-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HMiLCvuk56u1GHDJtWIqAMa/ie4yp55KmrcGqywnoLCtEB+W+cV+vc2M69JwFAs/ KqrI6flAFqpHID1CMvUDkQ== 0000950152-97-005836.txt : 19970813 0000950152-97-005836.hdr.sgml : 19970813 ACCESSION NUMBER: 0000950152-97-005836 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970628 FILED AS OF DATE: 19970812 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DAVEY TREE EXPERT CO CENTRAL INDEX KEY: 0000277638 STANDARD INDUSTRIAL CLASSIFICATION: AGRICULTURE SERVICES [0700] IRS NUMBER: 340176110 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-11917 FILM NUMBER: 97657279 BUSINESS ADDRESS: STREET 1: 1500 N MANTUA ST STREET 2: P O BOX 5193 CITY: KENT STATE: OH ZIP: 44240-5193 BUSINESS PHONE: 2166739511 MAIL ADDRESS: STREET 1: 1500 NORTH MANTUA STREET STREET 2: P O BOX 5193 CITY: KENT STATE: OH ZIP: 44240-5193 10-Q 1 THE DAVEY TREE EXPERT COMPANY FORM 10-Q 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 June 28, 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 August 7, 1997: 4,369,522 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 ----- ----- 2 THE DAVEY TREE EXPERT COMPANY INDEX -----
Page No. -------- PART I: FINANCIAL INFORMATION Item 1: Financial Statements Consolidated Balance Sheets - Periods Ended June 28, 1997, June 29, 1996 and December 31, 1996 3 Consolidated Statements of Net Earnings - Three Months Ended June 28, 1997 and June 29, 1996 4 Consolidated Statements of Net Earnings - Six Months Ended June 28, 1997 and June 29, 1996 5 Consolidated Statements of Cash Flows - Six Months Ended June 28, 1997 and June 29, 1996 6 Notes to Consolidated Financial Statements 7 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II: OTHER INFORMATION Item 4: Submission of Matters to a Vote of Security Holders 11 Item 6: Exhibits and Reports on Form 8-K 11
2 3 THE DAVEY TREE EXPERT COMPANY CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS) (UNAUDITED)
JUNE 28, JUNE 29, DEC. 31, 1997 1996 1996 ------------ ------------ --------- ASSETS - ------ CURRENT ASSETS: Cash and Cash Equivalents $ 155 $ 1,947 $ 627 Accounts Receivable 50,123 43,232 39,805 Operating Supplies 2,936 2,670 2,477 Prepaid Expenses and Other Assets 1,802 1,594 2,023 Deferred Income Taxes 1,729 2,635 1,786 ------------ ------------ ------------ Total Current Assets 56,745 52,078 46,718 PROPERTY AND EQUIPMENT: Land and Land Improvements 6,154 6,226 6,178 Buildings and Leasehold Improvements 16,605 17,137 16,682 Equipment 162,953 148,109 148,204 ------------ ------------ ------------ 185,712 171,472 171,064 Less Accumulated Depreciation 120,387 112,890 113,980 ------------ ------------ ------------ Net Property and Equipment 65,325 58,582 57,084 ------------ ------------ ------------ OTHER ASSETS AND INTANGIBLES 7,217 7,246 7,584 ------------ ------------ ------------ TOTAL ASSETS $ 129,287 $ 117,906 $ 111,386 ============ ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ CURRENT LIABILITIES: Accounts Payable $ 14,856 $ 11,401 $ 11,564 Accrued Liabilities 17,698 18,164 12,944 Income Taxes Payable 2,364 1,867 218 Notes Payable, Bank 550 110 75 Current Maturities of Long-Term Debt 9,496 10,863 2,634 ------------ ------------ ------------ Total Current Liabilities 44,964 42,405 27,435 LONG-TERM DEBT 18,256 15,520 19,640 DEFERRED INCOME TAXES 1,892 3,182 1,952 INSURANCE LIABILITIES 10,349 6,849 9,007 OTHER LIABILITIES 558 792 882 ------------ ------------ ------------ TOTAL LIABILITIES 76,019 68,748 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 June 28, 1997, June 29, 1996 and December 31, 1996 8,728 8,728 8,728 Additional Paid-in Capital 4,154 3,619 3,876 Retained Earnings 79,292 71,381 75,324 ------------ ------------ ------------ 92,174 83,728 87,928 LESS: Treasury Shares at cost: 4,357,820 Shares at June 28, 1997; 4,172,634 Shares at June 29, 1996; and 4,209,623 Shares at December 31, 1996 (38,899) (34,247) (35,451) Subscriptions Receivable from Employees (7) (275) (7) Future Contributions to ESOT (48) ------------ ------------ ------------ TOTAL SHAREHOLDERS' EQUITY 53,268 49,158 52,470 ------------ ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 129,287 $ 117,906 $ 111,386 ============ ============ ============
See Notes to Consolidated Financial Statements 3 4 THE DAVEY TREE EXPERT COMPANY CONSOLIDATED STATEMENTS OF NET EARNINGS THREE MONTHS ENDED JUNE 28, 1997 AND JUNE 29, 1996 (DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS) (UNAUDITED)
June 28, 1997 June 29, 1996 ------------------------------- --------------------------- REVENUES $ 82,331 100.0% $ 74,064 100.0% ------------- ----------- -------------- ------- COSTS AND EXPENSES: Operating 54,449 66.1 50,443 68.1 Selling 9,947 12.1 8,997 12.1 General and Administrative 5,188 6.3 4,336 5.9 Depreciation and Amortization 4,290 5.2 3,654 4.9 ------------- ----------- -------------- ------- TOTAL COSTS AND EXPENSES 73,874 89.7 67,430 91.0 ------------- ----------- -------------- ------- EARNINGS FROM OPERATIONS 8,457 10.3 6,634 9.0 INTEREST EXPENSE (610) (0.8) (592) (0.8) OTHER INCOME/(EXPENSE) - NET (182) (0.2) (38) (0.1) -------------- ------------ -------------- ------- EARNINGS BEFORE INCOME TAXES 7,665 9.3 6,004 8.1 INCOME TAXES 3,142 3.8 2,361 3.2 ------------- ----------- -------------- ------- NET EARNINGS $ 4,523 5.5% $ 3,643 4.9% ============= =========== ============== ======= NET EARNINGS PER COMMON SHARE $ 0.97 $ 0.77 ============= ============== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, INCLUDING COMMON STOCK EQUIVALENTS 4,653,179 4,717,078 ============= ==============
See Notes to Consolidated Financial Statements 4 5 THE DAVEY TREE EXPERT COMPANY CONSOLIDATED STATEMENTS OF NET EARNINGS SIX MONTHS ENDED JUNE 28, 1997 AND JUNE 29, 1996 (DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS) (UNAUDITED)
June 28, 1997 June 29, 1996 ------------------------------- ----------------------- REVENUES $ 142,708 100.0% $ 134,292 100.0% ------------- ----------- -------------- -------- COSTS AND EXPENSES: Operating 97,654 68.5 94,328 70.2 Selling 17,987 12.6 16,823 12.5 General and Administrative 9,583 6.7 8,506 6.3 Depreciation and Amortization 8,180 5.7 7,031 5.3 ------------- ----------- -------------- -------- TOTAL COSTS AND EXPENSES 133,404 93.5 126,688 94.3 ------------- ----------- -------------- -------- EARNINGS FROM OPERATIONS 9,304 6.5 7,604 5.7 INTEREST EXPENSE (1,155) (0.8) (1,080) (0.8) OTHER INCOME/(EXPENSE) - NET (10) -- 152 0.1 -------------- ----------- -------------- -------- EARNINGS BEFORE INCOME TAXES 8,139 5.7 6,676 5.0 INCOME TAXES 3,337 2.3 2,625 2.0 ------------- ----------- -------------- -------- NET EARNINGS $ 4,802 3.4% $ 4,051 3.0% ============= =========== ============== ======== NET EARNINGS PER COMMON SHARE $ 1.02 $ 0.85 ============= ============== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, INCLUDING COMMON STOCK EQUIVALENTS 4,707,759 4,740,566 ============= ==============
See Notes to Consolidated Financial Statements 5 6 THE DAVEY TREE EXPERT COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR SIX MONTHS ENDED JUNE 28, 1997 AND JUNE 29, 1996 (DOLLARS IN THOUSANDS) (UNAUDITED)
JUNE 28, JUNE 29, 1997 1996 --------------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Earnings $ 4,802 $ 4,051 Adjustments to Reconcile Net Earnings to Net Cash Provided by Operating Activities: Depreciation 7,999 6,820 Amortization 181 211 Deferred Income Taxes (3) 62 Other (109) 77 ---------------- --------------- 12,870 11,221 Change in Operating Assets and Liabilities: Accounts Receivable (10,318) (8,610) Other Assets 97 (251) Accounts Payable and Accrued Liabilities 8,046 5,694 Insurance Liabilities 1,342 469 Other Liabilities 1,822 (1,309) --------------- --------------- Net Cash Provided by Operating Activities 13,859 7,214 --------------- --------------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from Sales of Property and Equipment 508 350 Acquisitions (149) (820) Capital Expenditures: Land and Buildings (53) (475) Equipment (16,659) (10,561) --------------- --------------- Net Cash Used In Investing Activities (16,353) (11,506) ---------------- ---------------- CASH FLOWS FROM FINANCING ACTIVITIES: ESOT Payment of Debt Guaranteed by the Company 49 Net Borrowings (Payments) Under Notes Payable, Bank 475 (290) Principal Payments of Long-Term Debt (1,417) (1,498) Proceeds from Issuance of Long-Term Debt 6,895 8,051 Sales of Treasury Shares 686 517 Receipts from Stock Subscriptions 22 Dividends Paid (761) (663) Repurchase of Common Shares (3,856) (1,419) --------------- --------------- Net Cash Provided By Financing Activities 2,022 4,769 --------------- --------------- NET CHANGE IN CASH AND EQUIVALENTS (472) 477 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 627 1,470 --------------- --------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 155 $ 1,947 =============== ===============
See Notes to Consolidated Financial Statements 6 7 THE DAVEY TREE EXPERT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ SIX MONTHS ENDED JUNE 28, 1997 UNAUDITED --------- NOTE 1 - BASIS OF PRESENTATION - ------------------------------ The accompanying unaudited Consolidated Financial Statements as of June 28, 1997 and June 29, 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 June 28, 1997 and June 29, 1996 are not necessarily indicative of the results to be expected for the full year. NOTE 3 - DIVIDENDS - ------------------ On June 10, 1997 the Registrant paid a $.085 per share dividend to all shareholders of record at June 1, 1997. This compares to a $.075 per share dividend paid in the second quarter of 1996. For the six months ended June 28, 1997, the Registrant paid cumulative dividends of $.17 per share to all shareholders of record. This compared to a $.145 cumulative per share dividend paid in the first half of 1996. NOTE 4 - ACCRUED LIABILITIES - ---------------------------- Accrued liabilities consisted of:
JUNE 28, JUNE 29, DEC. 31, 1997 1996 1996 ------------- ------------- --------- (DOLLARS IN THOUSANDS) Compensation $ 5,779 $ 4,841 $ 4,009 Vacation 2,175 2,242 1,620 Insurance Liabilities 6,562 7,847 6,105 Taxes, other than taxes on income 1,638 1,546 600 Other 1,544 1,688 610 ------------- ------------- ------------- $ 17,698 $ 18,164 $ 12,944 ============ ============ ============
7 8 NOTE 5 - LONG-TERM DEBT - ----------------------- Long-term debt consisted of:
JUNE 28, JUNE 29, DEC. 31, 1997 1996 1996 ------------- ------------- --------- (DOLLARS IN THOUSANDS) Revolving Credit Agreement: Prime rate borrowings $ 3,000 $ 2,900 $ 3,100 London Interbank Offered Rate (LIBOR) borrowings 18,000 14,100 11,000 Term note agreement 6,000 8,400 7,200 ------------- ------------- ------------- 27,000 25,400 21,300 Long-term debt of ESOT --- 48 --- Subordinated notes - stock redemption 357 515 515 Term loans and others 395 420 459 ------------- ------------- ------------- 27,752 26,383 22,274 Less current maturities 9,496 10,863 2,634 ------------- ------------- ------------- $ 18,256 $ 15,520 $ 19,640 ============= ============= =============
NOTE 6 - ACQUISITIONS - --------------------- In the first quarter of 1997 and 1996, the Registrant acquired assets of organizations which provide horticultural services for a purchase price of $149,000 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 - STOCK SPLIT - -------------------- On September 27, 1996, the Registrant's board of directors declared a 2 for 1 stock split. The additional shares as a result of the split were distributed on October 10, 1996 to shareholders of record as of October 1, 1996. Common shares issued, treasury shares, and per common share amounts have been restated for all periods presented to give retroactive effect to the stock split. NOTE 8 - 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 9 - 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. 8 9 THE DAVEY TREE EXPERT COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ------------------------- SIX MONTHS ENDED JUNE 28, 1997 LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Operating activities provided $13,859,000 for the first six months of 1997, an increase of $6,645,000 when compared to the $7,214,000 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, and other liabilities, partially offset by an increase in accounts receivable. Net earnings for the first six months totaled $4,802,000, $751,000 more than the $4,051,000 generated last year. All of the Registrant's services contributed to the increase; Utility and Consulting services continue to be positively influenced by additional work with its major U.S. customer, while the strength of Residential services continues to reflect the favorable results derived from focused sales efforts and a generally sound economy. Commercial services has made significant improvements in revenues and operating earnings when compared to 1996, its inaugural year of operation. Depreciation expense of $7,999,000 was $1,179,000 higher than in 1996 mainly due to a relatively higher level of capital expenditures in the current and preceding two years. Accounts payable and accrued liabilities provided $8,046,000, $2,352,000 more than last year. 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 $1,342,000, an $873,000 net increase when compared to the first six 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 $1,799,000 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 $1,822,000 in cash during the first six months of 1997, a net increase of $3,131,000 when compared to the $1,309,000 used in 1996. The net increase is a result of an acceleration in estimated income tax payments last year. Accounts receivable increased $10,318,000, $1,708,000 more than last year. Despite this increase, the Registrant's days outstanding of 53.9 days represent an improvement of 5.8 days from March 29, 1997 and year end 1996, although they are up slightly from the June 1996 level of 53.0 days. The reduction in days outstanding from the prior two quarters is primarily 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. It is anticipated that these amounts, as well as days outstanding, will be gradually reduced over the balance of 1997. The Registrant continues to focus its efforts on such reductions, and is not concerned as to the overall collectibility of accounts. Investing activities used $16,353,000 in cash, an increase of $4,847,000 when compared to the $11,506,000 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 $22,000,000 is consistent with its plan to expand services, maintain equipment on existing operations, and provide for suitable branch office facilities. 9 10 Financing activities provided $2,022,000, a decrease of $2,747,000 when compared to the $4,769,000 provided last year. The decrease was primarily attributable to 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 June 28, 1997, the Registrant's principal source of liquidity consisted of $155,000 in cash and cash equivalents; short-term lines of credit and amounts available to be borrowed from banks via notes payable totaling $3,808,000 of which $550,000 had been used at the end of the period; a revolving credit agreement in the amount of $35,000,000, of which $21,000,000 had been drawn and $8,977,000 was considered drawn to cover outstanding standby letters of credit; and a $5,000,000 temporary line of credit which has not been used. Including the outstanding balance on the term note agreement of $6,000,000, the Registrant's credit facilities now total $49,808,000. The Registrant believes its available credit will exceed credit requirements, and that its liquidity is adequate. RESULTS OF OPERATIONS Revenues of $142,708,000 for the first six months of 1997 increased $8,416,000 or 6.3% when compared to the same period in 1996. Second quarter revenues of $82,331,000 exceeded last year by $8,267,000 or approximately 11%. 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 Registrant anticipates that revenues over the balance of the current year will exceed last years levels by approximately the same rate as that experienced during the first six months. As a percentage of sales, operating costs declined from 68.1 % to 66.1% and from 70.2% to 68.5% in the quarter and first six months respectively. These reductions 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 six months have benefited its cost structure. Accordingly, given the seasonality of Residential services, the Registrant expects that operating costs, as a percentage of revenues, will increase somewhat over the balance of 1997. For the quarter, selling costs of $9,947,000 were $950,000 higher than last year, but at 12.1% remained even with last year as a percentage of revenues. Year-to-date, as a percentage of revenues, these costs increased slightly from 12.5% to 12.6%. The small percentage increase was primarily 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. As a percentage of revenues, general and administrative costs increased from 5.9% to 6.3% and 6.3% to 6.7% in the second quarter and year to date, respectively. The increases were principally due to expenditures related to the Registrant's continued upgrade of its information service technologies, as well as costs related to the expansion of its Commercial and Consulting services. Depreciation and amortization for the first half of 1997 of $8,180,000 was $1,149,000 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 $16,000,000 in 1997. Interest expense of $1,155,000 increased $75,000 when compared to the $1,080,000 incurred last year, but as a percentage of revenues, it remained constant at .8%. The dollar increase was primarily attributable to higher debt levels in 1997. As a result of the above factors, earnings before income taxes for the first six months were $8,139,000 or 5.7% as a percentage of revenues, compared to $6,676,000 or 5.0% 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 $4,802,000 increased $751,000 or .4% as a percentage of revenues when compared to last year. 10 11 THE DAVEY TREE EXPERT COMPANY PART II: OTHER INFORMATION -------------------------- ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On May 20, 1997, 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 2000: Richard E. Dunn William D. Ginn Richard S. Gray Thomas Murdough, Jr. ITEM 5: On May 21, 1997 the board of directors elected R. Douglas Cowan Chairman, President and CEO. John W. Joy, formerly Chairman of the board, continues as a member of the board of directors. These actions are in line with the management succession plans established by the board of directors and management. 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 August 11, 1997 11 EX-27 2 EXHIBIT 27
5 1,000 6-MOS DEC-31-1997 JAN-01-1997 JUN-28-1997 155 0 50,123 0 2,936 56,745 185,712 120,387 129,287 44,964 0 8,728 0 0 44,540 129,287 0 142,708 0 133,404 (10) 0 1,155 8,139 3,337 4,802 0 0 0 4,802 1.02 1.02
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