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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended April 1, 1995 Commission File No. 0-11917
THE DAVEY TREE EXPERT COMPANY
(Exact name of Registrant as specified in its charter)
OHIO 34-0176110
(State of Incorporation) (IRS Employer Identification No.)
1500 North Mantua Street
P. O. Box 5193
Kent, OH 44240-5193
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216) 673-9511
Number of Common Shares Outstanding as of May 15, 1995: 2,362,524
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past ninety (90) days.
YES X NO
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THE DAVEY TREE EXPERT COMPANY
INDEX
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Page No.
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PART I: FINANCIAL INFORMATION
Item 1: Financial Statements
Consolidated Balance Sheets - Periods Ended April 1,
1995, April 2, 1994 and December 31, 1994 3
Consolidated Statements of Earnings - Three Months
Ended April 1, 1995 and April 2, 1994 4
Consolidated Statements of Cash Flows - Three Months
Ended April 1, 1995 and April 2, 1994 5
Notes to Consolidated Financial Statements 6
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II: OTHER INFORMATION 11
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THE DAVEY TREE EXPERT COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<S> <C> <C> <C>
(Dollars in Thousands)
April 1, April 2, Dec. 31,
1995 1994 1994
------------ ------------ ------------
ASSETS (UNAUDITED)
- ------ -----------------------------
CURRENT ASSETS
Cash and Cash Equivalents $ 659 $ 299 $ 973
Accounts Receivable 30,092 27,740 29,313
Refundable Income Taxes 619 1,290 --
Operating Supplies 2,563 3,164 2,568
Prepaid Expenses 3,282 2,374 3,133
Deferred Income Taxes 1,898 1,902 1,898
------------ ------------ ------------
Total Current Assets 39,113 36,769 37,885
OTHER ASSETS 7,008 5,271 7,470
PROPERTY AND EQUIPMENT - NET 55,075 59,493 54,424
------------ ------------ ------------
TOTAL ASSETS $ 101,196 $ 101,533 $ 99,779
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Notes Payable to Banks $ 187 $ 315 $ 99
Accounts Payable 10,113 8,638 9,260
Accrued Liabilities 8,365 7,630 6,396
Accrued Workers' Compensation 4,501 2,048 4,396
Income Taxes Payable -- -- 1,307
Current Maturities of Long-Term Debt 7,296 7,985 3,844
------------ ------------ ------------
Total Current Liabilities $ 30,462 $ 26,616 $ 25,302
============ ============ ============
LONG-TERM DEBT
Notes Payable $ 8,000 $ 8,000 $ 8,000
Term Note Agreement 10,800 12,000 12,000
8.95% Industrial Development Bonds -- -- --
Revolving Credit Agreement 6,200 11,900 2,700
Long-Term Debt of ESOT 193 265 193
3% Community Development Block Grant -- 250 --
Term Loans 1,149 1,308 1,401
Subordinated Notes - Stock Redemption 808 346 212
Other 687 488 462
------------ ------------ ------------
27,837 34,557 24,968
Less: Current Maturities 7,296 7,985 3,844
------------ ------------ ------------
Total Long-Term Debt 20,541 26,572 21,124
------------ ------------ ------------
SELF-INSURANCE LIABILITIES 5,392 3,871 5,050
------------ ------------ ------------
OTHER LIABILITIES 3,892 3,831 3,772
------------ ------------ ------------
TOTAL LIABILITIES $ 60,287 $ 60,890 $ 55,248
============ ============ ============
SHAREHOLDERS' EQUITY
Preferred Shares $ 0 $ 0 $ 0
Common Shares - $1.00 Par Value; Authorized
12,000,000 Shares; Issued 4,364,220 Shares at
April 1, 1995, April 2, 1994 and December 31, 1994 4,364 4,364 4,364
Additional Paid-In Capital 7,554 7,207 7,531
Retained Earnings 60,831 57,262 62,851
------------ ------------ ------------
72,749 68,833 74,746
LESS:
Treasury Shares at cost: 1,988,278 Shares at
April 1, 1995; 1,865,858 Shares at April 2, 1994;
and 1,921,217 Shares at December 31, 1994 (31,079) (26,969) (29,416)
Subscriptions Receivable from Employees (592) (956) (606)
Future Contributions to ESOT (169) (265) (193)
------------ ------------ ------------
TOTAL SHAREHOLDERS' EQUITY $ 40,909 $ 40,643 $ 44,531
------------ ------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 101,196 $ 101,533 $ 99,779
============ ============ ============
See Notes to Consolidated Financial Statements
</TABLE>
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<TABLE>
THE DAVEY TREE EXPERT COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS
Three Months Ended April 1, 1995 and April 2, 1994
(Dollars in Thousands Except Earnings Per Share Amounts)
(UNAUDITED)
<Captions>
April 1, 1995 April 2, 1994
--------------------- ---------------------
<S> <C> <C> <C> <C>
REVENUES $ 46,382 100.0% $ 44,655 100.0%
--------- --------- --------- ---------
COSTS AND EXPENSES
Operating 35,960 77.5 35,027 78.5
Selling 6,549 14.1 5,947 13.3
General and Admin. 3,717 8.0 3,925 8.8
Depreciation 3,062 6.6 3,137 7.0
--------- --------- --------- ---------
TOTAL COSTS AND EXPENSES 49,288 106.2 48,036 107.6
--------- --------- --------- ---------
LOSS BEFORE INTEREST, OTHER
EXPENSE AND INCOME TAXES (2,906) (6.2) (3,381) (7.6)
INTEREST EXPENSE (527) (1.1) (464) (1.0)
OTHER EXPENSE (87) (0.2) (115) (0.3)
--------- --------- --------- ---------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAX CREDITS (3,520) (7.5) (3,960) (8.9)
INCOME TAX CREDITS (1,443) (3.1) (1,568) (3.5)
--------- --------- --------- ---------
LOSS FROM CONTINUING OPERATIONS (2,077) (4.4) (2,392) (5.4)
DISCONTINUED OPERATIONS, NET 236 0.5 (93) (0.2)
--------- --------- --------- ---------
NET LOSS $ (1,841) (3.9)% $ (2,485) (5.6)%
--------- --------- --------- ---------
LOSS PER COMMON SHARE
FROM CONTINUING OPERATIONS $ (0.84) $ (0.91)
========= =========
NET LOSS PER COMMON SHARE $ (0.74) $ (0.95)
========= =========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING,
INCLUDING COMMON STOCK
EQUIVALENTS 2,486,405 2,626,595
========= =========
<FN>
See Notes to Consolidated Financial Statements
</TABLE>
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<TABLE>
THE DAVEY TREE EXPERT COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
(UNAUDITED)
April 1, April 2,
1995 1994
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Earnings $ (1,841) $ (2,485)
Adjustments to Reconcile Net Earnings to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 3,208 3,231
Deferred Income Taxes (22)
--------- ---------
1,367 724
Change in Operating Assets and Liabilities:
(Increase) Decrease In:
Accounts Receivable (779) 548
Refundable Income Taxes (619) (1,290)
Operating Supplies 5 (519)
Prepaid Expenses (149) (321)
Other Assets 317 (518)
Increase (Decrease) In:
Accounts Payable 853 (2,390)
Accrued Liabilities 1,969 1,923
Accrued Workers' Compensation &
Self-Insurance Liabilities 447 353
Income Taxes Payable (1,307) (1,541)
Other Liabilities (476) (38)
--------- ---------
Net Cash Provided By (Used In)
Operating Activities 1,628 (3,069)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Sales of Property and Equipment 911 51
Capital Expenditures:
Land and Buildings
Equipment (3,894) (3,328)
--------- ---------
Net Cash (Used In) Investing Activities (2,983) (3,277)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
ESOT Payment of Debt Guaranteed by the Company 24 24
Net Borrowings (Payments) Under Notes Payable,
Bank 88 235
Principal Payments of Long-Term Debt (1,486) (271)
Proceeds from Issuance of Long-Term Debt 4,355 6,400
Sales of Treasury Shares 123 206
Receipts from Stock Subscriptions 14 19
Dividends Paid (314) (327)
Repurchase of Common Stock (1,763) (663)
--------- ---------
Net Cash (Used In) Provided By Financing
Activities 1,041 5,623
--------- ---------
NET CHANGE IN CASH AND EQUIVALENTS (314) (723)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 973 1,022
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 659 $ 299
========= =========
See Notes to Consolidated Financial Statements
</TABLE>
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THE DAVEY TREE EXPERT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Three Months Ended April 1, 1995
UNAUDITED
---------
Note 1 - Basis of Presentation
- ------------------------------
The accompanying unaudited Consolidated Financial Statements as of
April 1, 1995 and April 2, 1994 have been prepared in accordance with the
instructions to Form 10-Q, but do not include all the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of the management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation, have
been included.
Note 2 - Discontinued Operations
- --------------------------------
On March 31, 1995 the Registrant sold substantially all of the operating
assets, excluding real estate, of its interior plant care business to Barefoot
Grass Lawn Service, Inc. for approximately $1,300,000. The sale agreement
provided for settlement of the purchase price in cash on April 3, 1995.
<TABLE>
Amounts related to the discontinued operations and recognized in the financial
statements are as follows:
<CAPTION>
Three Three
Months Ended Months Ended
April 1, 1995 April 2, 1994
------------- -------------
<S> <C> <C>
Revenues $ 555,000 $ 607,000
========== ----------
Loss from discontinued operations, net of
applicable income tax credits of $71,000 in
1995 and $61,000 in 1994 $ (102,000) $ (93,000)
Gain on sale of assets, less applicable
income taxes of $ 234,000 $ 338,000
---------- ----------
Discontinued operations, net $ 236,000 (93,000)
========== ==========
Assets and liabilities as of April 1, 1995:
Remaining assets:
Amount due from sale of operating assets $1,300,000
Real estate, net 498,000
----------
Total assets $1,798,000
----------
Liabilities which remain the obligation of
the Registrant:
Notes payable and current portion of
long-term debt $ 93,000
Accounts payable 64,000
Accrued liabilities and other 110,000
Long-term debt less current portion 105,000
----------
Total liabilities $ 372,000
==========
</TABLE>
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Note 3 - Acquisition
- --------------------
Effective January 1, 1995, the Registrant acquired the common stock of B. D.
Wilhelm Company, a residential and commercial tree and lawn care company in
Denver, Colorado. The Registrant recorded the approximate $1,650,000 price
using the purchase method of accounting and has included the first quarter
results of operations in its consolidated financial statements. Goodwill
acquired as a result of this purchase will be amortized over 15 years using the
straight-line method.
Note 4 - Results of Operations
- ------------------------------
Due to the seasonal nature of some of the Company's services, the results of
operations for the quarters ended April 1, 1995 and April 2, 1994 are not
necessarily indicative of the results to be expected for the full year.
Note 5 - Dividends
- ------------------
On March 10, 1995 the Registrant paid a $.13 per share dividend to all
shareholders of record at March 1, 1995. This compares to a $.13 per share
dividend paid in the first quarter of 1994.
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THE DAVEY TREE EXPERT COMPANY
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
---------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
Three Months Ended April 1, 1995
--------------------------------
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Operating activities provided $1,628,000 during the first quarter of
1995, a net increase of $4,697,000 when compared with the $3,069,000 used in
the same time period last year.
The Registrant's seasonal net losses of $1,841,000 decreased $644,000
from the previous year's first quarter losses of $2,485,000. The improvement
was mainly attributable to lower seasonal operating losses sustained by the
Registrant's Residential and Commercial service lines, a reflection of improved
economic conditions generally, as well as significantly improved operating
profit realized by the Registrant's Western Canadian utility operations. The
Registrant also realized a gain on the disposal of certain assets associated
with its Interiorcare operations. (See Note #2 to the Financial Statements on
page 6 of the quarterly report on Form 10-Q.) Inasmuch as the Registrant's
services are highly seasonal, and that the prime sales season does not commence
until the second quarter, it is difficult to draw conclusions regarding annual
performance from first quarter results.
The net increase in cash flows from operating activities was also
attributable to a lower increase in refundable income taxes, a decrease in
other assets and operating supplies, and an increase in accounts payable.
These factors were partially offset by an increase in accounts receivable.
Refundable income taxes of $619,000 were $671,000 lower than the prior
year, primarily due to the lower seasonal net losses.
Other assets provided $317,000 in cash, an improvement of $835,000
when compared to the $518,000 used in the prior year. The favorable change was
primarily attributable to amounts earned under a contract with two of the
Registrant's utility customers, as well as an advance funded according to terms
of The Big Tree Company, Inc. acquisition agreement, both of which occurred in
the prior year.
Operating supplies provided $5,000, a net increase of $524,000 when
compared to the $518,000 used in the prior year. The change was due in part to
the disposal of certain Interiorcare assets referred to above, as well as a
decrease in clothing inventories.
The net increase in cash provided by accounts payable of $3,243,000
was primarily the result of higher equipment purchases entered into during the
fourth quarter of 1993 and paid the first quarter of 1994. To a lesser extent,
the change resulted from a slight increase in payment cycles initiated by the
Registrant during the latter half of 1994 and continued in the current year.
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Cash flows from operating activities were reduced by a $779,000
increase in accounts receivable, a net change of $1,327,000 when compared to
the $548,000 provided in 1994. Excluding amounts due from the sale of
Interiorcare assets discussed above, the Registrant's accounts receivable
actually declined from December 31, 1994 and would have provided cash of
$521,000. Average accounts receivable days outstanding increased 2.6 days to
49.9 days when compared to last year but have declined 4.6 days when compared
to year end 1994. The increase in days was due in part to slower payment
cycles initiated by some residential and commercial customers. The Registrant
is not concerned as to the collectibility of the accounts, and therefore,
considers no allowance necessary; however, it will continue to focus its
efforts to attain permanent reductions in both days and dollars outstanding.
Investing activities used $2,983,000 in the first quarter, a slight
decrease from the $3,277,000 used in the prior year. The change was most
notably due to amounts realized on the sale of certain Interiorcare assets
previously discussed, partially offset by slightly higher capital expenditures.
At $12,000,000 for the current year, the budget for capital expenditures is
consistent with the Registrant's plan to expand other services, maintain
equipment of existing operations, and provide for the ongoing purchase of land
and branch office facilities.
During the first quarter, financing activities generated $1,041,000, a
$4,582,000 decrease when compared to the $5,623,000 provided in 1994. This
decrease was due to three factors. First, principal payments of long-term debt
increased by approximately $1,200,000 in that beginning in 1995, quarterly
principal payments of $600,000 are due under the Registrant's term note
agreement with its principal bank, whereas in 1994 the agreement called for
payments of interest only. Second, the Registrant borrowed $2,045,000 less
under its revolving credit agreement than during the same period in 1994,
principally as a result of the additional cash generated from operating
activities. Third, the Registrant repurchased $1,763,000 of its common stock,
a $1,100,000 increase when compared to the prior year. A significant amount of
this increase is attributable to the redemption of shares held by a former vice
president; consequently, the Registrant anticipates that share repurchases will
approximate prior year levels for the balance of 1995.
At April 1, 1995, the Registrant's principal source of liquidity
consisted of $659,000 in cash and cash equivalents; short-term lines of credit
and amounts available to be borrowed from banks via notes payable totaling
$12,289,000, of which $9,107,000 had been drawn at April 1, 1995; and a
revolving credit agreement with a bank in the amount of $15,000,000, of which
$6,200,000 had been drawn at April 1, 1995. Including the outstanding balance
on the term note agreement of $10,800,000, the Registrant's credit facilities
now total $38,089,000. The Registrant believes its available credit will
exceed credit requirements, and that its liquidity is adequate.
RESULTS OF OPERATIONS
- ---------------------
Revenues of $46,382,000 for the first quarter of 1995 increased
$1,727,000 when compared to the first quarter of 1994. This increase was
principally due to increased revenues in the Registrant's Residential and
Commercial services and its Western Canadian operations, offset by a slight
decrease in utility revenues. As discussed earlier, Residential and Commercial
services continue to be positively influenced by heightened sales efforts as
well as continued strong economic conditions generally, which have
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sustained consumer confidence. The Registrant's Western Canadian operations
experienced adverse weather conditions in 1994, which depressed revenues last
year in comparison to 1995. The Registrant's utility services continue to be
somewhat affected, as in the prior year, by budget reductions on existing
utility operations and discontinued utility operations experienced in the
ordinary course of competitive bidding.
Operating costs increase $933,000 to $35,960,000, but as a percentage
of revenues decreased 1.0% from 78.5% to 77.5% in the current year. This
percentage improvement was primarily attributable to lower direct labor and
equipment costs associated with higher Residential and Commercial revenues,
along with a partial recovery from price concessions on certain utility
contracts. This improvement was also due to shut down and relocation costs
incurred in 1994 associated with discontinued utility operations. The
Registrant anticipates that operating costs will remain, as a percentage of
revenues, slightly below 1994 levels.
Selling costs increased $602,000 or .8% as a percentage of revenues to
$6,549,000 or 14.1%. The increase was mainly due to higher Residential sales
commissions and related payroll tax expense, along with higher group insurance
costs, partially offset by lower advertising costs.
General and Administrative expenses of $3,717,000 decreased $208,000
or .8% as percentage of revenues when compared to the $3,925,000 or 8.8% in
1994. The decrease was achieved primarily through continued corporate cost
reductions and lower administrative incentives.
Depreciation and amortization expense of $3,062,000, or 6.6% as a
percentage of revenues, was slightly lower both in dollars and percentage than
the $3,137,000 or 7.0% experienced last year. The lower depreciation level is
generally a function of lower capital expenditures over the past two years.
The Registrant anticipates that 1995 depreciation expense will approximate 1994
levels.
Interest expense of $527,000 increased $63,000 when compared to the
$464,000 experienced last year, despite a reduction in the Registrant's
long-term debt of approximately $6,700,000 from one year ago. The increase
resulted from an almost 300 basis point rise in interest rates.
As a result of the above factors, the first quarter loss from
continuing operations before income tax credits of $3,520,000 or 7.5% as a
percentage of revenues was $440,000 or 1.4% lower than the loss experienced
last year. Effective income tax rates of 41.0% and 39.6% were used to compute
the tax credits in 1995 and 1994, respectively. After reflecting the net
$236,000 contributed by the Registrant's discontinued Interiorcare operations
(See Note #2 to the Financial Statements on page 6 of the quarterly report on
Form 10-Q), the Registrant's net loss of $1,841,000 reflects an improvement of
$644,000 from 1994, or 1.7% as a percentage of revenues.
The net loss per common share from continuing operations and the net
loss per common share was calculated by using the weighted average number of
common shares outstanding, including common stock equivalents during the
period.
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THE DAVEY TREE EXPERT COMPANY
PART II: OTHER INFORMATION
---------------------------
All Items of Part II were either inapplicable or would have been
answered in the negative; therefore, no reference thereto is required to be
made in this report.
SIGNATURES
----------
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.
THE DAVEY TREE EXPERT COMPANY
BY: /s/ David E. Adante
-------------------------------
David E. Adante
Executive Vice President, CFO and
Secretary-Treasurer
BY: /s/ Bradley L. Comport
-------------------------------
Bradley L. Comport
Corporate Controller
May 15, 1995
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