<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 July 3, 1999 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 August 17, 1999: 8,001,407
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 - Periods ended July 3, 1999,
July 4, 1998 and December 31, 1998 3
Consolidated Statements of Net Earnings - Three
Months Ended July 3, 1999 and July 4, 1998 4
Consolidated Statements of Net Earnings - Six Months Ended
July 3, 1999 and July 4, 1998 5
Consolidated Statements of Cash Flows - Six Months
Ended July 3, 1999 and July 4, 1998 6
Notes to Consolidated Financial Statements 7
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
PART II: OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders 15
Item 5: Other Information 15
Item 6: Exhibits and Reports on Form 8-K 15
</TABLE>
<PAGE> 3
THE DAVEY TREE EXPERT COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
JULY 3, JULY 4, DEC. 31,
1999 1998 1998
--------- --------- ---------
<S> <C> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and Cash Equivalents $ 788 $ 516 $ 1,264
Accounts Receivable 80,560 57,366 51,490
Refundable Income Taxes --- --- 1,248
Operating Supplies 4,392 3,260 2,644
Prepaid Expenses and Other Assets 2,158 2,287 2,940
Deferred Income Taxes 1,829 1,993 1,842
--------- --------- ---------
Total Current Assets 89,727 65,422 61,428
PROPERTY AND EQUIPMENT:
Land and Land Improvements 6,300 6,349 6,325
Buildings and Leasehold Improvements 18,347 16,486 18,269
Equipment 200,080 184,817 187,084
--------- --------- ---------
224,727 207,652 211,678
Less Accumulated Depreciation 139,510 129,861 132,245
--------- --------- ---------
Net Property and Equipment 85,217 77,791 79,433
--------- --------- ---------
OTHER ASSETS AND INTANGIBLES 7,978 9,570 8,225
--------- --------- ---------
TOTAL ASSETS $ 182,922 $ 152,783 $ 149,086
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts Payable $ 15,802 $ 12,213 $ 15,191
Accrued Liabilities 14,243 15,310 11,413
Insurance Liabilities 4,831 6,318 5,797
Income Taxes Payable 660 1,650 ---
Notes Payable, Bank --- 1,925 ---
Current Maturities of Long-Term Debt 29,972 16,074 855
--------- --------- ---------
Total Current Liabilities 65,508 53,490 33,256
LONG-TERM DEBT 42,134 32,472 42,893
DEFERRED INCOME TAXES 3,579 1,344 3,588
INSURANCE LIABILITIES 11,716 11,125 10,969
OTHER LIABILITIES 1,089 928 1,112
--------- --------- ---------
TOTAL LIABILITIES 124,026 99,359 91,818
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 10,728,440 at July 3, 1999;
8,728,440 at July 4, 1998 and
December 31, 1998 10,728 8,728 8,728
Additional Paid-in Capital 2,387 5,374 5,893
Retained Earnings 77,017 87,783 94,547
Accumulated Other Comprehensive
Earnings (Loss) (555) (591) (745)
--------- --------- ---------
89,577 101,294 108,423
LESS:
Treasury Shares at cost:
2,727,033 Shares at July 3, 1999;
4,649,300 Shares at July 4, 1998; and
4,736,785 Shares at December 31, 1998 (30,681) (47,870) (51,155)
--------- --------- ---------
TOTAL SHAREHOLDERS' EQUITY 58,896 53,424 57,268
--------- --------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 182,922 $ 152,783 $ 149,086
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 4
THE DAVEY TREE EXPERT COMPANY
CONSOLIDATED STATEMENTS OF NET EARNINGS
THREE MONTHS ENDED JULY 3, 1999 AND JULY 4, 1998
(DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
JULY 3, 1999 JULY 4, 1998
----------------- ------------------
<S> <C> <C> <C> <C>
REVENUES $ 85,586 100.0% $ 85,918 100.0%
--------- ------ --------- ------
COSTS AND EXPENSES:
Operating 53,471 62.6 56,367 65.6
Selling 13,137 15.3 11,175 13.0
General and Administrative 5,652 6.6 5,268 6.1
Depreciation and Amortization 5,079 5.9 4,910 5.7
--------- ------ --------- ------
TOTAL COSTS AND EXPENSES 77,339 90.4 77,720 90.4
--------- ------ --------- ------
EARNINGS FROM OPERATIONS 8,247 9.6 8,198 9.6
INTEREST EXPENSE (1,023) (1.2) (842) (1.0)
OTHER INCOME - NET 846 1.0 8
--------- ------ --------- ------
EARNINGS BEFORE INCOME TAXES 8,070 9.4 7,364 8.6
INCOME TAXES 3,276 3.8 3,028 3.5
--------- ------ --------- ------
NET EARNINGS $ 4,794 5.6% $ 4,336 5.1%
========= ====== ========= ======
EARNINGS PER COMMON SHARE $ 0.60 $ 0.52
========= =========
EARNINGS PER COMMON SHARE -
ASSUMING DILUTION $ 0.52 $ 0.48
========= =========
BASIC EARNINGS SHARES 7,982,982 8,264,860
========= =========
DILUTED EARNINGS SHARES 9,285,997 9,111,258
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 5
THE DAVEY TREE EXPERT COMPANY
CONSOLIDATED STATEMENTS OF NET EARNINGS
SIX MONTHS ENDED JULY 3, 1999 AND JULY 4, 1998
(DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
JULY 3, 1999 JULY 4, 1998
----------------- ------------------
<S> <C> <C> <C> <C>
REVENUES $ 153,852 100.0% $ 150,986 100.0%
--------- ------ --------- ------
COSTS AND EXPENSES:
Operating 104,028 67.6 104,147 69.0
Selling 22,998 14.9 20,196 13.4
General and Administrative 10,945 7.1 10,809 7.2
Depreciation and Amortization 9,928 6.5 9,432 6.2
--------- ------ --------- ------
TOTAL COSTS AND EXPENSES 147,899 96.1 144,584 95.8
--------- ------ --------- ------
EARNINGS FROM OPERATIONS 5,953 3.9 6,402 4.2
INTEREST EXPENSE (1,818) (1.2) (1,393) (0.9)
OTHER INCOME - NET 960 0.6 227 0.2
--------- ------ --------- ------
EARNINGS BEFORE INCOME TAXES 5,095 3.3 5,236 3.5
INCOME TAXES 2,068 1.3 2,168 1.4
--------- ------ --------- ------
NET EARNINGS $ 3,027 2.0% $ 3,068 2.1%
========= ====== ========= ======
EARNINGS PER COMMON SHARE $ 0.38 $ 0.36
========= =========
EARNINGS PER COMMON SHARE -
ASSUMING DILUTION $ 0.33 $ 0.33
========= =========
BASIC EARNINGS SHARES 7,987,682 8,427,994
========= =========
DILUTED EARNINGS SHARES 9,114,581 9,286,746
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 6
THE DAVEY TREE EXPERT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR SIX MONTHS ENDED JULY 3, 1999 AND JULY 4, 1998
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
JULY 3, JULY 4,
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings $ 3,027 $ 3,068
Adjustments to Reconcile Net Earnings to
Net Cash Provided by Operating Activities:
Depreciation 9,727 9,260
Amortization 201 172
Deferred Income Taxes 4 2
Other (964) (247)
--------- ---------
11,995 12,255
Change in Operating Assets and Liabilities:
Accounts Receivable (29,070) (13,470)
Other Assets (830) (93)
Refundable Income Taxes 1,248 ---
Accounts Payable and Accrued Liabilities 3,441 6,514
Insurance Liabilities (219) (208)
Income Tax Liabilities 660 3
Other Liabilities (23) 230
--------- ---------
Net Cash (Used In) Provided By Operating Activities (12,798) 5,231
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sales of Property and Equipment 789 689
Acquisitions (115) (361)
Capital Expenditures:
Land and Buildings (99) (747)
Equipment (15,022) (20,463)
--------- ---------
Net Cash Used In Investing Activities (14,447) (20,882)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Borrowings Under Notes Payable, Bank --- 1,625
Principal Payments of Long-Term Debt (755) (5,229)
Proceeds from Issuance of Long-Term Debt 29,113 26,523
Sales of Treasury Shares 1,297 1,722
Dividends Paid (798) (794)
Repurchase of Common Shares (2,088) (8,402)
--------- ---------
Net Cash Provided By Financing Activities 26,769 15,445
--------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS (476) (206)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,264 722
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 788 $ 516
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 7
THE DAVEY TREE EXPERT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
SIX MONTHS ENDED JULY 3, 1999
UNAUDITED
---------
NOTE 1 - BASIS OF PRESENTATION
- ------------------------------
The accompanying unaudited Consolidated Financial Statements as of July 3, 1999
and July 4, 1998 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.
Earnings per common share - assuming dilution was calculated by using the
weighted average number of common shares outstanding, including the dilutive
effect of stock options, 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 July 3, 1999 and July 4, 1998 are not
necessarily indicative of the results to be expected for the full year.
NOTE 3 - STOCK SPLIT
- --------------------
On May 19, 1999, the Registrant's board of directors declared a 2 for 1 stock
split in the form of a 100% stock dividend on outstanding shares only, to
shareholders of record as of June 1, 1999. To effect the stock split, they
authorized the retirement of 1,981,894 common shares held in treasury. Per
common share amounts have been restated for all periods presented to give
retroactive effect to the stock split. Common shares issued have been increased
to reflect the 2 for 1 stock split, and treasury shares, common shares issued
and retained earnings have been adjusted to reflect the share retirement.
NOTE 4 - DIVIDENDS
- ------------------
On June 10, 1999, the Registrant paid a $.05 per share dividend to all
shareholders of record at June 1, 1999. This compares to a $.0475 per share
dividend paid in the second quarter of 1998. For the six months ended July 3,
1999, the Registrant paid cumulative dividends of $.10 per share to all
shareholders of record. This compared to a $.095 cumulative per share dividend
paid in the first half of 1998.
NOTE 5 - ACCRUED LIABILITIES
- ----------------------------
Accrued liabilities consisted of:
<TABLE>
<CAPTION>
JULY 3, JULY 4, DEC. 31,
1999 1998 1998
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Compensation $ 6,807 $ 7,757 $ 6,666
Vacation 3,126 2,664 1,927
Medical Claims 1,096 1,773 1,420
Taxes, other than taxes on income 2,159 1,373 779
Other 1,055 1,743 621
--------- --------- ---------
$ 14,243 $ 15,310 $ 11,413
========= ========= =========
</TABLE>
<PAGE> 8
NOTE 6 - LONG-TERM DEBT
- -----------------------
Long-term debt consisted of:
<TABLE>
<CAPTION>
JULY 3, JULY 4, DEC. 31,
1999 1998 1998
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revolving Credit Agreement:
Prime rate borrowings $ 11,400 $ 2,800 $ 2,900
London Interbank Offered Rate
(LIBOR) borrowings 48,613 33,000 28,000
Term note agreement 10,000 10,000 10,000
--------- --------- ---------
70,013 45,800 40,900
Subordinated notes - stock redemption 1,758 1,761 2,181
Term loans and others 335 985 667
--------- --------- ---------
72,106 48,546 43,748
Less current maturities 29,972 16,074 855
--------- --------- ---------
$ 42,134 $ 32,472 $ 42,893
========= ========= =========
</TABLE>
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.
NOTE 8 - OTHER COMPREHENSIVE EARNINGS (LOSS)
- --------------------------------------------
Total comprehensive earnings for the six-month periods ended July 3, 1999 and
July 4, 1998 was as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------- -------------------
JULY 3, JULY 4, JULY 3, JULY 4,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net earnings $ 4,794 $ 4,336 $ 3,027 $ 3,068
Foreign currency translation
adjustments, net of related
tax effects 139 (143) 190 (56)
-------- -------- -------- --------
Total comprehensive earnings $ 4,933 $ 4,193 $ 3,217 $ 3,012
======== ======== ======== ========
</TABLE>
<PAGE> 9
NOTE 9 - OPERATING SEGMENTS
- ---------------------------
The Company has two primary operating segments which provide a variety of
horticultural services to their respective customer groups. Residential
services provides for the treatment, preservation, maintenance, cultivation,
planting and removal of trees, shrubs and other plant life; its services also
include the practices of tree surgery, tree feeding, tree spraying and
landscaping, as well as the application of fertilizers, herbicides, and
insecticides. Utility services is principally engaged in the practice of line
clearing for public utilities. The "Other" segment category includes the
Company's services related to natural resource management and consulting,
forestry research and development, environmental planning, and commercial
services.
The Company's primary focus in evaluating segment performance is on operating
earnings. Corporate expenses are substantially allocated among the operating
segments. Identifiable assets are those directly used or generated by each
segment, and include accounts receivable, inventory, and property and equipment.
Unallocated assets consist principally of corporate facilities, enterprise-wide
information systems, cash and cash equivalents, deferred taxes, prepaid
expenses, and other assets and intangibles.
Details to Operating Segments are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JULY 3, 1999 AND JULY 4, 1998
UTILITY RESIDENTIAL OTHER TOTAL
------- ----------- ----- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
1999
Net sales $ 87,191 $ 60,036 $ 6,625 $ 153,852
Earnings (loss) from operations 4,276 5,220 (1,122) 8,374
Depreciation 5,461 2,815 174 8,450
Segment assets 64,858 58,428 5,580 128,866
Expenditure for segment assets 5,402 4,867 465 10,734
1998
Net sales $ 88,926 $ 55,928 $ 6,132 $ 150,986
Earnings (loss) from operations 3,990 4,830 444 9,264
Depreciation 5,483 2,631 170 8,284
Segment assets 68,224 42,945 5,908 117,077
Expenditure for segment assets 11,375 5,381 834 17,590
</TABLE>
<TABLE>
<CAPTION>
PROFIT OR LOSS 1999 1998
--------- ---------
<S> <C> <C>
Operating profit reportable segments $ 9,496 $ 8,820
Other profit/loss (1,122) 444
Unallocated amounts:
Other corporate expense (2,421) (2,862)
Interest expense (1,818) (1,393)
Other income - net 960 227
--------- ---------
Earnings before income taxes $ 5,095 $ 5,236
========= =========
</TABLE>
<TABLE>
<CAPTION>
ASSETS 1999 1998
--------- ---------
<S> <C> <C>
Total assets for reportable segments $ 123,286 $ 111,169
Assets for other 5,580 5,908
Unallocated assets 54,056 35,706
--------- ---------
Consolidated total $ 182,922 $ 152,783
========= =========
</TABLE>
<PAGE> 10
<TABLE>
<CAPTION>
EXPENDITURES FOR ASSETS 1999 1998
--------- ---------
<S> <C> <C>
Segment expenditures for assets $ 10,269 $ 16,756
Expenditures for other 465 834
Unallocated expenditures 4,502 3,981
--------- ---------
Consolidated total $ 15,236 $ 21,571
========= =========
</TABLE>
<TABLE>
<CAPTION>
DEPRECIATION 1999 1998
--------- ---------
<S> <C> <C>
Total depreciation for reportable segments $ 8,276 $ 8,114
Depreciation for other 174 170
Unallocated depreciation 1,478 1,148
--------- ---------
Consolidated total $ 9,928 $ 9,432
========= =========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JULY 3, 1999 AND JULY 4, 1998
UTILITY RESIDENTIAL OTHER TOTAL
------- ----------- ----- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
1999
Net sales $ 43,394 $ 38,642 $ 3,550 $ 85,586
Earnings (loss) from operations 2,589 7,912 (936) 9,565
Depreciation 2,631 1,369 4 4,004
Segment assets (4,879) 20,536 1,057 16,714
Expenditure for segment assets 1,005 1,889 167 3,061
1998
Net sales $ 45,790 $ 35,821 $ 4,307 $ 85,918
Earnings (loss) from operations 2,192 6,220 858 9,270
Depreciation 2,800 1,347 29 4,176
Segment assets 4,809 9,205 2,661 16,675
Expenditure for segment assets 5,096 3,007 571 8,674
</TABLE>
<TABLE>
<CAPTION>
PROFIT OR LOSS 1999 1998
--------- ---------
<S> <C> <C>
Operating profit reportable segments $ 10,501 $ 8,412
Other profit/loss (936) 864
Unallocated amounts:
Other corporate expense (1,318) (1,078)
Interest expense (1,023) (842)
Other income - net 846 8
--------- ---------
Earnings before income taxes $ 8,070 $ 7,364
========= =========
</TABLE>
<TABLE>
<CAPTION>
EXPENDITURES FOR ASSETS 1999 1998
--------- ---------
<S> <C> <C>
Segment expenditures for reportable segments $ 2,894 $ 8,103
Expenditures for other 167 571
Unallocated expenditures 1,899 1,988
--------- ---------
Consolidated total $ 4,960 $ 10,662
========= =========
</TABLE>
<PAGE> 11
<TABLE>
<CAPTION>
DEPRECIATION 1999 1998
--------- ---------
<S> <C> <C>
Total depreciation for reportable segments $ 4,000 $ 4,147
Depreciation for other 4 29
Unallocated depreciation 1,075 734
--------- ---------
Consolidated total $ 5,079 $ 4,910
========= =========
</TABLE>
NOTE 10 - RECENTLY ISSUED ACCOUNTING STANDARDS
- ----------------------------------------------
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities. It becomes effective for all fiscal
quarters of fiscal years beginning after June 15, 2000, and establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
The Company has not yet completed its analysis of SFAS No. 133 and accordingly
has yet to determine the effect, if any, it will have on future financial
statement reporting and disclosures.
<PAGE> 12
THE DAVEY TREE EXPERT COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
SIX MONTHS ENDED JULY 3, 1999
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Operating activities used $12,798,000 in cash during the first six months of
1999, $18,029,000 more than the $5,231,000 provided during the same period last
year. The net increase in the use of cash is mainly due to a significant
increase in accounts receivable and a lower increase in accounts payable and
accrued liabilities; these factors were partially offset by an overall net
increase in income tax liabilities.
Accounts receivable increased $29,070,000, $15,600,000 more than the increase
experienced in 1998. Days outstanding increased to a level of 87.4 days, 28.0
days higher than the 59.4 days that existed as of July 4, 1998, and 23.7 days
higher than the 63.7 days at December 31, 1998. Since "going live" on April 4,
1999 with its new enterprise wide software system, the Registrant had to delay
billing its Residential customers until approximately May 15, 1999. This delay
was principally the result of certain errors in converting data from the
Registrant's legacy systems; however, coupled with this initial delay, the
Registrant has also continued to experience a lag in billing, that is, the
difference between the date services have been performed versus the date an
invoice has actually been prepared and sent to its customer. This lag has been
primarily attributable to the learning curve associated with the new system, and
it is anticipated that billing will be current on or before August 31, 1999.
Accordingly, the Registrant believes that the existing level of accounts
receivable and days outstanding will decline over the balance of 1999. The
Registrant is not concerned as to the overall collectibility of accounts and
will continue its efforts to reduce both the level of accounts receivable and
days outstanding, beyond that which was driven by the recent lag in billing. It
also performs ongoing credit evaluations of its customers' financial condition
for collection purposes, and when determined necessary, it provides an allowance
for doubtful accounts.
Accounts payable and accrued liabilities increased $3,441,000 from December 31,
1998, $3,073,000 less than the increase realized last year. The increase from
year end is mainly attributable to a higher level of accruals for vacation
resulting from a decline in vacations taken in the first half of 1999, and a
higher level of payroll taxes associated with increased operations incentives as
well as conversion to the new enterprise-wide system.
In the aggregate, the reduction in refundable income taxes and increase in
income tax liabilities provided $1,908,000 in cash.
Investing activities used $14,447,000 in cash, a decrease of $6,435,000 from
last year. The reduction results from lower capital expenditures consistent
with the Registrant's capital budget of approximately $25,000,000.
Financing activities provided $26,769,000 in cash, an $11,324,000 increase when
compared to the amount provided in 1998. The increase resulted from a higher
level of borrowings, net of principal repayments, coupled with a reduced level
of share repurchases.
Because of the delays associated with billing residential customers, on May 25,
1999 the Registrant amended the revolving credit agreement with its principal
banks to provide for an increase to its credit line of $15,000,000 through
September 30, 1999.
At July 3, 1999, the Registrant's principal source of liquidity consisted of
$788,000 in cash and cash equivalents; short term lines of credit and amounts
available to be borrowed from banks via notes payable totaling $4,600,000, of
which $710,000 was considered drawn to cover outstanding letters of credit; and
the revolving credit agreement and temporary line of credit totaling
$85,000,000, of which $60,000,000 was drawn and $9,715,000 was considered drawn
to cover outstanding letters of credit. Including the outstanding term note
agreement at that date the Registrant's credit facilities totaled $99,600,000;
with the amendment to its revolving credit agreement, the Registrant believes
its available credit will exceed credit requirements, and that its liquidity is
adequate.
<PAGE> 13
RESULTS OF OPERATIONS
- ---------------------
Revenues of $153,852,000 for the first six months of 1999 increased $2,866,000
or 1.9% when compared to the same period in 1998. Second quarter revenues of
$85,586,000 declined $332,000 or .4%. In both the quarter and year to date, the
Registrant's Residential service revenues have increased 12.8% and 7.3%
respectively, and continue to benefit from good economic conditions as well as a
continued focus on sales. The strength of Residential service revenues was
diminished in the year to date and more than offset in the quarter by reductions
in utility and commercial service revenues. The Registrant has experienced
reductions in utility service revenues of 2.0% and 2.6% in the year to date and
quarter, respectively, attributable primarily to three factors. First, it
completed negotiations with a major western customer to extend the term of its
contract with somewhat lower pricing. Second, it experienced a reduction in
crews on a contract with an eastern U.S. customer. Third, it lost, in the
ordinary course of competitive bidding, a relatively small contract in the
midwestern U.S. Commercial service revenues were significantly lower in the
quarter and year to date when compared to last year as a result of work it
obtained in June of 1998 resulting from severe weather in Michigan.
In the quarter and first six months, operating costs have declined in both
dollars and as a percentage of revenues when compared to last year. At
$53,471,000, they declined $2,896,000 in the quarter or 3.0% as a percentage of
revenues. For the first six months they totaled $104,028,000, $119,000 less
than last year, or 1.4% lower as a percentage of revenues. The reductions are
due to the relatively lower level of utility service revenues associated with
the contract reductions previously mentioned. Utility services unfavorably
influence operating costs because they are generally lower priced services with
inherently lower gross margins and attendant higher operating costs; they are
also more capital intensive in comparison to the other services.
Selling costs in both the quarter and first six months of 1999 remain higher
than last year, both in dollars and as a percentage of revenues. They totaled
$13,137,000 in the quarter, an increase of $1,962,000 or 2.3% as a percentage of
revenues. Year to date, they totaled $22,998,000, $2,802,000 higher than in
1998 and 1.5% more as a percentage of revenues. These costs will remain at
higher levels and result from increased expenditures for commissions and branch
office expenses associated with higher Residential service revenues.
General and administrative costs in the quarter of $5,652,000 increased $384,000
and as a percentage of revenues they were .5% higher. Year to date these costs
increased by only $136,000 and as a percentage of revenues they declined .1% to
7.1%. The dollar and percentage increase in the quarter is due largely to
additional temporary personnel retained upon "going live" with the Registrant's
new enterprise-wide information system; they were required to assist full-time
employees in data entry functions during the "learning curve" period previously
discussed. The small reduction as a percentage of revenues year to date is due
to somewhat lower costs incurred with respect to this new system, in comparison
to 1998, the year in which implementation commenced.
The Registrant acquired and commenced implementation of this new system in
January 1998, and completed the blueprint phase as of July 4, 1998.
Configuration, data conversion, and testing followed through April 3, 1999. On
April 4, 1999, the Registrant commenced live operation of the new system and
discontinued use of the legacy system, approximately two months earlier than had
been anticipated. The Registrant's current estimate for the ultimate cost of
this new system is approximately $17,000,000. Of this total, $3,000,000 had
been expensed in 1998 and through July 3, 1999, $11,000,000 had been
capitalized. The remaining amount of approximately $3,000,000 will be expensed
during 1999, of which approximately $1,300,000 had been incurred during the
first six months. These costs are higher than the amount originally
anticipated, and continue to result from required enhancements identified after
commencement of going live with the new system.
The Registrant has not completed its assessment of the year 2000 readiness of
its non-IT systems, those systems with embedded technology, but expects this
process will be concluded by the end of the third quarter. The Registrant also
continues to assess the year 2000 readiness of external entities with which it
interfaces. Material relationships include, but are not limited to, those with
existing utility customers in which electronic billing is required as well as
vendors such as the Registrant's principal bank which will provide or already
provides such services as lockbox processing, treasury management services, and
benefit plan administration. These assessments have been completed except that
which pertains to the Registrant's benefit plan administration provider; that
remaining assessment is expected to be complete by the third quarter of 1999.
<PAGE> 14
The Registrant remains uncertain with respect to its most reasonably likely
worst case year 2000 scenario, but believes that most issues have already been
identified in conjunction with the implementation of its enterprise-wide
information system. Due to this uncertainty, the Registrant also has no
contingency plans, but will, to the extent considered necessary under the
circumstances, develop such plans as issues are identified.
The preceding comments regarding the year 2000 are forward looking statements
and as such represent the Registrant's best faith estimates of costs that will
be incurred. There can be no assurance that these estimates are accurate.
Depreciation and amortization of $9,928,000 for the first six months increased
$496,000 or .3% as a percentage of revenues. The increase is attributable to a
relatively higher level of capital expenditures for equipment, particularly in
the last two years, and primarily to support Utility and Residential services.
It is also due to commencement of depreciation on the Registrant's new
enterprise wide information system.
Interest expense of $1,818,000 for the first six months of 1999 was $425,000
higher than last year, and as a percentage of revenues it increased .3%. The
increase has resulted from a higher level of borrowings necessitated mainly by
the temporary delays in billing residential customers.
Other income of $846,000 and $960,000 in the quarter and year to date
respectively, has increased significantly over 1998 due to the sale in June 1999
of the Registrant's Troy, Michigan property.
The Registrant's earnings before income taxes decreased $141,000 year to date
and as a percentage of revenues they declined .2% to 3.3%. Effective income tax
rates of 40.6% and 41.4% were used to compute tax provisions for 1999 and 1998,
respectively.
<PAGE> 15
THE DAVEY TREE EXPERT COMPANY
-----------------------------
PART II: OTHER INFORMATION
---------------------------
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 18, 1999, the Registrant held its annual meeting of
shareholders. The shareholders voted to:
a. Elect the following persons to serve as directors for a term
to expire on the date of the annual meeting in 2002:
R. Douglas Cowan
Russell R. Gifford
ITEM 5: OTHER INFORMATION
None
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10(b) 1994 Omnibus Stock Plan
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
August 17, 1999
Exhibit 10(b)
THE DAVEY TREE EXPERT COMPANY
1994 OMNIBUS STOCK PLAN
1. PURPOSE
The Davey Tree Expert Company 1994 Omnibus Stock Plan
(the "Plan") is designed to foster and promote the long-term
growth and performance of the Company by: (a) enhancing the
Company's ability to attract and retain qualified employees and
Directors and (b) motivating employees and Directors through
stock ownership and performance-based incentives. To achieve
this purpose, this Plan provides authority for the grant of Stock
Options, Director Options, Stock Equivalent Units, Stock
Appreciation Rights, and other stock and performance-based
incentives and the maintenance of an employee stock purchase
program.
2. DEFINITIONS
(a) "AFFILIATE" AND "ASSOCIATE" - These terms have the
meanings given to them in Rule 12b-2 under the Exchange Act.
(b) "AWARD" - The grant of Stock Options, Director
Options, Restricted Stock, Stock Equivalent Units, Stock
Appreciation Rights, Stock Purchase Rights, Cash Awards, and
other stock and performance-based incentives under this Plan.
(c) "AWARD AGREEMENT" - Any agreement between the
Company and a Participant that sets forth terms, conditions, and
restrictions applicable to an Award.
(d) "BOARD OF DIRECTORS" - The Board of Directors of
the Company.
(e) "CASH AWARD" - This term has the meaning given to
it in Section 6(b)(vi).
(f) "CHANGE IN CONTROL" - A "Change in Control" will
be deemed to occur if at any time after the date of the adoption
of this Plan:
(i) Any person or group (other than The Davey
Tree Expert Company, any of its subsidiaries, any employee
benefit plan or employee stock ownership plan of The Davey
Tree Expert Company, or any Person organized, appointed, or
established by The Davey Tree Expert Company for or pursuant
to the terms of any such plan), alone or together with any
of its Affiliates or Associates, becomes the Beneficial
Owner of 20% or more of the Common Shares then outstanding,
or any such person or group commences or publicly announces
an intent to commence a tender offer or exchange offer the
consummation of which would result in the person or group
becoming the Beneficial Owner of 20% or more of the Common
Shares then outstanding. For this purpose, the term
"beneficial Owner" has the meaning given to it in Rule 13d-3
under the Exchange Act.
(ii) At any time during a period of 24
consecutive months, individuals who were Directors at the
beginning of the period no longer constitute a majority of
the members of the Board of Directors, unless the election,
or the nomination for election by The Davey Tree Expert
Company's shareholders, of each Director who was not a
Director at the beginning of the period is approved by at
least a majority of the Directors who are in office at the
time of the election or nomination and were Directors at the
beginning of the period.
(iii) A record date is established for
determining shareholders entitled to vote upon (A) a merger
or consolidation of the Davey Tree Expert Company with
another corporation in which The Davey Tree Expert Company
is not the surviving or continuing corporation or in which
all or part of the outstanding Common Shares are to be
converted into or exchanged for cash, securities, or other
property, (B) a sale or other disposition of all or
substantially all of the assets of The Davey Tree Expert
Company, or (C) the dissolution of The Davey Tree Expert
Company.
(iv) Any person who proposes to make a "control
share acquisition" of The Davey Tree Expert Company, within
the meaning of Section 1701.01(Z) of the Ohio General
Corporation Law, submits or is required to submit an
acquiring person statement to The Davey Tree Expert Company.
(g) "CODE" - The Internal Revenue code of 1986, or any
law that supersedes or replaces it, as amended from time to time.
(h) "COMMITTEE" - The Compensation Committee of the
Board of Directors, or any other committee of the Board of
Directors that the Board of Directors authorizes to administer
this Plan. The Committee will be constituted in a manner that
satisfies all applicable legal requirements, including satisfying
the disinterested administration standard set forth in Rule 16b-
3.
(i) "COMMON SHARES" or "SHARES" - Common Shares
without par value of The Davey Tree Expert Company, including
authorized and unissued shares and treasury shares.
(j) "COMPANY" - The Davey Tree Expert Company, an Ohio
corporation, and its direct and indirect subsidiaries.
(k) "CONTINUING DIRECTOR" - A Director who was a
Director prior to a Change in Control or was recommended or
elected to succeed a Continuing Director by a majority of the
Continuing Directors then in office.
(l) "DIRECTOR" - A director of The Davey Tree Expert
Company.
(m) "DIRECTOR OPTION" - A right to purchase Common
Shares granted to a Director pursuant to Section 7.
(n) "EXCHANGE ACT" - Securities Exchange Act of 1934,
and any law that supersedes or replaces it, as amended from time
to time.
(o) "FAIR MARKET VALUE" of Common Shares - The value
of the Common Shares determined by the Committee, or pursuant to
rules established by the Committee on a basis consistent with
regulations under the Code; except that, "Fair Market Value" with
respect to Director Options has the meaning set forth in Section
7(h).
(p) "INCENTIVE STOCK OPTION" - A Stock Option that
meets the requirements of Section 422 of the Code.
(q) "NON-EMPLOYEE DIRECTOR" - A Director who is not an
employee of the Company.
(r) "NOTICE OF AWARD" - Any notice by the Committee to
a Participant that advises the Participant of the grant of an
Award or sets forth terms, conditions, and restrictions
applicable to an Award.
(s) "PARTICIPANT" - Any person to whom an Award has
been granted under this Plan.
(t) "RESTRICTED STOCK" - An Award of Common Shares
that are subject to restrictions or risk of forfeiture.
(u) "RULE 16B-3" - Rule 16b-3 under the Exchange Act,
or any rule that supersedes or replaces it, as amended from time
to time.
(v) "STOCK APPRECIATION RIGHT" - This term has the
meaning given to it in Section 6(b)(ii).
(w) "STOCK AWARD" - This term has the meaning given to
it in Section 6(b)(iii).
(x) "STOCK EQUIVALENT UNIT" - An Award that is valued
by reference to the value of Common Shares.
(y) "STOCK OPTION" - This term has the meaning given
to it in Section 6(b)(iv).
(z) "STOCK PURCHASE RIGHT" - This term has the meaning
given to it in Section 6(b)(v).
3. ELIGIBILITY
All employees of the Company and its Affiliates are
eligible for the grant of Awards (other than Director Options).
The selection of the employees to receive Awards (other than
Direction Options) will be within the discretion of the
Committee. More than one Award may be granted to the same
employee.
All Non-Employee Directors are eligible for the grant
of Director Options, as provided in Section 7. Non-Employee
Directors are not, however, eligible for the grant of any Awards
other than Direction Options.
4. COMMON SHARES AVAILABLE FOR AWARDS; ADJUSTMENT
(a) NUMBER OF COMMON SHARES. The aggregate number of
Common Shares that may be subject to Awards granted under this
Plan in any fiscal year of the Company during the term of this
Plan will be equal to the sum of (i) up to five percent (5.0%) of
the number of Common Shares outstanding as of the first day of
that fiscal year plus (ii) the number of Common Shares that were
available for the grant of Awards, but not granted, under this
Plan in previous fiscal years; provided that, in no event will
the number of Common Shares available for the grant of Awards in
any fiscal year exceed eight percent (8.0%) of the Common Shares
outstanding as of the first day of that fiscal year. The Plan
will terminate on the tenth anniversary of its approval. The
maximum number of Common Shares that may be issued upon exercise
of incentive stock options is 400,000.
The assumption of awards granted by an
organization acquired by the Company, or the grant of Awards
under this Plan in substitution for any such awards, will not
reduce the number of Common Shares available in any fiscal year
for the grant of Awards under this Plan.
Common Shares subject to an Award that is
forfeited, terminated, or canceled without having been exercised
(other than Common Shares subject to a Stock Option that is
canceled upon the exercise of a related Stock Appreciation Right)
will again be available for grant under this Plan, without
reducing the number of Common Shares available in any fiscal year
for grant of Awards under this Plan, except to the extent that
the availability of those Common Shares would cause this Plan or
any Awards granted under this Plan to fail to qualify for the
exemption provided by Rule 16b-3.
(b) NO FRACTIONAL SHARES. No fractional shares will
be issued, and the Committee will determine the manner in which
the value of fractional shares will be treated.
(c) ADJUSTMENT. In the event of any change in the
Common Shares by reason of a merger, consolidation,
reorganization, recapitalization, or similar transaction, or in
the event of a stock dividend, stock split, or distribution to
shareholders (other than normal cash dividends), the Committee
will adjust the number and class of shares that may be issued
under this Plan, the number and class of shares subject to
outstanding Awards, the exercise price applicable to outstanding
Awards, and the Fair Market Value of the Common Shares and any
other value determinations applicable to outstanding Awards.
5. ADMINISTRATION
(a) COMMITTEE. This Plan will be administered by the
Committee. The Committee will, subject to the terms of this
Plan, have the authority to: (i) select the eligible employees
who will receive Awards, (ii) grant Awards (other than Director
Options), (iii) determine the number and types of Awards to be
granted to employees (iv) determine the terms, conditions,
vesting periods, and restrictions applicable to Awards (other
than Director Options), (v) adopt, alter and repeal
administrative rules and practices governing this Plan, (vi)
interpret the terms and provisions of this Plan and any Awards
granted under this Plan, (vii) prescribe the forms of any Notices
of Award, Awards Agreements, or other instruments relating to
Awards, and (viii) otherwise supervise the administration of this
Plan. All decisions by the Committee will be made with the
approval of not less than a majority of its members.
(b) DECISIONS FINAL. All decisions by the Committee
will be final and binding on all persons.
6. AWARDS
(a) GRANT OF AWARDS. The Committee will determine the
type or types of Awards to be granted to each Participant and
will set forth in the related Notice of Award or Award Agreement
the terms, conditions, vesting periods, and restrictions
applicable to each Award. Awards may be granted singly or in
combination or tandem with other Awards. Awards may also be
granted in replacement of, or in substitution for, other awards
granted by the Company, whether or not granted under this Plan;
without limiting the foregoing, if a Participant pays all or part
of the exercise price or taxes associated with an Award by the
transfer of Common Shares of the surrender of all or part of an
Award (including the Award being exercised), the Committee may,
in its discretion, grant a new Award to replace the Common Shares
that were transferred or the Award that was surrendered. The
Company may assume awards granted by an organization acquired by
the Company or may grant Awards in replacement of, or in
substitution for, any such awards.
(b) TYPES OF AWARDS. Awards may include, but are not
limited to, the following:
(i) DIRECTOR OPTION - A right to purchase Common
Shares granted to a Director pursuant to Section 7.
(ii) STOCK APPRECIATION RIGHT - A right to receive
a payment, in cash or Common Shares, equal to the excess of
(A) the Fair Market Value, or other specified valuation, of
a specified number of Common Shares on the date the right is
exercised over (B) the Fair market Value, or other specified
valuation, on the date the right is granted, all as
determined by the Committee. The right may be conditioned
upon the occurrence of certain events, such as a Change in
Control of the Company, or may be unconditional, as
determined by the Committee.
(iii) STOCK AWARD - An Award that is made in
Common Shares, Restricted Stock, or Stock Equivalent Units
or that is otherwise based on, or valued in whole or in part
by reference to, the Common Shares. All or part of any
Stock Award may be subject to conditions, restrictions, and
risks of forfeiture, as and to the extent established by the
Committee. Stock Awards may be based on the Fair Market
Value of the Common Shares, or on other specified values or
methods of valuation, as determined by the Committee.
(iv) STOCK OPTION - A right to purchase a
specified number of Common Shares, during a specified
period, and at a specified exercise price, all as determined
by the Committee. A Stock Option may be an Incentive Stock
Option or a Stock Option that does not qualify as an
Inventive Stock Option. In addition to the terms,
conditions, vesting periods, and restrictions established by
the Committee, Inventive Stock Options must comply with the
requirements of Section 422 of the Code. The exercise price
of a Stock Option that does not qualify as an Incentive
Stock Option may be more or less than the Fair Market Value
of the Common Shares on the date the Stock Option is
granted.
(v) STOCK PURCHASE RIGHT - A right to participate
in a stock purchase program, including but not limited to a
stock purchase program that meets the requirements of
Section 423 of the Code.
Among other requirements, Section 423
currently provides that (A) only employees of The Davey Tree
Expert Company, or of any direct or indirect subsidiary of
The Davey Tree Expert Company designated by the Committee,
may receive Stock Purchase Rights that qualify under Section
423 ("Section 423 Rights"), (B) Section 423 Rights may not
be granted to any Participant who, immediately after the
Section 423 Rights are granted, owns stock possessing five
percent (5%) or more of the total combined voting power or
value of all classes of stock of The Davey Tree Expert
Company, (C) Section 423 Rights must be granted to all
employees of The Davey tree Expert Company, and of any
direct of indirect subsidiary of The Davey Tree Expert
Company designated by the Committee, except that there may
be excluded (1) employees who have been employed less than
two years, (2) employees whose customary employment is 20
hours or less per week, (3) employees whose customary
employment is for not more than five months in any calendar
year, and (4) highly compensated employees (within the
meaning of Section 414(q) of the Code), (D) all employees
granted Section 423 Rights must have the same rights and
privileges, except that the number of Common Shares that may
be purchased by any employee upon exercise of Section 423
Rights may bear a uniform relationship to the total
compensation, or the basic or regular rate of compensation,
of the employee, (E) the exercise price of Section 423
Rights may not be less than eighty-five percent (85%) of the
Fair Market Value of the Common Shares at the time Section
423 Rights are granted; (F) Section 423 Rights cannot be
exercised after the expiration of 27 months from the date
the Section 423 Rights are granted, and (G) no employee may
be granted Section 423 Rights, under this Plan and any other
stock purchase plans of The Davey Tree Expert Company and
its subsidiaries, that permit the purchase of Common shares
with a Fair Market Value of more than $25,000 (determined at
the time the Section 423 Rights are granted) in any calendar
year.
(vi) CASH AWARD - An Award denominated in cash.
All or part of any cash award may be subject to conditions
established by the Committee, including but not limited to
future service with the Company or the achievement of
specific performance objectives.
7. DIRECTOR OPTIONS
(a) GRANT OF DIRECTOR OPTIONS. Each Non-Employee
Director in office immediately following the 1994 Annual Meeting
of Shareholders of The Davey Tree Expert Company will receive a
Director Option on that date. Each Non-Employee Director who is
first elected or appointed as a Director after the 1994 Annual
Meeting of Shareholders will receive a Director Option on the
date that he or she is elected or appointed. Each Director who
ceases to be an employee of the Company during his or her term in
office will receive a Director Option on the date that he or she
is first elected as a Director after ceasing to be an employee.
Each Non-Employee Director who receives a Director Option under
the Plan and continues in office will receive an additional
Director Option each time he or she is re-appointed or re-elected
a Director. No action by the Committee will be required to
effect the grant of these Director Options.
(b) NUMBER OF COMMON SHARES SUBJECT TO EACH DIRECTOR
OPTION. Each Director Option shall give the Director the right
to purchase 1,000 Common Shares. Notwithstanding the provisions
of Section 14, the amount set forth in this Section 7(b) may not
be amended more than once every six months, other than to-comport
with changes in the Code, the Employee Retirement Income Security
Act, as amended, or the rules thereunder.
(c) EXERCISE PRICE. The exercise price per share of
each Director Option will be the latest available semi-annual
valuation per share performed for The Davey Tree Expert Company
Employee Stock Ownership Trust, as long as this valuation
continues to be made at least once a year. If the valuation is
no longer made, the exercise price per share will be the same as
the price per share used by the Company in purchasing Common
Shares under Article SIXTH of its Articles of Incorporation, as
amended from time to time.
(d) DATE DIRECTOR OPTIONS BECOME EXERCISABLE. Each
Director Option will become exercisable six months after the date
of grant or upon the earlier occurrence of a Change in Control.
(e) EXPIRATION DATE. Unless terminated earlier
pursuant to the next sentence, each Director Option will
terminate, and the right of the holder to purchase Common Shares
upon exercise of the Director Option will expire, at the Close of
business on the sixth anniversary date of the date of grant.
Each Director Option will terminate, and the right of the holder
to purchase Common Shares upon exercise of the Director Option
will expire, upon completion of a transaction of the type
identified in Section 2(f)(iii), but only if provision
satisfactory to the Committee is made for the payment to the
holder of the Director Option of the excess of (i) the Fair
Market Value of the Common Shares subject to the Director Option
immediately prior to the completion of the transaction over (ii)
the exercise price.
(f) NOT INCENTIVE STOCK OPTIONS. None of the Director
Options will be Incentive Stock Options.
(g) CONTINUOUS SERVICE AS A DIRECTOR. No Director
Option may be exercised unless the Non-Employee Director to whom
the Director Option was granted has continued to be a Non-
Employee Director from the time of grant through the time of
exercise, except as provided in this Section 7(g).
(i) If the service in office of a Non-Employee
Director is terminated due to the death of the Non-Employee
Director, the Non-Employee Director's estate, executor,
administrator, personal representative, or beneficiary will
have the right to exercise the Director Option in the whole
or in part prior to the earlier of (i) 12 months after the
date of the holder's death and (ii) the expiration of the
Director Option.
(ii) If a Non-Employee Director ceases to be a Non-
Employee Director by reason of his employment by the
Company, the Director Option granted to that Non-Employee
Director will be treated the same as Stock Options held by
employees and will continue to be exercisable prior to the
expiration of the Director Option, subject to the
limitations on exercise following termination of employment
established by the Committee pursuant to Section 11.
(iii)If the service in office of a Non-Employee
Director is terminated for any reason other than those set
forth in Sections 7(g)(i) and 7(g)(ii), the holder of the
Director Option may exercise the Director Option in whole or
in part only with the consent of the Committee. In any such
event, the consent of the Committee must be obtained and the
Director Option exercised prior to the earlier of (i) three
months after the date of the termination of service in
office of a Non-Employee Director and (ii) the expiration of
the Director Option.
8. DEFERRAL OF PAYMENT
With the approval of the Committee, the delivery of the
Common Shares, cash, or any combination thereof subject to an
Award (other than Director Options) may be deferred, either in
the form of installments or a single future delivery. The
Committee may also permit selected Participants to defer the
payment of some or all of their Awards, as well as other
compensation, in accordance with procedures established by the
Committee to assure that the recognition of taxable income is
deferred under the Code. Deferred amounts may, to the extent
permitted by the Committee, be credited as cash or Stock
Equivalent Units. The Committee may also establish rules and
procedures for the crediting of interest on deferred cash
payments and dividend equivalents on Stock Equivalent Units.
9. PAYMENT OF EXERCISE PRICE
The exercise price of a Stock Option (other than an
Incentive Stock Option), Director Option, Stock Purchase Right,
and any Stock Award for which the Committee has established an
exercise price may be paid in cash, by the transfer of Common
Shares, by the surrender of all or part of an Award (including
the Award being exercised), or by a combination of these methods,
as and to the extent permitted by the Committee. The exercise
price of an Incentive Stock Option may be paid in cash, by the
transfer of Common Shares, or by a combination of these methods,
as and to the extent permitted by the Committee at the time of
grant, but may not be paid by the surrender of all or part of an
Award. The Committee may prescribe any other method of paying
the exercise price that it determines to be consistent with
applicable law and the purpose of this Plan.
In the event shares of Restricted Stock are used to pay
the exercise price of a Stock Award, a number of the Common
Shares issued upon the exercise of the Award equal to the number
of shares of Restricted Stock used to pay the exercise price will
be subject to the same restrictions as the Restricted Stock.
10. TAXES ASSOCIATED WITH AWARD
Prior to the payment of an Award, the Company may
withhold, or require a Participant to remit to the Company, an
amount sufficient to pay any Federal, state, and local taxes
associated with the Award. The Committee may, in its discretion
and subject to such rules as the Committee may adopt, permit a
Participant to pay any or all taxes associated with the Award
(other than an Incentive Stock Option) in cash, by the transfer
of Common Shares, by the surrender of all or part of an Award
(including the Award being exercised), or by a combination of
these methods. The Committee may permit a Participant to pay any
or all taxes associated with an Incentive Stock Option in cash,
by the transfer of Common Shares, or by a combination of these
methods.
11. TERMINATION OF EMPLOYMENT
If the employment of a Participant terminates for any
reason, all unexercisable, deferred, and unpaid Awards may be
exercisable or paid only in accordance with rules established by
the Committee. These rules may provide, as the Committee deems
appropriate, for the expiration, continuation, or acceleration of
the vesting of all or part of the Awards.
12. TERMINATION OF AWARDS UNDER CERTAIN CONDITIONS
The Committee may cancel any unexpired, unpaid, or
deferred Awards at any time if the Participant is not in
compliance with all applicable provisions of this Plan or with
any Notice of Award or Award Agreement or if the Participant,
without the prior written consent of the Company, engages in any
of the following activities:
(i) Renders services for an organization, or engages
in a business, that is, in the judgment of the Committee, in
competition with the Company.
(ii) Discloses to anyone outside of the Company, or
uses for any purpose other than the Company's business, any
confidential information or material relating to the
Company, whether acquired by the Participant during or after
employment with the Company.
The Committee may, in its discretion and as a condition
to the exercise of an Award, require a Participant to acknowledge
in writing that he or she is in compliance with all applicable
provisions of this Plan and of any Notice of Award or Award
Agreement and has not engaged in any activities referred to in
clauses (i) and (ii) above.
13. CHANGE IN CONTROL
In the event of a Change in Control of the Company,
unless and to the extent otherwise determined by the Board of
Directors, (i) all Stock Appreciation Rights, Stock Options, an
other Stock Purchase Rights then outstanding will become fully
exercisable as of the date of the Change in Control, (ii) all
restrictions and conditions applicable to Restricted Stock and
other Stock Award will be deemed to have been satisfied as of the
date of the Change in Control, and (iii) all Cash Awards will be
deemed to have been fully earned as of the date of the Change in
Control. Any such determination by the Board of Directors that
is made after the occurrence of a Change in Control will not be
effective unless a majority of the Directors then in office are
Continuing Directors and the determination is approved by a
majority of the Continuing Directors.
14. AMENDMENT, SUSPENSION, OR TERMINATION OF THIS PLAN;
AMENDMENT OF OUTSTANDING AWARDS
(a) Amendment, Suspension, or Termination of this
Plan. The Board of Directors may amend, suspend, or terminate
this Plan at any time. Shareholder approval for any such
amendment will be required only to the extent necessary to
preserve the exemption provided by Rule 16b-3 for this Plan and
Awards granted under this Plan.
(b) AMENDMENT OF OUTSTANDING AWARDS. The Committee
may, in its discretion, amend the terms of any Award (other than
a Director Option), prospectively or retroactively, but no such
amendment may impair the rights of any Participant without his or
her consent. The Committee may, in whole or in part, waive any
restrictions or conditions applicable to, or accelerate the
vesting of, any Award (other than a Director Option).
15. AWARDS TO FOREIGN NATIONALS AND EMPLOYEES OUTSIDE OF
THE UNITED STATES
To the extent that the Committee deems appropriate to
comply with foreign law or practice and to further the purpose of
the Plan, the Committee may, without amending this Plan, (i)
establish special rules applicable to Awards granted to
Participants who are foreign nationals, are employed outside the
United States, or both, including rules that differ from those
set forth in this Plan, and (ii) grant Awards to such
Participants in accordance with those rules.
16. NONASSIGNABILITY
Unless otherwise determined by the Committee (i) no
Award granted under this Plan may be transferred or assigned by
the Participant to whom it is granted other than by will,
pursuant to the laws of descent and distribution, or pursuant to
a qualified domestic relations order and (ii) an Award granted
under this Plan may be exercised, during the Participant's
lifetime, only by the Participant or by the Participant's
guardian or legal representative; except that, no Incentive Stock
Option and no Section 423 Right may be transferred or assigned
pursuant to a qualified domestic relations order or exercised,
during the Participant's lifetime, by the Participant's guardian
or legal representative.
17. GOVERNING LAW
The interpretation, validity, and enforcement of this
Plan will, to the extent not otherwise governed by the Code or
the securities laws of the United States, be governed by the law
of the State of Ohio.
18. RIGHTS OF EMPLOYEES
Nothing in this Plan will confer upon any Participant
the right to continued employment by the Company or limit in any
way the Company's right to terminate any Participant's employment
at will.
19. EFFECTIVE AND TERMINATION DATE
(a) EFFECTIVE DATE. This Plan will become effective
on the date it is approved by the holders of a majority of the
Common Shares then outstanding.
(b) TERMINATION DATE. This Plan will continue in
effect until terminated by the Board of Directors.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUL-03-1999
<EXCHANGE-RATE> 1
<CASH> 788
<SECURITIES> 0
<RECEIVABLES> 80,560
<ALLOWANCES> 714
<INVENTORY> 4,392
<CURRENT-ASSETS> 89,727
<PP&E> 224,727
<DEPRECIATION> 139,510
<TOTAL-ASSETS> 182,922
<CURRENT-LIABILITIES> 65,508
<BONDS> 0
0
0
<COMMON> 10,728
<OTHER-SE> 30,681
<TOTAL-LIABILITY-AND-EQUITY> 182,922
<SALES> 0
<TOTAL-REVENUES> 153,852
<CGS> 0
<TOTAL-COSTS> 147,899
<OTHER-EXPENSES> 960
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,818
<INCOME-PRETAX> 5,095
<INCOME-TAX> 2,068
<INCOME-CONTINUING> 3,027
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,027
<EPS-BASIC> .38
<EPS-DILUTED> .33
</TABLE>
