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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM 10-Q


  X  

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended

October 2, 2004

 

OR

 

       

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

                   For the transition period from ______________ to ______________

 


Commission file number 0-11917

 

 

THE DAVEY TREE EXPERT COMPANY
(Exact name of registrant as specified in its charter)

Ohio

34-0176110

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer Identification Number)

1500 North Mantua Street
P.O. Box 5193
Kent, Ohio 44240
(Address of principal executive offices) (Zip code)

(330) 673-9511
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:
Common Shares, $1.00 par value


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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   X    No        

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
Yes   X    No        

There were 7,621,332 Common Shares outstanding as of October 29, 2004. 

 


The Davey Tree Expert Company
Quarterly Report on Form 10-Q
October 2, 2004

 

 

INDEX

Page

Part I.  Financial Information
     

Item 1.

Financial Statements (Unaudited)
 

Condensed Consolidated Balance Sheets -- October 2, 2004 and December 31, 2003
 


2

Condensed Consolidated Statements of Operations -- Three months and nine months ended October 2, 2004 and September 27, 2003
 


3

Condensed Consolidated Statements of Cash Flows -- Nine months ended October 2, 2004 and September 27, 2003
 


4

Notes to Condensed Consolidated Financial Statements
 

5

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations
 


13

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

20

Item 4.

Controls and Procedures
 

20

Part II.  Other Information

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds
 

21

Item 6.

Exhibits
 

22

Signatures

 

 

 

 

 

Exhibit Index

 

1

 

 

THE DAVEY TREE EXPERT COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands, except per share amounts)

 

 

 

October 2,   
      2004        

December 31,
        2003       

Assets

 

 

Current assets:

     Cash and cash equivalents

$          854 

$          211 

     Accounts receivable, net

84,458 

53,773 

     Operating supplies

3,448 

3,396 

     Other current assets

       12,605 

      11,017 
 

Total current assets

101,365 

68,397 

Property and equipment

260,313 

238,636 

     Less accumulated depreciation

     182,563 

    171,883 
 

77,750 

66,753 

Other assets

11,718 

24,164 

Identified intangible assets and goodwill, net

         7,673 

        7,523 
 

$   198,506 

$   166,837 
 

Liabilities and shareholders' equity

Current liabilities:

     Accounts payable

$     17,821 

$    16,727 

     Accrued expenses

26,355 

18,408 

     Other current liabilities

      12,709 

      13,054 
 

Total current liabilities

56,885 

48,189 

Long-term debt

36,288 

30,178 

Self-insurance accruals

25,491 

16,947 

Other noncurrent liabilities

     10,676 

       9,376 
 

129,340 

104,690 

Common shareholders' equity:

     Common shares, $1.00 par value, per share; 24,000 shares
          authorized; 10,728 shares issued


10,728 


10,728 

     Additional paid-in capital

6,154 

6,528 

     Common shares subscribed, unissued

9,628 

9,720 

     Retained earnings

97,001 

89,158 

     Accumulated other comprehensive income (loss)

           119 

             (146)
 

    123,630 

115,988 

     Less:  Cost of common shares in treasury; 3,034 shares at
                     October 2 and 2,924 shares at December 31


      48,382 


      46,516 

               Common share subscription receivable

        6,082 

        7,325 
 

      69,166 

      62,147 
 

$  198,506 

$  166,837 
 

 

See notes to condensed consolidated financial statements.

2


 

 

THE DAVEY TREE EXPERT COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share data)

  

 

        Three  Months Ended          

         Nine Months Ended             

 

October 2,
      2004     

September 27,
         2003       

October 2,
      2004     

September 27,
         2003       

 

 

 

 

 

Revenues

$  110,661 

$    92,619 

$   302,405 

$   254,061 

Costs and expenses:

     Operating

72,621 

58,900 

199,137 

165,859 

     Selling

17,589 

15,026 

48,621 

41,115 

     General and administrative

7,071 

6,291 

21,887 

19,300 

     Depreciation and amortization

       5,862 

       5,272 

     16,496 

     15,289 
 

   103,143 

     85,489 

   286,141 

   241,563 

 
         

Income from operations

7,518 

7,130 

16,264 

12,498 
         

Other income (expense):

     Interest expense

(509)

(529)

(1,440)

(1,760)

     Interest income

64 

85 

1,894 

313 

     Other, net

               2 

              (143)

         (853)

         (286)
 

Income before income taxes

7,075 

6,543 

15,865 

10,765 
       

Income taxes

        2,901 

         2,584 

        6,505 

        4,252 
 
         

Net income

$      4,174 

$     3,959 

$      9,360 

$     6,513 
 
         

Net income per share:
     Basic


$          .53 


$         .51 


$        1.12 


$         .79 
 

     Diluted:

$          .50 

$         .48 

$        1.08 

$         .76 
 
         

Weighted average shares outstanding:

     Basic

        7,939

         7,834

         8,370

         8,266
 

     Diluted

        8,311

         8,200

         8,671

         8,612
 
         

Dividends declared per share

$         .065

$        .060

$         .195

$          .18
 
   

See notes to condensed consolidated financial statements.

 

3


 

 

THE DAVEY TREE EXPERT COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)

 

 

       Nine Months Ended         

 

October 2,   
       2004      

September 27,
        2003         

Operating activities

     Net income

$      9,360 

$      6,513 

     Adjustments to reconcile net income to net
          cash provided by (used in) operating activities:

          Depreciation and amortization

16,496 

15,289 

          Other

          425 

         (440)
 

26,281 

21,362 

          Changes in operating assets and liabilities:

               Accounts receivable

(30,685)

(11,233)

               Operating liabilities

17,314 

5,828 

               Other

      12,180 

         (867)
 

      (1,191)

      (6,272)
 

                            Net cash provided by operating activities

25,090 

15,090 

 

 

 

Investing activities

     Capital expenditures, equipment

(24,739)

(14,246)

     Other

      (1,809)

             (972)
 

                                    Net cash used in investing activities

(26,548)

(15,218)

 

 

 

Financing activities

     Revolving credit facility proceeds, net

6,100 

3,600 

     Purchase of common shares for treasury

(4,920)

(4,279)

     Sale of common shares from treasury

3,832 

3,787 

     Dividends

(1,667)

(1,524)

     Other

      (1,244)

       (1,683)
 

             Net cash provided by (used in) financing activities

        2,101 

            (99)
 
     

Increase (decrease) in cash and cash equivalents

643 

(227)

 

     Cash and cash equivalents, beginning of period

           211 

           591 
 

 

    

                            Cash and cash equivalents, end of period

$         854 

$         364 
 

 

 

 

Supplemental cash flow information follows:

     Interest paid

$       1,422 

$      1,722 

     Income taxes paid

4,594 

4,590 

     Noncash transactions:

          Debt issued for purchases of businesses

1,138 

799 

     Detail of acquisitions:

          Assets acquired:

               Equipment

$         268 

$         384 

               Intangibles

1,307 

1,426 

          Debt issued for purchases of businesses

        1,138 

           799 
 

               Cash paid

$         437 

$      1,011 
 

 

See notes to condensed consolidated financial statements.

4


 

The Davey Tree Expert Company
Notes to Condensed Consolidated Financial Statements (Unaudited)
October 2, 2004
(Amounts in thousands, except share data)

 

 A.  Basis of Financial Statement Preparation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) and with the rules and regulations of the Securities and Exchange Commission (SEC) for interim financial information. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. 

Certain information and disclosures required by GAAP for complete financial statements have been omitted in accordance with the rules and regulations of the SEC. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2003.

Accounting Estimates--The consolidated financial statements and notes prepared in accordance with accounting principles generally accepted in the United States include estimates and assumptions made by management that affect reported amounts. Actual results could differ from those estimates.  

Stock-Based Compensation--The Company accounts for stock-based compensation using the intrinsic-value method. Under the intrinsic value method, no compensation cost is recognized if the exercise price of the stock option is equal to the market value of the shares at the date of grant. For the Company's Performance Restricted-Stock Unit awards, compensation cost is recognized over the requisite vesting periods based on the fair market value on the date of grant.

The Davey Tree Expert Company 2004 Omnibus Stock Plan was approved by the Company's shareholders at its annual shareholders' meeting in May 2004. The Plan is administered by the Compensation Committee of the Board of Directors, with the maximum number of common shares that may be granted to or purchased by all employees and directors under this Plan being 5,000,000. In addition to the maintenance of the Employee Stock Purchase Plan, the Plan provides for the grant of stock options, restricted stock, stock appreciation rights, stock purchase rights, stock equivalent units, cash awards, and other stock or performance-based incentives. These awards are payable in cash or common shares, or any combination thereof, as established by the Committee.

Performance-Based Restricted Stock Units--During May 2004, the Committee awarded 44,151 Performance-Based Restricted Stock Units to certain key employees, of which 27,643 units have a four year vesting period and 16,508 units have a five year vesting period.

5


  

The Davey Tree Expert Company
Notes to Condensed Consolidated Financial Statements (Unaudited)
October 2, 2004
(Amounts in thousands, except share data)
 

A.  Basis of Financial Statement Preparation (continued)

The following table summarizes the impact on net income and net income per share had the Company used the fair value method of accounting for stock-based compensation, the alternative policy in FAS No. 123, "Accounting for Stock-Based Compensation."

          Three Months Ended          

           Nine Months Ended            

October 2, 
        2004     

September 27,  
          2003         

October 2, 
       2004      

September 27,
    &nb