Avalon’s Consolidated Financial Statements are described in Note 2 to the consolidated financial statements. Estimates are used when accounting for, among other things, the allowance for doubtful accounts, estimated useful lives of property and equipment used to depreciate and amortize the assets, asset impairments, compensation costs relating to stock options granted, contingencies and administrative proceedings, environmental matters and taxes.
The majority of Avalon’s accounts receivable is due from industrial and commercial customers. Credit is extended based on an evaluation of a customer’s financial condition and, generally, collateral is not required. Accounts receivable are stated at amounts due from customers, net of an allowance for doubtful accounts. Accounts receivable outstanding longer than the contractual payment terms are considered past due. Avalon determines its allowance by considering a number of factors, including the length of time trade accounts receivable are past due, Avalon’s previous accounts receivable loss history, the customer’s current ability to pay its obligation to Avalon and the condition of the general economy and the industry as a whole. Bankruptcy or economic challenges of a particular customer represent uncertainties that are not controllable by management. If management’s assessments change due to different assumptions or if actual collections differ from management’s estimates, future operating results could be impacted. Avalon writes off accounts receivable when they become uncollectible. Payments subsequently received on such receivables are credited to the allowance for doubtful accounts, or to income, as appropriate under the circumstances.
Avalon recognizes share-based compensation expense related to stock options issued to employees and directors. Avalon estimates the fair value of the stock options granted using a Monte Carlo simulation. The Monte Carlo simulation was selected to determine the fair value because it incorporates six minimum considerations; 1) the exercise price of the option, 2) the expected term of the option, taking into account both the contractual term of the option, the effects of employees’ expected exercise and post-vesting employment termination behavior, as well as the possibility of change in control events during the contractual term of the option agreements, 3) the current fair value of the underlying equity, 4) the expected volatility of the value of the underlying share for the expected term of the option, 5) the expected dividends on the underlying share for the expected term of the option and 6) the risk-free interest rate(s) for the expected term of the option.
The expected term, or time until the option is exercised, is typically based on historical exercising behavior of previous option holders of a company’s stock. Due to the fact that the Company has had no historical exercising activity, we estimate the expected term using the simplified method.
Avalon amortizes the fair value of the stock options over the expected term which approximates the requisite service period. If accelerated vesting occurs based on the market performance of Avalon’s common stock, the compensation costs related to the vested stock options that have not previously been amortized are recognized upon vesting.
| Avalon Holdings Corporation and Subsidiaries |
Certain events or changes in circumstances may indicate that the recoverability of the carrying value of long-lived assets should be assessed. Such events or changes may include a significant decrease in market value, a significant change in the business climate in a particular market, or a current-period operating or cash flow loss combined with historical losses or projected future losses. If an event occurs or changes in circumstances are present, Avalon estimates the future cash flows expected to result from the use of the applicable groups of long-lived assets and their eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying value, Avalon would recognize an impairment loss to the extent the carrying value of the groups of long-lived assets exceeds their fair value. Avalon would determine the fair value by using quoted market prices, if available, for such assets; or if quoted market prices are not available, Avalon would discount the expected estimated future cash flows.
The ability to accurately predict future cash flows may impact the determination of fair value. Avalon’s assessments of cash flows represent management’s best estimate at the time of the impairment review. Avalon estimates the future cash flows expected to result from the use and, if applicable, the eventual disposition of the assets. The key variables that management must estimate include, among other factors, sales, costs, inflation and capital spending. Significant management judgment is involved in estimating these variables and they include inherent uncertainties. If different cash flows had been estimated in the current period, the value of the long-lived assets could have been materially impacted. Furthermore, Avalon’s accounting estimates may change from period to period as conditions in markets change, and this could materially impact financial results in future periods.
When Avalon concludes that it is probable that an environmental liability has been incurred, a provision is made in Avalon’s financial statements for Avalon’s best estimate of the liability based on management’s judgment and experience, information available from regulatory agencies, and the number, financial resources and relative degree of responsibility of other potentially responsible parties who are jointly and severally liable for remediation of that site, as well as, the typical allocation of costs among such parties. If a range of possible outcomes is estimated and no amount within the range appears to be a better estimate than any other, then Avalon provides for the minimum amount within the range, in accordance with generally accepted accounting principles. The liability is recognized on an undiscounted basis. Avalon’s estimates are revised, as deemed necessary, as additional information becomes known. Such revisions may impact future operating results. Although Avalon is not currently aware of any environmental liability, there can be no assurance that in the future an environmental liability will not occur.
Avalon recognizes deferred tax assets and liabilities based on differences between financial statement carrying amounts and the tax bases of assets and liabilities. Avalon also records tax benefits when it believes that it is more likely than not that the benefit will be sustained by the tax authority. Avalon regularly reviews its deferred tax assets for recoverability and establishes a valuation allowance based upon historical taxable income, projected future taxable income and the expected timing of the reversals of existing temporary differences to reduce its deferred assets to the amount that it believes is more likely than not to be realized. Avalon has considered future taxable income in assessing the need for the valuation allowance. The $1,752,000 of deferred tax liabilities will reverse in the same period and jurisdiction and is of the same character as the temporary differences giving rise to the $1,760,000 of deferred tax assets. Avalon has not provided a valuation allowance on the amount of deferred tax assets that it estimates will be utilized. Should Avalon ascertain in the future that it is more likely than not that deferred tax assets will be realized in excess of the net deferred tax assets, all or a portion of the $1,313,000 valuation allowance as of December 31, 2017, would be reversed as a benefit to the provision for income taxes in the period such determination was made.
| Avalon Holdings Corporation and Subsidiaries |
Recent Accounting Pronouncements
Adopted Accounting Standards
In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-11, Simplifying the Measurement of Inventory (“ASU 2015-11”), to simplify the measurement of inventory. ASU 2015-11 requires that inventory be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The Company adopted the updated standard in the first quarter of 2017 with no material impact to the financial statements.
In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”), which simplifies the presentation of deferred income taxes by eliminating the need for entities to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position. This amendment is effective for annual periods beginning after December 15, 2016. During the first quarter of 2017, the Company adopted ASU 2015-17. The adoption of this standard did not have an impact on Avalon’s financial position, results of operations or financial statement disclosures.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which simplifies several aspects of the accounting for employee share-based payment transactions including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification of related amounts within the statement of cash flows. During the first quarter of 2017, the Company adopted ASU 2016-09. The adoption of this standard did not have a material impact on Avalon’s financial position, results of operations or financial statement disclosures.
Accounting Standards Not Yet Adopted
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). ASU 2014-09 clarifies the principles used to recognize revenue for all entities. ASU 2014-09 provides a unified five-step model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. The new standard replaces most of the existing revenue recognition standards in U.S. GAAP. In addition, in March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies how to apply revenue recognition guidance related to whether an entity is a principal or an agent.
The Company reviewed the terms and conditions contained its contracts with customers relating to our brokerage and management services and captive landfill management activities for our waste management services segment. The Company considered the terms and conditions of the contracts and the all-inclusive pricing for the service contained in those contracts and determined that the waste management services provided to the customer represent a single performance obligation that meets the criteria to be accounted for under the series guidance. Avalon transfers control of the service over time and, therefore, satisfies the performance obligation and will continue to recognize the revenue over time as the customer simultaneously receives and consumes the benefits provided by Avalon’s performance as we perform.
In addition, as the promise to provide services qualifies as a series accounted for as a single performance obligation, the Company will apply the guidance in ASC 606-10-55-18 which provides a practical expedient that allows an entity that is recognizing revenue over time by using an output method to recognize revenue equal to the amount that the entity has the right to invoice if the invoiced amount corresponds directly to the value transferred to the customer.
| Avalon Holdings Corporation and Subsidiaries |
The Company also assessed whether the principal versus agent consideration would change how the Company presents revenue for these contracts. Under the contracts, the Company is primarily responsible for fulfilling the service and controls the service prior to transferring it to the customer. Based on our assessment, the Company is acting as the principal and primary obligor under the contracts, and will continue to recognize revenue in the gross amount of consideration which it expects to be entitled in exchange for the service provided.
The Company reviewed ASU 2014-09 for our golf and related operations segment. For our country club memberships, Avalon providing the “stand ready obligation” for unlimited use of the country club facilities to the member over the entire term of the membership agreement represents a single performance obligation of which Avalon expects the member to receive and consume the benefits of its obligation throughout the membership term. As such, the Company will continue to recognize membership dues on a straight line basis over the term of the contract. As a practical expedient, the Company applied this guidance to the whole portfolio of annual membership contracts as all contracts have similar characteristics. The Company determined that the effect on the financial statements of applying this guidance to the portfolio of all membership contracts does not differ from applying this guidance to each individual contract.
For our hotel operations, Avalon’s performance obligation is to provide lodging facilities. The separate components of providing this service are not distinct within the context of the contract as they are all highly dependent and interrelated as part of the obligation to provide the lodging facility. Our hotel room reservation performance obligation is satisfied over time as the hotel guest simultaneously receives and consumes the benefits provided by the hotel. For performance obligations satisfied over time, our hotel operations will continue to recognize revenue over time by measuring the progress toward complete satisfaction of that performance obligation.
For food, beverage, and merchandise sales, greens fees and associated cart rental and other ancillary services, the transaction price is the set price charged by the Company for those goods or services. Upon purchase of the good or service, the Company transfers control of the good or service to the customer and the customer immediately consumes the benefits of the Company’s performance and, as such, the Company will continue to recognize revenue at the point of sale.
The Company will adopt the new revenue standard in its first quarter of 2018 using the modified retrospective approach adoption method. Based on our analysis, the Company does not believe there will be a material impact to Avalon’s consolidated revenues upon adoption or on an ongoing basis. The Company is currently finalizing its financial statement disclosures in accordance with the requirements of the standard.
In February 2016, the FASB issued ASU 2016-02, Leases. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. Avalon is currently reviewing its agreements for its golf carts, machinery and equipment for the landfill operations, furniture and fixtures for The Avalon Inn and office copiers under operating leases and evaluating the impact the adoption of this guidance will have on its financial position, results of operations, cash flows and related disclosures. Upon adoption, the Company expects that the ROU asset and the lease liability will be recognized in the balance sheets in amounts that will be material.
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which significantly changes the way entities recognize impairment of many financial assets by requiring immediate recognition of estimated credit losses expected to occur over their remaining life. ASU 2016-13 is effective January 1, 2020, with early adoption permitted January 1, 2019. The adoption of this standard is not expected to have a material impact on Avalon’s financial position, results of operations or financial statement disclosures.
| Avalon Holdings Corporation and Subsidiaries |
In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which is intended to reduce diversity in practice in how certain cash receipts and payments are presented and classified in the statement of cash flows. The standard provides guidance in a number of situations including, among others, settlement of zero-coupon bonds, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, and distributions received from equity method investees. ASU 2016-15 also provides guidance for classifying cash receipts and payments that have aspects of more than one class of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, with early adoption permitted. The standard requires application using a retrospective transition method. The adoption of this standard is not expected to have a material impact on Avalon’s financial position, results of operations or financial statement disclosures.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows: Restricted Cash (“ASU 2016-18”), which requires entities to include restricted cash and restricted cash equivalent balances with cash and cash equivalent balances in the statement of cash flows. ASU 2016-18 will be effective January 1, 2018 and will impact the presentation of our statement of cash flows for the restricted cash related to the remaining loan proceeds deposited into our project fund account that have not yet been utilized to fund the additional renovation and expansion of The Avalon Inn.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”). The purpose of ASU 2017-01 is to change the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. ASU 2017-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. The Avalon Athletic Club at Boardman, acquired in March 2018, will be accounted for in accordance with ASU 2017-01.
| Avalon Holdings Corporation and Subsidiaries |
Consolidated Balance Sheets
(in thousands, except for share data)
|
December 31, |
||||||||
|
2017 |
2016 |
|||||||
|
Assets |
||||||||
|
Current Assets: |
||||||||
|
Cash and cash equivalents |
$ | 1,025 | $ | 2,299 | ||||
|
Accounts receivable, less allowance for doubtful accounts of $237 in 2017 and $235 in 2016 |
10,486 | 11,349 | ||||||
|
Inventories |
850 | 773 | ||||||
|
Prepaid expenses |
512 | 462 | ||||||
|
Other current assets |
34 | 35 | ||||||
|
Total current assets |
12,907 | 14,918 | ||||||
|
Property and equipment, net |
43,215 | 43,971 | ||||||
|
Leased property under capital leases, net |
6,360 | 6,035 | ||||||
|
Restricted cash |
2,826 | 2,905 | ||||||
|
Noncurrent deferred tax asset |
8 | 8 | ||||||
|
Other assets, net |
62 | 61 | ||||||
|
Total assets |
$ | 65,378 | $ | 67,898 | ||||
|
Liabilities and Equity |
||||||||
|
Current liabilities: |
||||||||
|
Current portion of obligations under capital leases |
$ | 212 | $ | 112 | ||||
|
Current portion of long-term debt |
547 | 517 | ||||||
|
Accounts payable |
7,832 | 9,387 | ||||||
|
Accrued payroll and other compensation |
739 | 684 | ||||||
|
Accrued income taxes |
26 | 48 | ||||||
|
Other accrued taxes |
372 | 448 | ||||||
|
Deferred revenues |
2,718 | 2,716 | ||||||
|
Other liabilities and accrued expenses |
658 | 764 | ||||||
|
Total current liabilities |
13,104 | 14,676 | ||||||
|
Long-term debt, net of current portion |
10,745 | 11,294 | ||||||
|
Obligations under capital leases, net of current portion |
857 | 452 | ||||||
|
Asset retirement obligation |
100 | 100 | ||||||
|
Contingencies and commitments |
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|
Equity: |
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|
Avalon Holdings Corporation Shareholders' Equity: |
||||||||
|
Class A Common Stock, $.01 par value, one vote per share: authorized 10,500,000 shares; issued and outstanding 3,191,100 shares at December 31, 2017 and 2016 |
32 | 32 | ||||||
|
Class B Common Stock, $.01 par value, ten votes per share: authorized 1,000,000 shares; issued and outstanding 612,231 shares at December 31, 2017 and 2016 |
6 | 6 | ||||||
|
Paid-in capital |
58,965 | 58,953 | ||||||
|
Accumulated deficit |
(20,557 | ) | (20,250 | ) | ||||
|
Total Avalon Holdings Corporation Shareholders' Equity |
38,446 | 38,741 | ||||||
|
Non-controlling interest in subsidiary |
2,126 | 2,635 | ||||||
|
Total equity |
40,572 | 41,376 | ||||||
|
Total liabilities and equity |
$ | 65,378 | $ | 67,898 | ||||
See accompanying notes to consolidated financial statements.
| Avalon Holdings Corporation and Subsidiaries |
Consolidated Statements of Operations
(in thousands, except for per share amounts)
|
Year Ended December 31, |
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|
2017 |
2016 |
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|
Net operating revenues: |
||||||||
|
Waste management services |
$ | 38,398 | $ | 44,306 | ||||
|
Food, beverage and merchandise sales |
7,290 | 7,242 | ||||||
|
Other golf and related operations |
10,160 | 9,804 | ||||||
|
Total golf and related operations |
17,450 | 17,046 | ||||||
|
Total net operating revenues |
55,848 | 61,352 | ||||||
|
Costs and expenses: |
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|
Waste management services operating costs |
30,495 | 36,437 | ||||||
|
Cost of food, beverage and merchandise |
3,177 | 3,210 | ||||||
|
Golf and related operations operating costs |
11,000 | 10,872 | ||||||
|
Depreciation and amortization expense |
2,996 | 2,816 | ||||||
|
Selling, general and administrative expenses |
8,451 | 8,203 | ||||||
|
Operating loss |
(271 | ) | (186 | ) | ||||
|
Other income (expense): |
||||||||
|
Interest expense |
(699 | ) | (379 | ) | ||||
|
Other income, net |
276 | 281 | ||||||
|
Loss before income taxes |
(694 | ) | (284 | ) | ||||
|
Provision for income taxes |
122 | 125 | ||||||
|
Net loss |
(816 | ) | (409 | ) | ||||
|
Less net loss attributable to non-controlling interest in subsidiary |
(509 | ) | (340 | ) | ||||
|
Net loss attributable to Avalon Holdings Corporation common shareholders |
$ | (307 | ) | $ | (69 | ) | ||
|
Loss per share attributable to Avalon Holdings Corporation common shareholders: |
||||||||
|
Basic and diluted net loss per share |
$ | (0.08 | ) | $ | (0.02 | ) | ||
|
Weighted average shares outstanding - basic and diluted |
3,803 | 3,803 | ||||||
See accompanying notes to consolidated financial statements.
| Avalon Holdings Corporation and Subsidiaries |
Consolidated Statements of Cash Flows
(in thousands)
|
Year Ended December 31, |
||||||||
|
2017 |
2016 |
|||||||
|
Operating activities: |
||||||||
|
Net loss |
$ | (816 | ) | $ | (409 | ) | ||
|
Reconciliation of net loss to cash provided by operating activities: |
||||||||
|
Depreciation and amortization expense |
2,996 | 2,816 | ||||||
|
Amortization of debt issuance costs |
22 | 17 | ||||||
|
Compensation costs - stock options |
12 | 29 | ||||||
|
Deferred rental income |
(50 | ) | (88 | ) | ||||
|
Provision for losses on accounts receivable |
6 | 115 | ||||||
|
Change in operating assets and liabilities: |
||||||||
|
Accounts receivable |
857 | (1,885 | ) | |||||
|
Inventories |
(77 | ) | 57 | |||||
|
Prepaid expenses |
(50 | ) | 25 | |||||
|
Refundable income taxes |
- | 33 | ||||||
|
Other assets, net |
2 | 5 | ||||||
|
Accounts payable |
(1,557 | ) | 1,240 | |||||
|
Accrued payroll and other compensation |
55 | 66 | ||||||
|
Accrued income taxes |
(22 | ) | 48 | |||||
|
Other accrued taxes |
(76 | ) | 68 | |||||
|
Deferred revenues |
2 | 315 | ||||||
|
Other liabilities and accrued expenses |
(56 | ) | 135 | |||||
|
Net cash provided by operating activities |
1,248 | 2,587 | ||||||
|
Investing activities: |
||||||||
|
Capital expenditures |
(1,789 | ) | (2,998 | ) | ||||
|
Cash released from restriction |
79 | - | ||||||
|
Net cash used in investing activities |
(1,710 | ) | (2,998 | ) | ||||
|
Financing activities: |
||||||||
|
Proceeds under term loan facility |
- | 12,000 | ||||||
|
Borrowings under line of credit facilities |
- | 1,025 | ||||||
|
Repayment under line of credit facilities |
- | (9,000 | ) | |||||
|
Principal payments on term loan facility |
(536 | ) | - | |||||
|
Principal payments on capital lease obligations |
(234 | ) | (67 | ) | ||||
|
Restricted cash |
- | (2,905 | ) | |||||
|
Payments of debt issuance costs |
(42 | ) | (157 | ) | ||||
|
Net cash provided by (used in) financing activities |
(812 | ) | 896 | |||||
|
Increase (decrease) in cash and cash equivalents |
(1,274 | ) | 485 | |||||
|
Cash and cash equivalents at beginning of year |
2,299 | 1,814 | ||||||
|
Cash and cash equivalents at end of year |
$ | 1,025 | $ | 2,299 | ||||
|
Supplemental disclosure of cash flow information: |
||||||||
|
Significant non-cash operating and investing activities: |
||||||||
|
Capital expenditures included in accounts payable |
$ | 32 | $ | 93 | ||||
|
Significant non-cash operating and financing activities: |
||||||||
|
Debt issuance costs included in accounts payable |
$ | 2 | $ | 32 | ||||
|
Significant non-cash investing and financing activities: |
||||||||
|
Capital lease obligations incurred |
$ | 739 | $ | 298 | ||||
|
Cash paid during the year for interest |
$ | 677 | $ | 362 | ||||
|
Cash paid during the year for income taxes |
$ | 144 | $ | 54 | ||||
|
For supplemental cash flow information regarding income taxes, see Note 6. |
See accompanying notes to consolidated financial statements
| Avalon Holdings Corporation and Subsidiaries |
Consolidated Statements of Shareholders’ Equity
(in thousands)
|
For the Years Ended December 31, 2017 and 2016 |
||||||||||||||||||||||||||||||||||||
|
Total Avalon |
Non-controlling |
|||||||||||||||||||||||||||||||||||
|
Shares |
Common Stock |
Paid-in |
Accumulated |
Shareholders' |
Interest in |
|||||||||||||||||||||||||||||||
|
Class A |
Class B |
Class A |
Class B |
Capital |
Deficit |
Equity |
Subsidiary |
Total |
||||||||||||||||||||||||||||
|
Balance at January 1, 2016 |
3,191 | 612 | $ | 32 | $ | 6 | $ | 58,924 | $ | (20,181 | ) | $ | 38,781 | $ | 2,975 | $ | 41,756 | |||||||||||||||||||
|
Stock options - compensation costs |
- | - | - | - | 29 | - | 29 | - | 29 | |||||||||||||||||||||||||||
|
Net loss |
- | - | - | - | - | (69 | ) | (69 | ) | (340 | ) | (409 | ) | |||||||||||||||||||||||
|
Balance at December 31, 2016 |
3,191 | 612 | 32 | 6 | 58,953 | (20,250 | ) | 38,741 | 2,635 | 41,376 | ||||||||||||||||||||||||||
|
Stock options - compensation costs |
- | - | - | - | 12 | - | 12 | - | 12 | |||||||||||||||||||||||||||
|
Net loss |
- | - | - | - | - | (307 | ) | (307 | ) | (509 | ) | (816 | ) | |||||||||||||||||||||||
|
Balance at December 31, 2017 |
3,191 | 612 | $ | 32 | $ | 6 | $ | 58,965 | $ | (20,557 | ) | $ | 38,446 | $ | 2,126 | $ | 40,572 | |||||||||||||||||||
See accompanying notes to consolidated financial statements.
| Avalon Holdings Corporation and Subsidiaries |
Notes to Consolidated Financial Statements
Note 1. Description of the Business
Avalon Holdings Corporation (“Avalon” or the “Company”) was formed on April 30, 1998 as a subsidiary of American Waste Services, Inc. (“AWS”). On June 17, 1998, AWS distributed, as a special dividend, all of the outstanding shares of capital stock of Avalon to the holders of AWS common stock on a pro rata and corresponding basis.
Avalon provides waste management services to industrial, commercial, municipal and governmental customers in selected northeastern and midwestern U.S. markets, captive landfill management services and salt water injection well operations. In addition, Avalon owns Avalon Resorts and Clubs, Inc. (“ARCI”), which includes the operation and management of three golf courses and associated clubhouses, fitness centers, tennis courts, spa services, dining and banquet facilities and a travel agency. ARCI also owns and operates a hotel and related amenities including dining, banquet and conference facilities, fitness center, indoor junior Olympic size swimming pool and tennis courts.
In July 2016, the Company formed ARCI, a wholly owned subsidiary of Avalon, the purpose of which is to hold the corporate activity of Avalon Clubs, Inc. and Avalon Resorts, Inc., both formed concurrently with ARCI. Avalon Clubs, Inc. was formed to hold the wholly owned subsidiaries of the Avalon Golf and Country Club, while Avalon Resorts, Inc. holds the operations of The Avalon Inn. ACRI, Avalon Clubs, Inc. and Avalon Resorts, Inc. are included within Avalon’s golf and related operations segment.
Note 2. Summary of Significant Accounting Policies
The significant accounting policies of Avalon, which are summarized below, are consistent with accounting principles generally accepted in the United States and reflect practices appropriate to the businesses in which they operate. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of Avalon, its wholly owned subsidiaries and those companies in which Avalon has managerial control.
All significant intercompany accounts and transactions have been eliminated in consolidation.
Subsequent Events
Avalon evaluated subsequent events for potential recognition and disclosure through the date the financial statements were issued.
Presentation Revision
To comply with SEC Regulation S-X, Rule 5-03, the Company revised its presentation of net operating revenues and associated operating costs separately for all significant revenue types, consisting of our waste management services as well as food, beverage and merchandise sales and other golf operations, each within our golf and related operations segment in our Consolidated Statements of Operations. The Company determined that this revision is not material to any prior period and has reflected this revision in the Consolidated Statements of Operations for the years ended December 31, 2017 and 2016. This presentation did not affect total revenue, total costs and expenses, operating loss, net loss or net loss attributable to Avalon Holdings Corporation common shareholders.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents for purposes of the Consolidated Statements of Cash Flows and Consolidated Balance Sheets. Avalon maintains its cash balances in various financial institutions. These balances may, at times, exceed federal insured limits. Avalon has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk relating to its cash and cash equivalents.
| Avalon Holdings Corporation and Subsidiaries |
Restricted Cash
Cash and cash equivalents that are restricted as to withdrawal or use under the terms of certain contractual agreements are recorded in restricted cash on the Consolidated Balance Sheets. Restricted cash of $2.8 million and $2.9 million at December 31, 2017 and 2016, respectively, consists of loan proceeds deposited into a project fund account to fund costs associated with the renovation and expansion of The Avalon Inn in accordance with the provisions of the loan and security agreement (See Note 3).
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost of inventories is determined by the average cost method. If necessary, a provision for potentially obsolete or slow-moving inventory is made based on management’s analysis of inventory levels and future sales forecasts.
Financial Instruments
The Company follows the guidance included in the Financial Accounting Standard Board (“FASB”) Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures, for its financial assets and liabilities. The fair value of financial instruments consisting of cash, cash equivalents, restricted cash, accounts receivable, and accounts payable at December 31, 2017 and 2016 approximates carrying value due to the relative short maturity of these financial instruments.
The fair value of the Company’s term loan approximates carrying value at December 31, 2017, as neither the Company’s credit rating nor market credit conditions have changed substantially since the debt was refinanced in December 2016.
Property and Equipment
Property and equipment is stated at cost and depreciated using the straight-line method over the estimated useful life of the asset which varies from 10 to 30 years for land improvements; 5 to 50 years in the case of buildings and improvements; and from 3 to 10 years for machinery and equipment, vehicles and office furniture and equipment (See Note 4).
Major additions and improvements are charged to the property and equipment accounts while replacements, maintenance and repairs, which do not improve or extend the life of the respective asset, are expensed as incurred. The cost of assets retired or otherwise disposed of and the related accumulated depreciation is eliminated from the accounts in the year of disposal. Gains or losses resulting from disposals of property and equipment are credited or charged to operations. Interest costs are capitalized on significant construction projects.
Debt Issuance Costs
Debt issuance costs are capitalized and amortized over the life of the related debt. Amortization of deferred financing costs is included in interest expense in the Consolidated Statements of Operations. Debt issuance costs incurred related to the loan and security agreement is presented in the Consolidated Balance Sheets as a direct deduction from the carrying amount of the debt. Debt issuance costs incurred related to the line of credit agreement is presented in the Consolidated Balance Sheets as “other assets, net.”
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and to operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded against net deferred tax assets when management believes it is more likely than not that such deferred tax assets will not be realized. Avalon recognizes any interest and penalty assessed by taxing authorities as a component of interest expense and other expense, respectively.
| Avalon Holdings Corporation and Subsidiaries |
Revenue Recognition
Avalon recognizes revenue for waste disposal brokerage and management services as services are performed. In accordance with ASC 605-45, Revenue Recognition – Principal Agent Considerations, we report revenue on a gross basis because we are the primary obligor in our arrangements to provide these services to our customers.
Revenues for the golf and related operations are recognized as services are provided with the exception of annual membership dues which are recognized proportionately over the membership term. The deferred revenue relating to membership dues was approximately $2.7 million at December 31, 2017 and 2016, respectively.
Accounts Receivable
The majority of Avalon’s accounts receivable is due from industrial and commercial customers. Credit is extended based on an evaluation of a customer’s financial condition and, generally, collateral is not required. Accounts receivable are stated at amounts due from customers, net of an allowance for doubtful accounts. Customer accounts that are outstanding longer than the contractual payment terms are considered past due. Avalon determines its allowance by considering a number of factors, including the length of time trade accounts receivable are past due, Avalon’s previous accounts receivable loss history, the customer’s current ability to pay its obligation to Avalon and the condition of the general economy and the industry as a whole. Avalon writes off accounts receivable when they become uncollectible. Payments subsequently received on such receivables are credited to the allowance for doubtful accounts, or to income, as appropriate under the circumstances.
Leases
Avalon applies the accounting rules for leases to categorize leases at their inception as either operating or capital leases depending on certain defined criteria. Leasehold improvements are capitalized at cost and are amortized over the lesser of their expected useful life or the life of the lease (See Notes 5 and 11).
Noncontrolling Interest
Under FASB ASC 810-10, Consolidations – Overall (“ASC 810-10”), a company must determine whether it has a variable interest in a legal entity being evaluated for consolidation. A variable interest entity (“VIE”) is consolidated in the financial statements if the company has the power to direct activities that most significantly impact the economic performance of the VIE and has the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.
As a result of a private placement offering, Avalon is not the majority owner of AWMS Holdings, LLC. At December 31, 2017 and 2016, respectively, Avalon owns approximately 47% of AWMS Holdings, LLC. In accordance ASC 810-10, due to the managerial control of AWMS Water Solutions, LLC, AWMS Holdings, LLC is a VIE, and the financial statements of AWMS Holdings, LLC and subsidiaries are included in Avalon’s consolidated financial statements. ASC 810-10 requires noncontrolling interests to be reported as a separate component of equity. The amount of net loss attributable to the noncontrolling interest is recorded in “net loss attributable to noncontrolling interest” in our Consolidated Statements of Operations (See Note 13).
Share-Based Compensation
Avalon recognizes share-based compensation expense related to stock options issued to employees and directors. Avalon estimates the fair value of the stock options granted using a Monte Carlo simulation. The Monte Carlo Simulation was selected to determine the fair value because it incorporates six minimum considerations; 1) the exercise price of the option, 2) the expected term of the option, taking into account both the contractual term of the option, the effects of employees’ expected exercise and post-vesting employment termination behavior, as well as the possibility of change in control events during the contractual term of the option agreements, 3) the current fair value of the underlying equity, 4) the expected volatility of the value of the underlying share for the expected term of the option, 5) the expected dividends on the underlying share for the expected term of the option and 6) the risk-free interest rate(s) for the expected term of the option.
Avalon amortizes the grant date fair value of the stock options over the expected term which approximates the requisite service period. If accelerated vesting occurs based on the market performance of Avalon’s common stock, the compensation costs related to the vested stock options that have not previously been amortized are recognized upon vesting.
| Avalon Holdings Corporation and Subsidiaries |
Asset Retirement Obligation
Avalon recorded an estimated asset retirement obligation of $0.1 million at December 31, 2017 and 2016, respectively, to plug and abandon the two salt water injection wells based upon an estimate from an experienced and qualified third party.
Asset Impairments
Avalon reviews the carrying value of its long-lived assets whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. If indicators of impairment exist, Avalon would determine whether the estimated undiscounted sum of the future cash flows of such assets and their eventual disposition is less than its carrying amount. If less, an impairment loss would be recognized if, and to the extent that the carrying amount of such assets exceeds their respective fair value. Avalon would determine the fair value by using quoted market prices, if available, for such assets; or if quoted market prices are not available, Avalon would discount the expected estimated future cash flows.
For the golf and related operations segment, Avalon does not believe there was a triggering event in 2017 or 2016 as future cash flows have not changed significantly and asset values have remained relatively stable.
For the waste management services segment, in accordance with FASB ASC 360-10-35, Property, Plant and Equipment – Overall – Subsequent Measurement (“ASC 360-10-35”), Avalon assessed the recoverability of the carrying values of the salt water injection wells based on the Chief of the Division of Oil and Gas Resources Management’s decision to temporarily suspend operations of the wells. Avalon estimated future cash flows directly associated with and which are expected to arise as a direct result of the wells once the temporary suspension is lifted (See Note 14). The assumptions used by management in developing the estimates of future cash flows were based on current market conditions and comparable prior periods while in operation. Based on the estimated undiscounted sum of the future cash flows, the net book value of the property, plant and equipment relating to the wells of approximately $3.7 million at December 31, 2017 was recoverable in less than the estimated remaining useful lives of those assets.
Management will continue to consider whether indicators of impairment are present and test for recoverability, as necessary, in accordance with ASC 360-10-15. If management concludes that the carrying amount of the salt water injection wells are not recoverable, Avalon may record an impairment charge up to $3.7 million, the carrying value of the salt water injection wells.
Environmental Liabilities
When Avalon concludes that it is probable that a liability has been incurred with respect to a site, a provision is made in Avalon’s financial statements for Avalon’s best estimate of the liability based on management’s judgment and experience, information available from regulatory agencies, and the number, financial resources and relative degree of responsibility of other potentially responsible parties who are jointly and severally liable for remediation of that site, as well as, the typical allocation of costs among such parties. If a range of possible outcomes is estimated and no amount within the range appears to be a better estimate than any other, Avalon provides for the minimum amount within the range, in accordance with generally accepted accounting principles. The liability is recognized on an undiscounted basis. Avalon’s estimates are revised, as deemed necessary, as additional information becomes known. Although Avalon is not currently aware of any environmental liability, there can be no assurance that in the future an environmental liability will not occur.
Basic and Diluted Net Loss per Share
Basic net loss per share attributable to Avalon Holdings Corporation common shareholders for the years ended December 31, 2017 and 2016 is computed by dividing the net loss by the weighted average number of common shares outstanding, which were 3,803,331 for each period.
Diluted net income (loss) per share attributable to Avalon Holdings Corporation common shareholders is computed by dividing net income (loss) by the weighted average number of common shares outstanding plus any weighted common equivalent shares determined to be outstanding during the period using the treasury method. The weighted common equivalent shares included in the calculation are related to stock options granted by Avalon where the weighted average market price of Avalon’s common stock for the period presented is greater than the option exercise price of the stock option.
For the years ended December 31, 2017 and 2016, the diluted per share amounts reported are equal to the basic per share amounts because Avalon was in a net loss position and as a result, such dilution would be considered anti-dilutive. Assuming dilution, the weighted average number of common shares outstanding for the years ended December 31, 2017 and 2016 was 3,836,661 and 3,849,882, respectively.
| Avalon Holdings Corporation and Subsidiaries |
The loss per share calculations for the years ended December 31, 2017 and 2016 are as follows (in thousands, except per share amounts):
|
2017 |
2016 |
|||||||
|
Net loss attributable to Avalon Holdings Corporation common shareholders |
$ | (307 | ) | $ | (69 | ) | ||
|
Shares used in computing basic loss per share |
3,803 | 3,803 | ||||||
|
Potentially dilutive shares from stock options |
- | - | ||||||
|
Shares used in computing diluted loss per share |
3,803 | 3,803 | ||||||
|
Loss per share attributable to Avalon Holdings Corporation common shareholders |
||||||||
|
Basic and diluted net loss per share |
$ | (0.08 | ) | $ | (0.02 | ) | ||
Recent Accounting Pronouncements
Adopted Accounting Standards
In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-11, Simplifying the Measurement of Inventory (“ASU 2015-11”), to simplify the measurement of inventory. ASU 2015-11 requires that inventory be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The Company adopted the updated standard in the first quarter of 2017 with no material impact to the financial statements.
In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”), which simplifies the presentation of deferred income taxes by eliminating the need for entities to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position. This amendment is effective for annual periods beginning after December 15, 2016. During the first quarter of 2017, the Company adopted ASU 2015-17. The adoption of this standard did not have an impact on Avalon’s financial position, results of operations or financial statement disclosures.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which simplifies several aspects of the accounting for employee share-based payment transactions including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification of related amounts within the statement of cash flows. During the first quarter of 2017, the Company adopted ASU 2016-09. The adoption of this standard did not have a material impact on Avalon’s financial position, results of operations or financial statement disclosures.
Accounting Standards Not Yet Adopted
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). ASU 2014-09 clarifies the principles used to recognize revenue for all entities. ASU 2014-09 provides a unified five-step model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. The new standard replaces most of the existing revenue recognition standards in U.S. GAAP. In addition, in March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies how to apply revenue recognition guidance related to whether an entity is a principal or an agent.
The Company reviewed the terms and conditions contained its contracts with customers relating to our brokerage and management services and captive landfill management activities for our waste management services segment. The Company considered the terms and conditions of the contracts and the all-inclusive pricing for the service contained in those contracts and determined that the waste management services provided to the customer represent a single performance obligation that meets the criteria to be accounted for under the series guidance. Avalon transfers control of the service over time and, therefore, satisfies the performance obligation and will continue to recognize the revenue over time as the customer simultaneously receives and consumes the benefits provided by Avalon’s performance as we perform.
| Avalon Holdings Corporation and Subsidiaries |
In addition, as the promise to provide services qualifies as a series accounted for as a single performance obligation, the Company will apply the guidance in ASC 606-10-55-18 which provides a practical expedient that allows an entity that is recognizing revenue over time by using an output method to recognize revenue equal to the amount that the entity has the right to invoice if the invoiced amount corresponds directly to the value transferred to the customer.
The Company also assessed whether the principal versus agent consideration would change how the Company presents revenue for these contracts. Under the contracts, the Company is primarily responsible for fulfilling the service and controls the service prior to transferring it to the customer. Based on our assessment, the Company is acting as the principal and primary obligor under the contracts, and will continue to recognize revenue in the gross amount of consideration which it expects to be entitled in exchange for the service provided.
The Company reviewed ASU 2014-09 for our golf and related operations segment. For our country club memberships, Avalon providing the “stand ready obligation” for unlimited use of the country club facilities to the member over the entire term of the membership agreement represents a single performance obligation of which Avalon expects the member to receive and consume the benefits of its obligation throughout the membership term. As such, the Company will continue to recognize membership dues on a straight line basis over the term of the contract. As a practical expedient, the Company applied this guidance to the whole portfolio of annual membership contracts as all contracts have similar characteristics. The Company determined that the effect on the financial statements of applying this guidance to the portfolio of all membership contracts does not differ from applying this guidance to each individual contract.
For our hotel operations, Avalon’s performance obligation is to provide lodging facilities. The separate components of providing this service are not distinct within the context of the contract as they are all highly dependent and interrelated as part of the obligation to provide the lodging facility. Our hotel room reservation performance obligation is satisfied over time as the hotel guest simultaneously receives and consumes the benefits provided by the hotel. For performance obligations satisfied over time, our hotel operations will continue to recognize revenue over time by measuring the progress toward complete satisfaction of that performance obligation.
For food, beverage, and merchandise sales, greens fees and associated cart rental and other ancillary services, the transaction price is the set price charged by the Company for those goods or services. Upon purchase of the good or service, the Company transfers control of the good or service to the customer and the customer immediately consumes the benefits of the Company’s performance and, as such, the Company will continue to recognize revenue at the point of sale.
The Company will adopt the new revenue standard in its first quarter of 2018 using the modified retrospective approach adoption method. Based on our analysis, the Company does not believe there will be a material impact to Avalon’s consolidated revenues upon adoption or on an ongoing basis. The Company is currently finalizing its financial statement disclosures in accordance with the requirements of the standard.
In February 2016, the FASB issued ASU 2016-02, Leases. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. Avalon is currently reviewing its agreements for its golf carts, machinery and equipment for the landfill operations, furniture and fixtures for The Avalon Inn and office copiers under operating leases and evaluating the impact the adoption of this guidance will have on its financial position, results of operations, cash flows and related disclosures. Upon adoption, the Company expects that the ROU asset and the lease liability will be recognized in the balance sheets in amounts that will be material.
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which significantly changes the way entities recognize impairment of many financial assets by requiring immediate recognition of estimated credit losses expected to occur over their remaining life. ASU 2016-13 is effective January 1, 2020, with early adoption permitted January 1, 2019. The adoption of this standard is not expected to have a material impact on Avalon’s financial position, results of operations or financial statement disclosures.
| Avalon Holdings Corporation and Subsidiaries |
In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which is intended to reduce diversity in practice in how certain cash receipts and payments are presented and classified in the statement of cash flows. The standard provides guidance in a number of situations including, among others, settlement of zero-coupon bonds, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, and distributions received from equity method investees. ASU 2016-15 also provides guidance for classifying cash receipts and payments that have aspects of more than one class of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, with early adoption permitted. The standard requires application using a retrospective transition method. The adoption of this standard is not expected to have a material impact on Avalon’s financial position, results of operations or financial statement disclosures.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows: Restricted Cash (“ASU 2016-18”), which requires entities to include restricted cash and restricted cash equivalent balances with cash and cash equivalent balances in the statement of cash flows. ASU 2016-18 will be effective January 1, 2018 and will impact the presentation of our statement of cash flows for the restricted cash related to the remaining loan proceeds deposited into our project fund account that have not yet been utilized to fund the additional renovation and expansion of The Avalon Inn.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”). The purpose of ASU 2017-01 is to change the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. ASU 2017-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. The Avalon Athletic Club at Boardman, acquired in March 2018, will be accounted for in accordance with ASU 2017-01.
Note 3. Term Loan and Line of Credit Agreements
On December 20, 2016, Avalon and certain direct and indirect wholly owned subsidiaries entered into a loan and security agreement (the “Term Loan Agreement”) with Laurel Capital Corporation which provides for a $12.0 million term loan. At closing, $9.1 million of the proceeds were used to pay off the existing line of credit agreement and associated accrued interest with Home Savings Bank (formerly The Home Savings and Loan Company of Youngstown, Ohio), dated May 21, 2015, as amended, and pay related transaction costs associated with the Term Loan Agreement. The line of credit agreement with Home Savings Bank was terminated in conjunction with the repayment. Remaining proceeds of $2.9 million under the Term Loan Agreement were deposited in a project fund account to fund costs of renovating and expanding The Avalon Inn. At December 31, 2017 and 2016, the remaining proceeds of $2.8 million and $2.9 million, respectively, are presented in the Consolidated Balance Sheets as “Restricted cash.” On December 4, 2017 the Term Loan Agreement was amended to restate the definition of “Total Fixed Charges” utilized in the calculation of the “Fixed Charge Coverage Ratio.”
The $12.0 million term loan amount is payable in 119 equal monthly installments of principal and interest, based on a fifteen (15) year maturity schedule which commenced on January 20, 2017. The Term Loan Agreement matures on December 20, 2026 at which time the final balloon payment equal to the remaining outstanding principal, interest and fees are due. Borrowings under the Term Loan Agreement bear interest at a fixed rate of 5.35% until the fifth anniversary date of the closing at which time the interest rate will be reset to a fixed rate equal to the greater of (a) 5.35% per annum or (b) the sum of the Index Rate on the date two (2) business days prior to the reset date and 3.95%, provided that the applicable rate shall in no event exceed 7.50% per annum.
Avalon has the right to prepay the amount outstanding under the Term Loan Agreement, in whole or in part, at any time upon payment of the principal amount of the loan to be prepaid plus accrued unpaid interest thereon to the prepayment date, plus an applicable prepayment penalty. The prepayment penalty, expressed as a percentage of the principal of the loan being prepaid, is five percent (5%) on any prepayment in the first five years; four percent (4%) on any prepayment in the sixth and seventh year; three percent (3%) on any prepayment in the eighth and ninth year; and two percent (2%) on any prepayment in the tenth year.
Borrowings are secured by certain real property and related business assets as defined in the Term Loan Agreement. The Term Loan Agreement also contains certain financial and other covenants, customary representations, warranties and events of default. Avalon was in compliance with the Term Loan Agreement covenants at December 31, 2017 and 2016.
The Company incurred approximately $191,000 of debt issuance costs in connection with the Term Loan Agreement. These debt issuance costs were capitalized and will be amortized over the life of the Term Loan Agreement. In accordance with ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, these costs are presented in the Consolidated Balance Sheets as a direct reduction from the carrying amount of the term loan liability.
| Avalon Holdings Corporation and Subsidiaries |
Concurrently with the Term Loan Agreement, Avalon entered into a new business loan agreement with Home Savings Bank (the “Line of Credit Agreement”) which provides for a line of credit of up to $4.0 million with an original maturity date of May 31, 2017. On April 25, 2017, the Line of Credit Agreement was amended to increase the available line of credit from $4.0 million to $5.0 million and extend the maturity date to May 31, 2019. The amendment also has the option to request a one year extension of maturity in 2018 based on certain terms and conditions. Under the Line of Credit Agreement, borrowings in excess of $1.0 million are subject to a borrowing base which is calculated based off a specific level of eligible accounts receivable of the waste management business as defined in the agreement. No amounts were drawn under the Line of Credit Agreement at December 31, 2017 and 2016.
Outstanding borrowings under the Line of Credit Agreement bear interest at Prime Rate plus .25%. At December 31, 2017, the interest rate on the Line of Credit Agreement was 4.50%.
Borrowings under the Line of Credit Agreement are secured by certain business assets of the Company including accounts receivable, inventory and equipment. The Line of Credit Agreement also contains certain covenants, customary representations, warranties and events of default. Avalon was in compliance with the Line of Credit Agreement covenants at December 31, 2017 and 2016.
During the years ended December 31, 2017 and 2016, the weighted average interest rate on outstanding borrowings was 5.35% and 3.80%, respectively.
Obligations under the Company’s debt agreements at December 31, 2017 and 2016 consist of the following (in thousands):
|
2017 |
||||||||||||
|
Gross Amount |
Debt Issuance Costs |
Net Amount |
||||||||||
|
Term loan agreement |
$ | 11,464 | $ | (172 | ) | $ | 11,292 | |||||
|
Less current portion |
566 | (19 | ) | 547 | ||||||||
|
Long-term debt |
$ | 10,898 | $ | (153 | ) | $ | 10,745 | |||||
|
2016 |
||||||||||||
|
Gross Amount |
Debt Issuance Costs |
Net Amount |
||||||||||
|
Term loan agreement |
$ | 12,000 | $ | (189 | ) | $ | 11,811 | |||||
|
Less current portion |
536 | (19 | ) | 517 | ||||||||
|
Long-term debt |
$ | 11,464 | $ | (170 | ) | $ | 11,294 | |||||
At December 31, 2017, future maturities of long-term debt are as follows (in thousands):
|
2018 |
$ | 566 | ||
|
2019 |
597 | |||
|
2020 |
629 | |||
|
2021 |
664 | |||
|
2022 |
700 | |||
|
Thereafter |
8,308 | |||
|
Total |
$ | 11,464 |
| Avalon Holdings Corporation and Subsidiaries |
Note 4. Property and Equipment
Property and equipment at December 31, 2017 and 2016 consists of the following (in thousands):
|
2017 |
2016 |
|||||||
|
Land and land improvements |
$ | 14,318 | $ | 14,118 | ||||
|
Buildings and improvements |
34,721 | 33,533 | ||||||
|
Machinery and equipment |
9,151 | 9,015 | ||||||
|
Vehicles |
467 | 445 | ||||||
|
Office furniture and fixtures |
6,301 | 5,963 | ||||||
|
Construction in progress |
294 | 479 | ||||||
| 65,252 | 63,553 | |||||||
|
Less accumulated depreciation and amortization |
(22,037 | ) | (19,582 | ) | ||||
|
Property and equipment, net |
$ | 43,215 | $ | 43,971 | ||||
At December 31, 2017, the Company did not have any significant fixed contractual commitments for construction projects.
Note 5. Capital Leased Assets
In November 2003, Avalon entered into a long-term agreement with Squaw Creek Country Club to lease and operate its golf course and related facilities. The lease has an initial term of ten (10) years with four (4) consecutive ten (10) year renewal term options unilaterally exercisable by Avalon. Under the lease, Avalon is obligated to pay $15,000 in annual rent and make leasehold improvements of $150,000 per year. Amounts expended by Avalon for leasehold improvements during a given year in excess of $150,000 will be carried forward and applied to future leasehold improvement obligations. Based upon the amount of leasehold improvements already made, Avalon expects to exercise all its remaining renewal options.
During 2017 and 2016, the golf and related operations entered into leases for a vehicle and golf course maintenance equipment that were determined to be capital leases. The amounts capitalized in the Consolidated Balance Sheets under the caption “Leased property under capital leases, net” relating to these assets were approximately $0.8 million and $0.3 million at December 31, 2017 and 2016, respectively.
In addition, during 2017, the captive landfill operations entered into a lease for a piece of equipment that was determined to be a capital lease. The amount capitalized in the Consolidated Balance Sheets under the caption “Leased property under capital leases, net” relating to this asset was approximately $0.1 million at December 31, 2017.
Leased property under capital leases at December 31, 2017 and 2016 consists of the following (in thousands):
|
2017 |
2016 |
|||||||
|
Leased property under capital leases |
$ | 11,361 | $ | 10,783 | ||||
|
Less accumulated amortization |
(5,001 | ) | (4,748 | ) | ||||
|
Leased property under capital leases, net |
$ | 6,360 | $ | 6,035 | ||||
| Avalon Holdings Corporation and Subsidiaries |
Note 6. Income Taxes
Income (loss) before income taxes for each of the two years in the period ended December 31, 2017 was subject to taxation under United States jurisdictions only. The provision for income taxes consists of the following (in thousands):
|
2017 |
2016 |
|||||||
|
Current: |
||||||||
|
Federal |
$ | (2 | ) | $ | (2 | ) | ||
|
State |
124 | 127 | ||||||
|
Total current income taxes |
122 | 125 | ||||||
|
Deferred: |
||||||||
|
Federal |
- | - | ||||||
|
State |
- | - | ||||||
|
Total deferred income taxes |
- | - | ||||||
|
Total provision for income taxes |
$ | 122 | $ | 125 | ||||
On December 22, 2017, legislation commonly known as the Tax Cuts and Jobs Act (“Tax Act” or the “Act”), was signed in to law. The Tax Act, among other changes, reduces the U.S. federal corporate tax rate from 35% to 21%, repeals the Alternative Minimum Tax, eliminates certain deductions, requires taxpayers to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, creates new taxes on certain foreign sourced earnings and changes the carryforward period and utilization of Net Operating Losses generated after December 31, 2017. On December 31, 2017, Avalon did not have any foreign subsidiaries and the international aspects of the Tax Act are not applicable.
In connection with the initial analysis of the impact of the Tax Act, Avalon remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. The Company has calculated it’s best estimate resulting from the impact of the Act in our year end income tax provision in accordance with our understanding of the Act and guidance available as of the date of this filing. The Company has recognized a $262,000 provisional expense for the tax impacts of Tax Act in its consolidated financial statements for the year ended December 31, 2017. The remeasurement of the deferred tax balance was primarily offset by application of the valuation allowance. The majority of the provisional expense is related to the revaluation of deferred tax assets and liabilities at December 31, 2017 as a result of Tax Act. The U.S. Treasury Department, the IRS, and other standard-setting bodies could interpret or issue guidance on how provisions of the 2017 Tax Act will be applied or otherwise administered that is different from our interpretation. As we complete our analysis of the 2017 Tax Act, collect and prepare necessary data, and interpret any additional guidance, we may make adjustments to provisional amounts that we have recorded that may materially impact our provision for income taxes in the period in which the adjustments are made.
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 2017 and 2016 are as follows (in thousands):
|
2017 |
2016 |
|||||||
|
Deferred tax assets: |
||||||||
|
Accounts receivable, allowance for doubtful accounts |
$ | 60 | $ | 87 | ||||
|
Reserves not deductible until paid |
187 | 300 | ||||||
|
Net operating loss carryforwards |
||||||||
|
Federal |
1,794 | 2,764 | ||||||
|
State |
556 | 537 | ||||||
|
Federal tax credit |
476 | 398 | ||||||
|
Other |
- | 12 | ||||||
|
Gross deferred tax assets |
3,073 | 4,098 | ||||||
|
Less valuation allowance |
(1,313 | ) | (1,453 | ) | ||||
|
Deferred tax assets net of valuation allowance |
$ | 1,760 | $ | 2,645 | ||||
|
Deferred tax liabilities: |
||||||||
|
Property and equipment |
$ | (1,582 | ) | $ | (2,399 | ) | ||
|
Other |
(170 | ) | (238 | ) | ||||
|
Gross deferred tax liabilities |
$ | (1,752 | ) | $ | (2,637 | ) | ||
|
Net deferred tax asset |
$ | 8 | $ | 8 | ||||
| Avalon Holdings Corporation and Subsidiaries |
The $1,752,000 of deferred tax liabilities will reverse in the same period and jurisdiction and is of the same character as the temporary differences giving rise to the $1,760,000 of deferred tax assets. Avalon has not provided a valuation allowance on the amount of deferred tax assets that it estimates will be utilized. If future taxable income is less than the amount that has been assumed in assessing the recoverability of the deferred tax assets, then an increase in the valuation allowance will be required, with a corresponding increase to income tax expense. Likewise, should Avalon ascertain in the future that it is more likely than not that deferred tax assets will be realized in excess of the net deferred tax assets, all or a portion of the $1,313,000 valuation allowance as of December 31, 2017, would be reversed as a benefit to the provision for income taxes in the period such determination was made.
The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to income (loss) before income taxes as a result of the following differences (in thousands):
|
2017 |
2016 |
|||||||
|
Loss before income taxes |
$ | (694 | ) | $ | (284 | ) | ||
|
Less net loss attributable to non-controlling interest in subsidiary |
(509 | ) | (340 | ) | ||||
|
Income (loss) before income taxes attributable to |
||||||||
|
Avalon Holdings Corporation common shareholders |
(185 | ) | 56 | |||||
|
Federal statutory rate |
35 | % | 35 | % | ||||
| Computed Federal provision (benefit) for income taxes | (65 | ) | 20 | |||||
|
State income taxes, net of federal income tax benefits |
81 | 82 | ||||||
|
Change in valuation allowance |
(140 | ) | (198 | ) | ||||
|
Increase in available federal tax credit |
(78 | ) | (60 | ) | ||||
|
Other nondeductible expenses |
42 | 41 | ||||||
|
Decrease (increase) in net operating loss carryforward: |
||||||||
|
State |
(19 | ) | 231 | |||||
|
Federal |
(4 | ) | 5 | |||||
|
Deferred tax rate change |
262 | - | ||||||
|
Other, net |
43 | 4 | ||||||
|
Total provision for income taxes |
$ | 122 | $ | 125 | ||||
Avalon is subject to income taxes in the U.S. federal and various states jurisdictions. With few exceptions, Avalon is no longer subject to U.S. federal, state and local income tax examinations by taxing authorities for the years before 2013. Avalon recognizes any interest and penalty assessed by taxing authorities as a component of interest expense and other expense, respectively. There were no accruals for the payment of interest and penalties for 2017 and 2016.
Avalon made net income tax payments of approximately $144,000 and $54,000 in 2017 and 2016, respectively. At December 31, 2017, Avalon has taxable loss carryforwards for federal income tax purposes aggregating approximately $8,518,000 which are available to offset future federal taxable income. These carryforwards expire in 2021 through 2037. In addition, at December 31, 2017, certain subsidiaries of Avalon have net operating loss carryforwards for state purposes of approximately $8,422,000 which are available to offset future state taxable income. These carryforwards expire at various dates through 2037. A valuation allowance has been provided because it is more likely than not that the deferred tax assets relating to certain of the federal and state loss carryforwards will not be realized.
Note 7. Retirement Benefits
Avalon sponsors a defined contribution profit sharing plan that is a qualified tax deferred benefit plan under Section 401(k) of the Internal Revenue Code (the “Plan”). Substantially all employees are eligible to participate in the Plan. The Plan provides for employer discretionary cash contributions as determined by Avalon’s Board of Directors. Discretionary contributions vest on a graduated basis and become 100% vested after five years of service. Plan participants may also contribute a portion of their annual compensation to the Plan, subject to maximums imposed by the Internal Revenue Code and related regulations. The Board decided not to make a discretionary employer contribution for 2017 or 2016.
| Avalon Holdings Corporation and Subsidiaries |
Note 8. Long-Term Incentive Plan
On August 12, 2009, the Board of Directors of Avalon approved the renewal of the expired 1998 Long-term Incentive Plan which provides for the granting of options which are intended to be non-qualified stock options (“NQSO’s”) for federal income tax purposes except for those options designated as incentive stock options (“ISO’s”) which qualify under Section 422 of the Internal Revenue Code. The name of the plan was changed to the 2009 Long-term Incentive Plan (“the Option Plan”) to reflect the year of approval. On October 6, 2009, at a Special Meeting of Shareholders, the shareholders approved the Option Plan. Avalon has reserved 1,300,000 shares of Class A Common Stock for issuance to employees and non-employee directors. NQSO’s may be granted with an exercise price which is not less than 100% of the fair market value of the Class A Common Stock on the date of grant. Options designated as ISO’s shall not be less than 110% of fair market value for employees who are ten percent shareholders and not less than 100% of fair market value for other employees. The Board of Directors may, from time to time in its discretion, grant options to one or more outside directors, subject to such terms and conditions as the Board of Directors may determine, provided that such terms and conditions are not inconsistent with other applicable provisions of the Option Plan. Options shall have a term of no longer than ten years from the date of grant; except that for an option designated as an ISO which is granted to a ten percent shareholder, the option shall have a term no longer than five years.
No option shall be exercisable prior to one year after its grant, unless otherwise provided by the Option Committee of the Board of Directors (but in no event before 6 months after its grant), and thereafter options shall become exercisable in installments, if any, as provided by the Option Committee. Options must be exercised for full shares of common stock. To the extent that options are not exercised when they become initially exercisable, they shall be carried forward and be exercisable until the expiration of the term of such options. No option may be exercised by an optionee after his or her termination of employment for any reason with Avalon or an affiliate, except in certain situations provided by the Option Plan.
The purpose of the Avalon Holdings Corporation 2009 Long-term Incentive Plan (the “Plan”) is (a) to improve individual employee performance by providing long-term incentives and rewards to employees of Avalon, (b) to assist Avalon in attracting, retaining and motivating employees and non-employee directors with experience and ability, and (c) to associate the interests of such employees and directors with those of the Avalon shareholders. Under the Plan, 1,300,000 shares have been reserved for the issuance of stock options of which 760,000 options were outstanding at December 31, 2017. In January 2016, 90,000 options granted under the Plan were forfeited and in March 2016, 90,000 options were granted. The stock options, vest ratably over a five year period and have a contractual term of ten years from the date of grant. At the end of each contractual vesting period, the share price of the Avalon common stock, traded on a public stock exchange (NYSE Amex), must reach a predetermined price within three years following such contractual vesting period before the stock options are exercisable (See table below). If the Avalon common stock price does not reach the predetermined price, the stock options will either be cancelled or the period will be extended at the discretion of the Board of Directors. In 2017 and 2016, the Board of Directors extended the period of time for certain vested options that were not exercisable due to those options not meeting the predetermined stock price within the three years following the contractual vesting period.
The grant-date fair values of these stock option awards were estimated using the Monte Carlo Simulation. The Monte Carlo Simulation was selected to determine the fair value because it incorporates six minimum considerations; 1) the exercise price of the option, 2) the expected term of the option, taking into account both the contractual term of the option, the effects of employees’ expected exercise and post-vesting employment termination behavior, as well as the possibility of change in control events during the contractual term of the option agreements, 3) the current fair value of the underlying equity, 4) the expected volatility of the value of the underlying share for the expected term of the option, 5) the expected dividends on the underlying share for the expected term of the option and 6) the risk-free interest rate(s) for the expected term of the option.
The 90,000 options to purchase common stock that were granted in March 2016 have a weighted average grant date fair value of $0.43 per option. The grant-date fair values of the stock option awards granted in March 2016 using the Monte Carlo Simulation model were determined with the assumptions set forth in the following table:
|
Exercise price |
$ | 1.83 | ||
|
Expected volatility |
52.40 | % | ||
|
Expected dividend yield |
0.00 | % | ||
|
Risk-free rate over the estimated expected life |
1.74 | % | ||
|
Expected term (in years) |
7.25 |
| Avalon Holdings Corporation and Subsidiaries |
The grant date fair value of the underlying equity was determined to be equal to Avalon’s publicly traded stock price as of the grant dates times the sum of the Class A and Class B common shares outstanding.
The expected term, or time until the option is exercised, is typically based on historical exercising behavior of previous option holders of a company’s stock. Due to the fact that the Company has had no historical exercising activity, the simplified method is applied. Because of the nature of the vesting described above, the options are separated into five blocks, with each block having its own vesting period and expected term. For the options that were granted in March 2016, the expected terms were calculated to be 6.20, 6.70, 7.20, 7.70 and 8.20 years for option blocks 1 through 5, respectively. For options granted prior to 2016, the expected terms were calculated to be 6.27, 6.77, 7.27, 7.77 and 8.27 years, for option blocks 1 through 5, respectively.
For the options that were granted in March 2016, the expected volatility of 52.40% was based on the observed historical volatility of Avalon common stock for a 7.25 year period prior to the grant date. There were no expected dividends and the risk-free interest rate of 1.74% was based on yield data for U. S. Treasury securities over a period consistent with the expected term.
For options granted prior to 2016, the expected volatility was based on the observed historical volatility of Avalon common stock. The expected volatility that was used ranged from 60.9% to 61.7% with a weighted average expected volatility of 61.2%. There were no expected dividends and the risk-free interest rate(s), which ranged from 2.06% to 2.28%, were based on yield data for U. S. Treasury securities over a period consistent with the expected term.
The following table is a summary of the stock option activity during 2017 and 2016:
|
Weighted |
Weighted |
|||||||||||
|
Number of |
Average |
Average |
||||||||||
|
Options |
Exercise |
Fair Value at |
||||||||||
|
Granted |
Price |
Grant Date |
||||||||||
|
Outstanding at January 1, 2016 |
760,000 | $ | 2.63 | $ | 1.09 | |||||||
|
Options granted |
90,000 | 1.83 | 0.43 | |||||||||
|
Options exercised |
- | - | - | |||||||||
|
Options cancelled or forfeited |
(90,000 | ) | 2.89 | 1.20 | ||||||||
|
Outstanding at December 31, 2016 |
760,000 | 2.51 | 1.00 | |||||||||
|
Options granted |
- | - | - | |||||||||
|
Options exercised |
- | - | - | |||||||||
|
Options cancelled or forfeited |
- | - | - | |||||||||
|
Outstanding at December 31, 2017 |
760,000 | $ | 2.51 | $ | 1.00 | |||||||
|
Options Vested |
688,000 | |||||||||||
|
Exercisable at December 31, 2017 |
268,000 | |||||||||||
The stock options vest and become exercisable based upon achieving two critical metrics as follows:
|
1) |
Contract Vesting Term: The stock options vest ratably over a five year period. |
|
2) |
The Avalon common stock price traded on a public stock exchange (NYSE Amex) must reach the predetermined vesting price within three years after the options become vested under the contractual vesting term. |
The table below represents the period and predetermined stock price needed for vesting.
|
Begins |
Ends |
Predetermined |
|||||
|
Vesting |
Vesting |
Vesting Price |
|||||
|
Block 1 |
12 months after Grant Dates |
48 months after Grant Dates |
$ | 3.43 | |||
|
Block 2 |
24 months after Grant Dates |
60 months after Grant Dates |
$ | 4.69 | |||
|
Block 3 |
36 months after Grant Dates |
72 months after Grant Dates |
$ | 6.43 | |||
|
Block 4 |
48 months after Grant Dates |
84 months after Grant Dates |
$ | 8.81 | |||
|
Block 5 |
60 months after Grant Dates |
96 months after Grant Dates |
$ | 12.07 | |||
| Avalon Holdings Corporation and Subsidiaries |
Compensation costs were approximately $12,000 and $29,000 for the years ended December 31, 2017 and 2016, respectively, based upon the estimated grant date fair value calculations. As of December 31, 2017, there was approximately $29,000 of total unrecognized compensation costs related to non-vested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 6.58 years.
Note 9. Shareholders’ Equity
Each share of Class A Common Stock is entitled to one vote and each share of Class B Common Stock is entitled to ten votes on all matters submitted to a vote of the shareholders. Except for the election of Avalon’s Board of Directors, the Class A Common Stock and the Class B Common Stock vote together as a single class on all matters presented for a vote to the shareholders. However, with regard to the election of directors, for as long as the outstanding Class B Common Stock has more than 50% of the total outstanding voting power of all common stock, the holders of the Class A Common Stock, voting as a separate class, will elect the number of directors equal to at least 25% of the total Board of Directors and the holders of the Class B Common Stock, voting as a separate class, will elect the remaining directors. Thereafter, the holders of the Class A Common Stock (one vote per share) and Class B Common Stock (ten votes per share) will vote together as a single class for the election of directors. The holders of a majority of all outstanding shares of Class A Common Stock or Class B Common Stock, voting as separate classes, must also approve amendments to the Articles of Incorporation that adversely affect the shares of their class. Shares of Class A Common Stock and Class B Common Stock do not have cumulative voting rights.
Each share of Class B Common Stock is convertible, at any time, at the option of the shareholder, into one share of Class A Common Stock. Shares of Class B Common Stock are also automatically converted into shares of Class A Common Stock on the transfer of such shares to any person other than Avalon, another holder of Class B Common Stock or a Permitted Transferee, as defined in Avalon’s Articles of Incorporation. The Class A Common Stock is not convertible.
Note 10. Legal Matters
In the ordinary course of conducting its business, Avalon becomes involved in lawsuits, administrative proceedings and governmental investigations, including those related to environmental matters. Some of these proceedings may result in fines, penalties or judgments being assessed against Avalon which, from time to time, may have an impact on its business and financial condition. Although the outcome of such lawsuits or other proceedings cannot be predicted with certainty, Avalon does not believe that any uninsured ultimate liabilities, fines or penalties resulting from such pending proceedings, individually or in the aggregate, would have a material adverse effect on its liquidity, financial position or results of operations (See Note 14).
Note 11. Lease Commitments
Avalon leases golf carts, machinery and equipment, furniture and fixtures, and copiers under operating leases. Under capital leases, Avalon leases a vehicle, equipment and land and land improvements. Future commitments under long-term, operating leases and capital leases at December 31, 2017 are as follows (in thousands):
|
Capital |
Operating |
Total |
||||||||||
|
2018 |
$ | 256 | $ | 524 | $ | 780 | ||||||
|
2019 |
260 | 515 | 775 | |||||||||
|
2020 |
259 | 442 | 701 | |||||||||
|
2021 |
215 | 339 | 554 | |||||||||
|
2022 |
15 | 151 | 166 | |||||||||
|
Thereafter |
450 | - | 450 | |||||||||
|
Total minimum lease payments |
1,455 | $ | 1,971 | $ | 3,426 | |||||||
|
Less: amounts representing interest |
386 | |||||||||||
|
Present value of minimum lease payments |
1,069 | |||||||||||
|
Less: current portion of obligations under capital leases |
212 | |||||||||||
|
Long-term portion of obligations under capital leases |
$ | 857 | ||||||||||
Rental expense included in the Consolidated Statements of Operations amounted to approximately $0.5 million in 2017 and $0.6 million in 2016.
| Avalon Holdings Corporation and Subsidiaries |
Note 12. Business Segment Information
In determining the segment information, Avalon considered its operating and management structure and the types of information subject to regular review by its “chief operating decision maker.” Using the criteria of FASB ASC 280 Segment Reporting, Avalon’s reportable segments include waste management services and golf and related operations. Avalon accounts for intersegment net operating revenues as if the transactions were to third parties. The segment disclosures are presented on this basis for all years presented.
Avalon’s primary business segment, the waste management services segment, provides hazardous and nonhazardous brokerage and management services to industrial, commercial, municipal and governmental customers, captive landfill management for an industrial customer and salt water injection well operations.
Avalon’s golf and related operations segment consists of three golf courses and associated clubhouses which provide dining and banquet facilities, a hotel which provides lodging, dining, banquet and conference facilities and a travel agency. Revenue for the golf and related operations segment consists primarily of membership dues, greens fees, cart rentals, room rentals, merchandise sales, tennis and fitness activities, spa services and food and beverage sales.
Avalon does not have significant operations located outside the United States and, accordingly, geographical segment information is not presented. In 2017, one customer accounted for 12% of the waste management services segment’s net operating revenues to external customers and 9% of the consolidated net operating revenues. In 2016, no customer individually accounted for 10% or more of Avalon’s consolidated net operating revenues.
The accounting policies of the segments are consistent with those described for the consolidated financial statements in the summary of significant accounting policies (See Note 2). Avalon measures segment profit for internal reporting purposes as income (loss) before taxes.
Business segment information including the reconciliation of segment income to consolidated loss before taxes is as follows (in thousands):
|
2017 |
2016 |
|||||||
|
Net operating revenues from: |
||||||||
|
Waste management services: |
||||||||
|
External customer revenues |
$ | 38,398 | $ | 44,306 | ||||
|
Intersegment revenues |
- | - | ||||||
|
Total waste management services |
38,398 | 44,306 | ||||||
|
Golf and related operations: |
||||||||
|
External customer revenues |
17,450 | 17,046 | ||||||
|
Intersegment revenues |
67 | 70 | ||||||
|
Total golf and related operations |
17,517 | 17,116 | ||||||
|
Segment operating revenues |
55,915 | 61,422 | ||||||
|
Intersegment eliminations |
(67 | ) | (70 | ) | ||||
|
Total net operating revenues |
$ | 55,848 | $ | 61,352 | ||||
|
Income (loss) before income taxes: |
||||||||
|
Waste management services |
$ | 2,671 | $ | 2,777 | ||||
|
Golf and related operations |
294 | 254 | ||||||
|
Segment income before taxes |
2,965 | 3,031 | ||||||
|
Corporate interest expense |
(650 | ) | (361 | ) | ||||
|
Corporate other income (expense), net |
(7 | ) | 9 | |||||
|
General corporate expenses |
(3,002 | ) | (2,963 | ) | ||||
|
Loss before income taxes |
$ | (694 | ) | $ | (284 | ) | ||
| Avalon Holdings Corporation and Subsidiaries |
|
|
2017 |
2016 |
||||||
| Depreciation and amortization expense: | ||||||||
|
Waste management services |
$ | 631 | $ | 645 | ||||
|
Golf and related operations |
2,204 | 1,998 | ||||||
|
Corporate |
161 | 173 | ||||||
|
Total depreciation and amortization expense |
$ | 2,996 | $ | 2,816 | ||||
|
Interest expense: |
||||||||
|
Waste management services |
$ | 1 | $ | 3 | ||||
|
Golf and related operations |
48 | 15 | ||||||
|
Corporate |
650 | 361 | ||||||
|
Total interest expense |
$ | 699 | $ | 379 | ||||
|
Capital expenditures: |
||||||||
|
Waste management services |
$ | 115 | $ | 14 | ||||
|
Golf and related operations |
2,417 | 3,296 | ||||||
|
Corporate |
28 | 79 | ||||||
|
Total capital expenditures |
$ | 2,560 | $ | 3,389 | ||||
|
Total assets: |
||||||||
|
Waste management services |
$ | 26,449 | $ | 25,015 | ||||
|
Golf and related operations |
45,188 | 44,728 | ||||||
|
Corporate |
49,549 | 51,937 | ||||||
|
Subtotal |
121,186 | 121,680 | ||||||
|
Elimination of intersegment receivables |
(55,808 | ) | (53,782 | ) | ||||
|
Total assets |
$ | 65,378 | $ | 67,898 | ||||
In comparing the total assets at December 31, 2017 with those at December 31, 2016, the increase in total assets of the waste management services segment of $1.4 million is primarily a result of an increase in intersegment transactions, which are eliminated in consolidation, partially offset by a decrease in accounts receivable and to a lesser extent a lower net book value of property and equipment as a result of current year depreciation on the salt water injection wells. The increase in total assets of the golf and related operations segment of $0.5 million is primarily due to golf course maintenance equipment acquired under capital lease agreements and capital expenditures related to the continued renovation and expansion of The Avalon Inn partially offset by current year depreciation on property and equipment and, to a lesser extent, an increase in accounts receivable. The decrease in corporate total assets of $2.4 million is primarily due to a decrease in cash and cash equivalents utilized for the continued renovation and expansion of The Avalon Inn and required monthly cash payments made on the term loan facility and a decrease in intersegment transactions, which are eliminated in consolidation.
Note 13. Certain Relationships and Related Transactions
In August 2013, Avalon created a new Ohio limited liability company, AWMS Holdings, LLC, to act as a holding company to form and own a series of wholly owned subsidiaries that will own and operate Class II salt water injection wells and facilities (together the “facilities”). AWMS Holdings, LLC, offers investment opportunities to accredited investors by selling membership units of AWMS Holdings, LLC through private placement offerings. The monies received from these offerings, along with internally contributed capital, are used to construct the facilities necessary for the operation of salt water injection wells. AWMS Water Solutions, LLC, a wholly owned subsidiary of Avalon, manages all the salt water injection well operations, including the marketing and sales function and all decisions regarding the well operations for a percentage of the gross revenues.
In 2014 and 2013, Avalon, through a wholly owned subsidiary made capital contributions totaling approximately $3.4 million, which included cash and certain well assets, including the permits, in exchange for membership units of AWMS Holdings, LLC. Through a private placement offering for the purchase of membership units, AWMS Holdings, LLC raised approximately $3.8 million from accredited investors in 2014 and 2013. Management and outside directors of Avalon, who qualified as accredited investors, invested approximately $1.0 million in AWMS Holdings, LLC.
| Avalon Holdings Corporation and Subsidiaries |
As a result of a private placement offering, Avalon is not the majority owner of AWMS Holdings, LLC. At December 31, 2017 and 2016, respectively, Avalon owns approximately 47% of AWMS Holdings, LLC. In accordance ASC 810-10, due to the managerial control of AWMS Water Solutions, LLC, AWMS Holdings, LLC is a VIE, and the financial statements of AWMS Holdings, LLC and subsidiaries are included in Avalon’s consolidated financial statements. ASC 810-10 requires noncontrolling interests to be reported as a separate component of equity. The amount of net loss attributable to the noncontrolling interest is recorded in “net loss attributable to noncontrolling interest” in our Consolidated Statements of Operations.
Note 14. Injection Wells Suspension
As a result of a seismic event with a magnitude of 2.1 occurring on August 31, 2014, the Chief of the Division of Oil and Gas Resources Management (“Chief” or “Division”) issued Orders on September 3, 2014, to immediately suspend all operations of both of Avalon’s saltwater injection wells. The Orders were based on the findings that the two saltwater injection wells were located in close proximity to an area of known seismic activity and also that the saltwater injection wells pose a risk of increasing or creating seismic activity. The two saltwater injection wells are located approximately 112 feet apart. Based on these findings, the Chief ordered the immediate suspension of all operations of the two saltwater injection wells, until the Division could further evaluate the wells.
On September 5, 2014, Avalon submitted the information required by the Chief’s Order in regards to its AWMS #1 injection well, and the Chief lifted the suspension for that well on September 18, 2014. On September 19, 2014, Avalon submitted information and a written plan required by the Chief’s Order proposing the establishment of certain operations and management controls on injections at the AWMS #2 injection well. To date, the Division has not responded to that plan despite Avalon’s requests for feedback.
On October 2, 2014, Avalon filed an appeal with the Ohio Oil and Gas Commission (the “Commission”) disputing the basis for suspending operations of AWMS #2 and also the authority of the Chief to immediately suspend such operations. On March 11, 2015, an appeal hearing was held. The Chief stated during the hearing that the suspension is only temporary, and that he expects that AWMS #2 will be allowed to inject once the state’s final policymaking is complete.
On August 12, 2015, the Commission upheld the temporary suspension of injection operations of AWMS #2 stating that the temporary suspension will allow the Chief to more fully evaluate the facts in anticipation of the Division’s implementation of a comprehensive regulatory plan that will specifically address injection-induced seismicity. Avalon appealed that decision in September 2015 to the Franklin County Court of Common Pleas, but that appeal was dismissed on a filing technicality. Avalon appealed the dismissal to the Ohio 10th Circuit Court of Appeals, which found the Commission erred in its filing of their decision. Following the Commission’s proper notice, Avalon appealed again to the Franklin County Court of Common Pleas (the “Court”).
On November 1, 2016 an appeal hearing was held in that Court. On December 23, 2016, the Court issued its Decision and Order in Avalon’s favor, and vacated the Commission’s decision. The Court found that the Division’s suspension and refusal to work with the Company for over 26 months was arbitrary and not in accordance with reason. Subsequent to the ruling, and in accordance with the Court’s Decision and Order, both Avalon and the Division submitted their proposed restart plans to the Court. Avalon’s plan sets forth both the initial volumes and pressures and increases in volume and pressure while continuously monitoring seismicity and addressing the concerns of public health and safety.
On February 21, 2017, the Court issued its Final Decision and Order. The Court’s Final Decision and Order sets conditions for the restarting of AWMS #2 in accordance with the proposed restart plans filed by Avalon with minor revisions. While the Company was making preparations for restarting the well and opening the facility, the Division appealed the Final Decision and Order and filed a Motion to Stay the Court Order on February 22, 2017. The Motion to Stay was granted by the Ohio 10th Circuit Court of Appeals on March 21, 2017. On September 14, 2017, an appeal hearing was held. The Company is currently awaiting judgment from the court. In the event the suspension order is lifted, Avalon will make preparations for restarting the well and opening the facility in accordance with the restart plans. In the event that the temporary suspension is not lifted by the Ohio 10th Circuit Court of Appeals, Avalon will continue in its effort to receive a favorable ruling lifting the temporary suspension.
| Avalon Holdings Corporation and Subsidiaries |
In addition, on August 26, 2016, Avalon filed a complaint in the 11th Appellate District Court in Trumbull County, Ohio for a Peremptory Writ of Mandamus to compel the Director of the Ohio Department of Natural Resources (“ODNR”) to initiate appropriations procedures to determine damages from the illegal regulatory taking of the Company’s property, or issue an alternative remedy at law. There is currently no implemented state-wide policy on induced seismicity and The ODNR has refused to communicate with the Company regarding the status and requirements of any policymaking. The Company believes that the actions, and lack of responsible actions, by ODNR, which were triggered by a seismic event that presented no hazard or risk to any individual or to the environment, is a clear violation of the Company’s property rights and a violation of the Fifth and Fourteenth Amendments to the U.S. Constitution; Article I, Section 19 of the Ohio Constitution; and Ohio Revised Code Chapter 163. The trial is tentatively scheduled to occur in the second quarter of 2018. The Company intends to vigorously pursue the Complaint and obtain due process and fair compensation.
Note 15. Subsequent Event
Acquisition
On March 7, 2018, Avalon, through a newly created subsidiary, Avalon Mahoning Sports Center, Inc., completed the acquisition of the Boardman Tennis Center in Boardman, Ohio for approximately $1.3 million in cash. Subsequent to the acquisition, the Boardman Tennis Center was renamed The Avalon Athletic Club at Boardman. The primary assets of The Avalon Athletic Club at Boardman include the acquired real property consisting of the tennis building and associated land.
The acquisition is consistent with the Company’s athletics and fitness business strategy. Members of the Avalon Golf and Country Clubs will have access to all the tennis, athletic and fitness related activities that will be offered by The Avalon Athletic Club at Boardman. In addition, hotel guests at The Avalon Inn will also be able to utilize the facility during their stay. The Avalon Athletic Club at Boardman will earn revenue through membership fees, tennis, athletic and fitness related activities. The operating results will be included in the Company’s Consolidated Statements of Operations and within Avalon’s golf and related operations segment from the date of acquisition. The Company will account for the acquisition of The Avalon Athletic Club in accordance with ASU 2017-01.
| Avalon Holdings Corporation and Subsidiaries |
Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
Avalon Holdings Corporation
Warren, Ohio
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Avalon Holdings Corporation (the “Company”) and subsidiaries as of December 31, 2017 and 2016, the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the two years in the period ended December 31, 2017, and the related notes and schedule listed in the accompanying index (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company and subsidiaries at December 31, 2017 and 2016, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/BDO USA, LLP
We have served as the Company's auditor since 2015.
Cleveland, Ohio
March 15, 2018
| Avalon Holdings Corporation and Subsidiaries |
Management’s Annual Report on Internal Control over Financial Reporting
The management of Avalon, including the Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) of the Securities and Exchange Act of 1934, as amended. Avalon’s internal control system was designed to provide reasonable assurance as to the reliability of the preparation and presentation of the consolidated financial statements for external reporting and the safeguarding of assets from unauthorized use or disposition.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
With our participation, an evaluation of the effectiveness of our internal control over financial reporting was conducted as of December 31, 2017, based upon the framework and criteria established in Internal Control – Integrated Framework (2013 framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on this evaluation, our management has concluded that our internal control over financial reporting was effective as of December 31, 2017.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
| /s/ Ronald E. Klingle | /s/ Bryan P. Saksa |
| Chief Executive Officer | Chief Financial Officer |
March 15, 2018
| Avalon Holdings Corporation and Subsidiaries |
Company Location Directory
| Corporate Office |
Golf and Related Operations |
|
Avalon Holdings Corporation One American Way Warren, Ohio 44484-5555 (330) 856-8800
Waste Management Services
American Waste Management One American Way Warren, Ohio 44484-5555 (330) 856-8800
American Landfill Management, Inc. One American Way Warren, Ohio 44484-5555 (330) 856-8800
American Construction Supply, Inc. One American Way Warren, Ohio 44484-5555 (330) 856-8800
American Water Solutions, LLC One American Way Warren, Ohio 44484-5555 (330) 856-8800
AWMS Holdings, LLC One American Way Warren, Ohio 44484-5555 (330) 856-8800
AWMS Rt. 169, LLC One American Way Warren, Ohio 44484-5555 (330) 856-8800 |
Avalon Resorts and Clubs, Inc. One American Way Warren, Ohio 44484-5555 (330) 856-8898
Avalon Clubs, Inc. One American Way Warren, Ohio 44484-5555 (330) 856-8898
Avalon Resorts, Inc. One American Way Warren, Ohio 44484-5555 (330) 856-8898
Avalon Golf and Country Club One American Way Warren, Ohio 44484-5555 (330) 856-8898
Avalon Lakes Golf Course One American Way Warren, Ohio 44484-5555 (330) 856-8898
Squaw Creek Golf Course 761 Youngstown-Kingsville Road Vienna, Ohio 44473 (330) 539-5103
Avalon Country Club at Sharon, Inc. 1030 Forker Blvd. Hermitage, PA 16148-1566 (724) 981-6700
The Avalon Resort and Spa LLC 9519 East Market Street Warren, OH 44484-5555 (330) 856-1900
Avalon Travel, Inc. One American Way Warren, Ohio 44484-5555 (330) 856-8400
Avalon Mahoning Sports Center, Inc. One American Way Warren, Ohio 44484-5555 (330) 856-8898 |
| Avalon Holdings Corporation and Subsidiaries |
Directors and Officerss
| Directors | Officers |
|
Ronald E. Klingle Chairman of the Board and Chief Executive Officer Executive Committee (Chairman) Compensation Committee
Bryan P. Saksa Chief Financial Officer, Treasurer and Secretary Compensation Committee (Chairman)
Kurtis D. Gramley Chairman and Chief Executive Officer, Edgewood Surgical Hospital Audit Committee (Chairman) Executive Committee Option Plan Committee
Stephen L. Gordon Partner, Beveridge & Diamond, P.C. Compensation Committee Audit Committee Option Plan Committee (Chairman)
David G. Bozanich Financial Consultant Audit Committee Executive Committee Option Plan Committee |
Ronald E. Klingle Chairman of the Board and Chief Executive Officer
Bryan P. Saksa Chief Financial Officer, Treasurer and Secretary
Frances R. Klingle Chief Administrative Officer
Clifford P. Davis Chief Technology Officer
Richard R. Fees Controller |
| Avalon Holdings Corporation and Subsidiaries |
Shareholder Information
Common stock information
Avalon’s Class A Common Stock is listed on the NYSE Amex (symbol: AWX). Quarterly stock information for 2017 and 2016 as reported by The Wall Street Journal is as follows:
|
2017: |
||||||||||||
|
Quarter Ended |
High |
Low |
Close |
|||||||||
|
March 31 |
$ | 3.37 | $ | 2.12 | $ | 2.38 | ||||||
|
June 30 |
2.97 | 1.91 | 2.43 | |||||||||
|
September 30 |
2.62 | 1.83 | 2.00 | |||||||||
|
December 31 |
2.23 | 1.92 | 2.00 | |||||||||
|
2016: |
||||||||||||
|
Quarter Ended |
High |
Low |
Close |
|||||||||
|
March 31 |
$ | 1.98 | $ | 1.60 | $ | 1.88 | ||||||
|
June 30 |
2.40 | 1.77 | 2.33 | |||||||||
|
September 30 |
3.41 | 2.19 | 2.95 | |||||||||
|
December 31 |
3.39 | 2.26 | 2.95 | |||||||||
No dividends were paid during 2017 or 2016.
There are 321 Class A and 9 Class B Common Stock shareholders of record as of the close of business March 2, 2018. The number of holders is based upon the actual holders registered on the records of Avalon’s transfer agent and registrar and does not include holders of shares in “street names” or persons, partnerships, associations, corporations or other entities identified in security position listings maintained by depository trust companies.
Dividend policy
Avalon presently intends to retain earnings for use in the operation and expansion of its business and therefore, does not anticipate paying any cash dividends in the foreseeable future.
| Avalon Holdings Corporation and Subsidiaries |
Annual report on Form 10-K
Copies of Avalon’s annual report on Form 10-K can be obtained free of charge by writing to Avalon Holdings Corporation, One American Way, Warren, Ohio 44484-5555, Attention: Shareholder Relations or by visiting Avalon’s web-site at
www.avalonholdings.com.
Transfer agent and registrar
The transfer agent and registrar for Avalon is Broadridge Corporate Issuer Solutions, Inc. Regular mail correspondence should be sent to P.O. Box 1342, Brentwood, NY 11717 and overnight correspondence to ATTN: IWS, 1155 Long Island Avenue, Edgewood, NY 11717
Investor inquiries
Security analysts, institutional investors, shareholders, news media representatives and others seeking financial information or general information about Avalon are invited to direct their inquiries to Bryan P. Saksa, Chief Financial Officer and Treasurer, telephone (330) 856-8800.
| Avalon Holdings Corporation and Subsidiaries |
Policy statement on equal employment opportunity and affirmative action
Avalon is firmly committed to a policy of equal employment opportunity and affirmative action. Toward this end, Avalon will continue to recruit, hire, train and promote persons in all job titles, without regard to race, color, religion, sex, national origin, age, handicap, ancestry or Vietnam-era or disabled veteran status. We will base all decisions on merit so as to further the principle of equal employment opportunity. This policy extends to promotions and to all actions regarding employment including compensation, benefits, transfers, layoffs, returns from layoff, company-sponsored training and social programs.
Exhibit 21.1
The following is a list of Avalon’s subsidiaries except for unnamed subsidiaries which considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary.
|
Subsidiary Name |
State of Incorporation |
|
|
• American Landfill Management, Inc. |
Ohio |
|
|
•American Construction Supply, Inc. |
Ohio |
|
|
• American Waste Management Services, Inc. |
Ohio |
|
|
• American Waste NJ |
New Jersey |
|
|
• AWMS Water Solutions, LLC |
Ohio |
|
|
• AWMS Holdings, LLC |
Ohio |
|
|
• AWMS Rt. 169, LLC |
Ohio |
|
|
• Avalon Clubs and Resorts, Inc. |
Ohio |
|
|
• Avalon Resorts, Inc. |
Ohio |
|
|
• The Avalon Resort and Spa LLC |
Ohio |
|
|
• Avalon Clubs, Inc. |
Ohio |
|
|
• Avalon Golf and Country Club, Inc. |
Ohio |
|
|
• Avalon Mahoning Sports Center, Inc. |
Ohio |
|
|
• Avalon Country Club at Sharon, Inc. |
Pennsylvania |
|
|
• Havana Cigar Company |
Pennsylvania |
|
|
• Avalon Lakes Golf, Inc. |
Ohio |
|
|
• Avalon Travel, Inc. |
Ohio |
|
|
• TBG, Inc. |
Ohio |
|
Parent/subsidiary relationships are indicated by indentations. In each case, 100% of the voting securities of each of the subsidiaries are owned by the indicated parent of such subsidiary, except for AWMS Holdings, LLC. At December 31, 2017 AWMS Water Solutions, LLC owned approximately 47% of AWMS Holdings, LLC. Due to the managerial control of AWMS Water Solutions, LLC, AWMS Holdings, LLC is a variable interest entity (“VIE”), and the financial statements of AWMS Holdings, LLC and subsidiaries are included in Avalon’s consolidated financial statements.
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
Avalon Holdings Corporation
Warren, Ohio
We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No.333-165064) of Avalon Holdings Corporation as of our report dated March 15, 2018, relating to the consolidated financial statements and financial statement schedule, which appears in the 2017 Annual Report to Shareholders, which is incorporated by reference in this Annual Report on Form 10-K.
/s/ BDO USA, LLP
Cleveland, Ohio
March 15, 2018
Exhibit 31.1
AVALON HOLDINGS CORPORATION
CERTIFICATION PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Ronald E. Klingle, certify that:
|
1. |
I have reviewed this Annual Report on Form 10-K of Avalon Holdings Corporation; |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a – 15(e) and 15d – 15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions) : |
|
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: March 15, 2018
/s/ Ronald E. Klingle
Ronald E. Klingle, Chief Executive Officer
Exhibit 31.2
AVALON HOLDINGS CORPORATION
CERTIFICATION PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Bryan P. Saksa, certify that:
|
1. |
I have reviewed this Annual Report on Form 10-K of Avalon Holdings Corporation; |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a – 15(e) and 15d – 15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): |
|
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: March 15, 2018
/s/ Bryan P. Saksa
Bryan P. Saksa, Chief Financial Officer
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Avalon Holdings Corporation (the “registrant”) on Form 10-K for the year ending December 31, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “report”), I, Chief Executive Officer of the registrant, certify, pursuant to 18 U.S.C. (a) 1350, as adopted pursuant to (a) 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
|
(1) |
The report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
|
(2) |
The information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the registrant. |
/s/ Ronald E. Klingle
Ronald E. Klingle
Chief Executive Officer
March 15, 2018
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Avalon Holdings Corporation (the “registrant”) on Form 10-K for the year ending December 31, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “report”), I, Chief Financial Officer of the registrant, certify, pursuant to 18 U.S.C. (a) 1350, as adopted pursuant to (a) 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) The report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the registrant.
/s/ Bryan P. Saksa
Bryan P. Saksa
Chief Financial Officer
March 15, 2018
Document And Entity Information - USD ($) $ in Millions |
12 Months Ended | |
|---|---|---|
Dec. 31, 2017 |
Mar. 02, 2018 |
|
| Document Information [Line Items] | ||
| Entity Registrant Name | AVALON HOLDINGS CORP | |
| Entity Central Index Key | 0001061069 | |
| Trading Symbol | awx | |
| Current Fiscal Year End Date | --12-31 | |
| Entity Filer Category | Smaller Reporting Company | |
| Entity Current Reporting Status | Yes | |
| Entity Voluntary Filers | No | |
| Entity Well-known Seasoned Issuer | No | |
| Entity Public Float | $ 6.4 | |
| Document Type | 10-K | |
| Document Period End Date | Dec. 31, 2017 | |
| Document Fiscal Year Focus | 2017 | |
| Document Fiscal Period Focus | FY | |
| Amendment Flag | false | |
| Common Class B [Member] | ||
| Document Information [Line Items] | ||
| Entity Common Stock, Shares Outstanding (in shares) | 612,231 | |
| Common Class A [Member] | ||
| Document Information [Line Items] | ||
| Entity Common Stock, Shares Outstanding (in shares) | 3,191,100 |
Consolidated Balance Sheets (Parentheticals) $ in Thousands |
Dec. 31, 2017
USD ($)
$ / shares
shares
|
Dec. 31, 2016
USD ($)
$ / shares
shares
|
|---|---|---|
| Accounts receivable, allowance for doubtful accounts | $ | $ 237 | $ 235 |
| Common Class A [Member] | ||
| Common stock, par value (in dollars per share) | $ / shares | $ 0.01 | $ 0.01 |
| Common stock, votes per share | 1 | 1 |
| Common stock, shares authorized (in shares) | 10,500,000 | 10,500,000 |
| Common stock, shares issued (in shares) | 3,191,100 | 3,191,100 |
| Common stock, shares outstanding (in shares) | 3,191,100 | 3,191,100 |
| Common Class B [Member] | ||
| Common stock, par value (in dollars per share) | $ / shares | $ 0.01 | $ 0.01 |
| Common stock, votes per share | 10 | 10 |
| Common stock, shares authorized (in shares) | 1,000,000 | 1,000,000 |
| Common stock, shares issued (in shares) | 612,231 | 612,231 |
| Common stock, shares outstanding (in shares) | 612,231 | 612,231 |
Consolidated Statements of Shareholders' Equity - USD ($) shares in Thousands, $ in Thousands |
Common Stock [Member]
Common Class A [Member]
|
Common Stock [Member]
Common Class B [Member]
|
Additional Paid-in Capital [Member] |
Retained Earnings [Member] |
Parent [Member] |
Noncontrolling Interest [Member] |
Total |
|---|---|---|---|---|---|---|---|
| Balance (in shares) at Dec. 31, 2015 | 3,191 | 612 | |||||
| Balance at Dec. 31, 2015 | $ 32 | $ 6 | $ 58,924 | $ (20,181) | $ 38,781 | $ 2,975 | $ 41,756 |
| Stock options - compensation costs | 29 | 29 | 29 | ||||
| Net loss | (69) | (69) | (340) | (409) | |||
| Balance (in shares) at Dec. 31, 2016 | 3,191 | 612 | |||||
| Balance at Dec. 31, 2016 | $ 32 | $ 6 | 58,953 | (20,250) | 38,741 | 2,635 | 41,376 |
| Stock options - compensation costs | 12 | 12 | 12 | ||||
| Net loss | (307) | (307) | (509) | (816) | |||
| Balance (in shares) at Dec. 31, 2017 | 3,191 | 612 | |||||
| Balance at Dec. 31, 2017 | $ 32 | $ 6 | $ 58,965 | $ (20,557) | $ 38,446 | $ 2,126 | $ 40,572 |
Note 1 - Description of Business |
12 Months Ended |
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Dec. 31, 2017 | |
| Notes to Financial Statements | |
| Business Description and Basis of Presentation [Text Block] | Note 1. Description of the BusinessAvalon Holdings Corporation (“Avalon” or the “Company”) was formed on April 30, 1998 as a subsidiary of American Waste Services, Inc. (“AWS”). On June 17, 1998, AWS distributed, as a special dividend, all of the outstanding shares of capital stock of Avalon to the holders of AWS common stock on a pro rata and corresponding basis.Avalon provides waste management services to industrial, commercial, municipal and governmental customers in selected northeastern and midwestern U.S. markets, captive landfill management services and salt water injection well operations. In ad dition, Avalon owns Avalon Resorts and Clubs, Inc. (“ARCI”), which includes the operation and management of three golf courses and associated clubhouses, fitness centers, tennis courts, spa services, dining and banquet facilities and a travel agency. ARCI also owns and operates a hotel and related amenities including dining, banquet and conference facilities, fitness center, indoor junior Olympic size swimming pool and tennis courts.In J uly 2016, the Company formed ARCI, a wholly owned subsidiary of Avalon, the purpose of which is to hold the corporate activity of Avalon Clubs, Inc. and Avalon Resorts, Inc., both formed concurrently with ARCI. Avalon Clubs, Inc. was formed to hold the wholly owned subsidiaries of the Avalon Golf and Country Club, while Avalon Resorts, Inc. holds the operations of The Avalon Inn. ACRI, Avalon Clubs, Inc. and Avalon Resorts, Inc. are included within Avalon’s golf and related operations segment. |
Note 2 - Summary of Significant Accounting Policies |
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| Notes to Financial Statements | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Significant Accounting Policies [Text Block] | Note 2. Summary of Significant Accounting PoliciesThe significant accounting policies of Avalon, which are summarized below, are consistent with accounting principles generally accepted in the United States and reflect practices appropriate to the businesses in which they operate. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Principles of C onsolidation The consolidated financial statements include the accounts of Avalon, its wholly owned subsidiaries and those companies in which Avalon has managerial control. All significant intercompany accounts and transactions have been eliminated in consolidation. Subsequent E vents Avalon evaluated subsequent events for potential recognition and disclosure through the date the financial statements were issued. Presentation Revision T o comply with SEC Regulation S- X, Rule 5 -03, the Company revised its presentation of net operating revenues and associated operating costs separately for all significant revenue types, consisting of our waste management services as well as food, beverage and merchandise sales and other golf operations, each within our golf and related operations segment in our Consolidated Statements of Operations. The Company determined that this revision is not material to any prior period and has reflected this revision in the Consolidated Statements of Operations for the years ended December 31, 2017 and 2016. This presentation did not affect total revenue, total costs and expenses, operating loss, net loss or net loss attributable to Avalon Holdings Corporation common shareholders.Cash and Cash E quivalents The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents for purposes of the Consolidated Statements of Cash Flows and Consolidated Balance Sheets. Avalon maintains its cash balances in various financial institutions. These balances may, at times, exceed federal insured limits. Avalon has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk relating to its cash and cash equivalents.Restricted C ash Cash and cash equivalents that are restricted as to withdrawal or use under the terms of certain contractual agreements are recorded in restricted cash on the Consolidated Balance Sheets. Restricted cash of $2.8 million and $2.9 million at December 31, 2017 and 2016, respectively, consists of loan proceeds deposited into a project fund account to fund costs associated with the renovation and expansion of The Avalon Inn in accordance with the provisions of the loan and security agreement (See Note 3 ).Inventories Inventories are state d at the lower of cost or net realizable value. Cost of inventories is determined by the average cost method. If necessary, a provision for potentially obsolete or slow-moving inventory is made based on management’s analysis of inventory levels and future sales forecasts. Financial I nstruments The Company follows the guidance included in the Financial Accounting Standard Board (“FASB”) Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures , for its financial assets and liabilities. The fair value of financial instruments consisting of cash, cash equivalents, restricted cash, accounts receivable, and accounts payable at December 31, 2017 and 2016 approximates carrying value due to the relative short maturity of these financial instruments. The fair value of the Company ’s term loan approximates carrying value at December 31, 2017, as neither the Company’s credit rating nor market credit conditions have changed substantially since the debt was refinanced in December 2016. Property and E quipment Property and equipment is stated at cost and depreciated using the straight-line method over the estimated useful life of the asset which varies from 10 to 30 years for land improvements; 5 to 50 years in the case of buildings and improvements; and from 3 to 10 years for machinery and equipment, vehicles and office furniture and equipment (See Note 4 ).Major additions and improvements are charged to the property and equipment accounts while replacements, maintenance and repairs, which do not improve or extend the life of the respective asset, are expensed as incurred. The cost of assets retired or otherwise disposed of and the related accumulated depreciation is eliminated from the accounts in the year of disposal. Gains or losses resulting from disposals of property and equipment are credited or charged to operations. Interest costs are capitalized on significant construction projects. D ebt I ssuance C osts Debt issuance costs are capitalized and amortized over the life of the related debt. Amortization of deferred financing costs is included in interest expense in the Consolidated Statements of Operations. Debt issuance costs incurred related to the loan and security agreement is presented in the Consolidated Balance Sheets as a direct deduction from the carrying amount of the debt. Debt issuance costs incurred related to the line of credit agreement is presented in the Consolidated Balance Sheets as “other assets, net.” Income T axes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and to operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded against net deferred tax assets when management believes it is more likely than not that such deferred tax assets will not be realized. Avalon recognizes any interest and penalty assessed by taxing authorities as a component of interest expense and other expense, respectively.Revenue R ecognition Avalon recognizes revenue fo r waste disposal brokerage and management services as services are performed. In accordance with ASC 605 -45, Revenue Recognition – Principal Agent Considerations , we report revenue on a gross basis because we are the primary obligor in our arrangements to provide these services to our customers. Revenues for the golf and related operations are recognized as services are provided with the exception of annual membership dues which are recognized proportionately over the membership term. The deferred revenue relating to membership dues was approximately $2.7 December 31, 2017 and 2016, respectively.Accounts R eceivable The majority of Avalon ’s accounts receivable is due from industrial and commercial customers. Credit is extended based on an evaluation of a customer’s financial condition and, generally, collateral is not required. Accounts receivable are stated at amounts due from customers, net of an allowance for doubtful accounts. Customer accounts that are outstanding longer than the contractual payment terms are considered past due. Avalon determines its allowance by considering a number of factors, including the length of time trade accounts receivable are past due, Avalon’s previous accounts receivable loss history, the customer’s current ability to pay its obligation to Avalon and the condition of the general economy and the industry as a whole. Avalon writes off accounts receivable when they become uncollectible. Payments subsequently received on such receivables are credited to the allowance for doubtful accounts, or to income, as appropriate under the circumstances.Leases Avalon applies the accounting rules for leases to categorize leases at their inception as either operating or capital leases depending on certain defined criteria. Leasehold improvements are capitalized at cost and are amortized over the lesser of their expected useful life or the life of the lease (See Notes 5 and 11 ).Nonc ontrolling I nterest Under FASB ASC 810 -10, Consolidations – Over all (“ASC 810 -10” ), a company must determine whether it has a variable interest in a legal entity being evaluated for consolidation. A variable interest entity (“VIE”) is consolidated in the financial statements if the company has the power to direct activities that most significantly impact the economic performance of the VIE and has the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. As a result of a private placement offering, Avalon is not the majority owner of AWMS Holdings, LLC. At December 31, 2017 and 2016, respectively, Avalon owns approximately 47% 810 -10 , due to the managerial control of AWMS Water Solutions, LLC, AWMS Holdings, LLC is a VIE, and the financial statements of AWMS Holdings, LLC and subsidiaries are included in Avalon’s consolidated financial statements. ASC 810 -10 requires noncontrolling interests to be reported as a separate component of equity. The amount of net loss attributable to the noncontrolling interest is recorded in “net loss attributable to noncontrolling interest” in our Consolidated Statements of Operations (See Note 13 ).Share -Based C ompensation Avalon re cognizes share-based compensation expense related to stock options issued to employees and directors. Avalon estimates the fair value of the stock options granted using a Monte Carlo simulation. The Monte Carlo Simulation was selected to determine the fair value because it incorporates six minimum considerations; 1 ) the exercise price of the option, 2 ) the expected term of the option, taking into account both the contractual term of the option, the effects of employees’ expected exercise and post-vesting employment termination behavior, as well as the possibility of change in control events during the contractual term of the option agreements, 3 ) the current fair value of the underlying equity, 4 ) the expected volatility of the value of the underlying share for the expected term of the option, 5 ) the expected dividends on the underlying share for the expected term of the option and 6 ) the risk-free interest rate(s) for the expected term of the option.Avalon amortizes the grant date fair value of the stock options over the expected term which approximates the requisite service period. If accelerated vesting occurs based on the market performance of Avalon’s common stock, the compensation costs related to the vested stock options that have not previously been amortized are recognized upon vesting. Asset Retirement O bligation Avalon recorded an estimated asset retirement obligation of $0.1 December 31, 2017 and 2016, respectively, to plug and abandon the two salt water injection wells based upon an estimate from an experienced and qualified third party.Asset I mpairments Avalon reviews the carrying value of its long-lived assets whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. If indicators of impairment exist, Avalon would determine whether the estimated undiscounted sum of the future cash flows of such assets and their eventual disposition is less than its carrying amount. If less, an impairment loss would be recognized if, and to the extent that the carrying amount of such assets exceeds their respective fair value. Avalon would determine the fair value by using quoted market prices, if available, for such assets; or if quoted market prices are not available, Avalon would discount the expected estimated future cash flows.For the golf and related operations segment, Avalon does not believe there was a triggering event in 2017 or 2016 as future cash flows have not changed significantly and asset values have remained relatively stable. For the waste management services segment, in accordance with FASB ASC 360 -10 -35, Property, Plant and Equipment – Overall – Subsequent Measurement (“ASC 360 -10 -35” ), Avalon assessed the recoverability of the carrying values of the salt water injection wells based on the Chief of the Division of Oil and Gas Resources Management’s decision to temporarily suspend operations of the wells. Avalon estimated future cash flows directly associated with and which are expected to arise as a direct result of the wells once the temporary suspension is lifted (See Note 14 ). The assumptions used by management in developing the estimates of future cash flows were based on current market conditions and comparable prior periods while in operation. Based on the estimated undiscounted sum of the future cash flows, the net book value of the property, plant and equipment relating to the wells of approximately $3.7 million at December 31, 2017 was recoverable in less than the estimated remaining useful lives of those assets. Management will continue to consider whether indicators of impairment are present and test for recoverability, as necessary, in accordance with ASC 360 -10 -15. If management concludes that the carrying amount of the salt water injection wells are not recoverable, Avalon may record an impairment charge up to $3.7 million, the carrying value of the salt water injection wells.Environmental L iabilities When Avalon concludes that it is probable that a liability has been incurred with respect to a site, a provision is made in Avalon ’s financial statements for Avalon’s best estimate of the liability based on management’s judgment and experience, information available from regulatory agencies, and the number, financial resources and relative degree of responsibility of other potentially responsible parties who are jointly and severally liable for remediation of that site, as well as, the typical allocation of costs among such parties. If a range of possible outcomes is estimated and no amount within the range appears to be a better estimate than any other, Avalon provides for the minimum amount within the range, in accordance with generally accepted accounting principles. The liability is recognized on an undiscounted basis. Avalon’s estimates are revised, as deemed necessary, as additional information becomes known. Although Avalon is not currently aware of any environmental liability, there can be no assurance that in the future an environmental liability will not occur.Basic and D iluted N et L oss per S hare Basic net loss per share attributable to Avalon Holdings Corporation common shareholders for the years ended December 31, 2017 and 2016 is computed by dividing the net loss by the weighted average number of common shares outstanding, which were 3,803,331 Diluted net income (loss) per share attributable to Avalon Holdings Corporation common shareholders is computed by dividing net income (loss) by the weighted average number of common shares outstanding plus any weighted common equivalent shares determined to be outstanding during the period using the treasury method. The weighted common equivalent shares included in the calculation are related to stock options granted by Avalon where the weighted average market price of Avalon’s common stock for the period presented is greater than the option exercise price of the stock option. For the year s ended December 31, 2017 and 2016, the diluted per share amounts reported are equal to the basic per share amounts because Avalon was in a net loss position and as a result, such dilution would be considered anti-dilutive. Assuming dilution, the weighted average number of common shares outstanding for the years ended December 31, 2017 and 2016 was 3,836,661 and 3,849,882, respectively. The loss per share calculations for the years ended December 31, 2017 and 2016 are as follows (in thousands, except per share amounts):
Recent Accounting P ronouncements Adopted Accounting Standards In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)2015 -11, Simplifying the Measurement of Inventory (“ASU 2015 -11” ), to simplify the measurement of inventory. ASU 2015 -11 requires that inventory be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The Company adopted the updated standard in the first quarter of 2017 with no material impact to the financial statements.In November 2015, the FASB issued ASU 2015 -17, Balance Sheet Classification of Deferred Taxes (“ASU 2015 -17” ), which simplifies the presentation of deferred income taxes by eliminating the need for entities to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position. This amendment is effective for annual periods beginning after December 15, 2016. During the first quarter of 2017, the Company adopted ASU 2015 -17. The adoption of this standard did not have an impact on Avalon’s financial position, results of operations or financial statement disclosures.In March 2016, the FASB issued ASU 2016 -09, Improvements to Employee Share-Based Payment Accounting (“ASU 2016 -09” ), which simplifies several aspects of the accounting for employee share-based payment transactions including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification of related amounts within the statement of cash flows. During the first quarter of 2017, the Company adopted ASU 2016 -09. The adoption of this standard did not have a material impact on Avalon’s financial position, results of operations or financial statement disclosures.Accounting Standards Not Yet AdoptedIn May 2014, the FASBissued ASU 2014 -09, Revenue from Contracts with Customers (“ASU 2014 -09” ). ASU 2014 -09 clarifies the principles used to recognize revenue for all entities. ASU 2014 -09 provides a unified five -step model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. The new standard replaces most of the existing revenue recognition standards in U.S. GAAP. In addition, in March 2016, the FASB issued ASU 2016 -08, Revenue from Contracts with Customers (Topic , which clarifies how to apply revenue recognition guidance related to whether an entity is a principal or an agent. 606 ): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)The Company reviewed the terms and conditions contained its contracts with customers relating to our brokerage and management services and captive landfill management activities for our waste management services segment. The Company considered the terms and conditions of the contracts and the all-inclusive pricing for the service contained in those contracts and determined that the waste management services provided to the customer represent a single performance obligation that meets the criteria to be accounted for under the series guidance. Avalon transfers control of the service over time and, therefore, satisfies the performance obligation and will continue to recognize the revenue over time as the customer simultaneously receives and consumes the benefits provided by Avalon’s performance as we perform. In addition, as the promise to provide services qualifies as a series accounted for as a single performance obligation, the Company will apply the guidance in ASC 606 -10 -55 -18 which provides a practical expedient that allows an entity that is recognizing revenue over time by using an output method to recognize revenue equal to the amount that the entity has the right to invoice if the invoiced amount corresponds directly to the value transferred to the customer.The Company also assessed whether the principal versus agent consideration would change how the Company presents revenue for these contracts. Under the contracts, the Company is primarily responsible for fulfilling the service and controls the service prior to transferring it to the customer. Based on our assessment, the Company is acting as the principal and primary obligor under the contracts, and will continue to recognize revenue in the gross amount of consideration which it expects to be entitled in exchange for the service provided. The Company reviewed ASU 2014 -09 for our golf and related operations segment. For our country club memberships, Avalon providing the “stand ready obligation” for unlimited use of the country club facilities to the member over the entire term of the membership agreement represents a single performance obligation of which Avalon expects the member to receive and consume the benefits of its obligation throughout the membership term. As such, the Company will continue to recognize membership dues on a straight line basis over the term of the contract. As a practical expedient, the Company applied this guidance to the whole portfolio of annual membership contracts as all contracts have similar characteristics. The Company determined that the effect on the financial statements of applying this guidance to the portfolio of all membership contracts does not differ from applying this guidance to each individual contract. For our hotel operations, Avalon’s performance obligation is to provide lodging facilities. The separate components of providing this service are not distinct within the context of the contract as they are all highly dependent and interrelated as part of the obligation to provide the lodging facility. Our hotel room reservation performance obligation is satisfied over time as the hotel guest simultaneously receives and consumes the benefits provided by the hotel. For performance obligations satisfied over time, our hotel operations will continue to recognize revenue over time by measuring the progress toward complete satisfaction of that performance obligation.For food, beverage, and merchandise sales, greens fees and associated cart rental and other ancillary services, the transaction price is the set price charged by the Company for those goods or services. Upon purchase of the good or service, the Company transfers control of the good or service to the customer and the customer immediately consumes the benefits of the Compan y’s performance and, as such, the Company will continue to recognize revenue at the point of sale. The Company will adopt the new revenue standard in its first quarter of 2018 using the modified retrospective approach adoption method. Based on our analysis, the Company does not believe there will be a material impact to Avalon’s consolidated revenues upon adoption or on an ongoing basis. The Company is currently finalizing its financial statement disclosures in accordance with the requirements of the standard. In February 2016, the FASB issued ASU 2016 -02, Leases . The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. Avalon is currently reviewing its agreements for its golf carts, machinery and equipment for the landfill operations, furniture and fixtures for The Avalon Inn and office copiers under operating leases and evaluating the impact the adoption of this guidance will have on its financial position, results of operations, cash flows and related disclosures. Upon adoption, the Company expects that the ROU asset and the lease liability will be recognized in the balance sheets in amounts that will be material.In June 2016, the FASB issued ASU 2016 -13, Measurement of Credit Losses on Financial Instruments (“ASU 2016 -13” ), which significantly changes the way entities recognize impairment of many financial assets by requiring immediate recognition of estimated credit losses expected to occur over their remaining life. ASU 2016 -13 is effective January 1, 2020, with early adoption permitted January 1, 2019. The adoption of this standard is not expected to have a material impact on Avalon’s financial position, results of operations or financial statement disclosures.In August 2016, the FASB issued ASU 2016 -15, Classification of Certain Cash Receipts and Cash Payments (“ASU 2016 -15” ), which is intended to reduce diversity in practice in how certain cash receipts and payments are presented and classified in the statement of cash flows. The standard provides guidance in a number of situations including, among others, settlement of zero -coupon bonds, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, and distributions received from equity method investees. ASU 2016 -15 also provides guidance for classifying cash receipts and payments that have aspects of more than one class of cash flows. ASU 2016 -15 is effective for fiscal years beginning after December 15, 2017, with early adoption permitted. The standard requires application using a retrospective transition method. The adoption of this standard is not expected to have a material impact on Avalon’s financial position, results of operations or financial statement disclosures.In November 2016, the FASB issued ASU 2016 -18, Statement of Cash Flows: Restricted Cash (“ASU 2016 -18” ), which requires entities to include restricted cash and restricted cash equivalent balances with cash and cash equivalent balances in the statement of cash flows. ASU 2016 -18 will be effective January 1, 2018 and will impact the presentation of our statement of cash flows for the restricted cash related to the remaining loan proceeds deposited into our project fund account that have not yet been utilized to fund the additional renovation and expansion of The Avalon Inn. In January 2017, the FASB issued ASU 2017 -01, Business Combinations (Topic 805 ): Clarifying the Definition of a Business (“ASU 2017 -01” ). The purpose of ASU 2017 -01 is to change the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. ASU 2017 -01 is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. The Avalon Athletic Club , acquired in March 2018, will be accounted for in accordance with ASU 2017 -01. |
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Note 3 - Term Loan and Line of Credit Agreements |
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| Debt Disclosure [Text Block] | Note 3. Term Loan and Line of Credit Agreements On December 20, 2016, Avalon and certain direct and indirect wholly owned subsidiaries entered into a loan and security agreement (the “Term Loan Agreement”) with Laurel Capital Corporation which provides for a $12.0 million term loan. At closing, $9.1 million of the proceeds were used to pay off the existing line of credit agreement and associated accrued interest with Home Savings Bank (formerly The Home Savings and Loan Company of Youngstown, Ohio), dated May 21, 2015, as amended, and pay related transaction costs associated with the Term Loan Agreement. The line of credit agreement with Home Savings Bank was terminated in conjunction with the repayment. Remaining proceeds of $2.9 million under the Term Loan Agreement were deposited in a project fund account to fund costs of renovating and expanding The Avalon Inn. At December 31, 2017 and 2016, the remaining proceeds of $2.8 million and $2.9 million, respectively, are presented in the Consolidated Balance Sheets as “Restricted cash.” On December 4, 2017 the Term Loan Agreement was amended to restate the definition of “Total Fixed Charges” utilized in the calculation of the “Fixed Charge Coverage Ratio.”The $12.0 million term loan amount is payable in 119 equal monthly installments of principal and interest, based on a fifteen (15 ) year maturity schedule which commenced on January 20, 2017. The Term Loan Agreement matures on December 20, 2026 at which time the final balloon payment equal to the remaining outstanding principal, interest and fees are due. Borrowings under the Term Loan Agreement bear interest at a fixed rate of 5.35% until the fifth anniversary date of the closing at which time the interest rate will be reset to a fixed rate equal to the greater of (a) 5.35% per annum or (b) the sum of the Index Rate on the date two (2 ) business days prior to the reset date and 3.95%, provided that the applicable rate shall in no event exceed 7.50% per annum. Avalon has the right to prepay the amount outstanding under the Term Loan Agreement, in whole or in part, at any time upon payment of the principal amount of the loan to be prepaid plus accrued unpaid interest thereon to the prepayment date, plus an applicable prepayment penalty. The prepayment penalty, expressed as a percentage of the principal of the loan being prepaid, is five percent (5% ) on any prepayment in the first five years; four percent (4% ) on any prepayment in the sixth and seventh year; three percent (3% ) on any prepayment in the eighth and ninth year; and two percent (2% ) on any prepayment in the tenth year.Borrowings are secured by certain real property and related business assets as defined in the Term Loan Agreement. The Term Loan Agreement also contains certain financial and other covenants, customary representations, warranties and events of default. Avalon was in compliance with the Term Loan Agreement covenants at December 31, 2017 and 2016. The Company incurred approximately $191,000 of debt issuance costs in connection with the Term Loan Agreement. These debt issuance costs were capitalized and will be amortized over the life of the Term Loan Agreement. In accordance with ASU 2015 -03, Simplifying the Presentation of Debt Issuance Costs , these costs are presented in the Consolidated Balance Sheets as a direct reduction from the carrying amount of the term loan liability. Concurrently with the Term Loan Agreement, Avalon entered into a new business loan agreement with Home Savings Bank (the “Line of Credit Agreement”) which provides for a line of credit of up to $4.0 million with an original maturity date of May 31, 2017. On April 25, 2017, the Line of Credit Agreement was amended to increase the available line of credit from $4.0 million to $5.0 million and extend the maturity date to May 31, 2019. The amendment also has the option to request a one year extension of maturity in 2018 based on certain terms and conditions. Under the Line of Credit Agreement, borrowings in excess of $1.0 million are subject to a borrowing base which is calculated based off a specific level of eligible accounts receivable of the waste management business as defined in the agreement. No December 31, 2017 and 2016. Outstanding borrowings under the Line of Credit Agreement bear interest at Prime Rate plus .25%. At December 31, 2017, the interest rate on the Line of Credit Agreement was 4.50%. Borrowings under the Line of Credit Agreement are secured by certain business assets of the Company including accounts receivable, inventory and equipment. The Line of Credit Agreement also contains certain covenants, customary representations, warranties and events of default. Avalon was in compliance with the Line of Credit Agreement covenants at December 31, 2017 and 2016. D uring the years ended December 31, 2017 and 2016, the weighted average interest rate on outstanding borrowings was 5.35% and 3.80%, respectively. Obligations under the Company ’s debt agreements at December 31, 2017 and 2016 consist of the following (in thousands):
At December 31, 2017, future maturities of long-term debt are as follows (in thousands):
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Note 4 - Property and Equipment |
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| Property, Plant and Equipment Disclosure [Text Block] | Note 4 . Property and Equipment Property an d equipment at December 31, 2017 and 2016 consists of the following (in thousands):
At December 31, 2017, the Company did not have any significant fixed contractual commitments for construction projects. |
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Note 5 - Capital Leased Assets |
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| Debt and Capital Leases Disclosures [Text Block] | Note 5 . Capital Leased Assets In November 2003, Avalon entered into a long-term agreement with Squaw Creek Country Club to lease and operate its golf course and related facilities. The lease has an initial term of ten (10 ) years with four (4 ) consecutive ten (10 ) year renewal term options unilaterally exercisable by Avalon. Under the lease, Avalon is obligated to pay $15,000 in annual rent and make leasehold improvements of $150,000 per year. Amounts expended by Avalon for leasehold improvements during a given year in excess of $150,000 will be carried forward and applied to future leasehold improvement obligations. Based upon the amount of leasehold improvements already made, Avalon expects to exercise all its remaining renewal options. During 2017 and 2016 , the golf and related operations entered into leases for a vehicle and golf course maintenance equipment that were determined to be capital leases. The amounts capitalized in the Consolidated Balance Sheets under the caption “Leased property under capital leases, net” relating to these assets were approximately $0.8 million and $0.3 million at December 31, 2017 and 2016, respectively.In addition , during 2017, the captive landfill operations entered into a lease for a piece of equipment that was determined to be a capital lease. The amount capitalized in the Consolidated Balance Sheets under the caption “Leased property under capital leases, net” relating to this asset was approximately $0.1 million at December 31, 2017. Leased property under capital leases at December 31, 2017 and 2016 consists of the following (in thousands):
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Note 6 - Income Taxes |
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| Income Tax Disclosure [Text Block] | Note 6 . Income Taxes Income (l oss) before income taxes for each of the two years in the period ended December 31, 2017 was subject to taxation under United States jurisdictions only. The provision for income taxes consists of the following (in thousands):
On December 22, 2017, legislation commonly known as the Tax Cuts and Jobs Act (“Tax Act” or the “Act”), was signed in to law. The Tax Act, among other changes, reduces the U.S. federal corporate tax rate from 35% to 21%, repeals the Alternative Minimum Tax, eliminates certain deductions, requires taxpayers to pay a one -time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, creates new taxes on certain foreign sourced earnings and changes the carryforward period and utilization of Net Operating Losses generated after December 31, 2017. On December 31, 2017, Avalon did not have any foreign subsidiaries and the international aspects of the Tax Act are not applicable.In connection with the initial analysis of the impact of the Tax Act, Avalon remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. The Company has calculated it’s best estimate resulting from the impact of the Act in our year end income tax provision in accordance with our understanding of the Act and guidance available as of the date of this filing. The Company has recognized a $262,000 provisional expense for the tax impacts of Tax Act in its consolidated financial statements for the year ended December 31, 2017. The remeasurement of the deferred tax balance was primarily offset by application of the valuation allowance. The majority of the provisional expense is related to the revaluation of deferred tax assets and liabilities at December 31, 2017 as a result of Tax Act. The U.S. Treasury Department, the IRS, and other standard-setting bodies could interpret or issue guidance on how provisions of the 2017 Tax Act will be applied or otherwise administered that is different from our interpretation. As we complete our analysis of the 2017 Tax Act, collect and prepare necessary data, and interpret any additional guidance, we may make adjustments to provisional amounts that we have recorded that may materially impact our provision for income taxes in the period in which the adjustments are made. The tax effects of temporary differences that give rise to significant porti ons of the deferred tax assets and liabilities at December 31, 2017 and 2016 are as follows (in thousands):
The $1,752,000 of deferred tax liabilities will reverse in the same period and jurisdiction and is of the same character as the temporary differences giving rise to the $1,760,000 of deferred tax assets. Avalon has not provided a valuation allowance on the amount of deferred tax assets that it estimates will be utilized. If future taxable income is less than the amount that has been assumed in assessing the recoverability of the deferred tax assets, then an increase in the valuation allowance will be required, with a corresponding increase to income tax expense. Likewise, should Avalon ascertain in the future that it is more likely than not that deferred tax assets will be realized in excess of the net deferred tax assets, all or a portion of the $1,313,000 valuation allowance as of December 31, 2017, would be reversed as a benefit to the provision for income taxes in the period such determination was made. The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to income (loss) before income taxes as a result of the following differences (in thousands):
Avalon is subject to income taxes in the U.S. federal and various states jurisdictions. With few exceptions, Avalon is no longer subject to U.S. federal, state and local income tax examinations by taxing authorities for the years before 2013. Avalon recognizes any interest and penalty assessed by taxing authorities as a component of interest expense and other expense, respectively. There were no 2017 and 2016. Avalon made net income tax payments of approximately $144,000 and $54,000 in 2017 and 2016, respectively. At December 31, 2017, Avalon has taxable loss carryforwards for federal income tax purposes aggregating approximately $8,518,000 which are available to offset future federal taxable income. These carryforwards expire in 2021 through 2037. In addition, at December 31, 2017, certain subsidiaries of Avalon have net operating loss carryforwards for state purposes of approximately $8,422,000 which are available to offset future state taxable income. These carryforwards expire at various dates through 2037. A valuation allowance has been provided because it is more likely than not that the deferred tax assets relating to certain of the federal and state loss carryforwards will not be realized. |
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Note 7 - Retirement Benefits |
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Dec. 31, 2017 | |
| Notes to Financial Statements | |
| Pension and Other Postretirement Benefits Disclosure [Text Block] | Note 7 . Retirement Benefits Avalon sponsors a defined contribution profit sharing plan that is a qualified tax deferred benefit plan under Section 401 (k) of the Internal Revenue Code (the “Plan”). Substantially all employees are eligible to participate in the Plan. The Plan provides for employer discretionary cash contributions as determined by Avalon’s Board of Directors. Discretionary contributions vest on a graduated basis and become 100% vested after five years of service. Plan participants may also contribute a portion of their annual compensation to the Plan, subject to maximums imposed by the Internal Revenue Code and related regulations. The Board decided not 2017 or 2016. |
Note 8 - Long-Term Incentive Plan |
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| Disclosure of Compensation Related Costs, Share-based Payments [Text Block] | Note 8 . Long-Term Incentive Plan On August 12, 2009, the Board of Directors of Avalon approved the renewal of the expired 1998 Long-term Incentive Plan which provides for the granting of options which are intended to be non-qualified stock options (“NQSO’s”) for federal income tax purposes except for those options designated as incentive stock options (“ISO’s”) which qualify under Section 422 of the Internal Revenue Code. The name of the plan was changed to the 2009 Long-term Incentive Plan (“the Option Plan”) to reflect the year of approval. On October 6, 2009, at a Special Meeting of Shareholders, the shareholders approved the Option Plan. Avalon has reserved 1,300,000 shares of Class A Common Stock for issuance to employees and non-employee directors. NQSO’s may be granted with an exercise price which is not less than 100% of the fair market value of the Class A Common Stock on the date of grant. Options designated as ISO’s shall not be less than 110% of fair market value for employees who are ten percent shareholders and not less than 100% of fair market value for other employees. The Board of Directors may, from time to time in its discretion, grant options to one or more outside directors, subject to such terms and conditions as the Board of Directors may determine, provided that such terms and conditions are not inconsistent with other applicable provisions of the Option Plan. Options shall have a term of no longer than ten years from the date of grant; except that for an option designated as an ISO which is granted to a ten percent shareholder, the option shall have a term no longer than five years. No option shall be exercisable prior to one year after its grant, unless otherwise provided by the Option Committee of the Board of Directors (but in no event before 6 months after its grant), and thereafter options shall become exercisable in installments, if any, as provided by the Option Committee. Options must be exercised for full shares of common stock. To the extent that options are not exercised when they become initially exercisable, they shall be carried forward and be exercisable until the expiration of the term of such options. No option may be exercised by an optionee after his or her termination of employment for any reason with Avalon or an affiliate, except in certain situations provided by the Option Plan.The purpose of the Avalon Holdings Corporation 2009 Long-term Incentive Plan (the “Plan”) is (a) to improve individual employee performance by providing long-term incentives and rewards to employees of Avalon, (b) to assist Avalon in attracting, retaining and motivating employees and non-employee directors with experience and ability, and (c) to associate the interests of such employees and directors with those of the Avalon shareholders. Under the Plan, 1,300,000 shares have been reserved for the issuance of stock options of which 760,000 options were outstanding at December 31, 2017. In January 2016, 90,000 options granted under the Plan were forfeited and in March 2016, 90,000 options were granted. The stock options, vest ratably over a five year period and have a contractual term of ten years from the date of grant. At the end of each contractual vesting period, the share price of the Avalon common stock, traded on a public stock exchange (NYSE Amex), must reach a predetermined price within three years following such contractual vesting period before the stock options are exercisable (See table below). If the Avalon common stock price does not reach the predetermined price, the stock options will either be cancelled or the period will be extended at the discretion of the Board of Directors. In 2017 and 2016, the Board of Directors extended the period of time for certain vested options that were not exercisable due to those options not meeting the predetermined stock price within the three years following the contractual vesting period.The grant-date fair values of these stock option awards were estimated using the Monte Carlo Simulation. The Monte Carlo Simulation was selected to determine the fair value because it incorporates six minimum considerations; 1 ) the exercise price of the option, 2 ) the expected term of the option, taking into account both the contractual term of the option, the effects of employees’ expected exercise and post-vesting employment termination behavior, as well as the possibility of change in control events during the contractual term of the option agreements, 3 ) the current fair value of the underlying equity, 4 ) the expected volatility of the value of the underlying share for the expected term of the option, 5 ) the expected dividends on the underlying share for the expected term of the option and 6 ) the risk-free interest rate(s) for the expected term of the option. The 90,000 options to purchase common stock that were granted in March 2016 have a weighted average grant date fair value of $0.43 per option. The grant-date fair values of the stock option awards granted in March 2016 using the Monte Carlo Simulation model were determined with the assumptions set forth in the following table:
The grant date fair value of the underlying equity was determined to be equal to Avalon ’s publicly traded stock price as of the grant dates times the sum of the Class A and Class B common shares outstanding. The expected term, or time until the option is exercised, is typically based on historical exercising behavior of previous option holders of a company ’s stock. Due to the fact that the Company has had no historical exercising activity, the simplified method is applied. Because of the nature of the vesting described above, the options are separated into five blocks, with each block having its own vesting period and expected term. For the options that were granted in March 2016, the expected terms were calculated to be 6.20, 6.70, 7.20, 7.70 and 8.20 years for option blocks 1 through 5, respectively. For options granted prior to 2016, the expected terms were calculated to be 6.27, 6.77, 7.27, 7.77 and 8.27 years, for option blocks 1 through 5, respectively.For the options that were granted in March 2016, the expected volatility of 52.40% was based on the observed historical volatility of Avalon common stock for a 7.25 year period prior to the grant date. There were no expected dividends and the risk-free interest rate of 1.74% was based on yield data for U. S. Treasury securities over a period consistent with the expected term.For options granted prior to 2016, the expected volatility was based on the observed historical volatility of Avalon common stock. The expected volatility that was used ranged from 60.9% to 61.7% with a weighted average expected volatility of 61.2%. There were no expected dividends and the risk-free interest rate(s), which ranged from 2.06% to 2.28%, were based on yield data for U. S. Treasury securities over a period consistent with the expected term. The following table is a summary of the stock option ac tivity during 2017 and 2016:
The stock options vest and become exercisable based upon achieving two critical metrics as follows:
The table below represents the period and predetermined stock price needed for vesting.
Compensation costs were approximately $12,000 and $29,000 for the years ended December 31, 2017 and 2016, respectively, based upon the estimated grant date fair value calculations. As of December 31, 2017, there was approximately $29,000 of total unrecognized compensation costs related to non-vested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 6.58 years. |
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Note 9 - Shareholders' Equity |
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Dec. 31, 2017 | |
| Notes to Financial Statements | |
| Stockholders' Equity Note Disclosure [Text Block] | Note 9 . Shareholders’ Equity Each share of Class A Common Stock is entitled to one vote and each share of Class B Common Stock is entitled to ten votes on all matters submitted to a vote of the shareholders. Except for the election of Avalon’s Board of Directors, the Class A Common Stock and the Class B Common Stock vote together as a single class on all matters presented for a vote to the shareholders. However, with regard to the election of directors, for as long as the outstanding Class B Common Stock has more than 50% of the total outstanding voting power of all common stock, the holders of the Class A Common Stock, voting as a separate class, will elect the number of directors equal to at least 25% of the total Board of Directors and the holders of the Class B Common Stock, voting as a separate class, will elect the remaining directors. Thereafter, the holders of the Class A Common Stock (one vote per share) and Class B Common Stock (ten votes per share) will vote together as a single class for the election of directors. The holders of a majority of all outstanding shares of Class A Common Stock or Class B Common Stock, voting as separate classes, must also approve amendments to the Articles of Incorporation that adversely affect the shares of their class. Shares of Class A Common Stock and Class B Common Stock do not have cumulative voting rights.Each share of Class B Common Stock is convertible, at any time, at the option of the shareholder, into one share of Class A Common Stock. Shares of Class B Common Stock are also automatically converted into shares of Class A Common Stock on the transfer of such shares to any person other than Avalon, another holder of Class B Common Stock or a Permitted Transferee, as defined in Avalon’s Articles of Incorporation. The Class A Common Stock is not convertible. |
Note 10 - Legal Matters |
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Dec. 31, 2017 | |
| Notes to Financial Statements | |
| Legal Matters and Contingencies [Text Block] | Note 10 . Legal Matters In the ordinary course of conducting its business, Avalon becomes involved in lawsuits, administrative proceedings and governmental investigations, including those related to environmental matters. Some of these proceedings may result in fines, penalties or judgments being assessed against Avalon which, from time to time, may have an impact on its business and financial condition. Although the outcome of such lawsuits or other proceedings cannot be predicted with certainty, Avalon does not believe that any uninsured ultimate liabilities, fines or penalties resulting from such pending proceedings, individually or in the aggregate, would have a material adverse effect on its liquidity, financial position or results of operations (See Note 14 ). |
Note 11 - Lease Commitments |
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| Leases of Lessee Disclosure [Text Block] | Note 11 . Lease Commitments Avalon leases golf carts, machinery and equipment, furniture and fixtures, and copiers under operating leases. Under capital leases, Avalon leases a vehicle, equipment and land and land improvements. Future commitments under long-term, operating leases and capital leases at December 31, 2017 are as follows (in thousands):
Rental expense included in the Consolidated Statements of Operations amounted t o approximately $0.5 million in 2017 and $0.6 million in 2016. |
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Note 12 - Business Segment Information |
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| Segment Reporting Disclosure [Text Block] | Note 12 . Business Segment Information In determining the segment information, Avalon considered its operating and management structure and the types of information subject to regular review by its “chief operating decision maker.” Using the criteria of FASB ASC 280 Segment Reporting , Avalon’s reportable segments include waste management services and golf and related operations. Avalon accounts for intersegment net operating revenues as if the transactions were to third parties. The segment disclosures are presented on this basis for all years presented.Avalon ’s primary business segment, the waste management services segment, provides hazardous and nonhazardous brokerage and management services to industrial, commercial, municipal and governmental customers, captive landfill management for an industrial customer and salt water injection well operations. Avalon ’s golf and related operations segment consists of three golf courses and associated clubhouses which provide dining and banquet facilities, a hotel which provides lodging, dining, banquet and conference facilities and a travel agency. Revenue for the golf and related operations segment consists primarily of membership dues, greens fees, cart rentals, room rentals, merchandise sales, tennis and fitness activities, spa services and food and beverage sales. Avalon does not have significant operations located outside the United States and, accordingly, geographical segment information is not presented. In 2017, one customer accounted for 12% of the waste management services segment’s net operating revenues to external customers and 9% of the consolidated net operating revenues. In 2016, no customer individually accounted for 10% or more of Avalon’s consolidated net operating revenues.The accounting policies of the segments are consistent with those described for the consolidated financial statements in the summary of si gnificant accounting policies (See Note 2 ). Avalon measures segment profit for internal reporting purposes as income (loss) before taxes. Business segment information including the reconciliation of segment income to consolidated loss before taxes is as follows (in thousands):
In comparing the total assets at December 31, 2017 with those at December 31, 2016, the increase in total assets of the waste management services segment of $1.4 million is primarily a result of an increase in intersegment transactions, which are eliminated in consolidation, partially offset by a decrease in accounts receivable and to a lesser extent a lower net book value of property and equipment as a result of current year depreciation on the salt water injection wells. The increase in total assets of the golf and related operations segment of $0.5 million is primarily due to golf course maintenance equipment acquired under capital lease agreements and capital expenditures related to the continued renovation and expansion of The Avalon Inn partially offset by current year depreciation on property and equipment and, to a lesser extent, an increase in accounts receivable. The decrease in corporate total assets of $2.4 million is primarily due to a decrease in cash and cash equivalents utilized for the continued renovation and expansion of The Avalon Inn and required monthly cash payments made on the term loan facility and a decrease in intersegment transactions, which are eliminated in consolidation. |
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Note 13 - Certain Relationships and Related Transactions |
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Dec. 31, 2017 | |
| Notes to Financial Statements | |
| Related Party Transactions Disclosure [Text Block] | Note 13 . Certain Relationships and Related Transactions In August 2013, Avalon created a new Ohio limited liability company, AWMS Holdings, LLC, to act as a holding company to form and own a series of wholly owned subsidiaries that will own and operate Class II salt water injection wells and facilities (together the “facilities”). AWMS Holdings, LLC, offers investment opportunities to accredited investors by selling membership units of AWMS Holdings, LLC through private placement offerings. The monies received from these offerings, along with internally contributed capital, are used to construct the facilities necessary for the operation of salt water injection wells. AWMS Water Solutions, LLC, a wholly owned subsidiary of Avalon, manages all the salt water injection well operations, including the marketing and sales function and all decisions regarding the well operations for a percentage of the gross revenues. In 2014 and 2013, Avalon, through a wholly owned subsidiary made capital contributions totaling approximately $3.4 $3.8 2014 and 2013. Management and outside directors of Avalon, who qualified as accredited investors, invested approximately $1.0 million in AWMS Holdings, LLC.As a result of a private placement offering, Avalon is not the majority owner of AWMS Holdings, LLC. At December 31, 2017 and 2016, respectively, Avalon owns approximately 47% 810 -10 , due to the managerial control of AWMS Water Solutions, LLC, AWMS Holdings, LLC is a VIE, and the financial statements of AWMS Holdings, LLC and subsidiaries are included in Avalon’s consolidated financial statements. ASC 810 -10 requires noncontrolling interests to be reported as a separate component of equity. The amount of net loss attributable to the noncontrolling interest is recorded in “net loss attributable to noncontrolling interest” in our Consolidated Statements of Operations. |
Note 14 - Injection Wells Suspension |
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Dec. 31, 2017 | |
| Notes to Financial Statements | |
| Suspended Injection Well Costs Disclosure [Text Block] | Note 14. Injection Wells SuspensionAs a result of a seismic event with a magnitude of 2.1 occurring on August 31, 2014, the Chief of the Division of Oil and Gas Resources Management (“Chief” or “Division”) issued Orders on September 3, 2014, to immediately suspend all operations of both of Avalon’s saltwater injection wells. The Orders were based on the findings that the two saltwater injection wells were located in close proximity to an area of known seismic activity and also that the saltwater injection wells pose a risk of increasing or creating seismic activity. The two saltwater injection wells are located approximately 112 feet apart. Based on these findings, the Chief ordered the immediate suspension of all operations of the two saltwater injection wells, until the Division could further evaluate the wells. On September 5, 2014, Avalon submitted the information required by the Chief’s Order in regards to its AWMS #1 injection well, and the Chief lifted the suspension for that well on September 18, 2014. On September 19, 2014, Avalon submitted information and a written plan required by the Chief’s Order proposing the establishment of certain operations and management controls on injections at the AWMS #2 injection well. To date, the Division has not responded to that plan despite Avalon’s requests for feedback.On October 2, 2014, Avalon filed an appeal with the Ohio Oil and Gas Commission (the “Commission”) disputing the basis for suspending operations of AWMS #2 and also the authority of the Chief to immediately suspend such operations. On March 11, 2015, an appeal hearing was held. The Chief stated during the hearing that the suspension is only temporary, and that he expects that AWMS #2 will be allowed to inject once the state’s final policymaking is complete. On August 12, 2015, the Commission upheld the temporary suspension of injection operations of AWMS #2 stating that the temporary suspension will allow the Chief to more fully evaluate the facts in anticipation of the Division’s implementation of a comprehensive regulatory plan that will specifically address injection-induced seismicity. Avalon appealed that decision in September 2015 to the Franklin County Court of Common Pleas, but that appeal was dismissed on a filing technicality. Avalon appealed the dismissal to the Ohio 10 th Circuit Court of Appeals, which found the Commission erred in its filing of their decision. Following the Commission’s proper notice, Avalon appealed again to the Franklin County Court of Common Pleas (the “Court”). On November 1, 2016 an appeal hearing was held in that Court. On December 23, 2016, the Court issued its Decision and Order in Avalon’s favor, and vacated the Commission’s decision. The Court found that the Division’s suspension and refusal to work with the Company for over 26 months was arbitrary and not in accordance with reason. Subsequent to the ruling, and in accordance with the Court’s Decision and Order, both Avalon and the Division submitted their proposed restart plans to the Court. Avalon’s plan sets forth both the initial volumes and pressures and increases in volume and pressure while continuously monitoring seismicity and addressing the concerns of public health and safety. On February 21, 2017, the Court issued its Final Decision and Order. The Court’s Final Decision and Order sets conditions for the restarting of AWMS #2 in accordance with the proposed restart plans filed by Avalon with minor revisions. While the Company was making preparations for restarting the well and opening the facility, the Division appealed the Final Decision and Order and filed a Motion to Stay the Court Order on February 22, 2017. The Motion to Stay was granted by the Ohio 10 th Circuit Court of Appeals on March 21, 2017. On September 14, 2017, an appeal hearing was held. The Company is currently awaiting judgment from the court. In the event the suspension order is lifted, Avalon will make preparations for restarting the well and opening the facility in accordance with the restart plans. In the event that the temporary suspension is not lifted by the Ohio 10 th Circuit Court of Appeals, Avalon will continue in its effort to receive a favorable ruling lifting the temporary suspension.In addition, on August 26, 2016, Avalon filed a complaint in the 11 th Appellate District Court in Trumbull County, Ohio for a Peremptory Writ of Mandamus to compel the Director of the Ohio Department of Natural Resources (“ODNR”) to initiate appropriations procedures to determine damages from the illegal regulatory taking of the Company’s property, or issue an alternative remedy at law. There is currently no implemented state-wide policy on induced seismicity and The ODNR has refused to communicate with the Company regarding the status and requirements of any policymaking. The Company believes that the actions, and lack of responsible actions, by ODNR, which were triggered by a seismic event that presented no hazard or risk to any individual or to the environment, is a clear violation of the Company’s property rights and a violation of the Fifth and Fourteenth Amendments to the U.S. Constitution; Article I, Section 19 of the Ohio Constitution; and Ohio Revised Code Chapter 163. The trial is tentatively scheduled to occur in the second quarter of 2018. The Company intends to vigorously pursue the Complaint and obtain due process and fair compensation. |
Note 15 - Subsequent Event |
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Dec. 31, 2017 | |
| Notes to Financial Statements | |
| Subsequent Events [Text Block] | Note 15. Subsequent EventAcquisition On March 7, 2018, Avalon, through a newly created subsidiary, Avalon Mahoning Sports Center, Inc., completed the acquisition of the Boardman Tennis Center in Boardman, Ohio for approximately $1.3 million in cash. Subsequent to the acquisition, the Boardman Tennis Center was renamed The Avalon Athletic Club . The primary assets of The Avalon Athletic Club at Boardman include the acquired real property consisting of the tennis building and associated land. The acquisition is consistent with the Company ’s athletics and fitness business strategy. Members of the Avalon Golf and Country Clubs will have access to all the tennis, athletic and fitness related activities that will be offered by The Avalon Athletic Club at Boardman. In addition, hotel guests at The Avalon Inn will also be able to utilize the facility during their stay. The Avalon Athletic Club at Boardman will earn revenue through membership fees, tennis, athletic and fitness related activities. The operating results will be included in the Company’s Consolidated Statements of Operations and within Avalon’s golf and related operations segment from the date of acquisition. The Company will account for the acquisition of The Avalon Athletic Club in accordance with ASU 2017 -01. |
Schedule II - Valuation and Qualifying Accounts |
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| Schedule of Valuation and Qualifying Accounts Disclosure [Text Block] | AVALON HOLDINGS CORPORATION AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 20 1 7 AND 20 1 6 (in thousands )
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Significant Accounting Policies (Policies) |
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| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Consolidation, Policy [Policy Text Block] | Principles of C onsolidation The consolidated financial statements include the accounts of Avalon, its wholly owned subsidiaries and those companies in which Avalon has managerial control. All significant intercompany accounts and transactions have been eliminated in consolidation. |
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| Subsequent Events, Policy [Policy Text Block] | Subsequent E vents Avalon evaluated subsequent events for potential recognition and disclosure through the date the financial statements were issued. |
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| Presentation Revision [Policy Text Block] | Presentation Revision T o comply with SEC Regulation S- X, Rule 5 -03, the Company revised its presentation of net operating revenues and associated operating costs separately for all significant revenue types, consisting of our waste management services as well as food, beverage and merchandise sales and other golf operations, each within our golf and related operations segment in our Consolidated Statements of Operations. The Company determined that this revision is not material to any prior period and has reflected this revision in the Consolidated Statements of Operations for the years ended December 31, 2017 and 2016. This presentation did not affect total revenue, total costs and expenses, operating loss, net loss or net loss attributable to Avalon Holdings Corporation common shareholders. |
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| Cash and Cash Equivalents, Policy [Policy Text Block] | Cash and Cash E quivalents The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents for purposes of the Consolidated Statements of Cash Flows and Consolidated Balance Sheets. Avalon maintains its cash balances in various financial institutions. These balances may, at times, exceed federal insured limits. Avalon has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk relating to its cash and cash equivalents. |
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| Cash and Cash Equivalents, Restricted Cash and Cash Equivalents, Policy [Policy Text Block] | Restricted C ash Cash and cash equivalents that are restricted as to withdrawal or use under the terms of certain contractual agreements are recorded in restricted cash on the Consolidated Balance Sheets. Restricted cash of $2.8 million and $2.9 million at December 31, 2017 and 2016, respectively, consists of loan proceeds deposited into a project fund account to fund costs associated with the renovation and expansion of The Avalon Inn in accordance with the provisions of the loan and security agreement (See Note 3 ). |
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| Inventory, Policy [Policy Text Block] | Inventories Inventories are state d at the lower of cost or net realizable value. Cost of inventories is determined by the average cost method. If necessary, a provision for potentially obsolete or slow-moving inventory is made based on management’s analysis of inventory levels and future sales forecasts. |
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| Fair Value of Financial Instruments, Policy [Policy Text Block] | Financial I nstruments The Company follows the guidance included in the Financial Accounting Standard Board (“FASB”) Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures , for its financial assets and liabilities. The fair value of financial instruments consisting of cash, cash equivalents, restricted cash, accounts receivable, and accounts payable at December 31, 2017 and 2016 approximates carrying value due to the relative short maturity of these financial instruments. The fair value of the Company ’s term loan approximates carrying value at December 31, 2017, as neither the Company’s credit rating nor market credit conditions have changed substantially since the debt was refinanced in December 2016. |
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| Property, Plant and Equipment, Policy [Policy Text Block] | Property and E quipment Property and equipment is stated at cost and depreciated using the straight-line method over the estimated useful life of the asset which varies from 10 to 30 years for land improvements; 5 to 50 years in the case of buildings and improvements; and from 3 to 10 years for machinery and equipment, vehicles and office furniture and equipment (See Note 4 ).Major additions and improvements are charged to the property and equipment accounts while replacements, maintenance and repairs, which do not improve or extend the life of the respective asset, are expensed as incurred. The cost of assets retired or otherwise disposed of and the related accumulated depreciation is eliminated from the accounts in the year of disposal. Gains or losses resulting from disposals of property and equipment are credited or charged to operations. Interest costs are capitalized on significant construction projects. |
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| Debt, Policy [Policy Text Block] | D ebt I ssuance C osts Debt issuance costs are capitalized and amortized over the life of the related debt. Amortization of deferred financing costs is included in interest expense in the Consolidated Statements of Operations. Debt issuance costs incurred related to the loan and security agreement is presented in the Consolidated Balance Sheets as a direct deduction from the carrying amount of the debt. Debt issuance costs incurred related to the line of credit agreement is presented in the Consolidated Balance Sheets as “other assets, net.” |
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| Income Tax, Policy [Policy Text Block] | Income T axes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and to operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded against net deferred tax assets when management believes it is more likely than not that such deferred tax assets will not be realized. Avalon recognizes any interest and penalty assessed by taxing authorities as a component of interest expense and other expense, respectively. |
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| Revenue Recognition, Policy [Policy Text Block] | Revenue R ecognition Avalon recognizes revenue fo r waste disposal brokerage and management services as services are performed. In accordance with ASC 605 -45, Revenue Recognition – Principal Agent Considerations , we report revenue on a gross basis because we are the primary obligor in our arrangements to provide these services to our customers. Revenues for the golf and related operations are recognized as services are provided with the exception of annual membership dues which are recognized proportionately over the membership term. The deferred revenue relating to membership dues was approximately $2.7 December 31, 2017 and 2016, respectively. |
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| Receivables, Policy [Policy Text Block] | Accounts R eceivable The majority of Avalon ’s accounts receivable is due from industrial and commercial customers. Credit is extended based on an evaluation of a customer’s financial condition and, generally, collateral is not required. Accounts receivable are stated at amounts due from customers, net of an allowance for doubtful accounts. Customer accounts that are outstanding longer than the contractual payment terms are considered past due. Avalon determines its allowance by considering a number of factors, including the length of time trade accounts receivable are past due, Avalon’s previous accounts receivable loss history, the customer’s current ability to pay its obligation to Avalon and the condition of the general economy and the industry as a whole. Avalon writes off accounts receivable when they become uncollectible. Payments subsequently received on such receivables are credited to the allowance for doubtful accounts, or to income, as appropriate under the circumstances. |
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| Lessee, Leases [Policy Text Block] | Leases Avalon applies the accounting rules for leases to categorize leases at their inception as either operating or capital leases depending on certain defined criteria. Leasehold improvements are capitalized at cost and are amortized over the lesser of their expected useful life or the life of the lease (See Notes 5 and 11 ). |
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| Equity Method Investments [Policy Text Block] | Nonc ontrolling I nterest Under FASB ASC 810 -10, Consolidations – Over all (“ASC 810 -10” ), a company must determine whether it has a variable interest in a legal entity being evaluated for consolidation. A variable interest entity (“VIE”) is consolidated in the financial statements if the company has the power to direct activities that most significantly impact the economic performance of the VIE and has the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. As a result of a private placement offering, Avalon is not the majority owner of AWMS Holdings, LLC. At December 31, 2017 and 2016, respectively, Avalon owns approximately 47% 810 -10 , due to the managerial control of AWMS Water Solutions, LLC, AWMS Holdings, LLC is a VIE, and the financial statements of AWMS Holdings, LLC and subsidiaries are included in Avalon’s consolidated financial statements. ASC 810 -10 requires noncontrolling interests to be reported as a separate component of equity. The amount of net loss attributable to the noncontrolling interest is recorded in “net loss attributable to noncontrolling interest” in our Consolidated Statements of Operations (See Note 13 ). |
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| Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block] | Share -Based C ompensation Avalon re cognizes share-based compensation expense related to stock options issued to employees and directors. Avalon estimates the fair value of the stock options granted using a Monte Carlo simulation. The Monte Carlo Simulation was selected to determine the fair value because it incorporates six minimum considerations; 1 ) the exercise price of the option, 2 ) the expected term of the option, taking into account both the contractual term of the option, the effects of employees’ expected exercise and post-vesting employment termination behavior, as well as the possibility of change in control events during the contractual term of the option agreements, 3 ) the current fair value of the underlying equity, 4 ) the expected volatility of the value of the underlying share for the expected term of the option, 5 ) the expected dividends on the underlying share for the expected term of the option and 6 ) the risk-free interest rate(s) for the expected term of the option.Avalon amortizes the grant date fair value of the stock options over the expected term which approximates the requisite service period. If accelerated vesting occurs based on the market performance of Avalon’s common stock, the compensation costs related to the vested stock options that have not previously been amortized are recognized upon vesting. |
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| Asset Retirement Obligation [Policy Text Block] | Asset Retirement O bligation Avalon recorded an estimated asset retirement obligation of $0.1 December 31, 2017 and 2016, respectively, to plug and abandon the two salt water injection wells based upon an estimate from an experienced and qualified third party. |
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| Impairment or Disposal of Long-Lived Assets, Policy [Policy Text Block] | Asset I mpairments Avalon reviews the carrying value of its long-lived assets whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. If indicators of impairment exist, Avalon would determine whether the estimated undiscounted sum of the future cash flows of such assets and their eventual disposition is less than its carrying amount. If less, an impairment loss would be recognized if, and to the extent that the carrying amount of such assets exceeds their respective fair value. Avalon would determine the fair value by using quoted market prices, if available, for such assets; or if quoted market prices are not available, Avalon would discount the expected estimated future cash flows.For the golf and related operations segment, Avalon does not believe there was a triggering event in 2017 or 2016 as future cash flows have not changed significantly and asset values have remained relatively stable. For the waste management services segment, in accordance with FASB ASC 360 -10 -35, Property, Plant and Equipment – Overall – Subsequent Measurement (“ASC 360 -10 -35” ), Avalon assessed the recoverability of the carrying values of the salt water injection wells based on the Chief of the Division of Oil and Gas Resources Management’s decision to temporarily suspend operations of the wells. Avalon estimated future cash flows directly associated with and which are expected to arise as a direct result of the wells once the temporary suspension is lifted (See Note 14 ). The assumptions used by management in developing the estimates of future cash flows were based on current market conditions and comparable prior periods while in operation. Based on the estimated undiscounted sum of the future cash flows, the net book value of the property, plant and equipment relating to the wells of approximately $3.7 million at December 31, 2017 was recoverable in less than the estimated remaining useful lives of those assets. Management will continue to consider whether indicators of impairment are present and test for recoverability, as necessary, in accordance with ASC 360 -10 -15. If management concludes that the carrying amount of the salt water injection wells are not recoverable, Avalon may record an impairment charge up to $3.7 million, the carrying value of the salt water injection wells. |
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| Regulatory Environmental Costs, Policy [Policy Text Block] | Environmental L iabilities When Avalon concludes that it is probable that a liability has been incurred with respect to a site, a provision is made in Avalon ’s financial statements for Avalon’s best estimate of the liability based on management’s judgment and experience, information available from regulatory agencies, and the number, financial resources and relative degree of responsibility of other potentially responsible parties who are jointly and severally liable for remediation of that site, as well as, the typical allocation of costs among such parties. If a range of possible outcomes is estimated and no amount within the range appears to be a better estimate than any other, Avalon provides for the minimum amount within the range, in accordance with generally accepted accounting principles. The liability is recognized on an undiscounted basis. Avalon’s estimates are revised, as deemed necessary, as additional information becomes known. Although Avalon is not currently aware of any environmental liability, there can be no assurance that in the future an environmental liability will not occur. |
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| Earnings Per Share, Policy [Policy Text Block] | Basic and D iluted N et L oss per S hare Basic net loss per share attributable to Avalon Holdings Corporation common shareholders for the years ended December 31, 2017 and 2016 is computed by dividing the net loss by the weighted average number of common shares outstanding, which were 3,803,331 Diluted net income (loss) per share attributable to Avalon Holdings Corporation common shareholders is computed by dividing net income (loss) by the weighted average number of common shares outstanding plus any weighted common equivalent shares determined to be outstanding during the period using the treasury method. The weighted common equivalent shares included in the calculation are related to stock options granted by Avalon where the weighted average market price of Avalon’s common stock for the period presented is greater than the option exercise price of the stock option. For the year s ended December 31, 2017 and 2016, the diluted per share amounts reported are equal to the basic per share amounts because Avalon was in a net loss position and as a result, such dilution would be considered anti-dilutive. Assuming dilution, the weighted average number of common shares outstanding for the years ended December 31, 2017 and 2016 was 3,836,661 and 3,849,882, respectively. The loss per share calculations for the years ended December 31, 2017 and 2016 are as follows (in thousands, except per share amounts):
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| New Accounting Pronouncements, Policy [Policy Text Block] | Recent Accounting P ronouncements Adopted Accounting Standards In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)2015 -11, Simplifying the Measurement of Inventory (“ASU 2015 -11” ), to simplify the measurement of inventory. ASU 2015 -11 requires that inventory be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The Company adopted the updated standard in the first quarter of 2017 with no material impact to the financial statements.In November 2015, the FASB issued ASU 2015 -17, Balance Sheet Classification of Deferred Taxes (“ASU 2015 -17” ), which simplifies the presentation of deferred income taxes by eliminating the need for entities to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position. This amendment is effective for annual periods beginning after December 15, 2016. During the first quarter of 2017, the Company adopted ASU 2015 -17. The adoption of this standard did not have an impact on Avalon’s financial position, results of operations or financial statement disclosures.In March 2016, the FASB issued ASU 2016 -09, Improvements to Employee Share-Based Payment Accounting (“ASU 2016 -09” ), which simplifies several aspects of the accounting for employee share-based payment transactions including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification of related amounts within the statement of cash flows. During the first quarter of 2017, the Company adopted ASU 2016 -09. The adoption of this standard did not have a material impact on Avalon’s financial position, results of operations or financial statement disclosures.Accounting Standards Not Yet AdoptedIn May 2014, the FASBissued ASU 2014 -09, Revenue from Contracts with Customers (“ASU 2014 -09” ). ASU 2014 -09 clarifies the principles used to recognize revenue for all entities. ASU 2014 -09 provides a unified five -step model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. The new standard replaces most of the existing revenue recognition standards in U.S. GAAP. In addition, in March 2016, the FASB issued ASU 2016 -08, Revenue from Contracts with Customers (Topic , which clarifies how to apply revenue recognition guidance related to whether an entity is a principal or an agent. 606 ): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)The Company reviewed the terms and conditions contained its contracts with customers relating to our brokerage and management services and captive landfill management activities for our waste management services segment. The Company considered the terms and conditions of the contracts and the all-inclusive pricing for the service contained in those contracts and determined that the waste management services provided to the customer represent a single performance obligation that meets the criteria to be accounted for under the series guidance. Avalon transfers control of the service over time and, therefore, satisfies the performance obligation and will continue to recognize the revenue over time as the customer simultaneously receives and consumes the benefits provided by Avalon’s performance as we perform. In addition, as the promise to provide services qualifies as a series accounted for as a single performance obligation, the Company will apply the guidance in ASC 606 -10 -55 -18 which provides a practical expedient that allows an entity that is recognizing revenue over time by using an output method to recognize revenue equal to the amount that the entity has the right to invoice if the invoiced amount corresponds directly to the value transferred to the customer.The Company also assessed whether the principal versus agent consideration would change how the Company presents revenue for these contracts. Under the contracts, the Company is primarily responsible for fulfilling the service and controls the service prior to transferring it to the customer. Based on our assessment, the Company is acting as the principal and primary obligor under the contracts, and will continue to recognize revenue in the gross amount of consideration which it expects to be entitled in exchange for the service provided. The Company reviewed ASU 2014 -09 for our golf and related operations segment. For our country club memberships, Avalon providing the “stand ready obligation” for unlimited use of the country club facilities to the member over the entire term of the membership agreement represents a single performance obligation of which Avalon expects the member to receive and consume the benefits of its obligation throughout the membership term. As such, the Company will continue to recognize membership dues on a straight line basis over the term of the contract. As a practical expedient, the Company applied this guidance to the whole portfolio of annual membership contracts as all contracts have similar characteristics. The Company determined that the effect on the financial statements of applying this guidance to the portfolio of all membership contracts does not differ from applying this guidance to each individual contract. F or our hotel operations, Avalon’s performance obligation is to provide lodging facilities. The separate components of providing this service are not distinct within the context of the contract as they are all highly dependent and interrelated as part of the obligation to provide the lodging facility. Our hotel room reservation performance obligation is satisfied over time as the hotel guest simultaneously receives and consumes the benefits provided by the hotel. For performance obligations satisfied over time, our hotel operations will continue to recognize revenue over time by measuring the progress toward complete satisfaction of that performance obligation. For food, beverage, and merchandise sales, greens fees and associated cart rental and other ancillary services, the transaction price is the set price charged by the Company for those goods or services. Upon purchase of the good or service, the Company transfers control of the good or service to the customer and the customer immediately consumes the benefits of the Compan y’s performance and, as such, the Company will continue to recognize revenue at the point of sale. The Company will adopt the new revenue standard in its first quarter of 2018 using the modified retrospective approach adoption method. Based on our analysis, the Company does not believe there will be a material impact to Avalon’s consolidated revenues upon adoption or on an ongoing basis. The Company is currently finalizing its financial statement disclosures in accordance with the requirements of the standard. In February 2016, the FASB issued ASU 2016 -02, Leases . The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. Avalon is currently reviewing its agreements for its golf carts, machinery and equipment for the landfill operations, furniture and fixtures for The Avalon Inn and office copiers under operating leases and evaluating the impact the adoption of this guidance will have on its financial position, results of operations, cash flows and related disclosures. Upon adoption, the Company expects that the ROU asset and the lease liability will be recognized in the balance sheets in amounts that will be material.In June 2016, the FASB issued ASU 2016 -13, Measurement of Credit Losses on Financial Instruments (“ASU 2016 -13” ), which significantly changes the way entities recognize impairment of many financial assets by requiring immediate recognition of estimated credit losses expected to occur over their remaining life. ASU 2016 -13 is effective January 1, 2020, with early adoption permitted January 1, 2019. The adoption of this standard is not expected to have a material impact on Avalon’s financial position, results of operations or financial statement disclosures.In August 2016, the FASB issued ASU 2016 -15, Classification of Certain Cash Receipts and Cash Payments (“ASU 2016 -15” ), which is intended to reduce diversity in practice in how certain cash receipts and payments are presented and classified in the statement of cash flows. The standard provides guidance in a number of situations including, among others, settlement of zero -coupon bonds, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, and distributions received from equity method investees. ASU 2016 -15 also provides guidance for classifying cash receipts and payments that have aspects of more than one class of cash flows. ASU 2016 -15 is effective for fiscal years beginning after December 15, 2017, with early adoption permitted. The standard requires application using a retrospective transition method. The adoption of this standard is not expected to have a material impact on Avalon’s financial position, results of operations or financial statement disclosures.In November 2016, the FASB issued ASU 2016 -18, Statement of Cash Flows: Restricted Cash (“ASU 2016 -18” ), which requires entities to include restricted cash and restricted cash equivalent balances with cash and cash equivalent balances in the statement of cash flows. ASU 2016 -18 will be effective January 1, 2018 and will impact the presentation of our statement of cash flows for the restricted cash related to the remaining loan proceeds deposited into our project fund account that have not yet been utilized to fund the additional renovation and expansion of The Avalon Inn. In January 2017, the FASB issued ASU 2017 -01, Business Combinations (Topic 805 ): Clarifying the Definition of a Business (“ASU 2017 -01” ). The purpose of ASU 2017 -01 is to change the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. ASU 2017 -01 is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. The Avalon Athletic Club , acquired in March 2018, will be accounted for in accordance with ASU 2017 -01. |
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Note 2 - Summary of Significant Accounting Policies (Tables) |
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Note 3 - Term Loan and Line of Credit Agreements (Tables) |
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Note 4 - Property and Equipment (Tables) |
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Note 5 - Capital Leased Assets (Tables) |
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Note 6 - Income Taxes (Tables) |
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Note 8 - Long-Term Incentive Plan (Tables) |
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Note 11 - Lease Commitments (Tables) |
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Note 12 - Business Segment Information (Tables) |
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| Schedule of Segment Reporting Information, by Segment [Table Text Block] |
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Schedule II - Valuation and Qualifying Accounts (Tables) |
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| Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Valuation and Qualifying Accounts Disclosure [Table Text Block] |
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Note 1 - Description of Business (Details Textual) |
12 Months Ended |
|---|---|
Dec. 31, 2017 | |
| Golf and Related Operations [Member] | |
| Number of Golf Courses | 3 |
Note 2 - Summary of Significant Accounting Policies - Net Income (Loss) Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands |
12 Months Ended | |
|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
|
| Net loss attributable to Avalon Holdings Corporation common shareholders | $ (307) | $ (69) |
| Weighted Average Number of Shares Outstanding, Basic | 3,803,331 | 3,803,331 |
| Potentially dilutive shares from stock options (in shares) | ||
| Shares used in computing diluted loss per share (in shares) | 3,803,000 | 3,803,000 |
| Basic and diluted net loss per share (in dollars per share) | $ (0.08) | $ (0.02) |
Note 3 - Term Loan and Line of Credit Agreements - Summary of Term Loan and Line of Credit Agreements (Details) - USD ($) $ in Thousands |
Dec. 31, 2017 |
Dec. 31, 2016 |
|---|---|---|
| Long-term debt, gross | $ 11,464 | |
| Less current portion of long-term debt, gross | 566 | $ 536 |
| Less current portion debt issuance costs | (19) | (19) |
| Current portion of long-term debt | 547 | 517 |
| Long-term debt, gross, net of current portion | 10,898 | 11,464 |
| Debt issuance costs, net of current portion | (153) | (170) |
| Long-term debt, net of current portion | 10,745 | 11,294 |
| Term Loan Agreement [Member] | ||
| Long-term debt, gross | 11,464 | 12,000 |
| Debt issuance costs | (172) | (189) |
| Long-term debt | $ 11,292 | $ 11,811 |
Note 3 - Term Loan and Line of Credit Agreements - Future Maturities of Long-term Debt (Details) $ in Thousands |
Dec. 31, 2017
USD ($)
|
|---|---|
| 2018 | $ 566 |
| 2019 | 597 |
| 2020 | 629 |
| 2021 | 664 |
| 2022 | 700 |
| Thereafter | 8,308 |
| Total | $ 11,464 |
Note 4 - Property and Equipment - Summary of Property and Equipment (Details) - USD ($) $ in Thousands |
Dec. 31, 2017 |
Dec. 31, 2016 |
|---|---|---|
| Property and equipment, gross | $ 65,252 | $ 63,553 |
| Less accumulated depreciation and amortization | (22,037) | (19,582) |
| Property and equipment, net | 43,215 | 43,971 |
| Land and Land Improvements [Member] | ||
| Property and equipment, gross | 14,318 | 14,118 |
| Building and Building Improvements [Member] | ||
| Property and equipment, gross | 34,721 | 33,533 |
| Machinery and Equipment [Member] | ||
| Property and equipment, gross | 9,151 | 9,015 |
| Vehicles [Member] | ||
| Property and equipment, gross | 467 | 445 |
| Office Equipment [Member] | ||
| Property and equipment, gross | 6,301 | 5,963 |
| Construction in Progress [Member] | ||
| Property and equipment, gross | $ 294 | $ 479 |
Note 5 - Capital Leased Assets (Details Textual) |
1 Months Ended | ||
|---|---|---|---|
Nov. 30, 2003 |
Dec. 31, 2017
USD ($)
|
Dec. 31, 2016
USD ($)
|
|
| Capital Leases, Future Minimum Payments Due, Next Twelve Months | $ 256,000 | ||
| Capital Leases, Balance Sheet, Assets by Major Class, Net | 6,360,000 | $ 6,035,000 | |
| Capital Leased Asset, Equipment for Landfill Operation [Member] | |||
| Capital Leases, Balance Sheet, Assets by Major Class, Net | 100,000 | ||
| Golf and Related Operations [Member] | |||
| Capital Leases, Balance Sheet, Assets by Major Class, Net | 800,000 | $ 300,000 | |
| Squaw Creek Country Club Lease [Member] | |||
| Initial Lease Term | 10 years | ||
| Number of Consecutive Renewal Term Options | 4 | ||
| Renewal Lease Term | 10 years | ||
| Capital Leases, Future Minimum Payments Due, Next Twelve Months | 15,000 | ||
| Leasehold Improvements Required to be Made Per Year | $ 150,000 |
Note 5 - Capital Leased Assets - Leased Property Under Capital Leases (Details) - USD ($) $ in Thousands |
Dec. 31, 2017 |
Dec. 31, 2016 |
|---|---|---|
| Leased property under capital leases | $ 11,361 | $ 10,783 |
| Less accumulated amortization | (5,001) | (4,748) |
| Leased property under capital leases, net | $ 6,360 | $ 6,035 |
Note 6 - Income Taxes (Details Textual) - USD ($) |
12 Months Ended | ||
|---|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|
| Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent | 35.00% | 35.00% | |
| Income Tax Expense (Benefit), Continuing Operations, Adjustment of Deferred Tax (Asset) Liability | $ 262,000 | ||
| Deferred Tax Liabilities, Gross | 1,752,000 | $ 2,637,000 | |
| Deferred Tax Assets, Net of Valuation Allowance | 1,760,000 | 2,645,000 | |
| Deferred Tax Assets, Valuation Allowance | 1,313,000 | 1,453,000 | |
| Unrecognized Tax Benefits, Income Tax Penalties and Interest Accrued | 0 | 0 | |
| Income Taxes Paid, Net | 144,000 | $ 54,000 | |
| Domestic Tax Authority [Member] | |||
| Operating Loss Carryforwards | 8,518,000 | ||
| State and Local Jurisdiction [Member] | |||
| Operating Loss Carryforwards | $ 8,422,000 | ||
| Scenario, Forecast [Member] | |||
| Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent | 21.00% | ||
Note 6 - Income Taxes - Income Tax Expense (Details) - USD ($) $ in Thousands |
12 Months Ended | |
|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
|
| Federal | $ (2) | $ (2) |
| State | 124 | 127 |
| Total current income taxes | 122 | 125 |
| Federal | ||
| State | ||
| Total deferred income taxes | ||
| Total provision for income taxes | $ 122 | $ 125 |
Note 6 - Income Taxes - Deferred Tax Assets and Liabilities (Details) - USD ($) |
Dec. 31, 2017 |
Dec. 31, 2016 |
|---|---|---|
| Accounts receivable, allowance for doubtful accounts | $ 60,000 | $ 87,000 |
| Reserves not deductible until paid | 187,000 | 300,000 |
| Federal | 1,794,000 | 2,764,000 |
| State | 556,000 | 537,000 |
| Federal tax credit | 476,000 | 398,000 |
| Other | 12,000 | |
| Gross deferred tax assets | 3,073,000 | 4,098,000 |
| Less valuation allowance | (1,313,000) | (1,453,000) |
| Deferred tax assets net of valuation allowance | 1,760,000 | 2,645,000 |
| Property and equipment | (1,582,000) | (2,399,000) |
| Other | (170,000) | (238,000) |
| Gross deferred tax liabilities | (1,752,000) | (2,637,000) |
| Net deferred tax asset | $ 8,000 | $ 8,000 |
Note 6 - Income Taxes - Income Tax Reconciliation (Details) - USD ($) $ in Thousands |
12 Months Ended | |
|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
|
| Loss before income taxes | $ (694) | $ (284) |
| Less net loss attributable to non-controlling interest in subsidiary | (509) | (340) |
| ncome (loss) before income taxes attributable to Avalon Holdings Corporation common shareholders | $ (185) | $ 56 |
| Federal statutory rate | 35.00% | 35.00% |
| Computed Federal provision (benefit) for income taxes | $ (65) | $ 20 |
| State income taxes, net of federal income tax benefits | 81 | 82 |
| Change in valuation allowance | (140) | (198) |
| Increase in available federal tax credit | (78) | (60) |
| Other nondeductible expenses | 42 | 41 |
| State | (19) | 231 |
| Federal | (4) | 5 |
| Deferred tax rate change | 262 | |
| Other, net | 43 | 4 |
| Total provision for income taxes | $ 122 | $ 125 |
Note 7 - Retirement Benefits (Details Textual) - USD ($) $ in Thousands |
12 Months Ended | |
|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
|
| Defined Contribution Plan, Employers Matching Contribution, Annual Vesting Percentage | 100.00% | |
| Defined Contribution Plan, Employers Matching Contribution, Requisite Service Period | 5 years | |
| Defined Contribution Plan, Employer Discretionary Contribution Amount | $ 0 | $ 0 |
Note 8 - Long-term Incentive Plan - Disclosure of Share-based Compensation Arrangements, Assumptions (Details) |
1 Months Ended |
|---|---|
|
Mar. 31, 2016
$ / shares
| |
| Exercise price (in dollars per share) | $ 1.83 |
| Expected volatility | 52.40% |
| Expected dividend yield | 0.00% |
| Risk-free rate over the estimated expected life | 1.74% |
| Expected term (in years) (Year) | 7 years 91 days |
Note 9 - Shareholders' Equity (Details Textual) |
12 Months Ended | |
|---|---|---|
|
Dec. 31, 2017
shares
|
Dec. 31, 2016 |
|
| Number of Class A Common Stock Convertible with Each Class B Common Stock | 1 | |
| Common Class A [Member] | ||
| Common Stock, Votes Per Share | 1 | 1 |
| Common Class B [Member] | ||
| Common Stock, Votes Per Share | 10 | 10 |
Note 11 - Lease Commitments (Details Textual) - USD ($) $ in Millions |
12 Months Ended | |
|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
|
| Operating Leases, Rent Expense | $ 0.5 | $ 0.6 |
Note 12 - Business Segment Information (Details Textual) $ in Millions |
12 Months Ended | |
|---|---|---|
|
Dec. 31, 2017
USD ($)
|
Dec. 31, 2016 |
|
| Corporate, Non-Segment [Member] | ||
| Increase (Decrease) in Total Assets | $ (2.4) | |
| Customer Concentration Risk [Member] | Sales Revenue, Net [Member] | ||
| Number of Major Customers | 1 | 0 |
| Customer Concentration Risk [Member] | Sales Revenue, Net [Member] | One Customer [Member] | ||
| Concentration Risk, Percentage | 9.00% | |
| Golf and Related Operations [Member] | ||
| Number of Golf Courses | 3 | |
| Increase (Decrease) in Total Assets | $ 0.5 | |
| Waste Management Services [Member] | ||
| Increase (Decrease) in Total Assets | $ 1.4 | |
| Waste Management Services [Member] | Customer Concentration Risk [Member] | Sales Revenue, Net [Member] | One Customer [Member] | ||
| Concentration Risk, Percentage | 12.00% | |
Note 13 - Certain Relationships and Related Transactions (Details Textual) - USD ($) $ in Millions |
12 Months Ended | 24 Months Ended | |||
|---|---|---|---|---|---|
Dec. 31, 2014 |
Dec. 31, 2013 |
Dec. 31, 2014 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|
| Investment in Subsidiary [Member] | Management and Accredited Investors [Member] | |||||
| Related Party Transaction, Amounts of Transaction | $ 1.0 | ||||
| AWMS Holdings, LLC [Member] | |||||
| Equity Method Investments | $ 3.4 | $ 3.4 | $ 3.4 | ||
| Proceeds from Issuance of Private Placement | $ 3.8 | $ 3.8 | |||
| Equity Method Investment, Ownership Percentage | 47.00% | 47.00% | |||
Note 14 - Injection Wells Suspension (Details Textual) |
Sep. 30, 2014 |
|---|---|
| Number of Suspended Saltwater Injection Wells | 2 |
Note 15 - Subsequent Event (Details Textual) $ in Millions |
Mar. 07, 2018
USD ($)
|
|---|---|
| Boardman Tennis Center [Member] | Subsequent Event [Member] | |
| Payments to Acquire Businesses, Gross | $ 1.3 |
Schedule II - Valuation and Qualifying Accounts (Details) - USD ($) $ in Thousands |
12 Months Ended | ||||||
|---|---|---|---|---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
||||||
| Allowance for Doubtful Accounts [Member] | |||||||
| Balance at beginning of year | $ 235 | $ 235 | |||||
| Additions charged (credited) to costs and expenses | 6 | 115 | |||||
| Additions charged to other accounts | |||||||
| Deductions (recoveries) | [1] | 4 | 115 | ||||
| Balance at end of year | 237 | 235 | |||||
| Valuation Allowance of Deferred Tax Assets [Member] | |||||||
| Balance at beginning of year | 1,453 | 1,651 | |||||
| Additions charged (credited) to costs and expenses | [2] | (140) | (198) | ||||
| Additions charged to other accounts | |||||||
| Deductions (recoveries) | |||||||
| Balance at end of year | $ 1,313 | $ 1,453 | |||||
| |||||||
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