Attached files
Exhibit 13.1
Avalon Holdings Corporation
2010 Annual Report
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Avalon Holdings Corporation and Subsidiaries
Managements 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). This discussion should be read in conjunction with the consolidated financial statements and accompanying notes.
Statements included in Managements 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 Avalons 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 Avalons reports filed with the Securities and Exchange Commission.
Liquidity and Capital Resources
For the year 2010, Avalon utilized cash provided by operations and existing cash to fund capital expenditures and meet operating needs.
Avalons aggregate capital expenditures in 2010 were $.4 million. Such expenditures related principally to purchases of equipment and building improvements for the golf and related operations segment. Avalons aggregate capital expenditures in 2011 are expected to be in the range of $.3 million to $.5 million, which will principally relate to building improvements and equipment purchases for the golf and related operations.
On November 1, 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. Avalon has made $7.5 million of leasehold improvements as of December 31, 2010. Based upon the amount of leasehold improvements already made and leasehold improvements anticipated to be made in the future, Avalon expects to exercise all of its renewal options.
Working capital was $6.6 million at December 31, 2010 compared with $5.7 million at December 31, 2009. The increase was primarily due to an increase in accounts receivable and a decrease in accrued payroll and other compensation.
The increase in accounts receivable of $1.1 million at December 31, 2010 compared with December 31, 2009 is primarily due to significantly higher net operating revenues of the waste management services segment in the fourth quarter of 2010 compared with the fourth quarter of 2009.
The decrease in accrued payroll and other compensation of $.2 million at December 31, 2010 compared with December 31, 2009 is primarily the result of a decrease in accrued bonuses of the waste brokerage and management services business due to the timing of payments and a decrease in the amount of accrued payroll at yearend.
On March 21, 2008, Avalon entered into a $3.5 million unsecured line of credit agreement with The Huntington National Bank. Interest on borrowings accrues at LIBOR plus 1.75%. The agreement was amended in April 2009 to provide for a minimum interest rate of 3.25%. The line of credit contains certain financial and other covenants, customary representations, warranties and events of defaults. Avalon was in compliance with the debt covenants at December 31, 2010 and expects to meet the covenants throughout 2011. At December 31, 2010 and December 31, 2009, there were no borrowings under the line of credit.
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Avalon Holdings Corporation and Subsidiaries
Management believes that anticipated cash provided from future operations and existing working capital, as well as Avalons ability to borrow money under its credit facility, will be, for the foreseeable future, sufficient to meet operating requirements and fund capital expenditure programs.
Growth Strategy: Our growth strategy for the waste management services segment will focus 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 customers 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. |
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.
| Pricing Activities. We seek to secure price increases necessary to offset increased costs, to improve our operating margins and to obtain adequate returns on our investments in assets. |
| Long-Term Agreements. We seek to obtain long-term agreements with all of our customers. By obtaining such long-term agreements, we will have the opportunity to grow our revenue base at the same rate as the underlying revenue growth of these customers. We believe this positions us to minimize revenue deterioration and experience internal growth rates that are generally higher than our industrys overall growth rate. Additionally, we believe that by securing a base of long-term recurring revenue, we are better able to protect our market position from competition and our business may be less susceptible to downturns in economic conditions. |
| 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. |
For the golf and related operations, 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. Such potential acquisitions could be financed by existing working capital, utilizing its line of credit, secured or unsecured debt, issuance of common stock, or issuance of a security with characteristics of both debt and equity, any of which could impact liquidity in the future.
Results of Operations
Avalons primary business segment, the waste management services segment, provides hazardous and nonhazardous waste brokerage and management services and captive landfill management services. The golf and related operations segment includes the operation of golf courses and related facilities and a travel agency.
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Performance in 2010 compared with 2009
Overall Performance
Net operating revenues increased to $43.5 million in 2010 compared with $36.9 million in 2009. The increase is primarily the result of a significant increase in the net operating revenues of the waste management services segment. Costs of operations increased to $35.8 million in 2010 compared with $30.1 million in 2009. The increase is primarily due to higher transportation and disposal costs of the waste management services segment, as these costs vary directly with the net operating revenues. Fixed costs relating to depreciation and amortization expense were $1.7 million in both 2010 and 2009. Consolidated selling, general and administrative expenses increased to $6.8 million in 2010 compared with $6.1 million in 2009. The increase is primarily due to an increase in salary and wages due to the hiring of Mr. Steven M. Berry as Chief Executive Officer, compensation costs relating to stock options granted in the first quarter of 2010 and $.1 million of non-recurring maintenance expenses at the corporate headquarters building. Additionally, in 2009, the results were favorably impacted by the Board of Directors decision to eliminate the 2008 employer discretionary contribution of $.1 million to Avalons 401k plan, which was scheduled to be made in the third quarter of 2009. Avalon incurred a net loss of $.5 million or $.14 per share in 2010 compared with a net loss of $.8 million or $.20 per share in 2009.
Segment Performance. Segment performance should be read in conjunction with Note 12 to the Consolidated Financial Statements.
Net operating revenues of the waste management services segment increased to $33.9 million in 2010 compared with $27.5 million in 2009. Net operating revenues of the waste brokerage and management services increased to $31.3 million in 2010 from $25.3 million in 2009 and the net operating revenues of the captive landfill management operations increased to $2.6 million in 2010 from $2.2 million in 2009. The increase in net operating revenues of the waste brokerage and management services was primarily due to an increase of 47% in event work and a 4% increase in continuous or ongoing work. 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. The increase in event work was primarily due to an increase in the number and size of the projects won in 2010 compared with 2009. Net operating revenues of the captive landfill management operations increased in 2010 compared with 2009 primarily as a result of an increase in the sales of construction mats and an increase in the volume of waste disposed at the landfill. The volume of waste disposed of at the landfill is entirely dependent upon the amount of waste generated by the owner of the landfill for whom Avalon manages the facility.
Income before taxes of the waste management services segment increased to $2.8 million in 2010 compared with $2.2 million in 2009. The increase is primarily due to the aforementioned increase in net operating revenues of the waste brokerage and management services business. Income before taxes of the waste brokerage and management services business was $2.3 million in 2010 compared with $1.7 million in 2009. Income before taxes of the captive landfill management operations was $.5 million in both 2010 and 2009. Although the net operating revenues of the captive landfill management operations increased, income before income taxes remained the same as a result of additional incentive bonuses during 2010 and higher operating costs.
Net operating revenues of the golf and related operations segment were $9.6 million in 2010 compared with $9.4 million in 2009. 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 2010 and 2009. The average number of members during 2010 increased to 2,804 compared with 2,645 in 2009. The average net operating revenues per member from membership dues decreased slightly in 2010 compared with the prior year due to a change in the mix between social and golf members and promotional membership programs. As such, net operating revenues from membership dues increased only slightly in 2010 compared with 2009. Net operating revenues associated with golfing activities decreased in 2010 while food and beverage, tennis, and net operating revenues related to spa services increased. The golf and related operations segment incurred a loss before taxes of $.6 million in 2010 compared with a loss before taxes of $.8 million in 2009. The results in 2010 improved compared to 2009 primarily as a result of an increase in net operating revenues and decreases in advertising and sales promotion expenses which were partially offset by increases in various operating expenses. The ability to attract and retain members is very important to the success of the golf and related operations segment. Avalon is continually using
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different marketing strategies to attract and retain members, such as local television advertising and/or various membership promotions. However, due to the state of the economy, retaining members and attracting new members has been difficult. A significant decline in members could adversely impact the financial results of the golf and related operations segment.
Interest Income
Interest income was $24,000 in 2010 compared with $33,000 in 2009. The decrease is primarily the result of lower average investment rates.
Other Income, net
Other income, net was $253,000 in 2010 compared with $210,000 in 2009. Other income, net consists primarily of rental income, service charges to members and gas and oil royalty payments received. The increase in 2010 is primarily due to an increase in gas and oil royalties paid to Avalon.
General Corporate Expenses
General corporate expenses were $2.7 million in 2010 compared with $2.3 million in 2009. The increase is primarily due to increased salary and wages as a result of hiring Mr. Steven M. Berry as Chief Executive Officer on March 1, 2010, compensation costs relating to stock options granted in the first quarter of 2010 and approximately $.1 million of non-recurring maintenance expenses at the corporate headquarters building.
Net Income
Avalon incurred a net loss of $.5 million in 2010 compared with a net loss of $.8 million in 2009. Excluding the minor effect of state income tax provisions and some minor tax credits, Avalons overall effective tax rate was 0% for 2010 and 2009. The overall effective tax rate is different than statutory rates primarily due to a change the valuation allowance. As such, Avalons income tax benefit in 2010 and 2009 was offset by a change in the valuation allowance. A valuation allowance has been provided when it is more likely than not that the 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.
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.
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 Avalons 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.
Avalons waste brokerage and management services business obtains and retains customers by providing services and identifying cost-efficient disposal options unique to a customers 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. Avalons 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 Avalons future financial performance.
A significant portion of Avalons 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
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and competitive conditions, there can be no assurance that Avalons 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.
Avalons 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, Avalons future financial performance could be adversely impacted.
Economic challenges throughout the industries served by Avalon have resulted 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 Avalons future financial performance.
The Avalon Golf and Country Club has golf courses and clubhouses at each of its three facilities. The Squaw Creek and Sharon facilities each have a swimming pool, a fitness center and dining and banquet facilities. The Squaw Creek facility has tennis courts and Sharon offers spa services. 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 for use by the general public, the primary source of revenues will be generated by the members of the Avalon Golf and Country Club. Avalon believes that the combination of its three facilities will result in additional memberships in the Avalon Golf and Country Club. Due to the state of the economy, the ability to retain current members and attract new members has been difficult. Although Avalon has been able to retain and increase the number of members of the Avalon Golf and Country Club, as of December 31, 2010, Avalon has not attained its membership goals. There can be no assurance as to when such goals will be attained or 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/or various membership promotions. A significant decline in members could adversely affect the future financial performance of Avalon.
All three of Avalons golf course operations currently hold liquor licenses for their respective facilities. If, for some reason, any one of these facilities were to lose its liquor license, the financial performance of the golf and related operations would be adversely affected.
Avalons operations are somewhat seasonal in nature since a significant portion of those operations are primarily conducted in selected northeastern and midwestern states. Additionally, Avalons golf courses are located in northeast Ohio and western Pennsylvania and are significantly dependent upon weather conditions during the golf season. As a result, Avalons 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 generally accepted accounting principles requires management to make judgments, assumptions, and estimates that affect reported amounts. Significant accounting policies used in the preparation of Avalons 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, asset impairments, compensation costs relating to stock options granted, contingencies and administrative proceedings, environmental matters and taxes.
The majority of Avalons accounts receivable are due from industrial and commercial customers. Credit is extended based on an evaluation of a customers 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
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trade accounts receivable are past due, Avalons previous accounts receivable loss history, the customers 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 managements assessments change due to different assumptions or if actual collections differ from managements 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 companys stock. Due to the fact there were no options previously granted and, therefore no historical exercising behavior available, we estimated the expected term of each award to be half the maximum term. Avalon amortizes the fair value of the stock options over the expected term or requisite service period. If accelerated vesting occurs based on the market performance of Avalons common stock, the compensation costs related to the vested stock options that have not previously been amortized are recognized upon vesting.
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. Avalons assessments of cash flows represent managements 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, Avalons 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 Avalons financial statements for Avalons best estimate of the liability based on managements 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.
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Avalons 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 $2,024,000 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 $2,032,000 of deferred tax assets. Avalon has not provided a valuation allowance on the amount of deferred tax assets that it estimates will be utilized as a result of these reviews. The net deferred tax asset of $8,000 as of December 31, 2010 is likely to be utilized upon the filing of certain state tax returns. 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 $905,000 valuation allowance as of December 31, 2010, of which $625,000 relates to a net operating loss carryforward, would be reversed as a benefit to the provision for income taxes in the period such determination was made.
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Avalon Holdings Corporation and Subsidiaries
(in thousands, except for share data)
December 31, | ||||||||
2010 | 2009 | |||||||
Assets |
||||||||
Current Assets: |
||||||||
Cash and cash equivalents |
$ | 5,565 | $ | 5,862 | ||||
Accounts receivable, less allowance for doubtful accounts of $168 in 2010 and $165 in 2009 |
8,202 | 7,094 | ||||||
Prepaid expenses |
341 | 291 | ||||||
Refundable income taxes |
14 | 25 | ||||||
Other current assets |
600 | 568 | ||||||
Total current assets |
14,722 | 13,840 | ||||||
Property and equipment, |
27,265 | 28,277 | ||||||
Leased property under capital leases, net |
5,314 | 5,574 | ||||||
Noncurrent deferred tax asset |
8 | 8 | ||||||
Other assets, net |
28 | 58 | ||||||
Total assets |
$ | 47,337 | $ | 47,757 | ||||
Liabilities and Shareholders Equity |
||||||||
Current Liabilities: |
||||||||
Current portion of obligations under capital leases |
$ | 1 | $ | 1 | ||||
Accounts payable |
5,173 | 5,119 | ||||||
Accrued payroll and other compensation |
383 | 545 | ||||||
Other accrued taxes |
269 | 274 | ||||||
Deferred Revenues |
1,988 | 1,943 | ||||||
Other liabilities and accrued expenses |
318 | 246 | ||||||
Total current liabilities |
8,132 | 8,128 | ||||||
Obligations under capital leases |
228 | 229 | ||||||
Contingencies and commitments |
| | ||||||
Shareholders Equity: |
||||||||
Class A Common Stock, $.01 par value, one vote per share; authorized 10,500,000 shares; issued and outstanding 3,191,038 shares at December 31, 2010 and December 31, 2009 |
32 | 32 | ||||||
Class B Common Stock, $.01 par value, ten votes per share; authorized 1,000,000 shares; issued and outstanding 612,293 shares at December 31, 2010 and December 31, 2009 |
6 | 6 | ||||||
Paid-in capital |
58,216 | 58,096 | ||||||
Accumulated deficit |
(19,277 | ) | (18,734 | ) | ||||
Total shareholders equity |
38,977 | 39,400 | ||||||
Total liabilities and shareholders equity |
$ | 47,337 | $ | 47,757 | ||||
See accompanying notes to consolidated financial statements.
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Consolidated Statements of Operations
(in thousands, except for per share amounts)
Year Ended December 31, | ||||||||
2010 | 2009 | |||||||
Net operating revenues |
$ | 43,453 | $ | 36,920 | ||||
Costs and expenses: |
||||||||
Costs of operations |
35,751 | 30,114 | ||||||
Depreciation and amortization |
1,684 | 1,688 | ||||||
Selling, general and administration expenses |
6,783 | 6,096 | ||||||
Operating loss |
(765 | ) | (978 | ) | ||||
Other income (expense): |
||||||||
Interest expense |
(14 | ) | (15 | ) | ||||
Interest income |
24 | 33 | ||||||
Other income, net |
253 | 210 | ||||||
Loss before income taxes |
(502 | ) | (750 | ) | ||||
Provision for income taxes |
41 | 24 | ||||||
Net loss |
$ | (543 | ) | $ | (774 | ) | ||
Net loss per share basic and diluted |
$ | (.14 | ) | $ | (.20 | ) | ||
Weighted average shares outstanding |
3,803 | 3,803 | ||||||
See accompanying notes to consolidated financial statements.
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Consolidated Statements of Cash Flows
(in thousands)
Year Ended December 31, | ||||||||
2010 | 2009 | |||||||
Operating activities: |
||||||||
Net loss |
$ | (543 | ) | $ | (774 | ) | ||
Reconciliation of net loss to cash provided by (used in) operating activities: |
||||||||
Depreciation |
1,683 | 1,687 | ||||||
Amortization |
1 | 1 | ||||||
Compensation costs stock options |
120 | | ||||||
Provision for losses on accounts receivable |
14 | 93 | ||||||
Provision for deferred taxes |
| 17 | ||||||
Gain from disposal of property and equipment |
(24 | ) | (2 | ) | ||||
Change in operating assets and liabilities: |
||||||||
Accounts receivable |
(1,122 | ) | 2,117 | |||||
Prepaid expenses |
(50 | ) | 18 | |||||
Refundable income taxes |
11 | (25 | ) | |||||
Other current assets |
(32 | ) | 68 | |||||
Other assets, net |
29 | | ||||||
Accounts payable |
54 | 288 | ||||||
Accrued payroll and other compensation |
(162 | ) | (166 | ) | ||||
Accrued income taxes |
| (19 | ) | |||||
Other accrued taxes |
(5 | ) | (7 | ) | ||||
Deferred revenues |
45 | (57 | ) | |||||
Other liabilities and accrued expenses |
72 | (220 | ) | |||||
Net cash provided by operating activities |
91 | 3,019 | ||||||
Investing activities: |
||||||||
Capital expenditures |
(411 | ) | (219 | ) | ||||
Proceeds from disposal of property and equipment |
24 | 2 | ||||||
Net cash used in investing activities |
(387 | ) | (217 | ) | ||||
Financing activities: |
||||||||
Principal payments on capital lease obligations |
(1 | ) | (1 | ) | ||||
Net cash used in financing activities |
(1 | ) | (1 | ) | ||||
(Decrease) increase in cash and cash equivalents |
(297 | ) | 2,801 | |||||
Cash and cash equivalents at beginning of year |
5,862 | 3,061 | ||||||
Cash and cash equivalents at end of year |
$ | 5,565 | $ | 5,862 | ||||
Supplemental disclosures of cash flow information: |
||||||||
Cash paid during the year for interest expense |
$ | 14 | $ | 15 | ||||
Cash received during the year as interest income |
$ | 24 | $ | 33 |
For supplemental cash flow information regarding income taxes, see Note 6.
See accompanying notes to consolidated financial statements.
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Consolidated Statements of Shareholders Equity
(in thousands)
For The Two Years Ended December 31, 2010 | ||||||||||||||||||||||||||||
Shares | Common Stock | Paid-in | Accumulated | |||||||||||||||||||||||||
Class A | Class B | Class A | Class B | Capital | Deficit | Total | ||||||||||||||||||||||
Balance at January 1, 2009 |
3,191 | 612 | $ | 32 | $ | 6 | $ | 58,096 | $ | (17,960 | ) | $ | 40,174 | |||||||||||||||
Net loss |
| | | | | (774 | ) | (774 | ) | |||||||||||||||||||
Balance at December 31, 2009 |
3,191 | 612 | $ | 32 | $ | 6 | $ | 58,096 | $ | (18,734 | ) | $ | 39,400 | |||||||||||||||
Stock options Compensation costs |
| | | | 120 | | 120 | |||||||||||||||||||||
Net loss |
| | | | | (543 | ) | (543 | ) | |||||||||||||||||||
Balance at December 31, 2010 |
3,191 | 612 | $ | 32 | $ | 6 | $ | 58,216 | $ | (19,277 | ) | $ | 38,977 | |||||||||||||||
See accompanying notes to consolidated financial statements.
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Notes to Consolidated Financial Statements
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Report of Independent Registered Public Accounting Firm
The Shareholders and Board of Directors of Avalon Holdings Corporation
We have audited the accompanying consolidated balance sheets of Avalon Holdings Corporation and subsidiaries as of December 31, 2010 and 2009, and the related consolidated statements of operations, shareholders equity and cash flows for the years then ended. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Avalon Holdings Corporation and subsidiaries as of December 31, 2010 and 2009, and the consolidated results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ Grant Thornton LLP
Cleveland, Ohio
March 11, 2011
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Avalon Holdings Corporation and Subsidiaries
Managements 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. Avalons 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, 2010, based upon the framework and criteria established in Internal Control Integrated 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, 2010.
This annual report does not include an attestation report of the Companys registered public accounting firm regarding internal control over financial reporting. Managements report was not subject to attestation by the Companys registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only managements report in this annual report.
/s/ Ronald E. Klingle |
/s/ Timothy C. Coxson | |||
Chief Executive Officer | Chief Financial Officer | |||
March 11, 2011 |
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Avalon Holdings Corporation and Subsidiaries
Company Location Directory
Corporate Office
Avalon Holdings Corporation One American Way Warren, Ohio 44484-5555 (330) 856-8800
Waste Management Services
American Waste Management Services, Inc. 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 |
Golf and Related Operations
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
Avalon Travel, Inc. One American Way Warren, Ohio 44484-5555 (330) 856-8400 | |
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Avalon Holdings Corporation and Subsidiaries
Directors and Officers
Directors
Ronald E. Klingle Chairman of the Board and Chief Executive Officer Executive Committee (Chairman) Compensation Committee
Timothy C. Coxson Treasurer, Chief Financial Officer and Secretary Compensation Committee
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 Director of Finance, City of Youngstown Audit Committee Executive Committee Option Plan Committee |
Officers
Ronald E. Klingle Chairman of the Board and Chief Executive Officer
Timothy C. Coxson Treasurer, Chief Financial Officer and Secretary
Frances R. Klingle Chief Administrative Officer
Richard R. Fees Controller | |
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Avalon Holdings Corporation and Subsidiaries
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