ITEM 1. BUSINESS
Spin-off - --------
Pursuant to the terms of a Contribution and Distribution Agreement dated as of May 7, 1998 between Avalon and American Waste Services, Inc. ("AWS"), AWS contributed to Avalon its transportation operations, technical environmental services operations, waste disposal brokerage and management operations, and golf course and related operations together with certain other assets including the headquarters of AWS and certain accounts receivable. In connection with the contribution, Avalon assumed certain liabilities of AWS including, without limitation, liabilities relating to the termination of employment of certain employees of AWS and costs and potential liabilities relating to a certain legal proceeding. 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").
General - -------
Avalon was incorporated in Ohio on April 30, 1998 solely for the purpose of effecting the Spin-off. Avalon is a holding company which owns subsidiaries that historically performed the transportation operations, technical environmental services operations, waste disposal brokerage and management operations and golf course and related operations of AWS.
In January 1990, AWS acquired the Company's transportation companies: DartAmericA, Inc. and its subsidiaries which provide hazardous and nonhazardous waste transportation, transportation of general and bulk commodities, and transportation brokerage and management services; and Envirco Transportation Management, Inc., a waste transportation brokerage and management business. These companies became subsidiaries of Avalon as a result of the Spin-off.
In June 1990, AWS purchased approximately 5.6 acres of real estate located in Warren, Ohio on which it constructed a 26,000 square foot office building to serve as its corporate headquarters. In connection with the acquisition of such property, Avalon Lakes Golf, Inc. ("ALGI") acquired the real and personal property associated with the Avalon Lakes Golf Course, an 18-hole public golf course adjacent to the office property. ALGI became a subsidiary of Avalon as a result of the Spin-off.
In October 1990, AWS acquired the Company's environmental consulting, laboratory and remediation companies: Earth Sciences Consultants, Inc., Antech Ltd., and AWS Remediation, Inc. These technical environmental services firms are referred to collectively as the "Earth Sciences Companies." The Earth Science Companies became subsidiaries of Avalon as a result of the Spin-off.
During 1995, American Waste Management Services, Inc., a subsidiary of AWS, commenced its waste disposal brokerage and management operations. This company became a subsidiary of Avalon as a result of the Spin-off.
During the third quarter of 1997, a newly organized subsidiary of AWS, American Landfill Management, Inc., started its captive landfill management operations. This company became a subsidiary of Avalon as a result of the Spin- off.
Business Segments Information - -----------------------------
Avalon's primary business segments are transportation services, technical environmental services, and waste disposal brokerage and management services. These services are provided to industrial, commercial, municipal and governmental customers primarily in selected northeastern and midwestern United States markets and are therefore somewhat seasonal in nature. Avalon's transportation services segment provides transportation of hazardous and nonhazardous waste, transportation of general and bulk commodities and the brokerage and management of transportation services. For the years 1999, 1998 and 1997, the net operating revenues of the transportation services segment represented approximately 45%, 46% and 57%, respectively, of Avalon's total segments' net operating revenues. Avalon's technical environmental services segment provides environmental consulting, engineering, site assessments, analytical laboratory, remediation and captive landfill management services. For the years 1999, 1998 and 1997, the net operating revenues of the technical environmental services segment represented approximately 32%, 31% and 27%, respectively, of Avalon's total
segments' net operating revenues. Avalon's waste disposal brokerage and management services segment provides hazardous and nonhazardous waste disposal brokerage and management services. For the years 1999, 1998 and 1997, the net operating revenues of the waste disposal brokerage and management services segment represented approximately 21%, 18% and 11%, respectively, of Avalon's total segments' net operating revenues. Avalon also operates a golf course and related operations.
Transportation Services
General Avalon's transportation subsidiaries transport waste and other materials on behalf of customers within the United States and portions of Canada and provide transportation brokerage and management services, as well as intermodal transportation services. The transportation operations have the equipment and the expertise to transport virtually all types of waste and most commodity products.
DartAmericA, Inc. DartAmericA, Inc. through its subsidiaries (collectively, "Dart"), headquartered in Warren, Ohio, is engaged in the transportation of waste and is a common carrier of both general and bulk commodities. Dart, which commenced operations in 1965, also engages in the brokerage and management of transportation.
Dart is a fully licensed hazardous and nonhazardous waste carrier. Approximately 72%, 65% and 60% of the revenue generated by Dart in 1999, 1998 and 1997, respectively, related to the transportation of waste. Hazardous waste represented 56%, 63% and 67% of Dart's waste transportation revenues in 1999, 1998 and 1997, respectively.
Dart, which is licensed as a common carrier in 49 states and several provinces of Canada, derived 28%, 35% and 40% of its revenues in 1999, 1998 and 1997, respectively, from the transportation of bulk commodities, such as coal, salt, sand, ash, steel products and heavy machinery. A common carrier engaged in the transportation of goods owned by others is subject to federal and state regulations which establish operating and safety standards. Carriers are liable for loss of or damage to goods entrusted to their care. Public liability and property damage insurance is compulsory.
A majority of the truck power units and a substantial number of the trailers used by Dart are owned and operated by independent truckers who receive a negotiated percentage of the gross revenue from carriage. Most of the approximately 90 to 110 independent truckers who regularly provide services for Dart have been doing so for a number of years. These independent truckers pay for fuel and all other expenses with the exception of automotive liability insurance, hazardous waste permits, special equipment required to carry hazardous waste and other safety equipment, all of which are provided by Dart. Equipment used by the independent truckers is inspected at least annually and is subject to random inspections by Dart. See Item 2
ITEM 2. PROPERTIES
Dart provides transportation services from locations in Canfield, Ohio (where Dart owns an 18,800 square foot facility); Oxford, Massachusetts (where Dart leases a 5,760 square foot terminal); Kenova, West Virginia (where Dart leases a 1,500 square foot terminal); Perrysburg, Ohio (where Dart leases a 700 square foot terminal); Chicago, Illinois (where Dart rents a 500 square foot terminal); Bedford, New Hampshire (where Dart rents a 300 square foot terminal; and Paulsboro, New Jersey (where Dart rents a 1,000 square foot terminal). At December 31, 1999, the transportation operations owned a fleet of 27 power units (in addition to 68 power units which are leased and 33 which are rented), 309 trailers (in addition to 113 trailers which are leased and 30 which are rented), and 657 roll-off and other containers. In addition, 90 to 110 power units and 130 to 150 trailers owned by independent owner/operators are available for use in Dart's operations.
The Earth Sciences Companies own their main offices and laboratory facilities located in a 48,000 square foot building in Export, Pennsylvania and lease office space of approximately 4,000 square feet in Akron, Ohio. In addition, 13,000 square feet is leased for field equipment and vehicle storage and dispatch in Murrysville, Pennsylvania. The Earth Sciences Companies also own numerous pieces of laboratory, field, computer and other equipment.
The captive landfill management operations use approximately six pieces of equipment (such as a bulldozer, excavator and backhoe) all of which are owned by ALMI.
Avalon owns a 26,000 square foot headquarters building located on approximately 5.6 acres of property in Warren, Ohio. Adjacent to such property is an 18-hole public golf course owned and operated by ALGI, including a maintenance and storage building of approximately 12,000 square feet, a pro shop and restaurant building of approximately 10,400 square feet, and a banquet facility of approximately 7,000 square feet.
The corporate and administrative offices of Dart, ALMI, and American Waste Management Services, Inc. are each located at the headquarters building of Avalon in Warren, Ohio.
Generally, Avalon's fixed assets are in good condition and are satisfactory for the purposes for which they are intended.
ITEM 3.
ITEM 3. 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. During 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 was approximately $73,000 of which the Company paid $54,000 in the fourth quarter of 1999. The remaining $19,000 is included in the 1999 Consolidated Balance Sheet under the caption "Other current 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 anticipated 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 1999 Consolidated Balance Sheet under the caption "Other noncurrent liabilities". The Company's ultimate liability is expected to be determined during the year 2000.
In addition to the foregoing, in the ordinary course of conducting its business, Avalon also 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, 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. See Item 1. "Business--Insurance."
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during the fourth quarter of 1999.
PART II
Information with respect to the following items can be found on the indicated pages of Exhibit 13.1, the 1999 Annual Report to Shareholders if not otherwise included herein.
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information regarding financial statement schedules is contained in Item 14(a) of Part IV of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
(a) Previous independent accountants
(i) On August 11, 1999, Avalon Holdings Corporation advised KPMG LLP that they were being dismissed from further serving as the Registrant's independent accountants for 1999.
(ii) The reports of KPMG LLP on the financial statements for each of the past two years contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles.
(iii) The decision to dismiss KPMG LLP was approved by the Audit Committee of the Board of Directors of the Registrant.
(iv) In connection with its audits for the two most recent years and the subsequent period through August 11, 1999 there have been no disagreements with KPMG LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which disagreements if not resolved to the satisfaction of KPMG LLP would have caused them to make reference thereto in their report on the financial statements for such years or subsequent period.
(v) During the two most recent years and the subsequent period through August 11, 1999, there have been no reportable events as defined in Regulation S-K Item 304(a)(1)(v) with KPMG LLP.
(vi) The Registrant provided KPMG LLP with a copy of the Form 8-K filed August 16, 1999 and requested KPMG LLP furnish it with a letter addressed to the Securities and Exchange Commission stating whether or not it agrees with the above statements. A copy of such letter dated August 16, 1999, was filed as an exhibit to the Form 8-K.
(b) New independent accountants
(i) The registrant has engaged Grant Thornton LLP as its new independent accountants as of August 11, 1999. During the two most recent years and the subsequent period through August 11, 1999, the Registrant has not consulted with Grant Thornton LLP on items regarding (1) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on the Registrant's financial statements, and neither a written report was provided to the Registrant or oral advice was provided that Grant Thornton LLP concluded was an important factor considered by the Registrant in reaching a decision as to the accounting, auditing or financial reporting issue, or (2) the subject matter of a disagreement or reportable event with the former auditor, (as described in Regulation S-K Item 304(a)(2).
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 2000 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 the Company is included pursuant to Instruction 3 of Item 401(b) of Regulation S-K:
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 the Company or its subsidiaries, as the case may be.
Ronald E. Klingle has been a director, Chairman of the Board and Chief Executive Officer since June 1998. He had been Chairman, Chief Executive Officer and a director of American Waste Services, Inc. since December 1988. Mr. Klingle has approximately 29 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 and Controller of the Company.
Timothy C. Coxson has been Treasurer and Chief Financial Officer since June 1998. He had been Executive Vice President, Finance, Treasurer and Chief Financial Officer and a director of American Waste Services, Inc. since May 1995. Mr. Coxson was Vice President, Corporate Financial Services of American Waste Services, Inc. from March 1991 to May 1995. He received a Bachelor of Business Administration degree in Accounting from The Ohio State University.
Jeffrey M. Grinstein has been General Counsel and Secretary since June 1998. He had been an Executive Vice President, General Counsel and Secretary of American Waste Services, Inc. since December 1992. Mr. Grinstein was previously with the Youngstown, Ohio law firm of Nadler, Nadler & Burdman Co. L.P.A. He received his Bachelor of Business Administration degree from Emory University and his Doctor of Jurisprudence degree from The Ohio State University.
Frances R. Klingle has been Chief Administrative Officer and Controller since June 1998. She had been Controller of American Waste Services, Inc. since June 1986. 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. Ms. Klingle is the spouse of Ronald E. Klingle who is Chairman of the Board, Chief Executive Officer and a director of the Company.
Stephen G. Kilper has been director of the Company since October 1999. He has been Chief Executive Officer of the Company's technical environmental services operations since June 1998. Mr. Kilper was Executive Vice President, Disposal Services, and a director of American Waste Services, Inc. and Chief Executor Officer of its wholly owned disposal subsidiaries from October 1995 to June 1998. Mr. Kilper received his degree in Agricultural Engineering from the University of Wisconsin - Madison.
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 AWS since September 1996. Mr. McMahon received a Bachelor of Business Administration degree in finance and his Master of Business Administration degree from Youngstown State University.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is contained under the captions "Meetings and Committees of the Board" and "Compensation of Directors and Executive Officers" in the Proxy Statement. The information under such captions is incorporated herein by reference, except that information contained under subpart captions "Board Committee Reports on Executive Compensation" and "Performance Graph" are specifically not incorporated herein.
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
Legal Services
Stephen L. Gordon, a director of the Company, is a partner in the law firm of Beveridge & Diamond, P.C., which has rendered legal services to the Company during the last fiscal year.
PART IV
ITEM 14. 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 Independent Auditors' Reports (See Part II, Item 8
Item 8 of this report regarding incorporation by reference from the Annual Report to Shareholders)
2. Financial Statement Schedules required to be filed by Item 8 and Paragraph (d) of this Item 14.