<PAGE>
2000
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 2000
[ ] 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 (I.R.S. Employer
of incorporation or organization) 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
Indicate by a 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 ___
---
The registrant had 3,185,240 shares of its Class A Common Stock and 618,091
shares of its Class B Common Stock outstanding as of May 8, 2000.
================================================================================
<PAGE>
AVALON HOLDINGS CORPORATION AND SUBSIDIARIES
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations for the Three
Months Ended March 31, 2000 and 1999 (Unaudited)................... 3
Condensed Consolidated Balance Sheets at March 31, 2000
(Unaudited) and December 31, 1999.................................. 4
Condensed Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 2000 and 1999 (Unaudited)................... 5
Notes to Condensed Consolidated Financial Statements (Unaudited)... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................ 15
Item 2. Changes in Securities and Use of Proceeds................ 15
Item 3. Defaults upon Senior Securities.......................... 15
Item 4. Submission of Matters to a Vote of Security Holders...... 15
Item 5. Other Information........................................ 16
Item 6. Exhibits and Reports on Form 8-K......................... 16
SIGNATURE............................................................ 17
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AVALON HOLDINGS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands except for per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------
2000 1999
----------- -----------
<S> <C> <C>
Net operating revenues........................ $21,252 $19,494
Cost and expenses:
Cost of operations............................ 19,081 17,142
Selling, general and administrative expense... 2,721 2,521
------- -------
Income (loss) from operations................. (550) (169)
Other income:
Interest income............................... 260 267
Other income, net............................. 16 15
------- -------
Income (loss) before income taxes............. (274) 113
Income tax expense (benefit).................. (137) 47
------- -------
Net income (loss)............................. $ ( 137) $ 66
======= =======
Basic net income (loss) per share............. $(.04) $.02
======= =======
Weighted average shares outstanding (Note 2).. 3,803 3,803
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
AVALON HOLDINGS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---------- ------------
(Unaudited)
<S> <C> <C>
Assets
- ------
Current assets:
Cash and cash equivalents...................................... $ 4,882 $18,726
Short-term investments......................................... 11,182 --
Accounts receivable, net....................................... 19,644 16,628
Deferred income taxes.......................................... 403 403
Prepaid expenses and other current assets...................... 1,688 1,981
------- -------
Total current assets.......................................... 37,799 37,738
Properties and equipment, less accumulated depreciation
and amortization of $17,333 in 2000 and $16,644 in 1999........ 26,849 26,165
Costs in excess of fair market value of net assets of acquired
businesses, net................................................ 2,287 2,324
Other assets, net............................................... 177 177
------- -------
Total assets.................................................. $67,112 $66,404
======= =======
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Accounts payable............................................... $ 7,544 $ 6,001
Accrued payroll and other compensation......................... 1,080 1,833
Accrued income taxes........................................... 462 618
Other accrued taxes............................................ 443 720
Other liabilities and accrued expenses......................... 2,092 1,597
------- -------
Total current liabilities..................................... 11,621 10,769
Deferred income taxes........................................... 1,347 1,354
Other noncurrent liabilities.................................... 120 120
Shareholders' equity :
Class A Common Stock, $.01 par value........................... 32 32
Class B Common Stock, $.01 par value........................... 6 6
Paid-in capital................................................ 58,096 58,096
Accumulated deficit............................................ (4,110) (3,973)
------- -------
Total shareholders' equity.................................... 54,024 54,161
------- -------
Total liabilities and shareholders' equity.................... $67,112 $66,404
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
AVALON HOLDINGS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
2000 1999
-------- -------
<S> <C> <C>
Operating activities:
Net income (loss)................................................................ $ (137) $ 66
Reconciliation of net income (loss) to cash from operating activities:
Depreciation and amortization................................................... 783 690
Provision for deferred income taxes............................................. (7) (8)
Provision for losses on accounts receivable..................................... 28 49
Gain on sales of property and equipment......................................... (2) (9)
Changes in operating assets equipment and liabilities
Accounts receivable......................................................... (3,044) (1,833)
Prepaid expenses and other current assets................................... 293 (57)
Other assets................................................................ -- (1)
Accounts payable............................................................ 1,543 1,914
Accrued payroll and other compensation...................................... (753) (385)
Accrued income taxes........................................................ (156) (6)
Other accrued taxes......................................................... (277) (103)
Other liabilities and accrued expenses..................................... 495 (289)
-------- -------
Net cash provided by (used in) operating activities...................... (1,234) 28
-------- -------
Investing activities:
Purchases and sales of short-term investments, net............................... (11,182) --
Capital expenditures............................................................. (1,430) (778)
Proceeds from sales of property and equipment.................................... 2 12
-------- -------
Net cash used in investing activities........................................ (12,610) (766)
-------- -------
Decrease in cash and cash equivalents............................................. (13,844) (738)
Cash and cash equivalents at beginning of year.................................... 18,726 22,274
-------- -------
Cash and cash equivalents at end of period........................................ $ 4,882 $21,536
======== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
AVALON HOLDINGS CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 31, 2000
Note 1. Basis of Presentation
The unaudited condensed consolidated financial statements of Avalon Holdings
Corporation and subsidiaries (collectively the "Company" or "Avalon") and
related notes included herein have been prepared in accordance with the rules
and regulations of the Securities and Exchange Commission. Accordingly, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted consistent with such rules and regulations. The accompanying unaudited
condensed consolidated financial statements and related notes should be read in
conjunction with the consolidated financial statements and related notes
included in the Company's 1999 Annual Report to Shareholders.
In the opinion of management, these unaudited condensed consolidated financial
statements include all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of the financial position of the Company as of
March 31, 2000, and the results of operations and cash flows for the interim
periods presented.
The operating results for the interim periods are not necessarily indicative of
the results to be expected for the full year.
Note 2. Basic Net Income (Loss) Per Share
Basic net income (loss) per share has been computed using the weighted average
number of common shares outstanding each period which was 3,803,331. There were
no common equivalent shares outstanding and therefore diluted per share amounts
are equal to basic per share amounts for the first three months of 2000 and
1999.
Note 3. Short-Term Investments
The Company's securities investments that are bought and held principally for
the purpose of selling them in the near term are classified as trading
securities. Trading securities are recorded at fair value on the balance sheet,
with the change in fair value during the period included in earnings. Trading
securities are invested primarily in debt securities and are included in the
Condensed Consolidated Balance Sheet under the caption "Short-term investments".
The balance of the Company's trading securities at March 31, 2000 was
approximately $9.5 million. On March 31, 2000 the unrealized gain on trading
securities was approximately $10,000.
Securities investments that the Company has the intent and ability to hold to
maturity are classified as held-to-maturity securities and recorded at amortized
cost. At March 31, 2000, the Company had no held-to-maturity securities.
Securities investments not classified as either held-to-maturity or trading
securities are classified as available-for-sale securities. Available-for-sale
securities are recorded at fair value on the balance sheet, with the change in
fair value during the period excluded from earnings and recorded net of tax as a
separate component of equity. Available-for-sale securities are invested
primarily in debt securities and are included in the Condensed Consolidated
Balance Sheet under the caption "Short-term investments". The balance of the
Company's available-for-sale securities at March 31, 2000 was approximately $1.7
million. At March 31, 2000, the cost of available-for-sale securities
approximated their fair value and therefore the Company had no unrealized gains
or losses on these securities.
6
<PAGE>
Note 4. Comprehensive Income
The Company has no items that qualify as a component of other comprehensive
income as defined in Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income and, therefore, comprehensive income equals net
income for all periods presented.
Note 5. Legal Matters
In September 1995, certain subsidiaries of the Company were informed that they
had been identified as potentially responsible parties by the Indiana Department
of Environmental Management with respect to a Fulton County, Indiana, hazardous
waste disposal facility which is subject to remedial action under Indiana
Environmental Laws. Such identification was based upon the subsidiaries having
been involved in the transportation of hazardous substances to the facility. A
large number of waste generators and other waste transportation and disposal
companies have also been identified as responsible or potentially responsible
parties with respect to this facility and the extent of any ultimate liability
of any of the Company's subsidiaries is unknown. During the fourth quarter of
1999, the Company became a party to an Agreed Order and a Participation
Agreement regarding the remediation of a portion of the site. The Participation
Agreement provides for, among other things, the allocation of all site
remediation costs except for approximately $3 million. The Company's total
liability for the allocated costs under the Participation Agreement was
approximately $73,000. The Company paid $54,000 in the fourth quarter of 1999
and the remaining $19,000 is included in the March 31, 2000 Condensed
Consolidated Balance Sheet under the caption "Other liabilities and accrued
expenses."
The additional unallocated site remediation costs are currently estimated to be
approximately $3 million. The extent of any ultimate liability of any of the
Company's subsidiaries with respect to these additional costs is unknown;
however, the Company's allocable share of these site costs is currently
estimated to be 4%. As a result, the Company's total accrued liability relating
to the remediation of this site on an undiscounted basis is $139,000, $120,000
of which is included in the March 31, 2000 Condensed Consolidated Balance Sheet
under the caption "Other noncurrent liabilities." The Company's ultimate
liability is expected to be determined during the year 2000.
In the ordinary course of conducting its business, Avalon also becomes involved
in lawsuits, administrative proceedings and governmental investigations,
including those related to the 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, the Company 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 it.
Note 6. Business Segment Information.
For business segment information, the Company considered its operating and
management structure and the types of information subject to regular review by
its "chief operating decision maker." On this basis, the Company's reportable
segments include transportation services, technical environmental services, and
waste disposal brokerage and management services. The Company accounts for
intersegment net operating revenue as if the transactions were to third parties.
The segment disclosures are presented on this basis for all periods presented.
Avalon's primary business segment provides transportation services that include
transportation of hazardous and nonhazardous waste as well as general and bulk
commodities. The technical environmental services segment provides
environmental consulting, engineering, site assessments, analytical laboratory,
remediation services and operates and manages a captive landfill for an
industrial customer. The waste disposal brokerage and management services
segment provides disposal brokerage and management services for both hazardous
and nonhazardous waste. Other businesses include
7
<PAGE>
the operation of a public golf course and related operations. Avalon does not
have significant operations located outside the United States and, accordingly,
geographical segment information is not presented.
The accounting policies of the segments are consistent with those described for
the consolidated financial statements in the summary of significant accounting
policies. The Company measures segment profit for internal reporting purposes
as income (loss) before taxes. Business segment information including the
reconciliation of segment income to consolidated income (loss) before taxes is
as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
2000 1999
-------- -------
<S> <C> <C>
Net operating revenues from:
Transportation services:
External customers revenues.................... $10,453 $ 7,768
Intersegment revenues.......................... 1,516 1,351
------- -------
Total transportation services.................. 11,969 9,119
------- -------
Technical environmental services:
External customers revenues.................... 7,085 7,705
Intersegment revenues.......................... 25 32
------- -------
Total technical environmental services......... 7,110 7,737
------- -------
Waste disposal brokerage and management:
External customers revenues.................... 3,615 3,831
Intersegment revenues.......................... 1,860 853
------- -------
Total waste disposal brokerage and management
services...................................... 5,475 4,684
------- -------
Other businesses:
External customers revenues.................... 99 190
Intersegment revenues.......................... 79 75
------- -------
Total other businesses......................... 178 265
------- -------
Segment operating revenues..................... 24,732 21,805
Intersegment eliminations...................... (3,480) (2,311)
------- -------
Total net operating revenues................... $21,252 $19,494
------- -------
Income (loss) before taxes:
Transportation services........................ $ 76 $ 328
Technical environmental services............... 185 387
Waste disposal brokerage and management
services...................................... 301 324
Other businesses............................... (180) (252)
------- -------
Segment income before taxes.................... 382 787
Corporate interest income...................... 234 233
Corporate other expense, net................... 11 (1)
General corporate expenses..................... (901) (906)
------- -------
Income (loss) before taxes..................... $ (274) $ 113
------- -------
</TABLE>
8
<PAGE>
Business Segment Information (continued)
<TABLE>
<CAPTION>
Three Months Ended
March 31
-----------------
2000 1999
------- -------
<S> <C> <C>
Interest income:
Transportation services.................. $ 12 $ 9
Technical environmental services......... 5 11
Waste disposal brokerage and management
services................................ 8 12
Other business........................... 1 2
Corporate................................ 234 233
------- -------
Total.................................. $ 260 $ 267
------- -------
</TABLE>
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ------------
<S> <C> <C>
Identifiable assets:
Transportation services.................. $16,606 $15,653
Technical environmental services......... 19,119 16,652
Waste disposal brokerage and management
services................................ 5,344 4,358
Other businesses......................... 8,212 8,257
Corporate................................ 27,364 28,793
------- -------
Sub Total.............................. 76,645 73,713
Elimination of Intersegment Receivables.. (9,533) (7,309)
------- -------
Total.................................. $67,112 $66,404
======= =======
</TABLE>
9
<PAGE>
ITEM 2. 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. As used in this
report, the terms "Avalon", or "Company" mean Avalon Holdings Corporation and
its wholly owned subsidiaries, taken as a whole, unless the context indicates
otherwise.
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.' The
Company cautions readers that forward looking statements, including, without
limitation, those relating to the Company'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 the Company's
reports filed with the Securities and Exchange Commission.
Liquidity and Capital Resources
- -------------------------------
For the first three months of 2000, the Company utilized existing cash to fund
capital expenditures and meet operating needs.
During the first three months of 2000, capital spending for Avalon totaled $1.4
million which was principally related to the purchase of equipment for the
transportation and technical environmental services operations. Avalon's
capital spending in 2000 is expected to be in the range of $4 million to $6
million which will relate principally to capital improvements to the golf course
and acquiring additional transportation equipment.
On August 2, 1999, the Company closed the golf course to begin capital
improvements which are expected to be in the range of $3.5 million to $4
million. In addition to the capital improvements to the golf course, the
Company anticipates capital expenditures of approximately $1 million for
improvements to golf course related facilities. During 1999, golf course
related capital expenditures were $2.4 million. The timing of expenditures is
subject, among other things, to weather conditions. The Company expects the
golf course to resume operations during the third quarter of 2000.
Working capital decreased to $26.2 million at March 31, 2000 compared with $27
million at December 31, 1999. The decrease is primarily the result of utilizing
existing cash for capital expenditures.
The increase in Accounts receivable at March 31, 2000 compared with December 31,
1999 is primarily due to significant net operating revenues of the remediation
business and transportation operations during March 2000, the last month of the
first quarter.
The increase in Accounts Payable is primarily due to an increase in accounts
payable of the waste disposal brokerage and management operations and the
transportation brokerage and management operations as a result of significant
subcontractor costs incurred during March 2000, the last month of the first
quarter.
10
<PAGE>
The decrease in Accrued payroll and other compensation at March 31, 2000
compared with December 31, 1999 is primarily the result of the payment of
accrued performance-based compensation.
The increase in other current liabilities is primarily attributed to an accrual
for a portion of the Company contribution to the Company's defined
contributions profit sharing plan for the year 2000. Such plan is a qualified
deferred benefit plan under section 401(k) of the Internal Revenue Code.
Management believes that cash provided from operations, the availability of
working capital, as well as the Company's ability to incur indebtedness, will
be, for the foreseeable future, sufficient to meet operating requirements and
fund capital expenditure programs. Avalon does not currently have a credit
facility.
Currently, the Company is not aggressively pursuing potential acquisition
candidates but will continue to consider acquisitions that make economic sense.
While the Company has not entered into any pending agreements for acquisitions,
it may do so at any time. Such potential acquisitions could be financed by
existing working capital, 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
Overall performance
Net operating revenues in the first quarter of 2000 increased to $21.3 million
compared with $19.5 million in the prior year's first quarter. Cost of
operations increased to $19.1 million in the first quarter of 2000 compared with
$17.1 million in the prior year quarter. The Company recorded a net loss of
$137,000 or a loss of $.04 per share for the first quarter of 2000 compared with
net income of $66,000 or $.02 per share for the first quarter of 1999.
Performance in the First Quarter of 2000 compared with the First Quarter of 1999
Segment performance
Segment performance should be read in conjunction with Note 6 to the Condensed
Consolidated Financial Statements.
Net operating revenues of the transportation services segment increased to $12
million in the first quarter of 2000 compared with $9.1 million in the first
quarter of the prior year. The increase in net operating revenues is primarily
attributable to an increase in the level of business of the transportation
brokerage operations and to a lesser extent an increase in the transportation of
municipal solid waste. Despite the increase in net operating revenues, income
before taxes of the transportation services segment declined to $.1 million for
the first quarter of 2000 compared with $.3 million for the first quarter of
1999 primarily as a result of a significant increase in fuel expense due to
higher fuel prices and increased employee related expenses.
11
<PAGE>
Net operating revenues of the technical environmental services segment decreased
to $7.1 million in the first quarter of 2000 compared with $7.7 million in the
first quarter of the prior year. The decrease in net operating revenues was
primarily the result of a decrease in net operating revenues of the engineering
and consulting business. The technical environmental services segment recorded
income before taxes of $.2 million in the first quarter of 2000 compared with
income before taxes of $.4 million in the first quarter of 1999. The decrease
in income before taxes is primarily the result of a decrease in the level of
services provided by the engineering and consulting business and higher costs of
various expenses of the laboratory operations which resulted in both operations
incurring a loss before income taxes in the first quarter of 2000 compared with
income before taxes in the prior year quarter. Such decrease was partially
offset by an increase in income before taxes of the remediation business
resulting from improved operating margins.
Net operating revenues of the waste disposal brokerage and management services
segment increased to $5.5 million in the first quarter of 2000 compared with
$4.7 million in the first quarter of the prior year. The increase in net
operating revenues is primarily the result of an increase in the level of
disposal brokerage and management services provided. Income before taxes for
the waste disposal brokerage and management services segment was $.3 million in
the first quarter of 2000 and the first quarter of the prior year. Despite the
increase in net operating revenues, income before taxes did not increase,
because of increased selling and administrative expenses.
The Company's other businesses consist primarily of the operation of a public
golf course and related operations. During the third quarter of 1999, the
Company closed the golf course to make significant capital improvements to the
course and related facilities. Net operating revenues for the other businesses
decreased to $.2 million for the first three months of 2000 compared with $.3
million for the first three months of 1999. The other businesses incurred a
loss before taxes of $.2 million for the first three months of 2000 compared
with a loss before taxes of $.3 million in the first three months of the prior
year. The Company expects the golf course to resume operations during the third
quarter of 2000.
Interest income
Interest income decreased to $260,000 in the first quarter of 2000 compared with
$267,000 in the first quarter of 1999 primarily due to a decline in the average
amount of cash and cash equivalents during the first quarter of 2000 compared
with the prior year quarter, partially offset by an increase in investment
rates.
General corporate expenses
General corporate expenses were $.9 million in both the first quarter of 2000
and the first quarter of 1999.
Net income
The Company recorded a net loss of $137,000 in the first quarter of 2000
compared with net income of $66,000 in the first quarter of the prior year. The
Company's overall effective tax rate, including the effect of state income tax
provisions, was 50% in the first quarter of 2000 compared to 41.6% in the prior
12
<PAGE>
year's first quarter. The effective tax rate is higher than statutory rates
primarily due to state income taxes, the nondeductibility for tax purposes of
the amortization of costs in excess of fair market value of net assets of
acquired businesses and other nondeductible expenses.
Trends and Uncertainties
In the ordinary course of conducting its business, the Company 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 the Company
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, the Company 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 it.
The federal government and numerous state and local governmental bodies are
increasingly considering, proposing or enacting legislation or regulations to
either restrict or impede the disposal and/or transportation of waste. A
significant portion of the Company's transportation and disposal brokerage and
management revenues is derived from the disposal 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
significant negative effect on the Company.
As in the case with any transportation company, an increase in fuel prices may
subject the Company's transportation operations to increased operating expenses,
which the Company, in light of competitive market conditions, may not be able to
pass on to its customers. During the first quarter and continuing into the
second quarter of 2000, the Company's transportation operations experienced
significant increases in fuel prices, some of which the Company has not and will
not be able to pass on to its customers.
Competitive pressures within the environmental industry continue to impact the
financial performance of the Company's transportation services, technical
environmental services and waste disposal brokerage and management services. A
decline in the rates which customers are willing to pay for its services could
adversely impact the future financial performance of the Company.
The Company's waste disposal brokerage and management operations obtain and
retain customers by providing service and identifying cost-efficient disposal
options unique to a customer's needs. Continued consolidation within the solid
waste industry has resulted in reducing the number of disposal options available
to waste generators and has caused disposal pricing to increase. The Company
does not believe that pricing changes alone will have a material effect upon its
waste disposal brokerage and management operations. However, consolidation will
have the effect of reducing the number of competitors offering disposal
alternatives to the Company, which may adversely impact the future financial
performance of the waste disposal brokerage and management operations.
The Company's operations are somewhat seasonal in nature because a significant
portion of the operations are performed primarily in selected northeastern and
midwestern states. As a result, the company's financial performance could be
adversely affected by winter weather conditions.
13
<PAGE>
Market Risk
The Company does not have significant exposure to changing interest rates
because of the low level of indebtedness of the Company. The Company does not
undertake any specific actions to cover its exposure to interest rate risk and
the Company is not a party to any interest rate risk management transactions.
The Company does not purchase or hold any derivative financial instruments.
Currently, a 10% change in interest rates would have an immaterial effect on the
Company's income before taxes for the next fiscal year. The Company currently
has no debt outstanding and invests in short-term money market funds and other
short-term obligations.
Accounting Pronouncements
During 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which establishes accounting and reporting standards
for derivative instruments and for hedging activities. This Statement
is effective for all quarters of fiscal years beginning after June 15, 2000.
While the Company has not yet determined the effects the Statement will have on
its financial position or results of its operations, it does not anticipate a
material impact.
============================
14
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In September 1995, certain subsidiaries of the Company were informed that they
had been identified as potentially responsible parties by the Indiana Department
of Environmental Management with respect to a Fulton County, Indiana, hazardous
waste disposal facility which is subject to remedial action under Indiana
Environmental Laws. Such identification was based upon the subsidiaries having
been involved in the transportation of hazardous substances to the facility. A
large number of waste generators and other waste transportation and disposal
companies have also been identified as responsible or potentially responsible
parties with respect to this facility and the extent of any ultimate liability
of any of the Company's subsidiaries is unknown. During the fourth quarter of
1999, the Company became a party to an Agreed Order and a Participation
Agreement regarding the remediation of a portion of the site. The Participation
Agreement provides for, among other things, the allocation of all site
remediation costs except for approximately $3 million. The Company's total
liability for the allocated costs under the Participation Agreement was
approximately $73,000. The Company paid $54,000 in the fourth quarter of 1999
and the remaining $19,000 is included in the March 31, 2000 Condensed
Consolidated Balance Sheet under the caption "Other liabilities and accrued
expenses."
The additional unallocated site remediation costs are currently estimated to be
approximately $3 million. The extent of any ultimate liability of any of the
Company's subsidiaries with respect to these additional costs is unknown;
however, the Company's allocable share of these site costs is currently
estimated to be 4%. As a result, the Company's total accrued liability relating
to the remediation of this site on an undiscounted basis is $139,000, $120,000
of which is included in the March 31, 2000 Condensed Consolidated Balance Sheet
under the caption "Other noncurrent liabilities." The Company's ultimate
liability is expected to be determined during the year 2000.
In the ordinary course of conducting its business, Avalon also becomes involved
in lawsuits, administrative proceedings and governmental investigations,
including those related to the environmental matters. Some of these proceedings
may result in fines, penalties or judgments being assessed against the Company
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, the Company 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 it.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders was held on April 28,
2000; however, no vote of security holders occurred with respect to any
matters reportable under this Item 4.
15
<PAGE>
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
16
<PAGE>
SIGNATURE
Pursuant to the requirements 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.
AVALON HOLDINGS CORPORATION
(Registrant)
Date: May 11, 2000 By: /s/ Timothy C. Coxson
------------------------ ----------------------------------
Timothy C. Coxson, Chief Financial Officer and
Treasurer (Principal Financial and Accounting
Officer and Duly Authorized Officer)
17
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 1ST QUARTER
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FINANCIAL STATEMENTS.
*Identify the financial statement(s) to be referenced in the legend.
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