UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



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

For the quarterly period ended ~~June 27, 2020~~April 03, 2021



☐			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,, OH44240

(Address of principal executive offices) (Zip code)

(~~330~~) (330) 673-9511

(Registrant's telephone number, including area code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

N/A

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark 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). Yes ☒ 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

☐

Accelerated 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. ☐

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

There were ~~22,875,064~~22,609,336 Common Shares, $1.00 par value, outstanding as of ~~July 31, 2020.~~

April 30, 2021.

Index

~~Index~~

The Davey Tree Expert Company

Quarterly Report on Form 10-Q

April 3, 2021

~~June 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					6
						Notes to Condensed Consolidated Financial Statements
								A	—	Basis of Financial Statement Preparation	7
								B	—	Seasonality of Business	9
								C	—	Accounts Receivable, Net and Supplemental Balance-Sheet Information	9
								D	—	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	15
								H	—	Stock-Based Compensation	18
								I	—	Income Taxes	20
								J	—	Accumulated Other Comprehensive Income (Loss)	21
								K	—	Per Share Amounts and Common and Redeemable Shares Outstanding	22
								L	—	Operations by Business Segment	23
								M	—	Revenue Recognition	24
								N	—	Fair Value Measurements and Financial Instruments	26
								O	—	Commitments and Contingencies	28
								P	—	The Davey 401KSOP and Employee Stock Ownership Plan	30

								~~Page~~
~~Part I.~~	~~Financial Information~~

Item 1.	~~Financial Statements (Unaudited)~~
		~~Condensed Consolidated Balance Sheets~~2.					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~~		11
			E	—	~~Identified Intangible Assets and Goodwill, Net~~		12
			F	—	~~Long-Term Debt and Commitments Related to Letters of Credit~~		13
			G	—	~~Leases~~		15
			H	—	~~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
			L	—	~~Per Share Amounts and Common and Redeemable Shares Outstanding~~		24
			M	—	~~Operations by Business Segment~~		25
			N	—	~~Revenue Recognition~~		27
			O	—	~~Fair Value Measurements and Financial Instruments~~		29
			P	—	~~Commitments and Contingencies~~		31
			Q	—	~~The Davey 401KSOP and Employee Stock Ownership Plan~~		33

~~Item 2.~~	Management's Discussion and Analysis of Financial Condition and Results of Operations						3432
						Results of Operations					3533
						Liquidity and Capital Resources					4035
								Cash Flow Summary			4036
								Contractual Obligations Summary and Commercial Commitments			4137
								Capital Resources			4137
						Critical Accounting Policies and Estimates					4238
						Note Regarding Forward-Looking Statements					4238

Item 3.			Quantitative and Qualitative Disclosures about Market Risk								4440

Item 4.			Controls and Procedures								4440

Part II.			Other Information								4440

Item 1.			Legal Proceedings								4440

Item 1A.			Risk Factors								4541

Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds								4742

Item 6.			Exhibits								4843

Exhibit Index											4944

Signatures											5045

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

~~Index~~- 1 -

Index

THE DAVEY TREE EXPERT COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands, except per share data dollar amounts)


	April 3, 2021		December 31, 2020
Assets
Current assets:
Cash	$	28,761	$	16,201
Accounts receivable, net	221,685		252,921
Operating supplies	12,801		10,206
Other current assets	28,230		25,734
Total current assets	291,477		305,062


Property and equipment, net	214,273		204,717
Right-of-use assets - operating leases	71,389		55,893
Other assets	30,597		29,756
Intangible assets, net	12,990		11,670
Goodwill	53,647		48,256
Total assets	$	674,373	$	655,354
Liabilities and shareholders' equity
Current liabilities:
Accounts payable	$	48,173	$	42,787
Accrued expenses	66,146		98,441
Current portion of long-term debt and finance lease liabilities	16,514		21,813
Other current liabilities	59,701		56,831
Total current liabilities	190,534		219,872
Long-term debt	103,134		77,068
Lease liabilities - finance leases	6,000		6,479
Lease liabilities - operating leases	49,233		36,612
Self-insurance accruals	76,977		71,573
Other noncurrent liabilities	11,507		10,689
Total liabilities	437,385		422,293
Commitments and contingencies (Note O)
Redeemable common shares related to 401KSOP and Employee Stock Ownership Plan (ESOP); 5,177 and 5,113 shares at redemption value as of April 3, 2021 and December 31, 2020	155,307		153,387
Common shareholders' equity:
Common shares, $1.00 par value, per share; 48,000 shares authorized; 37,737 and 37,801 shares issued and outstanding before deducting treasury shares and which excludes 5,177 and 5,113 shares subject to redemption as of April 3, 2021 and December 31, 2020	37,737		37,801
Additional paid-in capital	109,774		110,069

Retained earnings	210,567		206,711
Accumulated other comprehensive loss	(4,060)		(4,547)
	354,018		350,034
Less: Cost of common shares held in treasury; 20,075 shares at April 3, 2021 and 20,094 shares at December 31, 2020	272,337		270,360

Total common shareholders' equity	81,681		79,674
Total liabilities and shareholders' equity	$	674,373	$	655,354

See notes to condensed consolidated financial statements (unaudited).

- 2 -

June 27,
2020 December 31,
2019
Assets
Current assets:
Cash $ 31,141
$ 11,000
Accounts receivable, net 268,920
231,311
Operating supplies 12,647
12,127
Other current assets 11,970
26,987
Total current assets 324,678
281,425
Property and equipment, net 207,256
199,850
Right-of-use assets - operating leases 54,188
40,033
Other assets 17,653
22,335
Intangible assets, net 10,432
10,934
Goodwill 43,804
42,285
Total assets $ 658,011
$ 596,862
Liabilities and shareholders' equity

Current liabilities:

Accounts payable $ 37,723
$ 41,191
Accrued expenses 65,861
52,431
Current portion of long-term debt and finance lease liabilities 18,383
24,650
Other current liabilities 48,095
47,400
Total current liabilities 170,062
165,672
Long-term debt 159,775
143,354
Lease liabilities - finance leases 4,461
1,795
Lease liabilities - operating leases 36,490
25,200
Self-insurance reserve 70,852
62,113
Other noncurrent liabilities 11,371
12,268
Total liabilities 453,011
410,402
Commitments and contingencies (Note P)
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; 37,784 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 103,291
96,366
Retained earnings 204,999
179,770
Accumulated other comprehensive loss (6,586 ) (5,403 )
339,488
308,500
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 77,278
61,905
Total liabilities and shareholders' equity $ 658,011
$ 596,862

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
		April 3, 2021		March 28, 2020
Revenues		$	298,821	$	288,280

Costs and expenses:
Operating		199,035		198,605
Selling		52,687		50,112
General and administrative		25,351		21,542
Depreciation and amortization		13,458		14,604
Gain on sale of assets, net		(684)		(305)
Total costs and expenses		289,847		284,558

Income from operations		8,974		3,722

Other income (expense):
Interest expense		(1,274)		(1,946)
Interest income		69		101
Other, net		(2,050)		(1,899)

Income (loss) before income taxes		5,719		(22)

Income taxes (benefit)		1,292		(1)

Net income (loss)		$	4,427	$	(21)

Net income (loss) per share:

Basic		$	.19	$	0
Diluted		$	.18	$	0

Weighted-average shares outstanding:

Basic		22,841		23,187
Diluted		23,958		24,171

Certain amounts in the prior year have been recast as a result of the change in accounting principle as discussed in Note A.

See notes to condensed consolidated financial statements (unaudited).

- 3 -

Three Months Ended Six Months Ended
June 27,
2020 June 29,
2019 June 27,
2020 June 29,
2019
Revenues $ 319,247
$ 301,434
$ 607,527
$ 549,323

Costs and expenses:
Operating 191,060
187,778
389,453
353,794
Selling 51,972
50,629
102,084
96,933
General and administrative 19,044
18,671
40,586
37,715
Depreciation and amortization 14,124
14,590
28,728
28,802
Gain on sale of assets, net (1,264 ) (516 ) (1,569 ) (1,169 )
Total costs and expenses 274,936
271,152
559,282
516,075

Income from operations 44,311
30,282
48,245
33,248

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

Income before income taxes 41,303
24,794
41,493
24,037

Income taxes 11,518
5,047
11,535
4,783

Net income $ 29,785
$ 19,747
$ 29,958
$ 19,254

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

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

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
		April 3, 2021		March 28, 2020
Net income (loss)		$	4,427	$	(21)
Components of other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		450		(1,971)

Amortization of defined benefit pension items:
Net actuarial loss		25		16
Prior service cost		12		12
Defined benefit pension plan adjustments		37		28

Other comprehensive income (loss), net of tax		487		(1,943)

Comprehensive income (loss)		$	4,914	$	(1,964)

Certain amounts in the prior year have been recast as a result of the change in accounting principle as discussed in Note A.

See notes to condensed consolidated financial statements (unaudited).

- 4 -

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

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

Comprehensive income $ 30,545
$ 18,959
$ 28,775
$ 19,019

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		Retained Earnings		Accumulated Other Comprehensive Income (Loss), Net of Tax		Common Shares Held in Treasury		Total Common Shareholders' Equity














Balances at January 1, 2021	$	37,801	$	110,069	$	206,711	$	(4,547)	$	(270,360)	$	79,674
Net income	—		—		4,427		—		—		4,427
Change in 401KSOP and ESOP related shares	(64)		(1,855)		—		—		—		(1,919)
Shares sold to employees	—		1,339		—		—		1,121		2,460
Options exercised	—		(363)		—		—		646		283

Stock-based compensation	—		584		—		—		—		584
Dividends, $.025 per share	—		—		(571)		—		—		(571)

Currency translation adjustments	—		—		—		450		—		450
Defined benefit pension plans	—		—		—		37		—		37
Shares purchased	—		—		—		—		(3,744)		(3,744)
Balances at April 3, 2021	$	37,737	$	109,774	$	210,567	$	(4,060)	$	(272,337)	$	81,681


	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 January 1, 2020	$	37,767	$	96,366	$	177,711	$	(5,403)	$	(246,595)	$	59,846
Net loss	—		—		(21)		—		—		(21)
Change in 401KSOP and ESOP related shares	(89)		(2,071)		—		—		—		(2,160)
Shares sold to employees	—		2,566		—		—		2,438		5,004
Options exercised	—		15		—		—		196		211

Stock-based compensation	—		371		—		—		—		371


Dividends, $.025 per share	—		—		(575)		—		—		(575)

Currency translation adjustments	—		—		—		(1,971)		—		(1,971)
Defined benefit pension plans	—		—		—		28		—		28
Shares purchased	—		—		—		—		(8,061)		(8,061)
Balances at March 28, 2020	$	37,678	$	97,247	$	177,115	$	(7,346)	$	(252,022)	$	52,672

Certain amounts in the prior year have been recast as a result of the change in accounting principle as discussed in Note A.

See notes to condensed consolidated financial statements (unaudited).

- 5 -

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 28, 2020 $ 37,678
$ 97,247
$ 179,368
$ (7,346 ) $ (252,022 ) $ 54,925
Net income —
—
29,785
—
—
29,785
Change in 401KSOP and ESOP related shares 106
2,477
(3,591 ) —
—
(1,008 )
Shares sold to employees —
3,584
—
—
4,556
8,140
Options exercised —
(588 ) —
—
1,210
622
Stock-based compensation —
571
—
—
—
571
Dividends, $.025 per share —
—
(563 ) —
—
(563 )
Currency translation adjustments —
—
—
732
—
732
Defined benefit pension plans —
—
—
28
—
28
Shares purchased —
—
—
—
(15,954 ) (15,954 )
Balances at June 27, 2020 $ 37,784
$ 103,291
$ 204,999
$ (6,586 ) $ (262,210 ) $ 77,278

Balances at January 1, 2020 $ 37,767
$ 96,366
$ 179,770
$ (5,403 ) $ (246,595 ) $ 61,905
Net income —
—
29,958
—
—
29,958
Change in 401KSOP and ESOP related shares 17
406
(3,591 ) —
—
(3,168 )
Shares sold to employees —
6,150
—
—
6,994
13,144
Options exercised —
(573 ) —
—
1,406
833
Stock-based compensation —
942
—
—
—
942
Dividends, $.05 per share —
—
(1,138 ) —
—
(1,138 )
Currency translation adjustments —
—
—
(1,239 ) —
(1,239 )
Defined benefit pension plans —
—
—
56
—
56
Shares purchased —
—
—
—
(24,015 ) (24,015 )
Balances at June 27, 2020 $ 37,784
$ 103,291
$ 204,999
$ (6,586 ) $ (262,210 ) $ 77,278

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

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

See notes to condensed consolidated financial statements (unaudited).

~~Index~~

THE DAVEY TREE EXPERT COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)


	Three Months Ended
	April 3, 2021		March 28, 2020
Operating activities
Net income (loss)	$	4,427	$	(21)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	13,458		14,604
Other	483		792
Changes in operating assets and liabilities, net of assets acquired:
Accounts receivable	32,023		(17,161)
Accounts payable and accrued expenses	(29,732)		(7,532)
Self-insurance accruals	4,641		4,620
Prepaid expenses	5,020		8,176
Other, net	(7,925)		(710)
	17,968		2,789
Net cash provided by operating activities	22,395		2,768
Investing activities
Capital expenditures:
Equipment	(16,972)		(18,960)
Land and buildings	(1,707)		(747)
Purchases of businesses, net of cash acquired and debt incurred	(8,207)		(1,826)
Proceeds from sales of fixed assets	820		521
Net cash used in investing activities	(26,066)		(21,012)
Financing activities
Revolving credit facility borrowings	48,000		244,500
Revolving credit facility payments	(23,000)		(163,500)
Purchase of common shares for treasury	(3,744)		(8,061)
Sale of common shares from treasury	2,743		5,216
Dividends paid	(571)		(575)

Proceeds from notes payable	49,439		27,166
Payments of notes payable	(55,411)		(29,866)
Payments of finance leases	(1,261)		(707)
Net cash provided by financing activities	16,195		74,173
Effect of exchange rate changes on cash	36		(100)
Increase in cash	12,560		55,829

Cash, beginning of period	16,201		11,000
Cash, end of period	$	28,761	$	66,829
Supplemental cash flow information follows:
Interest paid	$	1,967	$	2,707
Income taxes paid	10,111		1,910

Certain amounts in the prior year have been recast as a result of the change in accounting principle as discussed in Note A.

See notes to condensed consolidated financial statements (unaudited).

- 6 -

Six Months Ended
June 27,
2020 June 29,
2019
Operating activities
Net income $ 29,958
$ 19,254
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 28,728
28,802
Other (98 ) 270
Changes in operating assets and liabilities, net of assets acquired:
Accounts receivable (38,170 ) (15,960 )
Accounts payable and accrued expenses 10,563
(609 )
Self-insurance reserve 8,498
1,690
Prepaid expenses 14,319
9,178
Other, net 3,761
1,661
27,601
25,032
Net cash provided by operating activities 57,559
44,286
Investing activities

Capital expenditures:

Equipment (31,239 ) (37,192 )
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 1,949
1,634
Net cash used in investing activities (32,221 ) (38,817 )
Financing activities

Revolving credit facility borrowings 396,500
264,500
Revolving credit facility payments (375,500 ) (278,500 )
Purchase of common shares for treasury (24,016 ) (21,129 )
Sale of common shares from treasury 13,978
12,486
Dividends paid (1,138 ) (1,170 )
Proceeds from notes payable 66,021
51,073
Payments of notes payable (79,881 ) (38,587 )
Payments of finance leases (1,062 ) (860 )
Net cash used in financing activities (5,098 ) (12,187 )
Effect of exchange rate changes on cash (99 ) 114
Increase (Decrease) in cash 20,141
(6,604 )
Cash, beginning of period 11,000
22,661
Cash, end of period $ 31,141
$ 16,057
Supplemental cash flow information follows:

Interest paid $ 3,987
$ 4,523
Income taxes paid 2,765
827

See notes to condensed consolidated financial statements (unaudited).

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~June 27, 2020~~April 3, 2021

(Amounts in thousands, except share data)

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.~~eliminated in consolidation and certain amounts in three months ended March 28, 2020 have been recast to reflect the retrospective application of the change in accounting principle discussed in the Change in Accounting Method section of this note.

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, ~~2019~~2020 (the ~~“2019~~“2020 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,~~accruals, income taxes, stock valuation 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~~three months of our fiscal year, the overall extent and duration of the impact 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, including reimposing previously-lifted measures, the possibility additional measures will be put in place and the success of vaccine rollouts and the effectiveness of such vaccines, 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,~~April 3, 2021 is referred to as the first quarter of 2021, and the fiscal quarter ended March 28, 2020 is referred to as the ~~second~~first quarter of ~~2020, and the fiscal quarter ended June 29, 2019 is referred to as the second quarter of 2019.~~

~~Recent Accounting Guidance~~

~~Accounting Standards Adopted in 2020~~2020.

Change in Accounting ~~Standards Update 2016-13, Financial Instruments - Credit Losses (Topic 326)~~Method--~~--In June 2016,~~During the ~~FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326)."ASU 2016-13 replaced~~year ended December 31, 2020, we changed our method of accounting for our workers' compensation accruals from measuring the ~~incurred loss impairment methodology in GAAP for most financial instruments, including trade receivables, with~~liabilities on a discounted basis to an ~~impairment model, known as~~undiscounted basis. We believe that measuring the ~~current expected credit loss model that is based~~

- 7 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~June 27, 2020~~April 3, 2021

(Amounts in thousands, except share data)

workers' compensation accruals on an undiscounted basis is preferable because it simplifies the accounting for the liabilities, provides consistency with our other lines of coverage (vehicle liability and general liability) and results in financial statement presentation consistent with our industry peers.

~~on expected losses rather than incurred losses. The Company adopted~~As a result of this change in method of accounting, our financial statements and corresponding footnotes for the ~~new standard effective~~period ended March 28, 2020 has been recast to reflect the retrospective application of the change in accounting principle. We recorded the cumulative effect for the change in accounting principle as a decrease of $1,693 to retained earnings as of January 1, ~~2020, and it did not have a material effect on~~2018. This change decreased our retained earnings by $2,059 at December 31, 2019.

The following tables present the ~~Company's results~~effects of ~~operations.~~the change in accounting principle to our financial statements included herein:


	Three Months Ended March 28, 2020
Statement of Operations		Prior to Change in Accounting Principle		Effect of Change		Recast

Operating expense		$	198,393	$	212	$	198,605
Total costs and expenses		284,346		212		284,558
Income from operations		3,934		(212)		3,722
Income (loss) before income taxes		190		(212)		(22)
Income tax expense (benefit)		17		(18)		(1)
Net income (loss)		173		(194)		(21)

Net income (loss) per share:
Basic		$	0.01	$	(0.01)	$	0
Diluted		$	0.01	$	(0.01)	$	0


	Three Months Ended March 28, 2020
Cash Flow	Prior to Change in Accounting Principle		Effect of Change		Recast

Net income (loss)	$	173	$	(194)	$	(21)
Adjustments to reconcile net income (loss) to net cash provided by operating activities--other	810		(18)		792
Self-insurance accruals	4,408		212		4,620
Net cash provided by operating activities	2,768		0		2,768

Recent Accounting Guidance

Accounting Standards ~~Not Yet~~ Adopted in 2021

Accounting Standards Update 2019-12, Income Taxes (Topic 740)– Simplifying the Accounting for Income Taxes--In December 2019, the FASB issued ~~ASU~~Accounting Standards Update ("ASU") No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for

- 8 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

April 3, 2021

(Amounts in thousands, except share data)

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 periods. The Company adopted ASU 2019-12 beginning January 1, 2021. The adoption of ASU 2019-12 did not have a material effect on the Company's financial statements.

Accounting Standard Not Yet Adopted

Accounting Standards Update 2020-04, Reference Rate Reform (Topic 848)--In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848)—Facilitation of the Effects of Reference Rate Reform on Financial Reporting". The guidance of this ASU is designed to provide relief from the accounting analysis and impacts that may otherwise be required for modifications to agreements (e.g., loans, debt securities, derivatives, borrowings) necessitated by reference rate reform. It also provides optional expedients to enable companies to continue to apply hedge accounting to certain hedging relationships impacted by reference rate reform. Application of the guidance is optional, is only available in certain situations, and is only available for companies to apply until December 31, 2022. The Company is currently ~~evaluating~~reviewing its agreements impacted by the reference rate reform and does not expect this ASU to have a material impact ofto the ~~new guidance on its consolidated~~Company’s financial statements.


B.	~~Seasonality of Business~~

B. Seasonality of Business

Due to the seasonality of our business, our operating results for the three ~~and six~~ months ended ~~June 27, 2020~~April 3, 2021 are not indicative of results that may be expected for any other interim period or for the year ending December 31, ~~2020.~~2021. 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~~

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

Accounts receivable, net, consisted of the following:


Accounts receivable, net	April 3, 2021		December 31, 2020
Accounts receivable	$	176,887	$	214,887
Unbilled receivables(1)	48,470		42,251
	225,357		257,138
Less allowances for credit losses	3,672		4,217
Accounts receivable, net	$	221,685	$	252,921

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

(1) Unbilled receivables 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

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~June 27, 2020~~April 3, 2021

(Amounts in thousands, except share data)

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


Other current assets	April 3, 2021		December 31, 2020
Refundable income taxes	$	1,955	$	0
Prepaid expenses	20,081		24,956


Other	6,194		778
Total	$	28,230	$	25,734


Property and equipment, net	April 3, 2021		December 31, 2020
Land and land improvements	$	19,772	$	19,731
Buildings and leasehold improvements	51,241		49,460
Equipment	639,165		623,847
	710,178		693,038
Less accumulated depreciation	495,905		488,321
Total	$	214,273	$	204,717


Other assets, noncurrent	April 3, 2021		December 31, 2020
Assets invested for self-insurance	$	18,859	$	19,359
Investment--cost-method affiliate	1,258		1,258
Deferred income taxes	3,328		4,167

Other	7,152		4,972
Total	$	30,597	$	29,756


Accrued expenses	April 3, 2021		December 31, 2020
Employee compensation	$	16,946	$	36,108
Accrued compensated absences	11,806		14,534
Self-insured medical claims	1,621		2,065
Income tax payable	41		6,926
Customer advances, deposits	3,580		2,067
Taxes, other than income	26,494		30,354

Other	5,658		6,387
Total	$	66,146	$	98,441


Other current liabilities	April 3, 2021		December 31, 2020

Current portion of:
Lease liability-operating leases	$	22,753	$	19,124
Self-insurance accruals	36,948		37,707
Total	$	59,701	$	56,831

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

- 10 -

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

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 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~~April 3, 2021

(Amounts in thousands, except share data)


Other noncurrent liabilities	April 3, 2021		December 31, 2020
Pension and retirement plans	$	8,063	$	7,365

Other	3,444		3,324
Total	$	11,507	$	10,689

D. Business Combinations

Our investments in businesses during the first ~~six~~three months of ~~2020~~2021 were ~~$2,740,~~$12,558, including liabilities assumed of ~~$380~~$2,258 and debt issued, in the form of notes payable to the sellers, of ~~$534,~~$2,093, 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 one year from the acquisition date. During the ~~six months~~year ended ~~June 29, 2019,~~December 31, 2020, our investment in businesses was ~~$4,480,~~$11,150, including liabilities assumed of ~~$314~~$613 and debt issued, in the form of notes payable to the sellers, of ~~$1,133.~~$2,472.

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


	Three Months Ended April 3, 2021		Year Ended December 31, 2020
Detail of acquisitions:
Assets acquired:
Cash	$	36	$	0
Receivables	581		10
Operating supplies	606		22
Prepaid expense	121		6
Equipment	3,655		1,932
Deposits and other	73		0
Intangibles	2,108		3,545
Goodwill	5,378		5,635
Liabilities assumed	(2,258)		(613)
Debt issued for purchases of businesses	(2,093)		(2,472)
Cash paid	$	8,207	$	8,065

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 27, 2020~~April 3, 2021 was not significant. Pro forma net sales and results of operations for the acquisitions, had they occurred at the beginning of the ~~six~~three months ended ~~June 27, 2020,~~April 3, 2021, are not material and, accordingly, are not provided.

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

April 3, 2021

(Amounts in thousands, except share data)

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

~~Subsequent to June 27, 2020~~

E. Identified Intangible Assets and through August 4, 2020, we acquired a business approximating $2,500 with 0 liabilities assumed and debt issued of $500. The acquired company is in our Residential and Commercial segment and is located in Ohio. We do not expect the effect of this acquisition on our consolidated revenues and results of operations to be significant.Goodwill, Net

~~Index~~

~~The Davey Tree Expert Company~~

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

~~June 27, 2020~~

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

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


	April 3, 2021				December 31, 2020
	Carrying Amount		Accumulated Amortization		Carrying Amount		Accumulated Amortization
Amortized intangible assets:
Customer lists/relationships	$	31,743	$	22,577	$	30,402	$	22,040
Employment-related	9,720		7,891		9,320		7,755
Tradenames	8,310		6,315		7,938		6,195

Amortized intangible assets	49,773		$	36,783	47,660		$	35,990

Less accumulated amortization	36,783				35,990

Identified intangible assets, net	$	12,990			$	11,670

Goodwill	$	53,647			$	48,256

The changes in the carrying amounts of goodwill, by segment, for the ~~six~~three months ended ~~June 27,~~April 3, 2021 and the year ended December 31, 2020 ~~and June 29, 2019 follow:~~were as follows:


	Balance at January 1, 2021		Acquisitions		Translation and Other Adjustments		Balance at April 3, 2021
Utility	$	4,911	$	0	$	0	$	4,911
Residential and Commercial	43,345		5,378		13		48,736

Total	$	48,256	$	5,378	$	13	$	53,647


	Balance at January 1, 2020		Acquisitions		Translation and Other Adjustments		Balance at December 31, 2020
Utility	$	4,911	$	0	$	0	$	4,911
Residential and Commercial	37,374		5,635		336		43,345

Total	$	42,285	$	5,635	$	336	$	48,256��

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

- 12 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

April 3, 2021

(Amounts in thousands, except share data)

Estimated future aggregate amortization expense of intangible assets--The estimated future aggregate amortization expense of intangible assets, as of ~~June 27, 2020~~April 3, 2021 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


	Estimated Future Amortization Expense
Remaining nine months of 2021	$	2,212
2022	2,827
2023	2,657
2024	2,182
2025	1,608
Thereafter	1,504
	$	12,990

~~Index~~

~~The Davey Tree Expert Company~~

~~Notes~~F. Long-Term Debt and Commitments Related to ~~Condensed Consolidated Financial Statements (Unaudited)~~Letters of Credit

~~June 27, 2020~~

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

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


	April 3, 2021		December 31, 2020
Revolving credit facility:
Swing-line borrowings	$	10,000	$	0

LIBOR borrowings	15,000		0
	25,000		0
Senior unsecured notes:

3.99% Senior unsecured notes	50,000		50,000
4.00% Senior unsecured notes	25,000		25,000
	75,000		75,000
Term loans	18,228		21,864
	118,228		96,864
Less debt issuance costs	222		256
Less current portion	14,872		19,540
	$	103,134	$	77,068

Revolving Credit Facility --As of ~~June 27, 2020,~~April 3, 2021, 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 27, 2020,~~April 3, 2021, we had unused commitments under the facility approximating $~~164,123,~~222,123, with ~~$85,877~~$27,877 committed, consisting of borrowings of $~~83,000~~25,000 and issued letters of credit of $2,877.

Borrowings outstanding bear interest, at Davey Tree’s option, of either (a) the base rate or (b) LIBOR plus a margin adjustment ranging from .875% to 1.50%--with the margin adjustments based on the Company's leverage ratio at the time of borrowing. The base rate is the

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

April 3, 2021

(Amounts in thousands, except share data)

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 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 5 equal, annual principal payments commenced on July 22, 2016 (the~~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 5 equal, annual principal payments commence on September 21, 2024 (the 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~~4.00% Senior 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 5 equal, annual principal payments commence on September 21, 2024.

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 at ~~June 27, 2020~~April 3, 2021 were as follows: ~~2020--$11,312;~~ 2021--$~~6,171;~~13,828; 2022--$~~83,941;~~27,318; 2023--$~~172;~~1,318; 2024--$15,764; 2025--$15,000; and thereafter ~~$60,000.~~$45,000.

Accounts Receivable Securitization Facility--In May 2020, the Company amended its Accounts Receivable Securitization Facility (the "AR Securitization program") to extend the scheduled termination date for an additional one year period, to May 18, 2021. In addition to

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

April 3, 2021

(Amounts in thousands, except share data)

extending the termination date, the ~~Amendment~~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 ~~$76,732~~$83,355 was issued for LCs as of both ~~June 27, 2020~~April 3, 2021 and December 31, ~~2019.~~2020.

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 27, 2020--to~~April 3, 2021--to the bank in exchange for the bank issuing LCs.

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 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 27, 2020,~~April 3, 2021, total commitments related to issued LCs were ~~$81,619,~~$88,243, of which $2,877 were issued under the revolving credit facility, ~~$76,732~~$83,355 were issued under the AR Securitization program, and ~~$2,010~~$2,011 were issued under short-term lines of credit. As of December 31, ~~2019,~~2020, total commitments related to issued LCs were ~~$81,619,~~$88,242, of which $2,877 were issued under the revolving credit facility, ~~$76,732~~$83,355 were issued under the AR Securitization program, and $2,010 were issued under short-term lines of credit.

As of ~~June 27, 2020,~~April 3, 2021, we were in compliance with all debt covenants.

Index


G.	~~Leases~~

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

April 3, 2021

(Amounts in thousands, except share data)

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

~~Index~~

~~The Davey Tree Expert Company~~

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

~~June 27, 2020~~

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

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


	Condensed Consolidated Balance Sheet Classification	April 3, 2021		December 31, 2020
Assets
Operating lease assets	Right-of-use assets - operating leases	$	71,389	$	55,893
Finance lease assets	Property and equipment, net	8,018		8,788
Total lease assets		$	79,407	$	64,681
Liabilities
Current operating lease liabilities	Other current liabilities	$	22,753	$	19,124
Non-current operating lease liabilities	Lease liabilities - operating leases	49,233		36,612
Total operating lease liabilities		71,986		55,736
Current portion of finance lease liabilities	Current portion of long-term debt and finance lease liabilities	1,642		2,273
Non-current finance lease liabilities	Lease liabilities - finance leases	6,000		6,479
Total finance lease liabilities		7,642		8,752
Total lease liabilities		$	79,628	$	64,488

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


		Three Months Ended
	Condensed Consolidated Statements of Operations Classification		April 3, 2021		March 28, 2020

Operating lease cost	Operating expense		$	3,700	$	2,239
Operating lease cost	Selling expense		2,521		2,393
Operating lease cost	General and administrative expense		284		234
Finance lease cost:
Amortization of right-of-use assets	Depreciation and amortization		588		351
Interest expense on lease liabilities	Interest expense		38		23
Other lease cost (1)	Operating expense		875		1,767
Other lease cost (1)	Selling expense		316		371
Other lease cost (1)	General and administrative expense		13		9
Total lease cost			$	8,335	$	7,387

⁽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)

April 3, 2021

(Amounts in thousands, except share data)

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 27, 2020.~~April 3, 2021.



Operating leases			4.1 years
Finance leases			~~5.3~~5.5 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 27, 2020.~~April 3, 2021.



Operating leases	~~3.26~~2.51	%
Finance leases	~~2.01~~1.88	%

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
—


	Three Months Ended
	April 3, 2021		March 28, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	(6,521)	$	(4,902)
Operating cash flows from finance leases	(38)		(23)
Financing cash flows from finance leases	(1,261)		(707)
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	21,572		14,845
Finance leases	151		0

Maturity Analysis of Lease Liabilities


	As of April 3, 2021
	Operating Leases		Finance Leases
Remaining nine months of 2021	$	18,849	$	1,376
2022	21,032		1,510
2023	14,179		1,309
2024	9,138		1,228
2025	6,293		1,127
Thereafter	5,865		1,461
Total lease payments	75,356		8,011
Less interest	3,370		369
Total	$	71,986	$	7,642

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

- 17 -

Index

The Davey Tree Expert Company


H.	~~Stock-Based Compensation~~

Notes to Condensed Consolidated Financial Statements (Unaudited)

April 3, 2021

(Amounts in thousands, except share data)

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 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 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") -- 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
		April 3, 2021		March 28, 2020
Compensation expense, all share-based payment plans		$	891	$	745

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 plan resulted in compensation cost of ~~$668~~$357 being recognized for the ~~six~~three months ended ~~June 27, 2020~~April 3, 2021 and ~~$536~~$342 for the ~~six~~three months ended ~~June 29, 2019.~~March 28, 2020.

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~~$125 for the ~~six~~three months ended ~~June 27, 2020~~April 3, 2021 and ~~$315~~$126 for the ~~six~~three months ended ~~June 29, 2019.~~March 28, 2020. Beginning in 2021, management and the Compensation Committee replaced the issuance of stock options with performance-based restricted stock units ("PRSUs") for certain employees.

Stock-Settled Stock Appreciation Rights--A 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 and the Compensation Committee replaced the issuance of future SSARs with ~~performance-based restricted stock units ("PRSUs")~~PRSUs for certain management employees.

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~June 27, 2020~~April 3, 2021

(Amounts in thousands, except share data)

The following table summarizes our SSARs as of ~~June 27, 2020.~~April 3, 2021.

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, 2021	105,236	$	3.73
Granted	0	0
Forfeited	0	0
Vested	(41,511)	3.72
Unvested, April 3, 2021	63,725	$	3.74	1.3 years	$	201	$	1,912

Compensation costs for SSARs are determined using a fair-value method and amortized over the requisite service period. “Intrinsic value” is defined as the amount by which the fair market value of a common share exceeds the grant date price of a SSAR. Compensation expense for SSARs was ~~$146~~$41 for the ~~six~~three months ended ~~June 27, 2020~~April 3, 2021 and ~~$190~~$61 for the ~~six~~three months ended ~~June 29, 2019.~~March 28, 2020.

Restricted Stock Units--During the ~~six~~three months ended ~~June 27, 2020,~~April 3, 2021, the Compensation Committee awarded ~~86,959~~84,821 PRSUs to certain management ~~employees and 11,904 RSUs to nonemployee directors.~~employees. 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 27, 2020.~~April 3, 2021.

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


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, 2021	255,307	$	20.09
Granted	84,821	29.64
Forfeited	0	0
Vested	(40,274)	16.08
Unvested, April 3, 2021	299,854	$	20.09	2.6 years	$	4,924	$	8,996
Employee PRSUs	264,704	$	23.62	2.9 years	$	4,611	$	7,941
Nonemployee Director RSUs	35,150	$	21.14	1.0 years	$	313	$	1,055

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~~grant date price of a PRSU or an RSU. Compensation expense on PRSUs and RSUs totaled ~~$610~~$368 for the ~~six~~three months ended ~~June 27, 2020~~April 3, 2021 and ~~$488~~$216 for the ~~six~~three months ended ~~June 29, 2019.~~March 28, 2020.

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~~April 3, 2021

(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 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


	Three Months Ended
	April 3, 2021		March 28, 2020
Volatility rate	9.9	%	9.7	%
Risk-free interest rate	.3	%	.6	%
Expected dividend yield	.4	%	.4	%
Expected life of awards (years)	3.0		6.2

General Stock Option Information--The following table summarizes activity under the stock option plans for the ~~six~~three months ended ~~June 27, 2020.~~April 3, 2021.

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, 2021	1,408,659	$	16.67
Granted	0	0
Exercised	(28,916)	12.49
Forfeited	(7,290)	16.89
Outstanding, April 3, 2021	1,372,453	$	16.76	5.4 years	$	18,171

Exercisable, April 3, 2021	905,271	$	14.60	4.1 years	$	13,944

As of ~~June 27, 2020,~~April 3, 2021, there was approximately ~~$1,586~~$1,153 of unrecognized compensation cost related to stock options outstanding. The cost is expected to be recognized over a weighted-average period of ~~2.1~~2.6 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 and SSARs, the vesting of RSUs and PRSUs or purchases under the Employee Stock Purchase Plan.

~~Index~~I. Income Taxes

~~The Davey Tree Expert Company~~

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

~~June 27, 2020~~

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

~~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

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.~~

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~~three months ended ~~June 27, 2020~~April 3, 2021 was ~~28.0%~~27.9%. Our ~~annual effective tax rate for the six months ended June 29, 2019 was estimated at 19.9%. Our actual~~ effective tax rate was ~~27.9%~~22.6% and ~~20.4%~~4.5% for the three months ended ~~June 27,~~April 3, 2021 and March 28, 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 29, 2019,~~ respectively. The change in the effective tax rate from statutory tax rates iswas primarily due to the impact of state and local taxes, which ~~are~~was 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 27,~~April 3, 2021, we had unrecognized tax benefits of $1,206, of which $759 would affect our effective rate if recognized, and accrued interest expense related to unrecognized benefits of $76. At December 31, 2020, we had unrecognized tax benefits of ~~$1,908,~~$1,183, of which ~~$712~~

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

April 3, 2021

(Amounts in thousands, except share data)

$735 would affect our effective rate if recognized, and accrued interest expense related to unrecognized benefits of $72. ~~At December 31, 2019, we had unrecognized~~Unrecognized tax benefits ~~of $1,850, of which $654 would affect our effective rate if recognized, and accrued interest expense related to unrecognized benefits of $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. 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 27, 2020,~~April 3, 2021, we believe it is reasonably possible that the total amount of unrecognized tax benefits will not significantly increase or decrease.

J. 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 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 27, 2020~~April 3, 2021 and the three ~~and six~~ months ended ~~June 29, 2019:~~March 28, 2020:






















Three Months Ended April 3, 2021	Foreign Currency Translation Adjustments		Defined Benefit Pension Plans		Accumulated Other Comprehensive Income (Loss)
Balance at January 1, 2021	$	(3,738)	$	(809)	$	(4,547)
Other comprehensive income (loss) before reclassifications
Unrealized gains (losses)	$	450	$	0	$	450

Amounts reclassified from accumulated other comprehensive income (loss)	0		50		50
Tax effect	0		(13)		(13)
Net of tax amount	450		37		487
Balance at April 3, 2021	$	(3,288)	$	(772)	$	(4,060)

Three Months Ended March 28, 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)	$	(1,971)	$	0	$	(1,971)

Amounts reclassified from accumulated other comprehensive income (loss)	0		38		38
Tax effect	0		(10)		(10)
Net of tax amount	(1,971)		28		(1,943)
Balance at March 28, 2020	$	(6,604)	$	(742)	$	(7,346)

- 21 -

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 (losses) $ 732
$ —
$ 732
Amounts reclassified from accumulated other comprehensive income (loss) —
38
38
Tax effect —
(10 ) (10 )
Net of tax amount 732
28
760
Balance at June 27, 2020 $ (5,872 ) $ (714 ) $ (6,586 )

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 gains (losses) $ 698
$ —
$ 698
Amounts reclassified from accumulated other comprehensive income (loss) —
(1,655 ) (1,655 )
Tax effect —
169
169
Net of tax amount 698
(1,486 ) (788 )
Balance at June 29, 2019 $ (4,612 ) $ (657 ) $ (5,269 )

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~June 27, 2020~~April 3, 2021

(Amounts in thousands, except share data)

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 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 (losses) 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 )

The change in defined benefit pension plans of ~~$38 and $76~~$50 for the three ~~and six~~ months ended ~~June 27, 2020, respectively,~~April 3, 2021 and ~~$(1,655) and $(1,595)~~$38 for the three ~~and six~~ months ended ~~June 29, 2019, respectively,~~March 28, 2020 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 27, 2020~~

(K. Per Share Amounts ~~in thousands, except share data)~~and Common and Redeemable Shares Outstanding


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
		April 3, 2021		March 28, 2020
Income available to common shareholders:
Net income (loss)		$	4,427	$	(21)

Weighted-average shares (in thousands):
Basic:


Basic weighted-average shares		22,841		23,187

Diluted:
Basic from above		22,841		23,187
Incremental shares from assumed:

Exercise of stock options and awards		1,117		984
Diluted weighted-average shares		23,958		24,171

Net income (loss) per share:

Basic		$	.19	$	0

Diluted		$	.18	$	0

Common and Redeemable Shares Outstanding--A summary of the activity of the common and redeemable shares outstanding for the ~~six~~three months ended ~~June 27, 2020~~April 3, 2021 was as 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



	Common Shares Net of Treasury Shares	Redeemable Shares	Total
Shares outstanding at January 1, 2021	17,707,268	5,112,884	22,820,152
Shares purchased	(106,409)	(18,763)	(125,172)
Shares sold	455	82,773	83,228

Options and awards exercised	60,895	0	60,895
Shares outstanding at April 3, 2021	17,662,209	5,176,894	22,839,103

- 22 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~June 27, 2020~~April 3, 2021

(Amounts in thousands, except share data)

On ~~June 27, 2020,~~April 3, 2021, we had ~~22,872,032~~22,839,103 common and redeemable shares outstanding and employee options exercisable to purchase ~~1,060,493~~905,271 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 were made eitherL. Operations by ~~payroll deductions or annual lump-sum payments of both principal and interest.~~Business Segment

Common shares purchased under the plan were pledged as security for the payment of the promissory note and the common shares were not issued until the promissory note was paid-in-full. Dividends were paid on all subscribed shares, subject to forfeiture to the extent that payment was 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 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 could have been exercised at the rate of one-seventh per year and expired seven years after the date that the right was granted. Employees could not exercise a right if they 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 2 reportable operating segments organized by type or class of customer: Residential and Commercial, and Utility.

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, 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 ~~2019~~2020 Annual Report.

~~Segment information reconciled to the condensed consolidated financial statements follows:~~

- 23 -

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 27, 2020~~April 3, 2021

(Amounts in thousands, except share data)

Segment information reconciled to the condensed consolidated financial statements was as follows:


	Utility		Residential and Commercial		All Other		Reconciling Adjustments			Consolidated


















Three Months Ended April 3, 2021
Revenues	$	173,853	$	124,507	$	461	$	0		$	298,821
Income (loss) from operations	12,458		3,682		(6,102)		(1,064)		(a)	8,974
Interest expense							(1,274)			(1,274)
Interest income							69			69
Other income (expense), net							(2,050)			(2,050)
Income before income taxes										$	5,719
Segment assets, total	$	247,562	$	244,692	$	0	$	182,119	(b)	$	674,373

Three Months Ended March 28, 2020
Revenues	$	185,749	$	101,953	$	578	$	0		$	288,280
Income (loss) from operations	15,632		(5,661)		(4,907)		(1,342)		(a)	3,722
Interest expense							(1,946)			(1,946)
Interest income							101			101
Other income (expense), net							(1,899)			(1,899)
Loss before income tax benefit										$	(22)
Segment assets, total	$	291,426	$	221,956	$	0	$	161,768	(b)	$	675,150

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


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


~~(b)~~	(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. M. Revenue Recognition


N.	~~Revenue Recognition~~

We 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

- 24 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

April 3, 2021

(Amounts in thousands, except share data)

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 27,~~April 3, 2021 and March 28, 2020 ~~and June 29, 2019~~ by major sources:




























Three Months Ended April 3, 2021	Utility		Residential and Commercial		All Other		Consolidated
Type of service:
Tree and plant care	$	123,967	$	71,965	$	(163)	$	195,769
Grounds maintenance	0		29,799		0		29,799
Storm damage services	4,113		1,183		0		5,296
Consulting and other	45,773		21,560		624		67,957
Total revenues	$	173,853	$	124,507	$	461	$	298,821

Geography:
United States	$	163,684	$	115,882	$	461	$	280,027
Canada	10,169		8,625		0		18,794
Total revenues	$	173,853	$	124,507	$	461	$	298,821

Three Months Ended March 28, 2020	Utility		Residential and Commercial		All Other		Consolidated
Type of service:
Tree and plant care	$	141,743	$	60,257	$	(25)	$	201,975
Grounds maintenance	0		23,066		0		23,066
Storm damage services	523		637		0		1,160
Consulting and other	43,483		17,993		603		62,079
Total revenues	$	185,749	$	101,953	$	578	$	288,280

Geography:
United States	$	177,087	$	95,052	$	578	$	272,717
Canada	8,662		6,901		0		15,563
Total revenues	$	185,749	$	101,953	$	578	$	288,280

Three Months Ended June 27, 2020 Utility Residential
and
Commercial All Other Consolidated
Type of service:
  Tree and plant care $ 131,607
$ 83,504
$ (86 ) $ 215,025
  Grounds maintenance —
40,991
—
40,991
  Storm damage services 502
1,341
—
1,843
  Consulting and other 44,626
17,069
(307 ) 61,388
     Total revenues $ 176,735
$ 142,905
$ (393 ) $ 319,247

Geography:
  United States $ 168,479
$ 133,674
$ (393 ) $ 301,760
  Canada 8,256
9,231
—
17,487
     Total revenues $ 176,735
$ 142,905
$ (393 ) $ 319,247

- 25 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~June 27, 2020~~April 3, 2021

(Amounts in thousands, except share data)

Three Months Ended June 29, 2019 Utility Residential
and
Commercial All Other Consolidated
Type of service:
  Tree and plant care $ 112,823
$ 86,450
$ 7
$ 199,280
  Grounds maintenance —
45,657
—
45,657
  Storm damage services 152
988
—
1,140
  Consulting and other 38,217
16,875
265
55,357
     Total revenues $ 151,192
$ 149,970
$ 272
$ 301,434

Geography:
  United States $ 140,701
$ 139,437
$ 272
$ 280,410
  Canada 10,491
10,533
—
21,024
     Total revenues $ 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 27, 2020~~

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

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~~$704 of revenue for the three ~~and six~~ months ended ~~June 27, 2020, respectively,~~April 3, 2021 that was included in the contract liability balance at December 31, ~~2019~~2020 and ~~$594 and $1,674~~$942 of revenue for the three ~~and six~~ months ended ~~June 29, 2019, respectively,~~March 28, 2020 that was included in the contract liability balance at December 31, ~~2018.~~2019. 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


	April 3, 2021		December 31, 2020
Contract liabilities - current	$	5,388	$	3,242
Contract liabilities - noncurrent	1,757		1,754
Net contract liabilities	$	7,145	$	4,996


O.	~~Fair Value Measurements and Financial Instruments~~

N. 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.

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.

- 26 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~June 27, 2020~~April 3, 2021

(Amounts in thousands, except share data)

Our assets and liabilities measured at fair value on a recurring basis at ~~June 27, 2020~~April 3, 2021 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
$ —


			Fair Value Measurements at April 3, 2021 Using:
Assets and Liabilities Recorded at Fair Value on a Recurring Basis	Total Carrying Value at April 3, 2021		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	$	18,859	$	18,859	$	0	$	0




Liabilities:

Deferred compensation	$	3,875	$	0	$	3,875	$	0

Our assets and liabilities measured at fair value on a recurring basis at December 31, ~~2019~~2020 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
$ —


			Fair Value Measurements at December 31, 2020 Using:
Assets and Liabilities Recorded at Fair Value on a Recurring Basis	Total Carrying Value at December 31, 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	$	19,359	$	19,359	$	0	$	0


Liabilities:
Deferred compensation	$	3,192	$	0	$	3,192	$	0

The assets invested for self-insurance are 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


	April 3, 2021				December 31, 2020
	Carrying Value		Fair Value		Carrying Value		Fair Value
Revolving credit facility, noncurrent	$	25,000	$	25,000	$	0	$	0
Senior unsecured notes, noncurrent	75,000		77,095		75,000		81,424
Term loans, noncurrent	3,356		3,343		2,324		2,451
Total	$	103,356	$	105,438	$	77,324	$	83,875

- 27 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~June 27, 2020~~April 3, 2021

(Amounts in thousands, except share data)

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~~

O. 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 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 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, 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 and battery of the plaintiff’s husband, a Wolf Tree employee, who was shot and killed in August 2017.

In July 2018, a related survival action was filed by the deceased’s estate against Davey Tree, its subsidiary, Wolf Tree, and 4 current and former employees in Savannah, Georgia, which arises out of the same allegations, seeks compensatory and punitive damages and also includes 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. 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 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.

- 28 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

April 3, 2021

(Amounts in thousands, except share data)

indictment was issued charging 2 former Wolf Tree employees and 1 other individual with various crimes, including conspiracy to murder the deceased.

~~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.~~investigation and have met with both the civil and criminal divisions of the Department of Justice ("DOJ") to resolve the matter. Due to pandemic-related issues and delays on the side of the DOJ, the matter currently remains unresolved.

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 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. All civil cases continue to remain stayed.

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%~~17% of revenues during ~~2019,~~2020, and 12% in ~~2018.~~2019. 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.

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 its Plan of Reorganization ("the ~~Plan. In the Plan, unsecured creditors, like~~Plan"). Davey Tree ~~will be~~has been paid in full ~~with~~on all amounts outstanding, including interest ~~accruing~~accrued on the past amounts due at the federal judgment ~~rate and~~rate. Further, Davey ~~Tree’s~~Tree's primary contracts were assumed by PG&E. Due to PG&E’s implementation of the Plan, we do not anticipate PG&E's bankruptcy to have a material impact on our future cash flows and results of operations as we will receive full payment for the amounts owed.

Northern California Wildfires

~~On October 7, 2019 and October 8, 2019, 4~~NaN lawsuits ~~were filed against multiple vegetation management contractors to PG&E, including~~have been served on Davey Tree for ~~damages resulting~~claims arising from ~~the Northern~~wildfires that occurred in Pacific Gas and Electric Company’s service territory in 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 27, 2020~~

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

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

~~In addition, an~~October 8, 2017. An action was brought ~~against Davey Tree~~on August 8, 2019 in Napa County Superior Court, entitled Donna Walker, et al. v. Davey Tree Surgery Company, et al., Case No. 19CV001194. The action currently is stayed until

- 29 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

April 3, 2021

(Amounts in thousands, except share data)

September 14, 2021. An action was brought on ~~August 8, 2019. On~~ October 8, 2019 ~~the court issued an order staying that action.~~in San Francisco County Superior Court, entitled Quinisha Kyree Abram, et al. v. ACRT, Inc., et. al, Case No. CGC-19-579861. The ~~court deferred ruling~~action currently is stayed until July 28, 2021.

NaN actions were brought on ~~Davey’s demurrer and motion to dismiss~~January 28, 2021 in San Francisco County Superior Court, entitled John K. Trotter, Trustee of the ~~complaint based on the absence of~~ PG&E asFire Victim Trust v. Davey Resource Group, Inc., et al., Case No. CGC-21-589438; John K. Trotter, Trustee of the PG&E Fire Victim Trust v. Davey Resource Group, Inc., et al., Case No. CGC-21-589439; and John K. Trotter, Trustee of the PG&E Fire Victim Trust v. ACRT Pacific, LLC, et al., Case No. CGC-21-589441. The action is currently in preliminary stages of pleadings, but Davey Tree intends to respond and file an ~~indispensable party. The court initially stayed any activity~~answer denying all liability in ~~the case until July 14, 2020, and then the court extended the stay until December 15, 2020.~~this case.

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


Q.	~~The Davey 401KSOP and Employee Stock Ownership Plan~~

P. 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, 2020, we match, in either cash or our common shares, 100% of the first 3 percent and 50% of the next 2 percent of each participant's before-tax contribution, limited to the first 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 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 ~~$3,959~~$3,111 and ~~$4,749~~$3,298 as of ~~June 27, 2020~~April 3, 2021 and December 31, ~~2019,~~2020, respectively. The fair value of the shares held in the Davey 401KSOP and ESOP totaled ~~$123,763~~$152,196 and ~~$119,806~~$150,089 as of ~~June 27, 2020~~April 3, 2021 and December 31, ~~2019,~~2020, 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 $127,722 and $124,555 as of June 27, 2020 and December 31, 2019, respectively. Changes in the fair value of the 401KSOP and ESOP Plan related shares~~

- 30 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~June 27, 2020~~April 3, 2021

(Amounts in thousands, except share data)

balance sheets and totaled $155,307 and $153,387 as of April 3, 2021 and December 31, 2020, respectively. Changes in the fair value of the 401KSOP and ESOP Plan related shares 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.

- 31 -

Index


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

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 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, 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, 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~~first three months of 2021, COVID-19 has had, and ~~duration of COVID-19~~will continue to have an impact on businesses, financial markets and economic activity ~~generally remains unclear due~~throughout the world.

We continue to ~~the inherent uncertainty surrounding COVID-19, given its continual evolution.~~

~~We have taken~~take 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~~Our employees, where possible, ~~we have transitioned our employees~~continue to work from home and ~~implemented measures~~we continue to adhere to our safety protocols to ensure social distancing when providing services to our customers, including providing personal protective equipment and limiting contact within vehicles. We ~~have also provided~~continue to provide additional administrative leave for employees affected by COVID-19 directly or indirectly and converted our ~~2020~~2021 Annual Meeting of Shareholders to a virtual-only format. We are also ~~drew $50,000 from~~working on an approach to bring employees back to our ~~revolving credit facility to provide us~~corporate headquarters with ~~additional liquidity~~increased safety protocols and 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.~~compliance with public health and government guidance. In the first ~~six~~three months of ~~2020,~~2021, we ~~have~~ incurred expenses of ~~$2,195~~$460 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~~$1,683 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 the emergence of new ~~information which may emerge concerning the severity~~strains of the ~~outbreak,~~

~~Index~~

~~whether there is a "second wave"~~virus, the availability and effectiveness of vaccines, and actions by government authorities to contain the pandemic or treat its impact, including reimposing previously-lifted measures and the possibility additional restrictions will be put in place, among other things. The situation surrounding COVID-19 remains fluid, and the potential for a material impact on our business ~~increases~~continues 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 the current economic recession and any economic downturn or recession that ~~has occurred or~~ may ~~occur.~~occur in the future.

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Index

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
		April 3, 2021		March 28, 2020		Change
Revenues		100.0	%	100.0	%	—	%

Costs and expenses:
Operating		66.6		68.9		(2.3)
Selling		17.6		17.4		.2
General and administrative		8.5		7.5		1.0
Depreciation and amortization		4.5		5.0		(.5)
Gain on sale of assets, net		(.2)		(.1)		(.1)

Income from operations		3.0		1.3		1.7

Other income (expense):
Interest expense		(.4)		(.7)		.3
Interest income		—		—		—
Other, net		(.7)		(.6)		(.1)

Income (loss) before income taxes		1.9		—		1.9

Income taxes (benefit)		.4		—		.4

Net income (loss)		1.5	%	—	%	1.5	%

Three Months Ended Six Months Ended
June 27,
2020 June 29,
2019

Change
June 27,
2020 June 29,
2019

Change
Revenues 100.0 % 100.0 % — % 100.0 % 100.0 % — %

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

Income from operations 13.9
10.0
3.9
7.9
6.1
1.8

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

Income before income taxes 12.9
8.2
4.7
6.8
4.3
2.5

Income taxes 3.6
1.7
1.9
1.9
.9
1.0

Net income 9.3 % 6.6 % 2.7 % 4.9 % 3.5 % 1.4 %

- 33 -

Index

~~Second Quarter—~~First Three Months—Three Months Ended ~~June 27, 2020~~April 3, 2021 Compared to Three Months Ended ~~June 29, 2019~~March 28, 2020

Our results of operations for the three months ended ~~June 27, 2020~~April 3, 2021 compared to the three months ended ~~June 29, 2019~~March 28, 2020 were as follows:


	Three Months Ended												Three Months Ended
	June 27, 2020			June 29, 2019			Change			Percentage Change			April 3, 2021		March 28, 2020		Change		Percentage Change
Revenues	$	319,247		$	301,434		$	17,813		5.9	%	Revenues	$	298,821	$	288,280	$	10,541	3.7	%

Costs and expenses:												Costs and expenses:
Operating	191,060			187,778			3,282			1.7		Operating	199,035		198,605		430		.2
Selling	51,972			50,629			1,343			2.7		Selling	52,687		50,112		2,575		5.1
General and administrative	19,044			18,671			373			2.0		General and administrative	25,351		21,542		3,809		17.7
Depreciation and amortization	14,124			14,590			(466		)	(3.2	)	Depreciation and amortization	13,458		14,604		(1,146)		(7.8)
Gain on sale of assets, net	(1,264		)	(516		)	(748		)	145.0		Gain on sale of assets, net	(684)		(305)		(379)		124.3
	274,936			271,152			3,784			1.4			289,847		284,558		5,289		1.9

Income from operations	44,311			30,282			14,029			46.3		Income from operations	8,974		3,722		5,252		141.1
Other income (expense):												Other income (expense):
Interest expense	(1,952		)	(2,428		)	476			(19.6	)	Interest expense	(1,274)		(1,946)		672		(34.5)
Interest income	96			93			3			3.2		Interest income	69		101		(32)		(31.7)
Other, net	(1,152		)	(3,153		)	2,001			(63.5	)	Other, net	(2,050)		(1,899)		(151)		8.0
Income before income taxes	41,303			24,794			16,509			66.6
Income (loss) before income taxes												Income (loss) before income taxes	5,719		(22)		5,741		nm

Income taxes	11,518			5,047			6,471			128.2
Income taxes (benefit)												Income taxes (benefit)	1,292		(1)		1,293		nm

Net income	$	29,785		$	19,747		$	10,038		50.8	%
Net income (loss)												Net income (loss)	$	4,427	$	(21)	$	4,448	nm
nm--not meaningful												nm--not meaningful

Revenues--Revenues of ~~$319,247~~$298,821 increased ~~$17,813~~$10,541 compared with ~~$301,434~~$288,280 in the ~~second quarter~~first three months of ~~2019.~~2020. Utility Services ~~increased $25,543~~decreased $11,896 or ~~16.9%~~6.4% compared with the ~~second quarter~~first three months of ~~2019.~~2020. The ~~increase is~~decrease was primarily attributable to less emergency work on our PG&E account as compared to the first three months of 2020, which was partially offset by new accounts, as well as increased work year-over-year on other accounts and price increases on existing ~~accounts. Most of~~accounts within both our ~~Utility Services segment work has been deemed essential services~~U.S. and ~~has not been significantly affected by COVID-19.~~Canadian operations. Residential and Commercial Services ~~decreased $7,065~~increased $22,554 or ~~4.7% from~~22.1% compared with the ~~second quarter~~first three months of ~~2019. Decreases~~2020. Increases were primarily in ~~grounds maintenance and~~ tree and plant care ~~revenues. While~~revenue, consulting and other revenue and grounds maintenance. In 2020, 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 ~~$191,060~~$199,035 increased ~~$3,282~~$430 compared with the ~~second quarter~~first three months of ~~2019.~~2020 but, as a percentage of revenues, decreased to 66.6% from 68.9%. Utility Services ~~increased $12,775~~decreased $8,069 or ~~11.7%~~5.9% compared with the ~~second quarter~~first three months of ~~2019~~2020 but, as a percentage of revenue, increased to 73.5% from 73.2%. The decrease was attributable to decreases in labor and benefits expense and subcontractor expense, which were partially offset by an increase in chemicals expense.Residential and Commercial Services increased $10,065 or 16.6% compared with the first three months of 2020 but, as a percentage of revenue, decreased to ~~69.1%~~56.8% from ~~72.3%~~59.6%. The increase ~~is attributable to additional expenses for labor and subcontractor expenses which were partially offset by a decrease in fuel expense.Residential and Commercial Services decreased $7,911 or 10.5% compared with the second quarter of 2019 and, as a percentage of revenue, decreased to 47.3% from 50.4%. The decrease is~~was primarily attributable to ~~decreases~~increases in labor and benefits expense, fuel expense, subcontractor expense, ~~tools and parts~~equipment expense, tool expense and materials expense.

- 34 -

Index

Operating expenses for the ~~quarter~~first three months of 2021 also included ~~$1,383~~$460 of expenses related directly to COVID-19, including ~~$763~~$153 for additional administrative leave offered to employees who ~~have been~~were unable to work due to ~~COVID-19 imposed~~COVID-19-related restrictions, whether from the virus itself or government imposed restrictions or closures. For the first three months of 2020, the company had $812 of expenses directly related to COVID-19.

Fuel costs of ~~$7,102 decreased $2,378,~~$8,238 increased $202, or ~~25.1%~~2.5%, from the ~~$9,480~~$8,036 incurred in the ~~second quarter~~first three months of ~~2019~~2020 and impacted operating expenses within all segments. The ~~$2,378 decrease~~$202 increase included usage ~~decreases~~increases approximating ~~$461~~$255 and price decreases approximating ~~$1,917.~~$53.

Selling Expenses--Selling expenses of ~~$51,972~~$52,687 increased ~~$1,343~~$2,575 compared with the ~~second quarter~~first three months of ~~2019 but, as a percentage of revenues, decreased to 16.3% from 16.8%. Utility Services increased $2,006 or 11.2% compared to the second quarter of 2019 but,~~2020 and, as a percentage of revenue, ~~decreased~~increased to ~~11.3%~~17.6% from ~~11.9%~~17.4%. Utility Services increased $212 or 1.1% compared to the first three months of 2020 and, as a percentage of revenue, increased to 11.6% from 10.7%. The increase iswas primarily attributable to increases in field management wages and incentive expense which was partially offset by a decrease in travel expense. Residential and Commercial Services decreased $1,029 or 3.1% from the second quarter of 2019 but, as a percentage of revenue, increased to 22.9% from 22.5%. The decrease was primarily attributable to decreases in travel expense and employee developmentcomputer expenses, ~~which were partially offset by an increase in field management 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 which was partially offset by a decrease in travel and living expenses.

~~Depreciation and Amortization Expense~~--Depreciation and amortization expense of $14,124 decreased $466 from $14,590 incurred in the second quarter of 2019, primarily due to 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 $1,264 for the second quarter of 2020 increased $748 from the $516 gain in the second quarter of 2019. We sold more units of equipment in the second quarter of 2020 as compared with the second quarter of 2019.

~~Interest Expense--Interest expense of $1,952 decreased $476 from the $2,428 incurred in the second quarter of 2019.The decrease is attributable to lower interest rates during the second quarter of 2020, as compared with the second quarter of 2019.~~

~~Other, Net~~--Other expense, net, of $1,152 decreased $2,001 from the $3,153 of other expense incurred in the second quarter of 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 2020 were $11,518, as compared to $5,047 for the second quarter of 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 2020 was 27.9%, as compared with the second quarter of 2019 effective tax rate of 20.4%.

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

~~Index~~

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

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

Six Months Ended
June 27,
2020 June 29,
2019 Change
Percentage
Change
Revenues $ 607,527
$ 549,323
$ 58,204
10.6 %

Costs and expenses:

Operating 389,453
353,794
35,659
10.1
Selling 102,084
96,933
5,151
5.3
General and administrative 40,586
37,715
2,871
7.6
Depreciation and amortization 28,728
28,802
(74 ) (.3 )
Gain on sale of assets, net (1,569 ) (1,169 ) (400 ) 34.2
559,282
516,075
43,207
8.4

Income from operations 48,245
33,248
14,997
45.1
Other income (expense):

Interest expense (3,898 ) (4,579 ) 681
(14.9 )
Interest income 197
176
21
11.9
Other, net (3,051 ) (4,808 ) 1,757
(36.5 )
Income before income taxes 41,493
24,037
17,456
72.6

Income taxes 11,535
4,783
6,752
141.2

Net income $ 29,958
$ 19,254
$ 10,704
55.6 %

~~Revenues~~--Revenues of $607,527 increased $58,204 compared with $549,323 in the first half of 2019. Utility Services increased $70,823 or 24.3% compared with the first half of 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 decreased $12,507 or 4.9% compared with the first half of 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 64.1% from 64.4%. Utility Services increased $45,391 or 21.3% compared with the first half of 2019 but, as a percentage of revenue, decreased to 71.2% from 73.0%. The increase was attributable to increases in additional labor expense, equipment maintenance expense, subcontractor expense and meals and lodging expense which were partially offset by a decrease in fuel expense.Residential and Commercial Services decreased $9,926 or 7.2% compared with the first half of 2019 and, as a percentage of revenue, decreased to 52.4% from 53.7%. The decrease was primarily attributable to decreases in labor, fuel expense, subcontractor expense, materials expense and 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 $15,138 decreased $1,863, or 11.0%, from the $17,001 incurred in the first half of 2019 and impacted operating expenses within all segments. The $1,863 decrease included usage decreases approximating $223 and price decreases approximating $1,640.

~~Selling Expenses~~--Selling expenses of $102,084 increased $5,151 compared with the first half of 2019 but, as a percentage of revenue, decreased to 16.8% from 17.6%. Utility Services increased $4,335 or 12.2% compared to the first half of 2019 but, as a percentage of revenue, decreased to 11.0% from 12.2%. The increase was primarily attributable to additional field management wages and incentive expense, which was partially offset by a decrease in field management travel expense. Residential and Commercial Services experienced an increase of ~~$400~~$2,299 or ~~.6%~~7.4% compared to the first ~~half~~three months of ~~2019 and,~~2020 but, as a percentage of revenue, ~~increased~~decreased to ~~26.0%~~26.8% from ~~24.6%~~30.5%. The increase was attributable to increases in field management wages and incentive expense, which ~~was~~were partially offset by a decrease in travel expense.

General and Administrative Expenses--General and administrative expenses of ~~$40,586~~$25,351 increased ~~$2,871~~$3,809 from ~~$37,715~~$21,542 in the first ~~half~~three months of ~~2019.~~2020. The increase was primarily attributable to ~~an increase~~increases in salary and incentive expense and computer expenses, which ~~was~~were partially offset by a decrease in travel expense.

Depreciation and Amortization Expense--Depreciation and amortization expense of ~~$28,728~~$13,458 decreased ~~$74~~$1,146 from ~~$28,802~~$14,604 incurred in the first ~~half~~three months of ~~2019.~~2020. The decrease was attributable to lower capital expenditures in recent years ~~necessary to support the business.~~and an increased use of operating leases for equipment.

Gain on the Sale of Assets, Net--Gain on the sale of assets of ~~$1,569~~$684 for the first ~~half~~three months of ~~2020~~2021 increased ~~$400~~$379 from the ~~$1,169~~$305 gain in the first ~~half~~three months of ~~2019.~~2020. We sold more individual units of equipment at a greater average gain per unit during the first ~~half~~three months of ~~2020~~2021 as compared with the first ~~half~~three months of ~~2019.~~2020.

Interest Expense--Interest expense of ~~$3,898~~$1,274 decreased ~~$681~~$672 from the ~~$4,579~~$1,946 incurred in the first ~~half~~three months of ~~2019.~~2020. The decrease iswas attributable to lower ~~interest rates~~average borrowing during the first ~~six~~three months of ~~2020,~~2021, as compared with the first ~~six~~three months of ~~2019.~~2020.

Other, Net--Other expense, net, of ~~$3,051 decreased $1,757~~$2,050 increased $151 from the ~~$4,808~~$1,899 expense incurred in the first ~~half~~three months of ~~2019~~2020 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~~three months of ~~2020~~2021 were ~~$11,535,~~$1,292, as compared to ~~$4,783~~a benefit of $1 for the first ~~half~~three months of ~~2019.~~2020. 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~~three months of ~~2020~~2021 was ~~27.8%~~22.6%. Our effective tax rate for the first ~~half~~three months of ~~2019~~2020 was ~~19.9%~~4.5%. The change in the effective tax rate from statutory tax rates iswas primarily due to the impact of state and local taxes, which ~~are~~was partially offset by favorable discrete items.

Net Income--Net income of ~~$29,958~~$4,427 for the first ~~half~~three months of ~~2020~~2021 was ~~$10,704~~$4,447 more than the net ~~income~~loss of ~~$19,254~~$21 for the first ~~half~~three months of ~~2019.~~2020.

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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~~three months ended ~~June 27,~~April 3, 2021 and March 28, 2020 ~~and June 29, 2019 follow:~~were as follows:


	Six Months Ended							Three Months Ended
	June 27, 2020			June 29, 2019				April 3, 2021		March 28, 2020
Cash provided by (used in):							Cash provided by (used in):
Operating activities	$	57,559		$	44,286		Operating activities	$	22,395	$	2,768
Investing activities	(32,221		)	(38,817		)	Investing activities	(26,066)		(21,012)
Financing activities	(5,098		)	(12,187		)	Financing activities	16,195		74,173
Effect of exchange rate changes on cash	(99		)	114			Effect of exchange rate changes on cash	36		(100)
Increase (decrease) in cash	$	20,141		$	(6,604	)
Increase in cash							Increase in cash	$	12,560	$	55,829

Cash Provided By Operating Activities--Cash provided by operating activities was ~~$57,559~~$22,395 for the first ~~six~~three months of ~~2020, or $13,273 more than the $44,286 provided in~~2021, a $19,627 increase when compared to the first ~~six~~three months of ~~2019.~~2020. The ~~$13,273~~$19,627 increase in operating cash flow was primarily attributable to ~~a decrease~~the increase in net income of ~~$5,141 related to prepaid expenses,~~$4,447 resulting from increased revenue and operating margins and a change of ~~$11,172~~$49,184 related to accounts receivable, partially offset by a change of $22,200 related to accounts payable and accrued expenses, the change of $6,808 related to self-insurance reserves and a change of $2,100 in other operating assets and liabilities partially offset by a change of $22,210 related to accounts receivable.expenses.

Overall, accounts receivable ~~increased $38,170~~decreased $32,023 during the first ~~six~~three months of ~~2020,~~2021, as compared to an increase of ~~$15,960~~$17,161 during the first ~~six~~three months of ~~2019.~~2020. 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~~three months of ~~2020 increased~~2021 decreased by ~~twelve~~ten days to 7668 days, when compared to 6478 days at the end of the first ~~six~~three months of ~~2019, with~~2020. DSO at the ~~periods being impacted by~~end of the first three months of 2020 included approximately $15,000 of pre-petition receivables from PG&E, which were collected after PG&E emerged from bankruptcy in July 2020. Excluding the pre-petition receivables, ~~of approximately $15,000 from PG&E.~~ DSO ~~excluding PG&E pre-petition receivables~~ would ~~be 73 and 60~~have been 74 days at the end of the first ~~six~~three months of ~~2020 and 2019, respectively.~~

Prepaid expenses decreased $14,319 in the first six months of 2020, or $5,141 more than the $9,178 decrease in the first six months of 2019. The decrease was primarily related to the reduction of prepaid payroll taxes and prepaid insurance premiums.2020.

Accounts payable and accrued expenses ~~increased $10,563~~decreased $29,732 in the first ~~six~~three months of ~~2020,~~2021, or ~~$11,172~~$22,200 more than the ~~$609~~$7,532 decrease in the first ~~six~~three months of ~~2019.~~2020. The increase was primarily related to increases in income taxes and payroll taxes payable. Self-insurance ~~reserves~~accruals increased ~~$8,498~~$4,641 in the first ~~six~~three months of ~~2020,~~2021, which was ~~$6,808~~$21 more than the increase of ~~$1,690~~$4,620 experienced in the first ~~six~~three months of ~~2019.~~

~~Other operating assets and liabilities, net decreased $3,761 in the first six months of 2020, or $2,100 more than the $1,661 decrease in the first six months of 2019.~~2020. The increase was ~~primarily related~~attributable to ~~changes in income taxes payable~~increased exposures within our workers compensation, general liability and ~~deposits.~~vehicle liability lines of coverage.

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.

Cash Used In Investing Activities--Cash used in investing activities for the first ~~six~~three months of ~~2020~~2021 was ~~$32,221, or $6,596 less than the $38,817 used during~~$26,066, a $5,054 increase when compared to the first ~~six~~three months of ~~2019.~~2020. The ~~decrease~~increase was primarily the result of ~~decreases in capital expenditures for equipment of $5,953, decrease~~increases in purchases of businesses, ~~of $1,204 and increases in proceeds from the sales of fixed assets of $315,~~ which was

partially offset by ~~an increase~~a decrease in capital expenditures. Our decrease in capital expenditures was partially the result of our increased use of operating leases for ~~land and buildings of~~ ~~$876~~.equipment.

Cash ~~Used In~~Provided by Financing Activities--Cash ~~used in~~provided by financing activities of ~~$5,098~~$16,195 decreased ~~$7,089~~$57,978 during the first ~~six~~three months of ~~2020~~2021 as compared with ~~$12,187 of cash used~~$74,173 during the first ~~six~~three months of ~~2019.~~2020. During the first ~~six~~three months of ~~2020,~~2021, our revolving credit facility, net provided ~~$21,000~~$25,000 in cash as compared with ~~$14,000 used~~$81,000 provided during the first ~~six~~three months of ~~2019.~~2020. 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~~$5,972 during the first ~~six~~three months of ~~2020,~~2021, a ~~change~~decrease of ~~$26,346~~$3,272 when compared to the ~~$12,486 provided~~$2,700 used in the first ~~six~~three months of ~~2019, including $25,000 provided by the issuance of 4.00% Senior Notes during the first six months of 2019.~~2020. Treasury share transactions (purchases and sales) used ~~$10,038~~$1,001 for the first ~~six~~three months of ~~2020, $1,395 more~~2021, $1,844 less than the ~~$8,643~~$2,845 used in the first ~~six~~three months of ~~2019.~~2020. Dividends paid of ~~$1,138~~$571 during the first ~~six~~three months of ~~2020~~2021 decreased ~~$32~~$4 as compared with ~~$1,170~~$575 paid in the first ~~six~~three months of ~~2019.~~2020.

The Company currently repurchases common shares at shareholders’ 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 Davey 401KSOP and ESOP Plan, as described in Note Q,P, 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 ~~$5,195~~$195 and ~~$8,683~~$49 during the ~~six~~three months ended ~~June 27,~~April 3, 2021 and March 28, 2020, ~~and June 29, 2019,~~ respectively. Share repurchases, other than redeemable common shares, approximated ~~$18,821~~$3,549 and ~~$12,446~~$8,012 during the ~~six~~three months ended ~~June 27,~~April 3, 2021 and March 28, 2020, ~~and June 29, 2019,~~ respectively.

Contractual Obligations Summary and Commercial Commitments

As of ~~June 27, 2020,~~April 3, 2021, total commitments related to issued letters of credit were ~~$81,619,~~$88,243, of which $2,877 were issued under the revolving credit facility, ~~$76,732~~$83,355 were issued under the AR Securitization program, and ~~$2,010~~$2,011 were issued under short-term lines of credit. As of December 31, ~~2019,~~2020, total commitments related to issued ~~LCs~~letters of credit were ~~$81,619,~~$88,242, of which $2,877 were issued under the revolving credit facility, ~~$76,732~~$83,355 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 ~~2020~~2021 through 2023. We intend to renew the surety bonds where appropriate and as necessary.

Cash generated from operations, ~~and~~ our revolving credit facility and note issuances are our primary sources of capital.

Business seasonality traditionally results in higher revenues during the second and third quarters as compared with the first and fourth quarters of the year, while our methods of accounting for fixed costs, such as depreciation and amortization expense, rent and interest expense, are not significantly impacted by business seasonality. Capital resources during these periods are equally affected. We satisfy seasonal working capital needs and other financing requirements with the revolving credit facility and other short-term lines of credit. We ~~are~~ continually

~~reviewing~~ review our existing sources of financing and evaluating alternatives. At ~~June 27, 2020,~~April 3, 2021, we had working capital of ~~$154,616, and~~$100,943, short-term lines of credit approximating ~~$9,088~~$9,184 and ~~$164,123~~$222,123 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, ~~2019,~~2020, we believe that our policies related to revenue recognition, the allowance for ~~doubtful accounts,~~credit losses, stock valuation and self-insurance ~~reserves~~accruals 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;~~credit losses; and self-insurance ~~reserves.~~accruals. We base our estimates on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates.

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:

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

~~Index~~

▪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 ~~reserves~~accruals 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.~~

▪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.

- 38 -

Index

▪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.

▪Our business could be negatively impacted by corporate citizenship and environmental, social and governance matters and/or our reporting of such matters.

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

▪There can be no assurance that we will continue to declare cash dividends in the future, in any particular amounts or at all.

▪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, or other public health concerns, 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.

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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, ~~2019, as well as in "Part II-Item 1. Risk Factors" of this quarterly report on Form 10-Q.~~2020.


~~Item 3.~~	~~Quantitative and Qualitative Disclosures about Market Risk.~~

~~With the exception of the impacts of COVID-19, which are discussed elsewhere in this document, there~~Item 3.Quantitative and Qualitative Disclosures about Market Risk.

There have been no material changes in our reported market risks or risk management policies since the filing of our ~~2019~~2020 Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on March ~~9, 2020.~~8, 2021.


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

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~~Securities Exchange Commission’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

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 beenThere were no changes in our internal control over financial reporting during the fiscal quarter ended ~~June 27, 2020~~April 3, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


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

Part II. Other Information

Items 3, 4 and 5 are not applicable.


~~Item 1.~~	~~Legal Proceedings.~~

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.

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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.

In July 2018, a related survival action was filed by the deceased’s estate against Davey Tree, its subsidiary, Wolf Tree, 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 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. 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.~~investigation and have met with both the civil and criminal divisions of the Department of Justice ("DOJ") to resolve the matter. Due to pandemic-related issues and delays on the side of the DOJ, the matter currently remains unresolved.


~~Item 1A.~~	~~Risk Factors.~~

Item 1A.Risk Factors.

Our Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, 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,~~disclosed; however, some of the risk factors disclosed in our Annual Report on

- 41 -

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Form 10-K for the year ended December 31, ~~2019~~2020 have been, and ~~we expect will~~could 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.~~

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~~three months of ~~2020.~~2021.

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
—


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 2021
January 1 to January 30	1,581	$	24.90	—	690,960
January 31 to February 27	170	24.90		—	690,960
February 28 to April 3	123,421	30.00		—	690,960
Total First Quarter	125,172	29.93		—











Total Year-to-Date	125,172	$	29.93	—

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,P, 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 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 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.

- 42 -

Index

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, ~~866,570~~690,960 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.~~

Item 6.Exhibits.

See Exhibit Index page below.

~~Index~~- 43 -

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.



	June 27, 2020			December 31, 2019
Assets
Current assets:
Cash	$	31,141		$	11,000
Accounts receivable, net	268,920			231,311
Operating supplies	12,647			12,127
Other current assets	11,970			26,987
Total current assets	324,678			281,425
Property and equipment, net	207,256			199,850
Right-of-use assets - operating leases	54,188			40,033
Other assets	17,653			22,335
Intangible assets, net	10,432			10,934
Goodwill	43,804			42,285
Total assets	$	658,011		$	596,862
Liabilities and shareholders' equity
Current liabilities:
Accounts payable	$	37,723		$	41,191
Accrued expenses	65,861			52,431
Current portion of long-term debt and finance lease liabilities	18,383			24,650
Other current liabilities	48,095			47,400
Total current liabilities	170,062			165,672
Long-term debt	159,775			143,354
Lease liabilities - finance leases	4,461			1,795
Lease liabilities - operating leases	36,490			25,200
Self-insurance reserve	70,852			62,113
Other noncurrent liabilities	11,371			12,268
Total liabilities	453,011			410,402
Commitments and contingencies (Note P)
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; 37,784 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	103,291			96,366
Retained earnings	204,999			179,770
Accumulated other comprehensive loss	(6,586		)	(5,403		)
	339,488			308,500
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	77,278			61,905
Total liabilities and shareholders' equity	$	658,011		$	596,862

See notes to condensed consolidated financial statements (unaudited).



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

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

See notes to condensed consolidated financial statements (unaudited).


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



	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



	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



	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



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 (losses)	$	732		$	—		$	732
Amounts reclassified from accumulated other comprehensive income (loss)	—			38			38
Tax effect	—			(10		)	(10		)
Net of tax amount	732			28			760
Balance at June 27, 2020	$	(5,872	)	$	(714	)	$	(6,586	)



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 gains (losses)	$	698		$	—		$	698
Amounts reclassified from accumulated other comprehensive income (loss)	—			(1,655		)	(1,655		)
Tax effect	—			169			169
Net of tax amount	698			(1,486		)	(788		)
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 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 (losses)	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	)



			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	$	—



			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	$	—


▪	~~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