Capital Resources

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

Business seasonality traditionally results in higher revenues during the second and third quarters as compared with the first and fourth quarters of the year, while our methods of accounting for fixed costs, such as depreciation and amortization expense, rent and interest expense, are not significantly impacted by business seasonality. Capital resources during these periods are equally affected. We satisfy seasonal working capital needs and other financing requirements with the revolving credit facility and other short-term lines of credit. We are continually reviewing our existing sources of financing and evaluating alternatives. At June ~~30, 2018,~~29, 2019, we had working capital of ~~$105,453,~~$117,978, and short-term lines of credit approximating ~~$7,133~~$3,095 and ~~$108,087~~$167,712 available under our revolving credit facility.

We believe our sources of capital, at this time, provide us with the financial flexibility to meet our capital-spending plans and to continue to complete business acquisitions for at least the next twelve months and for the reasonably foreseeable future.

~~Recent Accounting Guidance~~

~~Accounting Standards Adopted in 2018~~

~~Accounting Standards Update 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business~~--In January 2017, the FASB issued ASU 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business," which provides guidance to evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. If substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single asset or a group of similar assets, the assets acquired (or disposed of) are not considered a business. The Company adopted the guidance effective January 1, 2018 and application will be applied prospectively for annual and interim periods beginning after December 15, 2017. The adoption of this guidance did not have a material impact on our consolidated financial statements.

~~Accounting Standards Update 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the FASB Emerging Issues Task Force)~~--In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,” which provides guidance on how cash receipts and cash payments related to eight specific cash flow issues are presented and classified in the statement of cash flows, with the objective of reducing the existing diversity in practice. The Company adopted ASU 2016-15 on January 1, 2018. The adoption of ASU 2016-15 did not have a material impact on our consolidated financial statements.

~~Accounting Standards Update 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost~~--In March 2017, the FASB issued ASU 2017-07, “Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” which changes the presentation of net periodic benefit cost related to employer sponsored defined benefit plans and other postretirement benefits. Under ASU 2017-07, service costs will be included within the same income statement line item as other compensation costs arising from services rendered by pertinent employees during the period. The other components of net periodic benefit pension cost will be presented separately outside of income from operations. Additionally, only the service cost component of the net periodic benefit cost may be capitalized in assets. The amendments under ASU 2017-07 also provide a practical expedient that permits the use of amounts disclosed in its pension and other postretirement benefit plan note for prior year comparative periods as the estimation basis for applying the guidance retrospectively. The Company adopted ASU 2017-07 on January 1, 2018 and chose to use the practical expedient provided when applying the guidance retrospectively. Upon adoption, service costs are recognized in our financial statements as general and administrative expenses while the remaining components of net periodic benefit cost are recognized as other income (expense). Pension expense of $347 for the second quarter 2017 and

~~Index~~

~~$694 for the first six months of 2017 have been reclassified from general and administrative expense to other income (expense).~~

~~Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606~~)--In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” which replaces all current U.S. GAAP guidance on revenue recognition and eliminates all industry-specific guidance. The Company adopted ASU 2014-09 and applied it to all contracts that were not completed using the modified retrospective method. The cumulative effect of applying the guidance in ASU 2014-09 to contracts that were not yet completed as of January 1, 2018 was not material. Further, the adoption of ASU 2014-09 did not have a significant impact on the amount or timing of revenue recognition. Therefore, we have not disclosed the amount by which each financial statement line item is affected in the current period as a result of applying ASU 2014-09 or an explanation of significant changes between our results as reported and those that would have been reported under legacy GAAP as no significant changes were identified.

~~Accounting Standards Not Yet Adopted~~

~~Accounting Standards Update 2016-02, Leases (Topic 842)~~--In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” ASU 2016-02 establishes a comprehensive new lease accounting model. The new standard: (a) clarifies the definition of a lease; (b) requires a dual approach to lease classification similar to current lease classifications; and, (c) causes lessees to recognize leases on the balance sheet as a lease liability with a corresponding right-of-use asset for leases with a lease-term of more than twelve months. The new standard is effective for interim and annual periods beginning after December 15, 2018, which for Davey Tree would be January 1, 2019. Early adoption is permitted. The new standard requires a modified retrospective transition for capital or operating leases existing at or entered into after the beginning of the earliest comparative period presented in the financial statements, but it does not require transition accounting for leases that expire prior to the date of initial application. The Company plans to adopt ASU 2016-02 on January 1, 2019. Management has assembled a project team and is in the process of gathering information to evaluate real estate, personal property and other arrangements that may meet the definition of a lease and has purchased a technology solution to assist with the management of leases. Management expects to adopt the standard using the Comparative Under ASC 840 approach and has evaluated the accounting elections and practical expedients available under the standard. Management expects that the adoption of ASU 2016-02 will have a material impact on the Company's consolidated financial statements.

~~Accounting Standards Update 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220)~~--In February 2018, the FASB issued ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220)." ASU 2018-02 provides an option to reclassify the stranded tax effects within accumulated other comprehensive income to retained earnings as a result of the Tax Cuts and Jobs Act of 2017. This standard is effective for interim and annual reporting periods beginning after December 15, 2018, which for Davey Tree would be January 1, 2019. Early adoption is permitted. Management has not yet completed its assessment of the impact of the new standard on the Company's consolidated financial statements.

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.

As discussed in our annual report on Form 10-K for the year ended December 31, ~~2017~~,2018, we believe that our policies related to revenue recognition, the allowance for doubtful accounts, stock valuation and self-insurance ~~accruals~~reserves are our “critical accounting policies and estimates”--those most important to the financial presentations and those that require the most difficult, subjective or complex judgments. ~~During the first quarter 2018, we updated our revenue recognition policies in conjunction with our adoption of Accounting Standards Codification 606, "Revenue from~~

~~Index~~

~~Contracts with Customers" as further described in Note M Revenue Recognition of the Notes to Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q.~~

On an ongoing basis, we evaluate our estimates and assumptions, including those related to accounts receivable, specifically those receivables under contractual arrangements primarily with Utility customers; allowance for doubtful accounts; and self-insurance ~~accruals.~~reserves. 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.

~~Index~~

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. 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:

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

~~Various economic factors may adversely impact our customers’ spending and pricing for our services, and impede our collection of accounts receivable.~~

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

The seasonal nature of our business and changes in general and local economic conditions, among other factors, may cause our quarterly results to fluctuate, and our prior performance is not necessarily indicative of future results.

~~The uncertainties in the credit and financial markets may limit our access to capital.~~

~~Significant increases in fuel prices for extended periods of time will increase our operating expenses.~~

~~Fluctuations in foreign currency exchange rates may have a material adverse impact on our operating results.~~

We have significant contracts with our utility, commercial and government customers that include liability risk exposure as part of those contracts. Consequently, we have substantial excess-umbrella liability insurance, and increases in the cost of obtaining adequate insurance, or the inadequacy of our self-insurance accruals or insurance coverages, could negatively impact our liquidity and financial condition.

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

~~Significant increases in health care costs could negatively impact our results of operations or financial position.~~

~~We are subject to intense competition.~~

~~Our failure to comply with environmental laws could result in significant liabilities, fines and/or penalties.~~

~~The impact of regulations initiated as a response to possible changing climate conditions could have a negative effect on our results of operations or our financial condition.~~

~~We may encounter difficulties obtaining surety bonds or letters of credit necessary to support our operations.~~

~~We are dependent, in part, on our reputation of quality, integrity and performance. If our reputation is damaged, we may be adversely affected.~~

~~We may be unable to attract and retain a sufficient number of qualified employees for our field operations, and we may be unable to attract and retain qualified management personnel.~~

Our facilities could be damaged or our operations could be disrupted, or our customers or vendors may be adversely affected, by events such as natural disasters, pandemics, terrorist attacks or other external events.

Index

~~A disruption in our information technology systems, including a disruption related to cybersecurity, could adversely affect our financial performance.~~

~~We are subject to third-party and governmental regulatory claims and litigation that may have an adverse effect on us.~~

~~We may misjudge a competitive bid and be contractually bound to an unprofitable contract.~~


▪	We may be unable to attract and retain a sufficient number of qualified employees for our field operations, and we may be unable to attract and retain qualified management personnel.

▪


▪	The unavailability or cancellation of third-party insurance coverage may have a material adverse effect on our financial condition and results of operations as well as disrupt our operations.


▪	We could be materially adversely affected by wildfires in California and other areas as well as other severe weather events and natural disasters, including negative impacts to our business, reputation, financial condition, results of operations, liquidity and cash flows.


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


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


▪	We are subject to litigation and third-party and governmental regulatory claims and adverse litigation judgments or settlements resulting from those claims could materially adversely affect our business.


▪	Significant increases in fuel prices for extended periods of time will increase our operating expenses.


▪	We are subject to intense competition.


▪	Various economic factors may adversely impact our customers’ spending and pricing for our services, and impede our collection of accounts receivable.


▪	The impact of regulations initiated as a response to possible changing climate conditions could have a negative effect on our results of operations or our financial condition.


▪	The seasonal nature of our business and changes in general and local economic conditions, among other factors, may cause our quarterly results to fluctuate, and our prior performance is not necessarily indicative of future results.


▪	We may misjudge a competitive bid and be contractually bound to an unprofitable contract.


▪	A disruption in our information technology systems, including a disruption related to cybersecurity, could adversely affect our financial performance.


▪	We are dependent, in part, on our reputation of quality, integrity and performance. If our reputation is damaged, we may be adversely affected.


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


▪	Our failure to comply with environmental laws could result in significant liabilities, fines and/or penalties.


▪	We may encounter difficulties obtaining surety bonds or letters of credit necessary to support our operations.


▪	The uncertainties in the credit and financial markets may limit our access to capital.


▪	Fluctuations in foreign currency exchange rates may have a material adverse impact on our operating results.


▪	Significant increases in health care costs could negatively impact our results of operations or financial position.


▪	Our facilities could be damaged or our operations could be disrupted, or our customers or vendors may be adversely affected, by events such as natural disasters, pandemics, terrorist attacks or other external events.


▪	Our inability to properly verify the employment eligibility of our employees could adversely affect our business.

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. We are under no duty to update any of the forward-looking statements after the date of this quarterly report on Form 10-Q to conform these statements to actual future results.

Index

The factors described above, as well as other factors that may adversely impact our actual results, are discussed in "Part III - Item 1A. Risk Factors." of ~~this quarterly report on Form 10-Q and in~~ our annual report on Form 10-K for the year ended December 31, ~~2017~~ ~~in “Part I - Item 1A. Risk Factors.”~~2018.


Item 3.	Quantitative and Qualitative Disclosures about Market Risk.

During the ~~quarter~~six months ended June ~~30, 2018~~,29, 2019, there have been no material changes in the market risk previously presented in our annual report on Form 10-K for the year ended December 31, ~~2017~~.2018.


Item 4.	Controls and Procedures.

(a) Management’s Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the design and operation of our disclosure controls and procedures were effective at the reasonable assurance level as of the end of the period covered by this report in ensuring that information required to be disclosed in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the fiscal quarter ended June ~~30, 2018~~29, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

The Davey Tree Expert Company


Part II.	Other Information

Items 3, 4 and 5 are not applicable.

~~Index~~


Item 1.	Legal Proceedings.

In November 2017, a suit was filed against Davey Tree, its subsidiary, Wolf Tree, Inc., a former Davey employee, two Wolf employees, and a former Wolf employee alleging various acts of negligence and seeking compensatory and punitive damages for wrongful death and assault and battery of the plaintiff’s husband, a Wolf Tree employee in Savannah, Georgia, who was killed in August 2017. The case has been set for trial on January 22, 2019. In July 2018, a survival action was filed by the deceased's estate against Davey Tree, its subsidiary, Wolf Tree, Inc., and four current and former employees in Savannah, Georgia, which arises out of the same allegations, seeks compensatory and punitive damages and also includes three RICO claims under Georgia law seeking compensatory damages, treble damages, and punitive damages.The 2018 case has been removed to the United States District Court for the Southern District of Georgia, Savannah Division, on August 2, 2018. The Company has denied all liability and is vigorously defending the action. It also has retained separate counsel for three of the individual defendants, each of whom has denied all liability and also is vigorously defending the action.

On a quarterly basis, we assess our liabilities and contingencies in connection with outstanding legal proceedings utilizing the latest information available. Where it is probable that we will incur a loss and the amount of the loss can be reasonably estimated, we record a liability in our consolidated financial statements. These legal ~~reserves~~accruals may be increased or decreased to reflect any relevant developments on a quarterly basis. Where a loss is not probable or the amount of the loss is not estimable, we do not ~~accrue~~record a legal ~~reserves,~~accrual, consistent with applicable accounting guidance. Based on information currently available to us, advice of counsel, and available insurance coverage, we believe that our established ~~reserves~~accruals are adequate and the liabilities arising from the legal proceedings will not have a material adverse effect on our consolidated financial condition. We note, however, that in light of the inherent uncertainty in legal proceedings there can be no assurance that the ultimate resolution of a matter will not exceed established ~~reserves.~~accruals. As a result, the outcome of a particular matter or a combination of matters may be material to our results of operations for a particular period, depending upon the size of the loss or our income for that particular period.

In November 2017, a suit was filed in Savannah, Georgia state court (“State Court”) against Davey Tree, its subsidiary, Wolf Tree, Inc. ("Wolf Tree"), a former Davey employee, two Wolf Tree employees, and a former Wolf Tree employee alleging various acts of negligence and seeking compensatory and punitive damages for wrongful death and assault and battery of the plaintiff’s husband, a Wolf Tree employee, who was shot and killed in August 2017. The case was mediated unsuccessfully in December 2018 and was set for trial on January 22, 2019.

Index

In July 2018, a related survival action was filed by the deceased’s estate against Davey Tree, its subsidiary, Wolf Tree, Inc., and four current and former employees in Savannah, Georgia, which arises out of the same allegations, seeks compensatory and punitive damages and also includes three RICO claims under Georgia law seeking compensatory damages, treble damages, and punitive damages. The 2018 case was removed to the United States District Court for the Southern District of Georgia, Savannah Division, on August 2, 2018 (“Federal Court”). The Company filed a motion to dismiss the RICO claims. Plaintiffs filed a motion to remand the case to state court, which the Company has opposed. The motions are pending.

On December 6, 2018, a former Wolf Tree employee pled guilty to conspiracy to conceal, harbor, and shield illegal aliens. On December 21, 2018, the United States federal prosecutors filed a motion to stay both actions on the grounds that on December 13, 2018, an indictment was issued charging two former Wolf Tree employees and one other individual with various crimes, including conspiracy to murder the deceased. On December 17, 2018, the United States Attorney’s Office for the Southern District of Georgia informed the Company and Wolf Tree that they are also under investigation for potential violations of immigration and other laws relating to the subject matter of the ongoing criminal investigation referenced above. The Company and Wolf Tree are cooperating with the investigation.

On December 28, 2018, the State Court granted the United States’ motion to stay but indicated that it would nonetheless consider certain pending matters, including: (1) Plaintiff and a co-defendant’s motions that Davey Tree be forced to produce privileged documents and testimony, which had been submitted to a Special Master for recommendation; and (2) the Defendants’ motions for summary judgment. On January 11, 2019, the Special Master issued his recommendation that both Plaintiff and the co-defendant’s motions to force Davey to disclose privileged information be denied. The State Court judge has not yet moved on the recommendation. On January 29, 2019, the State Court heard oral argument on Defendants’ motions for summary judgment, and the motions remain pending.

On January 28, 2019, the Federal Court also granted the United States’ motion to stay. On January 29, 2019, the State Court ordered the parties to return to mediation, which occurred on April 17, 2019 but was unsuccessful in resolving the matters.

In both cases, the Company has denied all liability and is vigorously defending the action. It also has retained separate counsel for some of the individual defendants, each of whom has denied all liability and also is vigorously defending the action.


Item 1A.	Risk Factors.

~~The factors described below represent~~Our Annual Report on Form 10-K for the ~~principal risks we face. Except as otherwise indicated, these factors may or may not occur and we are not in~~year ended December 31, 2018, includes a position to express a view on the likelihood of any such factor occurring. Other factors may exist that we do not consider to be significant based on information that is currently available or that we are not currently able to anticipate.

~~Our business is highly seasonal and weather dependent.~~

Our business, other than tree services to utility customers, is highly seasonal and weather dependent, primarily due to fluctuations in horticultural services provided to Residential and Commercial customers. We have historically incurred losses in the first quarter, while revenue and operating income are generally highest in the second and third quarters of the calendar year. Inclement weather, such as uncharacteristically low or high (drought) temperatures, in the second and third quarters could dampen the demand for our horticultural services, resulting in reduced revenues that would have an adverse effect on our results of operations.

~~Economic conditions may adversely impact our customers’ future spending as well as pricing and payment for our services, thus negatively impacting our operations and growth.~~

Various economic factors may adversely impact the demand for our services and potentially result in depressed prices for our services and the delay or cancellation of projects. That may make it difficult to estimate our customers' requirements for our services and, therefore, add uncertainty to customer demand. Various economic factors and customers' confidence in future economic conditions may cause a reduction in our customers' spending for our services and may also impact the abilitydetailed discussion of our customers to pay amounts owed, which could reduce our cash flow and adversely impact our debt or equity financing. These events could have a material adverse effect on our operations and our ability to grow at historical levels.risk factors.

Index

~~Financial difficulties or the bankruptcy of one or more of our major customers could adversely affect our results.~~

Our ability to collect our accounts receivable and future sales depends, in part, on the financial strength of our customers. We grant credit, generally without collateral, to our customers. Consequently, we are subject to credit risk related to changes in business and economic factors throughout the United States and Canada. In the event customers experience financial difficulty, and particularly if bankruptcy results, our profitability may be adversely impacted by our failure to collect our accounts receivable in excess of our estimated allowance for uncollectible accounts. Additionally, our future revenues could be reduced by the loss of a customer due to bankruptcy. Our failure to collect accounts receivable and/or the loss of one or more major customers could have an adverse effect on our net income and financial condition.

~~Our business is dependent upon service to our utility customers and we may be affected by developments in the utility industry.~~

We derive approximately 51% of our total annual revenues from our Utility segment, including approximately 11% of our total annual revenues from Pacific Gas & Electric Company. Significant adverse developments in the utility industry generally, or specifically for our major utility customers, could result in pressure to reduce costs by utility industry service providers (such as us), delays in payments of our accounts receivable, or increases in uncollectible accounts receivable, among other things. As a result, such developments could have an adverse effect on our results of operations.

~~Our quarterly results may fluctuate.~~

~~We have experienced and expect to continue to experience quarterly variations in revenues and operating income as a result of many factors, including:~~


▪	~~the seasonality of our business;~~


▪	~~the timing and volume of customers' projects;~~


▪	~~budgetary spending patterns of customers;~~


▪	~~the commencement or termination of service agreements;~~


▪	~~costs incurred to support growth internally or through acquisitions;~~


▪	~~changes in our mix of customers, contracts and business activities;~~


▪	~~fluctuations in insurance expense due to changes in claims experience and actuarial assumptions; and~~


▪	~~general and local economic conditions.~~

~~Accordingly, our operating results in any particular quarter may not be indicative of the results that you can expect for any other quarter or for the entire year.~~

~~We may not have access to capital in the future due to uncertainties in the financial and credit markets.~~

We may need new or additional financing in the future to conduct our operations, expand our business or refinance existing indebtedness. Future changes in the general economic conditions and/or financial markets in the United States or globally could affect adversely our ability to raise capital on favorable terms or at all. From time-to-time we have relied, and may also rely in the future, on access to financial markets as a source of liquidity for working capital requirements, acquisitions and general corporate purposes. Our access to funds under our revolving credit facility is dependent on the ability of the financial institutions that are parties to the facility to meet their funding commitments. Those financial institutions may not be able to meet their funding commitments if they experience shortages of capital and liquidity or if they experience excessive volumes of borrowing requests within a short period of time. Economic disruptions and any resulting limitations on future funding, including any restrictions on access to funds under our revolving credit facility, could have a material adverse effect on us.

~~Index~~

~~We are subject to the risk of changes in fuel costs.~~

The cost of fuel is a major operating expense of our business. Significant increases in fuel prices for extended periods of time will cause our operating expenses to fluctuate. An increase in cost with partial or no corresponding compensation from customers would lead to lower margins that would have an adverse effect on our results of operations.

~~We are subject to the effect of foreign currency exchange rate fluctuations, which may have a material adverse impact on us.~~

We are exposed to foreign currency exchange rate risk resulting from our operations in Canada, where we provide a comprehensive range of horticultural services. Fluctuations in foreign currency exchange rates may make our services more expensive for others to purchase or increase our operating costs, affecting our competitiveness and our profitability. 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.

Revenues from customers in Canada are subject to foreign currency exchange. Thus, certain revenues and expenses have been, and are expected to be, subject to the effect of foreign currency fluctuations, and these fluctuations may have a material adverse impact on our operating results, asset values and could reduce shareholders’ equity. In addition, if we expand our Canadian operations, exposures to gains and losses on foreign currency transactions may increase.

~~We could be negatively impacted if our self-insurance accruals or our insurance coverages prove to be inadequate.~~

We are generally self-insured for losses and liabilities related to workers' compensation, vehicle liability and general liability claims (including any wildfire-related claims, up to certain retained coverage limits). A liability for unpaid claims and associated expenses, including incurred but not reported losses, is actuarially determined and reflected in our consolidated balance sheet as an accrued liability. The determination of such claims and expenses, and the extent of the need for accrued liabilities, are continually reviewed and updated. If we were to experience insurance claims or costs above our estimates and were unable to offset such increases with earnings, our business could be adversely affected. Also, where we self-insure, a deterioration in claims management, whether by our management or by a third-party claims administrator, could lead to delays in settling claims, thereby increasing claim costs, particularly as it relates to workers’ compensation. In addition, catastrophic uninsured claims filed against us or the inability of our insurance carriers to pay otherwise-insured claims would have an adverse effect on our financial condition.

Furthermore, many customers, particularly utilities, prefer to do business with contractors with significant financial resources, who can provide substantial insurance coverage. Should we be unable to renew our excess liability insurance and other commercial insurance policies at competitive rates, this loss would have an adverse effect on our financial condition and results of operations.

~~Increases in our health insurance costs and uncertainty about federal health care policies could adversely affect our results of operations and cash flows.~~

The costs of employee health care insurance have been increasing in recent years due to rising health care costs, legislative changes, and general economic conditions. We cannot predict what other health care programs and regulations will ultimately be implemented at the federal or state level or the effect of any future legislation or regulations on our business, results of operations and cash flows. In addition, we cannot predict when and if Congress will repeal and/or replace certain health care programs and regulations at the federal level and the impact that such changes would have on our business. A continued increase in health care costs or additional costs incurred as a result of the Patient Protection and Affordable Care Act and the Health Care and Education

~~Index~~

Reconciliation Act of 2010 or other future health care reform laws imposed by Congress or state legislatures could have a negative impact on our financial position, results of operations and cash flows.

~~The unavailability or cancellation of third-party insurance coverage may have a material adverse effect on our financial condition and results of operations as well as disrupt our operations.~~

Any of our existing excess insurance coverage may not be renewed upon the expiration of the coverage period or future coverage may not be available at competitive rates for the required limits. In addition, our third-party insurers could fail, suddenly cancel our coverage or otherwise be unable to provide us with adequate insurance coverage. If any of these events occur, they may have a material adverse effect on our financial condition and results of operations as well as disrupt our operations. For example, we have operations in California, which has an environment prone to wildfires. Should our third-party insurers determine to exclude coverage for wildfires in the future, we could be exposed to significant liabilities, having a material adverse effect on our financial condition and results of operations and potentially disrupting our California operations.

~~Because no public market exists for our common shares, your ability to sell your common shares may be limited.~~

Our common shares are not traded on any national exchange, market system or over-the-counter bulletin board. Because no public market exists for our common shares, your ability to sell these shares is limited.

~~We are subject to intense competition.~~

We believe that each aspect of our business is highly competitive. Principal methods of competition in our operating segments are customer service, marketing, image, performance and reputation. Pricing is not always a critical factor in a customer’s decision with respect to our Residential and Commercial segment; however, pricing is generally the principal method of competition for our Utility segment, although in most instances consideration is given to reputation and past production performance. On a national level, our competition is primarily landscape construction and maintenance companies as well as residential and commercial lawn care companies. At a local and regional level, our competition comes mainly from small, local companies which are engaged primarily in tree care and lawn services. Our Utility segment competes principally with one major national competitor, as well as several smaller regional firms. Furthermore, competitors may have lower costs because privately-owned companies operating in a limited geographic area may have significantly lower labor and overhead costs. Our competitors may develop the expertise, experience and resources to provide services that are superior in both price and quality to our services. These strong competitive pressures could inhibit our success in bidding for profitable business and may have a material adverse effect on our business, financial condition and results of operations.

~~Our failure to comply with environmental laws could result in significant liabilities.~~

Our facilities and operations are subject to governmental regulations designed to protect the environment, particularly with respect to our services regarding insect and tree, shrub and lawn disease management, because these services involve to a considerable degree the blending and application of spray materials, which require formal licensing in most areas. Continual changes in environmental laws, regulations and licensing requirements, 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 our compliance programs and the market for our services. We are subject to existing federal, state and local laws, regulations and licensing requirements regulating the use of materials in our spraying operations as well as certain other aspects of our business. If we fail to comply with such laws, regulations or licensing requirements, we may become subject to significant liabilities, fines and/or penalties, which could adversely affect our financial condition and results of operations.

~~Index~~

~~We cannot predict the impact that the policies regarding changing climate conditions, including legal, regulatory and social responses thereto, may have on our business.~~

Many scientists, environmentalists, international organizations, political activists, regulators and other commentators believe that global climate change has added, and will continue to add, to the unpredictability, frequency and severity of natural disasters in certain parts of the world. In response, a number of legal and regulatory measures and social initiatives have been introduced in an effort to reduce greenhouse gas and other carbon emissions that these parties believe may be contributors to global climate change. These proposals, if enacted, could result in a variety of regulatory programs, including potential new regulations, additional charges and taxes to fund energy efficiency activities, or other regulatory actions. Any of these actions could result in increased costs associated with our operations and impact the prices we charge our customers.

We cannot predict the impact, if any, that changing climate conditions will have on us or our customers. However, it is possible that the legal, regulatory and social responses to real or perceived climate change could have a negative effect on our results of operations or our financial condition.

~~We may be adversely affected if we are unable to obtain necessary surety bonds or letters of credit.~~

Surety market conditions are currently difficult as a result of significant losses incurred by many sureties in recent years, both in the construction industry as well as in certain larger corporate bankruptcies. As a result, less bonding capacity is available in the market and terms have become more expensive and restrictive. Further, under standard terms in the surety market, sureties issue or continue bonds on a project-by-project basis and can decline to issue bonds at any time or require the posting of collateral as a condition to issuing or renewing any bonds. If surety providers were to limit or eliminate our access to bonding, we would need to post other forms of collateral for project performance, such as letters of credit or cash. We may be unable to secure sufficient letters of credit on acceptable terms, or at all. Accordingly, if we were to experience an interruption or reduction in the availability of bonding capacity, our liquidity may be adversely affected.

~~We may be adversely affected if our reputation is damaged.~~

~~We are dependent, in part, upon our reputation of quality, integrity and performance. If our reputation were damaged in some way, it may impact our ability to grow or maintain our business.~~

~~We may be unable to employ a sufficient workforce for our field operations.~~

Our industry operates in an environment that requires heavy manual labor. We may experience slower growth in the labor force for this type of work than in the past. As a result, we may experience labor shortages or the need to pay more to attract and retain qualified employees.

~~We may be unable to attract and retain skilled management.~~

Our success depends, in part, on our ability to attract and retain key managers. Competition for the best people can be intense and we may not be able to promote, hire or retain skilled managers. The loss of services of one or more of our key managers could have a material adverse impact on our business because of the loss of the manager's skills, knowledge of our industry and years of industry experience, and the difficulty of promptly finding qualified replacement personnel.

~~Natural disasters, pandemics, terrorist attacks and other external events could adversely affect our business.~~

Natural disasters, pandemics, terrorist attacks and other adverse external events could materially damage our facilities or disrupt our operations, or damage the facilities or disrupt the operations of our customers or vendors. The occurrence of any such event could adversely affect our business, financial condition and results of operations.

~~Index~~

~~A disruption in our information technology systems, including a disruption related to cybersecurity, could adversely affect our financial performance.~~

We rely on the accuracy, capacity and security of our information technology systems. Despite the security measures that we have implemented, including those measures related to cybersecurity, our systems could be breached or damaged by computer viruses, natural or man-made incidents or disasters or unauthorized physical or electronic access. A breach could result in business disruption, theft of our intellectual property, trade secrets or customer information and unauthorized access to personnel information. To the extent that our business is interrupted or data is lost, destroyed or inappropriately used or disclosed, such disruptions could adversely affect our competitive position, reputation, relationships with our customers, financial condition, operating results and cash flows. In addition, we may be required to incur significant costs to protect against the damage caused by these disruptions or security breaches in the future.

~~We are subject to third-party and governmental regulatory claims and litigation.~~

From time-to-time, customers, vendors, employees, governmental regulatory authorities and others may make claims and take legal action against us. Whether these claims and legal actions are founded or unfounded, if such claims and legal actions are not resolved in our favor, they may result in significant financial liability. Any such financial liability could have a material adverse effect on our financial condition and results of operations. Any such claims and legal actions may also require significant management attention and may detract from management's focus on our operations.

~~We may be adversely affected if we enter into a major unprofitable contract.~~

Our Residential and Commercial segment and our Utility segment frequently operate in a competitive bid contract environment. As a result, we may misjudge a bid and be contractually bound to an unprofitable contract, which could adversely affect our results of operations.


Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.

The following table provides information on purchases of our common shares outstanding made by us during the first six months of ~~2018~~2019.

Period
Total
Number of
Shares
Purchased

Average
Price
Paid per
Share

Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs

Maximum Number (or
Approximate Dollar
Value) of Shares that
May Yet Be Purchased
Under the Plans or
Programs
Fiscal 2018
January 1 to January 27 1,052
$ 18.30
— 129,761
January 28 to February 24 213
18.30
— 129,761
February 25 to March 31 299,799
19.10
— 129,761
Total First Quarter 301,064
19.10
—

April 1 to April 28 336,766
19.10
— 129,761
April 29 to May 26 250,173
19.10
— 1,129,761
May 27 to June 30 473,939
19.10
127,486 1,002,275
Total Second Quarter 1,060,878
19.10
127,486

Total Year-to-Date 1,361,942
$ 19.10
127,486

~~Index~~



Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
Fiscal 2019
January 1 to January 26	624	$	19.70	—	954,492
January 27 to February 23	1,165	21.10		—	954,492
February 24 to March 30	208,289	21.10		—	954,492
Total First Quarter	210,078	21.10		—

March 31 to April 27	375,434	21.10		—	954,492
April 28 to May 25	180,505	21.10		—	954,492
May 26 to June 29	236,546	21.10		41,448	913,044
Total Second Quarter	792,485	21.10		41,448

Total Year-to-Date	1,002,563	$	21.10	41,448

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 the Davey 401KSOP and ESOP, the fair market value of our common shares is determined by an independent stock valuation firm, based upon our performance and financial condition, using a peer group of comparable companies selected by that firm. The peer group currently consists of: ABM Industries Incorporated; Comfort Systems USA, Inc.; Dycom Industries, Inc.; MYR Group, Inc.; Quanta Services, Inc.; Rollins, Inc.; and Scotts Miracle-Gro Company. The semiannual valuations are effective for a period of six months and the per-share price established by those valuations is the price at which our Board of Directors has determined our common shares will be bought and sold during that six-month period in transactions involving Davey Tree or one of its employee benefit or stock purchase plans. Since 1979, we have provided a ready market for all shareholders through our direct purchase of their common shares, although we are under no obligation to do so (other than for repurchases pursuant to the put option under The Davey 401KSOP and ESOP Plan, as described in Note P,Q, The Davey 401KSOP and Employee Stock Ownership Plan). The purchases described above were added to our treasury stock.

At the Annual Meeting of Shareholders of the Company held on May 16, 2017, the shareholders of the Company approved proposals to amend the Company's Articles of Incorporation to (i) expand the Company's ~~current~~ right of first refusal with respect to proposed transfers of shares of the Company's common shares, (ii) clarify provisions regarding when the Company may provide notice of its decision to exercise its right of first refusal with respect to proposed transfers of common shares by the estate or personal representative of a deceased shareholder, and (iii) grant the Company a right to repurchase common shares held by certain shareholders of the Company.

On May 10, 2017, the Board of Directors of the Company adopted a policy regarding the Company's exercise of the repurchase right granted to the Company through amendments to the Company's Articles of Incorporation, as approved by shareholders on May 16, 2017.

Until further action by the Board, it ~~will be~~is the policy of the Company not to exercise its repurchase rights under the amended Articles with respect to shares of the Company's common shares held by current and retired employees

Index

and current and former directors of the Company (subject to exceptions set forth in the policy) (collectively, "Active Shareholders"), their spouses, their first-generation descendants and trusts established exclusively for their benefit.

Until further action by the Board, it ~~will~~is also be the policy of the Company not to exercise its rights under the amended Articles to repurchase shares of the Company's common shares proposed to be transferred by an Active Shareholder to his or her spouse, a first-generation descendant, or a trust established exclusively for the benefit of one or more of an Active Shareholder, his or her spouse and first-generation descendants of an Active Shareholder, or upon the death of an Active Shareholder, such transfers from the estate or personal representative of a deceased Active Shareholder. The Board may suspend, change or discontinue the policy at any time without prior notice.

In accordance with the amendments to the Articles approved by the Company's shareholders at the 2017 Annual Meeting, on May 17, 2017, the Company's Board of Directors authorized the Company to repurchase up to 200,000 common shares, which authorization was increased by an additional 1,000,000 common shares in May 2018. Of the 1,200,000 total shares authorized, ~~1,002,275~~913,044 remain available under the program. Share repurchases may be made from time to time and the timing of any repurchases and the actual number of shares repurchased will depend on a variety of factors. The Company is not obligated to purchase any shares, and repurchases may be commenced, suspended or discontinued from time to time without prior notice. The repurchase program does not have an expiration date.


Item 6.	Exhibits.

See Exhibit Index page below.

Index

Exhibit Index



Exhibit No.	Description

10.1	Amendment No. 36 to Receivables Financing Agreement, dated April 23, 2019, by and among The Davey Tree Expert Company, Davey Receivables LLC and PNC Bank, National Association (Incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on April 24, 2019).

10.2	Amendment No. 7 to Receivables Financing Agreement, dated May ~~7, 2018,~~21, 2019, by and among The Davey Tree Expert Company, Davey Receivables LLC and PNC Bank, National Association (Incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on May ~~8, 2018).~~

~~10.2~~	Joinder Agreement, dated May 7, 2018, by and among Davey Receivables LLC, Davey Resource Group, Inc. and PNC Bank, National Association, to the Receivables Purchase Agreement, dated May 9, 2016 (incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on May 8, 2018)23, 2019).

31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	Filed Herewith

31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	Filed Herewith

32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.	Furnished Herewith

32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.	Furnished Herewith

101	The following materials from the Company's Quarterly Report on Form 10-Q for the quarter ended June ~~30, 2018,~~29, 2019, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets (unaudited), (ii) the Condensed Consolidated Statements of Operations (unaudited), (iii) the Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited), (iv) the Condensed Consolidated Statements of Shareholders' Equity (unaudited), (v) the Condensed Consolidated Statements of Cash Flows (unaudited), and ~~(v)~~(vi) Notes to Condensed Consolidated Financial Statements (unaudited).	Filed Herewith

Index

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



			THE DAVEY TREE EXPERT COMPANY

Date:	August ~~9, 2018~~6, 2019	By:	/s/ Joseph R. Paul
			Joseph R. Paul
			Executive Vice President, Chief Financial Officer and Secretary
			(Principal Financial Officer)

Date:	August ~~9, 2018~~6, 2019	By:	/s/ Thea R. Sears
			Thea R. Sears
			Vice President and Controller
			(Principal Accounting Officer)

- 5149 -



Ohio	34-0176110
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

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

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



Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
N/A	N/A	N/A



		Page
Part I.	Financial Information

Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Operations	3
	Condensed Consolidated Statements of Comprehensive Income (Loss)	4
	Condensed Consolidated Statements of Shareholders' Equity	5
	Condensed Consolidated Statements of Cash Flows	57
	Notes to Condensed Consolidated Financial Statements
	A — Basis of Financial Statement Preparation	68
	B — Seasonality of Business	89
	C — Accounts Receivable, Net and Supplemental Balance-Sheet Information	89
	D — Business Combinations	910
	E — Identified Intangible Assets and Goodwill, Net	1012
	F — Long-Term Debt and Commitments Related to Letters of Credit	1113
	G — ~~Stock-Based Compensation~~Leases	1216
	H — Stock-Based Compensation	18
	I — Net Periodic Benefit Expense--Defined Benefit Pension Plans	16
	~~I — Income Taxes~~	1621
	J — Income Taxes	22
	K — Accumulated Other Comprehensive Income (Loss)	1823
	KL — Per Share Amounts and Common and Redeemable Shares Outstanding	1925
	LM — Operations by Business Segment	21
	~~M — Revenue Recognition~~	2326
	N — Revenue Recognition	29
	O — Fair Value Measurements and Financial Instruments	26
	~~O — Contingencies~~	2831
	P — Commitments and Contingencies	33
	Q — The Davey 401KSOP and Employee Stock Ownership Plan	2835

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2935
	Results of Operations	3036
	Liquidity and Capital Resources	3440
	Cash Flow Summary	3540
	Contractual Obligations Summary and Commercial Commitments	3742
	Capital Resources	38
	~~Recent Accounting Guidance~~	3842
	Critical Accounting Policies and Estimates	3942
	Note Regarding Forward-Looking Statements	4142

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	4244

Item 4.	Controls and Procedures	4244

Part II.	Other Information

Item 1.	Legal Proceedings	4344

Item 1A.	Risk Factors	4345

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4846

Item 6.	Exhibits	4947

Exhibit Index		5048

Signatures		5149


	June 30, 2018			December 31, 2017			June 29, 2019			December 31, 2018
Assets
Current assets:
Cash	$	12,483		$	13,121		$	16,057		$	22,661
Accounts receivable, net	178,269			168,671			212,421			195,906
Operating supplies	13,922			10,069			13,332			14,415
Other current assets	12,326			17,264			11,526			22,086
Total current assets	217,000			209,125			253,336			255,068

Property and equipment	640,087			616,036			662,217			639,396
Less accumulated depreciation	431,851			422,853			454,811			437,111
	208,236			193,183

Total property and equipment, net							207,406			202,285
Right-of-use assets - operating leases							39,534			—
Other assets	24,874			29,156			20,016			21,769
Identified intangible assets and goodwill, net	43,144			41,671
	$	493,254		$	473,135
Intangible assets and goodwill, net							49,857			47,501
Total assets							$	570,149		$	526,623
Liabilities and shareholders' equity
Current liabilities:
Accounts payable	$	37,076		$	45,093		$	34,735		$	43,958
Accrued expenses	40,512			42,816			47,317			44,061
Current portion of long-term debt and finance lease liabilities							11,119			23,859
Other current liabilities	33,959			40,748			42,187			27,434
Total current liabilities	111,547			128,657			135,358			139,312

Long-term debt	157,907			119,210			166,374			155,563
Self-insurance accruals	45,093			43,912
Lease liabilities - finance leases							1,985			2,862
Lease liabilities - operating leases							25,825			—
Self-insurance reserve							58,246			56,351
Other noncurrent liabilities	17,040			19,966			10,378			10,125
	331,587			311,745

Redeemable common shares related to 401KSOP and Employee Stock Ownership Plan (ESOP); 6,169 and 6,467 shares at redemption value as of June 30, 2018 and December 31, 2017	121,525			123,520

Total liabilities							398,166			364,213
Commitments and contingencies (Note P)
Redeemable common shares related to 401KSOP and Employee Stock Ownership Plan (ESOP); 5,297 and 5,642 shares at redemption value as of June 29, 2019 and December 31, 2018							119,702			119,049
Common shareholders' equity:
Common shares, $1.00 par value, per share; 48,000 shares authorized; 36,745 and 36,447 shares issued and outstanding before deducting treasury shares and which excludes 6,169 and 6,467 shares subject to redemption as of June 30, 2018 and December 31, 2017	36,745			36,447
Common shares, $1.00 par value, per share; 48,000 shares authorized; 37,617 and 37,272 shares issued and outstanding before deducting treasury shares and which excludes 5,297 and 5,642 shares subject to redemption as of June 29, 2019 and December 31, 2018							37,617			37,272
Additional paid-in capital	69,810			58,554			91,921			82,623
Common shares subscribed, unissued	7,131			7,529			5,948			6,799
Retained earnings	153,647			143,835			167,611			157,472
Accumulated other comprehensive loss	(9,679		)	(8,393		)	(5,269		)	(5,034		)
	257,654			237,972			297,828			279,132
Less: Cost of common shares held in treasury; 19,290 shares at June 30, 2018 and 18,693 shares at December 31, 2017	216,065			198,327
Less: Cost of common shares held in treasury; 20,114 shares at June 29, 2019 and 20,033 shares at December 31, 2018							245,116			235,042
Common shares subscription receivable	1,447			1,775			431			729
Total common shareholders' equity	40,142			37,870			52,281			43,361
	$	493,254		$	473,135
Total liabilities and shareholders' equity							$	570,149		$	526,623

See notes to condensed consolidated financial statements.


	Three Months Ended						Six Months Ended						Three Months Ended						Six Months Ended
	June 30, 2018			July 1, 2017			June 30, 2018			July 1, 2017			June 29, 2019			June 30, 2018			June 29, 2019			June 30, 2018
Revenues	$	270,649		$	245,037		$	479,300		$	437,850		$	301,434		$	270,649		$	549,323		$	479,300

Costs and expenses:
Operating	167,682			151,525			312,305			285,184			187,778			167,682			353,794			312,305
Selling	44,317			40,816			83,974			76,350			50,629			44,317			96,933			83,974
General and administrative	17,358			15,213			35,076			31,613			18,671			17,358			37,715			35,076
Depreciation and amortization	13,938			13,000			27,059			25,190			14,590			13,938			28,802			27,059
Gain on sale of assets, net	(2,446		)	(1,176		)	(3,248		)	(2,151		)	(516		)	(2,446		)	(1,169		)	(3,248		)
	240,849			219,378			455,166			416,186
Total costs and expenses													271,152			240,849			516,075			455,166

Income from operations	29,800			25,659			24,134			21,664			30,282			29,800			33,248			24,134

Other income (expense):
Interest expense	(1,754		)	(1,072		)	(3,155		)	(2,329		)	(2,428		)	(1,754		)	(4,579		)	(3,155		)
Interest income	101			73			179			143			93			101			176			179
Other, net	(1,052		)	(1,339		)	(2,714		)	(2,478		)	(3,153		)	(1,052		)	(4,808		)	(2,714		)

Income before income taxes	27,095			23,321			18,444			17,000			24,794			27,095			24,037			18,444

Income taxes	5,381			9,098			3,357			6,664			5,047			5,381			4,783			3,357

Net income	$	21,714		$	14,223		$	15,087		$	10,336		$	19,747		$	21,714		$	19,254		$	15,087

Net income per share:
Basic	$	.94		$	.57		$	.62		$	.41		$	.86		$	.94		$	.83		$	.62
Diluted	$	.89		$	.55		$	.59		$	.40		$	.82		$	.89		$	.80		$	.59

Weighted-average shares outstanding:
Basic	23,121			24,998			24,439			24,984			22,915			23,121			23,139			24,439
Diluted	24,307			25,985			25,561			25,998			24,051			24,307			24,180			25,561

Dividends declared per share	$	.025		$	.025		$	.050		$	.050

See notes to condensed consolidated financial statements.	See notes to condensed consolidated financial statements.												See notes to condensed consolidated financial statements.



	Common Shares		Additional Paid-in Capital			Common Shares Subscribed, Unissued			Retained Earnings			Accumulated Other Comprehensive Income (Loss), Net of Tax			Common Shares Held in Treasury			Common Shares Subscription Receivable			Total Common Shareholders' Equity
Balances at March 30, 2019	$	37,077	$	81,201		$	6,408		$	156,389		$	(4,481	)	$	(236,470	)	$	(571	)	$	39,553
Net income	—		—			—			19,747			—			—			—			19,747
Change in 401KSOP and ESOP related shares	540		10,854			—			(7,945		)	—			—			—			3,449
Shares sold to employees	—		1,608			—			—			—			3,088			—			4,696
Options exercised	—		(995		)	—			—			—			2,208			—			1,213
Subscription shares	—		(493		)	(460		)	—			—			2,757			140			1,944
Stock-based compensation	—		(254		)	—			—			—			—			—			(254		)
Dividends, $.025 per shares	—		—			—			(580		)	—			—			—			(580		)
Currency translation adjustments	—		—			—			—			698			—			—			698
Defined benefit pension plans	—		—			—			—			(1,486		)	—			—			(1,486		)
Shares purchased	—		—			—			—			—			(16,699		)	—			(16,699		)
Balances at June 29, 2019	$	37,617	$	91,921		$	5,948		$	167,611		$	(5,269	)	$	(245,116	)	$	(431	)	$	52,281

Balances at January 1, 2019	$	37,272	$	82,623		$	6,799		$	157,472		$	(5,034	)	$	(235,042	)	$	(729	)	$	43,361
Net income	—		—			—			19,254			—			—			—			19,254
Change in 401KSOP and ESOP related shares	345		6,947			—			(7,945		)	—			—			—			(653		)
Shares sold to employees	—		3,561			—			—			—			5,544			—			9,105
Options exercised	—		(1,009		)	—			—			—			2,289			—			1,280
Subscription shares	—		(568		)	(851		)	—			—			3,222			298			2,101
Stock-based compensation	—		367			—			—			—			—			—			367
Dividends, $.05 per shares	—		—			—			(1,170		)	—			—			—			(1,170		)
Currency translation adjustments	—		—			—			—			1,207			—			—			1,207
Defined benefit pension plans	—		—			—			—			(1,442		)	—			—			(1,442		)
Shares purchased	—		—			—			—			—			(21,129		)	—			(21,129		)
Balances at June 29, 2019	$	37,617	$	91,921		$	5,948		$	167,611		$	(5,269	)	$	(245,116	)	$	(431	)	$	52,281

See notes to condensed consolidated financial statements.


C.	Accounts Receivable, Net and Supplemental Balance-Sheet Information


⁽¹⁾	Receivables under contractual arrangements consist of work-in-process in accordance with the terms of contracts, primarily with utility services customers.



Other assets, noncurrent	June 29, 2019		December 31, 2018
Assets invested for self-insurance	$	12,552	$	15,379
Investment--cost-method affiliate	1,218		1,218
Deferred income taxes	411		573
Other	5,835		4,599
Total	$	20,016	$	21,769


	Six Months Ended
	June 30, 2018			June 29, 2019			December 31, 2018
Detail of acquisitions:
Assets acquired:
Cash				$	3		$	—
Receivables				41			1,311
Operating supplies	$	22		79			23
Prepaid expense				13			89
Equipment	1,869			830			4,079
Deposits and other	65			—			7
Intangibles	1,194			2,135			4,895
Goodwill	1,013			1,379			2,840
Liabilities assumed	(629		)	(314		)	(2,381		)
Debt issued for purchases of businesses	(990		)	(1,133		)	(2,402		)
Cash paid	$	2,544		$	3,033		$	8,461


	June 30, 2018				December 31, 2017				June 29, 2019				December 31, 2018
Identified Intangible Assets and Goodwill, Net	Carrying Amount		Accumulated Amortization		Carrying Amount		Accumulated Amortization
									Carrying Amount		Accumulated Amortization		Carrying Amount		Accumulated Amortization
Amortized intangible assets:
Customer lists/relationships	$	22,732	$	17,472	$	21,487	$	16,846	$	26,892	$	19,073	$	25,179	$	18,251
Employment-related	7,431		6,759		7,333		6,624		8,184		7,144		8,133		6,954
Tradenames	6,310		5,261		5,978		5,134		7,118		5,608		6,858		5,435

Amortized intangible assets	36,473		$	29,492	34,798		$	28,604	42,194		$	31,825	40,170		$	30,640

Less accumulated amortization	29,492				28,604				31,825				30,640

Identified intangibles, net	6,981				6,194
Identified intangible assets, net									10,369				9,530

Unamortized intangible assets:
Goodwill	36,163				35,477				39,488				37,971
	$	43,144			$	41,671			$	49,857			$	47,501



	Balance at January 1, 2018		Acquisitions		Translation and Other Adjustments			Balance at June 30, 2018
Utility	$	3,424	$	—	$	—		$	3,424
Residential and Commercial	32,053		1,013		(327		)	32,739
Total	$	35,477	$	1,013	$	(327	)	$	36,163



	Balance at January 1, 2019		Acquisitions		Translation and Other Adjustments			Balance at June 29, 2019
Utility	$	4,911	$	—	$	—		$	4,911
Residential and Commercial	33,060		1,379		138			34,577
Total	$	37,971	$	1,379	$	138		$	39,488


	Balance at January 1, 2018		Acquisitions		Translation and Other Adjustments			Balance at June 30, 2018
Utility	$	3,424	$	—	$	—		$	3,424
Residential and Commercial	32,053		1,013		(327		)	32,739
Total	$	35,477	$	1,013	$	(327	)	$	36,163



	Estimated Future Amortization Expense
Year ending December 31, 2019	$	1,254
2020	2,327
2021	1,885
2022	1,655
2023	1,500
Thereafter	1,748
	$	10,369


F.	Long-Term Debt and Commitments Related to Letters of Credit



	Condensed Consolidated Balance Sheet Classification	June 29, 2019
Assets
Operating lease assets	Right-of-use assets - operating leases	$	39,534
Finance lease assets	Property and equipment, net	3,600
Total lease assets		$	43,134
Liabilities
Current operating lease liabilities	Other current liabilities	$	13,341
Non-current operating lease liabilities	Lease liabilities - operating leases	25,825
Total operating lease liabilities		39,166
Current portion of finance lease liabilities	Current portion of long-term debt and finance lease liabilities	1,312
Non-current finance lease liabilities	Lease liabilities - finance leases	1,985
Total finance lease liabilities		3,297
Total lease liabilities		$	42,463



		Three Months Ended		Six Months Ended
	Condensed Consolidated Statement of Operations Classification	June 29, 2019		June 29, 2019

Operating lease cost	Operating expense	$	1,629	$	3,067
Operating lease cost	Selling expense	2,158		4,325
Operating lease cost	General and administrative expense	202		403
Finance lease cost:
Amortization of right-of-use assets	Depreciation and amortization	340		685
Interest expense on lease liabilities	Interest expense	29		63
Other lease cost ⁽¹⁾	Operating expense	1,011		1,730
Other lease cost ⁽¹⁾	Selling expense	270		616
Other lease cost ⁽¹⁾	General and administrative expense	1		3
Total lease cost		$	5,640	$	10,892

⁽¹⁾ Other lease cost includes short-term lease costs and variable lease costs.



	Six Months Ended
	June 29, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	(8,175	)
Operating cash flows from finance leases	(63		)
Financing cash flows from finance leases	(860		)
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	47,779



	As of June 29, 2019
	Operating Leases		Finance Leases
Remaining six months of 2019	$	7,648	$	508
2020	13,242		1,371
2021	9,778		1,206
2022	6,504		272
2023	2,855		82
Thereafter	1,731		—
Total lease payments	41,758		3,439
Less interest	2,592		142
Total	$	39,166	$	3,297



	December 31, 2018
	Operating Leases
2019	$	14,023
2020	11,272
2021	7,712
2022	5,129
2023	2,060
Thereafter	1,923
Total lease payments	$	42,119


Stock-Settled Stock Appreciation Rights	Number of Rights		Weighted- Average Award Date Value		Weighted- Average Remaining Contractual Life	Unrecognized Compensation Cost		Aggregate Intrinsic Value		Number of Rights		Weighted- Average Award Date Value		Weighted- Average Remaining Contractual Life	Unrecognized Compensation Cost		Aggregate Intrinsic Value
Unvested, January 1, 2018	448,180		$	3.10
Unvested, January 1, 2019										380,982		$	3.42
Granted	121,243		3.84							—		—
Forfeited	—		—							—		—
Vested	(150,120	)	3.01							(115,080	)	3.31
Unvested, June 30, 2018	419,303		$	3.35	2.5 years	$	1,173	$	8,009
Unvested, June 29, 2019										265,902		$	3.47	1.9 years	$	734	$	5,611


Restricted Stock Units	Number of Stock Units		Weighted- Average Grant Date Value		Weighted- Average Remaining Contractual Life	Unrecognized Compensation Cost		Aggregate Intrinsic Value		Number of Stock Units		Weighted- Average Grant Date Value		Weighted- Average Remaining Contractual Life	Unrecognized Compensation Cost		Aggregate Intrinsic Value
Unvested, January 1, 2018	290,666		$	14.41
Unvested, January 1, 2019										247,838		$	15.68
Granted	44,926		18.55							40,988		20.45
Forfeited	—		—							—		—
Vested	(80,806	)	12.71							(60,474	)	13.55
Unvested, June 30, 2018	254,786		$	15.67	2.5 years	$	2,213	$	4,866
Unvested, June 29, 2019										228,352		$	17.10	2.4 years	$	2,078	$	4,818
Employee PRSUs	216,134		$	15.40	2.7 years	$	1,783	$	4,128	196,930		$	16.79	2.5 years	$	1,666	$	4,155
Nonemployee Director RSUs	38,652		$	17.17	1.9 years	$	430	$	738	31,422		$	19.01	2.0 years	$	412	$	663


Stock Options	Number of Options Outstanding		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life	Aggregate Intrinsic Value		Number of Options Outstanding		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life	Aggregate Intrinsic Value
Outstanding, January 1, 2018	1,528,615		$	13.05
Outstanding, January 1, 2019								1,466,264		$	13.94
Granted	143,250		19.10					151,145		21.10
Exercised	(80,635	)	10.07					(75,139	)	10.43
Forfeited	(41,300	)	12.37					(4,200	)	16.06
Outstanding, June 30, 2018	1,549,930		$	13.78	6.2 years	$	8,246
Outstanding, June 29, 2019								1,538,070		$	14.81	5.9 years	$	9,674

Exercisable, June 30, 2018	965,780		$	11.62	5.0 years	$	7,225
Exercisable, June 29, 2019								1,039,125		$	13.05	4.8 years	$	8,365


H.I.	Net Periodic Benefit Expense--Defined Benefit Pension Plans



	Foreign Currency Translation Adjustments			Defined Benefit Pension Plans			Accumulated Other Comprehensive Income (Loss)
Balance at January 1, 2018	$	(3,305	)	$	(5,088	)	$	(8,393	)
Other comprehensive income (loss) before reclassifications
Unrealized losses	$	(1,579	)	$	—		$	(1,579	)
Amounts reclassified from accumulated other comprehensive income (loss)	—			396			396
Tax effect	—			(103		)	(103		)
Net of tax amount	(1,579		)	293			(1,286		)
Balance at June 30, 2018	$	(4,884	)	$	(4,795	)	$	(9,679	)



Three Months Ended June 30, 2018	Foreign Currency Translation Adjustments			Defined Benefit Pension Plans			Accumulated Other Comprehensive Income (Loss)
Balance at March 31, 2018	$	(4,137	)	$	(4,942	)	$	(9,079	)
Other comprehensive income (loss) before reclassifications
Unrealized losses	$	(747	)	$	—		$	(747	)
Amounts reclassified from accumulated other comprehensive income (loss)	—			198			198
Tax effect	—			(51		)	(51		)
Net of tax amount	(747		)	147			(600		)
Balance at June 30, 2018	$	(4,884	)	$	(4,795	)	$	(9,679	)



Six Months Ended June 29, 2019	Foreign Currency Translation Adjustments			Defined Benefit Pension Plans			Accumulated Other Comprehensive Income (Loss)
Balance at January 1, 2019	$	(5,819	)	$	785		$	(5,034	)
Other comprehensive income (loss) before reclassifications
Unrealized gains	$	1,207		$	—		$	1,207
Amounts reclassified from accumulated other comprehensive income (loss)	—			(1,595		)	(1,595		)
Tax effect	—			153			153
Net of tax amount	1,207			(1,442		)	(235		)
Balance at June 29, 2019	$	(4,612	)	$	(657	)	$	(5,269	)



Six Months Ended June 30, 2018	Foreign Currency Translation Adjustments			Defined Benefit Pension Plans			Accumulated Other Comprehensive Income (Loss)
Balance at January 1, 2018	$	(3,305	)	$	(5,088	)	$	(8,393	)
Other comprehensive income (loss) before reclassifications
Unrealized losses	$	(1,579	)	$	—		$	(1,579	)
Amounts reclassified from accumulated other comprehensive income (loss)	—			396			396
Tax effect	—			(103		)	(103		)
Net of tax amount	(1,579		)	293			(1,286		)
Balance at June 30, 2018	$	(4,884	)	$	(4,795	)	$	(9,679	)


K.L.	Per Share Amounts and Common and Redeemable Shares Outstanding


	Common Shares		Redeemable				Common Shares Net of Treasury Shares		Redeemable Shares		Total
	Net of Treasury Shares		Shares		Total
Shares outstanding at January 1, 2018	17,753,832		6,467,027		24,220,859
Shares outstanding at January 1, 2019							17,238,497		5,642,155		22,880,652
Shares purchased	(828,495	)	(533,447	)	(1,361,942	)	(433,296	)	(569,267	)	(1,002,563	)
Shares sold	369,171		235,195		604,366		235,591		223,675		459,266
Stock subscription offering -- cash purchases	51,296		—		51,296		270,607		—		270,607
Options and awards exercised	108,850		—		108,850		191,532		—		191,532
Shares outstanding at June 30, 2018	17,454,654		6,168,775		23,623,429
Shares outstanding at June 29, 2019							17,502,931		5,296,563		22,799,494


															Utility		Residential and Commercial		All Other			Reconciling Adjustments				Consolidated
Three Months Ended June 29, 2019
Revenues															$	151,192	$	149,970	$	272		$	—			$	301,434
Income (loss) from operations															9,995		26,598		(5,401		)	(910		)	(a)	30,282
Interest expense																						(2,428		)		(2,428		)
Interest income																						93				93
Other income (expense), net																						(3,153		)		(3,153		)
Income before income taxes																										$	24,794
Segment assets, total															$	235,687	$	233,220	$	—		$	101,242		(b)	$	570,149
	Utility		Residential and Commercial		All Other			Reconciling Adjustments				Consolidated
Three Months Ended June 30, 2018
Revenues	$	128,496	$	141,465	$	688		$	—			$	270,649		$	128,496	$	141,465	$	688		$	—			$	270,649
Income (loss) from operations	6,265		26,834		(2,764		)	(535		)	(a)	29,800			6,265		26,834		(2,764		)	(535		)	(a)	29,800
Interest expense								(1,754		)		(1,754		)								(1,754		)		(1,754		)
Interest income								101				101										101				101
Other income (expense), net								(1,052		)		(1,052		)								(1,052		)		(1,052		)
Income before income taxes												$	27,095													$	27,095
Segment assets, total	$	197,287	$	222,638	$	—		$	73,329		(b)	$	493,254		$	197,287	$	222,638	$	—		$	73,329		(b)	$	493,254

Three Months Ended July 1, 2017
Six Months Ended June 29, 2019
Revenues	$	112,903	$	131,299	$	835		$	—			$	245,037		$	291,661	$	257,365	$	297		$	—			$	549,323
Income (loss) from operations	4,270		23,837		(965		)	(1,483		)	(a)	25,659			15,875		27,105		(8,369		)	(1,363		)	(a)	33,248
Interest expense								(1,072		)		(1,072		)								(4,579		)		(4,579		)
Interest income								73				73										176				176
Other income (expense), net								(1,339		)		(1,339		)								(4,808		)		(4,808		)
Income before income taxes												$	23,321													$	24,037
Segment assets, total	$	171,472	$	202,502	$	—		$	86,198		(b)	$	460,172		$	235,687	$	233,220	$	—		$	101,242		(b)	$	570,149

Six Months Ended June 30, 2018
Revenues	$	247,183	$	230,810	$	1,307		$	—			$	479,300		$	247,183	$	230,810	$	1,307		$	—			$	479,300
Income (loss) from operations	8,079		23,729		(6,556		)	(1,118		)	(a)	24,134			8,079		23,729		(6,556		)	(1,118		)	(a)	24,134
Interest expense								(3,155		)		(3,155		)								(3,155		)		(3,155		)
Interest income								179				179										179				179
Other income (expense), net								(2,714		)		(2,714		)								(2,714		)		(2,714		)
Income before income taxes												$	18,444													$	18,444
Segment assets, total	$	197,287	$	222,638	$	—		$	73,329		(b)	$	493,254		$	197,287	$	222,638	$	—		$	73,329		(b)	$	493,254

Six Months Ended July 1, 2017
Revenues	$	225,381	$	210,886	$	1,583		$	—			$	437,850
Income (loss) from operations	6,928		20,255		(3,193		)	(2,326		)	(a)	21,664
Interest expense								(2,329		)		(2,329		)
Interest income								143				143
Other income (expense), net								(2,478		)		(2,478		)
Income before income taxes												$	17,000
Segment assets, total	$	171,472	$	202,502	$	—		$	86,198		(b)	$	460,172


(a)	Reclassification of depreciation expense and allocation of corporate expenses.


(b)	Corporate assets include cash, prepaid expenses, corporate facilities, enterprise-wide information systems and other nonoperating assets.



	June 30, 2018		December 31, 2017
Contract liabilities - current	$	3,847	$	2,072
Contract liabilities - noncurrent	2,080		2,020
Net contract liabilities	$	5,927	$	4,092

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