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 also assumed certain liabilities of AWS. On June 17, 1998 AWS distributed, as a special dividend, all of the outstanding shares of capital stock of Avalon to the holders of AWS common stock on a pro rata and corresponding basis (the "Spin-off").
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 Avalon'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 Avalon's 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 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 Avalon'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 business segments are transportation services, technical environmental services, waste disposal brokerage and management services, and golf and related operations. The transportation services, technical environmental services and waste disposal brokerage and management services are provided to industrial, commercial, municipal and governmental customers primarily in selected northeastern and midwestern United States markets. 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 2001, 2000 and 1999, the net operating revenues of the transportation services segment represented approximately 44%, 48% and 45%, 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 2001, 2000 and 1999, the net operating revenues of the technical environmental services segment represented approximately 27%, 28% and 32%, 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 2001, 2000 and 1999, the net operating revenues of the waste disposal brokerage and management services segment represented approximately 28%, 23% and 21%, respectively, of Avalon's total segments' net operating revenues. Avalon's golf course and related operations segment operates an 18-hole golf course and a travel agency. For the years 2001, 2000 and 1999, the net operating revenues of the golf and related operations segment represented approximately 1%, 1%, and 2%, respectively, of Avalon's total segments' net operating revenues.
Transportation Services
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. The transportation operations have the equipment and the expertise to transport virtually all types of waste and most commodity products.
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 70%, 79% and 72% of the revenue generated by Dart in 2001, 2000 and 1999, respectively, related to the transportation of waste. Hazardous waste represented 36%, 37% and 56% of Dart's waste transportation revenues in 2001, 2000 and 1999, respectively.
Dart, which is licensed as a common carrier in 49 states and several provinces of Canada, derived 30%, 21% and 28% of its revenues in 2001, 2000 and 1999, respectively, from the transportation of general and 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 substantial number of the truck power units and trailers used by Dart are owned and operated by independent truckers who receive a negotiated percentage of the gross revenue from carriage. Many of the approximately 60 to 80 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".
Governmental Regulations
As with other transportation companies, Avalon's transportation operations must comply with Federal Motor Carrier Safety Regulations as promulgated by the United States Department of Transportation. In order to transport hazardous waste and, in certain cases, nonhazardous solid waste, Avalon's transportation operations must also comply with additional Federal Motor Carrier Safety Regulations and possess and maintain one or more state operating permits. These operating permits must be renewed annually and are subject to modification and revocation by the issuing agency. In addition, Avalon's waste transportation operations are subject to evolving and expanding operational and safety requirements.
In the ordinary course of their operations, Avalon's subsidiaries may from time to time receive citations, notices or comments from regulatory authorities that such operations are not in compliance with applicable environmental regulations. These agencies may seek to impose fines, or revoke or deny renewal of operating permits or licenses, or require the remediation of environmental problems resulting from Avalon's transportation or waste brokerage operations. Upon receipt of such citations, notices or comments, the appropriate subsidiary works with the authorities in an attempt to resolve the issues raised. Failure to correct the problems to the satisfaction of the authorities could lead to fines and/or a curtailment or cessation of certain operations.
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 Avalon's disposal brokerage and transportation 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 Avalon. Avalon's transportation operations may also be affected by the trend toward laws requiring the development of waste reduction and recycling or other programs.
Sales and Marketing
Avalon's sales and marketing approach is decentralized, with each operation being responsible for its own sales and marketing efforts. Each operation employs its own sales force which concentrates on expanding its business.
Competition
The markets for the transportation of hazardous and nonhazardous waste and for the transportation of general and bulk commodities are each highly competitive. There are numerous participants, and no one transporter has a dominant market share. Avalon competes primarily with other short and long-haul carriers for both truckload and less than truckload shipments. Competition for the transportation of waste is based on the ability of the carrier to transport the waste at a competitive price and in accordance with applicable regulations. Competition for the transportation of commodities is based primarily on price and service. As is the case with any transportation company, Avalon's costs depend on the price and availability of diesel fuel.
Avalon's technical environmental services operations compete with numerous large and small companies, each of which is able to provide one or more of the environmental services offered by Avalon and some of which have greater financial resources. Avalon attempts to develop relationships with clients who have an ongoing need for its integrated technical environmental services. The availability of skilled technical personnel, the quality of performance and service, and fees are the key competitive factors in developing such relationships.
The hazardous and nonhazardous waste disposal brokerage and management business is highly competitive and fragmented. Avalon's waste disposal brokerage and management business competes with other brokerage companies as well as with companies which own treatment and disposal facilities. In addition to price, knowledge and service are the key factors when competing for waste disposal brokerage and management business.
Avalon's waste disposal brokerage and management operations obtain and retain customers by providing service and identifying cost-efficient disposal options unique to a customer's needs. Continued consolidation within the solid waste industry has reduced the number of disposal options available to waste generators and has caused disposal pricing to increase. Avalon does not believe that industry 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, which may adversely impact the future financial performance of Avalon's waste disposal brokerage and management operations.
Avalon's golf course and related operations are located in Warren, Ohio and the golf course is significantly dependent on weather conditions during the golf season. The golf course competes with many public and private courses in the area.
Insurance
Avalon carries $21,000,000 of liability insurance coverages. This insurance includes coverage for comprehensive general liability, automobile liability (including a pollution liability endorsement which covers certain liabilities from spills), comprehensive property damage and other customary coverages. Dart self-insures for collision risks and ALGI maintains its own separate insurance. The Earth Sciences Companies also maintain professional and contractors pollution liability coverages. No assurance can be given that such insurance will be available in the future or, if available, that the premiums for such insurance will be reasonable.
If Avalon were to incur a substantial liability for damages not covered by insurance or in excess of its policy limits or at a time when Avalon no longer is able to obtain appropriate liability insurance, its financial condition could be materially, adversely affected.
Avalon has entered into contracts with governmental authorities for a variety of environmental services. Typically, such contracts require surety bonds or other financial instruments to assure performance under the terms thereof. Avalon has obtained in the past, and expects to be able to obtain in the future, such bonds or other financial instruments.
Employees
As of December 31, 2001, Avalon had 422 employees, 208 of whom were employed in transportation operations, 153 of whom were employed in technical environmental services, 22 of whom were employed by the waste disposal brokerage and management operations, 11 of whom were employed by the golf course and related
operations and 28 of whom were employed in financial and administrative activities. Avalon believes that it has a good relationship with its employees.
Other Business Factors
None of Avalon's business segments is materially dependent on patents, trademarks, licenses, franchises or concessions, other than permits, licenses and approvals issued by regulatory agencies. Avalon does not sponsor significant research and development activities.
ITEM 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); Chicago, Illinois (where Dart leases a 500 square foot terminal and leases a 5,100 square foot maintenance facility); and Bedford, New Hampshire (where Dart leases a 300 square foot office. At December 31, 2001, the transportation operations owned a fleet of 20 power units (in addition to 144 power units which are leased), 299 trailers (in addition to 58 trailers which are leased and 91 which are rented), and 654 roll-off and other containers. In addition, 60 to 80 power units and 90 to 110 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. In addition, 17,000 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 or leased by ALMI.
ALGI owns an 18-hole golf course and practice facility on approximately 200 acres, a maintenance and storage building of approximately 12,000 square feet, a restaurant building of approximately 10,400 square feet, and a banquet facility of approximately 7,000 square feet. ALGI currently leases the restaurant building and banquet facility to a third party operator and is in the process of constructing a club house including a pro shop as part of the remodeling of Avalon's corporate headquarters building. All the facilities are located in Warren, Ohio.
Avalon owns a 26,000 square foot headquarters building located on approximately 5.6 acres of property in Warren, Ohio adjacent to the golf course. Avalon's corporate headquarters building is currently being remodeled to include a clubhouse for the Avalon Lakes Golf Club. 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 Avalon 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 facility 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 were also identified as responsible or potentially responsible parties with respect to this facility. During the fourth quarter of 1999, Avalon became a party to an Agreed Order and a Participation Agreement regarding the remediation of a portion of this site. The Participation Agreement provides for, among other things, the allocation of all site remediation costs except for approximately $3 million. Avalon's total liability for the allocated costs under the Participation Agreement was approximately $71,000, which Avalon has paid.
The additional unallocated site remediation costs are currently estimated to be approximately $3 million and Avalon's total accrued liability relating to the remediation of this portion of the site on an undiscounted basis is $120,000. The extent of any ultimate liability of any of Avalon's subsidiaries with respect to these additional costs is unknown. The measurement of environmental liabilities is inherently difficult and the possibility remains that technological, regulatory or enforcement developments, the results of environmental studies or other factors could materially alter Avalon's expectations at any time. Currently, however, because of the expected sharing among responsible and potentially responsible parties, the availability of legal defenses, and typical settlement results, Avalon currently estimates that the ultimate liability of this matter will be consistent with the amounts recorded on Avalon's financial statements.
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, Avalon does not believe that any uninsured ultimate liabilities, fines or penalties resulting from such pending proceedings, individually or in the aggregate, would have a material adverse effect on 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 Avalon's security holders during the fourth quarter of 2001.
PART II
Information with respect to the following items can be found on the indicated pages of Exhibit 13.1, the 2001 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
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 regarding Directors is contained under the caption "Election of Directors" in the Registrant's definitive Proxy Statement for its 2002 Annual Meeting of Shareholders (the "Proxy Statement") which will be filed with the Securities and Exchange Commission, pursuant to Regulation 14A, not later than 120 days after the end of the fiscal year, which information under such caption is incorporated herein by reference. The following information with respect to the Executive Officers of Avalon is included pursuant to Instruction 3 of Item 401(b) of Regulation S-K:
The above-listed individuals have been elected to the offices set opposite their names to hold office at the discretion of the Board of Directors of Avalon or its subsidiaries, as the case may be.
Ronald E. Klingle has been a director, 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 over 30 years of environmental experience and received his Bachelor of Engineering degree in Chemical Engineering from Youngstown State University. Mr. Klingle is the spouse of Frances R. Klingle who is the Chief Administrative Officer and Controller of Avalon.
Timothy C. Coxson has been Treasurer and Chief Financial Officer since June 1998. He has been Chief Executive Officer of DartAmericA, Inc. since December 2001. He had been Executive Vice President, Finance, Treasurer and Chief Financial Officer and a director of American Waste Services, Inc. since 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 Avalon.
Stephen G. Kilper has been director of Avalon since October 1999. He has been Chief Executive Officer of Antech Ltd., AWS Remediation, Inc., and American Landfill Management Services, Inc. since June 1998. Mr. Kilper was Executive Vice President, Disposal Services, and a director of American Waste Services, Inc. and Chief Executive 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 American Waste Services, Inc. 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
Avalon did not have any transactions during fiscal 2001 with any director, director nominee, executive officer, security holder known to Avalon to own of record or beneficially more than 5% of Avalon's Common Stock, or any member of the immediate family of any of the foregoing persons, in which the amount involved exceeded $60,000.
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' Report (See Part II, Item 8
Item 8 of this report regarding incorporation by reference from the 2001 Annual Report to Shareholders) 2. Financial Statement Schedules required to be filed by Item 8 and Paragraph (d) of this Item 14.