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 ~~April 02,~~October 01, 2022


☐			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, OH 44240

(Address of principal executive offices) (Zip code)

(330) 673-9511

(Registrant's telephone number, including area code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

N/A

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 ~~44,183,177~~42,921,611 Common Shares, $.50 par value, outstanding as of ~~May 6,~~November 4, 2022. The registrant's Common Shares are not traded on a public market.

Index

The Davey Tree Expert Company

Quarterly Report on Form 10-Q

~~April 2,~~October 1, 2022

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				4
		Condensed Consolidated Statements of Shareholders' Equity				5
		Condensed Consolidated Statements of Cash Flows				67
		Notes to Condensed Consolidated Financial Statements
			A	—	Basis of Financial Statement Preparation	78
			B	—	Seasonality of Business	89
			C	—	Accounts Receivable, Net and Supplemental Balance-Sheet Information	89
			D	—	Business Combinations	10
			E	—	~~Identified Intangible Assets and Goodwill, Net~~Marketable Securities	1112
			F	—	~~Short~~Identified Intangible Assets and L ~~ong-Term Debt and Commitments Related to Letters of Credit~~Goodwill, Net	1213
			G	—	~~Leases~~Short and Long-Term Debt and Commitments Related to Letters of Credit	14
			H	—	~~Stock-Based Compensation~~Leases	1617
			I	—	~~Income Taxes~~Stock-Based Compensation	1918
			J	—	~~Accumulated Other Comprehensive~~ Income ~~(Loss)~~Taxes	2021
			K	—	~~Per Share Amounts and Common and Redeemable Shares Outstanding~~Accumulated Other Comprehensive Income (Loss)	2022
			L	—	~~Operations by Business Segment~~Per Share Amounts and Common and Redeemable Shares Outstanding	2224
			M	—	~~Revenue Recognition~~Operations by Business Segment	2325
			N	—	Revenue Recognition	28
			O	—	Fair Value Measurements and Financial Instruments	2530
			OP	—	Commitments and Contingencies	2833
			PQ	—	The Davey 401KSOP and Employee Stock Ownership Plan	3035

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations					3237
		Results of Operations				3338
		Liquidity and Capital Resources				3543
			Cash Flow Summary			3644
			Contractual Obligations Summary and Commercial Commitments			3745
			Capital Resources			3745
		Critical Accounting Policies and Estimates				3845
		Note Regarding Forward-Looking Statements				3846

Item 3.	Quantitative and Qualitative Disclosures about Market Risk					3947

Item 4.	Controls and Procedures					3947

Part II.	Other Information					3947

Item 1.	Legal Proceedings					3947

Item 1A.	Risk Factors					4249

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds					4250

Item 6.	Exhibits					4351

Exhibit Index						4452

Signatures						4553

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

- 1 -

Index

THE DAVEY TREE EXPERT COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands, except per share data dollar amounts)


		April 2, 2022		December 31, 2021			October 1, 2022		December 31, 2021
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash	Cash	$	21,777	$	19,460	Cash	$	22,844	$	19,460
Accounts receivable, net	Accounts receivable, net	276,481		278,280		Accounts receivable, net	326,291		278,280
Operating supplies	Operating supplies	15,617		12,662		Operating supplies	15,491		12,662
Other current assets	Other current assets	31,674		37,853		Other current assets	46,881		37,853
Total current assets	Total current assets	345,549		348,255		Total current assets	411,507		348,255

Property and equipment, net	Property and equipment, net	243,361		227,985		Property and equipment, net	262,701		227,985
Right-of-use assets - operating leases	Right-of-use assets - operating leases	91,295		86,423		Right-of-use assets - operating leases	95,350		86,423
Marketable securities and other investments						Marketable securities and other investments	46,473		25,401
Other assets	Other assets	50,585		42,665		Other assets	14,304		17,264
Intangible assets, net	Intangible assets, net	11,566		11,633		Intangible assets, net	10,637		11,633
Goodwill	Goodwill	56,409		55,980		Goodwill	58,999		55,980
Total assets	Total assets	$	798,765	$	772,941	Total assets	$	899,971	$	772,941
Liabilities and shareholders' equity	Liabilities and shareholders' equity					Liabilities and shareholders' equity
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	59,345	$	43,021	Accounts payable	$	45,942	$	43,021
Accrued expenses	Accrued expenses	58,274		75,138		Accrued expenses	85,047		75,138
Current portion of long-term debt and finance lease liabilities	Current portion of long-term debt and finance lease liabilities	16,608		25,268		Current portion of long-term debt and finance lease liabilities	34,088		25,268
Other current liabilities	Other current liabilities	79,144		77,549		Other current liabilities	74,500		77,549
Total current liabilities	Total current liabilities	213,371		220,976		Total current liabilities	239,577		220,976
Long-term debt	Long-term debt	146,769		123,531		Long-term debt	174,579		123,531
Lease liabilities - finance leases	Lease liabilities - finance leases	9,017		8,646		Lease liabilities - finance leases	9,704		8,646
Lease liabilities - operating leases	Lease liabilities - operating leases	59,902		57,335		Lease liabilities - operating leases	62,586		57,335
Self-insurance accruals	Self-insurance accruals	83,304		77,099		Self-insurance accruals	96,487		77,099
Other noncurrent liabilities	Other noncurrent liabilities	12,183		11,583		Other noncurrent liabilities	12,181		11,583
Total liabilities	Total liabilities	524,546		499,170		Total liabilities	595,114		499,170
Commitments and contingencies (Note O)
Redeemable common shares related to 401KSOP and Employee Stock Ownership Plan (ESOP) 9,619 and 9,392 shares at redemption value as of April 2, 2022 and December 31, 2021		174,095		169,931
Commitments and contingencies (Note P)						Commitments and contingencies (Note P)
Redeemable common shares related to 401KSOP and Employee Stock Ownership Plan (ESOP) 9,288 and 9,392 shares at redemption value as of October 1, 2022 and December 31, 2021						Redeemable common shares related to 401KSOP and Employee Stock Ownership Plan (ESOP) 9,288 and 9,392 shares at redemption value as of October 1, 2022 and December 31, 2021	168,120		169,931
Common shareholders' equity:	Common shareholders' equity:					Common shareholders' equity:
Common shares, $.50 par value, per share; 96,000 shares authorized; 76,209 and 76,436 shares issued and outstanding before deducting treasury shares and which excludes 9,619 and 9,392 shares subject to redemption as of April 2, 2022 and December 31, 2021		38,068		38,379
Common shares, $.50 par value, per share; 96,000 shares authorized; 76,539 and 76,436 shares issued and outstanding before deducting treasury shares and which excludes 9,288 and 9,392 shares subject to redemption as of October 1, 2022 and December 31, 2021						Common shares, $.50 par value, per share; 96,000 shares authorized; 76,539 and 76,436 shares issued and outstanding before deducting treasury shares and which excludes 9,288 and 9,392 shares subject to redemption as of October 1, 2022 and December 31, 2021	38,398		38,379
Additional paid-in capital	Additional paid-in capital	135,315		135,897		Additional paid-in capital	154,111		135,897

Common shares subscribed, unissued						Common shares subscribed, unissued	23,954		—
Retained earnings	Retained earnings	240,929		239,979		Retained earnings	286,279		239,979
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(3,669)		(4,173)		Accumulated other comprehensive loss	(6,839)		(4,173)
		410,643		410,082			495,903		410,082
Less: Cost of common shares held in treasury; 41,301 shares at April 2, 2022 and 41,325 shares at December 31, 2021		310,519		306,242

Less: Cost of common shares held in treasury; 42,082 shares at October 1, 2022 and 41,325 shares at December 31, 2021						Less: Cost of common shares held in treasury; 42,082 shares at October 1, 2022 and 41,325 shares at December 31, 2021	338,532		306,242
Common shares subscription receivable						Common shares subscription receivable	20,634		—
Total common shareholders' equity	Total common shareholders' equity	100,124		103,840		Total common shareholders' equity	136,737		103,840
Total liabilities and shareholders' equity	Total liabilities and shareholders' equity	$	798,765	$	772,941	Total liabilities and shareholders' equity	$	899,971	$	772,941

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

- 2 -

Index

THE DAVEY TREE EXPERT COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(In thousands, except per share dollar amounts)


		Three Months Ended						Three Months Ended				Nine Months Ended
			April 2, 2022			April 3, 2021				October 1, 2022		October 2, 2021		October 1, 2022		October 2, 2021
Revenues	Revenues		$	342,644		$	298,821		Revenues	$	398,945	$	370,244	$	1,143,548	$	1,024,541

Costs and expenses:	Costs and expenses:								Costs and expenses:
Operating	Operating		234,207			199,035			Operating	254,661		232,599		740,422		650,909
Selling	Selling		60,796			52,687			Selling	72,364		67,353		201,315		178,876
General and administrative	General and administrative		28,995			25,351			General and administrative	27,964		20,739		87,014		69,712
Depreciation and amortization	Depreciation and amortization		13,787			13,458			Depreciation and amortization	13,780		14,127		41,082		41,287
Gain on sale of assets, net	Gain on sale of assets, net		(898)			(684)			Gain on sale of assets, net	(2,837)		(1,507)		(5,787)		(4,174)
Total costs and expenses	Total costs and expenses		336,887			289,847			Total costs and expenses	365,932		333,311		1,064,046		936,610

Income from operations	Income from operations		5,757			8,974			Income from operations	33,013		36,933		79,502		87,931

Other income (expense):	Other income (expense):								Other income (expense):
Interest expense	Interest expense		(1,445)			(1,274)			Interest expense	(2,164)		(1,449)		(5,312)		(4,093)
Interest income	Interest income		27			69			Interest income	303		39		489		161
Other, net	Other, net		(2,337)			(2,050)			Other, net	(3,371)		(2,298)		(8,241)		(5,548)

Income before income taxes	Income before income taxes		2,002			5,719			Income before income taxes	27,781		33,225		66,438		78,451

Income taxes	Income taxes		220			1,292			Income taxes	7,317		8,298		17,407		20,554

Net income	Net income		$	1,782		$	4,427		Net income	$	20,464	$	24,927	$	49,031	$	57,897

Net income per share:*
Net income per share:									Net income per share:

Basic	Basic		$	.04		$	.10		Basic	$	.46	$	.56	$	1.10	$	1.28
Diluted	Diluted		$	.04		$	.09		Diluted	$	.44	$	.52	$	1.05	$	1.21

Weighted-average shares outstanding:*
Weighted-average shares outstanding:									Weighted-average shares outstanding:

Basic	Basic		44,618			45,682			Basic	44,148		44,885		44,422		45,257
Diluted	Diluted		46,838			47,916			Diluted	46,405		47,951		46,719		47,785

* Prior period has been adjusted for the 2-for-one stock split effected in October 2021.

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

- 3 -

Index

THE DAVEY TREE EXPERT COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(In thousands)


		Three Months Ended				Three Months Ended						Nine Months Ended
				April 2, 2022			April 3, 2021			October 1, 2022		October 2, 2021		October 1, 2022		October 2, 2021
Net income	Net income			$	1,782		$	4,427	Net income	$	20,464	$	24,927	$	49,031	$	57,897
Components of other comprehensive income, net of tax:
Components of other comprehensive income (loss), net of tax:									Components of other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	Foreign currency translation adjustments			480			450		Foreign currency translation adjustments	(1,934)		(788)		(2,455)		105

Unrealized loss on available-for-sale securities									Unrealized loss on available-for-sale securities	(98)		—		(279)		—
Amortization of defined benefit pension items:	Amortization of defined benefit pension items:								Amortization of defined benefit pension items:
Net actuarial loss	Net actuarial loss			19			25		Net actuarial loss	18		27		55		77
Prior service cost	Prior service cost			5			12		Prior service cost	4		11		13		35
Defined benefit pension plan adjustments	Defined benefit pension plan adjustments			24			37		Defined benefit pension plan adjustments	22		38		68		112

Other comprehensive income, net of tax				504			487
Other comprehensive income (loss), net of tax									Other comprehensive income (loss), net of tax	(2,010)		(750)		(2,666)		217

Comprehensive income	Comprehensive income			$	2,286		$	4,914	Comprehensive income	$	18,454	$	24,177	$	46,365	$	58,114

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

- 4 -

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			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 July 2, 2022														Balances at July 2, 2022	$	38,645	$	151,752	$	—	$	266,745	$	(4,829)	$	(333,611)	$	533	$	119,235
Net income														Net income	—		—		—		20,464		—		—		—		20,464
Change in 401KSOP and ESOP related shares														Change in 401KSOP and ESOP related shares	(247)		(4,215)		—		1		—		—		—		(4,461)
Shares sold to employees														Shares sold to employees	—		3,354		—		—		—		2,623		—		5,977
Options exercised														Options exercised	—		35		—		—		—		137		—		172
Subscription shares														Subscription shares	—		1,554		23,954		—		—		1,212		(21,167)		5,553
Stock-based compensation														Stock-based compensation	—		1,631		—		—		—		—		—		1,631
Dividends, $.020 per share														Dividends, $.020 per share	—		—		—		(931)		—		—		—		(931)

Currency translation adjustments														Currency translation adjustments	—		—		—		—		(1,934)		—		—		(1,934)
Defined benefit pension plans														Defined benefit pension plans	—		—		—		—		22		—		—		22
Available-for-sale securities														Available-for-sale securities	—		—		—		—		(98)		—		—		(98)
Shares purchased														Shares purchased	—		—		—		—		—		(8,893)		—		(8,893)
Balances at October 1, 2022														Balances at October 1, 2022	$	38,398	$	154,111	$	23,954	$	286,279	$	(6,839)	$	(338,532)	$	(20,634)	$	136,737

Balances at January 1, 2022	Balances at January 1, 2022	$	38,379	$	135,897	$	239,979	$	(4,173)	$	(306,242)	$	103,840	Balances at January 1, 2022	$	38,379	$	135,897	$	—	$	239,979	$	(4,173)	$	(306,242)	$	—	$	103,840
Net income	Net income	—		—		1,782		—		—		1,782		Net income	—		—		—		49,031		—		—		—		49,031
Change in 401KSOP and ESOP related shares	Change in 401KSOP and ESOP related shares	(311)		(3,805)		(50)		—		—		(4,166)		Change in 401KSOP and ESOP related shares	19		1,840		—		(49)		—		—		—		1,810
Shares sold to employees	Shares sold to employees	—		2,869		—		—		2,194		5,063		Shares sold to employees	—		11,714		—		—		—		9,623		—		21,337
Options exercised	Options exercised	—		(685)		—		—		533		(152)		Options exercised	—		(1,122)		—		—		—		2,742		—		1,620

Subscription shares														Subscription shares	—		1,554		23,954		—		—		1,212		(20,634)		6,086
Stock-based compensation	Stock-based compensation	—		1,039		—		—		—		1,039		Stock-based compensation	—		4,228		—		—		—		—		—		4,228
Dividends, $.018 per share		—		—		(782)		—		—		(782)
Dividends, $.058 per share														Dividends, $.058 per share	—		—		—		(2,682)		—		—		—		(2,682)

Currency translation adjustments	Currency translation adjustments	—		—		—		480		—		480		Currency translation adjustments	—		—		—		—		(2,455)		—		—		(2,455)
Defined benefit pension plans	Defined benefit pension plans	—		—		—		24		—		24		Defined benefit pension plans	—		—		—		—		68		—		—		68
Available-for-sale securities														Available-for-sale securities	—		—				—		(279)		—		—		(279)
Shares purchased	Shares purchased	—		—		—		—		(7,004)		(7,004)		Shares purchased	—		—		—		—		—		(45,867)		—		(45,867)
Balances at April 2, 2022		$	38,068	$	135,315	$	240,929	$	(3,669)	$	(310,519)	$	100,124
Balances at October 1, 2022														Balances at October 1, 2022	$	38,398	$	154,111	$	23,954	$	286,279	$	(6,839)	$	(338,532)	$	(20,634)	$	136,737

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, $.013 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
*Per share amount adjusted for the 2-for-one stock split effected in October 2021.
See notes to condensed consolidated financial statements (unaudited).

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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 July 3, 2021	$	38,049	$	123,822	$	224,707	$	(3,580)	$	(290,253)	$	92,745
Net income	—		—		24,927		—		—		24,927
Change in 401KSOP and ESOP related shares	(16)		(529)		—		—		—		(545)
Shares sold to employees	—		1,655		—		—		1,293		2,948
Options exercised	—		(228)		—		—		1,828		1,600

Stock-based compensation	—		458		—		—		—		458
Dividends, $.015 per share	—		—		(781)		—		—		(781)

Currency translation adjustments	—		—		—		(788)		—		(788)
Defined benefit pension plans	—		—		—		38		—		38
Shares purchased	—		—		—		—		(9,242)		(9,242)
Balances at October 2, 2021	$	38,033	$	125,178	$	248,853	$	(4,330)	$	(296,374)	$	111,360

Balances at January 1, 2021	$	37,801	$	110,069	$	206,711	$	(4,547)	$	(270,360)	$	79,674
Net income	—		—		57,897		—		—		57,897
Change in 401KSOP and ESOP related shares	232		6,679		(13,628)		—		—		(6,717)
Shares sold to employees	—		7,098		—		—		6,645		13,743
Options exercised	—		(636)		—		—		3,849		3,213

Stock-based compensation	—		1,968		—		—		—		1,968


Dividends, $.043 per share	—		—		(2,127)		—		—		(2,127)

Currency translation adjustments	—		—		—		105		—		105
Defined benefit pension plans	—		—		—		112		—		112
Shares purchased	—		—		—		—		(36,508)		(36,508)
Balances at October 2, 2021	$	38,033	$	125,178	$	248,853	$	(4,330)	$	(296,374)	$	111,360

See notes to condensed consolidated financial statements (unaudited).

- 6 -

Index

THE DAVEY TREE EXPERT COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)


		Three Months Ended					Nine Months Ended
		April 2, 2022		April 3, 2021			October 1, 2022		October 2, 2021
Operating activities	Operating activities					Operating activities
Net income	Net income	$	1,782	$	4,427	Net income	$	49,031	$	57,897
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	13,787		13,458		Depreciation and amortization	41,082		41,287
Other	Other	659		483		Other	(683)		(1,242)
Changes in operating assets and liabilities, net of assets acquired:	Changes in operating assets and liabilities, net of assets acquired:					Changes in operating assets and liabilities, net of assets acquired:
Accounts receivable	Accounts receivable	2,015		32,023		Accounts receivable	(49,451)		(30,268)
Accounts payable and accrued expenses	Accounts payable and accrued expenses	(2,041)		(29,732)		Accounts payable and accrued expenses	12,709		(9,471)
Self-insurance accruals	Self-insurance accruals	5,076		4,641		Self-insurance accruals	13,306		13,041
Prepaid expenses	Prepaid expenses	5,660		5,020		Prepaid expenses	(10,724)		(13,442)
Other, net	Other, net	1,347		(7,925)		Other, net	7,710		(401)
		26,503		17,968			13,949		(496)
Net cash provided by operating activities	Net cash provided by operating activities	28,285		22,395		Net cash provided by operating activities	62,980		57,401
Investing activities	Investing activities					Investing activities
Capital expenditures:	Capital expenditures:					Capital expenditures:
Equipment	Equipment	(21,411)		(16,972)		Equipment	(54,829)		(47,907)
Land and buildings	Land and buildings	(5,093)		(1,707)		Land and buildings	(15,916)		(8,728)
Purchases of businesses, net of cash acquired and debt incurred	Purchases of businesses, net of cash acquired and debt incurred	(1,098)		(8,207)		Purchases of businesses, net of cash acquired and debt incurred	(4,453)		(10,227)
Proceeds from sales of property and equipment	Proceeds from sales of property and equipment	1,180		820		Proceeds from sales of property and equipment	6,781		7,085
Purchases of marketable securities	Purchases of marketable securities	(11,500)		—		Purchases of marketable securities	(41,305)		—
Proceeds from sale of marketable securities	Proceeds from sale of marketable securities	803		—		Proceeds from sale of marketable securities	14,114		—
Net cash used in investing activities	Net cash used in investing activities	(37,119)		(26,066)		Net cash used in investing activities	(95,608)		(59,777)
Financing activities	Financing activities					Financing activities
Revolving credit facility borrowings	Revolving credit facility borrowings	181,168		48,000		Revolving credit facility borrowings	453,885		279,163
Revolving credit facility payments	Revolving credit facility payments	(157,219)		(23,000)		Revolving credit facility payments	(402,618)		(245,685)
Purchase of common shares for treasury	Purchase of common shares for treasury	(7,004)		(3,744)		Purchase of common shares for treasury	(45,867)		(36,508)
Sale of common shares from treasury	Sale of common shares from treasury	4,910		2,743		Sale of common shares from treasury	29,043		16,956
Dividends paid	Dividends paid	(782)		(571)		Dividends paid	(2,682)		(2,127)

Proceeds from notes payable	Proceeds from notes payable	7,129		49,439		Proceeds from notes payable	69,337		217,867
Payments of notes payable	Payments of notes payable	(16,319)		(55,411)		Payments of notes payable	(62,602)		(207,786)
Payments of finance leases	Payments of finance leases	(767)		(1,261)		Payments of finance leases	(2,313)		(2,688)
Net cash provided by financing activities	Net cash provided by financing activities	11,116		16,195		Net cash provided by financing activities	36,183		19,192
Effect of exchange rate changes on cash	Effect of exchange rate changes on cash	35		36		Effect of exchange rate changes on cash	(171)		40
Increase in cash	Increase in cash	2,317		12,560		Increase in cash	3,384		16,856

Cash, beginning of period	Cash, beginning of period	19,460		16,201		Cash, beginning of period	19,460		16,201
Cash, end of period	Cash, end of period	$	21,777	$	28,761	Cash, end of period	$	22,844	$	33,057
Supplemental cash flow information follows:	Supplemental cash flow information follows:					Supplemental cash flow information follows:
Interest paid	Interest paid	$	2,160	$	1,967	Interest paid	$	3,764	$	4,715
Income taxes paid	Income taxes paid	1,071		10,111		Income taxes paid	9,869		21,204

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

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Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~April 2,~~October 1, 2022

(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,” the "Company," “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”~~("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 in consolidation.

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, 2021 (the “2021 Annual Report”).

~~Per Common Share Information--Prior year common share and per share data have been retroactively adjusted to recognize a 2-for-one stock split of our common shares effective October 1, 2021.~~

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, long-lived asset valuation, self-insurance 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 three months of our 2022 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, such as resurgences in cases and the emergence of new strains of COVID-19, 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 and the possibility additional measures will be put in place, among other things.

Our business continues to be impacted by a number of ~~other~~ macro-economic factors, ~~in addition to~~including the trailing impact of the COVID-19 pandemic. Global supply chains and product availability remain highly challenged and ~~recent~~ongoing global events in Eastern Europe have only exacerbated an already difficult operating environment. These factors, combined with higher fuel costs, rising interest rates and a highly competitive labor market, have created an inflationary environment and cost pressures.

~~- 7 -~~

~~Index~~

~~The Davey Tree Expert Company~~

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

~~April 2, 2022~~

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

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 ~~April 2,~~October 1, 2022 is referred to as the ~~first~~third quarter of 2022, and the fiscal quarter ended ~~April 3,~~October 2, 2021 is referred to as the ~~first~~third quarter of 2021.

Recent Accounting Guidance

Accounting Standard Not Yet Adopted

Accounting Standards Update 2020-04, Reference Rate Reform (Topic 848)--In March 2020, the FASB issued ~~ASU~~Accounting Standards Update ("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

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Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 1, 2022

(Amounts in thousands, except share data)

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. In January 2021, the FASB amended ASU 2020-04 by issuing Accounting Standards Update No. 2021-01, Reference Rate Reform Scope ("ASU 2021-01"). ASU 2021-01 clarifies the scope of optional expedients and exceptions to derivatives that are affected by the discounting transition. The Company is currently reviewing its agreements impacted by the reference rate reform and does not expect ~~this ASU~~these ASUs to have a material impact to the Company’s financial statements.

B. Seasonality of Business

Due to the seasonality of our business, our operating results for the three and nine months ended ~~April 2,~~October 1, 2022 are not indicative of results that may be expected for any other interim period or for the year ending December 31, 2022. Our business seasonality traditionally results in higher revenues during the second and third quarters as compared with the first and fourth quarters of the year, while the methods of accounting for fixed costs, such as depreciation expense, amortization, rent and interest expense, are not significantly impacted by business seasonality.

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

Accounts receivable, net, consisted of the following:


Accounts receivable, net	Accounts receivable, net	April 2, 2022		December 31, 2021		Accounts receivable, net	October 1, 2022		December 31, 2021
Accounts receivable	Accounts receivable	$	199,440	$	215,336	Accounts receivable	$	236,903	$	215,336
Unbilled receivables(1)	Unbilled receivables(1)	79,914		65,957		Unbilled receivables(1)	92,732		65,957
		279,354		281,293			329,635		281,293
Less allowances for credit losses	Less allowances for credit losses	2,873		3,013		Less allowances for credit losses	3,344		3,013
Accounts receivable, net	Accounts receivable, net	$	276,481	$	278,280	Accounts receivable, net	$	326,291	$	278,280

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

~~- 8 -~~

~~Index~~

~~The Davey Tree Expert Company~~

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

~~April 2, 2022~~

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

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

Other current assets April 2,
2022 December 31,
2021
Refundable income taxes $ 2,158 $ 1,346
Prepaid expenses 25,278 30,911
Assets invested for self-insurance 3,750 4,250
Other 488 1,346
Total $ 31,674 $ 37,853

Property and equipment, net April 2,
2022 December 31,
2021
Land and land improvements $ 24,318 $ 22,129
Buildings and leasehold improvements 66,962 63,933
Equipment 661,017 646,552
752,297 732,614
Less accumulated depreciation 508,936 504,629
Total $ 243,361 $ 227,985

Other assets, noncurrent April 2,
2022 December 31,
2021
Assets invested for self-insurance $ 34,957 $ 25,401
Investment--cost-method affiliate 1,258 1,258
Deferred income taxes 5,086 4,937
Cloud computing arrangements 4,768 6,530
Other 4,516 4,539
Total $ 50,585 $ 42,665

Accrued expenses April 2,
2022 December 31,
2021
Employee compensation $ 17,354 $ 37,828
Accrued compensated absences 11,577 11,007
Self-insured medical claims 3,715 2,891
Income tax payable — 145
Customer advances, deposits 3,082 4,009
Taxes, other than income 17,853 13,789
Other 4,693 5,469
Total $ 58,274 $ 75,138


Other current assets	October 1, 2022		December 31, 2021
Refundable income taxes	$	364	$	1,346
Prepaid expenses	41,619		30,911


Assets invested for self-insurance	4,000		4,250
Other	898		1,346
Total	$	46,881	$	37,853

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Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~April 2,~~October 1, 2022

(Amounts in thousands, except share data)

Other current liabilities April 2,
2022 December 31,
2021
Notes payable $ 533 $ —
Current portion of:
Lease liability-operating leases 30,870 28,682
Self-insurance accruals 47,741 48,867
Total $ 79,144 $ 77,549


Property and equipment, net	October 1, 2022		December 31, 2021
Land and land improvements	$	26,075	$	22,129
Buildings and leasehold improvements	75,097		63,933
Equipment	664,518		646,552
	765,690		732,614
Less accumulated depreciation	502,989		504,629
Total	$	262,701	$	227,985


Other assets, noncurrent	October 1, 2022		December 31, 2021
Investment--cost-method affiliate	$	1,258	$	1,258
Deferred income taxes	5,032		4,937
Cloud computing arrangements	3,353		6,530
Other	4,661		4,539
Total	$	14,304	$	17,264


Accrued expenses	October 1, 2022		December 31, 2021
Employee compensation	$	34,727	$	37,828
Accrued compensated absences	11,943		11,007
Self-insured medical claims	3,088		2,891
Income tax payable	6,685		145
Customer advances, deposits	6,957		4,009
Taxes, other than income	17,876		13,789

Other	3,771		5,469
Total	$	85,047	$	75,138


Other current liabilities	October 1, 2022		December 31, 2021

Current portion of:
Lease liability-operating leases	$	31,726	$	28,682
Self-insurance accruals	42,774		48,867
Total	$	74,500	$	77,549


Other noncurrent liabilities	Other noncurrent liabilities	April 2, 2022		December 31, 2021		Other noncurrent liabilities	October 1, 2022		December 31, 2021
Non-qualified retirement plans	Non-qualified retirement plans	$	9,151	$	8,713	Non-qualified retirement plans	$	9,200	$	8,713

Other	Other	3,032		2,870		Other	2,981		2,870
Total	Total	$	12,183	$	11,583	Total	$	12,181	$	11,583

D. Business Combinations

Our cash investments in businesses during the first ~~three~~nine months of 2022 were ~~$998~~$4,453 and we issued debt, in the form of notes payable to the sellers, of ~~$126 and~~$1,233 which have been included in our Residential and Commercial and Utility segments. In the first ~~three~~nine months of 2022, we also made a payment of $100 for a contingent liability incurred in an acquisition made during the fourth quarter of 2021. ~~Measurement-period~~Measurement-

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Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 1, 2022

(Amounts in thousands, except share data)

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 year ended December 31, 2021, our cash investments in businesses was $11,725 and debt issued, in the form of notes payable to the sellers, was $2,961.

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

Three Months Ended
April 2, 2022
Year Ended
December 31, 2021
Detail of acquisitions:
Assets acquired:
Cash $ — $ 292
Receivables — 509
Operating supplies 10 1,044
Prepaid expense — 203
Equipment 695 4,049
Deposits and other 395 1,574
Intangible assets 714 3,005
Goodwill 397 7,723
Deferred credit - gain on bargain purchase (663) —
Liabilities assumed (424) (3,713)
Debt issued for purchases of businesses (126) (2,961)
Cash paid $ 998 $ 11,725

~~- 10 -~~

~~Index~~

~~The Davey Tree Expert Company~~

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

~~April 2, 2022~~

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


	Nine Months Ended October 1, 2022		Year Ended December 31, 2021
Detail of acquisitions:
Assets acquired:
Cash	$	—	$	292
Receivables	—		509
Operating supplies	39		1,044
Prepaid expense	—		203
Equipment	1,186		4,049
Deposits and other	265		1,574
Intangible assets	1,350		3,005
Goodwill	3,175		7,723

Liabilities assumed	(329)		(3,713)
Debt issued for purchases of businesses	(1,233)		(2,961)
Cash paid	$	4,453	$	11,725

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~~three and nine months ended ~~April 2,~~October 1, 2022 was not significant. Pro forma net sales and results of operations for the acquisitions, had they occurred at the beginning of the ~~three~~nine months ended ~~April 2,~~October 1, 2022, are not material and, accordingly, are not provided.

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

Subsequent to October 1, 2022 and through November 8, 2022, we acquired one business approximating $1,450 with no liabilities assumed and debt issued of $470. The acquired company is in our Residential and Commercial segment and is located in North Carolina. We do not expect the effect of this acquisition on our consolidated revenues and results of operations to be significant.

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Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 1, 2022

(Amounts in thousands, except share data)

E. Marketable Securities

The following table summarizes available-for-sale debt securities held at October 1, 2022 by asset type:


	Available-For-Sale Debt Securities
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value (Net Carrying Amount)
October 1, 2022
Fixed maturity:
United States Government and agency securities	$	20,556	$	6	$	(301)	$	20,261
Corporate notes and bonds	315		—		(58)		257
Total available-for-sale debt securities	$	20,871	$	6	$	(359)	$	20,518

December 31, 2021
Fixed maturity:
United States Government and agency securities	$	3,244	$	11	$	(25)	$	3,230
Corporate notes and bonds	174		2		—		176
Total available-for-sale debt securities	$	3,418	$	13	$	(25)	$	3,406

Marketable securities are composed of available-for-sale debt securities and marketable equity securities and all marketable securities are held at fair value. We carry a portion of our marketable securities portfolio in long-term assets since they are generally held for the settlement of our insurance claims processed through our wholly owned captive insurance subsidiary.

Available-for-sale debt securities are included in marketable securities and other investments totaling $20,518 and $3,406 at October 1, 2022 and December 31, 2021, respectively. Realized gains and losses on sales of available-for-sale debt securities are recognized in net income on the specific identification basis. Changes in the fair values of available-for-sale debt securities that are determined to be holding gains or losses are recorded through accumulated other comprehensive income (loss) net of applicable taxes, within shareholders' equity. In assessing whether a credit loss exists, we evaluate our ability to hold the investment, the strength of the underlying collateral and the extent to which the investment's amortized cost or cost, as appropriate, exceeds its related fair value.

We held approximately $18,846 and $11,386 in marketable equity securities as of October 1, 2022 and December 31, 2021, respectively. Realized and unrealized gains and losses on marketable equity securities are included in other income (expense) in the Consolidated Statements of Operations.

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Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 1, 2022

(Amounts in thousands, except share data)

The net carrying values of available-for-sale debt securities at October 1, 2022 by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.


	Amortized Cost		Fair Value
Due:
Less than one year	$	12,999	$	12,997
One year through five years	5,729		5,568
Five years through ten years	234		191
After ten years	1,909		1,762
Total	$	20,871	$	20,518

F. Identified Intangible Assets and Goodwill, Net

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


		April 2, 2022				December 31, 2021					October 1, 2022				December 31, 2021
		Carrying Amount		Accumulated Amortization		Carrying Amount		Accumulated Amortization			Carrying Amount		Accumulated Amortization		Carrying Amount		Accumulated Amortization
Amortized intangible assets:	Amortized intangible assets:									Amortized intangible assets:
Customer lists/relationships	Customer lists/relationships	$	32,886	$	24,629	$	32,294	$	24,090	Customer lists/relationships	$	33,498	$	26,222	$	32,294	$	24,090
Employment-related	Employment-related	10,027		8,443		9,946		8,301		Employment-related	10,451		8,754		9,946		8,301
Tradenames	Tradenames	8,475		6,750		8,426		6,642		Tradenames	8,641		6,977		8,426		6,642

Amortized intangible assets	Amortized intangible assets	51,388		$	39,822	50,666		$	39,033	Amortized intangible assets	52,590		$	41,953	50,666		$	39,033

Less accumulated amortization	Less accumulated amortization	39,822				39,033				Less accumulated amortization	41,953				39,033

Identified intangible assets, net	Identified intangible assets, net	$	11,566			$	11,633			Identified intangible assets, net	$	10,637			$	11,633

Goodwill	Goodwill	$	56,409			$	55,980			Goodwill	$	58,999			$	55,980

The changes in the carrying amounts of goodwill, by segment, for the ~~three~~nine months ended ~~April 2,~~October 1, 2022 and the year ended December 31, 2021 were as follows:

Balance at
January 1, 2022
Acquisitions Translation
and Other
Adjustments
Balance at
April 2, 2022
Utility $ 4,911 $ — $ — $ 4,911
Residential and Commercial 51,069 397 32 51,498
Total $ 55,980 $ 397 $ 32 $ 56,409
Balance at
January 1, 2021
Acquisitions Translation
and Other
Adjustments
Balance at
December 31, 2021
Utility $ 4,911 $ — $ — $ 4,911
Residential and Commercial 43,345 7,723 1 51,069
Total $ 48,256 $ 7,723 $ 1 $ 55,980


	Balance at January 1, 2022		Acquisitions		Translation and Other Adjustments		Balance at October 1, 2022
Utility	$	4,911	$	30	$	—	$	4,941
Residential and Commercial	51,069		3,145		(156)		54,058

Total	$	55,980	$	3,175	$	(156)	$	58,999


	Balance at January 1, 2021		Acquisitions		Translation and Other Adjustments		Balance at December 31, 2021
Utility	$	4,911	$	—	$	—	$	4,911
Residential and Commercial	43,345		7,723		1		51,069

Total	$	48,256	$	7,723	$	1	$	55,980

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Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~April 2,~~October 1, 2022

(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 ~~April 2,~~October 1, 2022, was as follows:


		Estimated Future Amortization Expense			Estimated Future Amortization Expense
Remaining nine months of 2022		$	2,332
Remaining three months of 2022				Remaining three months of 2022	$	820
2023	2023	2,968		2023	3,073
2024	2024	2,646		2024	2,752
2025	2025	1,862		2025	1,970
2026	2026	1,023		2026	1,132
2027	2027	573		2027	648
Thereafter	Thereafter	162		Thereafter	242
		$	11,566		$	10,637

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

We have short-term lines of credit with several banks totaling ~~$11,199.~~$11,091. At ~~April 2,~~October 1, 2022, we had ~~$8,535~~$8,971 available under the lines of credit and ~~$2,133~~$2,120 committed through issued letters of ~~credit,~~credit. Borrowings outstanding generally bear interest at the banks' prime rate or LIBOR plus a margin adjustment of .75% to 1.50%.

Our long-term debt consisted of the following:


		April 2, 2022		December 31, 2021			October 1, 2022		December 31, 2021
Revolving credit facility:	Revolving credit facility:					Revolving credit facility:
Swing-line borrowings	Swing-line borrowings	$	5,781	$	16,832	Swing-line borrowings	$	23,099	$	16,832

LIBOR borrowings	LIBOR borrowings	65,000		30,000		LIBOR borrowings	75,000		30,000
		70,781		46,832			98,099		46,832
Senior unsecured notes:	Senior unsecured notes:					Senior unsecured notes:

3.99% Senior unsecured notes	3.99% Senior unsecured notes	50,000		50,000		3.99% Senior unsecured notes	50,000		50,000
4.00% Senior unsecured notes	4.00% Senior unsecured notes	25,000		25,000		4.00% Senior unsecured notes	25,000		25,000
		75,000		75,000			75,000		75,000
Term loans	Term loans	15,592		25,182		Term loans	33,128		25,182
		161,373		147,014			206,227		147,014
Less debt issuance costs	Less debt issuance costs	635		674		Less debt issuance costs	558		674
Less current portion	Less current portion	13,969		22,809		Less current portion	31,090		22,809
		$	146,769	$	123,531		$	174,579	$	123,531

Revolving Credit Facility--In August 2021, the Company amended and restated its revolving credit facility with its existing bank group. The amended and restated credit agreement, which expires in August 2026, permits borrowings, as defined, of up to $325,000, including a letter of credit sublimit of $150,000 and a swing-line commitment of $30,000. Under certain circumstances, the amount available under the revolving credit facility may be increased to $425,000. 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

- 1214 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~April 2,~~October 1, 2022

(Amounts in thousands, except share data)

subject to certain further restrictions as described in the credit agreement. As of ~~April 2,~~October 1, 2022, we had unused commitments under the facility approximating $~~251,342,~~224,201, with ~~$73,658~~$100,799 committed, consisting of borrowings of $~~70,781~~98,099 and issued letters of credit of $~~2,877.~~2,700.

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 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.

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, which was amended in September 2021. Among other things, the amendment increased the total facility limit to $150,000 and extended the issuance period for subsequent series of promissory notes to be issued and sold pursuant to the Note Purchase and Shelf Agreement to September 2024. The amendment also amended certain provisions and covenants to generally conform them to the corresponding provisions and covenants in the amended and restated revolving credit agreement. In addition, the amendment and restatement of the revolving credit agreement in August 2021 provided that the Company is permitted to incur indebtedness arising under the Note Purchase and Shelf Agreement in an aggregate principal amount not to exceed $150,000. As the Company has previously issued notes in an aggregate amount of $75,000 under the Note Purchase and Shelf Agreement, it now has capacity to issue subsequent series of promissory notes pursuant to the Note Purchase and Shelf Agreement (the "Shelf Notes") in an aggregate amount of up to $75,000.

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 5five equal, annual principal payments commence on September 21, 2024 (the ~~6th~~sixth 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.

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 4.00% Senior Notes are due September 21, 2028. 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 5five 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 ~~April 2,~~October 1, 2022 were as follows: 2022--$~~13,080;~~9,885; 2023--$~~1,530;~~21,635; 2024--$~~15,940;~~16,196; 2025--$~~15,042;~~15,411; 2026--$~~85,781;~~113,100; 2027--$0;15,000; and thereafter ~~$30,000.~~$15,000.

- 1315 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~April 2,~~October 1, 2022

(Amounts in thousands, except share data)

Accounts Receivable Securitization Facility--In ~~May 2021,~~June 2022, the Company amended its Accounts Receivable Securitization Facility (the "AR Securitization program") to extend the scheduled termination date for an additional one ~~year~~-year period, to June ~~30, 2022.~~29, 2023. In addition to extending the termination date for another year, the amendment ~~included a change to~~replaced the ~~letter of credit~~London Interbank Offered Rate (LIBOR) interest rate provisions with customary provisions based on the secured overnight financing rate ("~~LC"~~SOFR") ~~issuance fee payable under the terms of the agreement, as described below.~~.

The AR Securitization program has a limit of $100,000, of which $89,689 and $83,355 was issued for LCs as of ~~both April 2,~~October 1, 2022 and December 31, ~~2021.~~2021, respectively.

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 ~~April 2,~~October 1, 2022--to the bank in exchange for the bank issuing LCs.

Fees payable to the bank include: (a) an LC issuance fee, payable on each settlement date, in the amount of .90% per annum ~~(1.00% prior to the May 2021 amendment)~~ 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~~the term SOFR, plus 0.10% or, in certain circumstances, a base rate equal to the ~~higher~~greatest of (i) the bank’s prime rate, ~~and~~ (ii) the federal funds rate plus .50% and (iii) 1.00% above the Daily one month SOFR plus 0.10% and, following any default, 2.00% plus the greater of (a) ~~adjusted LIBOR~~the term SOFR plus 0.10% and (b) a base rate equal to the ~~higher~~greatest of (i) ~~the bank’s prime rate~~, (ii) and ~~(ii) the federal funds rate plus .50%.~~(iii) above.

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 ~~April 2,~~October 1, 2022, total commitments related to issued LCs were ~~$88,365,~~$94,509, of which ~~$2,877~~$2,700 were issued under the revolving credit facility, ~~$83,355~~$89,689 were issued under the AR Securitization program, and ~~$2,133~~$2,120 were issued under short-term lines of credit. As of December 31, 2021, total commitments related to issued LCs were $88,362, of which $2,877 were issued under the revolving credit facility, $83,355 were issued under the AR Securitization program, and $2,130 were issued under short-term lines of credit.

As of ~~April 2,~~October 1, 2022, we were in compliance with all debt covenants.

- 1416 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~April 2,~~October 1, 2022

(Amounts in thousands, except share data)

G.H. Leases

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


		Condensed Consolidated Balance Sheet Classification	April 2, 2022		December 31, 2021			Condensed Consolidated Balance Sheet Classification	October 1, 2022		December 31, 2021
Assets	Assets						Assets
Operating lease assets	Operating lease assets	Right-of-use assets - operating leases	$	91,295	$	86,423	Operating lease assets	Right-of-use assets - operating leases	$	95,350	$	86,423
Finance lease assets	Finance lease assets	Property and equipment, net	12,029		11,592		Finance lease assets	Property and equipment, net	13,268		11,592
Total lease assets	Total lease assets		$	103,324	$	98,015	Total lease assets		$	108,618	$	98,015
Liabilities	Liabilities						Liabilities
Current operating lease liabilities	Current operating lease liabilities	Other current liabilities	$	30,870	$	28,682	Current operating lease liabilities	Other current liabilities	$	31,726	$	28,682
Non-current operating lease liabilities	Non-current operating lease liabilities	Lease liabilities - operating leases	59,902		57,335		Non-current operating lease liabilities	Lease liabilities - operating leases	62,586		57,335
Total operating lease liabilities	Total operating lease liabilities		90,772		86,017		Total operating lease liabilities		94,312		86,017
Current portion of finance lease liabilities	Current portion of finance lease liabilities	Current portion of long-term debt and finance lease liabilities	2,639		2,459		Current portion of finance lease liabilities	Current portion of long-term debt and finance lease liabilities	2,998		2,459
Non-current finance lease liabilities	Non-current finance lease liabilities	Lease liabilities - finance leases	9,017		8,646		Non-current finance lease liabilities	Lease liabilities - finance leases	9,704		8,646
Total finance lease liabilities	Total finance lease liabilities		11,656		11,105		Total finance lease liabilities		12,702		11,105
Total lease liabilities	Total lease liabilities		$	102,428	$	97,122	Total lease liabilities		$	107,014	$	97,122

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


			Three Months Ended							Three Months Ended			Nine Months Ended
		Condensed Consolidated Statements of Operations Classification		April 2, 2022		April 3, 2021			Condensed Consolidated Statements of Operations Classification		October 1, 2022		October 2, 2021		October 1, 2022		October 2, 2021

Operating lease cost	Operating lease cost	Operating expense		$	6,019	$	3,700	Operating lease cost	Operating expense		$	6,649	$	4,965	$	19,095	$	13,065
Operating lease cost	Operating lease cost	Selling expense		2,745		2,521		Operating lease cost	Selling expense		2,926		2,631		8,492		7,718
Operating lease cost	Operating lease cost	General and administrative expense		289		284		Operating lease cost	General and administrative expense		304		290		883		867
Finance lease cost:	Finance lease cost:							Finance lease cost:
Amortization of right-of-use assets	Amortization of right-of-use assets	Depreciation and amortization		730		588		Amortization of right-of-use assets	Depreciation and amortization		889		752		2,334		1,985
Interest expense on lease liabilities	Interest expense on lease liabilities	Interest expense		60		38		Interest expense on lease liabilities	Interest expense		74		52		196		134
Other lease cost (1)	Other lease cost (1)	Operating expense		1,189		875		Other lease cost (1)	Operating expense		1,271		999		3,613		2,839
Other lease cost (1)	Other lease cost (1)	Selling expense		417		316		Other lease cost (1)	Selling expense		235		360		1,059		1,013
Other lease cost (1)	Other lease cost (1)	General and administrative expense		9		13		Other lease cost (1)	General and administrative expense		27		8		59		28
Total lease cost	Total lease cost			$	11,458	$	8,335	Total lease cost			$	12,375	$	10,057	$	35,731	$	27,649

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

We often have options to renew lease terms for buildings and other assets. The exercise of lease renewal options is generally at our sole discretion. In addition, certain lease agreements may be terminated prior to their original expiration date at our discretion. We evaluate each renewal and termination option at the lease commencement date to determine if we are reasonably certain to exercise the option on ~~the basis of economic factors. The weighted average remaining lease terms as of April 2, 2022 was 3.8 years for operating leases and 4.8 years for finance leases.~~

- 1517 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~April 2,~~October 1, 2022

(Amounts in thousands, except share data)

the basis of economic factors. The weighted average remaining lease terms as of October 1, 2022 was 3.7 years for operating leases and 4.7 years for finance leases.

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 weighted average discount rates used to measure our lease liabilities as of ~~April 2,~~October 1, 2022 was ~~2.42%~~2.90% for operating leases and ~~2.14%~~2.72% for finance leases.


Supplemental Cash Flow Information Related to Leases	Supplemental Cash Flow Information Related to Leases	Three Months Ended				Supplemental Cash Flow Information Related to Leases	Nine Months Ended
		April 2, 2022		April 3, 2021			October 1, 2022		October 2, 2021
Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:					Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	Operating cash flows from operating leases	$	(9,194)	$	(6,521)	Operating cash flows from operating leases	$	(29,194)	$	(21,822)
Operating cash flows from finance leases	Operating cash flows from finance leases	(60)		(38)		Operating cash flows from finance leases	(196)		(134)
Financing cash flows from finance leases	Financing cash flows from finance leases	(767)		(1,261)		Financing cash flows from finance leases	(2,313)		(2,688)
Right-of-use assets obtained in exchange for lease obligations:	Right-of-use assets obtained in exchange for lease obligations:					Right-of-use assets obtained in exchange for lease obligations:
Operating leases	Operating leases	13,610		21,572		Operating leases	38,403		47,069
Finance leases	Finance leases	1,167		151		Finance leases	3,910		4,174

Maturity Analysis of Lease Liabilities As of April 2, 2022
Operating
Leases Finance
Leases
Remaining nine months of 2022 $ 25,209 $ 2,273
2023 26,297 2,717
2024 19,044 2,595
2025 12,892 1,990
2026 6,190 1,694
Thereafter 5,385 969
Total lease payments 95,017 12,238
Less interest 4,245 582
Total $ 90,772 $ 11,656


Maturity Analysis of Lease Liabilities		As of October 1, 2022
		Operating Leases		Finance Leases
	Remaining three months of 2022	$	9,301	$	747
	2023	31,878		3,237
	2024	24,610		3,106
	2025	16,964		2,472
	2026	9,277		2,101
	2027	3,343		1,123
	Thereafter	4,061		732
	Total lease payments	99,434		13,518
	Less interest	5,122		816
	Total	$	94,312	$	12,702

H.I. 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 other stock-based incentives. The 2014 Stock Plan provides for the grant of 5five 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 10ten percent of the common shares outstanding as of the first day of that fiscal year. Common shares subject to an award

- 18 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 1, 2022

(Amounts in thousands, except share data)

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.

~~- 16 -~~

~~Index~~

~~The Davey Tree Expert Company~~

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

~~April 2, 2022~~

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

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
April 2,
2022 April 3,
2021
Compensation expense, all share-based payment plans $ 1,270 $ 891


	Three Months Ended				Nine Months Ended
	October 1, 2022		October 2, 2021		October 1, 2022		October 2, 2021
Compensation expense, all share-based payment plans	$	1,658	$	1,167	$	5,244	$	3,432

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 ~~$452~~$1,380 being recognized for the ~~three~~nine months ended ~~April 2,~~October 1, 2022 and ~~$357~~$1,187 for the ~~three~~nine months ended ~~April 3,~~October 2, 2021.

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 ~~$99~~$289 for the ~~three~~nine months ended ~~April 2,~~October 1, 2022 and ~~$125~~$343 for the ~~three~~nine months ended ~~April 3,~~October 2, 2021. 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 PRSUs for certain management employees.

- 19 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 1, 2022

(Amounts in thousands, except share data)

The following table summarizes our SSARs as of ~~April 2,~~October 1, 2022.


Stock-Settled Stock Appreciation Rights	Stock-Settled Stock Appreciation Rights	Number of Rights	Weighted- Average Award Date Value		Weighted- Average Remaining Contractual Life	Unrecognized Compensation Cost		Aggregate Intrinsic Value		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, 2022	Unvested, January 1, 2022	87,534	$	1.92						Unvested, January 1, 2022	87,534	$	1.92
Granted	Granted	—	—							Granted	—	—
Forfeited	Forfeited	—	—							Forfeited	—	—
Vested	Vested	(43,752)	1.92							Vested	(43,752)	1.92
Unvested, April 2, 2022		43,782	$	1.92	0.7 years	$	63	$	792
Unvested, October 1, 2022										Unvested, October 1, 2022	43,782	$	1.92	0.3 years	$	19	$	792

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 ~~$21~~$65 for the ~~three~~nine months ended ~~April 2,~~October 1, 2022 and ~~$41~~$120 for the ~~three~~nine months ended ~~April 3,~~October 2, 2021.

~~- 17 -~~

~~Index~~

~~The Davey Tree Expert Company~~

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

~~April 2, 2022~~

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

Restricted Stock Units--During the ~~three~~nine months ended ~~April 2,~~October 1, 2022, the Compensation Committee awarded ~~123,869~~336,664 PRSUs to certain management ~~employees.~~employees and 14,693 RSUs to nonemployee directors. The Compensation Committee made similar awards in prior periods. The awards vest over specified periods. The following table summarizes PRSUs and RSUs as of ~~April 2,~~October 1, 2022.


Restricted Stock Units	Restricted Stock Units	Number of Stock Units	Weighted- Average Grant Date Value		Weighted- Average Remaining Contractual Life	Unrecognized Compensation Cost		Aggregate Intrinsic Value		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, 2022	Unvested, January 1, 2022	740,160	$	12.49						Unvested, January 1, 2022	740,160	$	12.49
Granted	Granted	123,869	17.89							Granted	351,357	17.89
Forfeited	Forfeited	—	—							Forfeited	(1,000)	17.89
Vested	Vested	(91,508)	8.50							Vested	(181,176)	11.04
Unvested, April 2, 2022		772,521	$	13.83	2.2 years	$	7,075	$	13,983
Unvested, October 1, 2022										Unvested, October 1, 2022	909,341	$	14.86	2.0 years	$	8,315	$	13,517
Employee PRSUs	Employee PRSUs	705,629	$	13.99	2.3 years	$	6,745	$	12,772	Employee PRSUs	851,640	$	14.89	2.0 years	$	7,863	$	12,685
Nonemployee Director RSUs	Nonemployee Director RSUs	66,892	$	12.20	0.9 years	$	330	$	1,211	Nonemployee Director RSUs	57,701	$	14.42	2.2 years	$	452	$	832

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 grant date price of a PRSU or an RSU. Compensation expense on PRSUs and RSUs totaled ~~$698~~$3,510 for the ~~three~~nine months ended ~~April 2,~~October 1, 2022 and ~~$368~~$1,782 for the ~~three~~nine months ended ~~April 3,~~October 2, 2021.

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

- 20 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 1, 2022

(Amounts in thousands, except share data)

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.

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

Three Months Ended
April 2,
2022 April 3,
2021
Volatility rate 9.7 % 9.9 %
Risk-free interest rate 1.6 % .3 %
Expected dividend yield .4 % .4 %
Expected life of awards (years) 3.0 3.0

~~- 18 -~~

~~Index~~

~~The Davey Tree Expert Company~~

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

~~April 2, 2022~~

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


	Nine Months Ended
	October 1, 2022		October 2, 2021
Volatility rate	9.7	%	9.9	%
Risk-free interest rate	1.7	%	.3	%
Expected dividend yield	.4	%	.4	%
Expected life of awards (years)	3.0		3.0

General Stock Option Information--The following table summarizes activity under the stock option plans for the ~~three~~nine months ended ~~April 2,~~October 1, 2022.


Stock Options	Stock Options	Number of Options Outstanding	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life	Aggregate Intrinsic Value		Stock Options	Number of Options Outstanding	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life	Aggregate Intrinsic Value
Outstanding, January 1, 2022	Outstanding, January 1, 2022	2,350,934	$	8.56				Outstanding, January 1, 2022	2,350,934	$	8.56
Granted	Granted	—	—					Granted	—	—
Exercised	Exercised	(42,407)	8.16					Exercised	(219,143)	8.29
Forfeited	Forfeited	—	—					Forfeited	(17,820)	8.01
Outstanding, April 2, 2022		2,308,527	$	8.56	4.6 years	$	22,023
Outstanding, October 1, 2022								Outstanding, October 1, 2022	2,113,971	$	8.59	4.2 years	$	20,104

Exercisable, April 2, 2022		1,718,797	$	7.74	3.7 years	$	17,801
Exercisable, October 1, 2022								Exercisable, October 1, 2022	1,725,879	$	7.99	3.5 years	$	17,449

As of ~~April 2,~~October 1, 2022, there was approximately ~~$705~~$489 of unrecognized compensation cost related to stock options outstanding. The cost is expected to be recognized over a weighted-average period of ~~1.8~~0.8 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.

I.J. Income Taxes

Our income tax provision for interim periods is determined using an estimate of our annual effective tax rate adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter we update our estimate of the annual effective tax rate and, if our estimated annual tax rate changes, we make a cumulative adjustment. The estimated annual effective tax rate for the ~~three~~nine months ended ~~April 2,~~October 1, 2022 was ~~27.7%~~26.6%. Our actual effective tax rate was ~~11.0%~~26.3% and ~~22.6%~~25.0% for the three months ended ~~April 2,~~October 1, 2022 and ~~April 3,~~October 2, 2021, respectively. Our actual effective tax rate was 26.2% and 26.2% for the nine months ended October 1, 2022 and October 2, 2021, respectively. The change in the effective tax rate from statutory tax rates was primarily due to the impact of favorable discrete items which

- 21 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 1, 2022

(Amounts in thousands, except share data)

are a set amount and therefore have a larger impact on the rate based on our net income before tax in the first ~~quarter~~nine months compared to the impact it will have on the rate for the full year.

As of ~~April 2,~~October 1, 2022, we had unrecognized tax benefits of ~~$719,~~$666, of which ~~$346~~$293 would affect our effective rate if recognized, and accrued interest expense related to unrecognized benefits of ~~$59.~~$45. At December 31, 2021, we had unrecognized tax benefits of $700, of which $327 would affect our effective rate if recognized, and accrued interest expense related to unrecognized benefits of $56. Unrecognized tax benefits 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.

~~- 19 -~~

~~Index~~

~~The Davey Tree Expert Company~~

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

~~April 2, 2022~~

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

The Company is routinely under audit by U.S. federal, state and local authorities 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 ~~2017.~~2018. As of ~~April 2,~~October 1, 2022, we believe it is reasonably possible that the total amount of unrecognized tax benefits will not significantly increase or decrease.

J.K. Accumulated Other Comprehensive Income (Loss)

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

The following summarizes the components of other comprehensive income (loss) accumulated in shareholders’ equity for the three and nine months ended ~~April 2,~~October 1, 2022 and ~~April 3,~~October 2, 2021:


Three Months Ended October 1, 2022	Foreign Currency		Available for Sale Securities		Defined Benefit Pension Plans		Accumulated Other Comprehensive Income (Loss)
Balance at July 2, 2022	$	(4,175)	$	(181)	$	(473)	$	(4,829)
Other comprehensive income (loss) before reclassifications
Translation adjustment	$	(1,934)	$	—	$	—	$	(1,934)
Unrealized losses	—		(113)		—		(113)

Amounts reclassified from accumulated other comprehensive income (loss)	—		(11)		30		19
Tax effect	—		26		(8)		18
Net of tax amount	(1,934)		(98)		22		(2,010)
Balance at October 1, 2022	$	(6,109)	$	(279)	$	(451)	$	(6,839)

- 22 -

Index
Three Months Ended April 2, 2022 Foreign
Currency
Translation
Adjustments Defined
Benefit
Pension
Plans Accumulated
Other
Comprehensive
Income (Loss)
Balance at January 1, 2022 $ (3,654) $ (519) $ (4,173)
Other comprehensive income (loss) before reclassifications
Unrealized gains (losses) $ 480 $ — $ 480
Amounts reclassified from accumulated other comprehensive income (loss) — 31 31
Tax effect — (7) (7)
Net of tax amount 480 24 504
Balance at April 2, 2022 $ (3,174) $ (495) $ (3,669)
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 $ — $ 450
Amounts reclassified from accumulated other comprehensive income (loss) — 50 50
Tax effect — (13) (13)
Net of tax amount 450 37 487
Balance at April 3, 2021 $ (3,288) $ (772) $ (4,060)

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 1, 2022

(Amounts in thousands, except share data)


Three Months Ended October 2, 2021	Foreign Currency		Available-for-Sale Securities		Defined Benefit Pension Plans		Accumulated Other Comprehensive Income (Loss)
Balance at July 3, 2021	$	(2,845)	$	—	$	(735)	$	(3,580)
Other comprehensive income (loss) before reclassifications
Translation adjustment	$	(788)	$	—	$	—	$	(788)


Amounts reclassified from accumulated other comprehensive income (loss)	—		—		51		51
Tax effect	—		—		(13)		(13)
Net of tax amount	(788)		—		38		(750)
Balance at October 2, 2021	$	(3,633)	$	—	$	(697)	$	(4,330)

Nine Months Ended October 1, 2022	Foreign Currency		Available-for-Sale Securities		Defined Benefit Pension Plans		Accumulated Other Comprehensive Income (Loss)
Balance at January 1, 2022	$	(3,654)	$	—	$	(519)	$	(4,173)
Other comprehensive income (loss) before reclassifications
Translation adjustment	$	(2,455)	$	—	$	—	$	(2,455)
Unrealized losses	—		(350)		—		(350)

Amounts reclassified from accumulated other comprehensive income (loss)	—		(3)		92		89
Tax effect	—		74		(24)		50
Net of tax amount	(2,455)		(279)		68		(2,666)
Balance at October 1, 2022	$	(6,109)	$	(279)	$	(451)	$	(6,839)

Nine Months Ended October 2, 2021	Foreign Currency		Available-for-Sale Securities		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
Translation adjustment	$	105	$	—	$	—	$	105


Amounts reclassified from accumulated other comprehensive income (loss)	—		—		151		151
Tax effect	—		—		(39)		(39)
Net of tax amount	105		—		112		217
Balance at October 2, 2021	$	(3,633)	$	—	$	(697)	$	(4,330)

The change in defined benefit pension plans of ~~$31~~$30 and $92 for the three and nine months ended ~~April 2,~~October 1, 2022, respectively, and ~~$50~~$51 and $151 for the three and nine months ended ~~April 3,~~October 2, 2021, respectively, was included in net periodic pension expense classified in the condensed consolidated statement of operations as general and administrative expense or other income (expense).

- 2023 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~April 2,~~October 1, 2022

(Amounts in thousands, except share data)

K.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 (Adjusted for the 2-for-one stock split of our common shares effective October 1, 2021):~~follows:


		Three Months Ended			Three Months Ended						Nine Months Ended
			April 2, 2022			April 3, 2021			October 1, 2022		October 2, 2021		October 1, 2022		October 2, 2021
Income available to common shareholders:	Income available to common shareholders:							Income available to common shareholders:
Net income	Net income		$	1,782		$	4,427	Net income	$	20,464	$	24,927	$	49,031	$	57,897

Weighted-average shares (in thousands):	Weighted-average shares (in thousands):							Weighted-average shares (in thousands):
Basic:	Basic:							Basic:

Outstanding								Outstanding	43,920		44,885		44,194		45,257
Partially-paid share subscriptions								Partially-paid share subscriptions	228		—		228		—
Basic weighted-average shares	Basic weighted-average shares		44,618			45,682		Basic weighted-average shares	44,148		44,885		44,422		45,257

Diluted:	Diluted:							Diluted:
Basic from above	Basic from above		44,618			45,682		Basic from above	44,148		44,885		44,422		45,257
Incremental shares from assumed:	Incremental shares from assumed:							Incremental shares from assumed:

Exercise of stock options and awards	Exercise of stock options and awards		2,220			2,234		Exercise of stock options and awards	2,257		3,066		2,297		2,528
Diluted weighted-average shares	Diluted weighted-average shares		46,838			47,916		Diluted weighted-average shares	46,405		47,951		46,719		47,785

Net income per share:	Net income per share:							Net income per share:

Basic	Basic		$	.04		$	.10	Basic	$	.46	$	.56	$	1.10	$	1.28

Diluted	Diluted		$	.04		$	.09	Diluted	$	.44	$	.52	$	1.05	$	1.21

Common and Redeemable Shares Outstanding--A summary of the activity of the common and redeemable shares outstanding for the ~~three~~nine months ended ~~April 2,~~October 1, 2022 was as follows:

Common
Shares
Net of Treasury
Shares Redeemable
Shares Total
Shares outstanding at January 1, 2022 35,110,432 9,391,790 44,502,222
Shares purchased (320,255) (69,260) (389,515)
Shares sold 210 295,977 296,187
Options and awards exercised 117,718 — 117,718
Shares outstanding at April 2, 2022 34,908,105 9,618,507 44,526,612

~~On April 2, 2022, we had 44,526,612 common and redeemable shares outstanding and employee options exercisable to purchase 1,718,797 common shares.~~



	Common Shares Net of Treasury Shares	Redeemable Shares	Total
Shares outstanding at January 1, 2022	35,110,432	9,391,790	44,502,222
Shares purchased	(1,646,735)	(881,136)	(2,527,871)
Shares sold	472,110	777,725	1,249,835
Stock subscription offering -- cash purchases	152,800	—	152,800
Options and awards exercised	368,402	—	368,402
Shares outstanding at October 1, 2022	34,457,009	9,288,379	43,745,388

- 2124 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~April 2,~~October 1, 2022

(Amounts in thousands, except share data)

On October 1, 2022, we had 43,745,388 common and redeemable shares outstanding, employee options exercisable to purchase 1,725,879 common shares, partially-paid subscriptions for 1,318,450 common shares and purchase rights outstanding for 487,488 common shares.

Common Stock Split--On September 17, 2021, our board of directors approved and declared a ~~2-for-one~~two-for-one stock split in the form of a stock dividend, pursuant to which each of our shareholders of record at the close of business on October 1, 2021 received one additional common share for each then-held common share, which was paid on October 15, 2021. On September 20, 2021, in connection with the stock split, the Company filed a Certificate of Amendment to its 2017 Amended Articles of Incorporation with the Secretary of State of the State of Ohio, which became effective upon filing and (1) proportionately increased the authorized number of common shares from 48,000,000 to 96,000,000 and (2) proportionately decreased the par value of our common shares from $1.00 per share to $.50 per share.

2022 Subscription Offering

Beginning April 2022, the Company ~~is offering~~offered to eligible employees and nonemployee directors the right to subscribe to a maximum of 2,666,667 common shares of the Company (including shares that may be issued upon the exercise of stock rights) at $18.10 per share in accordance with the provisions of The Davey Tree Expert Company 2014 Omnibus Stock Plan and the rules of the Compensation Committee of the Company’s Board of Directors. The offering period ~~will end~~ended on August 1, ~~2022.~~2022 and resulted in the subscription of 1,476,250 common shares for $26,720 at $18.10 per share.

Participants in the subscription offering who purchased common shares for an aggregate purchase price of less than $5 were required to pay with cash. All participants (excluding Company directors and officers) purchasing common shares for an aggregate purchase price of $5 or more 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 the greater of 2.00% or the applicable federal rate in effect as of August 1, 2022, which was 3.15%. Payments on the promissory note can be made either by payroll deductions or annual lump-sum payments of both principal and interest. Common shares purchased in the offering were pledged as security for the payment of the promissory note, and the common shares will not be issued until the promissory note is paid-in-full. Dividends will be paid on all subscribed shares, subject to forfeiture to the extent that payment is not ultimately made for the shares.

All participants in the offering who purchased in excess of $5 of common shares were granted a "right" to purchase one additional common share at a price of $18.10 per share for every three common shares purchased in the offering. As a result of the stock subscription, rights to purchase 489,169 common shares were granted. Each right may be exercised at the rate of one-seventh per year and will expire seven years after the date that the right was granted. A purchaser may not exercise a right once he or she ceases to be the Company's employee or non-employee director, as applicable.

L.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 2two 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

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Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 1, 2022

(Amounts in thousands, except share data)

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.”

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 2021 Annual Report.

- 2226 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~April 2,~~October 1, 2022

(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			Utility		Residential and Commercial		All Other		Reconciling Adjustments			Consolidated

Three Months Ended April 2, 2022
Three Months Ended October 1, 2022													Three Months Ended October 1, 2022
Revenues	Revenues	$	205,167	$	136,931	$	546	$	—		$	342,644	Revenues	$	217,305	$	180,706	$	934	$	—		$	398,945
Income (loss) from operations	Income (loss) from operations	12,723		1,088		(5,710)		(2,344)		(a)	5,757		Income (loss) from operations	16,790		21,204		(4,033)		(948)		(a)	33,013
Interest expense	Interest expense							(1,445)			(1,445)		Interest expense							(2,164)			(2,164)
Interest income	Interest income							27			27		Interest income							303			303
Other income (expense), net	Other income (expense), net							(2,337)			(2,337)		Other income (expense), net							(3,371)			(3,371)
Income before income taxes	Income before income taxes										$	2,002	Income before income taxes										$	27,781
Segment assets, total	Segment assets, total	$	301,489	$	269,971	$	—	$	227,305	(b)	$	798,765	Segment assets, total	$	331,393	$	305,216	$	—	$	263,362	(b)	$	899,971

Three Months Ended April 3, 2021
Three Months Ended October 2, 2021													Three Months Ended October 2, 2021
Revenues	Revenues	$	173,853	$	124,507	$	461	$	—		$	298,821	Revenues	$	204,960	$	164,737	$	547	$	—		$	370,244
Income (loss) from operations	Income (loss) from operations	12,458		3,682		(6,102)		(1,064)		(a)	8,974		Income (loss) from operations	23,124		17,595		(2,701)		(1,085)		(a)	36,933
Interest expense	Interest expense							(1,274)			(1,274)		Interest expense							(1,449)			(1,449)
Interest income	Interest income							69			69		Interest income							39			39
Other income (expense), net	Other income (expense), net							(2,050)			(2,050)		Other income (expense), net							(2,298)			(2,298)
Income before income taxes	Income before income taxes										$	5,719	Income before income taxes										$	33,225
Segment assets, total	Segment assets, total	$	247,562	$	244,692	$	—	$	182,119	(b)	$	674,373	Segment assets, total	$	286,157	$	278,847	$	—	$	210,709	(b)	$	775,713

Nine Months Ended October 1, 2022													Nine Months Ended October 1, 2022
Revenues													Revenues	$	637,900	$	504,064	$	1,584	$	—		$	1,143,548
Income (loss) from operations													Income (loss) from operations	49,260		50,759		(14,852)		(5,665)		(a)	79,502
Interest expense													Interest expense							(5,312)			(5,312)
Interest income													Interest income							489			489
Other income (expense), net													Other income (expense), net							(8,241)			(8,241)
Income before income taxes													Income before income taxes										$	66,438
Segment assets, total													Segment assets, total	$	331,393	$	305,216	$	—	$	263,362	(b)	$	899,971

Nine Months Ended October 2, 2021													Nine Months Ended October 2, 2021
Revenues													Revenues	$	557,349	$	465,524	$	1,668	$	—		$	1,024,541
Income (loss) from operations													Income (loss) from operations	50,015		51,893		(11,367)		(2,610)		(a)	87,931
Interest expense													Interest expense							(4,093)			(4,093)
Interest income													Interest income							161			161
Other income (expense), net													Other income (expense), net							(5,548)			(5,548)
Income before income taxes													Income before income taxes										$	78,451
Segment assets, total													Segment assets, total	$	286,157	$	278,847	$	—	$	210,709	(b)	$	775,713

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

- 27 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 1, 2022

(Amounts in thousands, except share data)

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

~~- 23 -~~

~~Index~~

~~The Davey Tree Expert Company~~

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

~~April 2, 2022~~

~~(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 nine months ended ~~April 2,~~October 1, 2022 and ~~April 3,~~October 2, 2021 by major sources:

Three Months Ended April 2, 2022 Utility Residential
and
Commercial All Other Consolidated
Type of service:
Tree and plant care $ 136,959 $ 81,634 $ (42) $ 218,551
Grounds maintenance — 31,596 — 31,596
Storm damage services 1,634 1,550 — 3,184
Consulting and other 66,574 22,151 588 89,313
Total revenues $ 205,167 $ 136,931 $ 546 $ 342,644
Geography:
United States $ 196,443 $ 128,239 $ 546 $ 325,228
Canada 8,724 8,692 — 17,416
Total revenues $ 205,167 $ 136,931 $ 546 $ 342,644
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 — 29,799 — 29,799
Storm damage services 4,113 1,183 — 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 — 18,794
Total revenues $ 173,853 $ 124,507 $ 461 $ 298,821


Three Months Ended October 1, 2022	Utility		Residential and Commercial		All Other		Consolidated
Type of service:
Tree and plant care	$	138,112	$	105,108	$	(28)	$	243,192
Grounds maintenance	—		46,056		—		46,056
Storm damage services	7,004		2,564		—		9,568
Consulting and other	72,189		26,978		962		100,129
Total revenues	$	217,305	$	180,706	$	934	$	398,945

Geography:
United States	$	207,004	$	168,405	$	934	$	376,343
Canada	10,301		12,301		—		22,602
Total revenues	$	217,305	$	180,706	$	934	$	398,945

- 2428 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~April 2,~~October 1, 2022

(Amounts in thousands, except share data)


Three Months Ended October 2, 2021	Utility		Residential and Commercial		All Other		Consolidated
Type of service:
Tree and plant care	$	140,039	$	96,961	$	(29)	$	236,971
Grounds maintenance	—		40,452		—		40,452
Storm damage services	10,052		2,688		—		12,740
Consulting and other	54,869		24,636		576		80,081
Total revenues	$	204,960	$	164,737	$	547	$	370,244

Geography:
United States	$	194,140	$	153,009	$	547	$	347,696
Canada	10,820		11,728		—		22,548
Total revenues	$	204,960	$	164,737	$	547	$	370,244

Nine Months Ended October 1, 2022	Utility		Residential and Commercial		All Other		Consolidated
Type of service:
Tree and plant care	$	420,791	$	294,206	$	(155)	$	714,842
Grounds maintenance	—		128,114		—		128,114
Storm damage services	10,136		6,162		—		16,298
Consulting and other	206,973		75,582		1,739		284,294
Total revenues	$	637,900	$	504,064	$	1,584	$	1,143,548

Geography:
United States	$	608,411	$	469,042	$	1,584	$	1,079,037
Canada	29,489		35,022		—		64,511
Total revenues	$	637,900	$	504,064	$	1,584	$	1,143,548

Nine Months Ended October 2, 2021	Utility		Residential and Commercial		All Other		Consolidated
Type of service:
Tree and plant care	$	393,742	$	271,682	$	(224)	$	665,200
Grounds maintenance	—		116,810		—		116,810
Storm damage services	13,997		5,486		—		19,483
Consulting and other	149,610		71,546		1,892		223,048
Total revenues	$	557,349	$	465,524	$	1,668	$	1,024,541

Geography:
United States	$	525,818	$	432,158	$	1,668	$	959,644
Canada	31,531		33,366		—		64,897
Total revenues	$	557,349	$	465,524	$	1,668	$	1,024,541

- 29 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 1, 2022

(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 recognized ~~$749~~$616 and $1,676 of revenue for the three and nine months ended ~~April 2,~~October 1, 2022, that was included in the contract liability balance at December 31, 2021 and ~~$704~~$239 and $1,294 of revenue for the three and nine months ended ~~April 3,~~October 2, 2021, that was included in the contract liability balance at December 31, 2020. Net contract liabilities consisted of the following:


		April 2, 2022		December 31, 2021			October 1, 2022		December 31, 2021
Contract liabilities - current	Contract liabilities - current	$	6,666	$	3,888	Contract liabilities - current	$	4,599	$	3,888
Contract liabilities - noncurrent	Contract liabilities - noncurrent	1,913		1,845		Contract liabilities - noncurrent	1,951		1,845
Net contract liabilities	Net contract liabilities	$	8,579	$	5,733	Net contract liabilities	$	6,550	$	5,733

N.O. Fair Value Measurements and Financial Instruments

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

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

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

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.

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Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~April 2,~~October 1, 2022

(Amounts in thousands, except share data)

Our assets and liabilities measured at fair value on a recurring basis at ~~April 2,~~October 1, 2022 were as follows:


				Fair Value Measurements at April 2, 2022 Using:									Fair Value Measurements at October 1, 2022 Using:
Assets and Liabilities Recorded at Fair Value on a Recurring Basis	Assets and Liabilities Recorded at Fair Value on a Recurring Basis	Total Carrying Value at April 2, 2022		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Assets and Liabilities Recorded at Fair Value on a Recurring Basis	Total Carrying Value at October 1, 2022		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:	Assets:									Assets:
Assets invested for self-insurance	Assets invested for self-insurance									Assets invested for self-insurance
Certificates of deposits, current	Certificates of deposits, current	$	3,750	$	3,750	$	—	$	—	Certificates of deposits, current	$	4,000	$	4,000	$	—	$	—
Certificates of deposits, noncurrent	Certificates of deposits, noncurrent	10,109		10,109		—		—		Certificates of deposits, noncurrent	7,109		7,109		—		—

Available-for-sale debt securities:	Available-for-sale debt securities:									Available-for-sale debt securities:
United States Government and agency securities	United States Government and agency securities	5,068		5,068		—		—		United States Government and agency securities	20,261		20,261		—		—
Corporate notes and bonds	Corporate notes and bonds	294		294		—		—		Corporate notes and bonds	257		257		—		—
Total available-for-sale debt securities	Total available-for-sale debt securities	5,362		5,362		—		—		Total available-for-sale debt securities	20,518		20,518		—		—

Marketable equity securities:	Marketable equity securities:									Marketable equity securities:
Mutual funds - domestic		10,961		10,961		—		—
Corporate stocks - domestic		2,579		2,579		—		—
Corporate stocks - foreign		73		73		—		—
Exchange traded funds - domestic		5,410		5,410		—		—
Exchange traded funds - foreign		463		463		—		—
Mutual funds										Mutual funds	14,894		14,894		—		—
Corporate stocks										Corporate stocks	2,819		2,819		—		—

Exchange traded funds										Exchange traded funds	1,133		1,133		—		—

Total marketable equity securities	Total marketable equity securities	19,486		19,486		—		—		Total marketable equity securities	18,846		18,846		—		—

Liabilities:	Liabilities:									Liabilities:
Deferred compensation	Deferred compensation	$	4,726	$	—	$	4,726	$	—	Deferred compensation	$	4,759	$	—	$	4,759	$	—

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The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~April 2,~~October 1, 2022

(Amounts in thousands, except share data)

Our assets and liabilities measured at fair value on a recurring basis at December 31, 2021 were as follows:


				Fair Value Measurements at December 31, 2021 Using:									Fair Value Measurements at December 31, 2021 Using:
Assets and Liabilities Recorded at Fair Value on a Recurring Basis	Assets and Liabilities Recorded at Fair Value on a Recurring Basis	Total Carrying Value at December 31, 2021		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Assets and Liabilities Recorded at Fair Value on a Recurring Basis	Total Carrying Value at December 31, 2021		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:	Assets:									Assets:
Assets invested for self-insurance	Assets invested for self-insurance									Assets invested for self-insurance
Certificates of deposits, current	Certificates of deposits, current	$	4,250	$	4,250	$	—	$	—	Certificates of deposits, current	$	4,250	$	4,250	$	—	$	—
Certificates of deposits, noncurrent	Certificates of deposits, noncurrent	10,609		10,609		—		—		Certificates of deposits, noncurrent	10,609		10,609		—		—

Available-for-sale debt securities:	Available-for-sale debt securities:									Available-for-sale debt securities:
United States Government and agency securities	United States Government and agency securities	3,230		3,230		—		—		United States Government and agency securities	3,230		3,230		—		—
Corporate notes and bonds	Corporate notes and bonds	176		176		—		—		Corporate notes and bonds	176		176		—		—
Total available-for-sale debt securities	Total available-for-sale debt securities	3,406		3,406		—		—		Total available-for-sale debt securities	3,406		3,406		—		—

Marketable equity securities:	Marketable equity securities:									Marketable equity securities:
Mutual funds - domestic		7,476		7,476		—		—
Corporate stocks - domestic		1,877		1,877		—		—
Corporate stocks - foreign		57		57		—		—
Exchange traded funds - domestic		1,491		1,491		—		—
Exchange traded funds - foreign		485		485		—		—
Mutual funds										Mutual funds	7,476		7,476		—		—
Corporate stocks										Corporate stocks	1,934		1,934		—		—

Exchange traded funds										Exchange traded funds	1,976		1,976		—		—

Total marketable equity securities	Total marketable equity securities	11,386		11,386		—		—		Total marketable equity securities	11,386		11,386		—		—

Liabilities:	Liabilities:									Liabilities:
Deferred compensation	Deferred compensation	$	4,333	$	—	$	4,333	$	—	Deferred compensation	$	4,333	$	—	$	4,333	$	—

The assets invested for self-insurance are certificates of deposit, stocks, bonds, mutual funds and exchange traded funds--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.

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The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~April 2,~~October 1, 2022

(Amounts in thousands, except share data)

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 assets and liabilities and their carrying values and fair values were as follows:


		April 2, 2022				December 31, 2021					October 1, 2022				December 31, 2021
		Carrying Value		Fair Value		Carrying Value		Fair Value			Carrying Value		Fair Value		Carrying Value		Fair Value
Assets:	Assets:									Assets:
Available-for-sale debt securities	Available-for-sale debt securities	$	5,362	$	5,362	$	3,406	$	3,406	Available-for-sale debt securities	$	20,518	$	20,518	$	3,406	$	3,406
Marketable equity securities	Marketable equity securities	19,486		19,486		11,386		11,386		Marketable equity securities	18,846		18,846		11,386		11,386

Liabilities:	Liabilities:									Liabilities:
Revolving credit facility, noncurrent	Revolving credit facility, noncurrent	$	70,781	$	70,781	$	46,832	$	46,832	Revolving credit facility, noncurrent	$	98,099	$	98,099	$	46,832	$	46,832
Senior unsecured notes, noncurrent	Senior unsecured notes, noncurrent	75,000		82,293		75,000		78,432		Senior unsecured notes, noncurrent	75,000		73,396		75,000		78,432
Term loans, noncurrent	Term loans, noncurrent	1,623		1,620		2,373		2,431		Term loans, noncurrent	2,038		1,973		2,373		2,431
Total	Total	$	147,404	$	154,694	$	124,205	$	127,695	Total	$	175,137	$	173,468	$	124,205	$	127,695

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.

Changes in the fair values of available-for-sale debt securities that are determined to be holding gains or losses are recorded through accumulated other comprehensive income (loss) net of applicable taxes, within shareholders' equity. In assessing whether a credit loss exists, we evaluate our ability to hold the investment, the strength of the underlying collateral and the extent to which the investment's amortized cost or cost, as appropriate, exceeds its related fair value.

We held approximately 19,486 and 11,386 in marketable equity securities as of April 2, 2022 and December 31, 2021, respectively. Realized and unrealized gains and losses on marketable equity securities are included in other income (expense) in the Consolidated Statements of Operations.

O.P. Commitments and Contingencies

We are party to a number of lawsuits, threatened lawsuits and other claims arising out of the normal course of business. On a quarterly basis, we assess our liabilities and contingencies in connection with outstanding legal proceedings utilizing the latest information available. Where it is probable that we will incur a loss and the amount of the loss can be reasonably estimated, we record a liability in our consolidated financial statements. These legal accruals may be increased or decreased to reflect any relevant developments on a quarterly basis. Where a loss is not probable or the amount of the loss is not estimable, we do not record a legal accrual, consistent with applicable

~~- 28 -~~

~~Index~~

~~The Davey Tree Expert Company~~

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

~~April 2, 2022~~

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

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, 2two Wolf Tree employees, and a former Wolf Tree employee alleging various acts of negligence

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The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 1, 2022

(Amounts in thousands, except share data)

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 4four current and former employees in Savannah, Georgia, which arises out of the same allegations, seeks compensatory and punitive damages and also includes 3three 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.

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 2two former Wolf Tree employees and another individual with various crimes, including conspiracy to murder the deceased. ~~NaN~~Two of the 3three individually charged defendants have pled guilty to charges related to their involvement with the murder and other illegal activities on March 28, 2022 and April 11, ~~2022 but have not yet been sentenced.~~2022. A third individual criminally charged defendant iswas scheduled to go to trial on October 25, 2022, and was convicted of charges for his role in ~~August 2022.~~the murder, harboring of illegal aliens; and money laundering conspiracy. All three criminal defendants have not yet been sentenced.

Previously, 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 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,~~To date, 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

~~- 29 -~~

~~Index~~

~~The Davey Tree Expert Company~~

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

~~April 2, 2022~~

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

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.~~stayed, although Plaintiffs' counsel has submitted a letter to the Court seeking a lift of the stay.

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The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 1, 2022

(Amounts in thousands, except share data)

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.

Northern California Wildfires

~~NaN~~Five lawsuits have been filed that name contractors for PG&E Corporation and its subsidiary, Pacific Gas and Electric Company (together, "PG&E"), including Davey Tree, with respect to claims arising from wildfires that occurred in Pacific Gas and Electric Company’s service territory in northern California beginning on October 8, 2017. An action was brought on August 8, 2019 in Napa County Superior Court, entitled Donna Walker, et al. v. Davey Tree Surgery Company, et al., Case No. 19CV001194. An action was brought on October 8, 2019 in San Francisco County Superior Court, entitled Quinisha Kyree Abram, et al. v. ACRT, Inc., et. al, Case No. CGC-19-579861.

~~NaN~~Three additional actions were brought on January 28, 2021 in San Francisco County Superior Court, by fire victims represented by a trust, which was assigned contractual rights in the PG&E bankruptcy proceedings. These cases are entitled John K. Trotter, Trustee of the PG&E Fire 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. On September 22, 2021, the court granted Davey Tree's petition to coordinate all cases, including Walker, as a California Judicial Council Coordination Proceeding, In Re North Bay Fire Cases, JCCP No. 4955. As a result of the coordination order, all 5five of the individual actions are stayed in their home jurisdictions. The next case management conference in JCCP No. 4955 was held on February 24, 2022. At that case management conference, the Court ordered a mediation between the Plaintiffs and Davey Tree related to Davey Tree's contracts with PG&E. ~~This mediation shall be scheduled by May 27, 2022, with the mediation to occur thereafter. This mediation would include Davey Tree, the Fire Victim Trust, and all other plaintiff groups.~~ Separately, the court ordered that all parties shall participate in a ~~global~~ mediation ~~including selecting a mediator, shall begin~~with the ~~process of securing a~~Plaintiffs prior to January 27, 2023. An initial mediation date ~~by May 27,~~for all the Plaintiffs and Davey Tree related to parties on the contractual issues was set for October 17, 2022 ~~and shall complete a first session of a mediation by October 28, 2022.~~but did not resolve at this initial mediation.

The Defendants have also received evidence from the Plaintiff's Trust and PG&E collected by those parties during the PG&E bankruptcy proceedings and Davey Tree's experts have begun their initial inspection of the evidence. Davey Tree has responded to all claims asserted by the Plaintiffs in these actions, denying all liability in these cases and is vigorously defending against Plaintiffs' alleged claims.

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

~~- 30 -~~

~~Index~~

~~The Davey Tree Expert Company~~

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

~~April 2, 2022~~

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

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

On March 15, 1979, the Company consummated a plan, which transferred control of the Company to its employees. As a part of this plan, the Company initially sold 120,000 common shares (presently, 46,080,000 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

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Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 1, 2022

(Amounts in thousands, except share data)

the first 3three percent and 50% of the next 2two percent of each participant's before-tax contribution, limited to the first 5five 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 assists with the appraisal of 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 2two 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 ~~$570~~$990 and $1,279 as of ~~April 2,~~October 1, 2022 and December 31, 2021, respectively. The fair value of the shares held in the Davey 401KSOP and ESOP totaled ~~$173,525~~$167,130 and $168,652 as of ~~April 2,~~October 1, 2022 and December 31, 2021, 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 ~~$174,095~~$168,120 and $169,931 as of ~~April 2,~~October 1, 2022 and December 31, 2021, 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 the 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.

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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 and Recent Trends

While the coronavirus ("COVID-19") pandemic did not have a material adverse effect on our reported results for the first ~~three~~nine months of 2022, the overall extent and duration of the impact of COVID-19 on businesses and economic activity generally remains unclear due to the inherent uncertainty surrounding COVID-19, given its continual evolution.

We have taken steps to support our employees and protect their health and safety, while also ensuring that our business can continue to operate and provide services to our customers. We continue to provide additional administrative leave for employees affected by COVID-19 directly or indirectly. During the second and third quarters of 2021, we began to bring employees back to our corporate headquarters on a limited basis with increased safety protocols and in compliance with public health and government guidance and also began to lift travel restrictions in situations where necessary. In the first ~~three~~nine months of 2022, we incurred expenses of ~~$856~~$1,530 as a result of the COVID-19 pandemic mainly for administrative leave and personal protective equipment.

The extent to which our operations may be impacted by COVID-19 will depend largely on future developments, which are highly uncertain and cannot be accurately predicted, including new information which may emerge concerning the severity of the outbreak, any additional resurgences of cases in the United States and breakthrough infections among the fully vaccinated population, the emergence of new COVID-19 variants, the timing, acceptance, availability and effectiveness of COVID-19 vaccines (including booster vaccines), testing, and other treatments 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, including any applicable vaccine mandates, among other things. The situation surrounding COVID-19 remains fluid, and the potential for a material impact on our business increases the longer the COVID-19 pandemic 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 in the future.

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~~Index~~

Our business continues to be impacted by a number of other macro-economic factors, in addition to the trailing impact of the COVID-19 pandemic. Global supply chains and product availability remain highly challenged and ~~recent~~ongoing global events in Eastern Europe have only exacerbated an already difficult operating environment. These factors, combined with higher fuel costs, increasing interest rates and a highly competitive labor market, have created an inflationary environment and cost pressures.

In regard to consumer demand, since the onset of the COVID-19 pandemic, our business has experienced an increase in demand and sales. It remains unclear, however, if these demand trends will remain intact or if they will revert to more historical levels over time, particularly as inflation begins to impact discretionary spending.

Inflation rates in the markets in which we operate have increased and may continue to rise. Inflation over the last several months has led us to experience higher costs, including higher labor costs and costs for materials from suppliers and transportation costs, and, in the

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Index

competitive markets in which we operate, we may not be able to increase our prices correspondingly to preserve our gross margins and profitability. If inflation rates continue to rise or remain elevated for a sustained period of time, they could have a material adverse effect on our business, financial condition, results of operations and liquidity. We have generally been able to offset increases in these costs through various productivity and cost reduction initiatives, as well as adjusting our prices to pass through some of these higher costs to our customers; however, our ability to raise our prices depends on market conditions and competitive dynamics. Given the timing of our actions compared to the timing of these inflationary pressures, there may be periods during which we are unable to fully recover the increases in our costs.

2022 Subscription Offering

~~Beginning April 2022, the~~The Company ~~is offering~~offered to eligible employees and nonemployee directors the right to subscribe to a maximum of 2,666,667 common shares of the Company at $18.10 per share in accordance with the provisions of The Davey Tree Expert Company 2014 Omnibus Stock Plan and the rules of the Compensation Committee of the Company’s Board of Directors. The offering period ~~will end~~ended on August 1, ~~2022.~~2022 and resulted in the subscription of 1,476,250 common shares for $26,720 at $18.10 per share. For additional information regarding the offering, see Note L, Per Share Amounts and Common and Redeemable Shares Outstanding.

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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 change in such percentages for the periods presented.


		Three Months Ended			Three Months Ended								Nine Months Ended
			April 2, 2022			April 3, 2021		Change			October 1, 2022		October 2, 2021		Change		October 1, 2022		October 2, 2021		Change
Revenues	Revenues		100.0	%		100.0	%	—	%	Revenues	100.0	%	100.0	%	—	%	100.0	%	100.0	%	—	%

Costs and expenses:	Costs and expenses:									Costs and expenses:
Operating	Operating		68.4			66.6		1.8		Operating	63.8		62.8		1.0		64.7		63.5		1.2
Selling	Selling		17.7			17.6		.1		Selling	18.1		18.2		(.1)		17.6		17.5		.1
General and administrative	General and administrative		8.5			8.5		—		General and administrative	7.0		5.6		1.4		7.6		6.8		.8
Depreciation and amortization	Depreciation and amortization		4.0			4.5		(.5)		Depreciation and amortization	3.5		3.8		(.3)		3.6		4.0		(.4)
Gain on sale of assets, net	Gain on sale of assets, net		(.3)			(.2)		(.1)		Gain on sale of assets, net	(.7)		(.4)		(.3)		(.5)		(.4)		(.1)

Income from operations	Income from operations		1.7			3.0		(1.3)		Income from operations	8.3		10.0		(1.7)		7.0		8.6		(1.6)

Other income (expense):	Other income (expense):									Other income (expense):
Interest expense	Interest expense		(.4)			(.4)		—		Interest expense	(.5)		(.4)		(.1)		(.5)		(.4)		(.1)
Interest income	Interest income		—			—		—		Interest income	.1		—		.1		—		—		—
Other, net	Other, net		(.7)			(.7)		—		Other, net	(.9)		(.6)		(.3)		(.7)		(.5)		(.2)

Income before income taxes	Income before income taxes		.6			1.9		(1.3)		Income before income taxes	7.0		9.0		(2.0)		5.8		7.7		(1.9)

Income taxes	Income taxes		.1			.4		(.3)		Income taxes	1.9		2.3		(.4)		1.5		2.0		(.5)

Net income	Net income		.5	%		1.5	%	(1.0)	%	Net income	5.1	%	6.7	%	(1.6)	%	4.3	%	5.7	%	(1.4)	%

- 3339 -

Index

~~First Three Months—~~Third Quarter—Three Months Ended ~~April 2,~~October 1, 2022 Compared to Three Months Ended ~~April 3,~~October 2, 2021

Our results of operations for the three months ended ~~April 2,~~October 1, 2022 compared to the three months ended ~~April 3,~~October 2, 2021 were as follows:


		Three Months Ended									Three Months Ended
		April 2, 2022		April 3, 2021		Change		Percentage Change			October 1, 2022		October 2, 2021		Change		Percentage Change
Revenues	Revenues	$	342,644	$	298,821	$	43,823	14.7	%	Revenues	$	398,945	$	370,244	$	28,701	7.8	%

Costs and expenses:	Costs and expenses:									Costs and expenses:
Operating	Operating	234,207		199,035		35,172		17.7		Operating	254,661		232,599		22,062		9.5
Selling	Selling	60,796		52,687		8,109		15.4		Selling	72,364		67,353		5,011		7.4
General and administrative	General and administrative	28,995		25,351		3,644		14.4		General and administrative	27,964		20,739		7,225		34.8
Depreciation and amortization	Depreciation and amortization	13,787		13,458		329		2.4		Depreciation and amortization	13,780		14,127		(347)		(2.5)
Gain on sale of assets, net	Gain on sale of assets, net	(898)		(684)		(214)		31.3		Gain on sale of assets, net	(2,837)		(1,507)		(1,330)		88.3
		336,887		289,847		47,040		16.2			365,932		333,311		32,621		9.8

Income from operations	Income from operations	5,757		8,974		(3,217)		(35.8)		Income from operations	33,013		36,933		(3,920)		(10.6)
Other income (expense):	Other income (expense):									Other income (expense):
Interest expense	Interest expense	(1,445)		(1,274)		(171)		13.4		Interest expense	(2,164)		(1,449)		(715)		49.3
Interest income	Interest income	27		69		(42)		(60.9)		Interest income	303		39		264		676.9
Other, net	Other, net	(2,337)		(2,050)		(287)		14.0		Other, net	(3,371)		(2,298)		(1,073)		46.7
Income before income taxes	Income before income taxes	2,002		5,719		(3,717)		(65.0)		Income before income taxes	27,781		33,225		(5,444)		(16.4)

Income taxes	Income taxes	220		1,292		(1,072)		(83.0)		Income taxes	7,317		8,298		(981)		(11.8)

Net income	Net income	$	1,782	$	4,427	$	(2,645)	(59.7)	%	Net income	$	20,464	$	24,927	$	(4,463)	(17.9)	%

Revenues--Revenues of ~~$342,644~~$398,945 increased ~~$43,823~~$28,701 compared with ~~$298,821~~$370,244 in the third quarter of 2021. Utility Services increased $12,345 or 6.0% compared with the third quarter of 2021. The increase was attributable to new accounts as well as increased work year-over-year and price increases on existing accounts. Residential and Commercial Services increased $15,969 or 9.7% from the third quarter of 2021. Increases were primarily in tree and plant care revenues and grounds maintenance revenue.

Operating Expenses--Operating expenses of $254,661 increased $22,062 compared with the third quarter of 2021. Utility Services increased $14,694 or 10.0% compared with the third quarter of 2021 and, as a percentage of revenue, increased to 73.7% from 71.0%. The increase was primarily attributable to additional expenses for labor and benefits expenses, fuel expense, crew meals and lodging expenses, subcontractor expense, and tools and parts expense.Residential and Commercial Services increased $6,994 or 8.1% compared with the third quarter of 2021 but, as a percentage of revenue, decreased to 51.6% from 52.4%. The increase was primarily attributable to increases in labor and benefits expenses, fuel expense, equipment maintenance expense, subcontractor expense, tools and parts expenses and materials expense.

Operating expenses for the third quarter of 2022 also included $617 of expenses related directly to COVID-19, including $608 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. For the third quarter of 2021, the Company had $204 of expenses directly related to COVID-19.

- 40 -

Index

Fuel costs of $16,243 increased $4,807, or 42.0%, from the $11,436 incurred in the third quarter of 2021 and impacted operating expenses within all segments. The $4,807 increase included usage increases approximating $591 and price increases approximating $4,216.

Selling Expenses--Selling expenses of $72,364 increased $5,011 compared with the third quarter of 2021 but, as a percentage of revenue, decreased to 18.1% from 18.2%. Utility Services increased $3,517 or 15.6% compared to the third quarter of 2021 and, as a percentage of revenue, increased to 12.0% from 11.0%. The increase was primarily attributable to increases in field management wages and incentive expense. Residential and Commercial Services increased $2,052 or 4.5% from the third quarter of 2021 but, as a percentage of revenue, decreased to 26.4% from 27.7%. The increase was primarily attributable to increases in field management and sales wage expenses, marketing expenses and office rent.

General and Administrative Expenses--General and administrative expenses of $27,964 increased $7,225 from $20,739 in the third quarter of 2021. The increase was primarily attributable to increases in salary expense, and travel expenses and was partially offset by a decrease in professional services expense.

Depreciation and Amortization Expense--Depreciation and amortization expense of $13,780 decreased $347 from $14,127 incurred in the third quarter of 2021.

Gain on the Sale of Assets, Net--Gain on the sale of assets of $2,837 for the third quarter of 2022 increased $1,330 from the $1,507 gain in the third quarter of 2021. We sold a greater number of units of equipment at a higher average gain per unit in the third quarter of 2022 as compared with the third quarter of 2021.

Interest Expense--Interest expense of $2,164 increased $715 from the $1,449 incurred in the third quarter of 2021.The increase was attributable to higher average borrowing and higher interest rates during the third quarter of 2022, as compared with the third quarter of 2021.

Other, Net--Other expense, net, of $3,371 increased $1,073 from the $2,298 of other expense incurred in the third quarter of 2021 and consisted of nonoperating income and expense, including losses on marketable securities, pension expense and foreign currency transaction gains/losses on the intercompany account balances of our Canadian operations.

Income Taxes--Income taxes for the third quarter of 2022 were $7,317, as compared to $8,298 for the third quarter of 2021. 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 third quarter of 2022 was 26.3% as compared with the third quarter of 2021 effective tax rate of 25.0%.

Net Income--Net income of $20,464 for the third quarter of 2022 was $4,463 less than the $24,927 net income for the third quarter of 2021.

- 41 -

Index

First Nine Months—Nine Months Ended October 1, 2022 Compared to Nine Months Ended October 2, 2021

Our results of operations for the nine months ended October 1, 2022 compared to the nine months ended October 2, 2021 were as follows:


	Nine Months Ended
	October 1, 2022		October 2, 2021		Change		Percentage Change
Revenues	$	1,143,548	$	1,024,541	$	119,007	11.6	%

Costs and expenses:
Operating	740,422		650,909		89,513		13.8
Selling	201,315		178,876		22,439		12.5
General and administrative	87,014		69,712		17,302		24.8
Depreciation and amortization	41,082		41,287		(205)		(.5)
Gain on sale of assets, net	(5,787)		(4,174)		(1,613)		38.6
	1,064,046		936,610		127,436		13.6

Income from operations	79,502		87,931		(8,429)		(9.6)
Other income (expense):
Interest expense	(5,312)		(4,093)		(1,219)		29.8
Interest income	489		161		328		203.7
Other, net	(8,241)		(5,548)		(2,693)		48.5
Income before income taxes	66,438		78,451		(12,013)		(15.3)

Income taxes	17,407		20,554		(3,147)		(15.3)

Net income	$	49,031	$	57,897	$	(8,866)	(15.3)	%

Revenues--Revenues of $1,143,548 increased $119,007 compared with $1,024,541 in the first ~~three~~nine months of 2021. Utility Services increased ~~$31,314~~$80,551 or ~~18.0%~~14.5% compared with the first ~~three~~nine months of 2021. The increase was primarily attributable to new accounts, as well as increased work year-over-year on other accounts and price increases on existing accounts within both our U.S. and Canadian operations. Residential and Commercial Services increased ~~$12,424~~$38,540 or ~~10.0%~~8.3% compared with the first ~~three~~nine months of 2021. Increases were primarily in tree and plant care revenue, consulting and other revenue and grounds ~~maintenance.~~maintenance revenue.

Operating Expenses--Operating expenses of ~~$234,207~~$740,422 increased ~~$35,172~~$89,513 compared with the first ~~three months of 2021 and, as a percentage of revenues, increased to 68.4% from 66.6%. Utility Services increased $25,959 or 20.3% compared with the first three~~nine months of 2021 and, as a percentage of revenue, increased to ~~74.9%~~64.7% from ~~73.5%~~63.5%. Utility Services increased $65,742 or 16.3% compared with the first nine months of 2021 and, as a percentage of revenue, increased to 73.6% from 72.5%. The increase was attributable to increases in labor and benefits expense, fuel expense, equipment expense, materials expense, crew meals and lodging expenses, tools and parts expense and subcontractor expense. Residential and Commercial Services increased ~~$8,922~~$23,107 or ~~12.6%~~9.5% compared with the first ~~three~~nine months of 2021 and, as a percentage of revenue, increased to ~~58.1%~~53.0% from ~~56.8%~~52.5%. The increase was primarily attributable to increases in labor and benefits expense, fuel expense, equipment expense, tool expense, ~~and materials~~subcontractor expense and ~~was partially offset by a decrease in subcontractor~~materials expense.

Operating expenses for the first ~~three~~nine months of 2022 also included ~~$856~~$1,530 of expenses related directly to COVID-19, including ~~$663~~$1,322 for additional administrative leave offered to employees who were unable to work due to COVID-19-related restrictions. For the first ~~three~~nine months of 2021, the Company had ~~$460~~$1,058 of expenses directly related to COVID-19.

- 3442 -

Index

Fuel costs of ~~$12,194~~$45,379 increased ~~$3,956,~~$15,409, or ~~48.0%~~51.4%, from the ~~$8,238~~$29,970 incurred in the first ~~three~~nine months of 2021 and impacted operating expenses within all segments. The ~~$3,956~~$15,409 increase included usage increases approximating ~~$515~~$1,609 and price increases approximating ~~$3,441.~~$13,800.

Selling Expenses--Selling expenses of ~~$60,796~~$201,315 increased ~~$8,109~~$22,439 compared with the first ~~three~~nine months of 2021 and, as a percentage of revenue, increased to ~~17.7%~~17.6% from ~~17.6%~~17.5%. Utility Services increased ~~$4,040~~$12,797 or ~~20.0%~~20.6% compared to the first ~~three~~nine months of 2021 and, as a percentage of revenue, increased to 11.8% from ~~11.6%~~11.2%. The increase was primarily attributable to increases in field management wages and field management travel expense. Residential and Commercial Services experienced an increase of ~~$3,846~~$9,843 or ~~11.5%~~8.2% compared to the first ~~three~~nine months of 2021 ~~and,~~but, as a percentage of revenue, ~~increased to 27.2% from 26.8%~~remained at 25.7%. The increase was primarily attributable to increases in field management wages and incentive expense, travel expense, marketing expense and rent expense.

General and Administrative Expenses--General and administrative expenses of ~~$28,995~~$87,014 increased ~~$3,644~~$17,302 from ~~$25,351~~$69,712 in the first ~~three~~nine months of 2021. The increase was primarily attributable to increases in salary and incentive expense and travel ~~expense which was partially offset by a decrease in computer expenses.~~expense.

Depreciation and Amortization Expense--Depreciation and amortization expense of ~~$13,787 increased $329~~$41,082 decreased $205 from ~~$13,458~~$41,287 incurred in the first ~~three~~nine months of 2021.

Gain on the Sale of Assets, Net--Gain on the sale of assets of ~~$898~~$5,787 for the first ~~three~~nine months of 2022 increased ~~$214~~$1,613 from the ~~$684~~$4,174 gain in the first ~~three~~nine months of 2021. We sold more units of equipment ~~but~~ at a ~~lower~~higher average gain per unit during the first ~~three~~nine months of 2022 as compared with the first ~~three~~nine months of 2021.

Interest Expense--Interest expense of ~~$1,445~~$5,312 increased ~~$171~~$1,219 from the ~~$1,274~~$4,093 incurred in the first ~~three~~nine months of 2021. The increase was attributable to higher average borrowing and increased interest rates during the first ~~three~~nine months of 2022, as compared with the first ~~three~~nine months of 2021.

Other, Net--Other expense, net, of ~~$2,337~~$8,241 increased ~~$287~~$2,693 from the ~~$2,050~~$5,548 expense incurred in the first ~~three~~nine months of 2021 and consisted of nonoperating income and expense, including losses on marketable securities, pension expense and foreign currency gains/losses on the intercompany account balances of our Canadian operations.

Income Taxes--Income taxes for the first ~~three~~nine months of 2022 were ~~$220,~~$17,407, as compared to ~~$1,292~~$20,554 for the first ~~three~~nine months of 2021. 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 ~~three~~nine months of 2022 was ~~11.0%~~26.2%. Our effective tax rate for the first ~~three~~nine months of 2021 was ~~22.6%~~26.2%. The change in the effective tax rate from statutory tax rates was primarily due to the impact of state and local taxes, which was partially offset by favorable discrete items.

Net Income--Net income of ~~$1,782~~$49,031 for the first ~~three~~nine months of 2022 was ~~$2,645~~$8,866 less than the net income of ~~$4,427~~$57,897 for the first ~~three~~nine months of 2021.

~~- 35 -~~

~~Index~~

LIQUIDITY AND CAPITAL RESOURCES

Our principal financial requirements are for capital spending, working capital and business acquisitions. Cash generated from operations, our revolving credit facility and note issuances are our primary sources of capital. We also engaged in a subscription offering of our common shares to eligible employees and nonemployee directors, which closed tn the third quarter of 2022 and resulted in the subscription of 1,476,250 common shares for $26,720 at $18.10 per share.

- 43 -

Index

Cash Flow Summary

Our cash flows from operating, investing and financing activities for the ~~three~~nine months ended ~~April 2,~~October 1, 2022 and ~~April 3,~~October 2, 2021 were as follows:


		Three Months Ended					Nine Months Ended
		April 2, 2022		April 3, 2021			October 1, 2022		October 2, 2021
Cash provided by (used in):	Cash provided by (used in):					Cash provided by (used in):
Operating activities	Operating activities	$	28,285	$	22,395	Operating activities	$	62,980	$	57,401
Investing activities	Investing activities	(37,119)		(26,066)		Investing activities	(95,608)		(59,777)
Financing activities	Financing activities	11,116		16,195		Financing activities	36,183		19,192
Effect of exchange rate changes on cash	Effect of exchange rate changes on cash	35		36		Effect of exchange rate changes on cash	(171)		40
Increase in cash	Increase in cash	$	2,317	$	12,560	Increase in cash	$	3,384	$	16,856

Cash Provided By Operating Activities--Cash provided by operating activities was ~~$28,285~~$62,980 for the first ~~three~~nine months of 2022, a ~~$5,890~~$5,579 increase when compared to the first ~~three~~nine months of 2021. The ~~$5,890~~$5,579 increase in operating cash flow was primarily attributable to ~~the~~a change of ~~$27,691~~$22,180 related to accounts payable and accrued expenses, and the change of ~~$9,272~~$8,111 related to other operating assets and liabilities, partially offset by athe change of ~~$30,008~~$19,183 related to accounts receivable.

Overall, accounts receivable ~~decreased $2,015~~increased $49,451 during the first ~~three~~nine months of 2022, as compared to ~~a decrease~~an increase of ~~$32,023~~$30,268 during the first ~~three~~nine months of 2021. 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 ~~three~~nine months of 2022 increased by five days to 7375 days, compared to 6870 days at the end of the first ~~three~~nine months of 2021.

Accounts payable and accrued expenses ~~decreased $2,041~~increased $12,709 in the first ~~three~~nine months of 2022, a change of ~~$27,691~~$22,180 compared to the ~~$29,732~~$9,471 decrease in the first ~~three~~nine months of 2021. The change was primarily related to the timing of estimated income tax payments and employer payroll taxes payable ~~deferred in 2020~~ as ~~a result of the Coronavirus Aid, Relief, and Economic Security Act.~~well as compensated absence accruals. Self-insurance accruals increased ~~$5,076~~$13,306 in the first ~~three~~nine months of 2022, which was ~~$435~~$265 more than the increase of ~~$4,641~~$13,041 experienced in the first ~~three~~nine months of 2021. The increase was attributable to increased exposures within our workers compensation, general liability and vehicle liability lines of coverage.

Other operating assets and liabilities ~~decreased $1,347~~increased $7,710 in the first ~~three~~nine months of 2022, a change of ~~$9,272~~$8,111 compared to the ~~$7,925 increase~~$401 decrease in the first ~~three~~nine months of 2021. The change was primarily attributable to cloud computing arrangements.

Cash Used In Investing Activities--Cash used in investing activities for the first ~~three~~nine months of 2022 was ~~$37,119,~~$95,608, a ~~$11,053~~$35,831 increase when compared to the first ~~three~~nine months of 2021. The increase was primarily the result of increases in purchases of equipment and land and buildings and ~~self-insurance investments,~~marketable securities, partially offset by a decrease in purchases of businesses.

Cash Provided By Financing Activities--Cash provided by financing activities was ~~$11,116~~$36,183 during the first ~~three~~nine months of 2022, a change of ~~$5,079~~$16,991 as compared with the ~~$16,195~~$19,192 provided during the first ~~three~~nine months of 2021. During the first ~~three~~nine months of 2022, our

~~- 36 -~~

~~Index~~

revolving credit facility, net provided ~~$23,949~~$51,267 in cash as compared with ~~$25,000~~$33,478 provided during the first ~~three~~nine months of 2021. We use the credit facility primarily for capital expenditures, redemptions of shares and payments of notes payable related to acquisitions. Notes payable ~~decreased $9,190~~increased $6,735 during the first ~~three~~nine months of 2022, ~~an increase~~a decrease of ~~$3,218~~$3,346 when compared to the ~~$5,972 decrease~~$10,081 increase in the first ~~three~~nine months of 2021. Treasury share transactions (purchases and sales) used ~~$2,094~~$16,824 for the first ~~three~~nine months of 2022, ~~$1,093~~$2,728 more than the ~~$1,001~~$19,552 used in the first ~~three~~nine months of 2021. Dividends paid of ~~$782~~$2,682 during the first ~~three~~nine months of 2022 increased ~~$211~~$555 as

- 44 -

Index

compared with ~~$571~~$2,127 paid in the first ~~three~~nine months of 2021, in part due to the increase in dividend paid per share implemented during the fourth quarter of 2021 and the second ~~and fourth quarters~~quarter of ~~2021.~~2022.

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 P,Q, such purchases are not required, and the Company retains the right to discontinue them at any time. Repurchases of redeemable common shares at shareholders' request approximated ~~$467~~$12,814 and ~~$195~~$6,860 during the ~~three~~nine months ended ~~April 2,~~October 1, 2022 and ~~April 3,~~October 2, 2021, respectively. Share repurchases, other than redeemable common shares, approximated ~~$6,537~~$33,053 and ~~$3,549~~$29,647 during the ~~three~~nine months ended ~~April 2,~~October 1, 2022 and ~~April 3,~~October 2, 2021, respectively.

Contractual Obligations Summary and Commercial Commitments

As of ~~April 2,~~October 1, 2022, total commitments related to issued letters of credit were ~~$88,365,~~$94,509, of which ~~$2,877~~$2,700 were issued under the revolving credit facility, ~~$83,355~~$89,689 were issued under the AR Securitization program, and ~~$2,133~~$2,120 were issued under short-term lines of credit. As of December 31, 2021, total commitments related to issued letters of credit were $88,362, of which $2,877 were issued under the revolving credit facility, $83,355 were issued under the AR Securitization program, and $2,130 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 2022 through 2026. We intend to renew the surety bonds where appropriate and as necessary.

Capital Resources

Cash generated from operations, 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 continually review our existing sources of financing and evaluate alternatives. At ~~April 2,~~October 1, 2022, we had working capital of ~~$132,178,~~$171,930, short-term lines of credit approximating ~~$8,535~~$8,971 and ~~$251,342~~$224,201 available under our revolving credit facility.

For more information regarding our outstanding debt, see Note F,G, Short and 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.

~~- 37 -~~

~~Index~~

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.

- 45 -

Index

As discussed in our 2021 annual report, ~~on Form 10-K for the year ended December 31, 2021,~~ we believe that our policies related to revenue recognition, the allowance for credit losses, stock valuation and self-insurance 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 credit losses; and self-insurance accruals. We base our estimates on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates. Our critical accounting policies have not changed materially from those discussed in our 2021 Annual Report.

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. These statements relate to future events or our future financial performance. In some cases, forward-looking statements may be identified by terminology such as "may," "will," "should," "could," "might," "expects," "plans," "anticipates," "believes," "estimates," "seeks," "predicts," "potential," "would," "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 of which have been, and may further be, exacerbated by the COVID-19 pandemic. Some important factors that could cause actual results to differ materially from those in the forward-looking statements or materially adversely affect our business, results of operations or financial condition include: the continued impact of the COVID-19 pandemic and the responses ~~thereto, including any mandatory vaccination requirements that may be applicable;~~thereto; our inability to attract and retain a sufficient number of qualified employees for our field operations or qualified management personnel and increased wage rates that may result from our need to attract and retain employees; increases in the cost of obtaining adequate insurance, or the inadequacy of our self-insurance accruals or insurance coverages; inability to obtain, or cancellation of, third-party insurance coverage; the impact of wildfires in California and other areas, as well as other severe weather events and natural disasters, which events may worsen or increase due to the effects of climate change; payment delays or delinquencies resulting from financial difficulties of our significant customers, particularly utilities; the outcome of litigation and third-party and governmental regulatory claims against us; an increase in our operating expenses due to significant increases in fuel prices for extended periods of time, such as the ~~current~~recent increases and volatility arising from the effects of the Russia-Ukraine conflict; disruptions, delays or price increases within our supply chain; our ability to withstand intense competition; the effect of various economic factors that may adversely impact our customers’ spending and pricing for our services, including the impact of inflationary pressures, and impede our collection of accounts receivable; the impact of global climate change and related regulations; fluctuations in our quarterly results due to the seasonal nature of our business or changes in general and local economic conditions, among other factors; being 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; damage to our reputation of quality, integrity and performance; limitations on our shareholders’ ability to sell their common shares due to the lack of public market for

~~- 38 -~~

~~Index~~

such shares; our ability to continue to declare cash dividends; our failure to comply with environmental laws resulting in significant liabilities, fines and/or penalties; difficulties obtaining surety bonds or letters of credit necessary to support our operations; uncertainties in the credit and financial markets, including the negative impacts of COVID-19 and the Russia-Ukraine conflict, supply chain shortages and disruptions, rising interest rates, labor shortages and inflationary cost pressures, among other factors, potentially limiting our access to capital; fluctuations in foreign currency exchange rates; significant

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increases in health care costs; the impact of corporate citizenship and environmental, social and governance matters and/or our reporting of such matters; our ability to successfully implement our new enterprise resource planning system in a cost-effective and timely manner; the impact of events such as natural disasters, public health epidemics or pandemics, such as COVID-19, terrorist attacks or other external events; and our inability to properly verify the employment eligibility of our employees.

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.~~results, except as required by applicable securities laws.

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 2021 annual ~~report on Form 10-K for the year ended December 31, 2021.~~report.

Item 3.Quantitative and Qualitative Disclosures about Market Risk.

~~There~~While we have experience inflation and higher interest rates during 2022, there have been no material changes in our reported market risks or risk management policies since the filing of our 2021 Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on March 11, 2022.

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 Securities and 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

There were no changes in our internal control over financial reporting during the fiscal quarter ended ~~April 2,~~October 1, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II. Other Information

Items 3, 4 and 5 are not applicable.

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~~Index~~

Item 1. Legal Proceedings.

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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, 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 another individual with various crimes, including conspiracy to murder the deceased. Two of the three individually charged defendants have pled guilty to charges related to their involvement with the murder and other illegal activities on March 28, 2022 and April 11, ~~2022 but have not yet been sentenced.~~2022. A third individual criminally charged defendant iswas scheduled to go to trial on October 25, 2022, and was convicted of charges for his role in ~~August 2022.~~the murder, harboring of illegal aliens; and money laundering conspiracy. All three criminal defendants have not yet been sentenced.

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~~Index~~

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

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State Court heard oral argument on Defendants’ motions for summary judgment, and the motions remain pending during the stay of the cases.

Northern California Wildfires

Five lawsuits have been filed that name contractors for PG&E Corporation and its subsidiary, Pacific Gas and Electric Company (together, "PG&E"), including Davey Tree, with respect to claims arising from wildfires that occurred in Pacific Gas and Electric Company’s service territory in northern California beginning on October 8, 2017. An action was brought on August 8, 2019 in Napa County Superior Court, entitled Donna Walker, et al. v. Davey Tree Surgery Company, et al., Case No. 19CV001194. An action was brought on October 8, 2019 in San Francisco County Superior Court, entitled Quinisha Kyree Abram, et al. v. ACRT, Inc., et. al, Case No. CGC-19-579861.

Three additional actions were brought on January 28, 2021 in San Francisco County Superior Court, by fire victims represented by a trust, which was assigned contractual rights in the PG&E bankruptcy proceedings. These cases are entitled John K. Trotter, Trustee of the PG&E Fire 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. On September 22, 2021, the court granted Davey Tree's petition to coordinate all cases, including Walker, as a California Judicial Council Coordination Proceeding, In Re North Bay Fire Cases, JCCP No. 4955. As a result of the coordination order, all five of the individual actions are stayed in their home jurisdictions. The next case management conference in JCCP No. 4955 was held on February 24, 2022. At that case management conference, the Court ordered a mediation between the Plaintiffs and Davey Tree related to Davey Tree's contracts with PG&E. ~~This mediation shall be scheduled by May 27, 2022, with the mediation to occur thereafter. This mediation would include Davey Tree, the Fire Victim Trust, and all other plaintiff groups.~~ Separately, the court ordered that all parties shall participate in a ~~global~~ mediation ~~including selecting a mediator, shall begin~~with the ~~process of securing a~~Plaintiffs prior to January 27, 2023. An initial mediation date ~~by May 27,~~for all the Plaintiffs and Davey Tree related to parties on the contractual issues was set for October 17, 2022 ~~and shall complete a first session of a mediation by October 28, 2022.~~but did not resolve at this initial mediation.

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

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~~Index~~

Item 1A.Risk Factors.

Our Annual Report on Form 10-K for the year ended December 31, 2021, includes a detailed discussion of our risk factors. Disclosure of risks should not be interpreted to imply that the risks have not already materialized. There have been no material changes to the risk factors described in the 2021 ~~Form 10-K~~Annual Report during the ~~three~~nine months ended ~~April 2,~~October 1, 2022.

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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 ~~three~~nine months of 2022.


Period	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	Period	Total Number of Shares Purchased (1)	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 2022	Fiscal 2022						Fiscal 2022
January 1 to January 29	January 1 to January 29	1,285	$	18.10	—	3,845,851	January 1 to January 29	1,285	$	18.10	—	3,845,851
January 30 to February 26	January 30 to February 26	5,620	18.10		—	3,845,851	January 30 to February 26	5,620	18.10		—	3,845,851
February 27 to April 2	February 27 to April 2	382,610	18.10		—	3,845,851	February 27 to April 2	382,610	18.10		—	3,845,851
Total First Quarter	Total First Quarter	389,515	18.10		—		Total First Quarter	389,515	18.10		—

April 3 to April 30							April 3 to April 30	321,122	18.10		—	3,845,851
May 1 to May 28							May 1 to May 28	927,994	18.10		—	3,845,851
May 29 to July 2							May 29 to July 2	397,888	18.10		—	3,845,851
Total Second Quarter							Total Second Quarter	1,647,004	18.10		—

July 3 to July 30							July 3 to July 30	16,083	18.10		—	3,845,851
July 31 to August 27							July 31 to August 27	108,358	18.10		—	3,845,851
August 28 to October 1							August 28 to October 1	366,911	18.10		—	3,845,851
Total Third Quarter							Total Third Quarter	491,352	18.10		—

Total Year-to-Date	Total Year-to-Date	389,515	$	18.10	—		Total Year-to-Date	2,527,871	$	18.10	—

(1) During the three months ended April 2, 2022, the Company purchased 389,515 shares from shareholders excluding those purchased through publicly announced plans. The Company provides 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).
(1) During the nine months ended October 1, 2022, the Company purchased 2,527,871 shares from shareholders excluding those purchased through publicly announced plans. The Company provides 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).							(1) During the nine months ended October 1, 2022, the Company purchased 2,527,871 shares from shareholders excluding those purchased through publicly announced plans. The Company provides 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).

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, an independent stock valuation firm assists with the appraisal of the fair market value of the common shares, 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 P,Q, The Davey 401KSOP and Employee Stock Ownership Plan). The purchases described above were added to our treasury stock.

At the Annual Meeting of Shareholders of the Company held on May 16, 2017, the shareholders of the Company approved proposals to amend the Company's Articles of Incorporation to (i) expand the Company's 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

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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.

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~~Index~~

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

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

In accordance with the amendments to the Articles approved by the Company's shareholders at the 2017 Annual Meeting, on May 17, 2017, the Company's Board of Directors authorized the Company to repurchase up to 400,000 common shares, which authorization was increased by an additional 2,000,000 common shares in May 2018 and increased further by an additional 3,000,000 common shares in September 2021. Of the 5,400,000 total shares authorized, 3,845,851 remained available under the program, as of ~~April 2,~~October 1, 2022. Share repurchases may be made from time to time and the timing of any repurchases and the actual number of shares repurchased will depend on a variety of factors. The Company is not obligated to purchase any shares, and repurchases may be commenced, suspended or discontinued from time to time without prior notice. The repurchase program does not have an expiration date.

Item 6.Exhibits.

See the Exhibit Index below.

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~~Exhibit Index~~Exhibits

Exhibit No.

Description

~~10.1~~*

Amendment to The Davey Management Incentive Compensation Plan (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 9, 2022).

~~10.2~~*

~~Employment agreement by and among The Davey Tree Expert Company and Erika J. Schoenberger dated July 24, 2018.~~

~~Filed Herewith~~

31.1

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

Filed Herewith

31.2

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

Filed Herewith

32.1

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

Furnished Herewith

32.2

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

Furnished Herewith

101

The following materials from the Company's Quarterly Report on Form 10-Q for the quarter ended ~~April 2,~~October 1, 2022, formatted in iXBRL (inline eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets (unaudited), (ii) the Condensed Consolidated Statements of Operations (unaudited), (iii) the Condensed Consolidated Statements of Comprehensive Income (unaudited), (iv) the Condensed Consolidated Statements of Shareholders' Equity (unaudited), (v) the Condensed Consolidated Statements of Cash Flows (unaudited), and (vi) Notes to Condensed Consolidated Financial Statements (unaudited). The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.

Filed Herewith

104

Cover Page Interactive Data File (embedded within the inline XBRL document)

Filed Herewith

* Management contracts or compensatory plans or arrangements.

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Signatures

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

THE DAVEY TREE EXPERT COMPANY

Date:

~~May 11,~~November 8, 2022

By:

/s/ Joseph R. Paul

Joseph R. Paul

Executive Vice President, Chief Financial Officer and Assistant Secretary

(Principal Financial Officer)

Date:

~~May 11,~~November 8, 2022

By:

/s/ Thea R. Sears

Thea R. Sears

Vice President and Controller

(Principal Accounting Officer)

- 4553 -


	Three Months Ended April 2, 2022		Year Ended December 31, 2021
Detail of acquisitions:
Assets acquired:
Cash	$	—	$	292
Receivables	—		509
Operating supplies	10		1,044
Prepaid expense	—		203
Equipment	695		4,049
Deposits and other	395		1,574
Intangible assets	714		3,005
Goodwill	397		7,723
Deferred credit - gain on bargain purchase	(663)		—
Liabilities assumed	(424)		(3,713)
Debt issued for purchases of businesses	(126)		(2,961)
Cash paid	$	998	$	11,725


Maturity Analysis of Lease Liabilities		As of April 2, 2022
		Operating Leases		Finance Leases
	Remaining nine months of 2022	$	25,209	$	2,273
	2023	26,297		2,717
	2024	19,044		2,595
	2025	12,892		1,990
	2026	6,190		1,694
	Thereafter	5,385		969
	Total lease payments	95,017		12,238
	Less interest	4,245		582
	Total	$	90,772	$	11,656






















Three Months Ended April 2, 2022	Foreign Currency Translation Adjustments		Defined Benefit Pension Plans		Accumulated Other Comprehensive Income (Loss)
Balance at January 1, 2022	$	(3,654)	$	(519)	$	(4,173)
Other comprehensive income (loss) before reclassifications
Unrealized gains (losses)	$	480	$	—	$	480

Amounts reclassified from accumulated other comprehensive income (loss)	—		31		31
Tax effect	—		(7)		(7)
Net of tax amount	480		24		504
Balance at April 2, 2022	$	(3,174)	$	(495)	$	(3,669)

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	$	—	$	450

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