<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, 1995
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 26, 1996 (excluding the total number
of Common Shares reported in Item 12 hereof), was $62,236,576.
Common Shares outstanding at March 26, 1996: 2,294,859.
Documents incorporated by reference: Portions of the Registrant's definitive
Proxy Statement for its 1996 Annual Meeting of Shareholders (Part III).
Index to Exhibits is located on sequential page 14.
<PAGE> 2
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, 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 1995, the Registrant
had sales of approximately $37,000,000 (16% of total sales) to Pacific Gas &
Electric 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 substantial 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.
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.
2
<PAGE> 3
SEASONALITY. The Registrant's business is highly seasonal, primarily due
to extreme fluctuations in horticultural services provided to residential and
commercial customers and to a lesser extent by budget constraints imposed on its
utility 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 a revolving credit agreement, as well as lines of credit, 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 1995 and 1994 were approximately $13,297,000 and $8,598,000,
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, 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.
3
<PAGE> 4
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 8,800
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) 105.0 111,608
Toledo, Ohio .5 4,300
Wooster, Ohio 322.8 13,194
Columbus, Ohio 8.0 15,925
Dayton, Ohio .3 3,584
West Babylon, New York .9 14,100
Chantilly, Virginia 4.0 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 41 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.
4
<PAGE> 5
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted during the fourth quarter of 1995 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 Chief Executive Officer 55
David E. Adante Executive Vice President, Chief 44
Financial Officer and Secretary-Treasurer
Karl J. Warnke Executive Vice President and 44
General Manager, Utility Services
Howard D. Bowles Vice President and General Manager, 52
Davey Tree Surgery Company
C. Kenneth Celmer Vice President & General Manager, 48
Residential Services
Bradley L. Comport, CPA Corporate Controller 44
Dr. Roger C. Funk Vice President - Human and 51
Technical Resources
Rosemary T. Nicholas Assistant Secretary 52
Gordon L. Ober Vice President - New Ventures 46
Richard A. Ramsey Vice President & General Manager, 46
Commercial Services
Wayne Parker Vice President - Northern Operations, 40
Utility Services
</TABLE>
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 1991.
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 1991.
Mr. Bowles was elected Vice President and General Manager of Davey Tree
Surgery Company in January 1992. From that date and since before 1991, he served
as Vice President and Co-General Manager.
5
<PAGE> 6
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 1991.
Mr. Comport was elected Corporate Controller in May 1990.
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 1991.
Mr. Parker was elected Vice President - Northern Operations, Utility
Services in May, 1994. Prior to that time and since before 1991, 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.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
At December 31, 1995, 1994, and 1993 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 2,052,488, 1,921,217 and 1,852,050.
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 26, 1996, there were 1,608 record holders of the Registrant's
Common Shares. During the years ended December 31, 1995, December 31, 1994 and
December 31, 1993, the Registrant paid dividends of $.55, $.52, and $.48,
respectively, per share. Approximately one quarter of the total dividend paid is
paid in each of the four quarters. The Registrant's agreements with its lenders
allow for the payment of cash dividends provided that the terms and conditions
of the agreements, particularly those dealing with its shareholders equity,
fixed charge coverage ratio and maximum consolidated funded debt to consolidated
funded debt plus consolidated net worth ratio, are maintained. (See Note 5 to
the Financial Statements on page F-13 of this Annual Report on Form 10-K.)
6
<PAGE> 7
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(Dollars in Thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Operating Results:
Revenues $229,682 $209,683 $218,521 $206,054 $184,665
Earnings from Continuing
Operations $ 6,137 $ 4,189 $ 6,107 $ 5,345 $ 6,076
Earnings from Continuing
Operations Per Common Share $ 2.55 $ 1.68 $ 2.35 $ 2.00 $ 2.20
At Year End:
Total Assets $104,452 $ 99,779 $ 99,780 $ 92,722 $ 73,236
Total Long-Term Debt $ 17,049 $ 21,124 $ 26,778 $ 27,113 $ 13,355
Cash Dividends Per Common Share $ .55 $ .52 $ .48 $ .44 $ .40
</TABLE>
Earnings from continuing operations and earnings from continuing
operations 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 earnings from continuing operations by $606,000 and
earnings from continuing operations per common share by $.22. The change in
depreciation method increased earnings from continuing operations by $253,000
and earnings per common share by $.09. In 1995 the Company sold its interior
plant care business. Operating results for all years presented have accordingly
been restated for this discontinued operation. (See Note 13 to the Financial
Statements on page F-20 of this Annual Report on Form 10-K.)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities provided $21,192,000 in cash in fiscal 1995, a
$4,987,000 increase when compared to the $16,205,000 generated in 1994. This
improvement was primarily attributable to higher net earnings as well as a
decrease in other assets, along with increases in accounts payable and accrued
liabilities, and other liabilities, partially offset by an increase in accounts
receivable.
Net earnings improved $2,334,000 to $6,373,000 when compared to the
$4,039,000 generated in 1994. The increase was mainly due to higher earnings in
most of the Registrant's service lines, and to a lesser extent the result of a
gain on the disposal of certain assets associated with its Interiorcare
operations. (See Note 13 to the Financial Statements on page F-20 of this Annual
Report on Form 10-K). Residential and Commercial Services' revenues continue to
be positively influenced by improved economic conditions generally and
heightened sales efforts. In addition, most of the Registrant's Utility
operations have experienced significant operating profit improvement due
primarily to productivity gains associated with several existing and new
contracts. The earnings in Utility operations, as well as those primarily in the
Registrant's Consulting services, were also enhanced by additional work obtained
during the fourth quarter with its major Western U.S. customer.
Other assets provided $1,049,000 in cash, an improvement of $3,071,000
when compared to the $2,022,000 used in the prior year. The improvement was due
in part to amounts previously earned under a contract with two of the
Registrant's Utility customers, as well as an advance funded according
7
<PAGE> 8
to the terms of The Big Tree Company, Inc. Acquisition Agreement, both of which
occurred in the prior year. It was also due to a reduction in the current asset
accrued related to the Registrant's retrospectively rated insurance policies.
(See Note 2 to the Financial Statements on page F-10 of this Annual Report on
Form 10-K).
Accounts payable and accrued liabilities provided $4,110,000, a
$3,148,000 increase when compared to the $962,000 provided in 1994. The increase
was primarily due to an increase in the current portion of insurance
liabilities, and to a lesser extent higher accounts payable commensurate with
the increase in 1995 revenues. The most significant estimates made by the
Registrant that affect the amounts reported in the financial statements and
accompanying notes are those relating to its insurance liabilities. (See Note 2
on page F-10 of the Financial Statements of this Annual Report on Form 10-K).
Other liabilities generated $2,145,000 in cash, an increase of $2,002,000
when compared to the $143,000 in the prior year. The increase was mainly due to
an increase in amounts payable for income taxes, a function of the Registrant's
improved earnings.
Cash flows provided by operating activities were adversely impacted by a
$5,309,000 increase in accounts receivable, a net change of $4,284,000 when
compared to the $1,025,000 used in 1994. Despite this increase, accounts
receivable average days outstanding of 53.8 days represented a decline of .7
days from 54.5 days last year. The dollar increase was primarily due to the
additional work obtained with one of the Registrant's Western Utility customers
mentioned previously, as well as additional contracts secured through the course
of competitive bidding. The Registrant performs ongoing credit evaluations of
its customers' financial condition for collection purposes, and when determined
necessary, it provides an allowance for doubtful accounts.
Investing activities used $11,494,000, an increase of $2,086,000 when
compared to the $9,408,000 used in 1994. The increase was mainly due to higher
equipment expenditures, partially offset by the sale of certain Interiorcare
assets. (See Note 13 on page F-20 of the Financial Statements of this Annual
Report on Form 10-K). The Registrant believes its capital expenditures and 1996
capital budget of approximately $13,500,000 is consistent with its plan to
expand its services, maintain equipment on existing operations, and provide for
suitable branch office facilities.
Financing activities used $9,201,000, a net increase of $2,355,000 when
compared to the $6,846,000 used in 1994. The net increase was attributable to
two factors. First, the Registrant's reduction of long-term debt, net of
borrowings, increased by $1,678,000, principally due to repayments on the term
note agreement. Second, the Registrant's transactions in its common shares used
$897,000 more cash than in 1994, the result of both lower sales and higher
repurchases in the current year, the latter being primarily affected by shares
purchased from a former vice president of the Registrant.
At December 31, 1995, the Registrant's principal source of liquidity
consisted of $1,470,000 in cash and cash equivalents; short term lines of credit
and amounts available to be borrowed from banks via notes payable totaling
$3,398,000, of which $465,000 had been drawn at the end of the year; and the
credit agreement in the amount of $35,000,000, of which $8,900,000 had been
drawn and $7,431,000 was considered drawn to cover outstanding standby letters
of credit. Including the outstanding balance on the term note agreement of
$9,600,000, the Registrant's credit facilities now total $48,000,000. The
Registrant believes its available credit will exceed credit requirements, and
that its liquidity is adequate.
8
<PAGE> 9
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".
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Working Capital $12,493 $12,583 $13,459
Current Ratio 1.4:1 1.5:1 1.6:1
Cash Flow from Net Earnings,
Depreciation & Amortization $19,574 $17,302 $19,712
Capital Expenditures $13,297 $ 8,598 $15,887
Cash Flow to Capital
Expenditures Ratio 1.5:1 2.0:1 1.2:1
Cash Flow as % of Revenues 8.5% 8.3% 9.0%
</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>
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Equity to Debt Ratio .80:1 .81:1 .79:1
Debt as % of Assets 55.5% 55.4% 55.8%
Equity as % of Assets 44.5% 44.6% 44.2%
</TABLE>
At the end of 1995, these measurements remained virtually even with the
prior year, and improved only slightly when compared with 1993, primarily due to
the increases experienced in insurance liabilities.
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>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Net earnings per share $ 2.65 $ 1.62 $ 2.33
Dividends per Share $ .55 $ .52 $ .48
Book Value per Share $20.13 $18.23 $17.54
ESOT Market Valuation per Share $27.12 $24.38 $29.63
</TABLE>
9
<PAGE> 10
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 1995. In 1995, they were increased by a total $.03 per share,
or 6% over 1994, compared to an increase in 1994 of $.04 per share or 8% over
1993. 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>
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Average Assets Employed
(in 000's) $102,116 $99,780 $96,251
Asset Turnover (Revenues
to Average Assets) 2.2 2.1 2.3
Return on Average Assets 6.2% 4.0% 6.3%
</TABLE>
RESULTS OF OPERATIONS
Revenues of $229,682,000 for the year increased $19,999,000 or 9.5% when
compared to the $209,683,000 generated in 1994. This compares with a decrease in
revenues of 4.0% in 1994 and an increase of 6.1% in 1993. The current year
improvement was primarily attributable to increased revenues realized by the
Registrant's Residential and Commercial services, Western Utility operations,
and Consulting services. As previously mentioned, Residential and Commercial
services continue to be favorably influenced by generally good economic
conditions, as well as heightened sales efforts. The increase in Western Utility
revenues was mainly due to production gains on certain contracts and contracts
obtained through the ordinary course of competitive bidding. However, as
previously indicated, both the Western Utility operations and the Registrant's
Consulting services also enhanced their revenues through additional work
obtained during the fourth quarter with its major Western U.S. customer. The
1995 revenues of $37,000,000 earned by the Registrant with this customer
represent a significant concentration (See Note 10 to the Financial Statements
on page F-19 of this Annual Report on Form 10-K). The Registrant believes that
the favorable trend in revenues for all services will continue in 1996, despite
the fact that in 1995 Utility services as a whole continued to be somewhat
affected by budget reductions on certain existing Utility contracts and
discontinued Utility contracts experienced in the ordinary course of competitive
bidding.
Operating costs of $159,310,000 increased $12,693,000 when compared to
1994, but as a percentage of sales they decreased .5% to 69.4%. This percentage
reduction was mainly due to lower direct labor and related payroll taxes in the
current year, but is also a result of non-recurring shutdown and relocation
costs incurred in 1994 associated with certain discontinued utility contracts.
The Registrant anticipates that in 1996 these costs as a percentage of revenues
will approximate 1995 levels.
Selling costs for the year increased $4,170,000 to $29,379,000, and as a
percentage of revenues they increased .8% to 12.8%. Significant factors which
contributed to this percentage increase include higher Residential and
Commercial sales commissions and supervision wages, as well as increased branch
office costs.
10
<PAGE> 11
General and Administrative expenses of $15,139,000 declined $77,000, but
at 6.6% of revenues they were .7% lower than in 1994. The percentage decrease is
attributable to continued corporate cost containment efforts, most notably in
office and administrative salaries and related payroll taxes.
Depreciation and amortization of $13,201,000 declined $62,000 or .6% as a
percentage of revenues. The slightly lower expense was generally a function of
lower capital expenditures over the past two years. In 1996, the Registrant
anticipates that depreciation expense will approximate $12,600,000.
Interest expense of $2,725,000 remained almost even with last year, and
as a percentage of revenues declined slightly by .1% to 1.2%. Despite the
reduction in the Registrant's long term debt, interest charges remained
virtually even with last years levels due to an approximate 170 basis point rise
in interest rates.
As a result of the above factors, earnings before income taxes were
$10,111,000 or 4.4% of revenues, and increased $3,096,000 or 1.1% as a
percentage of revenues when compared to 1994. The tax provisions for 1995, 1994,
and 1993 resulted in effective tax rates of 39.3%, 40.3%, and 39.6%,
respectively.
After reflecting a net $236,000 contributed by the Registrant's
discontinued operation (See Note 13 to the Financial Statements on page F-20 of
this Annual Report on Form 10-K), for the year the Registrant's net earnings of
$6,373,000 increased $2,334,000 compared to 1994, or 57.8%, and as a percentage
of revenues they were 2.8%, the same percentage achieved in 1993 and almost 1.0%
higher than last 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-20 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 1996 Annual Meeting of Shareholders is hereby incorporated by reference.
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 1996 Annual Meeting of
Shareholders is hereby incorporated by reference.
11
<PAGE> 12
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 1996 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 1996 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 14 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.
12
<PAGE> 13
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 26, 1996
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 26, 1996.
<TABLE>
<S> <C>
/s/J. W. JOY /s/JAMES H. MILLER
- --------------------------- --------------------------
J. W. JOY, Director and JAMES H. MILLER, Director
Chairman of the Board
/s/THOMAS G. MURDOUGH, JR.
--------------------------
/s/R. DOUGLAS COWAN THOMAS G. MURDOUGH, JR., Director
- ---------------------------
R. DOUGLAS COWAN, Director;
President and Chief Executive Officer
(Principal Executive and Operating Officer) /s/J MAURICE STRUCHEN
--------------------------
J MAURICE STRUCHEN, Director
/s/R. CARY BLAIR
------------------------
R. CARY BLAIR, Director /s/DAVID E. ADANTE
--------------------------
DAVID E. ADANTE, Executive Vice
President, Chief Financial Officer and
/s/RICHARD E. DUNN Secretary-Treasurer
------------------------ (Principal Financial Officer)
RICHARD E. DUNN, Director
/s/WILLIAM D. GINN /s/BRADLEY L. COMPORT
------------------------ --------------------------
WILLIAM D. GINN, Director BRADLEY L. COMPORT, Corporate
Controller (Principal Accounting Officer)
/s/RICHARD S. GRAY
------------------------
RICHARD S. GRAY, Director
/s/EUGENE W. HAUPT
------------------------
EUGENE W. HAUPT, Director
</TABLE>
13
<PAGE> 14
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 5 of Notes to
Consolidated Financial
Statements on page F-13 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
Registrant's Form 10-Q for
the quarter ended July 2,
1994.
(11) Statement re computation of per share Not Applicable.
earnings
</TABLE>
14
<PAGE> 15
<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 16
(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 17
to incorporation of their report
in Registrant's Statements on
Form S-8 (File Nos. 2-73052,
2-77353, 33-5755, 33-21072, and
33-59347) and Form S-2
(File No. 33-30970)
(24) Power of Attorney Not Applicable.
(27) Financial Data Schedule 18
(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.
15
<PAGE> 16
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
[ITEMS 14(a)(1) AND (2)]
<TABLE>
<CAPTION>
DESCRIPTION PAGE
- ----------- ----
<S> <C>
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 31, 1995, 1994 and 1993 F-3
Consolidated Statements of Net Earnings for the years ended F-5
December 31, 1995, 1994 and 1993
Consolidated Statements of Shareholders' Equity for the years ended F-6
December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the years ended F-8
December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements for the years ended F-9
December 31, 1995, 1994 and 1993
</TABLE>
F-1
<PAGE> 17
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
The Davey Tree Expert Company
We have audited the accompanying consolidated balance sheets of The Davey Tree
Expert Company and subsidiary companies as of December 31, 1995, 1994, and 1993,
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 on 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, 1995, 1994, and 1993, 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
- -------------------------
Cleveland, Ohio
February 16, 1996
F-2
<PAGE> 18
THE DAVEY TREE EXPERT COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994 1993
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,470 $ 973 $ 1,022
Accounts receivable 34,622 29,313 28,288
Operating supplies 2,136 2,568 2,645
Prepaid expenses and other assets 2,082 3,133 2,053
Deferred income taxes 2,697 1,898 1,312
-------- -------- --------
Total current assets 43,007 37,885 35,320
PROPERTY AND EQUIPMENT:
Land and land improvements 6,446 6,376 6,106
Buildings and leasehold improvements 15,956 15,806 15,856
Equipment 139,711 132,708 131,205
-------- -------- --------
162,113 154,890 153,167
Less accumulated depreciation 107,977 100,466 93,703
-------- -------- --------
Net property and equipment 54,136 54,424 59,464
OTHER ASSETS AND INTANGIBLES 7,309 7,470 4,996
-------- -------- --------
TOTAL ASSETS $104,452 $ 99,779 $ 99,780
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 19
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994 1993
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 10,227 $ 9,260 $ 11,028
Accrued liabilities 13,935 10,792 8,062
Income taxes payable 3,171 1,307 1,041
Notes payable, bank 400 99 80
Current maturities of long-term debt 2,781 3,844 1,650
-------- -------- --------
Total current liabilities 30,514 25,302 21,861
LONG-TERM DEBT 17,049 21,124 26,778
DEFERRED INCOME TAXES 3,182 3,256 3,233
INSURANCE LIABILITIES 6,380 5,050 3,211
OTHER LIABILITIES 797 516 639
-------- -------- --------
TOTAL LIABILITIES 57,922 55,248 55,722
SHAREHOLDERS' EQUITY:
Preferred shares
Common shares 4,364 4,364 4,364
Additional paid-in capital 7,836 7,531 7,186
Retained earnings 67,922 62,851 60,263
-------- -------- --------
80,122 74,746 71,813
LESS:
Treasury shares, at cost 33,198 29,416 26,491
Subscriptions receivable from employees 297 606 975
Future contributions to ESOT 97 193 289
-------- -------- --------
TOTAL SHAREHOLDERS' EQUITY 46,530 44,531 44,058
-------- -------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $104,452 $ 99,779 $ 99,780
======== ======== ========
</TABLE>
F-4
<PAGE> 20
THE DAVEY TREE EXPERT COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF NET EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1995 1994 1993
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
REVENUES $ 229,682 100.0% $ 209,683 100.0% $ 218,521 100.0%
COSTS AND EXPENSES:
Operating 159,310 69.4 146,617 69.9 152,502 69.8
Selling 29,379 12.8 25,209 12.0 23,331 10.7
General and administrative 15,139 6.6 15,216 7.3 16,588 7.6
Depreciation and amortization 13,201 5.7 13,263 6.3 13,656 6.2
---------- ----- ---------- ----- ---------- -----
217,029 94.5 200,305 95.5 206,077 94.3
---------- ----- ---------- ----- ---------- -----
EARNINGS FROM OPERATIONS 12,653 5.5 9,378 4.5 12,444 5.7
INTEREST EXPENSE 2,725 1.2 2,641 1.3 2,460 1.1
OTHER INCOME - NET (183) (.1) (278) (.1) (124)
---------- ----- ----------- ---- ----------- -----
EARNINGS BEFORE INCOME TAXES 10,111 4.4 7,015 3.3 10,108 4.6
INCOME TAXES 3,974 1.7 2,826 1.3 4,001 1.8
---------- ----- ---------- ----- ---------- -----
EARNINGS FROM
CONTINUING OPERATIONS 6,137 2.7 4,189 2.0 6,107 2.8
DISCONTINUED OPERATION -
NET EARNINGS (LOSS) 236 .1 (150) (.1) (51)
---------- ----- ---------- ----- ---------- -----
NET EARNINGS $ 6,373 2.8% $ 4,039 1.9% $ 6,056 2.8%
========== ===== ========== ===== ========== =====
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES OUTSTANDING
INCLUDING COMMON
STOCK EQUIVALENTS 2,406,769 2,488,545 2,602,708
========== ========== ==========
NET EARNINGS PER COMMON
SHARE FROM CONTINUING
OPERATIONS $ 2.55 $ 1.68 $ 2.35
========== ========== ==========
NET EARNINGS PER
COMMON SHARE $ 2.65 $ 1.62 $ 2.33
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 21
THE DAVEY TREE EXPERT COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN
SHARES CAPITAL
<S> <C> <C>
BALANCE, JANUARY 1, 1993 $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
Receipts from subscriptions receivable
Shares purchased
Shares sold to employees 281
Options exercised 24
Contributions to ESOT
Net earnings
Dividends, $.55 per share
Net adjustment for foreign currency translation
BALANCE, DECEMBER 31, 1995 $4,364 $7,836
====== ======
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 22
<TABLE>
<CAPTION>
SUBSCRIP-
TIONS RECEIVE- CONTRIBU-
RETAINED TREASURY ABLE FROM TIONS
EARNINGS SHARES EMPLOYEES TO ESOT TOTAL
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1993 $55,520 $(24,257) $(1,569) $(386) $40,319
Receipts from subscriptions receivable 594 594
Shares purchased (3,508) (3,508)
Shares sold to employees 459 798
Options exercised 815 1,015
Contributions to ESOT 97 97
Net earnings 6,056 6,056
Dividends, $.48 per share (1,207) (1,207)
Net adjustment for foreign currency translation (106) (106)
------- -------- ------- ----- -------
BALANCE, DECEMBER 31, 1993 60,263 (26,491) (975) (289) 44,058
Receipts from subscriptions receivable 369 369
Shares purchased (4,409) (4,409)
Shares sold to employees 832 1,240
Options exercised 652 589
Contributions to ESOT 96 96
Net earnings 4,039 4,039
Dividends, $.52 per share (1,290) (1,290)
Net adjustment for foreign currency translation (161) (161)
------- -------- ------- ----- -------
BALANCE, DECEMBER 31, 1994 62,851 (29,416) (606) (193) 44,531
Receipts from subscriptions receivable 309 309
Shares purchased (4,853) (4,853)
Shares sold to employees 953 1,234
Options exercised 118 142
Contributions to ESOT 96 96
Net earnings 6,373 6,373
Dividends, $.55 per share (1,292) (1,292)
Net adjustment for foreign currency translation (10) (10)
------- -------- ------- ----- -------
BALANCE, DECEMBER 31, 1995 $67,922 $(33,198) $ (297) $ (97) $46,530
======= ======== ======= ===== =======
</TABLE>
F-7
<PAGE> 23
THE DAVEY TREE EXPERT COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994 1993
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CASH FROM OPERATING ACTIVITIES:
Net earnings $ 6,373 $ 4,039 $ 6,056
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 12,827 12,963 13,460
Amortization 374 300 196
Deferred income taxes (873) (563) (290)
Other (834) (431) 3
-------- -------- --------
17,867 16,308 19,425
Change in operating assets and liabilities:
Accounts receivable (5,309) (1,025) (3,203)
Other assets 1,049 (2,022) (1,641)
Accounts payable and accrued liabilities 4,110 962 (622)
Insurance liabilities 1,330 1,839 3,211
Other liabilities 2,145 143 932
-------- -------- --------
Net cash provided by operating activities 21,192 16,205 18,102
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of property and equipment 898 945 291
Acquisitions (395) (1,755)
Proceeds from sale of business 1,300
Capital expenditures:
Land and buildings (504) (423) (1,058)
Equipment (12,793) (8,175) (14,829)
-------- -------- --------
Net cash used in investing activities (11,494) (9,408) (15,596)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
ESOT payment of debt guaranteed by Company 96 96 97
Net borrowings (payments) under notes payable, bank 301 19 (145)
Principal payments of long-term debt (7,162) (3,876) (1,713)
Proceeds from issuance of long-term debt 2,024 416 1,898
Sales of treasury shares 1,376 1,829 1,813
Receipts from stock subscriptions 309 369 594
Dividends paid (1,292) (1,290) (1,207)
Repurchase of common shares (4,853) (4,409) (3,508)
-------- -------- --------
Net cash used in financing activities (9,201) (6,846) (2,171)
-------- -------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS 497 (49) 335
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 973 1,022 687
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,470 $ 973 $ 1,022
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE> 24
THE DAVEY TREE EXPERT COMPANY AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31,1995
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of The Davey
Tree Expert Company and its majority owned subsidiary companies. All
significant intercompany accounts and transactions have been eliminated
in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
FISCAL YEAR
The Company's fiscal year ends on the Saturday closest to December 31;
1995, 1994, and 1993 were fiscal years comprised of 52 weeks ended
December 30, 1995, December 31, 1994 and January 1, 1994, respectively.
For presentation purposes, all years were presumed to have ended on
December 31.
REVENUE RECOGNITION
The Company recognizes revenues as services are provided, either on a
time and materials basis, price per unit completed, or an agreed upon fee
for services performed.
EARNINGS PER SHARE
The earnings per common share from continuing operations and the
earnings per common share were calculated by using the weighted average
number of common shares outstanding, including common stock equivalents.
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. Due to the short
maturities, the carrying amount of the investments approximates fair
value.
ACCOUNTS RECEIVABLE
An allowance of $330,000 was established in 1995; no allowance was
considered necessary in 1994 and 1993.
INTANGIBLE ASSETS
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.
F-9
<PAGE> 25
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the FASB issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," which requires impairment losses to be recorded on long-lived assets
used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are
less than the assets carrying amount. This standard also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Company will adopt this standard in the first quarter of 1996 and, based
on current circumstances, does not believe the effect of adoption will be
material.
RECLASSIFICATIONS
Reclassifications have been made to the prior-year financial statements
to conform to the current year presentation.
2. INSURANCE LIABILITIES
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; they can also be affected by changes in the
number of new claims incurred and claim severity. For these reasons, it
is possible that these estimates can change materially in the near term.
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 period costs.
At December 31, 1995, 1994, and 1993, the present value of the
liabilities for the self-insured workers compensation reserves and the
net accrual for retrospectively rated premiums, which are discounted at 5
1/2% at December 31, 1995 and 1994, and 4% at December 31, 1993, were
$13,171,000, $8,393,000 and $6,046,000, respectively. The increase in
1995 was primarily a function of an additional year's exposure to
self-insured claims as well as their continued maturation, while the
increase in 1994 was due mainly to the change in funding methods from
retrospectively rated policies to self insurance. 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. At December 31,
1995, 1994, and 1993, the gross value of those liabilities was
approximately $16,911,000, $10,487,000 and $6,635,000, respectively.
F-10
<PAGE> 26
3. 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, 1995, 1994 and 1993, the number of common shares issued
was 4,364,220 and the number of shares in the treasury were 2,052,488,
1,921,217, and 1,852,050, 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 a ready market for all
shareholders through its' direct purchase of their common shares. During
1995, these purchases totaled 165,027 shares for $4,083,000 in cash; the
Company also had direct sales, to directors and employees, excluding
those shares sold through either the exercise of options or the employee
stock purchase plan below, of 11,596 shares for $281,000. 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, 1995 were 141,150, which
were based on the number available upon ratification of the plan less the
director options granted and shares purchased in 1995 and 1994 under the
stock purchase plan. On May 17, 1995 the non-employee directors were
granted options to purchase 3,000 common shares at $24.38 per share,
expiring in 2001; on May 18, 1994, they were granted options to purchase
10,000 common shares at $29.63 per share, expiring in 2000.
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.
Availability of shares is determined in accordance with provisions of the
Omnibus Stock Plan.
Purchases under the plan have been as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Number of employees participating 772 907 908
Annual shares purchased 45,399 48,209 46,556
Average price paid $20.98 $22.85 $22.73
Cumulative shares purchased 671,084 625,685 577,476
</TABLE>
F-11
<PAGE> 27
3. COMMON AND PREFERRED SHARES (CONTINUED)
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, 1995:
<TABLE>
<CAPTION>
OPTION PLANS
--------------------------------------------------
1985 1987
------- ----------------------------------------
<S> <C> <C> <C> <C> <C>
Grant Date May 20, Dec. 31, March 31, Dec. 4, Dec. 10,
1987 1989 1992 1992 1993
Options granted 109,600 137,900 128,900 17,800 116,000
Exercised through 1993 (67,800) (15,665) (700)
Exercised in 1994 (41,800) (400) (500)
Exercised in 1995 (8,335)
-------- -------- -------- ------- --------
Options outstanding,
December 31, 1995 0 113,500 128,200 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>
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation," which requires adoption no later than fiscal
years beginning after December 15, 1995. The new standard defines a fair
value method of accounting for stock options and similar equity
instruments. Under the fair value method, compensation cost is measured
at the grant date based on the fair value of the award and is recognized
over the service period, which is usually the vesting period.
Pursuant to the new standard, companies are encouraged, but not
required, to adopt the fair value method of accounting for employee
stock-based transactions. As permitted by this standard, the Company will
continue to account for such transactions under Accounting Principles
Board Opinion No. 25; accordingly, with respect to shares sold under the
employee stock purchase plan, it estimates that 1995 pro-forma net
earnings and net earnings per share will be reduced by approximately
$180,000 and $.08 respectively, when disclosure is required in 1996.
Adoption of the new standard will have no effect on the Company's cash
flows.
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-12
<PAGE> 28
4. ACCRUED LIABILITIES
Accrued liabilities consisted of:
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994 1993
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Compensation $ 3,521 $ 3,101 $2,903
Vacation 1,658 1,419 1,564
Insurance liabilities 7,082 4,396 2,355
Taxes, other than taxes on income 915 861 808
Other 759 1,015 432
------- ------- ------
$13,935 $10,792 $8,062
======= ======= ======
</TABLE>
5. 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 four banks totaling $2,933,000,
generally at the banks' prime rate, which was 8.5% at December 31, 1995.
LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994 1993
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revolving credit agreement:
Prime rate borrowings $ 2,900 $ 2,700 $ 5,500
London Interbank Offered Rate (LIBOR)
borrowings 6,000
Term note agreement 9,600 12,000 12,000
Notes payable 8,000 8,000
------- ------- -------
18,500 22,700 25,500
Corporate Center financing 375
Long-term debt of ESOT 97 193 290
Subordinated notes - stock redemption 673 212 346
Term loans and other 560 1,863 1,917
------- ------- -------
19,830 24,968 28,428
Less current maturities 2,781 3,844 1,650
------- ------- -------
$17,049 $21,124 $26,778
======= ======= =======
</TABLE>
The total annual installments required to be paid on long-term debt in
years 1996 to 2000 are as follows: 1996, $2,781,000; 1997, $2,634,000;
1998, $2,544,000; 1999, $2,548,000; 2000, $150,000. 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.
F-13
<PAGE> 29
5. NOTES PAYABLE, BANK AND LONG-TERM DEBT (CONTINUED)
REVOLVING CREDIT AGREEMENT
In September, 1995, the Company entered into a new Revolving Credit
Agreement (Revolver) with two banks, which permits borrowings, as
defined, up to $35,000,000. It provides the Company an option of
borrowing funds at either the prime interest rate or rates based on the
London Interbank Offered Rate (LIBOR), plus a commitment fee of 3/16 of
1% on the average daily unborrowed commitment. Borrowings may be
converted, at the Company's option, to four-year loans. The agreement has
an initial expiration date of April 30, 1998, and provides for one year
extensions beyond that date annually.
Under the most restrictive covenants of the Revolver and the Term Note
Agreement ("Term Note") below, the Company is obligated to maintain a
minimum shareholders' equity, as defined, of $32,000,000 plus 25% of
annual consolidated earnings from December 31, 1994; a maximum ratio of
consolidated funded debt to consolidated funded debt plus consolidated
net worth of .45 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 1995 was 6.1856%; LIBOR was 5.625%,
6.50%, and 3.375% at December 31, 1995, 1994 and 1993, respectively.
NOTES PAYABLE
Notes payable consisted 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 were generally less than
the U.S. prime rate. The Company's intent was 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 1995, 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 31,574
shares redeemed in 1995 for cash of $174,147 and notes of $595,627. In
1992, 16,800 shares were redeemed 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 9.25% 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 $2,732,000,
$2,487,000, and $2,579,000 in 1995, 1994, and 1993, respectively.
F-14
<PAGE> 30
6. 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, 1995, two of the outstanding swaps
had a total notional amount of $9,600,000, and at December 31, 1994 and
1993, these swaps had a total notional amount of $12,000,000, which
effectively changes 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 $80,000, $216,000, and $295,000 in 1995, 1994 and 1993 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 each year, the Company would have paid
$50,000, received $345,000, and paid $432,000 in 1995, 1994, and 1993
respectively.
The carrying value of the Company's long-term debt is considered to
approximate fair value based on borrowing rates currently available for
loans with similar terms and maturities.
7. 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-15
<PAGE> 31
7. 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>
1995 1994 1993
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Principal repayment $ 96 $ 96 $ 97
Interest 14 22 30
---------- ---------- ----------
Total cash contributions required 110 118 127
Less dividends paid on collateral shares 23 33 42
---------- ---------- ----------
ESOT expense $ 87 $ 85 $ 85
========== ========== ==========
Annual release of shares from collateral 21,108 22,716 24,290
========== ========== ==========
Cumulative release of shares from collateral 1,420,515 1,399,407 1,376,691
========== ========== ==========
Number of shares remaining in collateral 19,485 40,593 63,309
========== ========== ==========
</TABLE>
8. 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 employee contributions beyond the
specified compensation levels. 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-16
<PAGE> 32
8. PENSION PLANS (CONTINUED)
EXPENSE RECOGNITION
Pension expense (income) was calculated as follows:
<TABLE>
<CAPTION>
1995 1994 1993
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service cost - increase in benefit
obligations earned $ 358 $ 504 $ 423
Interest cost on projected benefit obligation 880 879 751
Return on plan assets (earnings) (3,841) (1,354) (1,238)
Deferral (amortization) of unrecognized
net assets 2,303 (105) (188)
------- ------- -------
Net pension income $ (300) $ (76) $ (252)
======= ======= =======
</TABLE>
FUNDED STATUS
The funded status of pension plans at December 31 were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Plan assets at fair market value $ 19,143 $ 16,382 $ 17,285
Projected benefit obligation (12,462) (11,051) (10,360)
--------- -------- --------
Excess of assets over projected
benefit obligation 6,681 5,331 6,925
Unrecognized initial asset (1,154) (1,226) (1,299)
Unrecognized gain (3,172) (2,054) (3,326)
Unrecognized prior service cost 62 66 (259)
-------- -------- --------
Prepaid pension expense recognized
as other assets in balance sheets $ 2,417 $ 2,117 $ 2,041
======== ======== ========
</TABLE>
The projected benefit obligation was determined using an assumed
discount rate of 7.25% in 1995, 8.25% in 1994, and 7.5% in 1993. The
assumed long-term compensation rate increase was 5.0%. The assumed
long-term rate of return on plan assets was 9.0% in 1995, and 7.5% in
1994 and 1993.
The projected benefit obligation, which includes the effect of annual
compensation rate increases, is based on an accumulated benefit
obligation of $10,367,000, $9,411,000, and $8,837,000 at December 31,
1995, 1994 and 1993, respectively. It includes vested benefits of
$10,115,000, $9,231,000, and $8,666,000, 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 1995, 1994 and 1993 totaled
$309,000, $380,000, and $567,000, respectively.
F-17
<PAGE> 33
9. 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
1995 1994 1993
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CURRENT
Assets:
Non-deductible accruals for:
Compensated absences $ 217 $ 269 $ 339
Insurance 2,419 1,591 937
Other - net 61 38 36
------- ------- -------
Net current 2,697 1,898 1,312
------- ------- -------
NON-CURRENT
Assets:
Insurance 1,883 1,360 1,061
Liabilities:
Accelerated depreciation for tax purposes (4,228) (4,005) (3,475)
Pensions (822) (720) (694)
Other - net (15) 109 (125)
------- ------- -------
Net noncurrent (3,182) (3,256) (3,233)
------- ------- -------
Net deferred tax liability $ (485) $(1,358) $(1,921)
======= ======= =======
</TABLE>
Significant components of income tax expense from continuing operations
includes:
<TABLE>
<CAPTION>
1995 1994 1993
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Taxes currently payable:
U.S. Federal $3,721 $2,852 $3,190
Canadian 246 (54) 379
State and local 880 591 722
------ ------ ------
4,847 3,389 4,291
------ ------ ------
Deferred tax expense (benefit):
U.S. (891) (560) (321)
Canadian 18 (3) 31
------ ------ ------
(873) (563) (290)
------ ------ ------
$3,974 $2,826 $4,001
====== ====== ======
</TABLE>
F-18
<PAGE> 34
9. INCOME TAXES (CONTINUED)
The differences between the U.S. Federal statutory tax rate and the
effective tax rate are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
U.S. Federal statutory tax rate 34.0% 34.0% 34.0%
State and local income taxes 5.6 5.7 4.8
Canadian income taxes 1.1 (.1) 2.4
Miscellaneous (1.4) .7 (1.6)
---- ---- ----
Effective tax rate 39.3% 40.3% 39.6%
==== ==== ====
</TABLE>
Earnings before income taxes by country are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
U.S. $ 9,669 $7,157 $ 9,602
Canadian 442 (142) 506
------- ------ -------
$10,111 $7,015 $10,108
======= ====== =======
</TABLE>
The Company made cash payments for income taxes of $3,324,000,
$3,638,000, and $2,635,000 in 1995, 1994 and 1993, respectively.
10. NATURE OF OPERATIONS AND CUSTOMER CONCENTRATION
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 63% of the outstanding accounts
receivable at December 31, 1995, 1994 and 1993. The Company had revenues
from one utility customer under multiple five-year contracts aggregating
approximately $37,000,000 in 1995, $27,000,000 in 1994, and $36,000,000
in 1993. The Company had revenues from a second utility customer under
multiple year contracts of approximately $21,000,000 in 1995, $24,000,000
in 1994, and $23,000,000 in 1993. The Company performs ongoing credit
evaluations of its customers' financial conditions and generally requires
no collateral.
11. 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 expense under such operating leases amounted to
approximately $1,539,000, $1,394,000, and $1,245,000 for 1995, 1994 and
1993, respectively. As of December 31, 1995, future minimum rental
payments, including taxes and other operating costs, for all operating
leases having noncancelable lease terms in excess of one year, totaled
$2,581,000, and are expendable as follows: 1996, $1,029,000; 1997,
$826,000; 1998, $460,000; 1999, $192,000 and 2000, $74,000.
F-19
<PAGE> 35
12. 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, 1995, the Company was contingently liable to its
principal bank in the amount of $7,431,000 for outstanding letters of
credit for insurance coverage and guarantees of debt for one of its
subsidiaries.
13. DISCONTINUED OPERATION
On March 31, 1995 the Company sold substantially all of the operating
assets, excluding real estate, of its interior plant care business.
Amounts related to the discontinued operation and recognized in the
financial statements are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenues $ 553 $2,986 $3,097
===== ====== ======
Loss from discontinued operation, net of
applicable income tax benefits of $116,000,
$77,000, and $26,000 in 1995, 1994,
and 1993 respectively. (168) (150) (51)
Gain on sale of assets, less applicable income
taxes of $280,000 404
----- ------ ------
Discontinued operation, net $ 236 $ (150) $ (51)
===== ====== ======
Remaining assets and liabilities as of December 31, 1995:
Real estate, net $ 468
=====
Accounts payable, accrued liabilities and long-term debt $ 182
=====
</TABLE>
14. ACQUISITIONS
In 1995, the Company completed acquisitions of two organizations
providing horticultural services for a total purchase price of
$2,150,000. They were accounted for as a purchase and their results of
operations, which were not material in 1995, are included in the
accompanying financial statements from their respective dates of
acquisition. Goodwill and other intangibles recognized in connection with
these purchases are being amortized over 3 to 15 years.
F-20
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
The Registrant has three wholly-owned subsidiaries, Davey Tree Surgery
Company (incorporated in California), Davey Tree Expert Co. of Canada, Limited
(incorporated in Canada) and B.D. Wilhelm Company (incorporated in Colorado),
each of which does business under its corporate name.
16
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
2-73052, as amended, 2-77353, 33-5755, 33-21072 and 33-59347 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, The Davey Tree Expert Company 1987
Incentive Stock Option Plan and The Davey Tree Expert Company 1994 Omnibus Stock
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 16, 1996, appearing in this Annual
Report on Form 10-K of The Davey Tree Expert Company for the year ended December
31, 1995.
/s/DELOITTE & TOUCHE LLP
- ------------------------
Cleveland, Ohio
March 26, 1996
17
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,470
<SECURITIES> 0
<RECEIVABLES> 34,622
<ALLOWANCES> 330
<INVENTORY> 2,136
<CURRENT-ASSETS> 43,007
<PP&E> 162,113
<DEPRECIATION> 107,977
<TOTAL-ASSETS> 104,452
<CURRENT-LIABILITIES> 30,514
<BONDS> 0
0
0
<COMMON> 4,364
<OTHER-SE> 42,166
<TOTAL-LIABILITY-AND-EQUITY> 104,452
<SALES> 0
<TOTAL-REVENUES> 229,682
<CGS> 159,310
<TOTAL-COSTS> 217,029
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 330
<INTEREST-EXPENSE> 2,725
<INCOME-PRETAX> 10,111
<INCOME-TAX> 3,974
<INCOME-CONTINUING> 6,137
<DISCONTINUED> 236
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,373
<EPS-PRIMARY> 2.65
<EPS-DILUTED> 2.65
</TABLE>
