<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994
Commission file number: 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, Ohio 44240-5193
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216) 673-9511
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Shares, $1 par value
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 requirement for the past 90 days.
Yes X No
---- ----
The disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of Registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
The aggregate "market value" (See Item 5 hereof) of voting stock held by
non-affiliates of the Registrant at March 22, 1995 (excluding the total number
of Common Shares reported in Item 12 hereof), was $58,648,430.
Common Shares outstanding at March 22, 1995: 2,405,596.
Documents incorporated by reference: Portions of the Registrant's definitive
Proxy Statement for its 1995 Annual Meeting of Shareholders (Part III).
Index to Exhibits is located on sequential page 15.
<PAGE> 2
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PART I
ITEM 1. BUSINESS ------
------ --------
GENERAL. The Davey Tree Expert Company, which was incorporated in
1909, and its subsidiaries (the "Registrant") are in the business of providing
horticultural services to a variety of residential, corporate, institutional
and governmental customers. Horticultural services include the treatment,
preservation, maintenance, cultivation, planting and removal of trees, shrubs
and other plant life and also include the practices of landscaping, tree
surgery, tree feeding, tree spraying, interior plant installation and
maintenance, line clearing for public utilities, and related consultation
services. Horticultural services also involve the application of
scientifically formulated fertilizers, herbicides and insecticides with
hydraulic spray equipment on residential and commercial lawns.
COMPETITION AND CUSTOMERS. The Registrant is one of the largest
national organizations in the private horticultural services industry. The
Registrant competes with other national and local firms with respect to its
services, although the Registrant believes that no other firm, whether national
or local, offers the range of services that it offers.
Competition in private horticultural services is generally localized
but very active and widespread. The principal methods of competition are
advertising, customer service, image, performance and reputation. The
Registrant's program to meet its competition stresses the necessity for its
employees to have and project to the customers a thorough knowledge of
horticulture and utilization of modern, well-maintained equipment. Pricing
is not always a critical factor in a customer's decision. Pricing is, however,
the principal method of competition in providing horticultural services to
utility customers, although in most instances consideration is given to
reputation and past production performance.
The Registrant provides a wide range of horticultural services to
private companies, public utilities, local, state and Federal agencies, and a
variety of industrial, commercial and residential customers. During 1994, the
Registrant had sales of approximately $27,000,000 (13% of total sales) to
Pacific Gas & Electric Company, and approximately $24,000,000 (11% of total
sales) to Allegheny Power Company.
REGULATION AND ENVIRONMENT. The Registrant's facilities and
operations, in common with those of the industry generally, are subject to
governmental regulations designed to protect the environment. This is
particularly important with respect to the Registrant's services regarding
insect and disease control, because these services involve to a considerable
degree the blending and application of spray materials, which require formal
licensing in most areas. The constant changes in environmental conditions,
environmental awareness, technology and social attitudes make it necessary for
the Registrant to maintain a high degree of awareness of the impact such
changes have on the market for its services. The Registrant believes that it
is in compliance with existing Federal, state and local laws regulating the use
of materials in its spraying operations as well as the other aspects of its
business that are subject to any such regulation.
<PAGE> 3
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MARKETING. The Registrant solicits business from residential and
commercial customers principally through direct mail programs and to a lesser
extent through the placement of advertisements in national magazines and trade
journals and in local newspapers and "yellow pages" telephone directories.
Business from utility customers is obtained principally through negotiated
contracts and competitive bidding. All sales and services are carried out
through personnel who are direct employees. The Registrant does not use agents
and does not franchise its name or business.
SEASONALITY. The Registrant's business is highly seasonal, primarily
due to extreme fluctuations in horticultural services provided to residential
and commercial customers. Because of this seasonality, the Registrant has
historically incurred losses in the first quarter, while sales and earnings are
generally highest in the second and third quarters of the calendar year.
Consequently, this has created heavy demands for additional working capital at
various times throughout the year. The Registrant borrows primarily against
bank commitments in the form of lines of credit and a revolving credit
agreement, as well as several term notes, to provide the necessary funds.
OTHER FACTORS. Rapid changes in equipment technology require a
constant updating of equipment and processes to ensure competitive services to
the Registrant's clients. Also, the Registrant must continue to assure its
compliance with the Occupational Safety and Health Act. In keeping with these
requirements, and to equip the Registrant for continued growth, capital
expenditures in 1994 and 1993 were approximately $8,598,000 and $15,887,000,
respectively.
The Registrant owns several trademarks including "Davey", "Davey and
design", "Arbor Green", "Davey Tree and design", "Davey Expert Co. and design"
and "Davey and design (Canada)". Through substantial advertising and use, the
Registrant is of the opinion that these trademarks have become of value in the
identification and acceptance of its products and services.
EMPLOYEES. The Registrant employs between 4,800 and 5,200 persons,
depending upon the season, and considers its employee relations to be good.
FOREIGN AND DOMESTIC OPERATIONS. The Registrant and its Canadian
subsidiaries sell the Registrant's service to customers in the United States
and Canada.
The Registrant does not consider its foreign operations to be material
and considers the risks attendant to its business with foreign customers, other
than currency exchange risks, to be not materially different from those
attendant to business with its domestic customers.
<PAGE> 4
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ITEM 2. PROPERTIES
The following table lists certain information with respect to major
properties owned by the Registrant and used in connection with its operations.
<TABLE>
<CAPTION>
LOCATION ACREAGE BUILDING SQ. FT.
-------- ------- ----------------
<S> <C> <C>
Cincinnati, Ohio 2.5 7,200
Livermore, California 12.0 29,737
Winter Park, Florida 1.0 5,850
Chamblee, Georgia 1.9 6,200
East Dundee, Illinois 4.0 7,500
Indianapolis, Indiana 1.5 5,000
Troy, Michigan 2.0 7,200
Cheektowaga, New York 6.9 2,800
Bayport, New York 2.0 7,000
Charlotte, North Carolina 3.1 4,900
Canal Winchester, Ohio 2.8 25,933
Kent, Ohio (multiple parcels) 128.2 111,608
Toledo, Ohio .5 4,300
Wooster, Ohio 322.8 13,194
Columbus, Ohio 8.0 12,685
Dayton, Ohio .3 3,584
West Babylon, New York .9 14,100
Houston, Texas 1.6 8,200
Chantilly, Virginia 2.5 5,700
Downsview, Ontario, Canada .5 3,675
Baltimore, Maryland 3.4 22,500
Lancaster, New York 3.0 6,624
Bettendorf, Iowa .5 478
Richmond, Virginia .7 2,586
Mecklenburg County, North Carolina 15.6 -0-
Stow, Ohio 7.4 14,100
West Carlton Twp., Ontario, Canada 3.1 4,000
Nanaimo, British Columbia, Canada 1.0 4,742
Edmonton, Alberta, Canada .7 2,900
Houston, Texas 1.5 7,800
Plymouth, Minnesota 2.7 11,750
Gaithersburg, Maryland 2.1 7,200
Lachine, Quebec, Canada .5 2,300
Gibsonia, Pennsylvania 5.9 7,100
Lawrence, Pennsylvania 3.5 7,200
Jacksonville, Florida 279.0 5,300
</TABLE>
The Registrant also rents approximately 40 other premises for office,
warehouse and storage use. The Registrant believes that all of these
properties have been adequately maintained and are suitable and adequate for
its business as presently conducted.
ITEM 3. LEGAL PROCEEDINGS.
------ -----------------
There are no legal proceedings, other than ordinary routine litigation
incidental to the business, to which the Registrant or any of its subsidiaries
is a party or of which any of their property is the subject. This routine
litigation is not material to the Registrant.
<PAGE> 5
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
------ ---------------------------------------------------
No matter was submitted during the fourth quarter of 1994 to a vote of
security holders, through the solicitation of proxies or otherwise.
Executive Officers of the Registrant (included pursuant to Instruction
3 to paragraph (b) of Item 401 of Regulation S-K). The executive officers of
the Registrant and their present positions and ages are as follows:
<TABLE>
<CAPTION>
Name Position Age
---- -------- ---
<S> <C> <C>
R. Douglas Cowan President and 54
Chief Executive Officer
David E. Adante Executive Vice President, 43
Chief Financial Officer
and Secretary-Treasurer
Karl J. Warnke Executive Vice President 43
and General Manager,
Utility Services
Howard D. Bowles Vice President and General 51
Manager, Davey Tree
Surgery Company
C. Kenneth Celmer Vice President & General 47
Manager, Residential Services
Bradley L. Comport, CPA Corporate Controller 43
Dr. Roger C. Funk Vice President - Human 50
and Technical Resources
Rosemary T. Nicholas Assistant Secretary 51
Gordon L. Ober Vice President - 45
New Ventures
Richard A. Ramsey Vice President & General 45
Manager, Commercial Services
Donald J. Shope Vice President and General 61
Manager - Residential and
Commercial Services
Wayne Parker Vice President - Northern 39
Operations, Utility Services
</TABLE>
<PAGE> 6
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Mr. Cowan was elected President and Chief Executive Officer in May
1988 and prior to that time served as President and Chief Operating Officer.
Mr. Adante was elected Executive Vice President, Chief Financial
Officer and Secretary-Treasurer in May 1993. He served as Vice President,
Chief Financial Officer and Secretary-Treasurer from July 1992 to June 1993.
Prior to that time, he served as Vice President, Chief Financial Officer and
Secretary since before 1990.
Mr. Warnke was elected Executive Vice President and General
Manager-Utility Services in May 1993. Prior to that time, he served as Vice
President and General Manager-Utility Services since before 1990.
Mr. Bowles was elected Vice President and General Manager of Davey
Tree Surgery Company in January 1992. From that date and since before 1990, he
served as Vice President and Co-General Manager.
Mr. Celmer was elected Vice President and General Manager -
Residential Services in January, 1995. He served as Vice President-Eastern
Operations, Residential and Commercial Services from January 1992 to January
1995. Prior to that time, he served as Vice President-Operations, Residential
and Commercial Services since before 1990.
Mr. Comport was elected Corporate Controller in May 1990. Prior to
that time and since before 1990, he served as Vice President-Finance and
Administration for G & R Felpauch Company, a comparable-size retail supermarket
chain.
Dr. Funk was elected Vice President-Human Technical Resources in
January 1984.
Ms. Nicholas was elected Assistant Secretary in May 1982.
Mr. Ober was elected Vice President-New Ventures in March 1986.
Mr. Ramsey was elected Vice President and General Manager-Commercial
Services in January, 1995. He served as Vice President-Western Operations,
Residential and Commercial Services from January 1992 to January 1995. Prior
to that time, he served as Vice President and Co- General Manager of Davey Tree
Surgery Company since before 1990.
Mr. Shope was elected Vice President and General Manager-Residential
and Commercial Services in January 1984. He retired effective December 24,
1994.
Mr. Parker was elected Vice President - Northern Operations, Utility
Services in May, 1994. Prior to that time and since before 1990, he served in
several positions in utility operations.
Officers of the Registrant serve for a term of office from the date of
their election to the next organizational meeting of the Board of Directors and
until their respective successors are elected.
<PAGE> 7
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PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
------- ----------------------------------------------------------------------
At December 31, 1994, 1993, and 1992 the number of Common Shares
issued were 4,364,220 for each date. At those respective dates, the number of
shares in the treasury were 1,921,217, 1,852,050 and 1,816,307.
The Registrant's Common Shares are not listed or traded on an
established public trading market and market prices are, therefore, not
available. Semi-annually, for purposes of the Registrant's Employee Stock
Ownership Trust ("ESOT"), the fair market value of the Registrant's Common
Shares, based upon the Registrant's performance and financial condition, is
determined by an independent financial consulting firm.
As of March 22, 1995, there were 1,632 record holders of the
Registrant's Common Shares. During the years ended December 31, 1994, December
31, 1993 and December 31, 1992, the Registrant paid dividends of $.13, $.12,
and $.11, respectively, per share in each of the four quarters. The
Registrant's agreements with its lenders provide that the payment of cash
dividends during any year may not exceed the lesser of (a) 30% of the average
of annual net earnings (as defined) for the prior three years or (b) 10% of
consolidated net worth (as defined) as at the first day of that year. (See
Note 4 to the Financial Statements on page F-13 of this Annual Report on Form
10-K.)
Item 6. Selected Financial Data.
------- -----------------------
<TABLE>
<CAPTION>
Years Ended December 31
------------------------------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(Dollars in Thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Operating
Results:
Revenues $212,669 $221,618 $208,936 $187,424 $184,042
Net Earnings $ 4,039 $ 6,056 $ 5,044 $ 5,867 $ 5,242
Net Earnings
Per Common
Share $ 1.62 $ 2.33 $ 1.89 $ 2.13 $ 1.84
At Year End:
Total Assets $ 98,776 $ 99,462 $ 92,722 $ 73,236 $ 72,544
Total Long-
Term Debt $ 21,124 $ 26,778 $ 27,113 $ 13,355 $ 13,402
Cash Dividends
Per Common
Share $ .52 $ .48 $ .44 $ .40 $ .36
</TABLE>
<PAGE> 8
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Net earnings and net earnings per common share presented for 1991
include both the cumulative effect on prior years of changing to the new
standard of accounting for income taxes and the change to the 150% declining
balance method of depreciation. The cumulative effect increased net earnings
by $606,000 and net earnings per common share by $.22. The change in
depreciation method increased net earnings by $253,000 and net earnings per
share by $.09.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------- ----------------------------------------------------------------
RESULTS OF OPERATIONS.
---------------------
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
In fiscal 1994, operating activities generated $16,205,000 in cash, a
decrease of $1,897,000 when compared with the $18,102,000 generated in 1993.
The decrease was primarily attributable to lower net earnings.
Net earnings declined $2,017,000 to $4,039,000 mainly due to budget
reductions on existing utility operations and discontinued utility operations
experienced in the ordinary course of competitive bidding. The decrease in
utility revenues was partially recovered through revenue increases in
Residential, Commercial and other services. Despite these partial recoveries
in revenues, the Registrant's profit margins on several utility contracts
retained during the competitive bidding process have narrowed in comparison to
previous contracts. Accordingly, revenues and earnings were lower than in
1993. Subsequent to December 31, 1994, the Registrant was successful in
renewing an expiring three year contract with a major utility customer. The
new four year contract is anticipated to generate $15,400,000 in revenues on an
annualized basis.
Accounts receivable increased $1,025,000, which was $2,178,000 lower
than the $3,203,000 increase experienced in 1993. The increase in accounts
receivable, coupled with the decline in revenues, caused average days
outstanding to rise 2.3 days to 54.5 days. Efforts by the Registrant to reduce
both days and dollars to a more acceptable level were hindered in part due to
organizational and administrative changes which commenced in 1993 at several
utility customers, as well as slower payment cycles initiated by some
commercial and residential customers. At February 28, 1995, the Registrant's
accounts receivable declined $3,058,000 to $26,255,000 and days outstanding
dropped slightly to 53.7 days, still 1.4 days higher than in February, 1994,
but .8 days lower than the level at December 31, 1994. The Registrant is not
concerned as to the collectibility of 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.
<PAGE> 9
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Accounts payable and accrued liabilities increased $962,000, a
$1,584,000 change from last year's decrease of $622,000. This was primarily
due to an increase in the current portion of self-insured workers' compensation
reserves, partially offset by a reduction in accounts payable. Overall,
workers' compensation reserves increased as a result of changes in estimated
claims costs, and the Registrant's continued movement into self insurance in
most states. These factors, as well as accruals related to the Registrant's
retrospectively rated policies, also contributed to the $1,839,000 increase in
insurance liabilities in 1994. (See Note 1 to the Financial Statements on page
F-9 of the Annual Report on Form 10-K.) The decrease in accounts payable was
primarily attributable to equipment purchases entered into during the fourth
quarter of 1993 which, due to capital budget reductions, did not occur in the
current year.
Other liabilities declined $879,000, a change of $1,236,000 when
compared to the increase of $357,000 in 1993. This change was primarily due to
a decrease in income taxes payable, the result of lower earnings.
Investing activities used $9,408,000, a decrease of $6,188,000 when
compared to the $15,596,000 used in the prior year. The decrease was primarily
attributable to a $7,289,000 reduction in the Registrant's 1994 capital
expenditures, due to the changes experienced on some of its utility contracts.
This reduction was partially offset by a deposit paid for the acquisition of
the B. D. Wilhelm Company, a residential and commercial tree and lawn care
company in Denver, Colorado. The Registrant expects that this acquisition will
be consummated during 1995. Despite the reduction in 1994 capital
expenditures, the Registrant believes the budget of approximately $12,000,000
for 1995 remains consistent with its plan to expand other services, maintain
equipment on existing operations, and provide for the ongoing purchase of land
and branch office facilities.
During 1994, the Registrant's financing activities used $6,846,000, an
increase of $4,675,000 over 1993. The major item contributing to this change
was a net reduction of the Registrant's long-term debt, principally the amount
due under its revolving credit agreement. To a lesser extent, the increase in
cash used in financing activities was impacted by additional funds required to
repurchase common shares of the Registrant.
At December 31, 1994, the Registrant's principal source of liquidity
consisted of $973,000 in cash and cash equivalents; short term lines of credit
and amounts available to be borrowed from banks via notes payable totaling
$12,285,000, of which $9,000,000 had been drawn at December 31, 1994; and a
revolving credit agreement with a bank in the amount of $15,000,000, of which
$2,700,000 had been drawn at December 31, 1994. Including the term note
agreement of $12,000,000, the Registrant's credit facilities now total
$39,285,000. The Registrant believes its available credit will exceed credit
requirements, and that its liquidity is adequate.
Liquidity Measurements
Management uses these measurements to gauge the Registrant's ability
to meet current working capital requirements and the extent by which capital
expenditures are funded by internally generated "cash flow".
<PAGE> 10
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<TABLE>
<CAPTION>
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
Working Capital $ 12,481 $ 13,716 $ 9,947
Current Ratio 1.5:1 1.6:1 1.5:1
Cash Flow from Net Earnings,
Depreciation & Amortization $ 17,393 $ 19,808 $ 17,220
Capital Expenditures $ 8,598 $ 15,887 $ 26,434
Cash Flow to Capital
Expenditures Ratio 2.0:1 1.2:1 .7:1
Cash Flow as % of Revenues 8.2% 8.9% 8.2%
</TABLE>
Leverage Measurements
---------------------
These ratios measure the extent to which the Registrant has been
financed by debt, or, put another way, the proportion of the total assets
employed in the business that have been provided by creditors as compared to
shareholders. Debt is defined as total liabilities.
<TABLE>
<CAPTION>
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
Equity to Debt Ratio .82:1 .80:1 .77:1
Debt as % of Assets 54.9% 55.7% 56.5%
Equity as % of Assets 45.1% 44.3% 43.5%
</TABLE>
At the end of 1994 these measurements improved slightly relative to
1993 and 1992. Those two years were affected by the additional borrowings
incurred in 1992 to fund capital expenditures required by new utility
contracts, in contrast with lower long-term debt resulting from reductions in
those expenditures in 1994.
Common Share Measurements
-------------------------
These measurements assist shareholders in assessing the Registrant's
earnings performance, dividend payout and equity position as related to their
shareholdings.
<TABLE>
<CAPTION>
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
Net earnings per share $ 1.62 $ 2.33 $ 1.89
Dividends per Share $ .52 $ .48 $ .44
Book Value per Share $ 18.23 $ 17.54 $ 15.82
ESOT Market Valuation
per Share $ 24.38 $ 29.63 $ 25.75
</TABLE>
<PAGE> 11
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Earnings per share measurements are shown as if all outstanding stock
options had been exercised at December 31 of the years presented. Dividends
were again increased in 1994. In 1994, they were increased $.04 per share or
8% over 1993, compared to an increase in 1993 of $.04 per share and 9% over
1992. It is the Registrant's objective to provide a fair return on investment
to its shareholders through improved dividends as long as the Registrant can
financially justify this policy. The fact that dividends have increased each
year since 1979 reflects that objective.
Asset Utilization Measurements
------------------------------
Management uses these measurements to evaluate its efficiency in
employing assets to generate revenues and returns.
<TABLE>
<CAPTION>
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
Average Assets Employed
(in 000's) $ 99,119 $ 96,092 $ 82,979
Asset Turnover (Revenues
to Average Assets) 2.1 2.3 2.5
Return on Average Assets 4.1% 6.3% 6.1%
</TABLE>
Asset turnover decreased slightly to 2.1 from 2.3 in 1993 and 2.5 in
1992. Although Management anticipated that the return on average assets would
remain lower than desired in the intermediate term because of a continuing
commitment to acquire facilities for its Residental/Commercial operations,
discontinued utility operations and particularly due to the investment required
in 1992 for the new utility contracts, the Registrant's long term goal remains
that of achieving an asset turnover rate of at least 3.0 and improving the net
earnings percentage to provide a return on assets of between 12% and 15%.
RESULTS OF OPERATIONS
---------------------
Revenues of $212,669,000 in 1994 decreased $8,949,000 or 4.0%,
compared to a 6.1% and 11.5% increase in revenues in 1993 and 1992,
respectively. Utility revenues decreased $16,788,000, offset by a $7,839,000
sales increase in Residential, Commercial and other services. Utility revenues
were affected primarily by the contracts lost in the ordinary course of
competitive bidding, and other discontinued contracts cited earlier in this
discussion. Residential, Commercial, and other revenues improved as a result
of heightened sales efforts and improved economic conditions generally. The
Registrant anticipates that 1995 revenues will approximate levels attained in
1993.
Operating costs of $145,108,000 declined $5,311,000 when compared to
1993, but as a percentage of revenues increased .3% to 68.2%. The percentage
increase in operating costs was driven in part by equipment transportation and
repair costs incurred in relocating equipment to alternate utility customer
sites. Also, an increase in materials costs associated with additional
commercial landscape contracts, as well as pricing concessions without
commensurate labor concessions on certain utility contracts, contributed to the
higher percentage costs. The Registrant does not anticipate that these costs
will reoccur in 1995; accordingly, it expects that 1995 operating costs will be
slightly lower as a percentage of sales then in 1994.
<PAGE> 12
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Selling costs increased 1.3% as a percentage of revenues to 12.9%, or
$1,783,000 to $27,431,000. The increase was primarily attributable to higher
branch office, relocation, and supervision expenses.
General and Administrative expenses of $17,436,000 declined $1,748,000
or .4% to 8.2% as a percentage of revenues. The decrease was accomplished
primarily through corporate cost reductions, and to a lesser extent lower
administrative incentives, the result of lower earnings.
Depreciation and amortization expense of $13,354,000 was $398,000 lower
than last year, but as a percentage of revenues increased .1% to 6.3%. The
year-to-date percentage increase is primarily attributable to equipment idled
during the interim period between the loss of certain utility contracts and the
start of replacement contracts. The Registrant anticipates that depreciation
expense will approximate $13,500,000 in 1995.
Interest expense increased $205,000 to $2,752,000, or .1% to 1.3% as a
percentage of sales. The increase is primarily a function of higher overall
effective interest rates.
As a result of the above factors, earnings before income taxes were
$6,788,000 or 3.2% of revenues, compared to $10,031,000 or 4.5%, and $8,302,000
or 4.0%, in 1993 and 1992, respectively.
Effective income tax rates of 40.5%, 39.6%, and 39.2% were used to
compute tax provisions for 1994, 1993, and 1992, respectively.
Accordingly, net earnings for the year of $4,039,000 were $2,017,000
lower than in 1993, and as a percentage of revenues declined to 1.9% compared
to 2.7% in the previous year.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
------- ---------------------------------------------------------
The independent auditors' report, the audited consolidated financial
statements, and the notes to the audited consolidated financial statements
required by this Item 8 appear on pages F-1 through F-19 of this Annual Report
on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
------- ----------------------------------------------------------------
FINANCIAL DISCLOSURE.
---------------------
Not Applicable
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
-------- --------------------------------------------------
Reference is made to Part I of this Report for information as to
executive officers of the Registrant.
The information regarding directors of the Registrant appearing under
the heading "Election of Directors" in the Registrant's definitive Proxy
Statement for its 1995 Annual Meeting of Shareholders is hereby incorporated by
reference.
<PAGE> 13
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ITEM 11. EXECUTIVE COMPENSATION.
------- ----------------------
The information regarding compensation of the Registrant's executive
officers appearing under the heading "Remuneration of Executive Officers" in
the Registrant's definitive Proxy Statement for its 1995 Annual Meeting of
Shareholders is hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
-------- --------------------------------------------------------------
The information regarding the security ownership of certain beneficial
owners and management appearing under the heading "Ownership of Common Shares"
in the Registrant's definitive Proxy Statement for its 1995 Annual Meeting of
Shareholders is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
-------- -----------------------------------------------
The information regarding certain relationships and related
transactions appearing under the headings "Election of Directors" and
"Indebtedness of Management" in the Registrant's definitive Proxy Statement for
its 1995 Annual Meeting of Shareholders is hereby incorporated by reference.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
-------- -----------------------------------------------------------------
(a) (1) and (a) (2) Financial Statements and Schedules. See the Index
to Financial Statements and Financial Statement Schedules on page F-1 of this
Annual Report on Form 10-K.
(a) (3) Exhibits. See the Index to Exhibits on sequentially numbered
page 15 of this Annual Report on Form 10-K.
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the
last quarter of the period covered by this Annual Report on Form 10-K.
<PAGE> 14
Sequential page 14 of 38
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the Registrant has duly caused this Annual Report on
Form 10-K to be signed on its behalf by the undersigned thereunto duly
authorized.
THE DAVEY TREE EXPERT COMPANY
By:/s/ R. D. Cowan
---------------------------
R. D. Cowan, President and
Chief Executive Officer
March 30, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Annual Report Form 10-K has been signed below by the following persons on
behalf of the Registrant and in the capacities indicated on March 30, 1995.
/s/ J. W. JOY /s/ JAMES H. MILLER
-------------------------------- -------------------------------
J. W. JOY, Director and JAMES H. MILLER, Director
Chairman of the Board
/s/ R. DOUGLAS COWAN /s/ THOMAS G. MURDOUGH, JR.
-------------------------------- -------------------------------
R. DOUGLAS COWAN, Director; THOMAS G. MURDOUGH, JR., Director
President and Chief Executive
Officer (Principal Executive /s/ JAMES H. POHL, Director
and Operating Officer) -------------------------------
JAMES H. POHL, Director
/s/ R. CARY BLAIR /s/ J MAURICE STRUCHEN
-------------------------------- -------------------------------
R. CARY BLAIR, Director J MAURICE STRUCHEN, Director
/s/ RICHARD E. DUNN /s/ DAVID E. ADANTE
-------------------------------- -------------------------------
RICHARD E. DUNN, Director DAVID E. ADANTE, Executive Vice
President, Chief Financial
Officer and Secretary-Treasurer
(Principal Financial Officer)
/s/ WILLIAM D. GINN
--------------------------------
WILLIAM D. GINN, Director
/s/ RICHARD S. GRAY /s/ BRADLEY L COMPORT
-------------------------------- -------------------------------
RICHARD S. GRAY, Director BRADLEY L COMPORT, Corporate
Controller (Principal
Accounting Officer)
/s/ EUGENE W. HAUPT
--------------------------------
EUGENE W. HAUPT, Director
<PAGE> 15
Sequential page 15 of 38
INDEX OF EXHIBITS
-----------------
[ITEM 14(a) (3)]
<TABLE>
<CAPTION>
Location
Exhibit No. Description Sequential Page
----------- ----------- ---------------
<S> <C> <C>
(3)(a) 1991 Amended Articles of Incorporation Incorporated by reference to
Exhibit 3(a) to the
Registrant's Annual Report
on Form 10-K for the year
ended December 31, 1991.
(3)(b) 1991 Amended Regulations of The Davey Incorporated by reference to
Tree Expert Company page 14 to the Registrant's
definitive Proxy Statement for
its 1991 Annual Meeting of
Shareholders and sequential
page 11 to the Registrant's
Form 10-Q for the quarter
ended June 29, 1991.
(4) Instruments defining the rights of The Company is a party to
security holders, including indentures certain instruments, copies
of which will be furnished
to the Securities and Exchange
Commission upon request,
defining the rights of holders
of long-term debt identified
in Note 4 of Notes to Consol-
idated Financial Statements
on page F-12 of this Annual
Report on Form 10-K.
(9) Voting Trust Agreement Not Applicable.
(10)(a) 1985 Incentive Stock Option Plan Incorporated by reference to
Exhibit 10 (a) to the
Registrant's Annual Report
on Form 10-K for the year
ended December 31, 1992.
(10)(b) 1987 Incentive Stock Option Plan Incorporated by reference to
Exhibit 10 (b) to the
Registrant's Annual Report
on Form 10-K for the year
ended December 31, 1992.
(10)(c) 1994 Omnibus Stock Plan Incorporated by reference to
Exhibit 10 (c) to the Regis-
trant's Form 10-Q for the
quarter ended July 2, 1994.
(11) Statement re computation of per share Not Applicable.
earnings.
</TABLE>
<PAGE> 16
Sequential page 16 of 38
<TABLE>
<CAPTION>
Location
Exhibit No. Description Sequential Page
----------- ----------- ---------------
<S> <C> <C>
(12) Statement re computation of ratios Not Applicable.
(13) Annual Report to security holders Not Applicable.
Form 10-Q or quarterly report to
security holders
(16) Letter re change in certifying Not Applicable.
accountant.
(18) Letter re change in accounting principals Not Applicable.
(21) Subsidiaries of the Registrant 17
(22) Published report regarding matters Incorporated by reference to
submitted to vote of security holders Part II, Item 4 to the
Registrant's Form 10-Q for the
quarter ended June 29, 1991
(23) Consent of independent auditors 18
to incorporation of their report
in Registrant's Statements on
Form S-8 (File Nos. 2-73052,
2-77353, 33-5755 and 33-21072)
and Form S-2 (File No. 33-30970)
(24) Power of Attorney Not Applicable.
(27) Financial Data Schedule Filed herein.
(28) Information from reports furnished Not Applicable.
to state insurance regulatory
authorities.
</TABLE>
The documents listed as Exhibits 10(a), 10(b), and 10(c) constitute management
contracts or compensatory plans or arrangements.
<PAGE> 17
Sequential page 17 of 38
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
The Registrant has three wholly-owned subsidiaries, Davey Tree Surgery
Company (incorporated in California), Plantasia, Inc., (incorporated in Ohio),
and Davey Tree Expert Co. of Canada, Limited (incorporated in Canada), each of
which does business under its corporate name.
<PAGE> 18
Sequential page 18 of 38
Exhibit 23
----------
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
2-73052, as amended, 2-77353, 33-5755 and 33-21072 on Forms S-8 relating to The
Davey Tree Expert Company 1980 Employee Stock Option Plan, The Davey Tree
Expert Company 1982 Employee Stock Option Plan, The Davey Tree Expert Company
1985 Incentive Stock Option Plan and The Davey Tree Expert Company 1987
Incentive Stock Option Plan and in Registration Statement No. 33-30970 on
Form S-2 relating to The Davey Tree Expert Company 1989 Stock Subscription Plan
and in the related Prospectuses, of our report dated February 17, 1995,
appearing in this Annual Report on Form 10-K of The Davey Tree Expert Company
for the year ended December 31, 1994.
/s/
DELOITTE & TOUCHE LLP
Akron, Ohio
March 27, 1995
<PAGE> 19
Sequential page 19 of 38
<TABLE>
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
[ITEMS 14(a)(1) AND (2)]
<CAPTION>
DESCRIPTION PAGE
----------- ----
<S> <C>
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 31, 1994, F-3
1993 and 1992
Consolidated Statements of Net Earnings for the years F-5
ended December 31, 1994, 1993 and 1992
Consolidated Statements of Shareholders' Equity for the F-6
years ended December 31, 1994, 1993 and 1992
Consolidated Statements of Cash Flows for the years F-8
ended December 31, 1994, 1993 and 1992
Notes to Consolidated Financial Statements for the F-9
years ended December 31, 1994, 1993 and 1992
</TABLE>
F-1
<PAGE> 20
Sequential page 20 of 38
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
The Davey Tree Expert Company
Kent, Ohio
We have audited the accompanying consolidated balance sheets of The Davey Tree
Expert Company and subsidiary companies as of December 31, 1994, 1993, and
1992, and the related consolidated statements of net earnings, shareholders'
equity, and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based upon our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of The Davey Tree Expert Company and
subsidiary companies as of December 31, 1994, 1993, and 1992, and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Akron, Ohio
February 17, 1995
F-2
<PAGE> 21
Sequential page 21 of 38
THE DAVEY TREE EXPERT COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31
1994 1993 1992
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 973 $ 1,022 $ 687
Accounts receivable 29,313 28,288 25,085
Operating supplies 2,568 2,645 2,176
Prepaid expenses and other assets 3,133 2,053 1,960
Deferred income taxes 721 994 1,264
-------- -------- --------
Total current assets 36,708 35,002 31,172
OTHER ASSETS AND INTANGIBLES 7,644 4,996 4,113
PROPERTY AND EQUIPMENT:
Land and land improvements 6,376 6,106 4,958
Buildings and leasehold improvements 15,806 15,856 15,386
Equipment 132,708 131,205 123,716
-------- -------- --------
154,890 153,167 144,060
Less accumulated depreciation 100,466 93,703 86,623
-------- -------- --------
Net property and equipment 54,424 59,464 57,437
-------- -------- --------
TOTAL $ 98,776 $ 99,462 $ 92,722
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 22
Sequential page 22 of 38
<TABLE>
<CAPTION>
DECEMBER 31
1994 1993 1992
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 9,260 $ 11,028 $ 10,557
Accrued liabilities 10,792 8,062 9,155
Income taxes payable 232 466 158
Notes payable, bank 99 80 225
Current maturities of long-term debt 3,844 1,650 1,130
-------- -------- --------
Total current liabilities 24,227 21,286 21,225
LONG-TERM DEBT 21,124 26,778 27,113
DEFERRED INCOME TAXES 3,328 3,490 3,475
INSURANCE LIABILITIES 5,050 3,211
OTHER LIABILITIES 516 639 590
-------- -------- --------
Total liabilities 54,245 55,404 52,403
SHAREHOLDERS' EQUITY:
Preferred shares
Common shares 4,364 4,364 4,364
Additional paid-in capital 7,531 7,186 6,647
Retained earnings 62,851 60,263 55,520
-------- -------- --------
74,746 71,813 66,531
Less:
Treasury shares, at cost 29,416 26,491 24,257
Subscriptions receivable from employees 606 975 1,569
Future contributions to ESOT 193 289 386
-------- -------- --------
Total shareholders' equity 44,531 44,058 40,319
-------- -------- --------
TOTAL $ 98,776 $ 99,462 $ 92,722
======== ======== ========
</TABLE>
F-4
<PAGE> 23
Sequential page 23 of 38
<TABLE>
THE DAVEY TREE EXPERT COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF NET EARNINGS
--------------------------------------------------------------------------------
<CAPTION>
YEARS ENDED DECEMBER 31
1994 1993 1992
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
REVENUES $ 212,669 100.0% $ 221,618 100.0% $ 208,936 100.0%
COSTS AND EXPENSES:
Operating 145,108 68.2 150,419 67.9 144,329 69.1
Selling 27,431 12.9 25,648 11.6 23,278 11.1
General and administrative 17,436 8.2 19,184 8.6 18,863 9.0
Depreciation and
amortization 13,354 6.3 13,752 6.2 12,176 5.9
---------- ------ ----------- ------- ---------- ------
203,329 95.6 209,003 94.3 198,646 95.1
---------- ------ ----------- ------- ----------- ------
EARNINGS FROM
OPERATIONS 9,340 4.4 12,615 5.7 10,290 4.9
INTEREST EXPENSE 2,752 1.3 2,547 1.2 2,056 1.0
OTHER (INCOME)
EXPENSE - NET (200) (.1) 37 (68) (.1)
---------- ------ ----------- ------- ---------- ------
EARNINGS BEFORE
INCOME TAXES 6,788 3.2 10,031 4.5 8,302 4.0
INCOME TAXES 2,749 1.3 3,975 1.8 3,258 1.6
---------- ------ ----------- ------- ---------- ------
NET EARNINGS $ 4,039 1.9% $ 6,056 2.7% $ 5,044 2.4%
========== ====== =========== ======= ========== ======
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES OUTSTANDING
INCLUDING COMMON
STOCK EQUIVALENTS 2,488,545 2,602,708 2,666,110
========== =========== ==========
NET EARNINGS PER
COMMON SHARE $ 1.62 $ 2.33 $ 1.89
========== =========== ==========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 24
Sequential page 24 of 38
<TABLE>
THE DAVEY TREE EXPERT COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
________________________________________________________________________________
<CAPTION>
ADDITIONAL
COMMON PAID-IN
SHARES CAPITAL
<S> <C> <C>
BALANCE, JANUARY 1, 1992 $4,364 $6,241
Receipts from subscriptions receivable (8)
Shares purchased 16
Shares sold to employees 324
Options exercised 74
Contributions to ESOT
Net earnings
Dividends, $.44 per share
Net adjustment for foreign currency translation
------ ------
BALANCE, DECEMBER 31, 1992 4,364 6,647
Receipts from subscriptions receivable
Shares purchased
Shares sold to employees 339
Options exercised 200
Contributions to ESOT
Net earnings
Dividends, $.48 per share
Net adjustment for foreign currency translation
------ ------
BALANCE, DECEMBER 31, 1993 4,364 7,186
Receipts from subscriptions receivable
Shares purchased
Shares sold to employees 408
Options exercised (63)
Contributions to ESOT
Net earnings
Dividends, $.52 per share
Net adjustment for foreign currency translation
------ ------
BALANCE, DECEMBER 31, 1994 $4,364 $7,531
====== ======
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 25
Sequential page 25 of 38
<TABLE>
<CAPTION>
SUBSCRIPT-
IONS RECEIVE- CONTRIBU-
RETAINED TREASURY ABLE FROM TIONS
EARNINGS SHARES EMPLOYEES TO ESOT TOTAL
<S> <C> <C> <C> <C>
$51,803 $(20,607) $(2,059) $(482) $39,260
(29) 490 453
(4,460) (4,444)
541 865
298 372
96 96
5,044 5,044
(1,141) (1,141)
(186) (186)
------- -------- ------- ----- -------
55,520 (24,257) (1,569) (386) 40,319
594 594
(3,508) (3,508)
459 798
815 1,015
97 97
6,056 6,056
(1,207) (1,207)
(106) (106)
------- -------- ------- ----- -------
60,263 (26,491) (975) (289) 44,058
369 369
(4,409) (4,409)
832 1,240
652 589
96 96
4,039 4,039
(1,290) (1,290)
(161) (161)
------- -------- ------- ----- -------
$62,851 $(29,416) $ (606) $(193) $44,531
======= ======== ======= ====== =======
</TABLE>
F-7
<PAGE> 26
Sequential page 26 of 38
<TABLE>
THE DAVEY TREE EXPERT COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
__________________________________
<CAPTION>
DECEMBER 31
1994 1993 1992
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CASH FROM OPERATING ACTIVITIES:
Net earnings $ 4,039 $ 6,056 $ 5,044
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 13,354 13,752 12,176
Deferred income taxes 111 285 275
------- ------- -------
17,504 20,093 17,495
Change in operating assets and liabilities:
Accounts receivable (1,025) (3,203) (4,172)
Other assets (2,196) (1,734) (1,654)
Accounts payable and accrued liabilities 962 (622) 4,529
Insurance liabilities 1,839 3,211
Other liabilities (879) 357 (735)
------- ------- -------
Net cash provided by operating activities 16,205 18,102 15,463
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of property and equipment 945 291 409
Deposit on acquisition (1,755)
Capital expenditures:
Land and buildings (423) (1,058) (2,656)
Equipment (8,175) (14,829) (23,778)
------- ------- -------
Net cash used in investing activities (9,408) (15,596) (26,025)
CASH FLOWS FROM FINANCING ACTIVITIES:
ESOT payment of debt guaranteed by Company 96 97 96
Net borrowings (payments) under notes payable, bank 19 (145) 145
Principal payments of long-term debt (3,876) (1,713) (1,348)
Proceeds from issuance of long-term debt 416 1,898 15,071
Sales of treasury shares 1,829 1,813 1,237
Receipts from stock subscriptions 369 594 453
Dividends paid (1,290) (1,207) (1,141)
Repurchase of common shares (4,409) (3,508) (4,444)
------- ------- -------
Net cash provided by (used in) financing activities (6,846) (2,171) 10,069
------- ------- -------
NET CHANGE IN CASH AND CASH EQUIVALENTS (49) 335 (493)
CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR 1,022 687 1,180
------- ------- -------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 973 $ 1,022 $ 687
======= ======= ========
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE> 27
Sequential page 27 of 38
THE DAVEY TREE EXPERT COMPANY AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31,1994
________________________________________________________________________________
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of The Davey Tree Expert Company and its wholly
owned subsidiary companies.
FISCAL YEAR - The Company's fiscal year ends on the Saturday closest to
December 31; 1994 and 1993 were fiscal years comprised of 52 weeks ended
December 31, 1994 and January 1, 1994, respectively, while 1992 was a 53
week year ended January 2, 1993. For presentation purposes, all years
were presumed to have ended on December 31.
CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE -
Carrying amounts approximate fair value due to the short maturity of
these instruments. Cash equivalents are highly liquid investments with
maturities of three months or less when purchased.
ACCOUNTS RECEIVABLE - No allowance was considered necessary for any of
the years presented.
INTANGIBLE ASSETS represent goodwill, employment contracts, client lists
and similar assets resulting from business acquisitions and are being
amortized on a straight-line basis over their estimated useful lives
ranging from 3 to 20 years.
PROPERTY AND EQUIPMENT - The Company records property and equipment at
cost. Generally, land improvements, leasehold improvements and buildings
are depreciated by the straight-line method while the declining balance
method is used for equipment. The estimated useful lives used in
computing depreciation are: land improvements, 5-20 years; buildings and
leasehold improvements, 5-40 years; equipment, 3-10 years.
INSURANCE - The Company manages its casualty liability exposures
primarily by utilizing two funding methods. For workers' compensation it
is substantially self-insured. For auto, general liability, and some
workers' compensation it is insured under policies which require payment
of premiums that are subject to retrospective adjustment by the insurance
company. The premiums are affected by several factors, including the
safety record and experience of both the Company and the industry, and
economic conditions. Under both methods, the Company generally retains
the first $350,000 in loss per occurrence and carries excess insurance
above that amount. With respect to workers' compensation, the Company's
risk of exposure to loss per occurrence may be less than $350,000
depending on the nature of the claim and the statutes in effect by state.
Under both funding methods, insurance liabilities are determined using
actuarial methods and assumptions to estimate ultimate costs. These
liabilities include a large number of claims for which the ultimate costs
will develop over a period of several years. Accordingly, the estimates
can change as claims mature. Changes in estimates of claim costs
resulting from new information received will be recognized in income in
the period in which the estimates are changed. Expenses that are
unallocable to specific claims are recognized as costs in the year
incurred.
F-9
<PAGE> 28
Sequential page 28 of 38
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The gross liability for the self-insured workers' compensation reserves
and the net accrual for retrospectively rated premiums was approximately
$9,785,000 at December 31, 1994, and $6,635,000 at December 31, 1993.
The change in funding methods was the principal factor contributing to
the increase. The present value of those liabilities, which is
discounted at 5 1/2% and 4% respectively, was $8,393,000 and $6,046,000.
The change in the discount rate reduced insurance costs by $300,000 in
1994. The discounted self-insurance reserves and accruals related to the
retrospectively rated policies have been combined and are classified as
current and noncurrent liabilities and assets in the accompanying balance
sheets based on the timing of future estimated cash payments and
receipts.
RECLASSIFICATIONS have been made to the prior-year financial statements
to conform to the current year presentation.
2. COMMON AND PREFERRED SHARES
The Company has authorized a class of 4,000,000 preferred shares, no par
value, of which none were issued.
The number of common shares authorized is 12,000,000, par value $1.00.
At December 31, 1994, 1993 and 1992, the number of common shares issued
was 4,364,220, and the number of shares in the treasury were 1,921,217,
1,852,050 and 1,816,307, respectively.
The Company's stock is not listed or traded on an active stock market and
market prices are, therefore, not available. Semi-annually, an
independent financial consulting firm determines the fair market value
based upon the Company's performance and financial condition.
Since 1979, the Company has provided an "internal market" for all
shareholders through its' purchase of their common shares. In 1991,
shareholders approved uniform restrictions on the transfer of the
Company's common shares. These restrictions generally give the Company
or the trust of the Company's Employee Stock Ownership Plan the right to
purchase the common shares whenever a shareholder proposes to transfer
the shares to anyone, other than transfers to a current employee of the
Company or transfers by a current or former employee to members of their
immediate family.
OMNIBUS STOCK PLAN - On May 17, 1994, shareholders approved adoption of
the 1994 Omnibus Stock Plan, which consolidates into a single plan
provisions for the grant of stock options and other stock based
incentives and maintenance of the employee stock purchase plan. Other
than director options, the grant of awards is at the discretion of the
compensation committee of the board of directors. The aggregate number
of common shares available for grant and the maximum number of shares
granted annually are based on formulas defined in the plan. Each
non-employee director elected or appointed, and re-elected or
re-appointed, will receive a director option that gives the right to
purchase, for six years, 1,000 common shares at the fair market value per
share at date of grant. The maximum number of shares that may be issued
upon exercise of stock options, other than director options, is 400,000
during the ten year term of the plan.
Shares available for grant at December 31, 1994 were 63,941, which were
based on the number available upon ratification of the plan less the
director options granted and shares purchased in 1994 under the stock
purchase plan. On May 17, 1994 the non-employee directors were granted
options to purchase 10,000 common shares at $29.63 per share, expiring in
2000.
F-10
<PAGE> 29
Sequential page 29 of 38
2. COMMON AND PREFERRED SHARES (Continued)
STOCK PURCHASE PLAN - The Company has an employee stock purchase plan
that provides the opportunity for all full-time employees with one year
of service to purchase shares through payroll deductions. The purchase
price for the shares offered under the plan is 85% of the fair value of
the shares. The Company had reserved 760,000 shares prior to adopting
the 1994 Omnibus Stock Plan. Availability of shares is determined in
accordance with provisions of the Omnibus Stock Plan.
Purchases under the plan have been as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Number of employees participating 907 908 760
Annual shares purchased 48,209 46,556 41,366
Average price paid $22.85 $22.73 $20.63
Cumulative shares purchased 625,685 577,476 530,920
</TABLE>
STOCK OPTION PLANS - Prior to adoption of the 1994 Omnibus Stock Plan,
the Company had two qualified stock option plans available for officers
and management employees. The status of these plans are as follows at
December 31, 1994:
<TABLE>
<CAPTION>
OPTION PLANS
----------------------------------------------------------------
1985 1987
----------- ---------------------------------------------------
Grant Date May 20, December 31, March 31, December 4, December 10,
1987 1989 1992 1992 1993
<S> <C> <C> <C> <C> <C>
Options granted 109,600 137,900 128,900 17,800 116,000
Exercised through 1992 (34,800) (11,200)
Exercised in 1993 (33,000) (4,465) (700)
Exercised in 1994 (41,800) (400) (500)
---------- ---------- ---------- --------- ----------
Options outstanding,
December 31, 1994 0 121,835 128,200 17,300 116,000
========== ========== ========== ========= ==========
Option purchase price
based on fair value at
grant date $ 12.92 $ 18.79 $ 24.87 $ 23.78 $ 27.65
========== ========== ========== ========= ==========
Year of expiration 1994 1999 2002 2002 2003
</TABLE>
STOCK SUBSCRIPTION OFFERING - In 1989, the Company made a stock
subscription offering to employees and directors whereby they could
subscribe to purchase stock for $15.86 per share. Employees could
purchase the Company's common shares by making a 10% cash down payment
and financing the remainder of the balance with seven-year promissory
notes payable to the Company through monthly payroll deductions or annual
installments commencing in September, 1989. The notes bear interest at a
rate of 8% per annum and are reflected as subscriptions receivable in
shareholders' equity. A total of 141 participants subscribed for 228,876
common shares of the Company.
F-11
<PAGE> 30
Sequential page 30 of 38
3. ACCRUED LIABILITIES
Accrued liabilities consisted of:
<TABLE>
<CAPTION>
DECEMBER 31
1994 1993 1992
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Compensation $ 3,101 $ 2,903 $ 2,994
Vacation 1,419 1,564 1,552
Insurance liabilities 4,396 2,355 3,173
Taxes, other than taxes on income 861 808 968
Other 1,015 432 468
-------- -------- --------
$ 10,792 $ 8,062 $ 9,155
======== ======== ========
</TABLE>
4. NOTES PAYABLE, BANK AND LONG-TERM DEBT
Notes Payable, Bank
-------------------
The Company has a bank operating loan which is repayable on demand and
charges interest at the bank's prime rate. Additionally, the Company has
unused short-term lines of credit with five banks totaling $3,285,000,
generally at the banks' prime rate, which was 7.75% at December 31, 1994.
Long-term Debt
--------------
<TABLE>
<CAPTION>
DECEMBER 31
1994 1993 1992
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revolving credit agreement $ 2,700 $ 5,500 $ 5,300
Term note agreement 12,000 12,000 12,000
Notes payable 8,000 8,000 8,000
Corporate Center financing 375 875
Long-term debt of ESOT 193 290 386
Subordinated notes - stock redemption 212 346 550
Term loans and other 1,863 1,917 1,132
-------- -------- --------
24,968 28,428 28,243
Less current maturities 3,844 1,650 1,130
-------- -------- --------
$ 21,124 $ 26,778 $ 27,113
======== ======== ========
</TABLE>
The total annual installments required to be paid on long-term debt in
years 1995 to 1999 are as follows: 1995, $3,844,000; 1996, $2,673,000;
1997, $2,525,000; 1998, $2,446,000; 1999, $2,780,000. Excluded from
these installments are the revolving credit agreement and notes payable
which are classified as long-term debt since it is expected that these
amounts will be outstanding throughout the ensuing year.
Revolving Credit Agreement
--------------------------
The Revolving Credit Agreement ("Revolver") permits the Company to borrow
up to $15,000,000. The Revolver provides for interest on any borrowings
at prime, plus a commitment fee of 3/16 of 1% on the unborrowed
commitment. Borrowings under the Revolver may be converted, at the
Company's option, to five-year loans.
F-12
<PAGE> 31
Sequential page 31 of 38
4. NOTES PAYABLE, BANK AND LONG-TERM DEBT (Continued)
Under the most restrictive covenants of the Revolver and the Term Note
Agreement ("Term Note") below, dividend payments could not exceed
$1,697,000 in 1994, and the Company is obligated to maintain a minimum
shareholders' equity, as defined, of $28,000,000 plus 25% of annual
consolidated earnings from December 31, 1992; a minimum ratio of
shareholders' equity to total liabilities, as defined, of .70 to 1 at
December 31, 1993 and .75 to 1 at December 31 of each year thereafter; a
minimum current ratio of 1 to 1; and a fixed charge coverage ratio of not
less than 2.25 to 1.0.
Term Note Agreement
-------------------
In 1992 the Company borrowed $12,000,000 under the Term Note which
provides for twenty consecutive quarterly principal installments of
$600,000 commencing January 1, 1995 plus interest at either the London
Interbank Offered Rate (LIBOR) plus 1-5/16% or prime plus 1/4%. The
average adjusted LIBOR rate during 1994 was 4.42%; LIBOR was 6.50%,
3.375% and 3.4375% at December 31, 1994, 1993 and 1992, respectively.
Notes Payable
-------------
Notes payable totaling $8,000,000 consist of borrowings from banks for
periods of up to six months at rates based either on the London Interbank
Offered Rate (LIBOR), or at a money market option rate, which are
generally less than U.S. prime rate. The Company intends to refinance
these obligations either through continued uninterrupted renewal of the
notes or borrowing under the Revolver.
Corporate Center Financing
--------------------------
Corporate Center financing consisted of industrial development bonds
which were repaid on February 1, 1994, and a $250,000 Community
Development Block Grant, at 3% interest, which was repaid on August 1,
1994.
Long-Term Debt of ESOT
----------------------
Commencing March 31, 1992, the agreement provided for twenty equal
quarterly installments of $24,098 plus interest of 8.4% with the final
installment due December 31, 1996. Prior to a refinancing on March 20,
1992, the quarterly installments were $15,061 plus interest of 8.4%.
Subordinated Notes
------------------
In 1992, 1990 and 1988 the Company redeemed shares of its common stock
from shareholders for cash and five-year subordinated promissory notes
bearing interest at a rate equal to the average of the prime rate and the
prevailing local bank basic savings rate. There were 16,800 shares
redeemed in 1992 for cash of $223,830 and notes of $193,986. In 1990,
32,937 shares were redeemed for cash of $179,730 and notes of $478,022.
In 1988, 40,744 shares were redeemed for cash of $274,320 and notes of
$346,619.
Term Loans and Other
--------------------
The weighted average interest on the term loans approximates 8.9% and the
amounts outstanding are being repaid primarily in equal monthly
installments through 1999.
Interest on Debt
----------------
The Company made cash payments for interest on all debt of $2,487,000,
$2,579,000, and $2,056,000 in 1994, 1993, and 1992, respectively.
F-13
<PAGE> 32
Sequential page 32 of 38
5. FINANCIAL INSTRUMENTS
The Company uses interest rate swap agreements (swaps) with its principal
bank to reduce the impact of changes in interest rates on its borrowings
under the Term Note. Management's authority to utilize these agreements
is restricted by the Board of Directors, and they are not used for
trading purposes. At December 31, 1994 and 1993, two of the outstanding
swaps had a total notional amount of $12,000,000, which effectively
changed the interest rate exposure on the Term Note to a fixed 7.22% over
the same maturity period. On December 16, 1993, a "reverse" swap was
entered into on a notional amount of $6,000,000, which effectively
changed this fixed interest rate on one- half of the term note to a
variable rate for two years.
Amounts receivable or payable under the swaps are settled by the parties
on a quarterly basis, and are accrued over the related periods of the
swaps. These amounts are included in the consolidated balance sheets on
a net basis as accrued liabilities and are treated either as an increase
or decrease in interest expense. Interest expense was increased by
$216,000, $295,000, and $25,000 in 1994, 1993 and 1992 respectively from
these accruals.
The fair value of the swaps is the quoted amount that the Company would
receive or pay to terminate the swap agreements as provided by the bank,
taking into account current interest rates. Had these agreements been
terminated as of December 31, 1994, the Company would have received
$345,000. Had the same agreements been terminated at December 31, 1993,
the Company would have paid $432,000.
The fair value of the Company's long-term debt is estimated based on the
quoted market prices for similar issues or by discounting expected cash
flows at the rates currently offered to the Company for debt of the same
remaining maturities, as advised by the Company's principal bank. At
December 31, 1994 and 1993, the carrying value of the Company's long-term
debt was $24,968,000 and $28,428,000 respectively. At those dates, the
fair value was $24,488,000 and $27,993,000 respectively.
6. EMPLOYEE STOCK OWNERSHIP PLAN
On March 15, 1979, the Company consummated a plan which transferred
control of the Company to its employees. As a part of this plan, the
Company sold 1,440,000 Common Shares to the Company's new Employee Stock
Ownership Trust (ESOT) for $2,700,000.
The Employee Stock Ownership Plan, in conjunction with the related trust
(ESOT), provides for the grant to certain employees of certain ownership
rights in, but not possession of, the Common Shares held by the trustee
of the Trust. Annual allocations of shares are made to individual
accounts established for the benefit of the participants.
The Employee Stock Ownership Plan includes as participants, all
nonbargaining employees of the parent company and its domestic
subsidiaries who have attained age 21 and completed one year of service.
SOP 93-6 "Employers Accounting for Employee Stock Ownership Plans"
requires the employer to recognize compensation expense equal to the fair
value of the shares committed to be released; however, it allows an
employer with an ESOP holding shares purchased prior to December 31, 1992
to continue their existing accounting treatment. Accordingly, the
Company has elected to maintain its existing accounting treatment.
F-14
<PAGE> 33
Sequential page 33 of 38
6. EMPLOYEE STOCK OWNERSHIP PLAN (Continued)
The number of shares released from collateral and available for
allocation to ESOP participants is determined by dividing the sum of the
current year loan principal and interest payments by the sum of the
current and future years' loan principal and interest payments. The
Company makes annual cash contributions to the ESOP, net of dividends
paid on the shares held as collateral, sufficient to pay the principal
and interest on the ESOT debt; such contributions are reflected as an
expense of the Company. Dividends on allocated shares are credited to
participants' accounts and charged against retained earnings. ESOP
shares that have been released and committed to be released are
considered outstanding for purposes of computing earnings per share.
The contributions to the ESOT were:
<TABLE>
<CAPTION>
1994 1993 1992
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Principal repayment $ 96 $ 97 $ 96
Interest 22 30 29
---------- ---------- ----------
Total cash contributions required 118 127 125
Less dividends paid on collateral shares 33 42 50
---------- ---------- ----------
ESOT expense $ 85 $ 85 $ 75
========== ========== ==========
Annual release of shares from collateral 22,716 24,290 25,922
========== ========== ==========
Cumulative release of shares from collateral 1,399,407 1,376,691 1,352,401
========== ========== ==========
Number of shares remaining in collateral 40,593 63,309 87,599
========== ========== ==========
</TABLE>
7. PENSION PLANS
Description of Plans
--------------------
Substantially all of the Company's employees are covered by two defined
benefit pension plans. One of these plans is for non-bargaining unit
employees and is non-contributory with respect to annual compensation up
to a defined level with voluntary contributions beyond the specified
compensation levels, and employee contributions. The other plan is for
bargaining unit employees not covered by union pension plans, is
non-contributory, and provides benefits at a fixed monthly amount based
upon length of service.
Funding Policy
--------------
The Company's funding policy is to make the annual contributions
necessary to fund the plans within the range permitted by applicable
regulations. The plans' assets are invested by outside asset managers in
marketable debt and equity securities.
F-15
<PAGE> 34
Sequential page 34 of 38
7. PENSION PLANS (Continued)
Expense Recognition
-------------------
Pension expense (income) was calculated as follows:
<TABLE>
<CAPTION>
1994 1993 1992
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service cost - increase in benefit
obligations earned $ 504 $ 423 $ 480
Interest cost on projected benefit
obligation 879 751 754
Return on plan assets (earnings) (1,354) (1,238) (1,312)
Deferral (amortization) of
unrecognized net assets (105) (188) (230)
------- ------- -------
Net pension income $ (76) $ (252) $ (308)
======= ======= =======
</TABLE>
The funded status of pension plans at December 31 were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Plan assets at fair market value $ 16,382 $ 17,285 $ 17,194
Projected benefit obligation (11,051) (10,360) (9,769)
-------- -------- --------
Excess of assets over projected
benefit obligation 5,331 6,925 7,425
Unrecognized initial asset (1,226) (1,299) (1,371)
Unrecognized gain (2,054) (3,326) (3,990)
Unrecognized prior service cost 66 (259) (274)
-------- -------- --------
Prepaid pension expense recognized
as other assets in balance sheets $ 2,117 $ 2,041 $ 1,790
======== ======== ========
</TABLE>
The projected benefit obligation was determined using an assumed discount
rate of 8.25% in 1994, 7.5% in 1993, and 8% in 1992. The assumed
long-term compensation rate increase was 5.0% in 1994 and 1993, and 5.5%
in 1992. The assumed long-term rate of return on plan assets was 7.5% in
1994 and 1993, and 8% in 1992.
The projected benefit obligation, which includes the effect of annual
compensation rate increases, is based on an accumulated benefit
obligation of $9,411,000, $8,837,000, and $8,329,000 at December 31,
1994, 1993 and 1992, respectively. It includes vested benefits of
$9,231,000, $8,666,000, and $8,194,000, respectively.
Multiemployer Plans
-------------------
The Company also contributes to several multiemployer plans which provide
defined benefits to unionized workers who do not participate in the
Company sponsored bargaining unit plan. Amounts charged to pension cost
and contributed to the plans in 1994, 1993 and 1992 totaled $380,000,
$567,000, and $664,000, respectively.
F-16
<PAGE> 35
Sequential page 35 of 38
8. INCOME TAXES
The approximate tax effect of each type of temporary difference that gave
rise to the Company's deferred tax assets (no valuation allowance was
considered necessary) and liabilities at December 31, were as follows:
<TABLE>
<CAPTION>
DEFERRED TAX CONSEQUENCES
1994 1993 1992
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CURRENT
Assets:
Non-deductible accruals for:
Compensated absences $ 384 $ 386 $ 352
Insurance 270 611 884
Other - net 67 (3) 28
-------- ------- --------
Net current 721 994 1,264
-------- -------- --------
NON-CURRENT
Assets:
Insurance 1,714 1,092
Liabilities:
Accelerated depreciation for tax purposes (4,356) (3,751) (2,792)
Pensions (772) (746) (660)
Other - net 86 (85) (23)
------- ------- -------
Net noncurrent (3,328) (3,490) (3,475)
------- ------- -------
Net deferred tax liability $(2,607) $(2,496) $(2,211)
======= ======= =======
</TABLE>
Significant components of income tax expense includes:
<TABLE>
<CAPTION>
1994 1993 1992
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Taxes currently payable:
U.S. Federal $ 1,903 $ 2,682 $ 1,974
Canadian (54) 379 268
State and local 591 722 734
-------- -------- --------
2,440 3,783 2,976
-------- -------- --------
Deferred tax expense (benefit):
U.S. 312 161 271
Canada (3) 31 11
-------- -------- --------
309 192 282
-------- -------- --------
$ 2,749 $ 3,975 $ 3,258
======== ======== ========
</TABLE>
F-17
<PAGE> 36
Sequential page 36 of 38
8. INCOME TAXES (Continued)
The differences between the U.S. Federal statutory tax rate and the
effective tax rate are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
U.S. Federal statutory tax rate 34.0% 34.0% 34.0%
State and local income taxes 5.7 4.8 5.8
Canadian income taxes (.1) 2.4 1.4
Miscellaneous .9 (1.6) (2.0)
-------- -------- --------
Effective tax rate 40.5% 39.6% 39.2%
======== ======== ========
</TABLE>
Earnings before income taxes by country are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
U.S. $ 6,930 $ 9,525 $ 7,829
Canadian (142) 506 473
-------- -------- --------
$ 6,788 $ 10,031 $ 8,302
======== ======== ========
</TABLE>
The Company made cash payments for income taxes of $3,638,000,
$2,635,000, and $3,729,000 in 1994, 1993 and 1992, respectively.
9. CUSTOMERS
The Company provides a broad line of horticultural services to corporate,
institutional and residential customers throughout most of the United
States and Canada. The Company's major service line, utility line
clearance, represented approximately 64% of the outstanding accounts
receivable at December 31, 1994, 1993 and 1992. The Company had revenues
from one utility customer under multiple long-term contracts aggregating
approximately $27,000,000 in 1994, $36,000,000 in 1993, and $33,000,000
in 1992. The Company had revenues from a second utility customer under
multiple year contracts of approximately $24,000,000 in 1994, $23,000,000
in 1993, and $19,000,000 in 1992. The Company performs ongoing credit
evaluations of its customers' financial conditions and generally requires
no collateral.
10. OPERATING LEASES
The Company primarily leases facilities which are used for district
office and warehouse operations. These leases extend for varying periods
of time up to four years and, in some cases, contain renewal options.
Total rental expenses under such operating leases amounted to
approximately $1,394,000, $1,245,000, and $1,030,000 for 1994, 1993 and
1992, respectively. As of December 31, 1994, future minimum rental
payments, including taxes and other operating costs, for all operating
leases having noncancelable lease terms in excess of one year, totaled
$2,464,000, and are expendable as follows: 1995, $1,098,000; 1996,
$668,000; 1997, $513,000; 1998, $156,000 and 1999, $29,000.
F-18
<PAGE> 37
Sequential page 37 of 38
11. COMMITMENTS AND CONTINGENCIES
The Company is party to a number of lawsuits, threatened lawsuits and
other claims arising out of the normal course of business. Management is
of the opinion that liabilities which may result are adequately covered
by insurance, or to the extent not covered by insurance or accrued, would
not be material in relation to the financial statements.
At December 31, 1994, the Company was contingently liable to its
principal bank in the amount of $7,197,000 for outstanding letters of
credit for insurance coverage and guarantees of debt for one of its
subsidiaries.
F-19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 12-31-94
FISCAL YEAR FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 973
<SECURITIES> 0
<RECEIVABLES> 29,313
<ALLOWANCES> 0
<INVENTORY> 2,568
<CURRENT-ASSETS> 36,708
<PP&E> 154,890
<DEPRECIATION> 100,466
<TOTAL-ASSETS> 98,776
<CURRENT-LIABILITIES> 24,227
<BONDS> 0
<COMMON> 4,364
0
0
<OTHER-SE> 40,167
<TOTAL-LIABILITY-AND-EQUITY> 98,776
<SALES> 0
<TOTAL-REVENUES> 212,669
<CGS> 0
<TOTAL-COSTS> 203,329
<OTHER-EXPENSES> (200)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,752
<INCOME-PRETAX> 6,788
<INCOME-TAX> 2,749
<INCOME-CONTINUING> 4,039
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,039
<EPS-PRIMARY> 1.62
<EPS-DILUTED> 1.62
</TABLE>
