DAVEY TREE EXPERT CO - 10-K Annual Report

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

FORM 10-K

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

For the fiscal year
ended December 31, 2001

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 (I.R.S. Employer
jurisdiction of Identification Number)
incorporation or
organization)

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 No

Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K.

There were 7,831,032 Common Shares outstanding as of March 21,
2002. The aggregate market value of the Common Shares held by
nonaffiliates of the registrant as of March 21, 2002 was
$70,425,096. For purposes of this calculation, it is assumed
that the registrant's affiliates include the registrant's Board
of Directors and its executive officers (latest available
information).

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive Proxy Statement for the
2002 Annual Meeting of Shareholders, to be held on May 21, 2002
are incorporated by reference into Part III (to be filed).

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking
statements (within the meaning of the Private Securities
Litigation Reform Act of 1995) in "Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of
Operations," "Item 7A - Quantitative and Qualitative Disclosures
About Market Risk," and elsewhere. These statements relate to
future events or our future financial performance. In some
cases, forward-looking statements may be identified by
terminology such as "may," "will," "should," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential,"
"continue" or the negative of these terms or other comparable
terminology. These statements are only predictions and involve
known and unknown risks, uncertainties and other factors that may
cause our or our industry's actual results, levels of activity,
performance or achievements to differ materially from what is
expressed or implied in these forward-looking statements. Some
important factors that could cause actual results to differ
materially from those in the forward-looking statements include:

n Our business, other than tree services to utility customers,
is highly seasonal, and weather dependent.

n Significant customers, particularly utilities, may
experience financial difficulties, resulting in payment delays or
delinquencies.

n Our failure to remain competitive could harm our business.

n Because no public market exists for our common shares, the
ability of shareholders to sell their common shares is limited.

Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee
future results, levels of activity, performance or achievements.
Moreover, neither we nor any other person assumes responsibility
for the accuracy and completeness of these statements. We are
under no duty to update any of the forward-looking statements
after the date of this Annual Report on Form 10-K to conform
these statements to actual future results.

THE DAVEY TREE EXPERT COMPANY
FORM 10-K
For the Fiscal Year Ended December 31, 2001

TABLE OF CONTENTS

Page
Note Regarding Forwarding-Looking Statements 2

PART I 4
Item 1: Business
Item 2: Properties
Item 3: Legal Proceedings
Item 4: Submission of Matters to a Vote of Security
Holders
Item 4A: Executive Officers of the Registrant

PART II 9
Item 5: Market for Registrant's Common Equity and Related
Stockholder Matters
Item 6: Selected Financial Data
Item 7: Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 7A: Quantitative and Qualitative Disclosures About
Market Risk
Item 8: Financial Statements and Supplementary Data
Item 9: Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure

PART III 20
Item 10: Directors and Executive Officers of the
Registrant
Item 11: Executive Compensation
Item 12: Security Ownership of Certain Beneficial Owners
and Management
Item 13: Certain Relationships and Related Transactions

PART IV 21
Item 14: Exhibits, Financial Statement Schedules and
Reports on Form 8-K

SIGNATURES 22

PART I

Item 1. Business.

General

The Davey Tree Expert Company, which was incorporated in 1909,
and its subsidiaries ("we" or "us") have two primary operating
segments which provide a variety of horticultural services to our
customers throughout the United States and Canada.

Our Residential and Commercial services segment provides for the
treatment, preservation, maintenance, cultivation, planting and
removal of trees, shrubs and other plant life; its services also
include the practices of landscaping, tree surgery, tree feeding
and tree spraying, as well as the application of fertilizers,
herbicides and insecticides.

Our Utility services segment is principally engaged in the
practice of line clearing for public utilities, including the
clearing of tree growth from power lines, clearance of rights-of-
way and chemical brush control.

We also provide other services related to natural resource
management and consulting, urban and utility forestry research
and development and environmental planning. We also maintain
research, technical support and laboratory diagnostic facilities.

Competition and Customers

Our Residential and Commercial services group is one of the
largest national tree care organizations, and competes with other
national and local firms with respect to its services. On a
national level, the competition is primarily in the context of
landscape construction and maintenance as well as residential and
commercial lawn care. At a local and regional level, its
competition comes mainly from other companies which are engaged
primarily in tree care. Our Utility services group is the second
largest organization in the industry, and competes principally
with one major national competitor, as well as several smaller
regional firms.

Principal methods of competition in both operating segments are
advertising, customer service, image, performance and reputation.
Our program to meet our competition stresses the necessity for
our employees to have and project to customers a thorough
knowledge of all horticultural services provided, and utilization
of modern, well-maintained equipment. Pricing is not always a
critical factor in a customer's decision with respect to
Residential and Commercial services; however, pricing is
generally the principal method of competition for our Utility
services, although in most instances consideration is given to
reputation and past production performance.

We provide a wide range of horticultural services to private
companies, public utilities, local, state and federal agencies,
and a variety of industrial, commercial and residential
customers. During 2001, we had sales of approximately $51.2
million to Pacific Gas & Electric Company (PG&E).

On April 6, 2001, PG&E, one of our largest utility customers,
filed a voluntary bankruptcy petition under Chapter 11 of the
U.S. Bankruptcy Code. Subsequent to the bankruptcy petition date,
we continued to provide services under the terms of our contracts
with PG&E and we receive payment for those services as part of
PG&E's administrative expenses. At December 31, 2001, we had net
prepetition accounts receivable from PG&E of approximately
$13,326,000 which are related to services provided by us to PG&E
prior to the bankruptcy petition date. On September 20, 2001,
PG&E filed a reorganization plan as part of its Chapter 11
bankruptcy proceeding that seeks to pay all of its creditors in
full. Components of the plan will require the approval of the
Federal Energy Regulatory Commission, the Securities and Exchange
Commission and the Nuclear Energy Regulatory Commission, in
addition to the bankruptcy court. PG&E has stated that it expects
to complete the reorganization process by the end of 2002. We
have monitored the situation closely and will continue to assess
the collectibility of our receivables from PG&E. In our opinion,
the prepetition receivables from PG&E are collectible.

Regulation and Environment

Our facilities and operations, in common with those of the
industry generally, are subject to governmental regulations
designed to protect the environment. This is particularly
important with respect to our services regarding insect and
disease control, because these services involve to a considerable
degree the blending and application of spray materials, which
require formal licensing in most areas. Constant changes in
environmental conditions, environmental awareness, technology and
social attitudes make it necessary for us to maintain a high
degree of awareness of the impact such changes have on the market
for our services. We believe that we are in substantial
compliance with existing federal, state and local laws regulating
the use of materials in our spraying operations as well as the
other aspects of our business that are subject to any such
regulation.

Marketing

We solicit business from residential customers principally
through direct mail programs and to a lesser extent through the
placement of advertisements in national magazines and trade
journals, local newspapers and "yellow pages" telephone
directories. Business from utility customers is obtained
principally through negotiated contracts and competitive bidding.
We carry out all of our sales and services through our employees.
We do not generally use agents and do not franchise our name or
business.

Seasonality

Our business is seasonal, primarily due to fluctuations in
horticultural services provided to Residential and Commercial
customers and to a lesser extent by budget constraints imposed on
our utility customers. Because of this seasonality, we have
historically incurred losses in the first quarter, while sales
and earnings are generally highest in the second and third
quarters of the calendar year. Consequently, this has created
heavy demands for additional working capital at various times
throughout the year. We borrow primarily against bank
commitments in the form of a revolving credit agreement with two
banks to provide the necessary funds for our operations.

Other Factors

Due to rapid changes in equipment technology, we must constantly
update our equipment and processes to ensure that we provide
competitive services to our customers. Also, we must continue to
assure our compliance with the Occupational Safety and Health
Act.

We own several trademarks including "Davey", "Davey and design",
"Arbor Green", "Davey Tree and design", "Davey Expert Co. and
design" and "Davey and design (Canada)". Through substantial
advertising and use, we believe that these trademarks have become
of value in the identification and acceptance of our products and
services.

Employees

We employ between 5,000 and 6,000 employees, depending upon the
season, and consider our employee relations to be good.

Foreign and Domestic Operations

We sell our services to customers in the United States and
Canada.

We do not consider our foreign operations to be material and
consider the risks attendant to our business with foreign
customers, other than currency exchange risks, to be not
materially different from those attendant to our business with
domestic customers.

Financial Information About Segments and Geographic Areas

Certain financial information regarding our operations by segment
and geographic area is contained in Note O to our consolidated
financial statements, which are included in Part II, Item 8 of
this Form 10-K.

Item 2. Properties.

Our corporate headquarters campus is located in Kent, Ohio which,
along with several other properties in the surrounding area,
includes the Davey Resource Group's research, technical support
and laboratory diagnostic facilities.

We conduct administrative functions through our headquarters and
our offices in Livermore, California (Utility Services). Our
Canadian operations have key properties in the provinces of
Ontario and British Columbia. We believe our properties are well
maintained, in good condition and suitable for our present
operations. A summary of our properties follows:

Number
Number of Square of
Segment Properties How Footage States
Held or
Provinc
es

Residential and 21 Owned 178,757 11
Commercial

Residential, Commercial 2 Owned 12,400 2
and Utility

Utility 5 Owned 40,587 5

Canada 2 Owned 6,300 2

We also rent for our use by the business segments, approximately
70 properties, in 31 states and three provinces. Under our
revolving credit facility agreement, the banks have a blanket
lien on all our personal property and liens on certain real
property.

None of our owned or rented properties, used by our business
segments, is individually material to our operations.
Item 3. Legal Proceedings.

There are no legal proceedings, other than ordinary routine
litigation incidental to our business, to which we or any of our
subsidiaries is a party or of which any of our property is the
subject. This routine litigation is not material to us.

Item 4. Submission of Matters to a Vote of Security Holders.

No matter was submitted during the fourth quarter of 2001 to a
vote of security holders, through the solicitation of proxies or
otherwise.

Item 4A. Executive Officers of the Registrant.

Our executive officers and their present positions and ages are
as follows:

Name Position Age

R. Douglas Cowan Chairman and Chief Executive 61
Officer

Karl J. Warnke President and Chief Operating 50
Officer

David E. Adante Executive Vice President, Chief 50
Financial
Officer and Secretary

Howard D. Bowles Senior Vice President and General 58
Manager,
Davey Tree Surgery Company

C. Kenneth Celmer Senior Vice President and General 55
Manager,
Residential and Commercial
Services

Nicholas R. Sucic, CPA Corporate Controller 55

Bradley L. Comport, CPA Treasurer 51

Dr. Roger C. Funk Vice President and General 57
Manager,
The Davey Institute

Rosemary T. Nicholas Assistant Secretary 58

Marjorie L. Conner, Assistant Secretary 44
Esquire

Gordon L. Ober Vice President - Personnel 52
Recruiting and
Development

Richard A. Ramsey Vice President and General 52
Manager,
Canadian Operations

Wayne M. Parker Vice President and General 46
Manager,
Eastern Utility Services

Mr. Cowan was initially elected Chairman and Chief Executive
Officer on March 11, 1999. Previously he had served as Chairman,
President and Chief Executive Officer since May 1997. Prior to
that time, he served as President and Chief Executive Officer.

Mr. Warnke was initially elected President and Chief Operating
Officer on March 11, 1999. Prior to that time, he served as
Executive Vice President and General Manager - Utility Services.

Mr. Adante was elected Executive Vice President, Chief Financial
Officer and Secretary in May 1993.

Mr. Bowles was elected Senior Vice President and General Manager
of Davey Tree Surgery Company in January 2000. Prior to that
time, he served as Vice President and General Manager of Davey
Tree Surgery Company.

Mr. Celmer was elected Senior Vice President and General Manager
- - Residential and Commercial Services in January 2000. Prior to
that time, he served as Vice President and General Manager -
Residential Services.

Mr. Sucic was elected Corporate Controller in November 2001 when
he joined the Company. He is a certified public accountant.
Prior to joining us, Mr. Sucic served as chief financial officer
of Vesper Corporation, a manufacturer of products for industry,
from 2000 to 2001; of Advanced Lighting Technologies, Inc., a
designer, manufacturer and marketer of metal halide lighting
products, from 1996 to 2000; and of various asset management
units at The Prudential Investment Corporation, from 1989 to
1996. Prior to joining Prudential, Mr. Sucic was a partner with
Ernst & Young LLP, having been associated with that firm since
1970.

Mr. Comport was elected Treasurer in May 2001. Prior to that
time, he served as Corporate Controller.

Dr. Funk was elected Vice President and General Manager - The
Davey Institute in May 1996. Prior to that time, he served as
Vice President - Human and Technical Resources.

Ms. Nicholas was elected Assistant Secretary in May 1982.

Ms. Conner was elected Assistant Secretary in May 1998. Prior to
that time, she served as Manager of Legal and Treasury Services.

Mr. Ober was elected Vice President - Personnel Recruiting and
Development in February 2000. Prior to that time, he served as
Vice President - New Ventures.

Mr. Ramsey was elected Vice President and General Manager -
Canadian Operations in January 2000. Prior to that time, he
served as Vice President and General Manager - Commercial
Services.

Mr. Parker was elected Vice President and General Manager -
Eastern Utility Services in January 2000. Prior to that time, he
served as Vice President - Northern Operations, Utility Services.

Our officers serve from the date of their election to the next
organizational meeting of the Board of Directors and until their
respective successors are elected.

PART II

Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.

Our common shares are not listed or traded on an established
public trading market and market prices are, therefore, not
available. Semiannually, for purposes of our 401KSOP, the fair
market value of our common shares, based upon our performance and
financial condition, is determined by an independent stock
valuation firm.

Our agreements with our lenders allow for the payment of cash
dividends provided that the terms and conditions of the
agreements, particularly those dealing with shareholders' equity,
and the ratios of EBIT (earnings before interest and taxes on
income) to interest expense and maximum consolidated funded debt
to EBITDA (earnings before interest, taxes, depreciation and
amortization), are maintained. Those restrictions have not
historically restricted our ability to pay dividends, and we do
not expect that they will do so in the future.

As of March 21, 2002, we had 7,831,032 common shares issued and
outstanding and we had 2,212 record holders of our common shares.
As of March 21, 2002, we had options outstanding to purchase
1,067,147 common shares.

The following table sets forth, for the periods indicated, the
dividends declared on our common shares (in cents):

Year Ended December
31,
Quarter 2001 2000
1 5.5 5.5
2 5.5 5.5
3 5.5 5.5
4 5.5 5.5
Total 22.0 22.0

We currently expect to pay comparable cash dividends in 2002.

Item 6. Selected Financial Data.

Fiscal
Year Ended December
31,
200 200 199 199 199
1 0 9 8 7
(In thousands, except ratio and per share
data)
Operating Statement
Data:

Revenues $ 321, $ 322, $ 308, $ 313, $ 295,
284 236 144 887 079

Costs and expenses:
Operating 212,783 226,441 210,628 210,921 197,726

Selling 50,564 49,978 45,403 39,601 37,832
General and 22,567 23,015 21,742 22,764 20,297
administrative
Depreciation 19,054 20,722 20,019 19,563 17,000
Amortization of
intangible assets 466 459 393 371 375
Income from operations 15,850 1,621 9,959 20,667 21,849

Interest expense (4,993) (6,217) (4,947) (3,391) (2,703)
Gain on sale of assets 1,023 1,172 1,487 587 325
Other expense
(744 (60 (349) (22 (220)
) ) )

Income (loss) before 11,136 (3,484) 6,150 17,841 19,251
income taxes
Income taxes
4,405 (1,080) 2,435 7,244 7,972

Net income (loss) $ $ ( $ $ 10 $ 11
6,731 2,404) 3,715 ,597 ,279

Net income (loss) per $ $ $ $ $
share--diluted 0.82 (.30 .42 1.15 1.19
)
Shares used for
computing per share
amounts--diluted 8,231 7,929 8,872 9,228 9,452
(a)

Other Financial Data:

Depreciation and $ 1 $ 2 $ 2 $ 1 $ 1
amortization 9,520 1,181 0,412 9,934 7,375

EBITDA (b) 35,649 23,914 31,509 41,166 39,329

Capital expenditures 11,692 17,476 20,580 34,009 27,003

Cash flow provided by
(used in):
Operating 29,813 31,267 (3,835) 28,193 26,934
activities
Investing (10,356 (14,209 (18,707 (32,841 (26,314
activities ) ) ) ) )
Financing (19,108 (17,058 21,335 5,190 (525)
activities ) )

Dividends per share $ $ $ $ $
(a) 0.22 0.22 0.20 0.19 0.17

As of December 31,

200 200 199 199 199
1 0 9 8 7
(In thousands, except ratio and per share
data)
Balance Sheet Data:

Working capital $ 16 $ 35 $ 46 $ 27 $ 19
,255 ,386 ,714 ,562 ,194

Current ratio 1.39 2.09 2.62 1.81 1.58

Property and 70,111 78,076 84,008 79,433 66,274
equipment, net

Total assets 155,473 159,382 176,682 149,086 127,825

Long-term debt 41,887 57,414 65,904 42,893 24,104

Other long-term 21,904 22,078 19,826 15,059 12,992
liabilities

Shareholders' 5 47 5 57 57
equity 0,250 ,392 6,420 ,268 ,887

Common shares
(a):
Issued 10,728 10,728 10,728 10,728 10,728
In treasury
3,000 2,932 2,601 2,755 2,130
Net
outstanding 7,728 7,796 8,127 7,973 8,598

Stock options
(a):
Outstanding 1,205 1,342 1,395 1,828 1,956
Exercisable 1,205 1,236 1,183 1,510 1,532

ESOT valuation $ $ 1 $ 1 $ 1 $ 1
per share 12.00 1.00 3.00 6.00 3.03

( On May 19, 1999, the Company's Board of Directors declared a 2-
a for-1 stock split in the form of a 100% stock dividend on
) outstanding shares, to shareholders of record as of June 1,
1999. To effect the stock split, the Board of Directors
authorized the retirement of 1,981,894 common shares held in
treasury. Common share disclosures have also been restated,
where appropriate, to reflect the 2-for-1 stock split.

( EBITDA is provided because it is a measure commonly used to
b evaluate a company's ability to service its indebtedness. EBITDA
) is presented to enhance the understanding of the Company's
operating results and is not intended to represent cash flows or
results of operations in accordance with GAAP for the periods
indicated. EBITDA is not a measurement under GAAP and is not
necessarily comparable with similarly titled measures of other
companies. Net cash flows from operating, investing and
financing activities as determined using GAAP are also presented
above.

Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.

(Amounts in
thousands, except share data)

The following discussion and analysis should be read in
conjunction with our consolidated financial statements for the
three-year period ended December 31, 2001, and the notes thereto,
included elsewhere in this annual report.

GENERAL

We provide a wide range of horticultural services to residential,
commerical, utility and institutional customers throughout the
United States and Canada.

Our operating results are reported in two segments: Residential
and Commercial Services and Utility Services for operations in
the United States. Residential and Commercial Services provides
for the treatment, preservation, maintenance, cultivation,
planting and removal of trees, shrubs and other plant life; its
services also include the practice of landscaping, tree surgery,
tree feeding and tree spraying, as well as the application of
fertilizer, herbicides and insecticides. Utility Services is
principally engaged in the practice of line clearing for investor-
owned and municipal utilities, including the clearing of tree
growth from power lines, clearance of rights-of-way and chemical
brush control.

We also have two nonreportable segments: Canadian operations,
which provides a comprehensive range of Davey horticultural
services, and Davey Resource Group, which provides services
related to natural resource management and consulting, forestry
research and development, and environmental planning. In
addition, the Davey Resource Group also maintains research,
technical support and laboratory diagnostic facilities.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance
with accounting principles generally accepted in the United
States. The preparation of these financial statements requires
the use of estimates, judgments and assumptions that affect the
reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the periods presented.

On an ongoing basis, we evaluate our estimates and assumptions,
including those related to accounts receivables, specifically
those receivables under contractual arrangements primarily
arising from Utility Services customers; bad debts; and, self-
insurance accruals. We base our estimates on historical
experience and on various other factors that we believe to be
reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets
and liabilities that are not readily apparent from other sources.
Actual results could differ from these estimates.

We believe the following are our "critical accounting
policies"-those most important to the financial presentations and
those that require the most difficult, subjective or complex
judgments.

Revenue Recognition--Revenues from residential and commercial
services are recognized as the services are provided and
amounts are determined to be collectible. Revenues from
contractual arrangements, primarily with utility services
customers, are recognized based on costs incurred to total
estimated contract costs. Changes in estimates and
assumptions related to total estimated contract costs may
have a material effect on the amounts reported as receivables
arising from contractual arrangements and the corresponding
amounts of revenues and profit.

Utility Services Customers--We generate a significant portion
of revenues and corresponding accounts receivable from our
utility services customers in the utility industry. One
utility services customer approximated 16% of revenues during
2001, 2000 and 1999. Adverse conditions in the utility
industry or individual utility customer operations may affect
the collectibility of our receivables or our ability to
generate ongoing revenues.

Bad Debts--We evaluate the collectibility of our accounts
receivables based on a combination of factors. In
circumstances where we are aware of a specific customer's
inability to meet its financial obligations to us (e.g.,
bankruptcy filings), we record a specific allowance for
doubtful accounts against amounts due to reduce the net
recognized receivable to the amount we reasonably believe
will be collected. For all other customers, we recognize
allowances for doubtful accounts based on the length of time
the receivables are past due. If circumstances change (e.g.,
unexpected material adverse changes in a major customer's
ability to meet its financial obligation to us or higher than
expected customer defaults), our estimates of the
recoverability of amounts due us could be reduced by a
material amount.

Self-Insurance Accruals--We are generally self-insured for
losses and liabilities related primarily to workers'
compensation, vehicle liability and general liability claims.
We use commercial insurance as a risk-reduction strategy to
minimize catastrophic losses. We accrue ultimate losses based
upon estimates of the aggregate liability for claims incurred
using certain actuarial assumptions followed in the insurance
industry and based on our specific experience.

Our self-insurance accruals include claims for which the
ultimate losses will develop over a period of years.
Accordingly, our estimates of ultimate losses can change as
claims mature. Our accruals also are affected by changes in
the number of new claims incurred and claim severity. The
methodology for estimating ultimate losses and the total cost
of claims were determined by external consulting actuaries;
the resulting accruals are continually reviewed by us, and
any adjustments arising from changes in estimates are
reflected in income currently.

Our self-insurance accruals are based on estimates and, while
we believe that the amounts accrued are adequate, the
ultimate claims may be in excess of or less than the amounts
provided.

RESULTS OF OPERATIONS

The following table sets forth our consolidated results of
operations as a percentage of revenues.

Year Ended
December 31,
2001 2000 1999

Revenues 100.0% 100.0 100.0%
%

Costs and expenses:
Operating 66.2 70.3 68.4

Selling 15.7 15.5 14.7

General and 7.1 7.1 7.1
administrative
Depreciation 6.0 6.5 6.5

Amortization of 0 0. 0
intangible assets .1 1 .1
95. 99.5 96.
1 8
Income from operations 4.9 0.5 3.2

Other income (expense):
Interest expense (1.5) (1.9) (1.6)

Gain on sale of assets 0.3 0.3 0.5

Other (0. (0.0 (0
2) ) .1)

Income (loss) before income 3.5 (1.1) 2.0
taxes
Income taxes (benefit) 1 (0.3 0.
.4 ) 8

Net income (loss) 2 (0.8 1.
.1% )% 2%
Fiscal 2001 Compared to Fiscal 2000

Revenues--Revenues of $321,284 decreased .3% or $952 over 2000.
Residential and Commercial Services continued to grow, increasing
7.3% or $9,855. This growth is reflective of a continued focus
on sales. Utility Services declined 7.0%, or $11,119, when
compared to 2000. The decline in Utility Services revenues
continues to be the result of evaluations or renegotiations of
contracts from the latter half of 2000, as well as shutdowns on
certain contracts. Revenues from all other segments increased
1.2%. Revenue growth is expected in 2002.

Operating Expenses--Operating expenses of $212,783 declined
$13,658 from the prior year, a 4.1% reduction as a percentage of
revenues. Utility Services decreased $17,487, or 18.7%, from
2000 due mainly to total lower labor costs and reduced repair and
equipment costs associated with the reduction in revenues. The
decrease in Utility Services is partially offset by an increase
in Residential and Commercial Services of $4,302, primarily for
labor and material costs associated with increased revenue.

Selling Expenses--Selling expense increased $586 over 2000.
Increases in Residential and Commercial Services of $1,615 for
field management wages, district incentives, advertising and
branch offices costs were partially offset by a reduction in
Utility Services field management wages, a result of certain
contract shutdowns.

General and Administrative Expenses--General and administrative
expense decreased $448 from the prior year. This reduction,
partially offset by increases in other expenses, is directly
attributable to the consolidation of the Utility Services
accounting-related functions from our Livermore, California,
facility to our corporate headquarters in Kent, Ohio.

Depreciation Expense--Depreciation expense of $19,054 decreased
$1,668 from the prior year and as a percentage of revenues
declined to 6.0% from 6.5%. The reduction is due to the lower
level of capital expenditures during 2001 and 2000, primarily in
Utility Services, coupled with lower depreciation expense arising
from capital expenditures in earlier years.

Amortization Expense--Amortization expense of $466 remained
stable as a percentage of revenues at .1%.

Interest Expense--Interest expense declined $1,224, or .4% as a
percentage of revenues from 2000. This decrease was mainly due
to a net decrease in revolving credit facility debt of $15,100
and substantially lower interest rates as compared to 2000.

Gain on Sale of Assets--Gain on the sale of assets declined to
$1,023, or a $149 decrease from 2000. The slight decline was
attributable to less assets disposed of in 2001 compared to the
preceding year, primarily within Utility Services.

Income Taxes--Income tax expense for 2001 was $4,405. The 2001
effective rate of 39.6%, includes a 5.4% effect of state and
local income taxes.

Net Income--Net income of $6,731 exceeded 2000's net loss by
$9,135, or an increase of 2.9% as a percentage of revenues.

Fiscal 2000 Compared to Fiscal 1999

Revenues--Revenues of $322,236 increased $14,092, or 4.6%,
compared to 1999. Residential and Commercial Services revenues
improved $14,871, or 12.3%, over 1999, and were partially offset
by the $7,734, or 4.6%, decline in Utility Services revenues.
Our 2000 Residential and Commercial Services revenues benefited
from focused sales efforts, a continuation of relatively good
economic conditions and gains derived from some small selective
acquisitions we have made over the last several years. Further,
we also benefited from several new commercial contracts obtained
during 2000. The decline in Utility Services revenues stemmed
primarily from lower negotiated pricing on contracts, but to a
lesser extent was also due to declines in productivity as well as
shutdowns on certain contracts.

Operating Expenses--Our operating expenses of $226,441 increased
$15,813, or 1.9%, as a percentage of revenues. These expenses
have remained higher throughout 2000 due to higher relative labor
costs associated with productivity declines as well as those
required to complete certain contracts without the concomitant
level of revenues, a higher level of start-up and shutdown costs,
increased fuel and repair costs, and higher casualty insurance
costs.

Selling Expenses--Selling expenses of $49,978 were $4,575 higher
than last year, and at 15.5% were .8% higher as a percentage of
revenues. The increase is attributable to higher branch office
costs, field management wages and district incentives, and
related payroll costs in Residential and Commercial Services, as
well as higher group health insurance and workers compensation
expense.

General and Administrative Expenses--Our general and
administrative expenses of $23,015 increased $1,273, but as a
percentage of revenues they remained at 7.1%. Most of the
increase is due to an increase in salaries and related payroll
taxes. Efforts during the latter half of 2000 held professional
services costs related to a new computer system for the entire
year to below the expense incurred in 1999.

Depreciation Expense--Depreciation expense of $20,722 increased
$703 as compared with 1999 and remained stable as a percentage of
revenues.

Amortization Expense--Amortization expense of $459 remained
stable as a percentage of revenues at .1%.

Interest Expense--Interest expense of $6,217 was $1,270 higher
than in 1999, and as a percentage of revenues it increased .3% to
1.9%. This was due to our increased level of borrowings in 2000,
as well as a higher level of interest rates over 1999 generally,
and increased LIBOR spreads associated with amendments to our
revolving credit facility.

Gain on Sale of Assets--The $315 decrease in 2000 compared to
1999 relates to the 1999 gain realized on the sale of our Troy,
Michigan facility.

Income Taxes--Our income tax benefit for 2000 was $1,080. The
effective rate for the 2000 income tax benefit was 31.0%,
reflecting a 5.0% loss of tax benefit related to meals
disallowance.

Net Loss--Our net loss of $2,404 fell below 1999's net income by
$6,119, and as a percentage of revenues it declined 2.0%.

LIQUIDITY AND CAPITAL RESOURCES

Our principal financial requirements are for capital spending,
working capital and business acquisitions.

Cash increased $349 during the year ended December 31, 2001. Uses
of cash consisted of $10,356 used in investing activities and
$19,108 used in financing activities. Net cash provided by
operating activities of $29,813 offset these uses of cash.

Net Cash Provided by Operating Activities

Operating activities in 2001 provided cash of $29,813, which was
$1,454 lower than the $31,267 provided in 2000. The $1,454 net
decline was due to an increase in accounts receivable, lower
depreciation expense and deferred income taxes offset by
increases in net income, accounts payable and accrued expenses,
self-insurance accruals and other assets.

Net income of $6,731 increased $9,135 when compared to the $2,404
loss in 2000. Utility Services operating income improved
dramatically despite lower revenues, the result of improved
pricing negotiated in the latter half of 2000, as well as better
productivity on certain contracts and lower equipment costs.
Residential and Commercial Services operating income also
improved, a reflection of continued pricing strength and
increased revenues.

Overall, accounts receivable increased $4,475 as compared to the
decrease of $15,129 experienced in 2000. The "day-sales-
outstanding" in accounts receivable increased as compared to
2000, a trend among all operating segments (This included, at
December 31, 2001, noncurrent accounts receivable of $13,326
discussed in the following paragraph). We continue to strive to
collect accounts receivable dollars and reduce days-sales-
outstanding.

On April 6, 2001, one of our largest utility customers, Pacific
Gas and Electric Company (PG&E) filed a voluntary bankruptcy
petition under Chapter 11 of the U. S. Bankruptcy Code.
Subsequent to the bankruptcy petition date, we continued to
provide services under the terms of our contracts with PG&E. We
continue to perform services for PG&E and receive payment for
post-petition date services performed, as part of PG&E's
administrative expenses. At December 31, 2001, we had net
prepetition accounts receivable from PG&E of approximately
$13,326 which are related to services provided by us to PG&E
prior to the bankruptcy petition date. On September 20, 2001,
PG&E filed a reorganization plan as part of its Chapter 11
bankruptcy proceeding that seeks to pay all of its creditors in
full. Components of the plan will require the approval of the
Federal Energy Regulatory Commission, the Securities and Exchange
Commission, and the Nuclear Energy Regulatory Commission, in
addition to the bankruptcy court. PG&E has stated that it expects
to complete the reorganization process by the end of 2002. We
have monitored the situation closely and will continue to assess
the collectibility of our receivables from PG&E. As we anticipate
receiving payment after 2002, the $13,326 of prepetition accounts
receivable has been classified in our consolidated balance sheet
as noncurrent other assets.

Accounts payable and accrued expenses increased $5,985, a $6,009
change when compared to the decrease of $24 in 2000. The
increase is driven by continued working capital management.
Income tax liabilities also increased due to higher levels of
pretax income.

Self-insurance accruals increased $2,798 or $1,872 more than the
increase experienced in 2000. The increase occurred in all
classifications--workers compensation, vehicle liability and
general liability--and is the result of adverse claims
experience.

Other assets decreased $813, a change of $3,774 over the $2,961
increase in 2000. The change results from using the 2000
refundable income taxes to offset a portion of 2001 income taxes
payable and the recognition of lower net pension income in 2001
as compared to 2000. Net pension income for 2002 is estimated to
be one-third of that recognized in 2001.

Net Cash Used in Investing Activities

Investing activities used $10,356 in cash, or $3,853 less than
that used in 2000, a result of lower capital expenditures. We
have made and will continue to make capital expenditures for
equipment and business acquisitions. We anticipate the level of
capital equipment spending will increase in 2002 as compared to
2001.

Net Cash Used in Financing Activities

Financing activities used $19,108 in 2001, an increase of $2,050
over the $17,058 used in 2000. The net borrowings outstanding,
as at December 31, 2001, of the revolving credit facility
decreased by $15,100. This 2001 decrease was $4,900 greater than
2000 and consistent with our planned efforts to reduce debt
levels. Common share purchases for treasury during 2001 totaled
$5,541, offset by cash inflows from the sale of common shares of
$3,833. Dividends during 2001 were $1,701. Other financing
activities consisted of $887 of payments on other debt and
capital lease obligations and $288 of notes payable borrowings.

Revolving Credit Facility--We have a revolving credit facility
that permits borrowings, as defined, up to $90,000 with a letter
of credit sublimit of $25,000, through April 2003. Interest rates
on borrowings outstanding are based, at our option, at the agent
bank's prime rate, or LIBOR, plus a margin adjustment. A
commitment fee is also required of between .25% and .35% of the
average daily-unborrowed commitment. The agreement was amended
in March 2001 because of constraints in the financial covenants,
the LIBOR margin adjustment was changed to 2.4% and the financial
covenants were modified. Under the most restrictive covenants of
the amended agreement, we are obligated to maintain minimum
shareholders' equity, as defined. The agreement also has
restrictive financial covenants requiring a maximum ratio of
funded debt, as defined, to EBITDA (earnings before interest,
taxes, depreciation and amortization) and a minimum ratio of EBIT
(earnings before interest and taxes) to interest expense. The
revolving credit facility agreement requires, all as defined:
(a) a maximum ratio of funded debt to EBITDA of 2.75 to 1.00; (b)
a minimum ratio of EBIT to interest expense of 3.00 to 1.00; and,
(c) a minimum net worth of $47,500 increased as at the last day
of each fiscal year after December 31, 2001 by 30% of
consolidated earnings.

Contractual Obligations Summary

The following is a summary of our long-term contractual
obligations, as at December 31, 2001, to make future payments for
the periods indicated.

Contractual Obligations Due--
Year Ending December 31,
Description Tot 20 20 20 20 20 Therea
al 02 03 04 05 06 fter

Revolving credit $ 41 $ $ 41 $ $ $ $
facility ,300 ,300 -
- - - -
Subordinated notes 777 388 389 - - - -
Term loans 237 39 43 38 36 40 41
Capital lease 4,133 533 569 607 785 605 1,034
obligations
Operating lease 5,307 1,711 1,107 845 607 381 656
obligations
Self-insurance 2 3 1 1
accruals 1,825 8,14 5,15 ,085 ,842 ,093 2,51
0 4 1
$ 73 $ 10 $ 48 $ 4 $ 3 $ 2 $ 4,
,579 ,811 ,562 ,575 ,270 ,119 242

The self-insurance accruals in the summary above reflect the
total of the undiscounted amount accrued as at December 31, 2001
and amounts estimated to be due each year may differ from actual
payments required to fund claims. Additional information
regarding the long-term obligations summarized above is provided
in the notes to our consolidated financial statements.

As at December 31, 2001, we were contingently liable to our
principal banks in the amount of $18,399 for letters of credit
outstanding related to insurance coverage. Substantially all of
these letters of credit, which expire within a year, are planned
for renewal as necessary.

Also, as is common with our industry, we have performance
obligations that are supported by surety bonds which expire
during 2002 through 2005. We intend to renew the performance
bonds where appropriate and as necessary.

Capital Resources

Cash generated from operations and our revolving credit facility
are our primary sources of capital.

We satisfy seasonal working capital needs and other financing
requirements with the revolving credit facility and several other
short-term lines of credit that approximated $17,282 as at
December 31, 2001 (of which $15,000 expires in May 2002). We are
continuously reviewing our existing sources of financing and
evaluating alternatives. At December 31, 2001, we had working
capital of $16,255 and approximately $30,361 of availability
under our revolving credit facility.

Our sources of capital presently allow us the financial
flexibility to meet our capital spending plan and to complete
business acquisitions.

Impact of Recently Issued Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (FAS) No. 141,
"Business Combinations," and FAS 142, "Goodwill and Intangible
Assets." FAS 141 is effective for all business combinations
completed after June 30, 2001, and requires using the purchase
method of accounting. FAS 142 is effective for fiscal years
beginning after December 15, 2001. Goodwill, as well as
intangible assets with indefinite lives, will no longer be
subject to amortization. Also, goodwill and intangible assets
with indefinite lives will be tested for impairment annually and
whenever there is an impairment indicator.

In August 2001, the FASB issued FAS 143, "Accounting for Asset
Retirement Obligations," which is effective for fiscal years
beginning January 1, 2003, and addresses financial accounting and
reporting for obligations associated with the retirement of
tangible, long-lived assets and the associated asset retirement
costs.

In August 2001, the FASB issued FAS 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which is effective
for fiscal years beginning January 1, 2002. FAS 144 supercedes
and clarifies the accounting in FAS 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of " and the accounting and reporting provisions of
Accounting Principles Board Opinion No. 30, "Reporting the
Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions," for the disposal
of a segment of a business.

We do not expect these new pronouncements to have a material
impact on our consolidated financial position or results of
operations.

MARKET RISK DISCLOSURES

In the normal course of business, we are exposed to market risk
related to changes in interest rates and changes in foreign
currency exchange rates. We do not hold or issue derivative
financial instruments for trading or speculative purposes.

Interest Rate Risk

We are exposed to market risk related to changes in interest
rates on long-term debt obligations. The interest rates on
substantially all of our long-term debt outstanding are variable.
We have interest rate protection from our interest rate swap to
limit exposure to interest rate volatility (Interest rate "swaps"
are the exchange of interest rate payments based on fixed versus
floating interest rates which reduce the risk of interest-rate
changes on future interest expense-"hedging").

The following table provides information, as of December 31,
2001, about our debt obligations and interest rate swap. For debt
obligations, the table presents principal cash flows, weighted-
average interest rates by expected maturity dates and fair
values. For the interest rate swap, the table presents the
underlying face (notional) amount, weighted-average interest rate
by contractual maturity dates and the fair value to settle the
swap at December 31, 2001. Weighted-average interest rates used
for variable rate obligations are based on rates as derived from
published spot rates, in effect as at December 31, 2001.

Fair
Value
December Decemb
31, er 31,

2 2 20 2 Ther T
2002 003 004 05 006 eaft otal 2001
er

Liabilities
Long-term
Fixed rate $ $ $ $ $ $ $ $
36 4 236
39 43 38 0 41 237
Average 10.8 10.8 10.4 10.0% 10.0 10.0
interest rate % % % % %

Variable $ $ 41 - - - - $ 42 $ 42,0
rate 38 ,689 ,077 77
8
Average 5.4% 7.7%
interest rate

Interest rate
derivative
financial
instruments
Interest rate
swap:
Pay fixed, - $ 1 - - - - $ 1 $
notional amount 0,00 0,00 589
0 0
Average pay 6.53 6.53
rate % %
Average 3.56 5.92
receive rate % %

Liabilities at December 31, 2001, included $237 of fixed-rate
debt and $42,077 of variable-rate debt. Interest rates, as of
December 31, 2001, on the fixed-rate debt ranged from 10.0% to
12.7% and interest rates on the variable-rate debt ranged from
4.4% to 8.1%.

The interest rate swap has an underlying face (notional) amount
of $10,000, which is used to calculate the cash flow to be
exchanged and does not represent the exposure to credit loss. If
we were to settle the swap agreement at December 31, 2001 (fair
value), we would pay $589.

Foreign Currency Rate Risk

We are exposed to market risk related to foreign currency
exchange rate risk resulting from our operations in Canada, where
a comprehensive range of horticultural services are provided.

Our financial results could be affected by factors such as
changes in the foreign currency exchange rate or differing
economic conditions in the Canadian markets as compared with the
markets for our services in the United States. Our earnings are
affected by translation exposures from currency fluctuations in
the value of the U. S. dollar as compared to the Canadian dollar.
Similarly, the Canadian dollar-denominated assets and liabilities
may result in financial exposure as to the timing of transactions
and the net asset / liability position of our Canadian
operations.

For the year ended December 31, 2001, the result of a
hypothetical 10% uniform change in the value of the U.S. dollar
as compared with the Canadian dollar would not have a material
effect on the results of operations and, as at December 31, 2001,
the change would not have a material effect on our financial
position. Our sensitivity analysis of the effects of changes in
foreign currency exchange rates does not factor in a potential
change in sales levels or local currency prices.

Impact of Inflation

The impact of inflation on the results of operations has not been
significant in recent years.

Item 7A. Quantitative and Qualitative Disclosures About Market
Risk.

The information set forth under the subcaption "Market Risk
Disclosures" contained in Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations" is
incorporated herein by reference.

Item 8. Financial Statements and Supplementary Data.

Our consolidated financial statements are attached hereto and
listed on page F-1 of this report on Form 10-K.

Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.

On October 19, 2001, we filed a Current Report on Form 8-K,
reporting under Item 4 the engagement of the Company's new
independent auditors, Ernst & Young LLP, and also reporting the
dismissal of Deloitte & Touche LLP. On October 31, 2001, we
filed an amended Current Report on Form 8-K/A, which contained
the response of Deloitte & Touche LLP.

PART III

Item 10. Directors and Executive Officers of the Registrant.

Information about our executive officers is in the section
"Executive Officers of the Registrant" at Part I, Item 4A of this
report on Form 10-K.

Information about our directors is in the section "Election of
Directors" of the 2002 Proxy Statement, all of which is
incorporated into this report by reference.

Item 11. Executive Compensation.

Information about director compensation is in the section
"Compensation of Directors" and information about executive
compensation is in the section "Remuneration of Executive
Officers" of the 2002 Proxy Statement, all of which is
incorporated into this report by reference.

Item 12. Security Ownership of Certain Beneficial Owners and
Management.

Information about ownership of our common shares by certain
persons is in the section "Ownership of Common Shares" of the
2002 Proxy Statement, all of which is incorporated into this
report by reference.

Item 13. Certain Relationships and Related Transactions.

Information about certain transactions between the Company and
their affiliates and certain other persons is in the sections
"Election of Directors" of the 2002 Proxy Statement, all of which
is incorporated into this report by reference.

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.

(a) (1) and (a) (2) Financial Statements and Schedules.

The response to this portion of Item 14 is set forth on page F-1
of this report on Form 10-K.

(a) (3) Exhibits.

The response to this portion of Item 14 is set forth on the
accompanying index of exhibits immediately following the
financial statements.

(b) Reports on Form 8-K.

During the quarter ended December 31, 2001, we filed one Current
Report on Form 8-K, as amended.

On October 19, 2001, the Company filed a Current Report on Form-8-
K dated October 19, 2001, reporting under Item 4 the engagement
of the Company's new independent auditors, Ernst & Young LLP, and
also reporting the dismissal of Deloitte & Touche LLP. On
October 31, 2001, we filed an amended Current Report on Form 8-
K/A dated October 31, 2001, which contained the response of
Deloitte & Touche LLP.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the
Securities and Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized on March 29, 2002.

THE DAVEY TREE EXPERT COMPANY

By: /s/ R. Douglas
Cowan

R. Douglas Cowan,
Chairman and
Chief Executive
Officer

Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities indicated on
March 29, 2002.

/s/ R. Douglas /s/ Karl J.
Cowan Warnke

R. Douglas Cowan, Director, Karl J. Warnke, Director,
Chairman and Chief Executive President and Chief Operating
Officer Officer
(Principal Executive Officer)

/s/ R. Cary /s/ David E.
Blair Adante

R. Cary Blair, Director David E. Adante, Executive Vice
President,
Chief Financial Officer and
Secretary
(Principal Financial Officer)

/s/ Russell R.
Gifford

Russell R. Gifford, Director
/s/ Nicholas R.
Sucic

Nicholas R. Sucic, Corporate
Controller
(Principal Accounting Officer)
/s/ Richard S.
Gray

Richard S. Gray, Director

/s/ Douglas K.
Hall

Douglas K. Hall, Director

/s/ Willard R.
Holland

Willard R. Holland, Director

/s/ James H.
Miller

James H. Miller, Director

INDEX OF EXHIBITS

Exhibit Description
No.

(3)(i) 1991 Amended Articles of Incorporation

(3)(ii) 1987 Amended and Restated Regulations of
The
Davey Tree Expert Company

(10)(a) 1987 Incentive Stock Option Plan
(Incorporated by reference to Exhibit
(10)(a) to the Registrant's Annual Report
on Form 10-K for the year ended December
31, 1997).

(10)(b) 1994 Omnibus Stock Plan (Incorporated by
reference to Exhibit (10)(b) to the
Registrant's Annual Report on Form 10-Q for
the quarter ended July 3, 1999).

(16) Letter re: change in certifying accountant
(Incorporated by reference to Exhibit 16 to
the Registrant's Current Report on Form 8-
K/A dated October 31, 2001).

(21) Subsidiaries of the Registrant

(23.1) Consent of Ernst & Young LLP, Independent
Auditors

(23.2) Consent of Deloitte & Touche LLP,
Independent Auditors

The documents listed as Exhibits 10(a) and 10(b) constitute
management contracts or compensatory plans or arrangements.

The Registrant is a party to certain instruments, copies of which
will be furnished to the Securities and Exchange Commission upon
request, defining the rights of holders of long-term debt.

ANNUAL REPORT ON FORM 10-K

ITEM 8, ITEM 14 (a)(1) AND (2)

LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CERTAIN EXHIBITS

FINANCIAL STATEMENT SCHEDULES

YEAR ENDED DECEMBER 31, 2001

THE DAVEY TREE EXPERT COMPANY

KENT, OHIO

LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

FORM 10-KITEM 14(a)(1) AND (2)

THE DAVEY TREE EXPERT COMPANY

The following consolidated financial statements of The
Davey Tree Expert Company are included in Item 8:

Audited Consolidated Financial Statements:

Report of Ernst & Young LLP, Independent F-2
Auditors

Report of Deloitte & Touche LLP, Independent F-3
Auditors

Consolidated Balance SheetsDecember 31, 2001 and F-4
2000

Consolidated Statements of OperationsYears ended F-5
December 31, 2001,
2000 and 1999

Statements of Consolidated Shareholders'
EquityYears ended December 31, 2001, F-6
2000 and 1999

Consolidated Statements of Cash FlowsYears ended F-7
December 31, 2001, 2000
and 1999

Notes to Consolidated Financial Statements F-8
December 31, 2001

Financial Statement Schedules:

None

All schedules for which provision is made in the
applicable accounting regulation of the
Securities and Exchange Commission are not
required under the related instructions or
are inapplicable and therefore have been
omitted.

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

To the Shareholders and the Board of Directors
The Davey Tree Expert Company

We have audited the accompanying consolidated balance sheet of
The Davey Tree Expert Company as of December 31, 2001 and the
related consolidated statements of operations, shareholders'
equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of The Davey Tree Expert Company at December
31, 2001 and the consolidated results of its operations and its
cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States.

/s/ ERNST & YOUNG LLP

Akron, Ohio
February 22, 2002

REPORT OF DELOITTE & TOUCHE LLP, INDEPENDENT AUDITORS

To the Shareholders and Board of Directors
The Davey Tree Expert Company
Kent, Ohio

We have audited the accompanying consolidated balance sheets of
The Davey Tree Expert Company and its subsidiaries as of December
31, 2000, and the related consolidated statements of operations,
shareholders' equity, and cash flows for each of the two years in
the period ended December 31, 2000. These financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.

In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of The
Davey Tree Expert Company and its subsidiaries as of December 31,
2000, and the results of their operations and their cash flows
for each of the two years in the period ended December 31, 2000,
in conformity with accounting principles generally accepted in
the United States of America.

/s/ DELOITTE & TOUCHE LLP

Cleveland, Ohio
March 7, 2001

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

Dece
mber
31,
2 2
001 000

Assets
Current assets:
Cash and cash equivalents $ $
4
06 57
Accounts receivable, net 47,672 56,523
Operating supplies 2,724 2,574
Prepaid expenses 3,478 3,814
Other current assets
3,40 4,91
7 6
Total current assets 57,687 67,884

Property and equipment:
Land and land improvements 6,436 6,429
Buildings and leasehold improvements 18,594 18,714
Equipment 2
200,488 02,975
225,518 228,118
Less accumulated depreciation 1
155,407 50,042
70,111 78,076

Other assets 25,147 10,468
Identified intangible assets and
goodwill, net 2,52 2,95
8 4
$ 1 $ 1
55,473 59,382

Liabilities and shareholders' equity
Current liabilities:
Short-term debt $ $
1,541 1,255

Accounts payable 16,919 12,914
Accrued expenses 14,249 12,269
Self-insurance accruals 8,190 5,559
Current portion of capital lease
obligations 5 5
33 01
Total current liabilities 41,432 32,498

Long-term debt 41,887 57,414
Capital lease obligations 3,600 4,090
Self-insurance accruals 11,444 11,277
Deferred income taxes 6,350 5,920
Other liabilities
5 79
10 1
105,223 111,990

Common shareholders' equity:
Common shares, $1.00 par value, per
share; 12,000 shares
authorized; 10,728 shares issued and 10,728 10,728
outstanding as of
December 31, 2001 and 2000
Additional paid-in-capital 5,163 4,308
Retained earnings 77,358 72,328
Accumulated other comprehensive
income (loss) (1,209 (745
) )
92,040 86,619
Less cost of Common shares held in
treasury:
3,000 in 2001 and 2,932 in 2000
41,790 39,227

50,250 47,392

$ 1 $ 15
55,473 9,382

See notes to consolidated financial statements.
THE DAVEY TREE EXPERT COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)

Year Ended
December 31,
200 200 199
1 0 9

Revenues $ 321,2 $ 322,2 $ 308,1
84 36 44

Costs and expenses:
Operating 212,783 226,441 210,628

Selling 50,564 49,978 45,403
General and administrative 22,567 23,015 21,742
Depreciation 19,054 20, 20,
722 019
Amortization of intangible
assets and goodwill 466 459 393
305, 320,6 298,1
434 15 85

Income from operations 15,850 1,621 9,959

Other income (expense):
Interest expense (4,993) (6,217) (4,947)
Gain on sale of assets 1,023 1,172 1,487
Other
(744) (60) (349)

Income (loss) before income taxes 11,136 (3,484) 6,150

Income taxes (benefit) (1
4,405 ,080) 2,435

Net income (loss) $ $ (2, $
6,731 404) 3,715

Net income (loss) per share:
Basic $ $ $
.87 (.30) .47

Diluted $ $ $
.82 (.30) .42

See notes to consolidated
financial statements.

THE DAVEY TREE EXPERT COMPANY
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
(In thousands, except per share amounts)

Accumul
Addit ated Common
Common ional Retai Other Shares
Shares Paid- ned in
In Compreh Treasury
ensive

Sh Amo Ca Earn Income Shar Amo To
ares unt pital ings (Loss) es unt tal

Balance, January 8,72 $ $ $ 9 $ 4,737 $ ( $ 5
1, 1999 8 8,7 5,89 4,547 (745) 51,15 7,268
28 3 5)

Comprehensi
ve income:
Net 3,715 3,715
income
Other
comprehensive
income
F
oreign currency 202
20
translation 2
adjustments
Comprehensi 3,917
ve income
Stock
dividend and 2,00 2,00 (3,98 (19,7 (1,98 21,74
share 0 0 2) 59) 2) 1
retirement
Shares 422 (6,76 (6,76
purchased 3) 3)
Shares sold 1,033 (146) 847 1,880
to employees
Options 192 (430) 1,974 2,166
exercised
Dividends,
$.20 per share (2,04 (2,04
8) 8)

Balance, 10,7 10,7 3,136 76,45 (543) 2,601 (33,3 56,42
December 31, 28 28 5 56) 0
1999

Comprehensi
ve income:
Net (2,40 (2,40
loss 4) 4)
Other
comprehensive
income
F
oreign currency (202)
(20
translation 2)
adjustments
Comprehensi (
ve loss 2,606
)
Shares 640 (8,20 (8,20
purchased 5) 5)
Shares sold 1,162 (251) 1,960 3,122
to employees
Options 10 (58) 374 384
exercised
Dividends,
$.22 per share (1,72 (1,72
3) 3)

Balance, 10,7 10,7 4,308 72,32 (745) 2,932 (39,2 47,39
December 31, 28 28 8 27) 2
2000

Comprehensi
ve income:
Net 6,731 6,731
income
Other
comprehensive
income
F
oreign currency (99) (99)

translation
adjustments
D
erivative
instrument:
C
umulative effect (105) (105)
of

accounting
change
U
nrealized loss (260)
on (2
60)
interest
rate swap
Comprehensi 6,267
ve income
Shares 492 (5,54 (5,54
purchased 1) 1)
Shares sold 918 (284) 2,021 2,939
to employees
Options (63) (140) 957 894
exercised
Dividends,
$.22 per share (1,70 (1,7
1) 01)

Balance, $ $ $ 7 $ $ ( $
December 31, 10,7 10,7 5,16 7,358 (1,209) 3 41,79 50,25
2001 28 28 3 ,000 0) 0

See notes to consolidated financial statements.

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

Year
Ended December
31,
2 1
2001 000 999

Operating activities
Net income (loss) $ $ ( $
6,731 2,404) 3,715

Adjustments to reconcile net
income (loss) to net
cash provided by (used in)
operating activities:
Depreciation 19,054 20,722 20,019
Amortization 466 459 393
Gain on sale of property (1,023) (1,172) (1,487)
Deferred income taxes (342) 568 971
Other
( (2
194) 24 90)
24,692 18,197 23,321
Changes in operating
assets and liabilities:
Accounts receivable (4,475) 15,129
(20,091)
Accounts payable 5,985 (24) (2,077)
and accrued expenses
Self-insurance 2,798 926 (856)
accruals
Other assets, net
(2,96 (4,13
813 1) 2)

5, 13,07 (27,156
121 0 )
Net cash 29,813
provided by (used in) operating 31,267 (
activities 3,835)

Investing activities
Capital expenditures:
Equipment (11,593) (17,099) (18,006)
Land and buildings (99) (377) (2,574)
Proceeds from sales of property and 1,419 3,719 2,730
equipment
Purchases of businesses
(4 (85
(83) 52) 7)
Net cash used
in investing activities (10,356 (14,209 (18,707)
) )
Increase (decrease) in cash 19,457 17,058 (22,542)
before financing activities

Financing activities
Revolving credit facility (15,100) (10,200) 25,700
(payments) proceeds, net
Borrowings of notes payable 288 326 500
Payments of long-term debt and (887) (762) (547)
capital leases
Purchase of Common shares for (5,541) (8,205) (6,763)
treasury
Sale of Common shares from 3,833 3,506 4,046
treasury
Dividends
(1,70 (1,723 (1,60
1) ) 1)
Net cash (used
in) provided by financing activities (19,108 (17,058) 21,33
) 5

Increase (decrease) in cash and cash 349 - (1,207)
equivalents
Cash and cash equivalents, beginning of
year 1,26
57 57 4
$ $ $
Cash and cash equivalents, end of year
406 57 57

See notes to consolidated financial
statements.

The Davey Tree Expert Company
Notes to Consolidated Financial Statements
December 31, 2001
(In thousands, except share data)

A. The Company's Business

The Davey Tree Expert Company and its subsidiaries (the
"Company") provides a wide range of horticultural services to
residential, commercial, utility and institutional customers
throughout the United States and Canada.

Residential and Commercial Services provides for the treatment,
preservation, maintenance, cultivation, planting and removal of
trees, shrubs and other plant life; its services also include the
practice of landscaping, tree surgery, tree feeding, and tree
spraying, as well as the application of fertilizer, herbicides
and insecticides.

Utility Services is principally engaged in the practice of line
clearing for public utilities, including the clearing of tree
growth from power lines, clearance of rights-of-way and chemical
brush control.

Resource Group provides services related to natural resource
management and consulting, forestry research and development, and
environmental planning and also maintains research, technical
support and laboratory diagnostic facilities.

B. Significant Accounting Policies

Principles of Consolidation--The consolidated financial
statements include the accounts of the Company and its wholly-
owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.

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.

Fiscal Year--The Company's fiscal year ends on the Saturday
closest to December 31. The fiscal years reported are for the 52-
week periods ended December 29, 2001, December 30, 2000 and
January 1, 2000. For purposes of the consolidated financial
statements, the year-end is referred to as December 31 for all
periods presented.

Cash Equivalents--Cash equivalents are highly liquid investments
with maturities of three months or less when purchased.

Revenue Recognition--Revenues from residential and commercial
services are recognized as the services are provided and amounts
are determined to be collectible. Revenues from contractual
arrangements, primarily with utility services customers, are
recognized based on costs incurred to total estimated contract
costs. During the performance of such contracts, estimated final
contract prices and costs are periodically reviewed and revisions
are made, as required, to the revenue recognized. On cost-plus-
fee contracts, revenue is recognized to the extent of costs
incurred plus a proportionate amount of fees earned, and on time-
and-material contracts revenue is recognized to the extent of
billable rates times hours worked, plus material and other
reimbursable costs incurred. Revisions arise in the normal course
of providing services to utility services customers and generally
relate to changes in contract specifications and cost
allowability. Such revisions are recorded when realization is
probable and can be reliably estimated.
The Davey Tree Expert Company
Notes to Consolidated Financial Statements(Continued)
December 31, 2001
(In thousands, except share data)

B. Significant Accounting Policies (continued)

Concentration of Credit Risk--Credit risk represents the
accounting loss that would be recognized if the counterparties
failed to perform as contracted. The principal financial
instruments subject to credit risk follows:

Cash and Cash Equivalents, and Derivative Financial
Instruments: To limit its exposure, the Company transacts
its business and maintains an interest rate swap with high
credit quality financial institutions.

Accounts Receivable: The Company's residential and
commercial customers are located geographically throughout
the United States and Canada and, as to commercial
customers, within differing industries, thus minimizing
credit risk. The credit exposure of utility services
customers is directly affected by conditions within the
utility industries as well as the financial condition of
individual customers. One utility services customer
approximated 16% of revenues during 2001, 2000 and 1999. To
reduce credit risk, the Company evaluates the credit of
customers, but generally does not require advance payments
or collateral. Exposure to losses on receivables is
principally dependent on each customer's financial
condition.

Property and Equipment--Property and equipment are stated at
cost. Repair and maintenance costs are expensed as incurred.
Depreciation is computed for financial reporting purposes by the
straight-line method for land improvements, building and
leasehold improvements and by the double-declining method for
equipment, based on the estimated useful lives of the assets, as
follows:

Land improvements 5 to 20 years
Buildings 5 to 20 years
Equipment 3 to 10 years
Leasehold improvements Shorter of lease term or
estimated useful life;
ranging from 5 to 20
years

The amortization of assets acquired under capital leases is
included in depreciation expense.

Intangible Assets--Amortization is computed for identified
intangible assets and goodwill by the straight-line method, based
on estimated useful lives, as follows:

Customer lists 3 to 10 years
Employment contracts Life of contract; ranging from
3 to 10 years
Goodwill 10 to 15 years

Long-Lived Assets--The Company assesses potential impairment to
its long-lived assets when there is evidence that events or
changes in circumstances have made recovery of the asset's
carrying value unlikely and the carrying amount of the asset
exceeds the estimated future undiscounted cash flow. In the event
the assessment indicates that the carrying amounts may not be
recoverable, an impairment loss would be recognized to reduce the
asset's carrying amount to its estimated fair value based on the
present value of the estimated future cash flows.

The Davey Tree Expert Company
Notes to Consolidated Financial Statements(Continued)
December 31, 2001
(In thousands, except share data)

B. Significant Accounting Policies (continued)

Stock Compensation Arrangements--The Company accounts for stock
compensation arrangements using the intrinsic value based method
in APB Opinion No. 25 "Accounting for Stock Issued to Employees."

Derivative Financial Instruments--Derivative financial
instruments such as interest rate swaps are used by the Company
to reduce interest rate risks. The Company does not hold or issue
derivative financial instruments for trading purposes.

Self-Insurance Accruals--The Company is generally self-insured
for losses and liabilities related primarily to workers'
compensation, vehicle liability and general liability claims. The
Company uses commercial insurance as a risk-reduction strategy to
minimize catastrophic losses. Ultimate losses are accrued based
upon estimates of the aggregate liability for claims incurred
using certain actuarial assumptions followed in the insurance
industry and based on Company-specific experience.

The self-insurance accruals include claims for which the ultimate
losses will develop over a period of years. Accordingly, the
estimates of ultimate losses can change as claims mature. The
accruals also are affected by changes in the number of new claims
incurred and claim severity. The methods for estimating the
ultimate losses and the total cost of claims were determined by
external consulting actuaries; the resulting accruals are
continually reviewed by management, and any adjustments arising
from changes in estimates are reflected in income currently.

The self-insurance accruals are based on estimates, and while
management believes that the amounts accrued are adequate, the
ultimate claims may be in excess of or less than the amounts
provided.

Income Taxes--The Company computes taxes on income in accordance
with the tax rules and regulations where the income is earned.
The income tax rates imposed by these taxing authorities vary.
Taxable income may differ from pretax income for financial
reporting purposes. To the extent differences are due to revenue
and expense items reported in one period for tax purposes and in
another period for financial reporting purposes, an appropriate
provision for deferred taxes is made. Changes in tax rates and
laws are reflected in income in the period when such changes are
enacted.

Net Income Per Share and Common Shares--Basic net income per
share is determined by dividing the income available to common
shareholders by the weighted-average number of common shares
outstanding. Diluted net income per share is computed similar to
basic net income per share except that the weighted-average
number of shares is increased to include the effect of stock
options that were granted and outstanding during the period.

On May 19, 1999 the Company's Board of Directors declared a 2-for-
1 stock split in the form of a 100% stock dividend on outstanding
shares, to shareholders of record as of June 1, 1999. To effect
the stock split the Board of Directors authorized the retirement
of 1,981,894 common shares held in treasury. Common share
disclosures have also been restated, where appropriate, to
reflect the 2-for-1 stock split.

Foreign Currency Translation--All assets and liabilities of the
Company's Canadian operations are translated into United States
dollars at year-end exchange rates while revenues and expenses
are translated at weighted-average exchange rates in effect
during the year. Translation adjustments are recorded as
accumulated other comprehensive income (loss) in shareholders'
equity.

The Davey Tree Expert Company
Notes to Consolidated Financial Statements(Continued)
December 31, 2001
(In thousands, except share data)

B. Significant Accounting Policies (continued)

Comprehensive Income (Loss)--Comprehensive income (loss) includes
net income and other comprehensive income or loss. Other
comprehensive income (loss) refers to revenues, expenses, gains
and losses that under generally accepted accounting principles
are included in comprehensive income but are excluded from net
income as these amounts are recorded directly as an adjustment to
shareholders' equity, net of tax. The Company's other
comprehensive income (loss) is composed of foreign currency
translation adjustments and unrealized gains and losses from its
interest rate swap.

Fair Values--The carrying amount of cash and cash equivalents,
receivables, accounts payable and debt approximates fair value as
of December 31, 2001 and 2000.

Financial Statement Presentation Changes--Certain amounts for
prior years have been reclassified to conform to the current year
presentation.

New Accounting Standard Adopted--Effective January 1, 2001, the
Company adopted Statement of Financial Accounting Standards
("FAS") No. 133 "Accounting for Derivative Instruments and
Hedging Activities" as amended by FAS 138. FAS 133 requires that
all derivatives, such as interest rate exchange agreements
(swaps), be recognized on the balance sheet at fair value. The
Statement also requires that changes in the derivative
instrument's fair value be recognized currently in the results of
operations unless specific hedge accounting criteria are met. The
cumulative effect of the accounting change, as of January 1,
2001, was not significant.

Recently Issued Accounting Pronouncements--In July 2001, the
Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (FAS) No. 141, "Business
Combinations," and FAS 142, "Goodwill and Intangible Assets." FAS
141 is effective for all business combinations completed after
June 30, 2001 and requires using the purchase method of
accounting. FAS 142 is effective for fiscal years beginning after
December 15, 2001. Goodwill, as well as intangible assets with
indefinite lives, will no longer be subject to amortization.
Also, goodwill and intangible assets with indefinite lives will
be tested for impairment annually and whenever there is an
impairment indicator.

In August 2001, the FASB issued FAS 143, "Accounting for Asset
Retirement Obligations," which is effective for the Company's
year beginning January 1, 2003, and addresses financial
accounting and reporting for obligations associated with the
retirement of tangible, long-lived assets and the associated
asset retirement costs.

In August 2001, the FASB issued FAS 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which is effective
for the Company's year beginning January 1, 2002. FAS 144
supercedes and clarifies the accounting in FAS 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of " and the accounting and reporting provisions
of Accounting Principles Board Opinion No. 30, "Reporting the
Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions," for the disposal
of a segment of a business.

The Company does not expect these new pronouncements to have a
material impact on the Company's consolidated financial position
or results of operations.

The Davey Tree Expert Company
Notes to Consolidated Financial Statements(Continued)
December 31, 2001
(In thousands, except share data)

C. Accounts Receivable, Net

Accounts receivable, net, consisted of the following:

December
31,
2001 2000

Accounts receivable $ 59 $ 48
,102 ,395
Receivables under contractual 1
arrangements 3,174 0,248
62,276 58,643
Less prepetition accounts
receivable
from PG&E classified as
noncurrent other assets 1
3,326
-
48,950 58,643
Less allowances for doubtful
accounts 1,278 2,120
$ 47 $ 56
,672 ,523

Receivables under contractual arrangements consist of work-in-
process in accordance with the terms of contracts, primarily
utility services customers.

On April 6, 2001, one of the Company's largest utility customers,
Pacific Gas and Electric Company (PG&E) filed a voluntary
bankruptcy petition under Chapter 11 of the U. S. Bankruptcy
Code. Subsequent to the bankruptcy petition date, the Company
continued to provide services under the terms of its contracts
with PG&E. The Company continues to perform services for PG&E and
receives payment for post-petition date services performed, as
part of PG&E administrative expenses.

At December 31, 2001, the Company had net prepetition accounts
receivable from PG&E that approximated $13,326 and related to
services provided by the Company to PG&E prior to the bankruptcy
petition date.

On September 20, 2001, PG&E filed a reorganization plan as part
of its Chapter 11 bankruptcy proceeding that seeks to pay all of
its creditors in full. Components of the plan will require the
approval of the Federal Energy Regulatory Commission, the
Securities and Exchange Commission and the Nuclear Energy
Regulatory Commission, in addition to the bankruptcy court. PG&E
has stated that it expects to complete the reorganization process
by the end of 2002. Management has monitored the situation
closely and will continue to assess the collectibility of its
receivables from PG&E. In management's opinion, the prepetition
receivables from PG&E are collectible.

As the Company anticipates receiving payment after 2002, the
$13,326 of prepetition accounts receivable has been classified as
noncurrent other assets.

The Davey Tree Expert Company
Notes to Consolidated Financial Statements(Continued)
December 31, 2001
(In thousands, except share data)

D. Supplemental Balance Sheet and Cash Flow Information

Other current assets consisted of:

D
ecember
31,

2001 2000

Refundable $ - $
income taxes 2,281
Deferred income 3,407
taxes 2,635
Total $ 3,407 $
4,916

Other assets consisted of:

De
cember
31,

2001 2000

Prepaid pension costs $ 10, $
922 9,352
Prepetition accounts 13,326 -
receivable from PG&E
Deposits
899 1,116
Total $ 25, $ 10
147 ,468

Identified intangible assets and goodwill, net, consisted of:

December
31,
200 200
1 0
Customer lists $ 2 $ 2
,950 ,906
Noncompete agreements 563 562
Goodwill
2,651 2,656
6,164 6,124
Less accumulated amortization
3,636 3,170
Total $ 2 $ 2
,528 ,954

Accrued expenses consisted of the following:

December
31,
200 200
1 0
Employee compensation $ 5 $ 5
,845 ,652
Accrued vacation 2,491 2,713
Self-insured medical claims 919 984
Commercial insurance payable 1,475 694
Income taxes payable 1,416 -
Taxes, other than income 601 501
Other 1
1,502 ,725
Total $ 14, $ 12,
249 269

The Davey Tree Expert Company
Notes to Consolidated Financial Statements(Continued)
December 31, 2001
(In thousands, except share data)

D. Supplemental Balance Sheet and Cash Flow Information
(continued)

Year Ended
December 31,
200 200 199
1 0 9
Proceeds from revolving $ 48 $ 115, $ 68,
credit facility ,300 245 826
Payments of revolving credit (63,40 (125,4 (43,12
facility 0) 45) 6)
Interest paid 5,330 5,957 4,912
Income taxes paid (refunds 2,465 (1,742 2,591
received), net )
Noncash transactions:
Equipment acquired
through capital leases - - 4,947

E. Pension Plans

Substantially all of the Company's domestic employees are covered
by two noncontributory defined benefit pension plans.

The plan for nonbargaining employees provides a benefit based
primarily on annual compensation up to a defined level and years
of credited service. The other plan is for bargaining employees
not covered by union pension plans and provides benefits at a
fixed monthly amount based upon length of service. The Company's
funding policy is to make the annual contributions necessary to
fund the plans within the range permitted by applicable
regulations.

Summarized information on the Company's defined benefit pension
plans follows:

Decembe
r 31,
20 200
01 0
Change in benefit obligation

Projected benefit $ $
obligation at beginning of 13,411 12,778
year
Service cost 786 607
Interest cost 973 924
Amendments 574 -
Actuarial loss 933 321
Benefit payments
(1,258) (1,219
)
Projected benefit $ $
obligation at end of year 15,419 13,411

Decembe
r 31,
20 200
01 0
Change in plan assets

Fair value of plan $ $
assets at beginning of year 33,840 38,569
Actual return on plan (3,169) (3,510)
assets
Benefit payments
(1,258) (1,219)
Fair value of plan $ $
assets at end of year 29,413 33,840

The Davey Tree Expert Company
Notes to Consolidated Financial Statements(Continued)
December 31, 2001
(In thousands, except share data)

E. Pension Plans (continued)

Decembe
r 31,
20 200
01 0
Funded status

Fair value of plan $ $
assets at end of year 29,413 33,840
Projected benefit
obligation at end of year 15,419 13,411
Plan assets in excess 13,994 20,429
of benefit obligation
Unrecognized net (2,404) (9,729)
actuarial gain
Unrecognized prior 46 (562)
service cost
Unrecognized
transition asset (71 (786
4) )
Prepaid pension costs
recognized $ $
in balance sheet 10,922 9,352

The assumptions used in developing the benefit obligations were
as follows:

Decembe
r 31,
20 200
01 0
Weighted-average assumptions

Discount rate used to
determine projected 7.25% 7.50%
benefit
obligation
Expected return on 8.00 8.25
plan assets
Rate of increase in 5.0 5.0
compensation

Net periodic benefit income associated with the defined benefit
pension plans included the following components:

Year Ended
December 31,
2001 2000 1999

Components of pension expense
(income)

Service costs--increase $ $ $
in benefit obligation earned 786 607 699
Interest cost on 973 924 887
projected benefit obligation
Expected return on plan (2,732) (3,129) (2,644)
assets
Recognized net actuarial (491) (1,096) (759)
gains
Amortization of prior (34) (34) (34)
service cost
Amortization of (72) (72) (72)
transition asset
Settlement gain
(191)
- -
Net pension income of $ ( $ ( $ (
defined benefit pension plans 1,570) 2,800) 2,114)

In addition to the Company sponsored defined benefit plans, the
Company contributes to several multiemployer plans. Total pension
expense for multiemployer plans was $289 in 2001, $183 in 2000,
and $194 in 1999.

The Davey Tree Expert Company
Notes to Consolidated Financial Statements(Continued)
December 31, 2001
(In thousands, except share data)

F. Short-Term and Long-Term Debt

Short-term debt consisted of the following:

Decembe
r 31,
200 200
1 0
Notes payable, bank $ $
1,114 826
Current portion of long-term
debt 427 429
$ $
1,541 1,255

The note payable is due on demand and bears interest at the
bank's prime interest rate (4.25% at December 31, 2001 and 9.29%
at December 31, 2000).

At December 31, 2001 the Company also had unused short-term lines
of credit with several banks totaling $17,282, generally at the
banks' prime rate (of which $15,000 expires in May 2002).

Long-term debt consisted of the following:

Decembe
r 31,
200 200
1 0
Revolving credit facility
Prime rate borrowings $ $
1,300 6,400
LIBOR borrowings
40,000 50,000
41,300 56,400
Subordinated notes, share 777 1,166
redemption
Term loans
23 27
7 7
42,314 57,843
Less current portion
42 42
7 9
$ $
41,887 57,414

Revolving Credit Facility--The Company has a revolving credit
facility with a group of banks that permits borrowings, as
defined, up to $90,000, with a letter of credit sublimit of
$25,000, through April 2003. Interest rates on borrowings
outstanding are based, at the Company's option, at the agent
bank's prime rate or LIBOR plus a margin adjustment of 2.4%. A
commitment fee is also required of between .25% and .35% of the
average daily-unborrowed commitment. Under the revolving credit
facility agreement, the banks have a blanket lien on all personal
property and liens on certain real property of the Company.

The agreement was amended in March 2001 because of constraints in
the financial covenants, the LIBOR margin adjustment was changed
to 2.4% and the financial covenants were modified. Under the most
restrictive covenants of the amended agreement, the Company is
obligated to maintain minimum shareholders' equity, as defined.
The agreement also has restrictive financial covenants requiring
a maximum ratio of funded debt, as defined, to EBITDA (earnings
before interest, taxes, depreciation and amortization) and a
minimum ratio of EBIT (earnings before interest and taxes) to
interest expense.
The Davey Tree Expert Company
Notes to Consolidated Financial Statements(Continued)
December 31, 2001
(In thousands, except share data)

F. Short-Term and Long-Term Debt (continued)

Subordinated Notes-share redemption--In 1998, the Company
redeemed common shares for cash and five-year subordinated
promissory notes. These notes bear interest based on the five-
year U.S. Treasury rate in effect at January 1 of each year
(4.99% in 2001 and 6.36% in 2000).

Term Loans--The weighted-average interest on the term loans
approximated 10.37% (10.42% at December 31, 2000).

Interest rate swap--(Interest rate "swaps" are the exchange of
interest rate payments based on fixed versus floating interest
rates which reduce the risk on interest-rate changes on future
interest expense_ "hedging")--The Company has an interest rate
swap with an underlying face (notional) amount of $10,000 that
matures on March 31, 2003 and requires interest to be paid at
6.53%. The fair value of the swap is the amount quoted by the
financial institution that the Company would pay to terminate the
swap, a liability of $589 at December 31, 2001. In adopting FAS
133 during 2001, the Company determined that the interest rate
swap meets the criteria for cash flow hedge accounting. The
interest rate swap effectively converts a portion of the
Company's variable-rate revolving credit borrowings to a fixed
rate, thus reducing the impact of interest-rate changes on future
interest expense. During the year ended December 31, 2001, the
Company recognized $365, net of tax, in other comprehensive
income related to change in the fair value of the interest rate
swap. Prior to 2001, the Company accounted for the interest rate
swap using the settlement method or the "matched swap" method in
which the quarterly net cash settlements of the agreements were
recognized in interest expense. Interest expense was decreased by
$8 in 2000 and increased by $82 in 1999.

Aggregate Maturities of Long-Term Debt--Aggregate maturities of
long-debt for the five years subsequent to December 31, 2001 were
as follows: 2002--$427; 2003--$41,732; 2004--$38; 2005--$36 and
2006--$40.

G. Self-Insurance Accruals

Components of the Company's self-insurance accruals for workers'
compensation, vehicle liability and general liability follow:

Decemb
er 31,
20 20
01 00
Workers' compensation $ $
12,761 11,248
Present value discount
2,19 1,5
1 97
10,570 9,651
Vehicle liability 4,325 3,225
General liability
4,73 3,96
9 0
Total 19,634 16,836
Less current portion
8,19 5,55
0 9
Noncurrent portion $ $
11,444 11,277

The Davey Tree Expert Company
Notes to Consolidated Financial Statements(Continued)
December 31, 2001
(In thousands, except share data)

G. Self-Insurance Accruals (continued)

The table below reconciles the changes in the self-insurance
accruals for losses and related payments and sets forth the
discount rate used for the workers compensation accrual.

Decemb
er 31,
20 20
01 00
Balance, beginning of year $ $
16,836 15,910
Provision for claims 20,212 17,556
Increase (decrease) cost from
change in 91 308
discount rate
Payment of claims
17,50 16,93
5 8
Balance, end of year $ $
19,634 16,836

Workers compensation discount
rate 4.75% 5.00%

H. Lease Obligations

Assets acquired under capital leases and included in property and
equipment consisted of the following:

Decemb
er 31,
20 20
01 00
Equipment $ $
4,94 4,94
7 7
Less accumulated amortization
1,50 8
7 35
$ $
3,44 4,11
0 2

The Company also leases facilities under noncancelable operating
leases, which are used for district office and warehouse
operations. These leases extend for varying periods of time up to
five years and, in some cases, contain renewal options.

Minimum rental commitments under all capital and noncancelable
operating leases, as of December 31, 2001 were as follows:
Lease
Obligations

Cap Operat
ital ing
Minimum lease obligations
Year ending December 31, $ $
2002 790 1,711
2003 790 1,107
2004 790 845
2005 919 607
2006 696 381
2007 and
after 1,056 65
6
Total minimum lease payments 5,041 $
5,307
Amounts representing interest
90
8
Present value of net minimum lease 4,133
payments
Less current portion
53
3
Long-term capital lease $
obligations December 31, 2001 3,600

Total rent expense under all operating leases was $2,437 in 2001,
$2,295 in 2000 and $2,000 in 1999.
The Davey Tree Expert Company
Notes to Consolidated Financial Statements(Continued)
December 31, 2001
(In thousands, except share data)

I. Common Shares and Preferred Shares

The Company has authorized a class of 4,000,000 preferred shares,
no par value, of which none were issued.

The number of common shares authorized is 12,000,000, par value
$1.00. The number of common shares issued was 10,728,440 during
each of the three years ended December 31, 2001. The number of
shares in the treasury for each of the three years ended December
31, 2001 were as follows: 2001-- 2,999,526; 2000-- 2,932,289;
and, 1999-- 2,601,058.

The Company's stock is not listed or traded on an active stock
market and market prices are, therefore, not available.
Semiannually, an independent stock valuation firm determines the
fair market value based upon the Company's performance and
financial condition. Since 1979, the Company has provided a ready
market for all shareholders through its direct purchase of their
common shares. During 2001, purchases of common shares totaled
491,700 shares for $5,541 in cash; the Company also had direct
sales, to directors and employees of 6,773 shares for $75,
excluding those shares issued through either the exercise of
options or the employee stock purchase plan. It also sold 102,546
shares from the Company's 401(k) plan for $1,130 and issued
41,632 shares to participant accounts to satisfy its liability
for the 2000 employer match in the amount of $458. The liability
accrued at December 31, 2001 for the 2001 employer match was
$500. There were also 132,963 shares purchased during 2001 under
the employee stock purchase plan.

J. Employee Stock Ownership Plan and 401KSOP

On March 15, 1979, the Company consummated a plan, which
transferred control of the Company to its employees. As a part of
this plan, the Company sold 2,880,000 common shares to the
Company's Employee Stock Ownership Trust (ESOT) for $2,700.

The Employee Stock Ownership Plan (ESOP), in conjunction with the
related ESOT, provided for the grant to certain employees of
certain ownership rights in, but not possession of, the common
shares held by the trustee of the Trust. Annual allocations of
shares have been made to individual accounts established for the
benefit of the participants.

Effective January 1, 1997, the Company commenced operation of the
"The Davey 401KSOP and ESOP," which retained the existing ESOP
participant accounts and incorporated a deferred savings plan
(401(k) plan) feature. Participants in the plan are allowed to
make before-tax contributions, within Internal Revenue Service
established limits, through payroll deductions. The Company will
match, in either cash or Company stock, 50% of each participant's
before-tax contribution, limited to the first 3% of the
employee's compensation deferred each year. All nonbargaining
domestic employees who attained age 21 and completed one year of
service are eligible to participate. The Company's cost of this
plan, consisting principally of the employer match, was $500 in
2001, $466 in 2000, and $489 in 1999.

The Davey Tree Expert Company
Notes to Consolidated Financial Statements(Continued)
December 31, 2001
(In thousands, except share data)

K. Employee Stock Purchase Plan and Stock Option Plans

Employee Stock Purchase Plan--The Company has an employee stock
purchase plan that provides the opportunity for all full-time
employees with one year of service to purchase shares through
payroll deductions. Purchases under the plan, at 85% of the fair
market value of the common shares, have been as follows:

Year Ended
December 31,
200 200 199
1 0 9

Number of employees 900 1,032 1,025
participating

Shares purchased during the 132,96 131,30 103,03
year 3 9 8

Weighted-average per share $9.59 $10.75 $13.63
purchase price paid

Cumulative shares purchased 3,438, 3,305, 3,174,
since 1982 562 599 290

Stock Option Plans--The 1994 Omnibus Stock Plan (Stock Plan)
consolidated into a single plan provisions for the grant of stock
options and other stock based incentives and maintenance of the
employee stock purchase plan. Prior to adoption of the Stock
Plan, the Company had two qualified stock option plans available
for officers and management employees; the final grant of awards
under those plans was December 10, 1993. The maximum number of
shares that may be issued upon exercise of stock options, other
than director options and nonqualified stock options, is
1,600,000 during the ten-year term of the Stock Plan. Shares
purchased since 1994 under the stock purchase plan were
1,128,658. Each nonemployee director elected or appointed, and
reelected or reappointed, will receive a director option that
gives the right to purchase, for six years, 4,000 common shares
at the fair market value per share at date of grant. The director
options are exercisable six months from the date of grant. The
aggregate number of common shares available for grant and the
maximum number of shares granted annually are based on formulas
defined in the Stock Plan. The grant of awards, other than
director options, is at the discretion of the compensation
committee of the Board of Directors. Shares available for grant
at December 31, 2001 were 478,729.

A summary of the Company's stock option activity, excluding
director options, is presented below:

2001 2000 1999

Weigh Weigh Weigh
ted- ted- ted-
Avera Avera Avera
Options Opti ge Opt ge Opt ge
ons Exerc ions Exerc ions Exerc
ise ise ise
Pr Pr Pri
ice ice ce

Outstanding, 1,301 $ 1,351 $ 1,772 $
beginning of ,696 7.07 ,344 7.05 ,430 6.55
year
Granted - - - - - -
Exercised (140, 6.36 (49,6 6.54 (414, 4.93
549) 48) 273)
Forfeited - - 4.70
(6,81
- - 3)

Outstanding, 1,16 7.15 1,301 7.07 1,351 7.05
end of year 1,147 ,696 ,344

The Davey Tree Expert Company
Notes to Consolidated Financial Statements(Continued)
December 31, 2001
(In thousands, except share data)

K. Employee Stock Purchase Plan and Stock Option Plans
(continued)

The following table summarizes information about stock options
outstanding and exercisable, excluding director options at
December 31, 2001:

Optio Options
ns Exercisable
Outstanding

Weighte
d- Weight Weight
Average ed- ed-
Exerci Remaini Averag Averag
se Opt ng e Op e
Pri ions Contrac Exerci tions Exerci
ces tual se se
Lif Pr Pr
e ice ice

$ 36,500 1.0 $ 36,500 $
5.95 years 5.95 5.95
6.22 256,19 .3 6.22 256,19 6.22
8 years 8
6.92 368,80 2.0 6.92 368,80 6.92
0 years 0
7.90 4.9 7.90 7.90
499,6 years 499,6
49 49
1, 1,
161,14 161,14
7 7

A summary of the status of the Company's director options is
presented below:

2001 2000 1999

Weigh Weigh Weigh
ted- ted- ted-
Avera Avera Avera
Options Opti ge Opti ge Opti ge
ons Exerc ons Exerc ons Exerc
ise ise ise
Pr Pr Pr
ice ice ice

Outstanding, 40,00 $ 44,00 $ 56,00 $
beginning of 0 11.6 0 10.2 0 9.07
year 0 0
Granted 12,00 11.00 8,000 13.00 4,000 16.00
0
Exercised - - (8,00 7.41 (16,0 7.68
0) 00)
Forfeited 7.41 9.10 -
(8,00 (4,00
0) 0) -
Outstanding
and 12.16 4 11.60 10.20
exercisable, 44,00 0,000 44,00
end of 0 0
year

FAS No. 123, "Accounting for Stock-Based Compensation," requires
the pro forma disclosure of the effect on net income and net
income per share when applying the fair value method of valuing
stock based compensation. In calculating the pro forma impact on
net income, the following assumptions were used: initial annual
dividend rate of 1.5% per share; a risk free interest rate of
6.25% and an expected life of five years. The 1996 options vest
at the rate of 20% annually.

Year Ended
December 31,
200 2000 1999
1

Net income (loss) as $ $ ( $
reported 6,731 2,404) 3,715
Pro forma 6,374 (2,688) 3,510

Net income (loss) per share-
-diluted
As reported $ $ $
.82 (.30) .42
Pro forma .77 (.34) .40

The Davey Tree Expert Company
Notes to Consolidated Financial Statements(Continued)
December 31, 2001
(In thousands, except share data)

L. Other Comprehensive Income (Loss)

The components of accumulated other comprehensive income (loss)
follows:

Year Ended
December 31,
20 200 199
01 0 9
Comprehensive Income
Net Income (loss) $ $ (2 $
6,731 ,404) 3,715
Other comprehensive income
(loss)
Foreign currency (99) (202) 202
translation adjustments
Derivative
instrument:
Cumulative (170) - -
effect of accounting change
Change in fair
value of interest rate swap (419) - -

(589) - -
Other comprehensive
income (loss), (688) (202) 202
before income
taxes
Income tax benefit,
related to
items of other 224 - -
comprehensive income
Other
comprehensive income (loss) (464) (202) 202
Comprehensive income $ $ (2 $
(loss) 6,267 ,606) 3,917

Year Ended
December 31,
20 200 199
01 0 9
Accumulated comprehensive
income (loss)
Foreign currency $ $ $
translation adjustments (844) (745) (543)
Fair value of
interest rate swap (365) - -

Accumulated $ (1 $ $
comprehensive income (loss) ,209) (745) (543)

M. Income Taxes

Income (loss) before income taxes were attributable to the
following sources:

Year Ended
December 31,
200 2000 1999
1

United States $ 1 $ ( $
0,287 3,011) 6,364
Canada
849 (473) (214
)
Totals $ 1 $ ( $
1,136 3,484) 6,150

The Davey Tree Expert Company
Notes to Consolidated Financial Statements(Continued)
December 31, 2001
(In thousands, except share data)

M. Income Taxes (continued)

Income taxes have been provided as follows:

Year Ended
December 31,
200 2000 1999
1
Current:
Federal $ $ ( $
3,180 1,360) 1,085
State and local 900 (140) 400
Canadian
442 (148) (21)

4,522 (1,648) 1,464
Deferred:
Federal 291 512 932
State and local (244) 82 (43)
Canadian
(164) (26) 82

(117) 568 971
$ $ (1 $
4,405 ,080) 2,435

Deferred income taxes reflect the tax effects of temporary
differences between the carrying amount of assets and liabilities
for financial reporting purposes and the amounts used for income
tax purposes.

Significant components of the Company's current net deferred tax
assets and liabilities at December 31, were as follows:

Year Ended
December 31,
2 20
001 00
Deferred tax assets:
Accrued compensated absences $ $
504 591
Self-insurance accruals 2,417 1,382
Other
486 662
Net deferred income tax assets-- $ $
current 3,407 2,635

Significant components of the Company's noncurrent net deferred
tax assets and liabilities at December 31, were as follows:

Year Ended
December 31,
2 20
001 00
Deferred tax assets:
Self-insurance accruals $ $ 4
3,836 ,171
Other
189 (18)

4,025 4,153
Deferred tax liabilities:
Tax over financial reporting 6,662 6,893
depreciation and amortization
Prepaid pension costs
3,713 3,180
1 1
0,375 0,073
Net deferred income tax liability-- $ ( $ (
noncurrent 6,350) 5,920)

The Davey Tree Expert Company
Notes to Consolidated Financial Statements(Continued)
December 31, 2001
(In thousands, except share data)

M. Income Taxes (continued)

A reconciliation of the expected statutory U.S. federal rate to
the Company's actual effective income tax rate follow:

Year Ended
December 31,
20 200 199
01 0 9
Statutory U.S. federal tax rate 34.0% (34.0) 34.0%
%
State and local income taxes, 5.4 (2.6) 4.3
net of federal benefit
Effect of Canadian income taxes (.1) (.4) .2

Meals disallowance .9 5.0 1.9

Other ( 1.0 (.8
.6) )
Effective income tax rate 39. (31.0 39.6%
6% )%

N. Net Income Per Share

Net income per share is computed as follows:

Year Ended
December 31,
20 200 199
01 0 9
Income available to common
shareholders:
Net income (loss) $ $ (2 $
6,731 ,404) 3,715

Weighted-average shares
Basic 7,756, 7,929, 7,971,
949 210 810
Effect of stock options 47 89
3,740 - 9,742

Diluted weighted- 8,230 7,929 8,871
average shares ,689 ,210 ,552

Net income (loss) per share
Net income (loss) per $ $ $
share -- Basic .8 (.30 .
7 ) 47
Net income (loss) per $ $ $
share -- Diluted .8 (.30 .
2 ) 42

For the year ended December 31, 2000, there were 593,254 shares
attributable to the exercise of stock options that were excluded
from the calculation of diluted net loss per share because the
effect was antidilutive.

O. Operations by Segment and Geographic Information

The Company's operating results are reported in two segments:
Residential and Commercial Services, and Utility Services, for
operations in the United States. Residential and Commercial
Services provides for the treatment, preservation, maintenance,
cultivation, planting and removal of trees, shrubs and other
plant life; its services also include the practice of
landscaping, tree surgery, tree feeding, and tree spraying, as
well as the application of fertilizer, herbicides and
insecticides. Utility Services is principally engaged in the
practice of line clearing for investor-owned and municipal
utilities, including the clearing of tree growth from power
lines, clearance of rights-of-way and chemical brush control.
The Davey Tree Expert Company
Notes to Consolidated Financial Statements(Continued)
December 31, 2001
(In thousands, except share data)

O. Operations by Segment and Geographic Information (continued)

The Company also has two nonreportable segments: Canadian
operations, which provides a comprehensive range of Davey
horticultural services, and Davey Resource Group, which provides
services related to natural resource management and consulting,
forestry research and development, and environmental planning and
also maintains research, technical support and laboratory
diagnostic facilities. Canadian operations and Davey Resource
Group are presented below as "All Other."

During the fourth quarter 2001, the Company aligned its reporting
to more closely reflect its management structure. The amounts in
the table below for 2000 and 1999 have been conformed to the 2001
reporting.

Measurement of Segment Profit and Loss and Segment Assets--The
Company evaluates performance and allocates resources based
primarily on operating income and also actively manages business
unit operating assets.

The accounting policies of the reportable segments are the same
as those described in the summary of significant accounting
policies except that (a) the Company computes and recognizes
depreciation expense for its segments only by the straight-line
method and (b) state and local income taxes are allocated to the
segments. Corporate expenses are substantially allocated among
the operating segments, but the nature of expenses allocated may
differ from year-to-year. There are no intersegment revenues.
Segment assets are those generated or directly used by each
segment, and include accounts receivable, inventory, and property
and equipment.
The Davey Tree Expert Company
Notes to Consolidated Financial Statements(Continued)
December 31, 2001
(In thousands, except share data)

O. Operations by Segment and Geographic Information (continued)

Residen
Utili tial Reconci
ty Commerc All ling Consoli
Ser ial Other Adjustm dated
vices Servi ents
ces
Fiscal Year 2001

Revenues $ 148 $ 1 $ 2 $ $
,295 45,723 7,266 321,284
-
Income (3,171) ( 15,850
(loss) from 3,5 14,331 1,1 a
operations 35 55 )
Interes 4,993 4,993
t expense
Other
income (expense), 27
net 9 279
Income
before income 11,1
taxes 36

Depreciation $ $ $ $ ( $
and amortization 8,30 6,830 1,40 2,522 b 19,054
2 0 )
Capital 4,209 3,576 1,907 2,000 11,692
expenditures
Segment (
assets, total 45,57 37,812 9,1 62,989 c 155,473
1 01 )

Fiscal Year 2000

Revenues $ 159 $ 13 $ 2 $ $ 32
,414 5,868 6,954 2,236
-
Income (4,729) ( 1,621
(loss) from (5,89 11,134 1,1 a
operations 6) 12 )
Interes 6,217 6,217
t expense
Other
income (expense), 1,112 1,11
net 2
Income
before income (3,484
taxes )

Depreciation $ $ $ $ ( $
and amortization 9,80 6,639 1,40 2,880 b 20,722
2 1 )
Capital 7,106 5,596 1,446 3,328 17,476
expenditures
Segment ( 1
assets, total 61,66 39,763 7,77 50,180 c 59,382
3 6 )

Fiscal Year 1999
Revenues $ 167 $ 120 $ 1 $ $ 30
,148 ,997 9,999 8,144
-
Income 420 ( 9,959
(loss) from 6,5 6,236 (3,24 a
operations 52 9) )
Interes 4,947 4,947
t expense
Other
income (expense), 1,138 1,13
net 8
Income
before income 6,15
taxes 0

Depreciation $ 1 $ $ $ ( $
and amortization 0,511 5,836 1,27 2,400 b 20,019
2 )
Capital 10,41 5,855 1,902 2,404 20,580
expenditures 9
Segment 6 ( 17
assets, total 66,29 0,416 10,28 39,882 c 6,876
1 7 )

Reconciling adjustments from segment reporting to consolidated
external financial reporting include unallocated corporate items:

(a) Reclassification of depreciation expense and allocation
of corporate expenses.
(b) Reduction to straight-line depreciation expense from
declining balance method and depreciation and amortization
of corporate assets.
(c) Corporate assets include cash and cash equivalents,
prepaid expenses, corporate facilities, enterprise-wide
information systems, intangibles, and deferred and other
nonoperating assets.

The Davey Tree Expert Company
Notes to Consolidated Financial Statements(Continued)
December 31, 2001
(In thousands, except share data)

O. Operations by Segment and Geographic Information (continued)

Geographic Information--The following presents revenues and long-
lived assets by geographic territory:

Year Ended
December 31,
20 20 19
01 00 99
Revenues

United States $ 304 $ 306 $ 293
,109 ,387 ,541
Canada 1 1 1
7,175 5,849 4,603
$ 321 $ 322 $ 308
,284 ,236 ,144

Decembe
r 31,
20 20
01 00
Long-lived assets, net

United States $ 68 $ 77
,512 ,288
Canada
4,127 3,742
$ 72 $ 81
,639 ,030

P. Commitments and Contingencies

At December 31, 2001, the Company was contingently liable to its
principal banks in the amount of $18,399 for letters of credit
outstanding related to insurance coverage.

In certain circumstances, the Company has performance obligations
that are supported by surety bonds in connection with its
contractual commitments.

The Company is party to a number of lawsuits, threatened lawsuits
and other claims arising out of the normal course of business.
Management is of the opinion that liabilities which may result
are adequately covered by insurance, or reflected in the self-
insurance accruals and would not be material in relation to the
financial position or results of operations.

The Davey Tree Expert Company
Notes to Consolidated Financial Statements(Continued)
December 31, 2001
(In thousands, except share data)

Q. Quarterly Results of Operations (Unaudited)

The following is a summary of the quarterly results of operations
for the years ended December 31, 2001 and 2000.

Fiscal 2001, Three
Months Ended
Mar Jun Sep Dec
31 30 29 31
Net sales $ 67, $ 93 $ 85 $ 75,
360 ,279 ,251 394
Gross profit 19,463 34,173 29,470 25,395

Income (loss) from (2,519 10,047 5,828 2,494
operations )
Net income (loss) (2
,382) 5,417 2,747 949

Earnings (loss) per $ $ $ $
share --Basic (.31) .70 .35 .12
Earnings (loss) per $ $ $ $
share --Diluted (.31) .66 .33 .12

ESOT valuation per $ 1 $ 1 $ 1 $ 1
share 1.00 1.60 1.60 2.00

Fiscal 2000, Three
Months Ended
Apr Jul Sep Dec
1 1 30 31
Net sales $ 67, $ 88 $ 85 $ 81
391 ,070 ,440 ,335
Gross profit 15,408 29,374 28,494 22,519

Income (loss) from (6,449 4,754 3,378 (62)
operations )
Net income (loss) (4 (1
,279) 1,909 1,272 ,306)

Earnings (loss) per $ $ $ $
share --Basic (.53) .24 .16 (.17)
Earnings (loss) per $ $ $ $
share --Diluted (.53) .22 .15 ( .17)

ESOT valuation per $ 1 $ 1 $ 1 $ 11
share 3.00 2.30 2.30 .00