UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



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

For the quarterly period ended June ~~29, 2019~~27, 2020



¨☐	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 000-11917

THE DAVEY TREE EXPERT COMPANY

(Exact name of registrant as specified in its charter)



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

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

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

1500 North Mantua Street

P.O. Box 5193

Kent, OH44240

(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:



~~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

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. Yesx☒ No ¨☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yesx☒ No ¨☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



¨Large Accelerated Filer	☐	xAccelerated Filer	☒	¨Emerging Growth Company	☐
¨Non-Accelerated Filer	☐	¨Smaller Reporting Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange ~~Act~~ ¨Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No x☒

There were ~~22,801,689~~22,875,064 Common Shares, $1.00 par value, outstanding as of ~~August 2, 2019.~~July 31, 2020.

Index

The Davey Tree Expert Company

Quarterly Report on Form 10-Q

June ~~29, 2019~~27, 2020

INDEX



						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				7
		Notes to Condensed Consolidated Financial Statements
			A	—	Basis of Financial Statement Preparation	8
			B	—	Seasonality of Business	9
			C	—	Accounts Receivable, Net and Supplemental Balance-Sheet Information	9
			D ~~— Business Combinations~~	10—	Business Combinations	11
			E	—	Identified Intangible Assets and Goodwill, Net	12
			F	—	Long-Term Debt and Commitments Related to Letters of Credit	13
			G ~~— Leases~~	16—	Leases	15
			H ~~— Stock-Based Compensation~~	18—	Stock-Based Compensation	17
			I	—	Net Periodic Benefit Expense--Defined Benefit Pension Plans	21
			J	—	Income Taxes	21
			K	—	Accumulated Other Comprehensive Income (Loss)	22
			~~K — Accumulated Other Comprehensive Income (Loss)~~L	23—
	~~L —~~ Per Share Amounts and Common and Redeemable Shares Outstanding		24
			M	—	Operations by Business Segment	25
			~~M — Operations by Business Segment~~N	26—	Revenue Recognition	27
			N O	— ~~Revenue Recognition~~	Fair Value Measurements and Financial Instruments	29
			O P	— ~~Fair Value Measurements~~	Commitments and ~~Financial Instruments~~Contingencies	31
			P Q	— ~~Commitments~~	The Davey 401KSOP and ~~Contingencies~~Employee Stock Ownership Plan	33

~~Q — The Davey 401KSOP~~Item 2.	Management's Discussion and ~~Employee Stock Ownership Plan~~Analysis of Financial Condition and Results of Operations					34
		Results of Operations				35

~~Item 2.~~	~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~	35
	~~Results of Operations~~	36
	Liquidity and Capital Resources	40
			Cash Flow Summary			40
			Contractual Obligations Summary and Commercial Commitments			41
			Capital Resources			41
		Critical Accounting Policies and Estimates				42
	~~Capital Resources~~	42
	~~Critical Accounting Policies and Estimates~~	42
	Note Regarding Forward-Looking Statements	42

Item 3.	Quantitative and Qualitative Disclosures about Market Risk					44

~~Item 4.~~	~~Controls and Procedures~~	44

~~Part II.~~	~~Other Information~~

Item 1.4.	~~Legal Proceedings~~Controls and Procedures					44

~~Item 1A.~~Part II.	Other Information					44

Item 1.	Legal Proceedings					44

Item 1A.	Risk Factors					45

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds					46

~~Item 6.~~	~~Exhibits~~	47

~~Exhibit Index~~Item 6.	Exhibits					48

~~Signatures~~Exhibit Index						49

Signatures						50

"We," "us" "our," "Davey" and "Davey Tree," unless the context otherwise requires, means The Davey Tree Expert Company and its subsidiaries.

~~"We,” “us,” “our,” “Davey” and “Davey Tree,” unless the context otherwise requires, means The Davey Tree Expert Company and its subsidiaries.~~

Index

THE DAVEY TREE EXPERT COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands, except per share data dollar amounts)


	June 29, 2019			December 31, 2018			June 27, 2020			December 31, 2019
Assets
Current assets:
Cash	$	16,057		$	22,661		$	31,141		$	11,000
Accounts receivable, net	212,421			195,906			268,920			231,311
Operating supplies	13,332			14,415			12,647			12,127
Other current assets	11,526			22,086			11,970			26,987
Total current assets	253,336			255,068			324,678			281,425
Property and equipment	662,217			639,396
Less accumulated depreciation	454,811			437,111
Total property and equipment, net	207,406			202,285
Property and equipment, net							207,256			199,850
Right-of-use assets - operating leases	39,534			—			54,188			40,033
Other assets	20,016			21,769			17,653			22,335
Intangible assets and goodwill, net	49,857			47,501
Intangible assets, net							10,432			10,934
Goodwill							43,804			42,285
Total assets	$	570,149		$	526,623		$	658,011		$	596,862
Liabilities and shareholders' equity
Current liabilities:
Accounts payable	$	34,735		$	43,958		$	37,723		$	41,191
Accrued expenses	47,317			44,061			65,861			52,431
Current portion of long-term debt and finance lease liabilities	11,119			23,859			18,383			24,650
Other current liabilities	42,187			27,434			48,095			47,400
Total current liabilities	135,358			139,312			170,062			165,672
Long-term debt	166,374			155,563			159,775			143,354
Lease liabilities - finance leases	1,985			2,862			4,461			1,795
Lease liabilities - operating leases	25,825			—			36,490			25,200
Self-insurance reserve	58,246			56,351			70,852			62,113
Other noncurrent liabilities	10,378			10,125			11,371			12,268
Total liabilities	398,166			364,213			453,011			410,402
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
Redeemable common shares related to 401KSOP and Employee Stock Ownership Plan (ESOP); 5,129 and 5,147 shares at redemption value as of June 27, 2020 and December 31, 2019							127,722			124,555
Common shareholders' equity:
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
Common shares, $1.00 par value, per share; 48,000 shares authorized; 37,784 and 37,767 shares issued and outstanding before deducting treasury shares and which excludes 5,129 and 5,147 shares subject to redemption as of June 27, 2020 and December 31, 2019							37,784			37,767
Additional paid-in capital	91,921			82,623			103,291			96,366
Common shares subscribed, unissued	5,948			6,799
Retained earnings	167,611			157,472			204,999			179,770
Accumulated other comprehensive loss	(5,269		)	(5,034		)	(6,586		)	(5,403		)
	297,828			279,132			339,488			308,500
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	431			729
Less: Cost of common shares held in treasury; 20,042 shares at June 27, 2020 and 19,737 shares at December 31, 2019							262,210			246,595
Total common shareholders' equity	52,281			43,361			77,278			61,905
Total liabilities and shareholders' equity	$	570,149		$	526,623		$	658,011		$	596,862

See notes to condensed consolidated financial statements.
See notes to condensed consolidated financial statements (unaudited).

Index

THE DAVEY TREE EXPERT COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(In thousands, except per share dollar amounts)


	Three Months Ended						Six Months Ended						Three Months Ended						Six Months Ended
	June 29, 2019			June 30, 2018			June 29, 2019			June 30, 2018			June 27, 2020			June 29, 2019			June 27, 2020			June 29, 2019
Revenues	$	301,434		$	270,649		$	549,323		$	479,300		$	319,247		$	301,434		$	607,527		$	549,323

Costs and expenses:
Operating	187,778			167,682			353,794			312,305			191,060			187,778			389,453			353,794
Selling	50,629			44,317			96,933			83,974			51,972			50,629			102,084			96,933
General and administrative	18,671			17,358			37,715			35,076			19,044			18,671			40,586			37,715
Depreciation and amortization	14,590			13,938			28,802			27,059			14,124			14,590			28,728			28,802
Gain on sale of assets, net	(516		)	(2,446		)	(1,169		)	(3,248		)	(1,264		)	(516		)	(1,569		)	(1,169		)
Total costs and expenses	271,152			240,849			516,075			455,166			274,936			271,152			559,282			516,075

Income from operations	30,282			29,800			33,248			24,134			44,311			30,282			48,245			33,248

Other income (expense):
Interest expense	(2,428		)	(1,754		)	(4,579		)	(3,155		)	(1,952		)	(2,428		)	(3,898		)	(4,579		)
Interest income	93			101			176			179			96			93			197			176
Other, net	(3,153		)	(1,052		)	(4,808		)	(2,714		)	(1,152		)	(3,153		)	(3,051		)	(4,808		)

Income before income taxes	24,794			27,095			24,037			18,444			41,303			24,794			41,493			24,037

Income taxes	5,047			5,381			4,783			3,357			11,518			5,047			11,535			4,783

Net income	$	19,747		$	21,714		$	19,254		$	15,087		$	29,785		$	19,747		$	29,958		$	19,254

Net income per share:
Basic	$	.86		$	.94		$	.83		$	.62		$	1.31		$	.86		$	1.30		$	.83
Diluted	$	.82		$	.89		$	.80		$	.59		$	1.24		$	.82		$	1.24		$	.80

Weighted-average shares outstanding:
Basic	22,915			23,121			23,139			24,439			22,807			22,915			22,997			23,139
Diluted	24,051			24,307			24,180			25,561			23,983			24,051			24,077			24,180

See notes to condensed consolidated financial statements.
See notes to condensed consolidated financial statements (unaudited).													See notes to condensed consolidated financial statements (unaudited).

Index

THE DAVEY TREE EXPERT COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(In thousands)


	Three Months Ended						Six Months Ended						Three Months Ended					Six Months Ended
	June 29, 2019			June 30, 2018			June 29, 2019			June 30, 2018			June 27, 2020		June 29, 2019			June 27, 2020			June 29, 2019
Net income	$	19,747		$	21,714		$	19,254		$	15,087		$	29,785	$	19,747		$	29,958		$	19,254
Components of other comprehensive income/(loss), net of tax:
Components of other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	698			(747		)	1,207			(1,579		)	732		698			(1,239		)	1,207
Amortization of defined benefit pension items:
Net actuarial (gain) loss	(1,498		)	135			(1,466		)	269
Net actuarial loss (gain)													17		(1,498		)	33			(1,466		)
Prior service cost	12			12			24			24			11		12			23			24
Defined benefit pension plan adjustments	(1,486		)	147			(1,442		)	293			28		(1,486		)	56			(1,442		)

Other comprehensive loss, net of tax	(788		)	(600		)	(235		)	(1,286		)
Other comprehensive income (loss), net of tax													760		(788		)	(1,183		)	(235		)

Comprehensive income	$	18,959		$	21,114		$	19,019		$	13,801		$	30,545	$	18,959		$	28,775		$	19,019

See notes to condensed consolidated financial statements.
See notes to condensed consolidated financial statements (unaudited).													See notes to condensed consolidated financial statements (unaudited).

Index

THE DAVEY TREE EXPERT COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)

(In thousands, except per share data)


	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			Common Shares		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss), Net of Tax			Common Shares Held in Treasury			Total Common Shareholders' Equity
Balances at March 30, 2019	$	37,077	$	81,201		$	6,408		$	156,389		$	(4,481	)	$	(236,470	)	$	(571	)	$	39,553
Balances at March 28, 2020																								$	37,678	$	97,247		$	179,368		$	(7,346	)	$	(252,022	)	$	54,925
Net income	—		—			—			19,747			—			—			—			19,747			—		—			29,785			—			—			29,785
Change in 401KSOP and ESOP related shares	540		10,854			—			(7,945		)	—			—			—			3,449			106		2,477			(3,591		)	—			—			(1,008		)
Shares sold to employees	—		1,608			—			—			—			3,088			—			4,696			—		3,584			—			—			4,556			8,140
Options exercised	—		(995		)	—			—			—			2,208			—			1,213			—		(588		)	—			—			1,210			622
Subscription shares	—		(493		)	(460		)	—			—			2,757			140			1,944
Stock-based compensation	—		(254		)	—			—			—			—			—			(254		)	—		571			—			—			—			571
Dividends, $.025 per shares	—		—			—			(580		)	—			—			—			(580		)
Dividends, $.025 per share																								—		—			(563		)	—			—			(563		)
Currency translation adjustments	—		—			—			—			698			—			—			698			—		—			—			732			—			732
Defined benefit pension plans	—		—			—			—			(1,486		)	—			—			(1,486		)	—		—			—			28			—			28
Shares purchased	—		—			—			—			—			(16,699		)	—			(16,699		)	—		—			—			—			(15,954		)	(15,954		)
Balances at June 29, 2019	$	37,617	$	91,921		$	5,948		$	167,611		$	(5,269	)	$	(245,116	)	$	(431	)	$	52,281
Balances at June 27, 2020																								$	37,784	$	103,291		$	204,999		$	(6,586	)	$	(262,210	)	$	77,278

Balances at January 1, 2019	$	37,272	$	82,623		$	6,799		$	157,472		$	(5,034	)	$	(235,042	)	$	(729	)	$	43,361
Balances at January 1, 2020																								$	37,767	$	96,366		$	179,770		$	(5,403	)	$	(246,595	)	$	61,905
Net income	—		—			—			19,254			—			—			—			19,254			—		—			29,958			—			—			29,958
Change in 401KSOP and ESOP related shares	345		6,947			—			(7,945		)	—			—			—			(653		)	17		406			(3,591		)	—			—			(3,168		)
Shares sold to employees	—		3,561			—			—			—			5,544			—			9,105			—		6,150			—			—			6,994			13,144
Options exercised	—		(1,009		)	—			—			—			2,289			—			1,280			—		(573		)	—			—			1,406			833
Subscription shares	—		(568		)	(851		)	—			—			3,222			298			2,101
Stock-based compensation	—		367			—			—			—			—			—			367			—		942			—			—			—			942
Dividends, $.05 per shares	—		—			—			(1,170		)	—			—			—			(1,170		)
Dividends, $.05 per share																								—		—			(1,138		)	—			—			(1,138		)
Currency translation adjustments	—		—			—			—			1,207			—			—			1,207			—		—			—			(1,239		)	—			(1,239		)
Defined benefit pension plans	—		—			—			—			(1,442		)	—			—			(1,442		)	—		—			—			56			—			56
Shares purchased	—		—			—			—			—			(21,129		)	—			(21,129		)	—		—			—			—			(24,015		)	(24,015		)
Balances at June 29, 2019	$	37,617	$	91,921		$	5,948		$	167,611		$	(5,269	)	$	(245,116	)	$	(431	)	$	52,281
Balances at June 27, 2020																								$	37,784	$	103,291		$	204,999		$	(6,586	)	$	(262,210	)	$	77,278

See notes to condensed consolidated financial statements.

Index

THE DAVEY TREE EXPERT COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)

(In thousands, except per share data)


	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			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 31, 2018	$	36,269	$	58,132		$	7,457		$	136,229		$	(9,079	)	$	(201,489	)	$	(1,629	)	$	25,890
Balances at March 30, 2019																								$	37,077	$	81,201		$	6,408		$	156,389		$	(4,481	)	$	(236,470	)	$	(571	)	$	39,553
Net income	—		—			—			21,714			—			—			—			21,714			—		—			—			19,747			—			—			—			19,747
Change in 401KSOP and ESOP related shares	476		8,624			—			(3,701		)	—			—			—			5,399			540		10,854			—			(7,945		)	—			—			—			3,449
Shares sold to employees	—		2,684			—			—			—			4,216			—			6,900			—		1,608			—			—			—			3,088			—			4,696
Options exercised	—		244			—			—			—			1,093			—			1,337			—		(995		)	—			—			—			2,208			—			1,213
Subscription shares	—		(40		)	(326		)	—			—			404			182			220			—		(493		)	(460		)	—			—			2,757			140			1,944
Stock-based compensation	—		166			—			—			—			—			—			166			—		(254		)	—			—			—			—			—			(254		)
Dividends, $.025 per shares	—		—			—			(595		)	—			—			—			(595		)
Dividends, $.025 per share																								—		—			—			(580		)	—			—			—			(580		)
Currency translation adjustments	—		—			—			—			(747		)	—			—			(747		)	—		—			—			—			698			—			—			698
Defined benefit pension plans	—		—			—			—			147			—			—			147			—		—			—			—			(1,486		)	—			—			(1,486		)
Shares purchased	—		—			—			—			—			(20,289		)	—			(20,289		)	—		—			—			—			—			(16,699		)	—			(16,699		)
Balances at June 30, 2018	$	36,745	$	69,810		$	7,131		$	153,647		$	(9,679	)	$	(216,065	)	$	(1,447	)	$	40,142
Balances at June 29, 2019																								$	37,617	$	91,921		$	5,948		$	167,611		$	(5,269	)	$	(245,116	)	$	(431	)	$	52,281

Balances at January 1, 2018	$	36,447	$	58,554		$	7,529		$	143,835		$	(8,393	)	$	(198,327	)	$	(1,775	)	$	37,870
Balances at January 1, 2019																								$	37,272	$	82,623		$	6,799		$	157,472		$	(5,034	)	$	(235,042	)	$	(729	)	$	43,361
Net income	—		—			—			15,087			—			—			—			15,087			—		—			—			19,254			—			—			—			19,254
Change in 401KSOP and ESOP related shares	298		5,398			—			(3,701		)	—			—			—			1,995			345		6,947			—			(7,945		)	—			—			—			(653		)
Shares sold to employees	—		4,444			—			—			—			6,522			—			10,966			—		3,561			—			—			—			5,544			—			9,105
Options exercised	—		264			—			—			—			1,202			—			1,466			—		(1,009		)	—			—			—			2,289			—			1,280
Subscription shares	—		20			(398		)	—			—			538			328			488			—		(568		)	(851		)	—			—			3,222			298			2,101
Stock-based compensation	—		1,130			—			—			—			—			—			1,130			—		367			—			—			—			—			—			367
Dividends, $.05 per shares	—		—			—			(1,219		)	—			—			—			(1,219		)
Adoption of ASU 2014-09	—		—			—			(355		)	—			—			—			(355		)
Dividends, $.05 per share																								—		—			—			(1,170		)	—			—			—			(1,170		)
Currency translation adjustments	—		—			—			—			(1,579		)	—			—			(1,579		)	—		—			—			—			1,207			—			—			1,207
Defined benefit pension plans	—		—			—			—			293			—			—			293			—		—			—			—			(1,442		)	—			—			(1,442		)
Shares purchased	—		—			—			—			—			(26,000		)	—			(26,000		)	—		—			—			—			—			(21,129		)	—			(21,129		)
Balances at June 30, 2018	$	36,745	$	69,810		$	7,131		$	153,647		$	(9,679	)	$	(216,065	)	$	(1,447	)	$	40,142
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.
See notes to condensed consolidated financial statements (unaudited).																								See notes to condensed consolidated financial statements (unaudited).

Index

THE DAVEY TREE EXPERT COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)


	Six Months Ended						Six Months Ended
	June 29, 2019			June 30, 2018			June 27, 2020			June 29, 2019
Operating activities
Net income	$	19,254		$	15,087		$	29,958		$	19,254
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	28,802			27,059			28,728			28,802
Other	270			(129		)	(98		)	270
Changes in operating assets and liabilities, net of assets acquired:
Accounts receivable	(15,960		)	(9,598		)	(38,170		)	(15,960		)
Accounts payable and accrued expenses	(609		)	(10,321		)	10,563			(609		)
Self-insurance reserve	1,690			1,414			8,498			1,690
Prepaid expenses	9,178			3,955			14,319			9,178
Other, net	1,661			(4,805		)	3,761			1,661
	25,032			7,575			27,601			25,032
Net cash provided by operating activities	44,286			22,662			57,559			44,286
Investing activities
Capital expenditures:
Equipment	(37,192		)	(40,228		)	(31,239		)	(37,192		)
Land and building	(229		)	(238		)
Purchases of businesses, net of cash acquired	(3,030		)	(2,544		)
Land and buildings							(1,105		)	(229		)
Purchases of businesses, net of cash acquired and debt incurred							(1,826		)	(3,030		)
Proceeds from sales of fixed assets	1,634			4,396			1,949			1,634
Net cash used in investing activities	(38,817		)	(38,614		)	(32,221		)	(38,817		)
Financing activities
Revolving credit facility borrowings	264,500			244,000			396,500			264,500
Revolving credit facility payments	(278,500		)	(205,000		)	(375,500		)	(278,500		)
Purchase of common shares for treasury	(21,129		)	(26,356		)	(24,016		)	(21,129		)
Sale of common shares from treasury	12,486			12,920			13,978			12,486
Dividends paid	(1,170		)	(1,218		)	(1,138		)	(1,170		)
Proceeds from notes payable	51,073			12,888			66,021			51,073
Payments of notes payable	(38,587		)	(21,343		)	(79,881		)	(38,587		)
Payments of finance leases	(860		)	(577		)	(1,062		)	(860		)
Net cash (used in) provided by financing activities	(12,187		)	15,314
Net cash used in financing activities							(5,098		)	(12,187		)
Effect of exchange rate changes on cash	114			—			(99		)	114
Decrease in cash	(6,604		)	(638		)
Increase (Decrease) in cash							20,141			(6,604		)
Cash, beginning of period	22,661			13,121			11,000			22,661
Cash, end of period	$	16,057		$	12,483		$	31,141		$	16,057
Supplemental cash flow information follows:
Interest paid	$	4,523		$	3,118		$	3,987		$	4,523
Income taxes paid	827			5,126			2,765			827

See notes to condensed consolidated financial statements.
See notes to condensed consolidated financial statements (unaudited).

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

June ~~29, 2019~~27, 2020

(Amounts in thousands, except share data)


A.	~~Basis of Financial Statement Preparation~~

A.Basis of Financial Statement Preparation

The condensed consolidated financial statements present the financial position, results of operations and cash flows of The Davey Tree Expert Company and its subsidiaries. When we refer to “we,” “us,” “our,” “Davey,” or “Davey Tree”, we mean The Davey Tree Expert Company and its subsidiaries, unless otherwise expressly stated or the context indicates otherwise.

We have prepared the accompanying unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”), as codified in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), and with the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. The condensed consolidated financial statements include all adjustments which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. All such adjustments are of a normal, recurring nature. All intercompany accounts and transactions have been eliminated.

Certain information and disclosures required by U.S. GAAP for complete financial statements have been omitted in accordance with the rules and regulations of the SEC. We suggest that these condensed consolidated financial statements be read in conjunction with the financial statements included in our annual report on Form 10-K for the year ended December 31, ~~2018~~2019 (the ~~“2018~~“2019 Annual Report”).

Use of Estimates in Financial Statement Preparation--The preparation of financial statements in accordance with U.S. GAAP requires the use of estimates and assumptions that affect reported amounts. Our condensed consolidated financial statements include amounts that are based on management’s best estimates and judgments. Estimates are used for, but not limited to, accounts receivable valuation, depreciable lives of fixed assets, self-insurance reserves, income taxes and revenue recognition. Actual results could differ from those estimates.

While the coronavirus ("COVID-19") pandemic did not have a material adverse effect on our reported results for the first six months of our fiscal year, the overall extent and duration of COVID-19 on businesses and economic activity generally remains unclear. The extent to which our operations may be impacted by COVID-19 will depend largely on future developments, which are highly uncertain due to its continual evolution and cannot be accurately predicted, including new information which may emerge concerning the severity of the outbreak and actions by government authorities to contain the pandemic or treat its impact, among other things.

The Company’s fiscal quarters each contain thirteen operating weeks, with the exception of the fourth quarter of a 53-week fiscal year, which contains fourteen operating weeks. The Company’s fiscal quarter that ended June 27, 2020 is referred to as the second quarter of 2020, and the fiscal quarter ended June 29, 2019 is referred to as the second quarter of ~~2019, and the fiscal quarter ended June 30, 2018 is referred to as the second quarter of 2018.~~2019.

Recent Accounting Guidance

Accounting Standards Adopted in ~~2019~~2020

Accounting Standards Update ~~2016-02, Leases~~2016-13, Financial Instruments - Credit Losses (Topic ~~842)~~326)--In ~~February~~June 2016, the FASB issued ~~Accounting Standards Update ("ASU") 2016-02, “Leases~~ASU 2016-13, "Financial Instruments - Credit Losses (Topic ~~842)~~326).” "ASU ~~2016-02, along~~2016-13 replaced the incurred loss impairment methodology in GAAP for most financial instruments, including trade receivables, with ~~several subsequent updates, requires lessees to recognize assets and liabilities created by leases on their balance sheet along with additional disclosure information. The Company adopted~~an impairment model, known as the standard on January 1, 2019 using the Comparative Under ASC 840 approach, which permitted the Company to not recast historical periods for the adoption, and utilized practical expedients as available. The adoption of the new standard resulted in the recording, as of January 1, 2019, of operating right-of-use assets and lease liabilities of $37,429. The adoption of the new standard did not impact our consolidated results of operations and had no impact on our cash flows.

~~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. The Company adopted ASU 2018-02 effective January 1, 2019 and did not elect to reclassify the income tax effects of the Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings.current expected credit loss model that is based

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

June ~~29, 2019~~27, 2020

(Amounts in thousands, except share data)


A.	~~Basis of Financial Statement Preparation (continued)~~

~~SEC Release No. 33-10532, Disclosure Update and Simplification--In August 2018, the SEC~~on expected losses rather than incurred losses. The Company adopted the ~~final rule under SEC Release No. 33-10532, Disclosure Update~~new standard effective January 1, 2020, and ~~Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements~~it did not have a material effect on the ~~analysis~~Company's results of ~~shareholders' equity~~operations.

Accounting Standards Not Yet Adopted

Accounting Standards Update 2019-12, Income Taxes (Topic 740)– Simplifying the Accounting for Income Taxes--In December 2019, the FASB issued ASU No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12)", which simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, including applicable interim ~~financial statements. Under~~periods. The Company is currently evaluating the ~~amendments, an analysis of changes in each caption of shareholders' equity presented in the balance sheet must be provided in a note or separate statement. The analysis should present a reconciliation~~impact of the beginning balance to the ending balance of each period for which a statement of comprehensive income is required to be filed. We have incorporated the changes required by SEC Release No. 33-10532 in this report.new guidance on its consolidated financial statements.


B.	Seasonality of Business

Due to the seasonality of our business, our operating results for the three and six months ended June ~~29, 2019~~27, 2020 are not indicative of results that may be expected for any other interim period or for the year ending December 31, ~~2019.~~2020. Our 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 the methods of accounting for fixed costs, such as depreciation expense, amortization, rent and interest expense, are not significantly impacted by business seasonality.


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

Accounts receivable, net, consisted of the following:



Accounts receivable, net	June 27, 2020		December 31, 2019
Accounts receivable	$	204,207	$	176,849
Unbilled Receivables⁽¹⁾	68,509		58,277
	272,716		235,126
Less allowances for doubtful accounts	3,796		3,815
Accounts receivable, net	$	268,920	$	231,311

Accounts receivable, net June 29,
2019 December 31,
2018
Accounts receivable $ 165,105
$ 158,556
Receivables under contractual arrangements⁽¹⁾
50,164
40,671
215,269
199,227
Less allowances for doubtful accounts 2,848
3,321
Accounts receivable, net $ 212,421
$ 195,906


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

The following items comprise the amounts included in the balance sheets:



Other current assets	June 27, 2020		December 31, 2019
Refundable income taxes	$	—	$	339
Prepaid expenses	11,258		25,664
Other	712		984
Total	$	11,970	$	26,987

Other current assets June 29,
2019 December 31,
2018
Refundable income taxes $ —
$ 1,625
Prepaid expense 10,428
19,529
Other 1,098
932
Total $ 11,526
$ 22,086

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

June ~~29, 2019~~27, 2020

(Amounts in thousands, except share data)


C.	~~Accounts Receivable, Net and Supplemental Balance-Sheet Information (continued)~~

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



Property and equipment, net	June 27, 2020		December 31, 2019
Land and land improvements	$	19,169	$	19,270
Buildings and leasehold improvements	45,293		44,414
Equipment	617,446		604,211
	681,908		667,895
Less accumulated depreciation	474,652		468,045
Total	$	207,256	$	199,850

Accrued expenses June 29,
2019 December 31,
2018
Employee compensation $ 18,966
$ 24,086
Accrued compensated absences 10,316
9,711
Self-insured medical claims 4,845
3,343
Income tax payable 3,881
31
Customer advances, deposits 1,258
1,322
Taxes, other than income 4,830
2,546
Other 3,221
3,022
Total $ 47,317
$ 44,061



Other assets, noncurrent	June 27, 2020		December 31, 2019
Assets invested for self-insurance	$	12,000	$	15,426
Investment--cost-method affiliate	1,267		1,314
Other	4,386		5,595
Total	$	17,653	$	22,335

Other current liabilities June 29,
2019 December 31,
2018
Notes payable $ 1,609
$ —
Current portion of:
Lease liability-operating leases 13,341
—
Self-insurance reserves 27,237
27,434
Total $ 42,187
$ 27,434



Accrued expenses	June 27, 2020		December 31, 2019
Employee compensation	$	20,298	$	26,381
Accrued compensated absences	10,727		10,744
Self-insured medical claims	4,104		1,824
Income tax payable	14,809		6,420
Customer advances, deposits	1,367		1,674
Taxes, other than income	11,043		1,775
Other	3,513		3,613
Total	$	65,861	$	52,431

Other noncurrent liabilities June 29,
2019 December 31,
2018
Pension and retirement plans $ 5,991
$ 6,138
Other 4,387
3,987
Total $ 10,378
$ 10,125



Other current liabilities	June 27, 2020		December 31, 2019
Notes payable	$	—	$	1,853
Current portion of:
Lease liability-operating leases	17,463		14,665
Self-insurance reserve	30,632		30,882
Total	$	48,095	$	47,400



Other noncurrent liabilities	June 27, 2020		December 31, 2019
Pension and retirement plans	$	6,830	$	6,552
Deferred income taxes	503		567
Other	4,038		5,149
Total	$	11,371	$	12,268

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

June 27, 2020

(Amounts in thousands, except share data)


D.	Business Combinations

Our investments in businesses during the first six months of ~~2019~~2020 were ~~$4,480,~~$2,740, including liabilities assumed of ~~$314~~$380 and debt issued, in the form of notes payable to the sellers, of ~~$1,133,~~$534, and have been included in our Residential and Commercial segment. Measurement-period adjustments are not complete. The measurement period for purchase price allocations ends as soon as information of the facts and circumstances becomes available, but does not exceed

~~Index~~

~~The Davey Tree Expert Company~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~June 29, 2019~~

~~(Amounts in thousands, except share data)~~


D.	~~Business Combinations (continued)~~

one year from the acquisition date. During the six months ended June ~~30, 2018,~~29, 2019, our investment in businesses was ~~$3,534,~~$4,480, including liabilities assumed of $314 and debt issued, in the form of notes payable to the sellers, of ~~$990.~~$1,133.

The following table summarizes the preliminary purchase price allocation of the estimated fair values of the assets acquired and liabilities assumed:



	June 27, 2020			December 31, 2019
Detail of acquisitions:
Assets acquired:
Cash	$	—		$	3
Receivables	—			2,332
Operating supplies	23			84
Prepaid expense	—			27
Equipment	426			1,837
Deposits and other	—			96
Intangibles	935			4,067
Goodwill	1,356			4,174
Liabilities assumed	(380		)	(1,479		)
Debt issued for purchases of businesses	(534		)	(2,612		)
Cash paid	$	1,826		$	8,529

June 29,
2019 December 31,
2018
Detail of acquisitions:
Assets acquired:

Cash $ 3
$ —
Receivables 41
1,311
Operating supplies 79
23
Prepaid expense 13
89
Equipment 830
4,079
Deposits and other —
7
Intangibles 2,135
4,895
Goodwill 1,379
2,840
Liabilities assumed (314 ) (2,381 )
Debt issued for purchases of businesses (1,133 ) (2,402 )
Cash paid $ 3,033
$ 8,461

The results of operations of acquired businesses have been included in the condensed consolidated statements of operations beginning as of the effective dates of acquisition. The effect of these acquisitions on our consolidated revenues and results of operations for the period ended June ~~29, 2019~~27, 2020 was not significant. Pro forma net sales and results of operations for the acquisitions, had they occurred at the beginning of the six months ended June ~~29, 2019,~~27, 2020, are not material and, accordingly, are not provided.

The acquired intangible assets consist of tradenames, non-competition agreements and customer relationships. The tradenames and customer relationships were assigned an average ~~six-year~~ useful life of six years and the non-competition agreements were assigned an average ~~five-year~~ useful ~~life.~~life of five years.

Subsequent to June ~~29, 2019~~27, 2020 and through August ~~6, 2019,~~4, 2020, we acquired ~~two businesses~~a business approximating ~~$932~~$2,500 with no0 liabilities assumed and debt issued of ~~$157.~~$500. The acquired ~~companies are~~company is in our Residential and Commercial segment and ~~are~~is located in ~~the British Columbia and Ontario, Canada markets.~~Ohio. We do not expect the effect of ~~these acquisitions~~this acquisition on our consolidated revenues and results of operations ~~either individually or in the aggregate,~~ to be significant.

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

June ~~29, 2019~~27, 2020

(Amounts in thousands, except share data)


E.	Identified Intangible Assets and Goodwill, Net

The carrying amounts of the identified intangible assets and goodwill acquired in connection with our acquisitions were as follows:



	June 27, 2020				December 31, 2019
	Carrying Amount		Accumulated Amortization		Carrying Amount		Accumulated Amortization
Amortized intangible assets:
Customer lists/relationships	$	28,993	$	21,037	$	28,301	$	20,024
Employment-related	8,525		7,553		8,391		7,348
Tradenames	7,495		5,991		7,402		5,788
Amortized intangible assets	45,013		$	34,581	44,094		$	33,160
Less accumulated amortization	34,581				33,160
Identified intangible assets, net	$	10,432			$	10,934

Goodwill	$	43,804			$	42,285

June 29, 2019 December 31, 2018

Carrying
Amount

Accumulated
Amortization

Carrying
Amount

Accumulated
Amortization
Amortized intangible assets:
Customer lists/relationships $ 26,892
$ 19,073
$ 25,179
$ 18,251
Employment-related 8,184
7,144
8,133
6,954
Tradenames 7,118
5,608
6,858
5,435

Amortized intangible assets 42,194
$ 31,825
40,170
$ 30,640

Less accumulated amortization 31,825

30,640

Identified intangible assets, net 10,369

9,530

Goodwill 39,488

37,971

$ 49,857

$ 47,501

The changes in the carrying amounts of goodwill, by segment, for the six months ended June 27, 2020 and June 29, 2019 ~~and June 30, 2018~~ follow:



	Balance at January 1, 2020		Acquisitions		Translation and Other Adjustments		Balance at June 27, 2020
Utility	$	4,911	$	—	$	—	$	4,911
Residential and Commercial	37,374		1,356		163		38,893
Total	$	42,285	$	1,356	$	163	$	43,804


	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, 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 aggregate amortization expense of intangible assets--The estimated future aggregate amortization expense of intangible assets, as of June 27, 2020 was as follows:



	Estimated Future Amortization Expense
Remaining six months of 2020	$	1,317
2021	2,308
2022	2,078
2023	1,909
2024	1,435
Thereafter	1,385
	$	10,432

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

June ~~29, 2019~~27, 2020

(Amounts in thousands, except share data)


E.	~~Identified Intangible Assets and Goodwill, Net (continued)~~

~~Estimated future aggregate amortization expense of intangible assets~~--~~The estimated future aggregate amortization expense of intangible assets, as of June 29, 2019 is as follows:~~

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

Our long-term debt consisted of the following:



	June 27, 2020		December 31, 2019
Revolving credit facility:
Swing-line borrowings	$	—	$	10,000
LIBOR borrowings	83,000		52,000
	83,000		62,000
Senior unsecured notes:
5.09% Senior unsecured notes	6,000		6,000
3.99% Senior unsecured notes	50,000		50,000
4.00% Senior unsecured notes	25,000		25,000
	81,000		81,000
Term loans	12,596		24,076
	176,596		167,076
Less debt issuance costs	326		420
Less current portion	16,495		23,302
	$	159,775	$	143,354

June 29,
2019 December 31,
2018
Revolving credit facility:
Swing-line borrowings $ 1,500
$ 2,500
LIBOR borrowings 78,000
91,000
79,500
93,500
Senior unsecured notes:
5.09% Senior unsecured notes 12,000
12,000
3.99% Senior unsecured notes 50,000
50,000
4.00% Senior unsecured notes 25,000
—
87,000
62,000
Term loans 10,194
23,176
176,694
178,676
Less debt issuance costs 513
599
Less current portion 9,807
22,514
$ 166,374
$ 155,563

Revolving Credit Facility --As of June ~~29, 2019,~~27, 2020, we had a $250,000 revolving credit facility with a group of banks, which expires in October 2022 and permits borrowings, as defined, up to $250,000, including a letter of credit sublimit of $100,000 and a swing-line commitment of $25,000. Under certain circumstances, the amount available under the revolving credit facility may be increased to $325,000. The revolving credit facility contains certain affirmative and negative covenants customary for this type of facility and includes financial covenant ratios with respect to a maximum leverage ratio (not to exceed 3.00 to 1.00 with exceptions in case of material acquisitions) and a minimum interest coverage ratio (not less than 3.00 to 1.00), in each case subject to certain further restrictions as described in the credit agreement. As of June ~~29, 2019,~~27, 2020, we had unused commitments under the facility approximating$~~167,712,~~164,123, with ~~$82,288~~$85,877 committed, consisting of borrowings of$~~79,500~~83,000 and issued letters of credit of$~~2,788.~~2,877.

~~Index~~

~~The Davey Tree Expert Company~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~June 29, 2019~~

~~(Amounts in thousands, except share data)~~


F.	~~Long-Term Debt and Commitments Related to Letters of Credit (continued)~~

Borrowings outstanding bear interest, at Davey Tree’s option, of either (a) a base rate or (b) LIBOR plus a margin adjustment ranging from .875% to 1.50%--with the margin adjustments ~~in both instances~~ based on the Company's leverage ratio at the time of borrowing. The base rate is the greater of (i) the agent bank’s prime rate, (ii) LIBOR plus 1.50%, or (iii) the federal funds rate plus .50%. A commitment fee ranging from .10% to .225% is also required based on the average daily unborrowed commitment.

5.09% Senior Unsecured Notes--During July 2010, we issued 5.09% Senior Unsecured Notes, Series A (the "5.09% Senior Notes"), in the aggregate principal amount of $30,000 pursuant to a Master Note Purchase Agreement (the “Purchase Agreement”) between the Company and the purchasers of the 5.09% Senior Notes. The 5.09% Senior Notes ~~are~~were due and repaid in full on July 22, 2020.

The 5.09% Senior Notes are equal in right of payment with our revolving credit facility and all other senior unsecured obligations of the Company. Interest is payable semiannually and ~~five~~5 equal, annual principal payments commenced on July 22, 2016 (the~~sixth~~6th anniversary of

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

June 27, 2020

(Amounts in thousands, except share data)

issuance). The Purchase Agreement contains customary events of default and covenants related to limitations on indebtedness and transactions with affiliates and the maintenance of certain financial ratios.

3.99% Senior Unsecured Notes--On September 21, 2018, we issued 3.99% Senior Notes, Series A (the "3.99% Senior Notes"), in the aggregate principal amount of $50,000. The 3.99% Senior Notes are due September 21, 2028.

The 3.99% Senior Notes were issued pursuant to a Note Purchase and Private Shelf Agreement (the “Note Purchase and Shelf Agreement”) between the Company, PGIM, Inc. and the purchasers of the 3.99% Senior Notes. Subsequent series of promissory notes may be issued pursuant to the Note Purchase and Shelf Agreement (the "Shelf Notes") in an aggregate additional principal amount not to exceed $50,000 ($25,000 of which was issued on February 5, 2019).

The 3.99% Senior Notes are equal in right of payment with our revolving credit facility and all other senior unsecured obligations of the Company. Interest is payable semiannually and ~~five~~5 equal, annual principal payments commence on September 21, 2024 (the~~sixth~~6th anniversary of issuance). The Note Purchase and Shelf Agreement contains customary events of default and covenants related to limitations on indebtedness and transactions with affiliates and the maintenance of certain financial ratios. The Company may prepay at any time all, or from time to time any part of, the outstanding principal amount of the 3.99% Senior Notes, subject to the payment of a make-whole amount.

In conjunction with the issuance of the 3.99% Senior Notes, on September 21, 2018, the Company entered into an amendment to its revolving credit facility. The amendment amended certain provisions and covenants in the credit agreement to generally conform them to the corresponding provisions and covenants in the Note Purchase and Shelf Agreement. The amendment also permitted the Company to incur indebtedness arising under the Note Purchase and Shelf Agreement in an aggregate principal amount not to exceed $75,000, which included the $50,000 of 3.99% Senior Notes, plus an additional $25,000 in Shelf Notes (which were issued on February 5, 2019).

4.00% Senior Unsecured Notes--On February 5, 2019, we issued 4.00% Senior Notes, Series B (the "4.00% Senior Notes") pursuant to the Note Purchase and Shelf Agreement in the aggregate principal amount of $25,000. The notes are due September 21, 2028. Subsequent series of Shelf Notes may be issued pursuant to the Note Purchase and Shelf Agreement in an aggregate additional principal amount not to exceed $25,000. A further amendment to the revolving credit facility would be required for such a transaction to be permissible under the revolving credit facility. The 4.00% Senior Notes are equal in right of payment with our revolving credit facility and all other senior unsecured obligations of the Company. Interest is payable semiannually and ~~five~~5 equal, annual principal payments commence on September 21, 2024.

~~Index~~

~~The Davey Tree Expert Company~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~June 29, 2019~~

~~(Amounts in thousands, except share data)~~


F.	~~Long-Term Debt and Commitments Related to Letters of Credit (continued)~~

The net proceeds of all senior notes were used to pay down borrowings under our revolving credit facility.

Term loans--Periodically, the Company will enter into term loans for the procurement of insurance or to finance acquisitions.

Aggregate Maturities of Long-Term Debt--Aggregate maturities of long-term debt based on the principal amounts outstanding atJune ~~29, 2019~~27, 2020 were as follows: ~~2019--$8,414;~~ 2020--$~~7,990;~~11,312; 2021--$~~5,523;~~6,171; 2022--$~~79,755;~~83,941; 2023--$~~12;~~172; 2024--$15,000; and thereafter ~~$75,000.~~$60,000.

Accounts Receivable Securitization Facility--In May ~~2019,~~2020, the Company amended its Accounts Receivable Securitization Facility (the "AR Securitization program") to extend the scheduled termination date for an additional ~~one-year~~one year period, to May ~~19, 2020.~~18, 2021. In addition to extending the termination date, the Amendment included a change to the letter of credit ("LC") issuance fee payable under the terms of the agreement.

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

June 27, 2020

(Amounts in thousands, except share data)

The AR Securitization program has a limit of $100,000, of which ~~$67,438~~$76,732 was issued for ~~letters of credit ("LCs")~~LCs as of both June ~~29,~~27, 2020 and December 31, 2019.

Under the AR Securitization program, Davey Tree transfers by selling or contributing current and future trade receivables to a wholly-owned, bankruptcy-remote financing subsidiary which pledges a perfected first priority security interest in the trade receivables--equal to the issued LCs as of June ~~29, 2019--to~~27, 2020--to the bank in exchange for the bank issuing LCs.

~~Receivables~~Pre-petition receivables from PG&E Corporation and its regulated utility subsidiary, Pacific Gas and Electric Company (collectively, "PG&E"), which had filed voluntary bankruptcy petitions under Chapter 11 of the United States Bankruptcy Code in the U.S. Bankruptcy Court for the Northern District of California on January 29, 2019 and successfully emerged from bankruptcy on July 1, 2020, while remaining in the securitized pool, are considered ineligible and are excluded from performance ratios and reserves.

Fees payable to the bank include: (a) an LC issuance fee, payable on each settlement date, in the amount of ~~.90%~~1.00% per annum (.90% previously) on the aggregate amount of all LCs outstanding plus outstanding reimbursement obligations (e.g., arising from drawn LCs), if any, and (b) an unused LC fee, payable monthly, equal to (i) .35% per annum for each day on which the sum of the total LCs outstanding plus any outstanding reimbursement obligations is greater than or equal to 50% of the facility limit and (ii) .45% per annum for each day on which the sum of the total LCs outstanding plus any outstanding reimbursement obligations is less than 50% of the facility limit. If an LC is drawn and the bank is not immediately reimbursed in full for the drawn amount, any outstanding reimbursement obligation will accrue interest at a per annum rate equal to a reserve-adjusted LIBOR or, in certain circumstances, a base rate equal to the higher of (i) the bank’s prime rate and (ii) the federal funds rate plus .50% and, following any default, 2.00% plus the greater of (a) adjusted LIBOR and (b) a base rate equal to the higher of (i) the bank’s prime rate and (ii) the federal funds rate plus .50%.

The agreements underlying the AR Securitization program contain various customary representations and warranties, covenants, and default provisions which provide for the termination and acceleration of the commitments under the AR Securitization program in circumstances including, but not limited to, failure to make payments when due, breach of a representation, warranty or covenant, certain insolvency events or failure to maintain the security interest in the trade receivables, and defaults under other material indebtedness.

Total Commitments Related to Issued Letters of Credit--As of June ~~29, 2019,~~27, 2020, total commitments related to issued LCs were ~~$72,236,~~$81,619, of which ~~$2,788~~$2,877 were issued under the revolving credit facility, ~~$67,438~~$76,732 were issued under the AR Securitization program, and $2,010 were issued under short-term lines of credit. As of December 31, ~~2018,~~2019, total commitments related to issued LCs were ~~$72,565,~~$81,619, of which ~~$3,123~~$2,877 were issued under the revolving credit facility, ~~$67,438~~$76,732 were issued under the AR Securitization program, and ~~$2,004~~$2,010 were issued under short-term lines of credit.

As of June ~~29, 2019,~~27, 2020, we ~~are~~were in compliance with all debt covenants.

~~Index~~

~~The Davey Tree Expert Company~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~June 29, 2019~~

~~(Amounts in thousands, except share data)~~


G.	Leases

We lease certain office and parking facilities, warehouse space, equipment, vehicles and information technology equipment under operating leases. Lease expense for these leases is recognized within the Condensed Consolidated Statements of Operations on a straight-line basis over the lease term, with variable lease payments recognized in the period those payments are incurred. The following table summarizes the amounts ~~recognized in our Condensed Consolidated Balance Sheet related to leases:~~

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

~~The components of lease cost recognized within our Condensed Consolidated Statement of Operations were as follows:~~

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.

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

June ~~29, 2019~~27, 2020

(Amounts in thousands, except share data)


G.	~~Leases (continued)~~

recognized in our Condensed Consolidated Balance Sheet related to leases:



	Condensed Consolidated Balance Sheet Classification	June 27, 2020		December 31, 2019
Assets
Operating lease assets	Right-of-use assets - operating leases	$	54,188	$	40,033
Finance lease assets	Property and equipment, net	6,618		3,183
Total lease assets		$	60,806	$	43,216
Liabilities
Current operating lease liabilities	Other current liabilities	$	17,463	$	14,665
Non-current operating lease liabilities	Lease liabilities - operating leases	36,490		25,200
Total operating lease liabilities		53,953		39,865
Current portion of finance lease liabilities	Current portion of long-term debt and finance lease liabilities	1,888		1,348
Non-current finance lease liabilities	Lease liabilities - finance leases	4,461		1,795
Total finance lease liabilities		6,349		3,143
Total lease liabilities		$	60,302	$	43,008

The components of lease cost recognized within our Condensed Consolidated Statements of Operations were as follows:



		Three Months Ended				Six Months Ended
	Condensed Consolidated Statements of Operations Classification	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019

Operating lease cost	Operating expense	$	2,660	$	1,629	$	4,899	$	3,067
Operating lease cost	Selling expense	2,412		2,158		4,805		4,325
Operating lease cost	General and administrative expense	221		202		455		403
Finance lease cost:
Amortization of right-of-use assets	Depreciation and amortization	483		340		834		685
Interest expense on lease liabilities	Interest expense	35		29		58		63
Other lease cost ⁽¹⁾	Operating expense	912		1,011		2,679		1,730
Other lease cost ⁽¹⁾	Selling expense	298		270		669		616
Other lease cost ⁽¹⁾	General and administrative expense	9		1		18		3
Total lease cost		$	7,030	$	5,640	$	14,417	$	10,892

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

We often have options to renew lease terms for buildings and other assets. The exercise of lease renewal options is generally at our sole discretion. In addition, certain lease agreements may be terminated prior to their original expiration date at our discretion. We evaluate each renewal and termination option at the lease commencement date to determine if we are reasonably certain to exercise the option on the basis of economic factors. The table below summarizes the weighted average remaining lease term as of June ~~29, 2019.~~27, 2020.



Operating leases	~~3.6~~4.1 years
Finance leases	~~2.8~~5.3 years

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

June 27, 2020

(Amounts in thousands, except share data)

The discount rate implicit within our leases is generally not determinable and therefore the Company determines the discount rate based on its incremental borrowing rate. The incremental borrowing rate for each lease is determined based on its term and the currency in which lease payments are made, adjusted for the impacts of collateral. The table below summarizes the weighted average discount rate used to measure our lease liabilities as of June ~~29, 2019.~~27, 2020.



Operating leases	~~3.93~~3.26	%
Finance leases	~~3.42~~2.01	%

Supplemental Cash Flow Information Related to Leases



	Six Months Ended
	June 27, 2020			June 29, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	(10,313	)	$	(8,175	)
Operating cash flows from finance leases	(58		)	(63		)
Financing cash flows from finance leases	(1,062		)	(860		)
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	24,024			47,779
Finance leases	4,268			—

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

Maturity Analysis of Lease Liabilities



	As of June 27, 2020
	Operating Leases		Finance Leases
Remaining six months of 2020	$	10,145	$	787
2021	16,719		1,900
2022	13,090		973
2023	7,238		773
2024	4,370		702
Thereafter	5,817		1,541
Total lease payments	57,379		6,676
Less interest	3,426		327
Total	$	53,953	$	6,349

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

~~Index~~

~~The Davey Tree Expert Company~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~June 29, 2019~~

~~(Amounts in thousands, except share data)~~


G.	~~Leases (continued)~~

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


H.	Stock-Based Compensation

Our shareholders approved the 2014 Omnibus Stock Plan (the “2014 Stock Plan”) at our annual meeting of shareholders on May 20, 2014. The 2014 Stock Plan replaced the expired 2004 Omnibus Stock Plan (the “2004 plan”) previously approved by the shareholders in 2004. The 2014 Stock Plan is administered by the Compensation Committee of the Board of Directors and has a term of ten years. All directors of the Company and employees of the Company and its subsidiaries are eligible to participate in the 2014 Stock Plan. The 2014 Stock Plan (similar to the 2004 plan) continues the maintenance of the Employee Stock Purchase Plan, as well as provisions for the grant of stock options and

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

June 27, 2020

(Amounts in thousands, except share data)

other stock-based incentives. The 2014 Stock Plan provides for the grant of ~~five~~5 percent of the number of the Company’s common shares outstanding as of the first day of each fiscal year plus the number of common shares that were available for grant of awards, but not granted, in prior years. In no event, however, may the number of common shares available for the grant of awards in any fiscal year exceed ~~ten~~10 percent of the common shares outstanding as of the first day of that fiscal year. Common shares subject to an award that is forfeited, terminated, or canceled without having been exercised are generally added back to the number of shares available for grant under the 2014 Stock Plan.

Stock-based compensation expense under all share-based payment plans -- our Employee Stock Purchase Plan, stock option plans, stock-settled stock appreciation rights ("SSARs") and restricted stock units ("RSUs") -- ~~are~~was included in the results of operations as follows:



	Three Months Ended				Six Months Ended
	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Compensation expense, all share-based payment plans	$	964	$	776	$	1,709	$	1,529

Three Months Ended Six Months Ended
June 29,
2019 June 30,
2018 June 29,
2019 June 30,
2018
Compensation expense, all share-based payment plans $ 776
$ 769
$ 1,529
$ 1,793

Stock-based compensation consisted of the following:

Employee Stock Purchase Plan--Under the Employee Stock Purchase Plan, all full-time employees with one year of service are eligible to purchase, through payroll deduction, common shares. Employee purchases under the Employee Stock Purchase Plan are at 85% of the fair market value of the common shares--a 15% discount. We recognize compensation costs as payroll deductions are made. The 15% discount of total shares purchased under the

~~Index~~

~~The Davey Tree Expert Company~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~June 29, 2019~~

~~(Amounts in thousands, except share data)~~


H.	~~Stock-Based Compensation (continued)~~

plan resulted in compensation cost of ~~$536~~$668 being recognized for the six months ended June ~~29, 2019~~27, 2020 and ~~$488~~$536for the six months ended June ~~30, 2018.~~29, 2019.

Stock Option Plans--The stock options outstanding were awarded under a graded vesting schedule, measured at fair value, and have a term of ten years. Compensation costs for stock options are recognized over the requisite service period on the straight-line recognition method. Compensation cost recognized for stock options was $285 for the six months ended June 27, 2020 and $315 for the six months ended June 29, ~~2019 and $346 for the six months ended June 30, 2018.~~2019.

Stock-Settled Stock Appreciation Rights-- A ~~SSARs~~SSAR is an award that allows the recipient to receive common shares equal to the appreciation in the fair market value of our common shares between the date the award was granted and the conversion date of the shares vested. Effective January 1, 2019, ~~Management~~management and the Compensation Committee replaced the issuance of future SSARs with performance-based restricted stock units ("PRSUs") for certain management employees.

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

June 27, 2020

(Amounts in thousands, except share data)

The following table summarizes our SSARs as of June ~~29, 2019~~.27, 2020.



Stock-Settled Stock Appreciation Rights	Number of Rights		Weighted- Average Award Date Value		Weighted- Average Remaining Contractual Life	Unrecognized Compensation Cost		Aggregate Intrinsic Value
Unvested, January 1, 2020	262,705		$	3.47
Granted	—		—
Forfeited	(2,254	)	3.53
Vested	(119,255	)	3.32
Unvested, June 27, 2020	141,196		$	3.60	1.4 years	$	377	$	3,417

Stock-Settled
Stock Appreciation Rights

Number
of
Rights

Weighted-
Average
Award Date
Value

Weighted-
Average
Remaining
Contractual
Life

Unrecognized
Compensation
Cost

Aggregate
Intrinsic
Value
Unvested, January 1, 2019 380,982
$ 3.42

Granted —
—

Forfeited —
—

Vested (115,080 ) 3.31

Unvested, June 29, 2019 265,902
$ 3.47
1.9 years $ 734
$ 5,611

Compensation costs for SSARs are determined using a fair-value method and amortized over the requisite service period. Compensation expense for SSARs was $146 for the six months ended June 27, 2020 and $190 for the six months ended June 29, ~~2019 and $290 for the six months ended June 30, 2018.~~2019.

Restricted Stock Units--During the six months ended June ~~29, 2019,~~27, 2020, the Compensation Committee awarded ~~29,046~~86,959 PRSUs to certain management employees and ~~11,942~~11,904 RSUs to nonemployee directors. The Compensation Committee made similar awards in prior periods. The awards vest over specified periods. The following table summarizes PRSUs and RSUs as of June ~~29, 2019.~~27, 2020.

~~Index~~



Restricted Stock Units	Number of Stock Units		Weighted- Average Grant Date Value		Weighted- Average Remaining Contractual Life	Unrecognized Compensation Cost		Aggregate Intrinsic Value
Unvested, January 1, 2020	224,259		$	17.11
Granted	98,863		23.74
Forfeited	(1,871	)	17.37
Vested	(65,944	)	15.52
Unvested, June 27, 2020	255,307		$	20.09	2.9 years	$	3,335	$	6,178
Employee PRSUs	220,157		$	19.92	3.2 years	$	2,842	$	5,328
Nonemployee Director RSUs	35,150		$	21.14	1.9 years	$	493	$	851

~~The Davey Tree Expert Company~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~June 29, 2019~~

~~(Amounts in thousands, except share data)~~


H.	~~Stock-Based Compensation (continued)~~

Restricted Stock Units
Number
of
Stock
Units

Weighted-
Average
Grant Date
Value

Weighted-
Average
Remaining
Contractual
Life

Unrecognized
Compensation
Cost

Aggregate
Intrinsic
Value
Unvested, January 1, 2019 247,838
$ 15.68

Granted 40,988
20.45

Forfeited —
—

Vested (60,474 ) 13.55

Unvested, June 29, 2019 228,352
$ 17.10
2.4 years $ 2,078
$ 4,818
Employee PRSUs 196,930
$ 16.79
2.5 years $ 1,666
$ 4,155
Nonemployee Director RSUs 31,422
$ 19.01
2.0 years $ 412
$ 663

Compensation cost for PRSUs and RSUs is determined using a fair-value method and amortized on the straight-line recognition method over the requisite service period. “Intrinsic value” is defined as the amount by which the fair market value of a common share exceeds the exercise price of a PRSU or an RSU. Compensation expense on PRSUs and RSUs totaled $610 for the six months ended June 27, 2020 and $488 for the six months ended June 29, ~~2019 and $669 for the six months ended June 30, 2018.~~2019.

We estimated the fair value of each stock-based award on the date of grant using a binomial option-pricing model. The binomial model considers a range of assumptions related to volatility, risk-free interest rate and employee exercise behavior. Expected volatilities utilized in the binomial model are based on historical volatility of our stock prices and other factors. Similarly, the dividend yield is based on historical experience and expected future changes. The binomial model also incorporates exercise and forfeiture assumptions based on an analysis of historical data. The expected life of the stock-based awards is derived from the output of the binomial model and represents the period of time that awards granted are expected to be outstanding.

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

June 27, 2020

(Amounts in thousands, except share data)

The fair values of stock-based awards granted were estimated at the dates of grant with the following weighted-average ~~assumption.~~assumptions.



	Six Months Ended
	June 27, 2020		June 29, 2019
Volatility rate	9.7	%	9.9	%
Risk-free interest rate	.7	%	2.3	%
Expected dividend yield	.4	%	.7	%
Expected life of awards (years)	8.1		8.8

Six Months Ended
June 29,
2019 June 30,
2018
Volatility rate 9.9 % 10.1 %
Risk-free interest rate 2.3 % 2.7 %
Expected dividend yield .7 % .7 %
Expected life of awards (years) 8.8
9.2

~~Index~~

~~The Davey Tree Expert Company~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~June 29, 2019~~

~~(Amounts in thousands, except share data)~~


H.	~~Stock-Based Compensation (continued)~~

General Stock Option Information--The following table summarizes activity under the stock option plans for the six months ended June ~~29, 2019.~~27, 2020.



Stock Options	Number of Options Outstanding		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life	Aggregate Intrinsic Value
Outstanding, January 1, 2020	1,428,082		$	15.13
Granted	174,897		24.20
Exercised	(57,469	)	11.48
Forfeited	(8,335	)	15.46
Outstanding, June 27, 2020	1,537,175		$	16.29	5.8 years	$	12,159

Exercisable, June 27, 2020	1,060,493		$	14.17	4.6 years	$	10,637

Stock Options
Number
of
Options
Outstanding

Weighted-
Average
Exercise
Price

Weighted-
Average
Remaining
Contractual
Life

Aggregate
Intrinsic
Value
Outstanding, January 1, 2019 1,466,264
$ 13.94

Granted 151,145
21.10

Exercised (75,139 ) 10.43

Forfeited (4,200 ) 16.06

Outstanding, June 29, 2019 1,538,070
$ 14.81
5.9 years $ 9,674

Exercisable, June 29, 2019 1,039,125
$ 13.05
4.8 years $ 8,365

As of June ~~29, 2019,~~27, 2020, there was approximately ~~$1,662~~$1,586 of unrecognized compensation cost related to stock options outstanding. The cost is expected to be recognized over a weighted-average period of ~~2.3~~2.1 years. “Intrinsic value” is defined as the amount by which the market price of a common share exceeds the exercise price of an option.

Common shares are issued from treasury upon the exercise of stock options, SSARs, RSUs, PRSUs or purchases under the Employee Stock Purchase Plan.

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

June 27, 2020

(Amounts in thousands, except share data)


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

The results of operations included the following net periodic benefit expense (income) recognized related to our defined-benefit pension plans.



	Three Months Ended					Six Months Ended
	June 27, 2020		June 29, 2019			June 27, 2020		June 29, 2019
Components of pension expense (income)
Service costs--increase in benefit obligation earned	$	—	$	30		$	—	$	75
Interest cost on projected benefit obligation	27		61			53		136
Expected return on plan assets	—		(14		)	—		(37		)
Settlement loss	—		1,677			—		1,677
Amortization of net actuarial loss	22		31			44		75
Amortization of prior service cost	16		16			32		32
Net pension expense of defined benefit pension plans	$	65	$	1,801		$	129	$	1,958

Three Months Ended Six Months Ended
June 29,
2019 June 30,
2018 June 29,
2019 June 30,
2018
Components of pension expense (income)
Service costs--increase in benefit obligation earned $ 30
$ 100
$ 75
$ 200
Interest cost on projected benefit obligation 61
179
136
359
Expected return on plan assets (14 ) (57 ) (37 ) (115 )
Settlement loss 1,677
—
1,677
—
Amortization of net actuarial loss 31
182
75
364
Amortization of prior service cost 16
16
32
32
Net pension expense of defined benefit pension plans $ 1,801
$ 420
$ 1,958
$ 840

~~Index~~

~~The Davey Tree Expert Company~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~June 29, 2019~~

~~(Amounts in thousands, except share data)~~


I.	~~Net Periodic Benefit Expense--Defined Benefit Pension Plans (continued)~~

During April 2019, we entered into an agreement to purchase a guaranteed group annuity contract from a third-party insurance company which unconditionally and irrevocably guarantees the full-payment of all annuity payments to the remaining 231 participants in our Employee Retirement Plan (“ERP”) for which benefits were frozen effective December 31, 2008. The April 2019 agreement transferred all remaining ERP benefit obligations to the third-party insurance company, resulting in a pretax actuarial settlement loss of $1,677.

The components of net periodic benefit expense, other than the service cost component, are included in the line item other income (expense) in the statement of operations.


J.	Income Taxes

Our income tax provision for interim periods is determined using an estimate of our annual effective tax rate adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter we update our estimate of the annual effective tax rate and, if our estimated annual tax rate changes, we make a cumulative adjustment. The estimated annual effective tax rate for the six months ended June ~~29, 2019~~27, 2020 was ~~19.9%~~28.0%. Our annual effective tax rate for the six months ended June ~~30, 2018~~29, 2019 was estimated at ~~18.2%~~19.9%. Our actual effective tax rate was ~~20.4%~~27.9% and ~~19.9%~~20.4% for the three months ended June 27, 2020 and June 29, 2019, respectively. Our effective tax rate was 27.8% and 19.9% for the six months ended June 27, 2020 and June ~~30, 2018,~~29, 2019, respectively. The change in the effective tax rate from statutory tax rates is primarily due to the impact of state and local taxes which are partially offset by favorable discrete items.

On March 27, 2020, Congress approved and the President signed the Coronavirus Aid, Relief, and Economic Security ("CARES") Act into law. The CARES Act is a tax-and-spending package intended to provide economic relief to address the impact of the COVID-19 pandemic. The Company is currently evaluating several significant business tax provisions, such as net operating losses and employee retention credits to determine the impact on the Company.

As of June ~~29, 2019,~~27, 2020, we had unrecognized tax benefits of ~~$1,332,~~$1,908, of which ~~$606~~$712 would affect our effective rate if recognized, and accrued interest expense related to unrecognized benefits of ~~$40.~~$72. At December 31, ~~2018,~~2019, we had unrecognized tax benefits of ~~$1,325,~~$1,850, of which ~~$599~~$654 would affect our effective rate if recognized, and accrued interest expense related to unrecognized benefits of ~~$35.~~$64. Unrecognized tax benefits

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

June 27, 2020

(Amounts in thousands, except share data)

are the differences between a tax position taken, or expected to be taken in a tax return, and the benefit recognized for financial reporting purposes.

We recognize interest accrued related to unrecognized tax benefits in income tax expense. Penalties, if incurred, would be recognized as a component of income tax expense.

The Company is routinely under audit by U.S. federal, state, local and Canadian authorities in the area of income tax. These audits include questioning the timing and the amount of income and deductions and the allocation of income and deductions among various tax jurisdictions. ~~The Company has been audited by the Internal Revenue Service through 2016.~~ With the exception of U.S. state jurisdictions and Canada, the Company is no longer subject to examination by tax authorities for the years through 2016. As of June ~~29, 2019,~~27, 2020, we believe it is reasonably possible that the total amount of unrecognized tax benefits will not significantly increase or decrease.

~~Index~~

~~The Davey Tree Expert Company~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~June 29, 2019~~

~~(Amounts in thousands, except share data)~~


K.	Accumulated Other Comprehensive Income (Loss)

Comprehensive income (or loss) is comprised of net income (or net loss) and other components, including foreign currency translation adjustments and ~~defined-benefit~~defined benefit pension plan adjustments.

The following summarizes the components of other comprehensive income (loss) accumulated in shareholders’ equity for the three and six months ended June ~~29, 2019~~27, 2020 and the three and six months ended June ~~30, 2018:~~29, 2019:


Three Months Ended June 29, 2019	Foreign Currency Translation Adjustments			Defined Benefit Pension Plans			Accumulated Other Comprehensive Income (Loss)
Balance at March 30, 2019	$	(5,310	)	$	829		$	(4,481	)
Three Months Ended June 27, 2020										Foreign Currency Translation Adjustments			Defined Benefit Pension Plans			Accumulated Other Comprehensive Income (Loss)
Balance at March 28, 2020										$	(6,604	)	$	(742	)	$	(7,346	)
Other comprehensive income (loss) before reclassifications
Unrealized gains	$	698		$	—		$	698
Unrealized gains (losses)										$	732		$	—		$	732
Amounts reclassified from accumulated other comprehensive income (loss)	—			(1,655		)	(1,655		)	—			38			38
Tax effect	—			169			169			—			(10		)	(10		)
Net of tax amount	698			(1,486		)	(788		)	732			28			760
Balance at June 29, 2019	$	(4,612	)	$	(657	)	$	(5,269	)
Balance at June 27, 2020										$	(5,872	)	$	(714	)	$	(6,586	)


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	)
Three Months Ended June 29, 2019										Foreign Currency Translation Adjustments			Defined Benefit Pension Plans			Accumulated Other Comprehensive Income (Loss)
Balance at March 30, 2019										$	(5,310	)	$	829		$	(4,481	)
Other comprehensive income (loss) before reclassifications
Unrealized losses	$	(747	)	$	—		$	(747	)
Unrealized gains (losses)										$	698		$	—		$	698
Amounts reclassified from accumulated other comprehensive income (loss)	—			198			198			—			(1,655		)	(1,655		)
Tax effect	—			(51		)	(51		)	—			169			169
Net of tax amount	(747		)	147			(600		)	698			(1,486		)	(788		)
Balance at June 30, 2018	$	(4,884	)	$	(4,795	)	$	(9,679	)
Balance at June 29, 2019										$	(4,612	)	$	(657	)	$	(5,269	)

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

June ~~29, 2019~~27, 2020

(Amounts in thousands, except share data)


K.	~~Accumulated Other Comprehensive Income (Loss) (continued)~~

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 27, 2020	Foreign Currency Translation Adjustments			Defined Benefit Pension Plans			Accumulated Other Comprehensive Income (Loss)
Balance at January 1, 2020	$	(4,633	)	$	(770	)	$	(5,403	)
Other comprehensive income (loss) before reclassifications
Unrealized gains (losses)	(1,239		)	—			(1,239		)
Amounts reclassified from accumulated other comprehensive income (loss)	—			76			76
Tax effect	—			(20		)	(20		)
Net of tax amount	(1,239		)	56			(1,183		)
Balance at June 27, 2020	$	(5,872	)	$	(714	)	$	(6,586	)


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	)
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 losses	$	(1,579	)	$	—		$	(1,579	)
Unrealized gains (losses)										1,207			—			1,207
Amounts reclassified from accumulated other comprehensive income (loss)	—			396			396			—			(1,595		)	(1,595		)
Tax effect	—			(103		)	(103		)	—			153			153
Net of tax amount	(1,579		)	293			(1,286		)	1,207			(1,442		)	(235		)
Balance at June 30, 2018	$	(4,884	)	$	(4,795	)	$	(9,679	)
Balance at June 29, 2019										$	(4,612	)	$	(657	)	$	(5,269	)

The change in defined benefit pension plans of $38 and $76 for the three and six months ended June 27, 2020, respectively, and $(1,655) and $(1,595) for the three and six months ended June 29, 2019, ~~and $198 and $396 for the three and six months ended June 30, 2018~~respectively, is included in net periodic pension expense classified in the condensed consolidated statement of operations as general and administrative expense or other income (expense).

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

June ~~29, 2019~~27, 2020

(Amounts in thousands, except share data)


L.	Per Share Amounts and Common and Redeemable Shares Outstanding

We calculate our basic earnings per share by dividing net income or net loss by the weighted average number of common shares outstanding during the period. Diluted earnings per share are calculated in a similar manner, but include the effect of dilutive securities. To the extent these securities are antidilutive, they are excluded from the calculation of earnings per share. The per share amounts were computed as follows:



	Three Months Ended				Six Months Ended
	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Income available to common shareholders:
Net income	$	29,785	$	19,747	$	29,958	$	19,254

Weighted-average shares (in thousands):
Basic:
Outstanding	22,807		22,764		22,997		22,837
Partially-paid share subscriptions	—		151		—		302
Basic weighted-average shares	22,807		22,915		22,997		23,139

Diluted:
Basic from above	22,807		22,915		22,997		23,139
Incremental shares from assumed:
Exercise of stock subscription purchase rights	—		88		—		104
Exercise of stock options and awards	1,176		1,048		1,080		937
Diluted weighted-average shares	23,983		24,051		24,077		24,180

Net income per share:
Basic	$	1.31	$	.86	$	1.30	$	.83

Diluted	$	1.24	$	.82	$	1.24	$	.80

Three Months Ended Six Months Ended
June 29,
2019 June 30,
2018 June 29,
2019 June 30,
2018
Income available to common shareholders:
Net income $ 19,747
$ 21,714
$ 19,254
$ 15,087

Weighted-average shares:
Basic:
Outstanding 22,764
22,926
22,837
24,077
Partially-paid share subscriptions 151
195
302
362
Basic weighted-average shares 22,915
23,121
23,139
24,439

Diluted:
Basic from above 22,915
23,121
23,139
24,439
Incremental shares from assumed:
Exercise of stock subscription purchase rights 88
140
104
143
Exercise of stock options and awards 1,048
1,046
937
979
Diluted weighted-average shares 24,051
24,307
24,180
25,561

Net income per share:
Basic $ .86
$ .94
$ .83
$ .62

Diluted $ .82
$ .89
$ .80
$ .59

~~Index~~

~~The Davey Tree Expert Company~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~June 29, 2019~~

~~(Amounts in thousands, except share data)~~


L.	~~Per Share Amounts and Common and Redeemable Shares Outstanding (continued)~~

Common and Redeemable Shares Outstanding--A summary of the activity of the common and redeemable shares outstanding for the six months ended June ~~29, 2019~~27, 2020 follows:



	Common Shares Net of Treasury Shares		Redeemable Shares		Total
Shares outstanding at January 1, 2020	18,029,921		5,146,882		23,176,803
Shares purchased	(667,353	)	(325,497	)	(992,850	)
Shares sold	263,096		308,003		571,099
Options and awards exercised	116,980		—		116,980
Shares outstanding at June 27, 2020	17,742,644		5,129,388		22,872,032

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

June 27, 2020

(Amounts in thousands, except share data)

Common Shares
Net of Treasury Shares
Redeemable Shares Total
Shares outstanding at January 1, 2019 17,238,497
5,642,155
22,880,652
Shares purchased (433,296 ) (569,267 ) (1,002,563 )
Shares sold 235,591
223,675
459,266
Stock subscription offering -- cash purchases 270,607
—
270,607
Options and awards exercised 191,532
—
191,532
Shares outstanding at June 29, 2019 17,502,931
5,296,563
22,799,494

On June ~~29, 2019,~~27, 2020, we had ~~22,799,494~~22,872,032 common and redeemable shares outstanding and employee options exercisable to purchase ~~1,039,125 common shares and partially-paid subscriptions for 603,832~~1,060,493 common shares.

Stock Subscription Offering--Beginning May 2012, the Company offered to eligible employees and nonemployee directors the right to subscribe to common shares of the Company at $9.85 per share in accordance with the provisions of The Davey Tree Expert Company 2004 Omnibus Stock Plan and the rules of the Compensation Committee of the Company's Board of Directors (collectively, the "plan"). The offering period ended on August 1, 2012 and resulted in the subscription of 1,275,428 common shares for $12,563 at $9.85 per share.

Under the plan, a participant in the offering purchasing common shares for an aggregate purchase price of less than $5 was required to pay with cash. All participants (excluding Company directors and officers) purchasing $5 or more of the common shares had an option to finance their purchase through a down-payment of at least 10% of the total purchase price and a seven-year promissory note for the balance due with interest at 2%. Payments on the promissory note ~~can be~~were made either by payroll deductions or annual lump-sum payments of both principal and interest.

Common shares purchased under the plan ~~have been~~were pledged as security for the payment of the promissory note and the common shares ~~will~~were not be issued until the promissory note iswas paid-in-full. Dividends ~~will be~~were paid on all subscribed shares, subject to forfeiture to the extent that payment iswas not ultimately made for the shares.

All participants in the offering purchasing in excess of $5 of common shares were granted a "right" to purchase one additional common share at a price of $9.85 per share for every ~~three~~3 common shares purchased under the plan. As a result of the stock subscription, employees were granted rights to purchase 423,600 common shares. Each right ~~may be~~could have been exercised at the rate of one-seventh per year and ~~will expire~~expired seven years after the date that the right was granted. Employees ~~may~~could not exercise a right ~~should~~if they ~~cease~~ceased to be employed by the Company. All rights expired in August 2019.


M.	Operations by Business Segment

We provide a wide range of arboricultural, horticultural, environmental and consulting services to residential, utility, commercial and government entities throughout the United States and Canada. We have ~~two~~2 reportable operating segments organized by type or class of customer: Residential and Commercial, and Utility.

~~Index~~

~~The Davey Tree Expert Company~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~June 29, 2019~~

~~(Amounts in thousands, except share data)~~


M.	~~Operations by Business Segment (continued)~~

Residential and Commercial--Residential and Commercial provides services to our residential and commercial customers including: the treatment, preservation, maintenance, removal and planting of trees, shrubs and other plant life; the practice of landscaping, grounds maintenance, tree surgery, tree feeding and tree spraying; the application of fertilizer, herbicides and insecticides; and natural resource management and consulting, forestry research and development, and environmental planning.

Utility--Utility is principally engaged in providing services to our utility customers--investor-owned, municipal utilities, and rural electric cooperatives--including: the practice of line-clearing and vegetation management around power lines and rights-of-way and chemical brush ~~control; and~~control, natural resource management and consulting, forestry research and development, and environmental planning.

All other operating activities, including research, technical support and laboratory diagnostic facilities, are included in “All Other.”

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

June 27, 2020

(Amounts in thousands, except share data)

Measurement of Segment Profit and Loss and Segment Assets--We evaluate performance and allocate resources based primarily on operating income and also actively manage business unit operating assets. Segment information, including reconciling adjustments, is presented consistent with the basis described in our ~~2018~~2019 Annual Report.

Segment information reconciled to the condensed consolidated financial statements follows:



	Utility		Residential and Commercial		All Other			Reconciling Adjustments				Consolidated
Three Months Ended June 27, 2020
Revenues	$	176,735	$	142,905	$	(393	)	$	—			$	319,247
Income (loss) from operations	20,884		27,630		(3,552		)	(651		)	(a)	44,311
Interest expense								(1,952		)		(1,952		)
Interest income								96				96
Other income (expense), net								(1,152		)		(1,152		)
Income before income taxes												$	41,303
Segment assets, total	$	301,477	$	231,985	$	—		$	124,549		(b)	$	658,011

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

Six Months Ended June 27, 2020
Revenues	$	362,484	$	244,858	$	185		$	—			$	607,527
Income (loss) from operations	36,516		21,969		(8,247		)	(1,993		)	(a)	48,245
Interest expense								(3,898		)		(3,898		)
Interest income								197				197
Other income (expense), net								(3,051		)		(3,051		)
Income before income taxes												$	41,493
Segment assets, total	$	301,477	$	231,985	$	—		$	124,549		(b)	$	658,011

Six Months Ended June 29, 2019
Revenues	$	291,661	$	257,365	$	297		$	—			$	549,323
Income (loss) from operations	15,875		27,105		(8,369		)	(1,363		)	(a)	33,248
Interest expense								(4,579		)		(4,579		)
Interest income								176				176
Other income (expense), net								(4,808		)		(4,808		)
Income before income tax benefit												$	24,037
Segment assets, total	$	235,687	$	233,220	$	—		$	101,242		(b)	$	570,149

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

June ~~29, 2019~~27, 2020

(Amounts in thousands, except share data)


M.	~~Operations by Business Segment (continued)~~

~~Segment information reconciled to consolidated external reporting information follows:~~

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

Three Months Ended June 30, 2018
Revenues $ 128,496
$ 141,465
$ 688
$ —
$ 270,649
Income (loss) from operations 6,265
26,834
(2,764 ) (535 ) (a) 29,800
Interest expense (1,754 ) (1,754 )
Interest income 101
101
Other income (expense), net (1,052 ) (1,052 )
Income before income taxes $ 27,095
Segment assets, total $ 197,287
$ 222,638
$ —
$ 73,329
(b) $ 493,254

Six Months Ended June 29, 2019
Revenues $ 291,661
$ 257,365
$ 297
$ —
$ 549,323
Income (loss) from operations 15,875
27,105
(8,369 ) (1,363 ) (a) 33,248
Interest expense (4,579 ) (4,579 )
Interest income 176
176
Other income (expense), net (4,808 ) (4,808 )
Income before income taxes $ 24,037
Segment assets, total $ 235,687
$ 233,220
$ —
$ 101,242
(b) $ 570,149

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

~~Index~~

~~The Davey Tree Expert Company~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~June 29, 2019~~

~~(Amounts in thousands, except share data)~~


M.	~~Operations by Business Segment (continued)~~

Reconciling adjustments from segment reporting to the condensed consolidated ~~external~~ financial ~~reporting~~statements include unallocated corporate items:


(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.


N.	Revenue Recognition

We ~~account for~~recognize revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers.

Nature of Performance Obligations and Significant Judgments

At contract inception, the Company assesses the goods and services promised in its contracts with customers and identifies a performance obligation for each promised good or service (or bundle of goods and services) that is distinct. To identify the performance obligations, the Company considers each of the goods or services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices.

Our contracts with our customers generally originate upon the completion of a quote for services for residential and commercial customers or the receipt of a purchase order (or similar work order) for utility customers. In some cases, our contracts are governed by master services agreements, in which case our contract under ASC 606 consists of the combination of the master services agreement and the quote/purchase order. Many of our contracts have a stated duration of one year or less or contain termination clauses that allow the customer to cancel the contract after a specified notice period, which is typically less than 90 days. Due to the fact that many of our arrangements allow the customer to terminate for convenience, the duration of the contract for revenue recognition purposes generally does not extend beyond the services that we have actually transferred. As a result, many of our contracts are, in effect, day-to-day or month-to-month contracts.

Disaggregation of Revenue

The following tables disaggregate our revenue for the three and six months ended June ~~29, 2019~~27, 2020 and June ~~30, 2018~~29, 2019 by major sources:


Three Months Ended June 29, 2019	Utility		Residential and Commercial		All Other		Consolidated
Three Months Ended June 27, 2020									Utility		Residential and Commercial		All Other			Consolidated
Type of service:
Tree and plant care	$	112,823	$	86,450	$	7	$	199,280	$	131,607	$	83,504	$	(86	)	$	215,025
Grounds maintenance	—		45,657		—		45,657		—		40,991		—			40,991
Storm damage services	152		988		—		1,140		502		1,341		—			1,843
Consulting and other	38,217		16,875		265		55,357		44,626		17,069		(307		)	61,388
Total revenues	$	151,192	$	149,970	$	272	$	301,434	$	176,735	$	142,905	$	(393	)	$	319,247

Geography:
United States	$	140,701	$	139,437	$	272	$	280,410	$	168,479	$	133,674	$	(393	)	$	301,760
Canada	10,491		10,533		—		21,024		8,256		9,231		—			17,487
Total revenues	$	151,192	$	149,970	$	272	$	301,434	$	176,735	$	142,905	$	(393	)	$	319,247

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

June ~~29, 2019~~27, 2020

(Amounts in thousands, except share data)


N.	~~Revenue Recognition (continued)~~

Three Months Ended June 30, 2018 Utility Residential and Commercial All Other Consolidated
Type of service:
  Tree and plant care $ 97,118
$ 86,540
$ (26 ) $ 183,632
  Grounds maintenance —
37,786
—
37,786
  Storm damage services 621
911
—
1,532
  Consulting and other 30,757
16,228
714
47,699
     Total revenues $ 128,496
$ 141,465
$ 688
$ 270,649
Geography:
  United States $ 118,661
$ 129,905
$ 688
$ 249,254
  Canada 9,835
11,560
—
21,395
     Total revenues $ 128,496
$ 141,465
$ 688
$ 270,649


Six Months Ended June 29, 2019	Utility		Residential and Commercial		All Other			Consolidated
Three Months Ended June 29, 2019										Utility		Residential and Commercial		All Other		Consolidated
Type of service:
Tree and plant care	$	216,209	$	146,877	$	(4	)	$	363,082	$	112,823	$	86,450	$	7	$	199,280
Grounds maintenance	—		73,599		—			73,599		—		45,657		—		45,657
Storm damage services	1,224		2,613		—			3,837		152		988		—		1,140
Consulting and other	74,228		34,276		301			108,805		38,217		16,875		265		55,357
Total revenues	$	291,661	$	257,365	$	297		$	549,323	$	151,192	$	149,970	$	272	$	301,434

Geography:
United States	$	270,583	$	240,436	$	297		$	511,316	$	140,701	$	139,437	$	272	$	280,410
Canada	21,078		16,929		—			38,007		10,491		10,533		—		21,024
Total revenues	$	291,661	$	257,365	$	297		$	549,323	$	151,192	$	149,970	$	272	$	301,434



Six Months Ended June 27, 2020	Utility		Residential and Commercial		All Other			Consolidated
Type of service:
Tree and plant care	$	273,350	$	143,761	$	(111	)	$	417,000
Grounds maintenance	—		64,054		—			64,054
Storm damage services	1,026		1,978		—			3,004
Consulting and other	88,108		35,065		296			123,469
Total revenues	$	362,484	$	244,858	$	185		$	607,527

Geography:
United States	$	345,566	$	228,726	$	185		$	574,477
Canada	16,918		16,132		—			33,050
Total revenues	$	362,484	$	244,858	$	185		$	607,527



Six Months Ended June 29, 2019	Utility		Residential and Commercial		All Other			Consolidated
Type of service:
Tree and plant care	$	216,209	$	146,877	$	(4	)	$	363,082
Grounds maintenance	—		73,599		—			73,599
Storm damage services	1,224		2,613		—			3,837
Consulting and other	74,228		34,276		301			108,805
Total revenues	$	291,661	$	257,365	$	297		$	549,323

Geography:
United States	$	270,583	$	240,436	$	297		$	511,316
Canada	21,078		16,929		—			38,007
Total revenues	$	291,661	$	257,365	$	297		$	549,323

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

June ~~29, 2019~~27, 2020

(Amounts in thousands, except share data)


N.	~~Revenue Recognition (continued)~~

Six Months Ended June 30, 2018 Utility Residential and Commercial All Other Consolidated
Type of service:
  Tree and plant care $ 183,435
$ 142,937
$ (12 ) $ 326,360
  Grounds maintenance —
60,588
—
60,588
  Storm damage services 3,834
1,810
—
5,644
  Consulting and other 59,914
25,475
1,319
86,708
     Total revenues $ 247,183
$ 230,810
$ 1,307
$ 479,300
Geography:
  United States $ 229,114
$ 212,383
$ 1,307
$ 442,804
  Canada 18,069
18,427
—
36,496
     Total revenues $ 247,183
$ 230,810
$ 1,307
$ 479,300

Contract Balances

Our contract liabilities consist of advance payments and billings in excess of costs incurred and deferred revenue. The Company has recognized $318 and $1,260 of revenue for the three and six months ended June 27, 2020, respectively, that was included in the contract liability balance at December 31, 2019 and $594 and $1,674 of revenue for the three and six months ended June 29, 2019, respectively, that was included in the contract liability balance at December 31, ~~2018 and $654 and $1,222 of revenue for the three and six months ended June 30, 2018 that was included in the contract liability balance at December 31, 2017.~~2018. Net contract liabilities consisted of the following:



	June 27, 2020		December 31, 2019
Contract liabilities - current	$	3,674	$	3,129
Contract liabilities - noncurrent	1,584		2,705
Net contract liabilities	$	5,258	$	5,834

June 29,
2019 December 31,
2018
Contract liabilities - current $ 4,440
$ 2,907
Contract liabilities - noncurrent 2,617
2,287
Net contract liabilities $ 7,057
$ 5,194


O.	Fair Value Measurements and Financial Instruments

FASB ASC 820, “Fair Value Measurements and Disclosures" (“Topic 820”) defines fair value based on the price that would be received to sell an asset or the exit price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. Market participants are defined as buyers or sellers in the principal or most advantageous market for the asset or liability that are independent of the reporting entity, knowledgeable and able and willing to transact for the asset or liability.

Valuation Hierarchy--Topic 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value. The hierarchy prioritizes the inputs into three broad levels:

Level 1 inputs are quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.

~~Index~~

~~The Davey Tree Expert Company~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~June 29, 2019~~

~~(Amounts in thousands, except share data)~~


O.	~~Fair Value Measurements and Financial Instruments (continued)~~

Level 2 inputs are observable inputs other than prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated with observable market data.

Level 3 inputs are unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

~~Our assets and liabilities measured at fair value on a recurring basis at~~ ~~June 29, 2019~~ ~~were as follows:~~

Fair Value Measurements at
June 29, 2019 Using:
Assets and Liabilities Recorded at
Fair Value on a Recurring Basis
Total
Carrying
Value at
June 29,
2019

Quoted Prices
in
Active
Markets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)
Assets:
Assets invested for self-insurance, classified as other assets, noncurrent $ 12,552
$ 12,552
$ —
$ —
Defined benefit pension plan assets 24
—
24
—

Liabilities:
Deferred compensation $ 2,563
$ —
$ 2,563
$ —

~~Our assets and liabilities measured at fair value on a recurring basis at~~ ~~December 31, 2018~~ ~~were as follows:~~

Fair Value Measurements at
December 31, 2018 Using:
Assets and Liabilities Recorded at
Fair Value on a Recurring Basis
Total
Carrying
Value at
December 31,
2018

Quoted Prices in
Active
Markets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)
Assets:
Assets invested for self-insurance, classified as other assets, noncurrent $ 15,379
$ 15,379
$ —
$ —
Defined benefit pension plan assets 3,758
—
3,758
—

Liabilities:
Deferred compensation $ 2,459
$ —
$ 2,459
$ —

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

June ~~29, 2019~~27, 2020

(Amounts in thousands, except share data)


O.	~~Fair Value Measurements and Financial Instruments (continued)~~

Our assets and liabilities measured at fair value on a recurring basis at June 27, 2020 were as follows:



			Fair Value Measurements at June 27, 2020 Using:
Assets and Liabilities Recorded at Fair Value on a Recurring Basis	Total Carrying Value at June 27, 2020		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Assets invested for self-insurance, classified as other assets, noncurrent	$	12,000	$	12,000	$	—	$	—
Liabilities:
Deferred compensation	$	3,044	$	—	$	3,044	$	—

Our assets and liabilities measured at fair value on a recurring basis at December 31, 2019 were as follows:



			Fair Value Measurements at December 31, 2019 Using:
Assets and Liabilities Recorded at Fair Value on a Recurring Basis	Total Carrying Value at December 31, 2019		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Assets invested for self-insurance, classified as other assets, noncurrent	$	15,402	$	15,402	$	—	$	—
Liabilities:
Deferred compensation	$	2,786	$	—	$	2,786	$	—

The assets invested for self-insurance are ~~money market funds--classified~~certificates of deposit--classified as Level 1--based on quoted market prices of the identical underlying securities in active markets. The estimated fair value of the deferred compensation--classified as Level 2--is based on the value of the Company's common shares, determined by independent valuation.

Fair Value of Financial Instruments--The fair values of our current financial assets and current liabilities, including cash, accounts receivable, accounts payable, and accrued expenses, among others, approximate their reported carrying values because of their short-term nature. Financial instruments classified as noncurrent liabilities and their carrying values and fair values were as follows:



	June 27, 2020				December 31, 2019
	Carrying Value		Fair Value		Carrying Value		Fair Value
Revolving credit facility, noncurrent	$	83,000	$	83,000	$	62,000	$	62,000
Senior unsecured notes, noncurrent	75,000		84,340		75,000		79,558
Term loans, noncurrent	2,101		2,407		6,774		7,124
Total	$	160,101	$	169,747	$	143,774	$	148,682

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

June 27, 2020

(Amounts in thousands, except share data)

June 29, 2019 December 31, 2018

Carrying
Value

Fair
Value

Carrying
Value

Fair
Value
Revolving credit facility, noncurrent $ 79,500
$ 79,500
$ 93,500
$ 93,500
Senior unsecured notes, noncurrent 81,000
84,616
56,000
56,002
Term loans, noncurrent 6,387
6,744
6,662
6,868
Total $ 166,887
$ 170,860
$ 156,162
$ 156,370

The carrying value of our revolving credit facility approximates fair value--classified as Level 2--as the interest rates on the amounts outstanding are variable. The fair value of our senior unsecured notes and term loans--classified as Level 2--is determined based on expected future weighted-average interest rates with the same remaining maturities.

Market Risk--In the normal course of business, we are exposed to market risk related to changes in foreign currency exchange rates, changes in interest rates and changes in fuel prices. We do not hold or issue derivative financial instruments for trading or speculative purposes. In prior years, we have used derivative financial instruments to manage risk, in part, associated with changes in interest rates and changes in fuel prices. Presently, we are not engaged in any hedging or derivative activities.


P.	Commitments and Contingencies

We are party to a number of lawsuits, threatened lawsuits and other claims arising out of the normal course of business. 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 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~~2 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

~~Index~~

~~The Davey Tree Expert Company~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~June 29, 2019~~

~~(Amounts in thousands, except share data)~~


P.	~~Commitments and Contingencies (continued)~~

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.~~

In July 2018, a related survival action was filed by the deceased’s estate against Davey Tree, its subsidiary, Wolf Tree, ~~Inc.,~~ and ~~four~~4 current and former employees in Savannah, Georgia, which arises out of the same allegations, seeks compensatory and punitive damages and also includes ~~three~~3 Racketeer Influenced and Corrupt Organizations Act ("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 (“Federal Court”), on August 2, ~~2018 (“Federal Court”).~~2018. 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.~~cases were mediated unsuccessfully in December 2018 and the State Court case was originally set for trial on January 22, 2019. However, as discussed below, all of the civil cases were later stayed on December 28, 2018 and currently remain stayed.

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

June 27, 2020

(Amounts in thousands, except share data)

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.~~pending during the stay of the cases.

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.

PG&E Bankruptcy Filing

On January 29, 2019, Pacific Gas & Electric Company, and its parent company PG&E Corporation, our largest utility customer, filed voluntary bankruptcy petitions under Chapter 11 of the United States Bankruptcy Code in the U.S. Bankruptcy Court for the Northern District of California. PG&E accounted for approximately 12% of revenues during ~~2018,~~2019, and ~~11%~~12% in ~~2017.~~2018. As a utility company, PG&E serves residential and industrial customers in California and has an ongoing obligation to continue to serve its customers, and we continue to perform under our contracts with PG&E post-petition. As of the date of the bankruptcy filing, we had pre-petition accounts receivable of approximately ~~$15,000 which we believe~~$15,000.

On June 20, 2020, the Court confirmed PG&E's Plan of Reorganization (the "Plan") filed as part of its Chapter 11 bankruptcy proceeding. On July 1, 2020, PG&E emerged from Chapter 11, successfully completing its restructuring process and implementing the Plan. In the Plan, unsecured creditors, like Davey Tree, will be paid in full with interest accruing on the past amounts due at the federal judgment rate and Davey Tree’s primary contracts were assumed by PG&E. Due to ~~be collectible. While uncertainty exists as to the outcome~~PG&E’s implementation of the ~~bankruptcy proceedings,~~Plan, we do not anticipate PG&E's bankruptcy to have a material impact on our future cash flows and results of ~~operations.~~operations as we will receive full payment for the amounts owed.

Northern California Wildfires

On October 7, 2019 and October 8, 2019, 4 lawsuits were filed against multiple vegetation management contractors to PG&E, including Davey Tree, for damages resulting from the Northern California wildfires. The filing dates - exactly two years after the start of the fires - suggest that these lawsuits are intended to preserve any claims that might otherwise have become barred by the applicable statute of limitations. Davey Tree has been served with only 1 of the 4 complaints, in the case of Quinisha Kyree Abram v. ACRT, Inc., et. al, Case No. CGC-19-579861 filed in the Superior Court of the State of California, County of San Francisco (the “Abram case”). The Abram case was initially stayed until July 29, 2020, and later that stay was extended until September 30, 2020. Davey Tree has filed a demurrer and motion to dismiss in this action. In the PG&E bankruptcy, the Tort Committee, representing wildfire victims from both the 2017 and 2018 Northern

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

June ~~29, 2019~~27, 2020

(Amounts in thousands, except share data)

California wildfires, served subpoenas on numerous contractors of PG&E, including Davey Tree Surgery Company, Davey Resource Group, and Davey Tree, and Davey Tree responded.

In addition, an action was brought against Davey Tree in Napa County Superior Court, entitled Donna Walker, et al. v. Davey Tree Surgery Company on August 8, 2019. On October 8, 2019, the court issued an order staying that action. The court deferred ruling on Davey’s demurrer and motion to dismiss the complaint based on the absence of PG&E as an indispensable party. The court initially stayed any activity in the case until July 14, 2020, and then the court extended the stay until December 15, 2020.

In all cases, the Company has denied all liability and will vigorously defend the actions.


Q.	The Davey 401KSOP and Employee Stock Ownership Plan

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 initially sold 120,000 common shares (presently, 23,040,000 common shares adjusted for stock splits) to its 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 ESOT. Annual allocations of shares have been made to individual accounts established for the benefit of the participants.

Defined Contribution and Savings Plans--Most employees are eligible to participate in The Davey 401KSOP and ESOP Plan. Effective January 1, 1997, the plan commenced operations and retained the existing ESOP participant accounts and incorporated a deferred savings plan (a “401(k) plan”) feature. Participants in the 401(k) plan are allowed to make before-tax contributions, within Internal Revenue Service established limits, through payroll deductions. Effective January 1, ~~2009~~2020, we match, in either cash or our common shares, 100% of the first ~~one~~3 percent and 50% of the next ~~three~~2 percent of each participant's before-tax contribution, limited to the first ~~four~~5 percent 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. In May 2004, we adopted the 401K Match Restoration Plan, a defined contribution plan that supplements the retirement benefits of certain employees that participate in the savings plan feature of The Davey 401KSOP and ESOP Plan, but are limited in contributions because of tax rules and regulations.

Our common shares are not listed or traded on an established public trading market, and market prices are, therefore, not available. Semiannually, an independent stock valuation firm determines the fair market value of our common shares based upon our performance and financial condition. The Davey 401KSOP and ESOP Plan includes a put option for shares of the Company’s common stock distributed from the plan. Shares are distributed from the Davey 401KSOP and ESOP Plan to former participants of the plan, their beneficiaries, donees or heirs (each, a “participant”). Since our common stock is not currently traded on an established securities market, if the owners of distributed shares desire to sell their shares, the Company is required to purchase the shares at fair value for ~~two~~2 60-day periods after distribution of the shares from the Davey 401KSOP and ESOP. The fair value of distributed shares subject to the put option totaled ~~$4,187~~$3,959 and ~~$6,288~~$4,749 as of June ~~29, 2019~~27, 2020 and December 31, ~~2018,~~2019, respectively. The fair value of the shares held in the Davey 401KSOP and ESOP totaled ~~$115,515~~$123,763 and ~~$112,761~~$119,806 as of June ~~29, 2019~~27, 2020 and December 31, ~~2018,~~2019, respectively. Due to the Company’s obligation under the put option, the distributed shares subject to the put option and the shares held in the Davey 401KSOP and ESOP (collectively referred to as 401KSOP and ESOP related shares) are recorded at fair value, classified as temporary equity in the mezzanine section of the consolidated balance sheets and totaled ~~$119,702~~$127,722 and ~~$119,049~~$124,555 as of June ~~29, 2019~~27, 2020 and December 31, ~~2018,~~2019, respectively. Changes in the fair value of the 401KSOP and ESOP Plan related shares

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

June 27, 2020

(Amounts in thousands, except share data)

are reflected in retained earnings while net share activity associated with 401KSOP and ESOP Plan related shares are first reflected in additional paid-in capital and then retained earnings if additional paid-in capital is insufficient.


Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.

(Amounts in thousands, except share data)

Management’s Discussion and Analysis of Financial Condition and Results of Operations is provided as a supplement to the accompanying condensed consolidated financial statements and notes to help provide an understanding of our financial condition, cash flows and results of operations.

We provide a wide range of arboricultural, horticultural, environmental and consulting services to residential, utility, commercial and government entities throughout the United States and Canada.

Our Business--Our operating results are reported in two ~~segments:~~segments organized by type or class of customer: Residential and Commercial, and Utility. Residential and Commercial provides services to our residential and commercial customers including: the treatment, preservation, maintenance, removal and planting of trees, shrubs and other plant life; the practice of landscaping,

~~Index~~

grounds maintenance, tree surgery, tree feeding and tree spraying; the application of fertilizer, herbicides and insecticides; and natural resource management and consulting, forestry research and development, and environmental planning. Utility is principally engaged in providing services to our utility customers--investor-owned, municipal utilities, and rural electric cooperatives--including: the practice of line-clearing and vegetation management around power lines and rights-of-way and chemical brush ~~control;~~control, natural resource management and consulting, forestry research and development, and environmental planning. All other operating activities, including research, technical support and laboratory diagnostic facilities, are included in "All Other."

Impact of COVID-19

While the recent coronavirus ("COVID-19") pandemic did not have a material adverse effect on our reported results for our current fiscal quarter, the overall extent and duration of COVID-19 on businesses and economic activity generally remains unclear due to the inherent uncertainty surrounding COVID-19, given its continual evolution.

We have taken steps to support our employees and protect their health and safety, while also ensuring that our business can continue to operate and provide services to our customers. Where possible, we have transitioned our employees to work from home and implemented measures to ensure social distancing when providing services to our customers, including providing personal protective equipment and limiting contact within vehicles. We have also provided additional administrative leave for employees affected by COVID-19 directly or indirectly and converted our 2020 Annual Meeting of Shareholders to a virtual-only format. We also drew $50,000 from our revolving credit facility to provide us with additional liquidity in light of of the uncertainty resulting from COVID-19. The $50,000 additional borrowing from our revolving credit facility was repaid in the second quarter of 2020. In the first six months of 2020, we have incurred expenses of $2,195 as a result of the COVID-19 pandemic mainly for administrative leave and personal protective equipment. We have also experienced a reduction of travel expenses of approximately $1,800 largely related to restrictions imposed as a response to the pandemic.

The extent to which our operations may be impacted by COVID-19 will depend largely on future developments, which are highly uncertain and cannot be accurately predicted, including new information which may emerge concerning the severity of the outbreak,

Index

whether there is a "second wave" and actions by government authorities to contain the pandemic or treat its impact, among other things. The situation surrounding COVID-19 remains fluid, and the potential for a material impact on our business increases the longer the coronavirus impacts the level of economic activity in the U.S. and globally. Even after the COVID-19 pandemic has subsided, we may experience an impact to our business as a result of any economic downturn or recession that has occurred or may occur.

RESULTS OF OPERATIONS

The following table sets forth our consolidated results of operations as a percentage of revenues and the percentage change in dollar amounts of the results of operations for the periods presented.


	Three Months Ended						Six Months Ended						Three Months Ended						Six Months Ended
	June 29, 2019		June 30, 2018		Percentage Change		June 29, 2019		June 30, 2018		Percentage Change		June 27, 2020		June 29, 2019		Change		June 27, 2020		June 29, 2019		Change
Revenues	100.0	%	100.0	%	—	%	100.0	%	100.0	%	—	%	100.0	%	100.0	%	—	%	100.0	%	100.0	%	—	%

Costs and expenses:
Operating	62.3		62.0		.3		64.4		65.2		(.8	)	59.8		62.3		(2.5	)	64.1		64.4		(.3	)
Selling	16.8		16.4		.4		17.6		17.5		.1		16.3		16.8		(.5	)	16.8		17.6		(.8	)
General and administrative	6.2		6.4		(.2	)	6.9		7.3		(.4	)	6.0		6.2		(.2	)	6.7		6.9		(.2	)
Depreciation and amortization	4.8		5.1		(.3	)	5.2		5.7		(.5	)	4.4		4.8		(.4	)	4.7		5.2		(.5	)
Gain on sale of assets, net	(.1	)	(.9	)	.8		(.2	)	(.7	)	.5		(.4	)	(.1	)	(.3	)	(.2	)	(.2	)	—

Income from operations	10.0		11.0		(1.0	)	6.1		5.0		1.1		13.9		10.0		3.9		7.9		6.1		1.8

Other income (expense):
Interest expense	(.8	)	(.6	)	(.2	)	(.8	)	(.7	)	(.1	)	(.6	)	(.8	)	.2		(.6	)	(.8	)	.2
Interest income	—		—		—		—		—		—		—		—		—		—		—		—
Other, net	(1.0	)	(.4	)	(.6	)	(1.0	)	(.5	)	(.5	)	(.4	)	(1.0	)	.6		(.5	)	(1.0	)	.5

Income before income taxes	8.2		10.0		(1.8	)	4.3		3.8		.5		12.9		8.2		4.7		6.8		4.3		2.5

Income taxes	1.7		2.0		(.3	)	.9		.7		.2		3.6		1.7		1.9		1.9		.9		1.0

Net income	6.6	%	8.0	%	(1.4	)%	3.5	%	3.1	%	.4	%	9.3	%	6.6	%	2.7	%	4.9	%	3.5	%	1.4	%

Index

Second Quarter—Three Months Ended June ~~29, 2019~~27, 2020 Compared to Three Months Ended June ~~30, 2018~~29, 2019

Our results of operations for the three months ended June ~~29, 2019~~27, 2020 compared to the three months ended June ~~30, 2018~~29, 2019 follows:


	Three Months Ended											Three Months Ended
	June 29, 2019			June 30, 2018			Change			Percentage Change		June 27, 2020			June 29, 2019			Change			Percentage Change
Revenues	$	301,434		$	270,649		$	30,785		11.4	%	$	319,247		$	301,434		$	17,813		5.9	%

Costs and expenses:
Operating	187,778			167,682			20,096			12.0		191,060			187,778			3,282			1.7
Selling	50,629			44,317			6,312			14.2		51,972			50,629			1,343			2.7
General and administrative	18,671			17,358			1,313			7.6		19,044			18,671			373			2.0
Depreciation and amortization	14,590			13,938			652			4.7		14,124			14,590			(466		)	(3.2	)
Gain on sale of assets, net	(516		)	(2,446		)	1,930			(78.9	)	(1,264		)	(516		)	(748		)	145.0
	271,152			240,849			30,303			12.6		274,936			271,152			3,784			1.4

Income from operations	30,282			29,800			482			1.6		44,311			30,282			14,029			46.3
Other income (expense):
Interest expense	(2,428		)	(1,754		)	(674		)	38.4		(1,952		)	(2,428		)	476			(19.6	)
Interest income	93			101			(8		)	(7.9	)	96			93			3			3.2
Other, net	(3,153		)	(1,052		)	(2,101		)	199.7		(1,152		)	(3,153		)	2,001			(63.5	)
Income before income taxes	24,794			27,095			(2,301		)	(8.5	)	41,303			24,794			16,509			66.6

Income taxes	5,047			5,381			(334		)	(6.2	)	11,518			5,047			6,471			128.2

Net income	$	19,747		$	21,714		$	(1,967	)	(9.1	)%	$	29,785		$	19,747		$	10,038		50.8	%

Revenues--Revenues of ~~$301,434~~$319,247 increased ~~$30,785~~$17,813 compared with ~~$270,649~~$301,434 in the second quarter of ~~2018.~~2019. Utility Services increased ~~$22,696~~$25,543 or ~~17.7%~~16.9% compared with the second quarter of ~~2018.~~2019. The increase is attributable to new accounts as well as increased work year-over-year and price increases on existing accounts. Most of our Utility Services segment work has been deemed essential services and has not been significantly affected by COVID-19. Residential and Commercial Services ~~increased $8,505~~decreased $7,065 or ~~6.0%~~4.7% from the second quarter of ~~2018. Increases~~2019. Decreases were primarily in grounds maintenance and tree and plant care revenues. While our Residential and Commercial Services segment work was deemed essential services in most states, we experienced temporary shutdowns or work restrictions related to the COVID-19 in a few states and certain Canadian provinces. Where possible, Residential and Commercial Services employees affected by a shutdown or work restrictions have been reassigned to assist with Utility Services operations.

Operating Expenses--Operating expenses of ~~$187,778~~$191,060 increased ~~$20,096~~$3,282 compared with the second quarter of ~~2018.~~2019. Utility Services increased ~~$13,280~~$12,775 or ~~13.8%~~11.7% compared with the second quarter of ~~2018~~2019 but, as a percentage of revenue, decreased to ~~72.3%~~69.1% from ~~74.8%~~72.3%. The increase is attributable to additional expenses for labor ~~fuel, equipment maintenance,~~ and ~~crew meals and lodging~~subcontractor expenses which were partially offset by a decrease in ~~a subcontractor~~fuel expense.Residential and Commercial Services ~~increased $5,414~~decreased $7,911 or ~~7.7%~~10.5% compared with the second quarter of ~~2018~~2019 and, as a percentage of revenue, ~~increased~~decreased to ~~50.4%~~47.3% from ~~49.5%~~50.4%. The ~~increase~~decrease is primarily attributable to ~~additional expenses for~~decreases in labor, ~~equipment maintenance,~~fuel expense, subcontractor expense, ~~and tool~~tools and parts expense ~~which were partially offset by a decrease in~~and materials expense.

Index

Operating expenses for the quarter also included $1,383 of expenses related directly to COVID-19, including $763 for additional administrative leave offered to employees who have been unable to work due to COVID-19 imposed restrictions whether from the virus itself or government imposed restrictions or closures.

Fuel costs of ~~$9,480 increased $780,~~$7,102 decreased $2,378, or ~~9.0%~~25.1%, from the ~~$8,700~~$9,480 incurred in the second quarter of ~~2018~~2019 and impacted operating expenses within all segments. The ~~$780 increase~~$2,378 decrease included usage ~~increases~~decreases approximating ~~$190~~$461 and price ~~increases~~decreases approximating ~~$590.~~$1,917.

Selling Expenses--Selling expenses of ~~$50,629~~$51,972 increased ~~$6,312~~$1,343 compared with the second quarter of ~~2018 and,~~2019 but, as a percentage of revenues, ~~increased~~decreased to ~~16.8%~~16.3% from ~~16.4%~~16.8%. Utility Services increased ~~$4,475~~$2,006 or ~~33.2% over~~11.2% compared to the second quarter of ~~2018 and,~~2019 but, as a percentage of revenue, ~~increased~~decreased to ~~11.9%~~11.3% from ~~10.5%~~11.9%. The increase is attributable to

~~Index~~

increases in field management wages and incentive expense which was partially offset by a decrease in travel ~~expense and communication~~ expense. Residential and Commercial Services ~~increased $1,777~~decreased $1,029 or ~~5.6% over~~3.1% from the second quarter of ~~2018~~2019 but, as a percentage of revenue, ~~decreased~~increased to ~~22.5%~~22.9% from ~~22.6%~~22.5%. ~~Increases~~The decrease was primarily attributable to decreases in travel expense and employee development expenses which were partially offset by an increase in field management ~~wages~~expense.

General and Administrative Expenses--General and administrative expenses of $19,044 increased $373 from $18,671 in the second quarter of 2019. The increase is attributable to salary and incentive expense ~~rent and communications expenses were~~which was partially offset by a decrease in ~~office support wages.~~

~~General and Administrative Expenses--General and administrative expenses of $18,671 increased $1,313 from $17,358 in the second quarter of 2018. The increases are attributable to salary and incentive expense,~~ travel and living ~~expenses, computer expenses and general insurance expense and were partially offset by a decrease in professional services expense.~~expenses.

Depreciation and Amortization Expense--Depreciation and amortization expense of ~~$14,590 increased $652~~$14,124 decreased $466 from ~~$13,938~~$14,590 incurred in the second quarter of ~~2018,~~2019, primarily due to ~~increased~~decreased capital expenditures and fewer purchases of businesses in recent years.

Gain on the Sale of Assets, Net--Gain on the sale of assets of ~~$516~~$1,264 for the second quarter of ~~2019 decreased $1,930~~2020 increased $748 from the ~~$2,446~~$516 gain in the second quarter of ~~2018.~~2019. We sold ~~fewer~~more units of equipment ~~and experienced a lower average gain per unit~~ in the second quarter of ~~2019~~2020 as compared with the second quarter of ~~2018. In~~2019.

Interest Expense--Interest expense of $1,952 decreased $476 from the ~~second quarter of 2018, we also sold a parcel of real estate at a gain, while we did not have any real estate sales~~$2,428 incurred in the second quarter of 2019.

~~Interest Expense--Interest expense of $2,428 increased $674 from the $1,754 incurred in the second quarter of 2018.~~The ~~increase~~decrease is attributable to ~~higher~~lower interest rates ~~and higher average debt levels necessary to fund operations and capital expenditures~~ during the second quarter of ~~2019,~~2020, as compared with the second quarter of ~~2018.~~2019.

Other, Net--Other expense, net, of ~~$3,153 increased $2,101~~$1,152 decreased $2,001 from the ~~$1,052~~$3,153 of other expense incurred in the second quarter of ~~2018~~2019 and consisted of nonoperating income and expense, including pension expense and foreign currency transaction gains/losses on the intercompany account balances of our Canadian operations.

Income Taxes--Income taxes for the second quarter of ~~2019~~2020 were ~~$5,047,~~$11,518, as compared to ~~$5,381~~$5,047 for the second quarter of ~~2018.~~2019. Our tax provision for interim periods is determined using an estimate of our annual effective tax rate adjusted for discrete items, if any, that are taken into account in the relevant period. The effective tax rate as of the second quarter of ~~2019~~2020 was ~~20.4%~~27.9%, as compared with the second quarter of ~~2018~~2019 effective tax rate of ~~19.9%~~20.4%.

Net Income--Net income of ~~$19,747~~$29,785 for the second quarter of ~~2019~~2020 was ~~$1,967 less~~$10,038 more than the ~~$21,714~~$19,747 net income for the second quarter of ~~2018.~~2019.

Index

First Half—Six Months Ended June ~~29, 2019~~27, 2020 Compared to Six Months Ended June ~~30, 2018~~29, 2019

Our results of operations for the six months ended June ~~29, 2019~~27, 2020 compared to the six months ended June ~~30, 2018~~29, 2019 follows:


	Six Months Ended											Six Months Ended
	June 29, 2019			June 30, 2018			Change			Percentage Change		June 27, 2020			June 29, 2019			Change			Percentage Change
Revenues	$	549,323		$	479,300		$	70,023		14.6	%	$	607,527		$	549,323		$	58,204		10.6	%

Costs and expenses:
Operating	353,794			312,305			41,489			13.3		389,453			353,794			35,659			10.1
Selling	96,933			83,974			12,959			15.4		102,084			96,933			5,151			5.3
General and administrative	37,715			35,076			2,639			7.5		40,586			37,715			2,871			7.6
Depreciation and amortization	28,802			27,059			1,743			6.4		28,728			28,802			(74		)	(.3	)
Gain on sale of assets, net	(1,169		)	(3,248		)	2,079			(64.0	)	(1,569		)	(1,169		)	(400		)	34.2
	516,075			455,166			60,909			13.4		559,282			516,075			43,207			8.4

Income from operations	33,248			24,134			9,114			37.8		48,245			33,248			14,997			45.1
Other income (expense):
Interest expense	(4,579		)	(3,155		)	(1,424		)	45.1		(3,898		)	(4,579		)	681			(14.9	)
Interest income	176			179			(3		)	(1.7	)	197			176			21			11.9
Other, net	(4,808		)	(2,714		)	(2,094		)	77.2		(3,051		)	(4,808		)	1,757			(36.5	)
Income before income taxes	24,037			18,444			5,593			30.3		41,493			24,037			17,456			72.6

Income taxes	4,783			3,357			1,426			42.5		11,535			4,783			6,752			141.2

Net income	$	19,254		$	15,087		$	4,167		27.6	%	$	29,958		$	19,254		$	10,704		55.6	%

Revenues--Revenues of ~~$549,323~~$607,527 increased ~~$70,023~~$58,204 compared with ~~$479,300~~$549,323 in the first half of ~~2018.~~2019. Utility Services increased ~~$44,478~~$70,823 or ~~18.0%~~24.3% compared with the first half of ~~2018.~~2019. The increase is attributable to new accounts, as well as increased work year-over-year and price increases on existing accounts within both our U.S. and Canadian operations. Most of our Utility Services segment work has been deemed essential services and has not been significantly affected by COVID-19. Residential and Commercial Services ~~increased $26,555~~decreased $12,507 or ~~11.5% from the first half of 2018. Increases were predominately in tree and plant care, consulting and grounds maintenance.~~

~~Operating Expenses--Operating expenses of $353,794 increased $41,489~~4.9% compared with the first half of ~~2018~~2019. Decreases were predominately in grounds maintenance and tree and plant care. While our Residential and Commercial Services segment work was deemed essential services in most states, we experienced temporary shutdowns or work restrictions related to the COVID-19 in a few states and certain Canadian provinces. Where possible, Residential and Commercial Services employees affected by a shutdown or work restrictions were reassigned to assist with Utility Services operations.

Operating Expenses--Operating expenses of $389,453 increased $35,659 compared with the first half of 2019 but, as a percentage of revenues, decreased to ~~64.4%~~64.1% from ~~65.2%~~64.4%. Utility Services increased ~~$25,316~~$45,391 or ~~13.5%~~21.3% compared with the first half of ~~2018~~2019 but, as a percentage of revenue, decreased to ~~73.0%~~71.2% from ~~75.8%~~73.0%. The increase was attributable to increases in additional labor expense, equipment maintenance expense, ~~fuel~~subcontractor expense and meals and lodging expense which were partially offset by ~~decreases~~a decrease in ~~subcontractor and materials expenses.~~fuel expense.Residential and Commercial Services ~~increased $15,982~~decreased $9,926 or ~~13.1%~~7.2% compared with the first half of ~~2018~~2019 and, as a percentage of revenue, ~~increased~~decreased to ~~53.7%~~52.4% from ~~53.0%~~53.7%. ~~Increases~~The decrease was primarily attributable to decreases in labor, ~~expense,~~ fuel ~~equipment maintenance~~ expense, subcontractor expense, materials expense and ~~meals and lodging expense were partially offset by a decrease in materials~~chemical expense.

Index

Operating expenses for the period also included $2,195 of expenses related directly to COVID-19, including $1,525 for additional administrative leave offered to employees who have been unable to work due to COVID-19 imposed restrictions whether from the virus itself or government imposed restrictions or closures.

Fuel costs of ~~$17,001 increased $1,359,~~$15,138 decreased $1,863, or ~~8.7%~~11.0%, from the ~~$15,642~~$17,001 incurred in the first half of ~~2018~~2019 and impacted operating expenses within all segments. The ~~$1,359 increase~~$1,863 decrease included usage ~~increases~~decreases approximating ~~$439~~$223 and price ~~increases~~decreases approximating ~~$920.~~$1,640.

Selling Expenses--Selling expenses of ~~$96,933~~$102,084 increased ~~$12,959~~$5,151 compared with the first half of ~~2018 and,~~2019 but, as a percentage of revenue, ~~increased~~decreased to ~~17.6%~~16.8% from ~~17.5%~~17.6%. Utility Services increased ~~$9,080~~$4,335 or ~~34.3% over~~12.2% compared to the first half of ~~2018 and,~~2019 but, as a percentage of revenue, ~~increased~~decreased to ~~12.2%~~11.0% from ~~10.7%~~12.2%. The increase was primarily attributable to

~~Index~~

additional field management wages and incentive expense, ~~rent expense,~~which was partially offset by a decrease in field management travel ~~expense and communications~~ expense. Residential and Commercial Services experienced an increase of ~~$3,918~~$400 or ~~6.6% over~~.6% compared to the first half of ~~2018 but,~~2019 and, as a percentage of revenue, ~~decreased~~increased to ~~24.6%~~26.0% from ~~25.7%~~24.6%. ~~Increases~~The increase was attributable to increases in field management wages and incentive expense ~~office rent expense, field management travel expense and marketing expense were~~which was partially offset by a decrease in ~~office support wages.~~travel expense.

General and Administrative Expenses--General and administrative expenses of ~~$37,715~~$40,586 increased ~~$2,639~~$2,871 from ~~$35,076~~$37,715 in the first half of ~~2018. Increases~~2019. The increase was primarily attributable to an increase in salary and incentive expense ~~computer expense, travel expense, general insurance expense and rent expense were~~which was partially offset by a decrease in ~~professional services~~travel expense.

Depreciation and Amortization Expense--Depreciation and amortization expense of ~~$28,802 increased $1,743~~$28,728 decreased $74 from ~~$27,059~~$28,802 incurred in the first half of ~~2018.~~2019. The ~~increase~~decrease was attributable to ~~higher~~lower capital expenditures in recent years necessary to support the ~~business and purchases of businesses in recent years.~~business.

Gain on the Sale of Assets, Net--Gain on the sale of assets of ~~$1,169~~$1,569 for the first half of ~~2019 decreased $2,079~~2020 increased $400 from the ~~$3,248~~$1,169 gain in the first half of ~~2018.~~2019. We sold more individual units of equipment during the first half of ~~2019~~2020 as compared with the first half of ~~2018, but experienced a lower average gain per unit. In 2018, we also sold a parcel~~2019.

Interest Expense--Interest expense of ~~real estate at a gain, while we did not have any real estate sales~~$3,898 decreased $681 from the $4,579 incurred in the first half of 2019.

~~Interest Expense--Interest expense of $4,579 increased $1,424 from the $3,155 incurred in the first half of 2018.~~The ~~increase~~decrease is attributable to ~~higher~~lower interest rates ~~and higher average debt levels~~ during the first six months of ~~2019,~~2020, as compared with the first six months of ~~2018.~~2019.

Other, Net--Other expense, net, of ~~$4,808 increased $2,094~~$3,051 decreased $1,757 from the ~~$2,714~~$4,808 expense incurred in the first half of ~~2018~~2019 and consisted of nonoperating income and expense, including pension expense and foreign currency gains/losses on the intercompany account balances of our Canadian operations.

Income Taxes--Income taxes for the first half of ~~2019~~2020 were ~~$4,783,~~$11,535, as compared to ~~$3,357~~$4,783 for the first half of ~~2018.~~2019. Our tax provision for interim periods is determined using an estimate of our annual effective tax rate adjusted for discrete items, if any, that are taken into account in the relevant period. The effective tax rate for the first half of ~~2019 is 19.9%~~2020 was 27.8%. Our effective tax rate for the first half of ~~2018~~2019 was ~~18.2%~~19.9%. The change in the effective tax rate from statutory tax rates is primarily due to the impact of state and local taxes which are partially offset by favorable discrete items.

Net Income--Net income of $29,958 for the first half of 2020 was $10,704 more than the net income of $19,254 for the first half of ~~2019 was $4,167 more than the net income of $15,087 for the first half of 2018.~~2019.

Index

LIQUIDITY AND CAPITAL RESOURCES

Our principal financial requirements are for capital spending, working capital and business acquisitions. Cash generated from operations, our revolving credit facility and note issuances are our primary sources of capital.

Cash Flow Summary

Our cash flows from operating, investing and financing activities for the six months ended June 27, 2020 and June 29, 2019 ~~and~~ ~~June 30, 2018~~ follow:


	Six Months Ended						Six Months Ended
	June 29, 2019			June 30, 2018			June 27, 2020			June 29, 2019
Cash provided by (used in):
Operating activities	$	44,286		$	22,662		$	57,559		$	44,286
Investing activities	(38,817		)	(38,614		)	(32,221		)	(38,817		)
Financing activities	(12,187		)	15,314			(5,098		)	(12,187		)
Effect of exchange rate changes on cash	114			—			(99		)	114
Decrease in cash	$	(6,604	)	$	(638	)
Increase (decrease) in cash							$	20,141		$	(6,604	)

~~Index~~

Cash Provided By Operating Activities--Cash provided by operating activities was ~~$44,286~~$57,559 for the first six months of ~~2019,~~2020, or ~~$21,624~~$13,273 more than the ~~$22,662~~$44,286 provided in the first six months of ~~2018.~~2019. The ~~$21,624~~$13,273 increase in operating cash flow was primarily attributable to a decrease of ~~$9,712 in cash used for~~$5,141 related to prepaid expenses, a change of $11,172 related to accounts payable and accrued expenses, the change of $6,808 related to self-insurance reserves and a ~~$6,466~~ change of $2,100 in other operating assets and liabilities partially offset by ~~an increase~~a change of ~~$6,362 in cash used by~~$22,210 related to accounts receivable.

Overall, accounts receivable increased $38,170 during the first six months of 2020, as compared to an increase of $15,960 during the first six months of ~~2019, as compared to an increase of $9,598 during the first six months of 2018.~~2019. With respect to the change in accounts receivable arising from business levels, the “days-sales-outstanding” in accounts receivable (sometimes referred to as “DSO”) at the end of the first six months of ~~2019~~2020 increased by ~~four~~twelve days to 6476 days, when compared to 6064 days at the end of the first six months of ~~2018,~~2019, with the ~~current six months~~periods being impacted by the pre-petition receivables of approximately $15,000 from PG&E. DSO excluding PG&E pre-petition receivables would be 73 and 60 days at the end of the first six months of ~~2019.~~2020 and 2019, respectively.

~~Accounts payable and accrued~~Prepaid expenses decreased ~~$609~~$14,319 in the first six months of ~~2019,~~2020, or ~~$9,712 less~~$5,141 more than the ~~$10,321~~$9,178 decrease in the first six months of ~~2018. Decreases in trade payables~~2019. The decrease was primarily related to the reduction of prepaid payroll taxes and ~~employee compensation were partially offset by increases in income taxes, advance payments from customers,~~prepaid insurance premiums.

Accounts payable and ~~taxes other than income. Self-insurance reserves~~accrued expenses increased ~~$1,690~~$10,563 in the first six months of ~~2019,~~2020, or $11,172 more than the $609 decrease in the first six months of 2019. The increase was primarily related to increases in income taxes and payroll taxes payable. Self-insurance reserves increased $8,498 in the first six months of 2020, which was ~~$276~~$6,808 more than the increase of ~~$1,414~~$1,690 experienced in the first six months of ~~2018.~~2019.

~~Operating~~Other operating assets and liabilities, ~~other,~~ net ~~provided $1,661 of cash for~~decreased $3,761 in the first six months of ~~2019 as compared with using $4,805 of cash for~~2020, or $2,100 more than the $1,661 decrease in the first six months of ~~2018.~~2019. The ~~$6,466 net change~~increase was primarily related ~~primarily~~ to ~~decreases~~changes in ~~operating supplies, prepaid expenses, prepaid~~ income taxes payable and ~~assets invested for self-insurance.~~deposits.

As we cannot predict the duration or scope of the COVID-19 pandemic and its impact on our customers and suppliers (or workforce), the negative financial impact to our results cannot be reasonably estimated, but could be material. We are actively managing the business to maintain cash flow and we have significant liquidity. We believe that these factors will allow us to meet our anticipated funding requirements.

Index

Cash Used In Investing Activities--Cash used in investing activities for the first six months of ~~2019~~2020 was ~~$38,817,~~$32,221, or ~~$203~~$6,596 less than the ~~$38,614~~$38,817 used during the first six months of ~~2018.~~2019. The decrease was primarily the result of decreases in capital expenditures for equipment of ~~$3,036 partially offset by an increase for~~$5,953, decrease in purchases of businesses of ~~$486~~$1,204 and ~~a decrease~~increases in proceeds from the sales of fixed assets of ~~$2,762.~~$315, which was partially offset by an increase in expenditures for land and buildings of $876.

Cash ~~(Used In) Provided By~~Used In Financing Activities--Cash used in financing activities of ~~$12,187 increased $27,501~~$5,098 decreased $7,089 during the first six months of ~~2019~~2020 as compared with ~~$15,314~~$12,187 of cash ~~provided~~used during the first six months of ~~2018.~~2019. During the first six months of ~~2019,~~2020, our revolving credit facility, net ~~used $14,000~~provided $21,000 in cash as compared with ~~$39,000 provided~~$14,000 used during the first six months of ~~2018.~~2019. We use the credit facility primarily for capital expenditures, redemptions of shares and payments of notes payable related to acquisitions. In the first quarter of 2020, we drew $50,000 from our revolving credit facility to provide additional liquidity as a precaution because of uncertainty resulting from COVID-19. The $50,000 was repaid during the second quarter of 2020. Notes payable used a net $13,860 during the first six months of 2020, a change of $26,346 when compared to the $12,486 provided ~~$12,486,~~in the first six months of 2019, including $25,000 ~~of cash~~ provided by the issuance of 4.00% Senior Notes during the first six months of ~~2019, an increase~~2019. Treasury share transactions (purchases and sales) used $10,038 for the first six months of ~~$21,518 when compared to~~2020, $1,395 more than the ~~$9,032~~$8,643 used in the first six months of 2018. The proceeds of the 4.00% Senior Notes were used to pay down the revolving credit facility. Treasury share transactions (purchases and sales) used $8,643 for the first six months of 2019, $4,793 less than the $13,436 used in the first six months of 2018, and included $298 of cash received from our common share subscriptions.2019. Dividends paid of ~~$1,170~~$1,138 during the first six months of ~~2019~~2020 decreased ~~$48~~$32 as compared with ~~$1,218~~$1,170 paid in the first six months of ~~2018.~~2019.

The Company currently repurchases common shares at ~~the~~ shareholders’ ~~request~~requests in accordance with the terms of the Davey 401KSOP and ESOP Plan and also repurchases common shares from time to time at the Company’s discretion. The amount of common shares offered to the Company for repurchase by the holders of shares distributed from the Davey 401KSOP and ESOP Plan is not within the control of the Company, but is at the discretion of the shareholders. The Company expects to continue to repurchase its common shares, as offered by its shareholders from time to time, at their then current fair value. However, other than for repurchases pursuant to the put option under ~~The~~the Davey 401KSOP and ESOP Plan, as described in Note Q, such purchases are not required, and the Company retains the right to discontinue them at any time. Repurchases of redeemable common shares at the shareholders' request approximated ~~$8,683~~$5,195 and ~~$20,179~~$8,683 during the six months ended June ~~29, 2019~~27, 2020 and June ~~30, 2018,~~29, 2019, respectively. Share repurchases, other than redeemable common shares, approximated ~~$12,446~~$18,821 and ~~$6,177~~$12,446 during the six months ended June 27, 2020 and June 29, 2019, ~~and June 30, 2018,~~ respectively.

~~Index~~

Contractual Obligations Summary and Commercial Commitments

As of June ~~29, 2019 and December 31, 2018,~~27, 2020, total commitments related to issued letters of credit were ~~$72,236,~~$81,619, of which ~~$2,788~~$2,877 were issued under the revolving credit facility, ~~$67,438~~$76,732 were issued under the AR Securitization program, and $2,010 were issued under short-term lines of credit. As of December 31, 2019, total commitments related to issued LCs were $81,619, of which $2,877 were issued under the revolving credit facility, $76,732 were issued under the AR Securitization program, and $2,010 were issued under short-term lines of credit.

Also, as is common in our industry, we have performance obligations that are supported by surety bonds, which expire during ~~2019~~2020 through 2023. We intend to renew the surety bonds where appropriate and as necessary.

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

Index

reviewing our existing sources of financing and evaluating alternatives. At June ~~29, 2019,~~27, 2020, we had working capital of ~~$117,978,~~$154,616, and short-term lines of credit approximating ~~$3,095~~$9,088 and ~~$167,712~~$164,123 available under our revolving credit facility.

For more information regarding our outstanding debt, see Note F, Long-Term Debt and Commitments Related to Letters of Credit.

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. However, we cannot predict the full extent of the potential impact resulting from the COVID-19 pandemic on our business, results of operations and sources of capital.

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, ~~2018,~~2019, we believe that our policies related to revenue recognition, the allowance for doubtful accounts, stock valuation and self-insurance 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.

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 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.

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, some of which have been, and may further be, exacerbated by the COVID-19 pandemic include:

~~Index~~


▪	The coronavirus pandemic (COVID-19) has impacted, and could have a material adverse effect on our business, results of operations, financial position or cash flows.


▪	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.

▪

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.~~

Index

insurance, or the inadequacy of our self-insurance reserves or insurance coverages, could negatively impact our liquidity and financial condition.


▪	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, or the impact of costs incurred to comply with cybersecurity or data privacy regulations, 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, including the negative impact of COVID-19, 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, such as COVID-19, 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 I - Item 1A. Risk Factors." of our annual report on Form 10-K for the year ended December 31, ~~2018.~~2019, as well as in "Part II-Item 1. Risk Factors" of this quarterly report on Form 10-Q.


Item 3.	Quantitative and Qualitative Disclosures about Market Risk.

~~During~~With the ~~six months ended June 29, 2019,~~exception of the impacts of COVID-19, which are discussed elsewhere in this document, there have been no material changes in our reported market risks or risk management policies since the ~~market risk previously presented in~~filing of our ~~annual report~~2019 Annual Report on Form 10-K, ~~for~~which was filed with the ~~year ended December 31, 2018.~~Securities and Exchange Commission on March 9, 2020.


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~~In response to the COVID-19 pandemic, we have required certain employees, some of whom are involved in the operation of our internal controls over financial reporting, to work from home. Despite working remotely, there have been no changes in our internal control over financial reporting during the fiscal quarter ended June ~~29, 2019~~27, 2020 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.


Item 1.	Legal Proceedings.

We are party to a number of lawsuits, threatened lawsuits and other claims arising out of the normal course of business. 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 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 record a legal 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 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

Index

matter will not exceed established 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~~Racketeer Influenced and Corrupt Organizations Act ("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 (“Federal Court”), on August 2, ~~2018 (“Federal Court”).~~2018. 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.

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.


Item 1A.	Risk Factors.

Our Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, includes a detailed discussion of our risk factors. There have been no material changes to the risk factors as previously disclosed other than as described below. However, some of the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019 have been, and we expect will continue to further be, exacerbated by the impact of the COVID-19 pandemic.

Index

Our business, results of operations, financial position or cash flow could in the future be materially adversely impacted by the coronavirus pandemic (COVID-19).

The global spread of the coronavirus pandemic (COVID-19) has created significant volatility and uncertainty and economic disruption. The extent to which COVID-19 impacts our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict including: the duration and scope of the pandemic and whether there is a "second wave"; the impact of the pandemic on economic activity; government imposed restrictions in response to the pandemic, including the temporary shutdowns and work restrictions related to COVID-19 in a few states and certain Canadian provinces impacting our Residential and Commercial Services segment; the effect on our customers and their demand for our services; and the ability of our customers to pay for our services. Clients may slow down decision making, delay planned work or seek to terminate existing agreements. The degree of impact of COVID-19 on our customer sales demand will depend on the extent and duration of the economic contraction.

We have taken steps to support our employees and protect their health and safety, while also ensuring that our business can continue to operate and provide services to our customers. Where possible, we have transitioned our employees to work from home and implemented measures to ensure social distancing when providing services to our customers. The resources available to employees working remotely may not enable them to maintain the same level of productivity and efficiency, and these and other employees may face additional demands on their time, such as increased responsibilities resulting from school closures or the illness of family members. Our increased reliance on remote access to our information systems could also increase our exposure to potential data breaches. There is no certainty that such measures will be sufficient to mitigate the risks posed by COVID-19, in which case our employees may become sick, our ability to perform critical functions could be harmed, and our business and operations could be negatively impacted.

While COVID-19 did not have a material adverse effect on our reported results for the first six months of 2020, due to the inherent uncertainty surrounding COVID-19 given its continual evolution, we are unable to predict the ultimate impact that it may have on our business, including how it will impact our customers, employees, supply chain and liquidity. The situation surrounding COVID-19 remains fluid, and the potential for a material impact on our business increases the longer the coronavirus impacts the level of economic activity in the U.S. and globally. Even after the COVID-19 pandemic has subsided, we may experience an impact to our business as a result of any economic downturn or recession that has occurred or may occur.

Index


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 ~~2019~~.2020.

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



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 of Shares that May Yet Be Purchased Under the Plans or Programs
Fiscal 2020
January 1 to January 25	1,005	$	22.60	—	866,570
January 26 to February 22	645	22.60		—	866,570
February 23 to March 28	331,652	24.20		—	866,570
Total First Quarter	333,302	24.19		—

March 29 to April 25	297,079	24.20		—	866,570
April 26 to May 23	251,981	24.20		—	866,570
May 24 to June 27	110,488	24.20		—	866,570
Total Second Quarter	659,548	24.20		—

Total Year-to-Date	992,850	$	24.20	—

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.; FirstService Corporation; 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 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 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~~rights 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 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

Index

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 is also 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, ~~913,044~~866,570 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. 6 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~~10.1	Amendment No. 78 to Receivables Financing Agreement, dated May ~~21, 2019,~~19, 2020, 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 ~~23, 2019)~~21, 2020).

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 ~~29, 2019,~~27, 2020, formatted in ~~XBRL (eXtensible~~iXBRL (inline 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 (vi) Notes to Condensed Consolidated Financial Statements (unaudited). The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.	Filed Herewith

104	Cover Page Interactive Data File (embedded within the inline XBRL document)	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 ~~6, 2019~~4, 2020	By:	/s/ Joseph R. Paul
			Joseph R. Paul
			Executive Vice President, Chief Financial Officer and Secretary
			(Principal Financial Officer)

Date:	August ~~6, 2019~~4, 2020	By:	/s/ Thea R. Sears
			Thea R. Sears
			Vice President and Controller
			(Principal Accounting Officer)

- 4950 -



	June 29, 2019				December 31, 2018
	Carrying Amount		Accumulated Amortization		Carrying Amount		Accumulated Amortization
Amortized intangible assets:
Customer lists/relationships	$	26,892	$	19,073	$	25,179	$	18,251
Employment-related	8,184		7,144		8,133		6,954
Tradenames	7,118		5,608		6,858		5,435

Amortized intangible assets	42,194		$	31,825	40,170		$	30,640

Less accumulated amortization	31,825				30,640

Identified intangible assets, net	10,369				9,530

Goodwill	39,488				37,971
	$	49,857			$	47,501



	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



		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.



	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



	Common Shares Net of Treasury Shares		Redeemable Shares		Total
Shares outstanding at January 1, 2019	17,238,497		5,642,155		22,880,652
Shares purchased	(433,296	)	(569,267	)	(1,002,563	)
Shares sold	235,591		223,675		459,266
Stock subscription offering -- cash purchases	270,607		—		270,607
Options and awards exercised	191,532		—		191,532
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

Three Months Ended June 30, 2018
Revenues	$	128,496	$	141,465	$	688		$	—			$	270,649
Income (loss) from operations	6,265		26,834		(2,764		)	(535		)	(a)	29,800
Interest expense								(1,754		)		(1,754		)
Interest income								101				101
Other income (expense), net								(1,052		)		(1,052		)
Income before income taxes												$	27,095
Segment assets, total	$	197,287	$	222,638	$	—		$	73,329		(b)	$	493,254

Six Months Ended June 29, 2019
Revenues	$	291,661	$	257,365	$	297		$	—			$	549,323
Income (loss) from operations	15,875		27,105		(8,369		)	(1,363		)	(a)	33,248
Interest expense								(4,579		)		(4,579		)
Interest income								176				176
Other income (expense), net								(4,808		)		(4,808		)
Income before income taxes												$	24,037
Segment assets, total	$	235,687	$	233,220	$	—		$	101,242		(b)	$	570,149

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



			Fair Value Measurements at June 29, 2019 Using:
Assets and Liabilities Recorded at Fair Value on a Recurring Basis	Total Carrying Value at June 29, 2019		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Assets invested for self-insurance, classified as other assets, noncurrent	$	12,552	$	12,552	$	—	$	—
Defined benefit pension plan assets	24		—		24		—

Liabilities:
Deferred compensation	$	2,563	$	—	$	2,563	$	—