<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 27, 1997 Commission File No. 0-11917
THE DAVEY TREE EXPERT COMPANY
(Exact name of Registrant as specified in its charter)
OHIO 34-0176110
(State of Incorporation) (IRS Employer Identification No.)
1500 North Mantua Street
P. O. Box 5193
Kent, OH 44240-5193
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (330) 673-9511
Number of Common Shares Outstanding as of November 7, 1997: 4,267,169
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past ninety (90) days.
YES X NO
------- -------
<PAGE> 2
THE DAVEY TREE EXPERT COMPANY
INDEX
-----
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements
Consolidated Balance Sheets - As of September 27, 1997,
September 28, 1996 and December 31, 1996 3
Consolidated Statements of Net Earnings - Three
Months Ended September 27, 1997 and September 28, 1996 4
Consolidated Statements of Net Earnings - Nine Months
Ended September 27, 1997 and September 28, 1996 5
Consolidated Statements of Cash Flows - Nine Months
Ended September 27, 1997 and September 28, 1996 6
Notes to Consolidated Financial Statements 7
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II: OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders 13
Item 5: Other Information 13
Item 6: Exhibits and Reports on Form 8-K 13
</TABLE>
<PAGE> 3
THE DAVEY TREE EXPERT COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
Sept. 27, Sept. 28, Dec. 31,
1997 1996 1996
--------- --------- ---------
<S> <C> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and Cash Equivalents $ 991 $ 278 $ 627
Accounts Receivable 51,816 46,864 39,805
Operating Supplies 2,617 2,526 2,477
Prepaid Expenses and Other Assets 2,371 2,178 2,023
Deferred Income Taxes 1,729 2,635 1,786
--------- --------- ---------
Total Current Assets 59,524 54,481 46,718
PROPERTY AND EQUIPMENT:
Land and Land Improvements 6,232 6,208 6,178
Buildings and Leasehold Improvements 16,753 17,207 16,682
Equipment 162,177 145,976 148,204
--------- --------- ---------
185,162 169,391 171,064
Less Accumulated Depreciation 121,623 112,455 113,980
--------- --------- ---------
Net Property and Equipment 63,539 56,936 57,084
--------- --------- ---------
OTHER ASSETS AND INTANGIBLES 8,048 6,899 7,584
--------- --------- ---------
TOTAL ASSETS $ 131,111 $ 118,316 $ 111,386
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts Payable $ 12,973 $ 10,142 $ 11,564
Accrued Liabilities 19,679 18,468 12,944
Income Taxes Payable 3,012 973 218
Notes Payable, Bank 1,160 75
Current Maturities of Long-Term Debt 7,886 10,695 2,634
--------- --------- ---------
Total Current Liabilities 43,550 41,438 27,435
LONG-TERM DEBT 18,317 14,982 19,640
DEFERRED INCOME TAXES 1,892 3,122 1,952
INSURANCE LIABILITIES 10,701 6,473 9,007
OTHER LIABILITIES 635 739 882
--------- --------- ---------
TOTAL LIABILITIES 75,095 66,754 58,916
--------- --------- ---------
SHAREHOLDERS' EQUITY:
Preferred Shares - No Par Value; - - - - - -
Authorized 4,000,000 Shares;
None Issued
Common Shares - $1.00 Par Value;
Authorized 12,000,000 Shares;
Issued 8,728,440 Shares at
September 27, 1997, September 28, 1996
and December 31, 1996 8,728 8,728 8,728
Additional Paid-in Capital 4,164 3,643 3,876
Retained Earnings 82,930 74,086 75,324
--------- --------- ---------
95,822 86,457 87,928
LESS:
Treasury Shares at cost:
4,396,719 Shares at September 27, 1997;
4,208,326 Shares at September 28, 1996;
and 4,209,623 Shares at
December 31, 1996 (39,806) (34,855) (35,451)
Subscriptions Receivable from Employees (16) (7)
Future Contributions to ESOT (24)
--------- --------- ---------
TOTAL SHAREHOLDERS' EQUITY 56,016 51,562 52,470
--------- --------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 131,111 $ 118,316 $ 111,386
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 4
THE DAVEY TREE EXPERT COMPANY
CONSOLIDATED STATEMENTS OF NET EARNINGS
THREE MONTHS ENDED SEPTEMBER 27, 1997 AND SEPTEMBER 28, 1996
(DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
September 27, 1997 September 28, 1996
------------------ ------------------
<S> <C> <C> <C> <C>
REVENUES $ 81,066 100.0% $ 70,337 100.0%
---------- ------ ---------- -----
COSTS AND EXPENSES:
Operating 53,950 66.6 47,604 67.7
Selling 11,050 13.6 9,290 13.2
General and Administrative 4,256 5.2 4,148 5.9
Depreciation and Amortization 4,537 5.6 3,736 5.3
---------- ------ ---------- -----
TOTAL COSTS AND EXPENSES 73,793 91.0 64,778 92.1
EARNINGS FROM OPERATIONS 7,273 9.0 5,559 7.9
INTEREST EXPENSE (603) (0.8) (558) (0.8)
OTHER INCOME/(EXPENSE) - NET (110) (0.1) (18) ---
---------- ------ ---------- -----
EARNINGS BEFORE INCOME TAXES 6,560 8.1 4,983 7.1
INCOME TAXES 2,689 3.3 1,957 2.8
---------- ------ ---------- -----
NET EARNINGS $ 3,871 4.8% $ 3,026 4.3%
========== ====== ========== =====
NET EARNINGS PER COMMON SHARE $ 0.79 $ 0.61
========== ==========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING,
INCLUDING COMMON STOCK
EQUIVALENTS 4,921,005 4,955,874
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 5
THE DAVEY TREE EXPERT COMPANY
CONSOLIDATED STATEMENTS OF NET EARNINGS
NINE MONTHS ENDED SEPTEMBER 27, 1997 AND SEPTEMBER 28, 1996
(DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
September 27, 1997 September 28, 1996
------------------ ------------------
<S> <C> <C> <C> <C>
REVENUES $ 223,774 100.0% $ 204,629 100.0%
---------- ------ ---------- -----
COSTS AND EXPENSES:
Operating 151,604 67.7 141,932 69.3
Selling 29,037 13.0 26,113 12.8
General and Administrative 13,839 6.2 12,654 6.2
Depreciation and Amortization 12,717 5.7 10,767 5.3
---------- ------ ---------- -----
TOTAL COSTS AND EXPENSES 207,197 92.6 191,466 93.6
---------- ------ ---------- -----
EARNINGS FROM OPERATIONS 16,577 7.4 13,163 6.4
INTEREST EXPENSE (1,758) (0.8) (1,638) (0.8)
OTHER INCOME/(EXPENSE) - NET (120) --- 134 0.1
---------- ------ ---------- -----
EARNINGS BEFORE INCOME TAXES 14,699 6.6 11,659 5.7
INCOME TAXES 6,026 2.7 4,582 2.2
---------- ------ ---------- -----
NET EARNINGS $ 8,673 3.9% $ 7,077 3.5%
========== ====== ========== =====
NET EARNINGS PER COMMON SHARE $ 1.80 $ 1.47
========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING, INCLUDING
COMMON STOCK EQUIVALENTS 4,814,503 4,830,028
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 6
THE DAVEY TREE EXPERT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR NINE MONTHS ENDED SEPTEMBER 27, 1997 AND SEPTEMBER 28, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Sept. 27, Sept. 28,
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings $ 8,673 $ 7,077
Adjustments to Reconcile Net Earnings to
Net Cash Provided by Operating Activities:
Depreciation 12,445 10,473
Amortization 272 294
Deferred Income Taxes (3) 2
Other (139) (153)
-------- --------
21,248 17,693
Change in Operating Assets and Liabilities:
Accounts Receivable (12,011) (12,242)
Other Assets (908) (427)
Accounts Payable and Accrued Liabilities 8,144 4,739
Insurance Liabilities 1,694 93
Other Liabilities 2,547 (2,256)
-------- --------
Net Cash Provided by Operating Activities 20,714 7,600
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sales of Property and Equipment 550 900
Acquisitions (449) (820)
Capital Expenditures:
Land and Buildings (241) (624)
Equipment (18,872) (12,720)
-------- --------
Net Cash Used In Investing Activities (19,012) (13,264)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
ESOT Payment of Debt Guaranteed by the Company 73
Net Borrowings (Payments) Under Notes Payable, Bank (75) 760
Principal Payments of Long-Term Debt (2,028) (2,135)
Proceeds from Issuance of Long-Term Debt 5,957 7,982
Sales of Treasury Shares 734 603
Receipts from Stock Subscriptions 7 281
Dividends Paid (1,132) (1,003)
Repurchase of Common Shares (4,801) (2,089)
-------- --------
Net Cash (Used In) Provided By Financing Activities (1,338) 4,472
-------- --------
NET CHANGE IN CASH AND EQUIVALENTS 364 (1,192)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 627 1,470
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 991 $ 278
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 7
THE DAVEY TREE EXPERT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
NINE MONTHS ENDED SEPTEMBER 27, 1997
UNAUDITED
---------
NOTE 1 - BASIS OF PRESENTATION
- ------------------------------
The accompanying unaudited Consolidated Financial Statements as of September 27,
1997 and September 28, 1996 and for the periods then ended have been prepared in
accordance with the instructions to Form 10-Q, but do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Reclassifications have been made to the
prior-year financial statements to conform to the current year presentation.
Net earnings per common share was calculated by using the weighted average
number of common shares outstanding, including common stock equivalents, during
the period.
NOTE 2 - RESULTS OF OPERATIONS
- ------------------------------
Due to the seasonal nature of some of the Company's services, the results of
operations for the periods ended September 27, 1997 and September 28, 1996 are
not necessarily indicative of the results to be expected for the full year.
NOTE 3 - DIVIDENDS
- ------------------
On September 10, 1997 the Registrant paid a $.085 per share dividend to all
shareholders of record at September 1, 1997. This compares to a $.075 per share
dividend paid in the third quarter of 1996. For the nine months ended September
27, 1997, the Registrant paid cumulative dividends of $.255 per share to all
shareholders of record. This compared to a $.22 cumulative per share dividend
paid in the first nine months of 1996.
NOTE 4 - ACCRUED LIABILITIES
- ----------------------------
Accrued liabilities consisted of:
<TABLE>
<CAPTION>
SEPT. 27, SEPT. 28, DEC. 31,
1997 1996 1996
--------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Compensation $ 7,400 $ 5,931 $ 4,009
Vacation 2,189 2,094 1,620
Insurance Liabilities 7,333 7,882 6,105
Taxes, other than taxes on income 851 810 600
Other 1,906 1,751 610
-------- -------- --------
$ 19,679 $ 18,468 $ 12,944
======== ======== ========
</TABLE>
<PAGE> 8
NOTE 5 - LONG-TERM DEBT
- -----------------------
Long-term debt consisted of:
<TABLE>
<CAPTION>
SEPT. 27, SEPT. 28, DEC. 31,
1997 1996 1996
--------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revolving Credit Agreement:
Prime rate borrowings $ --- $ 1,900 $ 3,100
London Interbank Offered Rate
(LIBOR) borrowings 19,000 15,000 11,000
Term note agreement 5,400 7,800 7,200
--------- --------- --------
24,400 24,700 21,300
Long-term debt of ESOT --- 48 ---
Subordinated notes -
stock redemption 357 515 515
Term loans and others 1,446 414 459
--------- --------- --------
26,203 25,677 22,274
Less current maturities 7,886 10,695 2,634
--------- --------- --------
$ 18,317 $ 14,982 $ 19,640
========= ========= ========
</TABLE>
NOTE 6 - ACQUISITIONS
- ---------------------
In 1997 and 1996, the Registrant acquired assets of organizations which provide
horticultural services for an aggregate purchase price of $449,000 and $820,000,
respectively and accounted for the transactions as purchases. Their results of
operations, which were not material, have been included in the accompanying
financial statements from their respective acquisition dates. Goodwill and
other intangibles recognized in connection with these purchases are being
amortized over three to fifteen years.
NOTE 7 - INTEREST RATE RISK MANAGEMENT
- --------------------------------------
The Company has entered into an interest rate exchange agreement (swap) to
modify the interest rate characteristics of the Company's long term variable
interest rate debt. The swap is accounted for using the settlement method or
the "matched swap" method in which the periodic net cash settlements of the swap
agreement are recognized in interest expense when they accrue. An interest rate
swap is considered to be a matched swap if it is linked through designation with
an asset or liability provided that it has the opposite interest rate
characteristics of the asset or liability. Generally, if the asset or liability
that is linked to the swap matures or is extinguished, or if the swap no longer
qualifies for settlement accounting the swap will be marked to market through
income. The swap term is matched with the term of the long term debt. If the
Company decided to terminate the interest rate swap agreement any resulting gain
or loss would be deferred and amortized over the original life of the swap
contract or recognized with the offsetting gain or loss of the hedged
transaction.
<PAGE> 9
NOTE 8 - RECENTLY ISSUED ACCOUNTING STANDARDS
- ---------------------------------------------
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 128, Earnings Per Share. FASB Statement 128 becomes effective for
interim and annual financial statements issued after December 15, 1997. This
statement changes the current standard for computing earnings per share (EPS)
found in APB No. 15 and requires the dual presentation of "basic" and "diluted"
EPS on the face of the income statement and requires certain footnote
disclosures. Basic EPS excludes dilution and is computed by dividing income
available to common shareholders by the weighted average number of common shares
outstanding during the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that share in the earnings of the Company. Since the Company's
outstanding stock options are currently included in the computation of EPS, the
diluted EPS to be reported under the new standard will be substantially the same
amount as is currently reported.
In June, 1997, the Financial Accounting Standards Board (FASB) issued Statement
No. 130, Reporting Comprehensive Income. This statement establishes standards
for reporting and display of comprehensive income and its components in a full
set of general-purpose financial statements, but does not address either issues
of recognition or measurement. It is effective for fiscal years beginning after
December 15, 1997. The only item that will impact the Registrant's display of
comprehensive income will be net adjustments for foreign currency translation,
which have previously been reported within the statement of shareholders'
equity.
In June the FASB also issued Statement No. 131, Disclosures about Segments of an
Enterprise and Related Information. It becomes effective for fiscal years
beginning after December 15, 1997 and requires that public business enterprises
report certain information about operating segments in complete sets of
financial statements of the enterprise and in condensed financial statements of
interim periods issued to shareholders, as well as other information regarding
products and services, geographic information, and major customers. The Company
has not yet completed its analysis of SFAS No. 131 and accordingly has yet to
determine the effect, if any, it will have on future financial statement
disclosures.
<PAGE> 10
THE DAVEY TREE EXPERT COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
-------------------------
NINE MONTHS ENDED SEPTEMBER 27, 1997
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Operating activities provided $20,714,000 for the first nine months of 1997, an
increase of $13,114,000 when compared to the $7,600,000 provided last year. The
net improvement was primarily due to higher net earnings and depreciation, as
well as increases in accounts payable and accrued liabilities, insurance
liabilities, other liabilities, and a slightly lower increase in accounts
receivable.
Net earnings for the first nine months totaled $8,673,000, $1,596,000 more than
the $7,077,000 generated last year. All of the Registrant's services
contributed to the increase. Utility and Consulting services continued to be
positively influenced by additional work with its major U.S. customer; the
Consulting services work performed for this customer was substantially complete
by the end of the third quarter. The earnings of Residential and Commercial
services favorably reflect the results derived from focused sales efforts and a
generally sound economy. Commercial services continues to improve significantly
in both revenues and operating earnings when compared to 1996, its inaugural
year of operation. Most of the Registrant's services also benefited in the
quarter from additional work obtained as a result of damage caused by a storm in
southeast Michigan. Notwithstanding completion of the Consulting services work
previously mentioned, the Registrant expects that both revenues and earnings
will remain higher than in 1996.
Depreciation expense of $12,445,000 was $1,972,000 higher than last year
primarily due to a relatively higher level of capital expenditures in the
current and preceding two years.
Accounts payable and accrued liabilities provided $8,144,000, $3,405,000 more
than in 1996. The increase is mainly a function of higher trade accounts
payable and accruals associated with the increased levels of revenue and
profitability.
The long-term portion of insurance liabilities provided $1,694,000, a $1,601,000
net increase when compared to the first nine months of 1996. When combined with
the current portion of insurance liabilities, which are reflected in accrued
liabilities, the Registrant's self-insured liabilities have increased $2,922,000
since year end 1996, mainly due to accruals associated with the addition of its
auto and general liability exposures to the self insured program in the second
half of last year, and a continuation of the temporary delay in claim payments
resulting from the 1996 transition to the Registrant's new excess insurer and
claims administrator. Despite the overall increase, the Registrant continues to
benefit from favorable claims experience and a stabilization in the level of
estimated ultimate costs resulting from a relatively mature self-insurance
program.
Other liabilities provided $2,547,000 in cash during the first nine months of
1997, a net increase of $4,803,000 when compared to the $2,256,000 used in 1996.
The net increase is mainly a result of an acceleration in estimated income tax
payments last year, as well as relatively lower payments in 1997 based on lower
seasonally adjusted taxable income.
<PAGE> 11
Accounts receivable increased $12,011,000, $231,000 less than the $12,242,000
increase experienced in the first nine months of 1996. The Registrant's days
outstanding of 59.7 days represent an improvement of .3 days from last year, and
remain at the same level as year end 1996. The reduction in days outstanding
from the prior year is attributable to improved collections in utility services
generally, as well as an increase in the payments received from the Registrant's
major U.S. customer. Despite this slight improvement, the current level of
accounts receivable and days outstanding remain unacceptable to the Registrant
even though it is not concerned as to the overall collectibility of accounts;
accordingly, it will continue its efforts to reduce both over the balance of
1997.
Investing activities used $19,012,000 in cash, an increase of $5,748,000 when
compared to the $13,264,000 used last year. The increase was attributable to
higher capital expenditures in the current year necessitated by the growth in
Residential and Commercial services, as well as to sustain existing Utility
operations. The Registrant believes its capital budget of approximately
$24,500,000 is consistent with its plan to expand services, maintain equipment
on existing operations, and provide for suitable branch office facilities.
Financing activities used $1,338,000, a net increase of $5,810,000 when compared
to the $4,472,000 in cash provided last year. This net increase was due to a
relatively lower increase in the level of borrowings under the Registrant's
revolving credit agreement in 1997, and an increase in the Registrant's
repurchase of its common shares, a significant portion of which was shares
redeemed from a trust that had been established by a former employee's family.
At September 27, 1997, the Registrant's principal source of liquidity consisted
of $991,000 in cash and cash equivalents; short-term lines of credit and amounts
available to be borrowed from banks via notes payable totaling $4,433,000 of
which $560,000 had been used at the end of the period; a revolving credit
agreement in the amount of $35,000,000, of which $19,000,000 had been drawn and
$9,183,000 was considered drawn to cover outstanding standby letters of credit;
and an available $5,000,000 temporary line of credit. Including the outstanding
balance on the term note agreement of $5,400,000, the Registrant's credit
facilities now total $49,833,000. The Registrant believes its available credit
will exceed credit requirements, and that its liquidity is adequate.
RESULTS OF OPERATIONS
- ---------------------
Revenues of $223,774,000 for the first nine months of 1997 increased
$19,145,000 or 9.4% when compared to the same period in 1996. Third quarter
revenues of $81,066,000 exceeded last year by $10,729,000 or approximately
15.3%. These increases, as previously stated, were mainly due to higher
revenues earned by the Registrant's Utility and Consulting services with its
major U. S. customer, as well as higher Residential and Commercial service
revenues. The higher percentage increase in the third quarter was driven
principally by the additional work obtained as a result of the storm damage in
Michigan.
As a percentage of revenues, operating costs declined from 67.7% to 66.6% and
69.3% to 67.7% in the quarter and year to date, respectively. These percentage
improvements result primarily from lower operating costs associated with
relatively higher Residential and Consulting service revenues. These services,
when compared to other services, favorably influence operating costs because
they are generally higher priced services with inherently higher gross margins
and attendant lower operating costs. In particular, Consulting services are far
less capital intensive and the increase in these revenues relative to the
Registrant's other services during the first nine months have benefited its cost
structure. Accordingly, given the completion of certain Consulting services
work as previously discussed, the Registrant expects that operating costs, as a
percentage of revenues, will increase slightly over the balance of 1997.
<PAGE> 12
For the year selling costs of $29,037,000 increased $2,924,000, and as a
percentage of revenues they increased .2% to 13.0%. In the quarter these costs
totaled $11,050,000, $1,760,000 more than 1996, and as a percentage of revenues
they increased .4% to 13.6%. The percentage increases are mainly the result of
higher commissions and branch office expenses associated with higher Residential
and Commercial service revenues, as well as increased travel and other sales
costs pertaining to the Registrant's Consulting services.
General and administrative expense has remained constant at 6.2% of revenues
when compared to the first nine months of 1996. Ordinarily, these expenses
should decline as a percentage of revenues as revenues increase; however, in the
current year the Registrant has incurred expenditures to complete its
information technology plan for the purpose of replacing its existing legacy
systems with a new enterprise wide information system. Of primary importance
and in accord with the information technology plan, the new system will
significantly enhance the Registrant's processes and its ability to support
future growth; it also is year 2000 compliant. It is expected to be acquired
and implemented over an estimated eighteen month period. Because negotiations
for the purchase price of the system have not been finalized, the Registrant
is unable to accurately project its ultimate cost, including third party
consulting fees, hardware, and other costs; however, the range of costs that
will be incurred, a substantial portion of which the Registrant believes will be
capitalizable, is estimated to be between $6,000,000 to $9,000,000. Because
the process of implementation is expected to commence in December 1997, the
Registrant anticipates that general and administrative expense, as a percentage
of revenues, will remain at, or slightly above existing levels over the short
term. This is anticipated because certain costs such as data conversion and
training must be expensed as incurred. The Registrant does believe that, over
the long term, these costs will decline by virtue of having acquired and
implemented this system.
Depreciation and amortization for the first nine months of $12,717,000 was
$1,950,000 higher than last year or .4% as a percentage of revenues. The dollar
and percentage increases are the result of higher capital expenditures in the
current and two preceding years, primarily for equipment to support Utility,
Residential and Commercial services. The Registrant anticipates that
depreciation expense will approximate $16,600,000 in 1997. The Registrant
believes that most of the capital expenditures to be incurred for its new
enterprise wide application discussed in the preceding paragraph will be
incurred in 1998; depreciation will commence when it is placed in service, now
estimated to be 1999.
Interest expense of $1,758,000 increased $120,000 when compared to the
$1,638,000 incurred last year, but as a percentage of revenues, it remained
constant at .8%. The dollar increase was primarily attributable to higher
overall debt levels in 1997.
As a result of the above factors, earnings before income taxes for the first
nine months were $14,699,000 or 6.6% as a percentage of revenues, compared to
$11,659,000 or 5.7% in 1996. Effective income tax rates of 41.0% and 39.3% were
used to compute the tax provisions for 1997 and 1996, respectively.
The Registrant's year-to-date net earnings of $8,673,000 increased $1,596,000 or
.4% as a percentage of revenues when compared to last year.
<PAGE> 13
THE DAVEY TREE EXPERT COMPANY
PART II: OTHER INFORMATION
---------------------------
ITEM 4: NONE
ITEM 5: NONE
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for which
this report is filed.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
THE DAVEY TREE EXPERT COMPANY
BY: /s/David E. Adante
-----------------------
David E. Adante
Executive Vice President, CFO and
Secretary-Treasurer
BY: /s/Bradley L. Comport
-----------------------
Bradley L. Comport
Corporate Controller
November 10, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> SEP-27-1997
<EXCHANGE-RATE> 1
<CASH> 991
<SECURITIES> 0
<RECEIVABLES> 51,816
<ALLOWANCES> 314
<INVENTORY> 2,617
<CURRENT-ASSETS> 59,524
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0
0
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</TABLE>
