(Address of principal executive offices) (Zip code)

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

x ~~Accelerated~~Emerging Growth Company

¨ ~~Emerging Growth Company~~

¨ ~~Non-Accelerated Filer (Do not check if a smaller reporting company)~~

¨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 x

There were ~~24,203,864~~23,177,264 Common Shares, $1.00 par value, outstanding as of November ~~17, 2017.~~

The Davey Tree Expert Company

Quarterly Report on Form 10-Q

September ~~30, 2017~~28, 2019

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

THE DAVEY TREE EXPERT COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands, except per share data dollar amounts)

THE DAVEY TREE EXPERT COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(In thousands, except per share dollar amounts)

THE DAVEY TREE EXPERT COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

THE DAVEY TREE EXPERT COMPANY

(In thousands, except per share data)

THE DAVEY TREE EXPERT COMPANY

(In thousands, except per share data)

THE DAVEY TREE EXPERT COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

September ~~30, 2017~~28, 2019

(Amounts in thousands, except share data)

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

We have prepared the accompanying unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”), as codified in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), and with the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. The 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 ~~significant~~ intercompany accounts and transactions have been eliminated.

Certain information and disclosures required by U.S. GAAP for complete financial statements have been omitted in accordance with the rules and regulations of the SEC. We suggest that these condensed consolidated financial statements be read in conjunction with the financial statements included in our annual report on Form ~~10-K/A~~10-K for the year ended December 31, ~~2016~~2018 (the ~~“2016~~“2018 Annual Report”).

~~Per Common Share Information--All common share and per share data have been retroactively adjusted to recognize a two-for-one stock split of our common shares effective June 1, 2017.~~

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 consolidated financial statements include amounts that are based on management’s best estimates and judgments. Estimates are used for, but not limited to, accounts receivable valuation, depreciable lives of fixed assets, self-insurance ~~accruals,~~reserves, income taxes and revenue recognition. Actual results could differ from those estimates.

~~Interim Results~~The Company’s fiscal quarters each contain thirteen operating weeks, with the exception of ~~Operations--Interim results may not be indicative~~the fourth quarter of ~~calendar~~a 53-week fiscal year, ~~performance because~~which contains fourteen operating weeks. The Company’s fiscal quarter that ended September 28, 2019 is referred to as the third quarter of ~~seasonal~~2019, and ~~short-term variations.~~the fiscal quarter ended September 29, 2018 is referred to as the third quarter of 2018.

Recent Accounting Guidance

~~Subsequent Events~~Accounting Standards Adopted in 2019

~~On October 6, 2017,~~Accounting Standards Update 2016-02, Leases (Topic 842)--In February 2016, the FASB issued Accounting Standards Update ("ASU") 2016-02, “Leases (Topic 842).” ASU 2016-02, along with several subsequent updates, requires lessees to recognize assets and liabilities created by leases on their balance sheet along with additional disclosure information. The Company adopted the standard on January 1, 2019 using the Comparative Under ASC 840 approach, which permitted the Company ~~entered into a $250,000 Third Amended~~to not recast historical periods for the adoption, and ~~Restated Credit Agreement (the “Credit Agreement”) with a syndicate~~utilized practical expedients as available. The adoption of ~~financial institutions as lenders and issuing banks, which replaces~~ the ~~$175,000 credit agreement, dated~~new standard resulted in the recording, as of ~~November 7, 2013.~~January 1, 2019, of operating right-of-use assets and lease liabilities of $37,429. The Credit Agreement provides for a revolving credit commitment of $250,000, which includes a letter of credit commitment of $100,000 and a swing line commitment of $25,000. Under certain circumstances, the Company may increase the revolving credit commitment amount to $325,000. The commitments will expire on October 6, 2022, or such earlier date on which the commitments shall have been terminated in accordance with the provisionsadoption of the ~~Credit Agreement. Proceeds~~new standard did not impact our consolidated results of ~~borrowings under~~operations and had no impact on our cash flows.

Accounting Standards Update 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220)--In February 2018, the ~~Credit Agreement may be used for working capital, capital expenditures~~FASB issued ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220)." ASU 2018-02 provides an option to reclassify the stranded tax effects within accumulated other comprehensive income to retained earnings as a result of the Tax Cuts and Jobs Act of 2017. The Company adopted ASU 2018-02 effective January 1, 2019 and did not elect to reclassify the income tax effects of the Tax Cuts and Jobs Act from accumulated other ~~general corporate purposes.~~

~~On October 12, 2017, the Company entered into an agreement~~comprehensive income to ~~purchase a guaranteed group annuity contract from a third-party insurance company for $8,400, which unconditionally and irrevocably guarantees the full-~~retained earnings.

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

September ~~30, 2017~~28, 2019

(Amounts in thousands, except share data)

~~payment~~SEC Release No. 33-10532, Disclosure Update and Simplification--In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements on the analysis of ~~all annuity payments to certain participants~~shareholders' equity for interim financial statements. Under the amendments, an analysis of changes in ~~our Employee Retirement Pension Plan ("ERP"), with~~each caption of shareholders' equity presented in the ~~third-party insurance company having assumed all investment risk associated with funding participant payments.~~

balance sheet must be provided in a note or separate statement. The ~~purchase~~analysis should present a reconciliation of the ~~group annuity will serve~~beginning balance to ~~reduce~~ the ~~Company’s future pension obligation under its ERP plan and will result~~ending balance of each period for which a statement of comprehensive income is required to be filed. We have incorporated the changes required by SEC Release No. 33-10532 in ~~an actuarial settlement loss of approximately $4,000.~~

~~Recent Accounting Guidance~~

Accounting Standards Adopted ~~in 2017~~Not Yet Adopted

Accounting Standards Update ~~2016-09, Compensation-Stock Compensation~~2016-13, Financial Instruments - Credit Losses (Topic ~~718): Improvements to Employee Share-Based Payment Accounting~~326)--In ~~March~~June 2016, the FASB issued ASU ~~2016-09, “Stock Compensation~~2016-13, "Financial Instruments - Credit Losses (Topic ~~718): Improvements to Employee Share-Based Payment Accounting,”~~326)."ASU 2016-13 replaces the incurred loss impairment methodology in current GAAP for most financial instruments, including trade receivables, with the objective to simplify several aspects of the accounting for share-based payment transactions, including: the income tax consequences; classification of awards as either equity or liabilities; classification of certain items on the statement of cash flows; and, accounting for forfeitures. ASU 2016-09 became effective for Davey Tree on January 1, 2017 and we elected to make an accounting policy change to recognize forfeitures as they occur. The adoption impact on the consolidated condensed balance sheet was a cumulative-effect adjustment of $162, increasing opening retained earnings and decreasing additional paid-in capital.

~~Accounting Standards Not Yet Adopted~~

~~Accounting Standards Update 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting~~--In May 2017, the FASB issued ASU 2017-09, “Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting,” which provides guidance on which changes in the terms or conditions of a share-based payment award require modification accounting under Topic 718. Modification accounting is required for changes in terms or conditions unless the fair value, vesting condition and classification of the modified award is the sameimpairment model, known as the ~~original award.~~current expected credit loss model that is based on expected losses rather than incurred losses. The ~~update is effective for annual and interim periods beginning after December 15, 2017, which for Davey Tree would be January 1, 2018. Early adoption is permitted. We do not expect the adoption of~~ ASU ~~2017-09 to have a material impact on our consolidated financial statements.~~

~~Accounting Standards Update 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment~~--In January 2017, the FASB issued ASU 2017-04, “Intangibles-Goodwill and Other (Topic 350),” which simplifies the subsequent measurement of goodwill by eliminating Step 2 of the goodwill impairment test which required entities to fair value their assets and liabilities using procedures that would be followed in an assumed business combination to arrive at the impairment charge. Under ASU 2017-04, the goodwill impairment test is performed by comparing the fair value of the reporting unit with its carrying amount and an impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. The update is effective for annual or interim periods beginning after December 15, 2019, which for Davey Tree is January 1, 2020. Early adoption is permitted for interim or annual goodwill impairment tests performed after January 1, 2017. The Company intends to early adopt ASU 2017-04 during the fourth quarter 2017 and does not expect the adoption to have a material effect on the Company’s consolidated financial statements or related disclosures.

~~Index~~

~~The Davey Tree Expert Company~~

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

~~September 30, 2017~~

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

~~Accounting Standards Update 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the FASB Emerging Issues Task Force)~~--In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,” which provides guidance on how cash receipts and cash payments related to eight specific cash flow issues are presented and classified in the statement of cash flows, with the objective of reducing the existing diversity in practice. The update is effective for annual periods beginning after December 15, 2017, which for Davey Tree would be January 1, 2018. Early adoption is permitted. We do not expect the adoption of ASU 2016-15 to have a material impact on our consolidated financial statements.

~~Accounting Standards Update 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost~~--In March 2017, the FASB issued ASU 2017-07, “Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” which changes the presentation of net periodic benefit cost related to employer sponsored defined benefit plans and other postretirement benefits. Under ASU 2017-07, service costs will be included within the same income statement line item as other compensation costs arising from services rendered by pertinent employees during the period. The other components of net periodic benefit pension cost will be presented separately outside of income from operations. Additionally, only service costs may be capitalized in assets. ASU 2017-07 is effective for fiscal years beginning after December 15, ~~2017, which for Davey Tree~~2019. The Company is ~~January 1, 2018. Management has not yet completed its assessment of~~evaluating the potential impact of the ~~new standard on the Company’s consolidated financial statements.~~

~~Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606~~)--In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” which will replace all current U.S. GAAP guidance on revenue recognition and eliminate all industry-specific guidance.

The new revenue recognition guidance provides a unified model to determine when and how revenue is recognized. The underlying principle is that an entity should recognize revenue to depict the transfer of promised goods and services to customers in an amount that reflects the consideration which the entity expects to receive in exchange for those goods and services. The guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. Other major provisions include capitalization of certain contract costs, consideration of the time value of money in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The guidance also requires enhanced information to be presented in the financial statements regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers.

~~Subsequent to the issuance of ASU 2014-09, the FASB has provided additional implementation guidance updates related to ASU 2014-09, including:~~

~~ASU 2016-08~~, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net ) (‘Update 2016-08’),” which clarifies the implementation guidance on principal versus agent considerations.

~~Index~~

~~The Davey Tree Expert Company~~

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

~~September 30, 2017~~

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

The effective date and the transition requirements for the Updates are the same as the effective date of Topic 606 ASU 2015-14, which becomes effective for Davey Tree beginning with the first quarter 2018 and can be adopted either retrospectively to each prior reporting period presented or as a cumulative-effect adjustment as of the date of adoption. Early adoption is permitted. The new revenue guidance will supersede existing revenue guidance affecting our Company, and may also affect our business processes and our information technology systems.

Management has assembled an internal project team and is analyzing contracts with our customers covering the significant streams of the Company’s annual revenues under the provisions of the new standard. The analysis of contracts with customers is time-consuming given the unique nature of the individual contracts with our customers and is expected to be completed in the near future. While the full impact of adopting the standard is not currently known, the Company currently has identified certain impacts related to the recognition of certain variable, incentive-based components of contracts related to the timing of revenue recognition. The Company is continuing to assess all other aspects of the standard and the identification of other accounting impacts is possible. The Company has evaluated the disclosure requirements under the standard and is in the process of implementing necessary changes to our systems, policies and the related internal controls as a result. We plan to adopt ASU 2014-09 using the modified retrospective approach effective January 1, 2018.

~~Accounting Standards Update 2016-02, Leases (Topic 842)--~~In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” ASU 2016-02 establishes a comprehensive new lease accounting model. The new standard: (a) clarifies the definition of a lease; (b) requires a dual approach to lease classification similar to current lease classifications; and, (c) causes lessees to recognize leases on the balance sheet as a lease liability with a corresponding right-of-use asset for leases with a lease-term of more than twelve months. The new standard is effective for interim and annual periods beginning after December 15, 2018, which for Davey Tree would be January 1, 2019. Early adoption is permitted. The new standard requires a modified retrospective transition for capital or operating leases existing at or entered into after the beginning of the earliest comparative period presented in the financial statements, but it does not require transition accounting for leases that expire prior to the date of initial application. We are currently evaluating the impact of the new standard on our consolidated financial ~~statements.~~

statements and related disclosures.

Due to the seasonality of our business, our operating results for the three and nine months endedSeptember ~~30, 2017~~28, 2019 are not indicative of results that may be expected for any other interim period or for the year ending December 31, ~~2017. Business~~2019. 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.

~~Index~~

~~The Davey Tree Expert Company~~

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

~~September 30, 2017~~

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

Accounts receivable, net, consisted of the following:



Accounts receivable, net	September 28, 2019		December 31, 2018
Accounts receivable	$	177,644	$	158,556
Receivables under contractual arrangements⁽¹⁾	57,430		40,671
	235,074		199,227
Less allowances for doubtful accounts	2,829		3,321
Accounts receivable, net	$	232,245	$	195,906

Accounts receivable, net September 30,
2017 December 31,
2016
Accounts receivable $ 132,616
$ 128,202
Receivables under contractual arrangements 42,397
21,541
175,013
149,743
Less allowances for doubtful accounts 3,991
3,609
Accounts receivable, net $ 171,022
$ 146,134

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

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

Other current assets September 30,
2017 December 31,
2016
Refundable income taxes $ —
$ 548
Prepaid expense 20,596
14,493
Other 229
1,315
Total $ 20,825
$ 16,356

Accrued expenses September 30,
2017 December 31,
2016
Employee compensation $ 20,793
$ 18,438
Accrued compensated absences 9,790
9,215
Self-insured medical claims 5,535
2,961
Income tax payable 6,021
953
Customer advances, deposits 1,147
2,997
Taxes, other than income 3,068
2,166
Other 619
929
Total $ 46,973
$ 37,659

Other current liabilities September 30,
2017 December 31,
2016
Current portion of:
Long-term debt $ 20,734
$ 16,871
Self-insurance accruals 23,161
23,092
Total $ 43,895
$ 39,963


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

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

September ~~30, 2017~~28, 2019

(Amounts in thousands, except share data)


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

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



Other current assets	September 28, 2019		December 31, 2018
Refundable income taxes	$	—	$	1,625
Prepaid expense	29,979		19,529
Other	905		932
Total	$	30,884	$	22,086



Other assets, noncurrent	September 28, 2019		December 31, 2018
Assets invested for self-insurance	$	13,302	$	15,379
Investment--cost-method affiliate	1,251		1,218
Deferred income taxes	1,519		573
Other	5,605		4,599
Total	$	21,677	$	21,769



Accrued expenses	September 28, 2019		December 31, 2018
Employee compensation	$	25,052	$	24,086
Accrued compensated absences	10,327		9,711
Self-insured medical claims	6,611		3,343
Income tax payable	9,183		31
Customer advances, deposits	2,337		1,322
Taxes, other than income	5,059		2,546
Other	2,651		3,022
Total	$	61,220	$	44,061



Other current liabilities	September 28, 2019		December 31, 2018
Notes payable	$	425	$	—
Current portion of:
Lease liability-operating leases	14,159		—
Self-insurance reserves	27,099		27,434
Total	$	41,683	$	27,434

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 28, 2019

(Amounts in thousands, except share data)


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



Other noncurrent liabilities	September 28, 2019		December 31, 2018
Pension and retirement plans	$	6,047	$	6,138
Other	4,440		3,987
Total	$	10,487	$	10,125


D.	Business Combinations

Our ~~investment~~investments in businesses during the first nine months of ~~2017 was $10,877,~~2019 were $5,527, including liabilities assumed of $402 and debt issued, in the form of notes payable to the sellers, of ~~$3,099,~~$1,322, and have been included in our ~~residential~~Residential and ~~commercial~~Commercial segment. Measurement-period adjustments are not complete. The measurement period for purchase price allocations ends as soon as information of the facts and circumstances becomes available, but does not exceed one year from the acquisition date. During the nine months ended ~~October 1, 2016,~~September 29, 2018, our investment in businesses was ~~$4,170, with liabilities assumed of $98 and $575 debt issued.~~

In March 2017, the Company acquired all of the outstanding common stock of Arborguard Tree Specialists Inc. (“Arborguard”), a residential and commercial tree care company, and certain assets of TTS&G, LLC, a leasing company related to Arborguard, for $7,200 in cash, with liabilities assumed of $2,934 and$10,553, including debt issued, in the form of ~~$2,724. Arborguard’s revenue for~~notes payable to the ~~year ended February 28, 2017 was approximately $10,710.~~

~~The acquisition~~sellers, of Arborguard was accounted for under the acquisition method of accounting. The entire purchase price allocation for Arborguard is preliminary. At September 30, 2017, the fair values of the assets acquired and liabilities assumed have been preliminarily estimated and the excess consideration of $4,627 has been preliminarily recorded as goodwill pending finalization of the fair value. These preliminary estimates will be revised during the measurement period in 2017 as all pertinent information regarding finalization of the valuations for fixed assets, intangible assets, goodwill (including the amount expected to be deductible for tax purposes), tangible assets, other liabilities and deferred income tax assets and liabilities acquired are fully evaluated by the Company.

$2,312.

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



	September 28, 2019			December 31, 2018
Detail of acquisitions:
Assets acquired:
Cash	$	3		$	—
Receivables	41			1,311
Operating supplies	79			23
Prepaid expense	13			89
Equipment	1,120			4,079
Deposits and other	—			7
Intangibles	2,473			4,895
Goodwill	1,798			2,840
Liabilities assumed	(402		)	(2,381		)
Debt issued for purchases of businesses	(1,322		)	(2,402		)
Cash paid	$	3,803		$	8,461

Nine Months Ended
September 30,
2017
Detail of acquisitions:
Assets acquired:
Cash $ 326
Receivables 1,753
Prepaid expense 128
Equipment 1,904
Deposits and other 129
Finite-lived intangibles 4,566
Goodwill 5,027
Liabilities assumed (2,956 )
Debt issued for purchases of businesses (3,099 )
Cash paid $ 7,778

The results of operations of acquired businesses have been included in the 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 ~~ending~~ended September ~~30, 2017~~28, 2019 was not significant. Pro forma net sales and results of operations for the acquisitions, had they occurred at the beginning of the nine months ended September 28, 2019, 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 six years and the non-competition agreements were assigned an average useful life of five years.

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

September ~~30, 2017~~28, 2019

(Amounts in thousands, except share data)


D.	Business Combinations (continued)

Subsequent to September 28, 2019 and through November 5, 2019, we acquired a business for approximately $4,000. The acquired company is in our Residential and Commercial segment. We do not expect the effect of this acquisition on our consolidated revenues and results of operations ~~for the acquisition had it occurred at the beginning of the nine months endedSeptember 30, 2017 are not material and, accordingly, are not provided.~~

to be significant.


E.	Identified Intangible Assets and Goodwill, Net

The carrying amounts of the identified ~~intangibles~~intangible assets and goodwill acquired ~~in connection with our historical investments in businesses~~ were as follows:



	September 28, 2019				December 31, 2018
	Carrying Amount		Accumulated Amortization		Carrying Amount		Accumulated Amortization
Amortized intangible assets:
Customer lists/relationships	$	27,141	$	19,565	$	25,179	$	18,251
Employment-related	8,229		7,245		8,133		6,954
Tradenames	7,160		5,698		6,858		5,435

Amortized intangible assets	42,530		$	32,508	40,170		$	30,640

Less accumulated amortization	32,508				30,640

Identified intangible assets, net	10,022				9,530

Goodwill	39,898				37,971
	$	49,920			$	47,501

September 30, 2017 December 31, 2016
Identified Intangible Assets and Goodwill, Net
Carrying
Amount

Accumulated
Amortization

Carrying
Amount

Accumulated
Amortization
Amortized intangible assets:
Customer lists/relationships $ 21,717
$ 16,449
$ 17,822
$ 15,171
Employment-related 7,390
6,567
7,032
6,386
Tradenames 5,961
5,071
5,634
4,860

Amortized intangible assets $ 35,068
$ 28,087
$ 30,488
$ 26,417

Less accumulated amortization 28,087

26,417

Identified intangibles, net 6,981

4,071

Unamortized intangible assets:

Goodwill 35,378

30,305

$ 42,359

$ 34,376

The changes in the carrying amounts of goodwill, by segment, for the nine months ended September ~~30, 2017~~28, 2019 and September 29, 2018 follow:



	Balance at January 1, 2019		Acquisitions		Translation and Other Adjustments			Balance at September 28, 2019
Utility	$	4,911	$	—	$	—		$	4,911
Residential and Commercial	33,060		1,798		129			34,987
Total	$	37,971	$	1,798	$	129		$	39,898


	Balance at January 1, 2018		Acquisitions		Translation and Other Adjustments			Balance at September 29, 2018
Utility	$	3,424	$	1,499	$	—		$	4,923
Residential and Commercial	32,053		1,104		(318		)	32,839
Total	$	35,477	$	2,603	$	(318	)	$	37,762

Balance at
January 1,
2017
Acquisitions
Translation
and Other
Adjustments

Balance at
September 30, 2017
Utility $ 3,424
$ —
$ —
$ 3,424
Residential and Commercial 26,881
5,027
46
31,954
Total $ 30,305
$ 5,027
$ 46
$ 35,378

Index

~~Index~~

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

September ~~30, 2017~~28, 2019

(Amounts in thousands, except share data)


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

Estimated future aggregate amortization expense of intangible assets--The estimated future aggregate amortization expense of intangible assets, as of September 28, 2019 is as follows:



	Estimated Future Amortization Expense
Year ending December 31, 2019	$	648
2020	2,388
2021	1,923
2022	1,692
2023	1,524
Thereafter	1,847
	$	10,022


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

Our long-term debt consisted of the following:



	September 28, 2019		December 31, 2018
Revolving credit facility:
Swing-line borrowings	$	10,000	$	2,500
LIBOR borrowings	55,000		91,000
	65,000		93,500
Senior unsecured notes:
5.09% Senior unsecured notes	6,000		12,000
3.99% Senior unsecured notes	50,000		50,000
4.00% Senior unsecured notes	25,000		—
	81,000		62,000
Term loans	29,254		23,176
	175,254		178,676
Less debt issuance costs	467		599
Less current portion	29,223		22,514
	$	145,564	$	155,563

September 30,
2017 December 31,
2016
Revolving credit facility
Swing-line borrowings $ 7,000
$ 10,000
LIBOR borrowings 90,000
57,000
97,000
67,000
Senior unsecured notes 18,000
24,000
Term loans 20,410
16,151
Capital leases 2,573
2,343
137,983
109,494
Less debt issuance costs 229
333
Less current portion 20,734
16,871
$ 117,020
$ 92,290

Revolving Credit Facility --As of September ~~30, 2017,~~28, 2019, we had a ~~$175,000~~$250,000 revolving credit facility with a group of banks, which ~~was to expire~~expires in ~~November 2018~~October 2022 and ~~permitted~~permits borrowings, as defined, up to ~~$175,000~~,$250,000, including a letter of credit sublimit of ~~$100,000~~$100,000 and a swing-line commitment of ~~$15,000.~~$25,000. Under certain circumstances, the amount available under the revolving credit facility ~~could~~may be increased to ~~$210,000~~.$325,000. The revolving credit facility ~~contained~~contains certain affirmative and negative covenants customary for this type of facility and ~~included~~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 ~~maximum balance-sheet leverage ratio.~~minimum interest coverage ratio (not less than 3.00 to 1.00), in each case subject to certain further restrictions

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 28, 2019

(Amounts in thousands, except share data)


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

as described in the credit agreement. As of September ~~30, 2017~~,28, 2019, we had unused commitments under the facility approximating$~~73,929~~,182,087, with ~~$101,071~~$67,913 committed, consisting of borrowings of$~~97,000~~65,000 and issued letters of credit of$~~4,071~~.2,913.

Borrowings outstanding ~~bore~~bear interest, at Davey Tree’s option, of either (a) a base rate or (b) LIBOR plus a margin adjustment ranging from ~~.75%~~.875% to 1.50%--with the margin adjustments in both instances based on the Company's leverage ratio at the time of borrowing. The base rate ~~was~~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 ~~.25%~~ ~~was~~.225% is also required based on the average daily unborrowed commitment.

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

The ~~5.09~~%5.09% Senior Notes are equal in right of payment with our revolving credit facility and all other senior unsecured obligations of the Company. Interest is payable semiannually and ~~five~~5 equal, annual principal payments commenced on July 22, 2016 (the~~sixth~~6th anniversary of issuance). The Purchase Agreement contains customary events of default and covenants related to limitations on indebtedness and transactions with affiliates and the maintenance of certain financial ratios.

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

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

The 3.99% Senior Notes are equal in right of payment with our revolving credit facility and all other senior unsecured obligations of the Company. Interest is payable semiannually and 5 equal, annual principal payments commence on September 21, 2024 (the6th anniversary of issuance). The Note Purchase and Shelf Agreement contains customary events of default and covenants related to limitations on indebtedness and transactions with affiliates and the maintenance of certain financial ratios. The Company may prepay at any time all, or from time to time any part of, the outstanding principal amount of the 3.99% Senior Notes, subject to the payment of a make-whole amount.

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

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

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

September ~~30, 2017~~28, 2019

(Amounts in thousands, except share data)


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

obligations of the Company. Interest is payable semiannually and 5 equal, annual principal payments commence on September 21, 2024.

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

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

Aggregate Maturities of Long-Term Debt--Aggregate maturities of long-term debt based on the principal amounts outstanding atSeptember 28, 2019 were as follows: 2019--$6,460; 2020--$22,871; 2021--$5,558; 2022--$65,328; 2023--$37; and thereafter $75,000.

Accounts Receivable Securitization Facility~~--On~~--In May ~~8, 2017,~~2019, the Company amended its Accounts Receivable Securitization Facility (the "AR Securitization program") to extend the scheduled termination date for an additional ~~one-year~~one year period, ~~and increase the~~to May 19, 2020.

The AR Securitization program has a limit of ~~the facility from $60,000 to $100,000.~~

As$100,000, of ~~September 30, 2017, we had~~which $76,732 and $67,438 were issued for letters of credit ("LCs") as of ~~$58,150 under the terms of the AR securitization program.~~

September 28, 2019 and December 31, 2018, respectively.

Under the AR ~~securitization~~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 ~~letters of credit~~LCs as of September ~~30, 2017--to~~28, 2019--to the bank in exchange for the bank issuing ~~letters~~LCs.

Pre-petition receivables from PG&E Corporation and its regulated utility subsidiary, Pacific Gas and Electric Company (collectively, "PG&E"), which filed voluntary bankruptcy petitions under Chapter 11 of ~~credit ("LCs").~~

the United States Bankruptcy Code in the U.S. Bankruptcy Court for the Northern District of California, while remaining in the securitized pool, are considered ineligible and are excluded from performance ratios and reserves.

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

The agreements underlying the AR ~~securitization~~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~~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 September ~~30, 2017,~~28, 2019, total commitments related to issued ~~letters of credit~~LCs were ~~$64,221,~~$81,655, of which ~~$4,071~~$2,913 were issued under the revolving credit facility, ~~$58,150~~$76,732 were issued under the AR ~~securitization~~Securitization program, and ~~$2,000~~$2,010 were issued under short-term lines of credit. As of December 31, 2016, total commitments related to issued letters of credit were $64,225, of which $4,071 were issued under the revolving credit facility, $58,150 were issued under the AR securitization facility, and $2,004 were issued under short-term lines of credit.2018,

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

September ~~30, 2017~~28, 2019

(Amounts in thousands, except share data)


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

total commitments related to issued LCs were $72,565, of which $3,123 were issued under the revolving credit facility, $67,438 were issued under the AR Securitization program, and $2,004 were issued under short-term lines of credit.

As of September 28, 2019, we are in compliance with all debt covenants.


G.	Leases

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



	Condensed Consolidated Balance Sheet Classification	September 28, 2019
Assets
Operating lease assets	Right-of-use assets - operating leases	$	40,189
Finance lease assets	Property and equipment, net	3,260
Total lease assets		$	43,449
Liabilities
Current operating lease liabilities	Other current liabilities	$	14,159
Non-current operating lease liabilities	Lease liabilities - operating leases	25,878
Total operating lease liabilities		40,037
Current portion of finance lease liabilities	Current portion of long-term debt and finance lease liabilities	1,309
Non-current finance lease liabilities	Lease liabilities - finance leases	1,787
Total finance lease liabilities		3,096
Total lease liabilities		$	43,133

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 28, 2019

(Amounts in thousands, except share data)


G.	Leases (continued)

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



		Three Months Ended		Nine Months Ended
	Condensed Consolidated Statement of Operations Classification	September 28, 2019		September 28, 2019

Operating lease cost	Operating expense	$	1,845	$	4,912
Operating lease cost	Selling expense	2,188		6,513
Operating lease cost	General and administrative expense	214		617
Finance lease cost:
Amortization of right-of-use assets	Depreciation and amortization	339		1,024
Interest expense on lease liabilities	Interest expense	28		91
Other lease cost ⁽¹⁾	Operating expense	855		2,585
Other lease cost ⁽¹⁾	Selling expense	195		811
Other lease cost ⁽¹⁾	General and administrative expense	12		15
Total lease cost		$	5,676	$	16,568

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

We often have options to renew lease terms for buildings and other assets. The exercise of lease renewal options is generally at our sole discretion. In addition, certain lease agreements may be terminated prior to their original expiration date at our discretion. We evaluate each renewal and termination option at the lease commencement date to determine if we are reasonably certain to exercise the option on the basis of economic factors. The table below summarizes the weighted average remaining lease term as of September 28, 2019.



Operating leases	3.5 years
Finance leases	2.5 years

The discount rate implicit within our leases is generally not determinable and therefore the Company determines the discount rate based on its incremental borrowing rate. The incremental borrowing rate for each lease is determined based on its term and the currency in which lease payments are made, adjusted for the impacts of collateral. The table below summarizes the weighted average discount rate used to measure our lease liabilities as of September 28, 2019.



Operating leases	3.82	%
Finance leases	3.36	%

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 28, 2019

(Amounts in thousands, except share data)


G.	Leases (continued)

Supplemental Cash Flow Information Related to Leases



	Nine Months Ended
	September 28, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	(12,524	)
Operating cash flows from finance leases	(91		)
Financing cash flows from finance leases	(1,061		)
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	52,889

Maturity Analysis of Lease Liabilities



	As of September 28, 2019
	Operating Leases		Finance Leases
Remaining three months of 2019	$	4,126	$	280
2020	14,679		1,371
2021	10,958		1,206
2022	7,398		272
2023	3,410		82
Thereafter	2,468		—
Total lease payments	43,039		3,211
Less interest	3,002		115
Total	$	40,037	$	3,096



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

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 28, 2019

(Amounts in thousands, except share data)


H.	Stock-Based Compensation

Our shareholders approved the 2014 Omnibus Stock Plan (the “2014 Stock Plan”) at our annual meeting of shareholders on May 20, 2014. The 2014 Stock Plan replaced the expired 2004 Omnibus Stock Plan (the “2004 plan”) previously approved by the shareholders in 2004. The 2014 Stock Plan is administered by the Compensation Committee of the Board of Directors and has a term of ten years. All directors of the Company and employees of the Company and its subsidiaries are eligible to participate in the 2014 Stock Plan. The 2014 Stock Plan (similar to the 2004 plan) continues the maintenance of the Employee Stock Purchase Plan, as well as provisions for the grant of stock options and other stock-based incentives. The 2014 Stock Plan provides for the grant of ~~five~~5 percent of the number of the Company’s common shares outstanding as of the first day of each fiscal year plus the number of common shares that were available for grant of awards, but not granted, in prior years. In no event, however, may the number of common shares available for the grant of awards in any fiscal year exceed ~~ten~~10 percent of the common shares outstanding as of the first day of that fiscal year. Common shares subject to an award that is forfeited, terminated, or canceled without having been exercised are generally added back to the number of shares available for grant under the 2014 Stock Plan.

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



	Three Months Ended				Nine Months Ended
	September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018
Compensation expense, all share-based payment plans	$	655	$	785	$	2,184	$	2,578

Three Months Ended Nine Months Ended
September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016
Compensation expense, all share-based payment plans $ 847
$ 731
$ 3,295
$ 2,055

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 ~~$670~~$866 being recognized for the nine months endedSeptember ~~30, 2017~~28, 2019 and ~~$547~~$765for the nine months ended~~October 1, 2016~~. September 29, 2018.

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 ~~$532~~$444 for the nine months endedSeptember ~~30, 2017~~28, 2019 and ~~$426~~$506 for the nine months ended~~October 1, 2016~~. September 29, 2018.

Stock-Settled Stock Appreciation Rights--~~During the~~ ~~nine months endedSeptember 30, 2017, the Compensation Committee awarded~~ ~~152,000~~ ~~stock-settled stock appreciation rights (“SSARs”) to certain management employees, which vest ratably over~~ ~~five~~ ~~years.~~ A SSAR is an award that allows the recipient to receive common shares equal to the appreciation in the fair market value of our common shares between the date the award was granted and the conversion date of the shares vested.

Effective January 1, 2019, management and the Compensation Committee replaced the issuance of future SSARs with performance-based restricted stock units ("PRSUs") for certain management employees.

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

September ~~30, 2017~~28, 2019

(Amounts in thousands, except share data)


G.H.	Stock-Based Compensation (continued)

The following table summarizes our SSARs as of September ~~30, 2017~~28, 2019.



Stock-Settled Stock Appreciation Rights	Number of Rights		Weighted- Average Award Date Value		Weighted- Average Remaining Contractual Life	Unrecognized Compensation Cost		Aggregate Intrinsic Value
Unvested, January 1, 2019	380,982		$	3.42
Granted	—		—
Forfeited	(3,197	)	3.43
Vested	(115,080	)	3.31
Unvested, September 28, 2019	262,705		$	3.47	1.7 years	$	631	$	5,937

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, 2017 743,662
$ 2.75

Granted 152,000
3.57

Forfeited —
—

Vested (411,502 ) 2.74

Unvested, September 30, 2017 484,160
$ 3.01
2.5 years $ 1,127
$ 8,521

Employee SSARs 484,160
$ 3.01
2.5 years $ 1,127
$ 8,521

Compensation costs for SSARs are determined using a fair-value method and amortized over the requisite service period. Compensation expense for SSARs was ~~$931~~$269 for the nine months endedSeptember ~~30, 2017~~28, 2019 and ~~$436~~$406 for the nine months ended~~October 1, 2016~~. September 29, 2018.

Restricted Stock Units--During the nine months endedSeptember ~~30, 2017~~,28, 2019, the Compensation Committee awarded ~~80,350~~ ~~performance-based restricted stock units~~29,046 PRSUs to certain ~~directors~~management employees and ~~management employees.~~11,942 RSUs to nonemployee directors. The Compensation Committee made similar awards in prior periods. The awards vest over specified periods. The following table summarizes ~~restricted stock units~~PRSUs and RSUs as of September ~~30, 2017.~~28, 2019.



Restricted Stock Units	Number of Stock Units		Weighted- Average Grant Date Value		Weighted- Average Remaining Contractual Life	Unrecognized Compensation Cost		Aggregate Intrinsic Value
Unvested, January 1, 2019	247,838		$	15.68
Granted	40,988		20.45
Forfeited	(4,093	)	16.39
Vested	(60,474	)	13.55
Unvested, September 28, 2019	224,259		$	17.11	2.1 years	$	1,839	$	5,068
Employee PRSUs	192,837		$	16.80	2.3 years	$	1,474	$	4,358
Nonemployee Director RSUs	31,422		$	19.01	1.7 years	$	365	$	710

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, 2017 304,958
$ 13.22

Granted 80,350
17.01

Forfeited —
—

Vested (91,022 ) 12.68

Unvested, September 30, 2017 294,286
$ 14.42
2.5 years $ 2,323
$ 5,179

Compensation cost for ~~restricted stock awards~~RSUs is determined using a fair-value method and amortized on the straight-line recognition method over the requisite service period. Compensation expense on ~~restricted stock awards~~RSUs totaled ~~$1,162~~$605 for the nine months endedSeptember ~~30, 2017~~28, 2019 and ~~$646~~$901 for the nine months ended~~October 1, 2016~~.

September 29, 2018.

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

~~Index~~

~~The Davey Tree Expert Company~~

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

~~September 30, 2017~~

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


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

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

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 28, 2019

(Amounts in thousands, except share data)


H.	Stock-Based Compensation (continued)

binomial model also incorporates exercise assumptions based on an analysis of historical data. The expected life of the stock-based awards is derived from the output of the binomial model and represents the period of time that awards granted are expected to be outstanding.

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



	Nine Months Ended
	September 28, 2019		September 29, 2018
Volatility rate	9.9	%	10.1	%
Risk-free interest rate	2.3	%	2.7	%
Expected dividend yield	.7	%	.7	%
Expected life of awards (years)	8.8		9.2

Nine Months Ended
September 30,
2017 October 1,
2016
Volatility rate 10.3 % 10.6 %
Risk-free interest rate 2.2 % 1.8 %
Expected dividend yield .7 % .7 %
Expected life of awards (years) 8.9
9.5

General Stock Option Information--The following table summarizes activity under the stock option plans for the nine months endedSeptember ~~30, 2017~~.28, 2019.



Stock Options	Number of Options Outstanding		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life	Aggregate Intrinsic Value
Outstanding, January 1, 2019	1,466,264		$	13.94
Granted	151,145		21.10
Exercised	(91,739	)	10.48
Forfeited	(20,160	)	17.67
Outstanding, September 28, 2019	1,505,510		$	14.82	5.7 years	$	11,713

Exercisable, September 28, 2019	1,015,025		$	13.08	4.5 years	$	9,667

Stock Options
Number
of
Options
Outstanding

Weighted-
Average
Exercise
Price

Weighted-
Average
Remaining
Contractual
Life

Aggregate
Intrinsic
Value
Outstanding, January 1, 2017 1,599,296
$ 12.49

Granted 148,500
17.60

Exercised (87,507 ) 10.59

Forfeited (81,074 ) 13.34

Outstanding, September 30, 2017 1,579,215
$ 13.03
6.4 years $ 7,217

Exercisable, September 30, 2017 851,215
$ 11.22
5.1 years $ 5,422

As of September ~~30, 2017~~,28, 2019, there was approximately ~~$1,707~~$1,484 of unrecognized compensation cost related to stock options outstanding. The cost is expected to be recognized over a weighted-average period of 2.7 ~~years~~.years. “Intrinsic value” is defined as the amount by which the market price of a common share exceeds the exercise price of an option.

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

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

September ~~30, 2017~~28, 2019

(Amounts in thousands, except share data)


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

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



	Three Months Ended					Nine Months Ended
	September 28, 2019		September 29, 2018			September 28, 2019			September 29, 2018
Components of pension expense (income)
Service costs--increase in benefit obligation earned	$	—	$	100		$	75		$	300
Interest cost on projected benefit obligation	31		180			167			539
Expected return on plan assets	—		(58		)	(37		)	(173		)
Settlement loss	—		—			1,677			—
Amortization of net actuarial loss	6		181			81			545
Amortization of prior service cost	16		16			48			48
Net pension expense of defined benefit pension plans	$	53	$	419		$	2,011		$	1,259

Three Months Ended Nine Months Ended
September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016
Components of pension expense (income)
Service costs--increase in benefit obligation earned $ 132
$ 90
$ 397
$ 280
Interest cost on projected benefit obligation 263
309
790
936
Expected return on plan assets (169 ) (276 ) (508 ) (829 )
Settlement loss —
—
—
453
Amortization of net actuarial loss 237
235
712
715
Amortization of prior service cost 17
—
48
—
Net pension expense of defined benefit pension plans $ 480
$ 358
$ 1,439
$ 1,555
During April 2019, we entered into an agreement to purchase a guaranteed group annuity contract from a third-party insurance company which unconditionally and irrevocably guarantees the full-payment of all annuity payments to the remaining 231 participants in our Employee Retirement Plan (“ERP”) for which benefits were frozen effective December 31, 2008. The April 2019 agreement transferred all remaining ERP benefit obligations to the third-party insurance company, resulting in a pretax actuarial settlement loss of $1,677.

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


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 nine months ended September ~~30, 2017 is estimated to approximate 37.8%~~28, 2019 was 24.0%. Our annual effective tax rate for the nine months ended ~~October 1, 2016~~September 29, 2018 was estimated at ~~39.2%~~21.7%. Our effective tax rate was 29.2% and 27.3% for the three months ended September 28, 2019 and September 29, 2018, respectively. The change in the effective tax rate from statutory tax rates is primarily due to the impact of state and local taxes which are partially offset by favorable discrete items.

~~At December 31, 2016,~~As of September 28, 2019, we had unrecognized tax benefits of ~~$2,532,~~$1,323, of which ~~$2,053~~$597 would affect our effective rate if recognized, and accrued interest expense related to unrecognized benefits of ~~$107.~~$40. At ~~September 30, 2017, there were no significant changes in the~~December 31, 2018, we had unrecognized tax benefits ~~including the amount that~~of $1,325, of which $599 would affect our effective rate if recognized, ~~or the~~and accrued interest expense related to ~~the~~ unrecognized ~~benefits.~~benefits of $35. 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.

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 28, 2019

(Amounts in thousands, except share data)


J.	Income Taxes (continued)

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

The Company is routinely under audit by federal, state, local and Canadian authorities in the area of income tax. These audits include questioning the timing and the amount of income and deductions and the allocation of income and deductions among various tax jurisdictions. ~~During~~The Company has been audited by the ~~fourth quarter 2013, the U.S.~~ Internal Revenue Service ~~completed its audit of the Company's U.S. income tax returns for 2010 and 2011 and, during 2010, Canada Revenue Agency completed its audit of the Company's Canadian operations for 2006, 2007 and 2008.~~through 2016. With the exception of U.S. state jurisdictions, the Company is no longer subject to examination by tax authorities for the years through ~~2013.~~2016. As of September ~~30, 2017,~~28, 2019, we believe it is reasonably possible that the total amount of unrecognized tax benefits will not significantly increase or decrease.

~~Index~~

~~The Davey Tree Expert Company~~

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

~~September 30, 2017~~

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


J.K.	Accumulated Other Comprehensive Income (Loss)

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

The following summarizes the components of other comprehensive income (loss) accumulated in shareholders’ equity for the three and nine months ended September ~~30, 2017~~28, 2019 and the three and nine months ended ~~October 1, 2016:~~

Foreign
Currency
Translation
Adjustments

Defined
Benefit
Pension
Plans

Accumulated
Other
Comprehensive
Income (Loss)
Balance at January 1, 2017 $ (5,500 ) $ (6,662 ) $ (12,162 )
Other comprehensive income (loss) before reclassifications
Unrealized gains $ 2,498
$ —
$ 2,498
Amounts reclassified from accumulated other comprehensive income (loss) —
760
760
Tax effect —
(289 ) (289 )
Net of tax amount 2,498
471
2,969
Balance at September 30, 2017 $ (3,002 ) $ (6,191 ) $ (9,193 )

September 29, 2018:


	Foreign Currency Translation Adjustments			Defined Benefit Pension Plans			Accumulated Other Comprehensive Income (Loss)
Balance at January 1, 2016	$	(6,244	)	$	(7,150	)	$	(13,394	)
Three Months Ended September 28, 2019										Foreign Currency Translation Adjustments			Defined Benefit Pension Plans			Accumulated Other Comprehensive Income (Loss)
Balance at June 29, 2019										$	(4,612	)	$	(657	)	$	(5,269	)
Other comprehensive income (loss) before reclassifications
Unrealized gains	$	1,487		$	—		$	1,487
Unrealized losses										$	(384	)	$	—		$	(384	)
Amounts reclassified from accumulated other comprehensive income (loss)	—			1,064			1,064			—			22			22
Tax effect	—			(410		)	(410		)	—			(5		)	(5		)
Net of tax amount	1,487			654			2,141			(384		)	17			(367		)
Balance at October 1, 2016	$	(4,757	)	$	(6,496	)	$	(11,253	)
Balance at September 28, 2019										$	(4,996	)	$	(640	)	$	(5,636	)

~~The change in defined benefit pension plans of~~ ~~$760~~ ~~for the~~ ~~nine months endedSeptember 30, 2017~~ and the $1,064 for the nine months ended October 1, 2016 is included in net periodic pension expense and is classified in the condensed statement of operations as costs and expenses, general and administrative.



Three Months Ended September 29, 2018	Foreign Currency Translation Adjustments			Defined Benefit Pension Plans			Accumulated Other Comprehensive Income (Loss)
Balance at June 30, 2018	$	(4,884	)	$	(4,795	)	$	(9,679	)
Other comprehensive income (loss) before reclassifications
Unrealized gains	$	517		$	—		$	517
Amounts reclassified from accumulated other comprehensive income (loss)	—			197			197
Tax effect	—			(51		)	(51		)
Net of tax amount	517			146			663
Balance at September 29, 2018	$	(4,367	)	$	(4,649	)	$	(9,016	)

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

September ~~30, 2017~~28, 2019

(Amounts in thousands, except share data)


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



Nine Months Ended September 28, 2019	Foreign Currency Translation Adjustments			Defined Benefit Pension Plans			Accumulated Other Comprehensive Income (Loss)
Balance at January 1, 2019	$	(5,819	)	$	785		$	(5,034	)
Other comprehensive income (loss) before reclassifications
Unrealized gains	$	823		$	—		$	823
Amounts reclassified from accumulated other comprehensive income (loss)	—			(1,573		)	(1,573		)
Tax effect	—			148			148
Net of tax amount	823			(1,425		)	(602		)
Balance at September 28, 2019	$	(4,996	)	$	(640	)	$	(5,636	)



Nine Months Ended September 29, 2018	Foreign Currency Translation Adjustments			Defined Benefit Pension Plans			Accumulated Other Comprehensive Income (Loss)
Balance at January 1, 2018	$	(3,305	)	$	(5,088	)	$	(8,393	)
Other comprehensive income (loss) before reclassifications
Unrealized losses	$	(1,062	)	$	—		$	(1,062	)
Amounts reclassified from accumulated other comprehensive income (loss)	—			593			593
Tax effect	—			(154		)	(154		)
Net of tax amount	(1,062		)	439			(623		)
Balance at September 29, 2018	$	(4,367	)	$	(4,649	)	$	(9,016	)

The change in defined benefit pension plans of $22 and $(1,573) for the three and nine months ended September 28, 2019 and $197 and $593 for the three and nine months ended September 29, 2018 is included in net periodic pension expense classified in the condensed consolidated statement of operations as general and administrative or other income (expense).

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 28, 2019

(Amounts in thousands, except share data)


L.	Per Share Amounts and Common and Redeemable Shares Outstanding

We calculate our basic earnings per share by dividing net income or net loss by the weighted average number of common shares outstanding during the period. Diluted earnings per share are calculated in a similar manner, but include the effect of dilutive securities. To the extent these securities are antidilutive, they are excluded from the calculation of earnings per share. The per share amounts were computed as ~~follows (adjusted for the two-for-one stock split of our common shares effective June 1, 2017):~~follows:



	Three Months Ended				Nine Months Ended
	September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018
Income available to common shareholders:
Net income	$	13,434	$	8,384	$	32,688	$	23,471

Weighted-average shares:
Basic:
Outstanding	22,790		23,592		22,822		23,916
Partially-paid share subscriptions	3		176		8		527
Basic weighted-average shares	22,793		23,768		22,830		24,443

Diluted:
Basic from above	22,793		23,768		22,830		24,443
Incremental shares from assumed:
Exercise of stock subscription purchase rights	13		151		73		146
Exercise of stock options and awards	1,196		897		1,024		954
Diluted weighted-average shares	24,002		24,816		23,927		25,543

Net income per share:
Basic	$	.59	$	.35	$	1.43	$	.96

Diluted	$	.56	$	.34	$	1.37	$	.92

Three Months Ended Nine Months Ended
September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016
Income available to common shareholders:
Net income $ 10,237
$ 8,141
$ 20,573
$ 17,262

Weighted-average shares:
Basic:
Outstanding 24,925
25,486
24,965
25,502
Partially-paid share subscriptions 195
211
586
633
Basic weighted-average shares 25,120
25,697
25,551
26,135

Diluted:
Basic from above 25,120
25,697
25,551
26,135
Incremental shares from assumed:
Exercise of stock subscription purchase rights 158
135
148
136
Exercise of stock options and awards 1,138
813
1,015
833
Diluted weighted-average shares 26,416
26,645
26,714
27,104

Net income per share:
Basic $ .41
$ .32
$ .81
$ .66

Diluted $ .39
$ .31
$ .77
$ .64

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

September ~~30, 2017~~28, 2019

(Amounts in thousands, except share data)


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

Common and Redeemable Shares Outstanding--A summary of the activity of the common and redeemable shares outstanding for the nine months ended September ~~30, 2017~~28, 2019 follows:



	Common Shares Net of Treasury Shares		Redeemable Shares		Total
Shares outstanding at January 1, 2019	17,238,497		5,642,155		22,880,652
Shares purchased	(612,397	)	(580,444	)	(1,192,841	)
Shares sold	240,872		237,474		478,346
Stock subscription offering -- cash purchases	861,519		—		861,519
Options and awards exercised	214,685		—		214,685
Shares outstanding at September 28, 2019	17,943,176		5,299,185		23,242,361

Common Shares Redeemable
Net of Treasury Shares Shares Total
Shares outstanding at January 1, 2017 17,866,236
7,056,904
24,923,140
Shares purchased (486,877 ) (592,914 ) (1,079,791 )
Shares sold 184,669
283,427
468,096
Stock subscription offering -- cash purchases 69,227
—
69,227
Options and awards exercised 118,370
—
118,370
Shares outstanding at September 30, 2017 17,751,625
6,747,417
24,499,042

On September ~~30, 2017~~,28, 2019, we had ~~24,499,042~~23,242,361 common and redeemable shares outstanding, employee options exercisable to purchase ~~851,215~~1,015,025 common shares and partially-paid subscriptions for ~~781,088~~11,122 common ~~shares and purchase rights outstanding for~~ ~~315,057~~ ~~common~~ shares.

~~Common Stock Split~~--On May 10, 2017, our Board of Directors declared a two-for-one stock split of our common shares, paid as a stock dividend to shareholders of record as of June 1, 2017. The par value of each common share remains at $1.00.

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

Under the plan, a participant in the offering purchasing common shares for an aggregate purchase price of less than $5 ~~had~~$5 was required to pay with cash. All participants (excluding Company directors and officers) purchasing $5$5 or more of the common shares had an option to finance their purchase through a down-payment of at least 10% of the total purchase price and a ~~seven-year~~seven-year promissory note for the balance due with interest at 2%. 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 under the plan have been 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 purchasing in excess of $5$5 of common shares were granted a "right" to purchase one additional common share at a price of ~~$9.85~~$9.85 per share for every ~~three~~3 common shares purchased under the plan. As a result of the stock subscription, employees were granted rights to purchase 423,600 common shares. Each right may be exercised at the rate of one-seventh per year and will expire seven years after the date that the right was granted. Employees may not exercise a right should they cease to be employed by the Company.

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

September ~~30, 2017~~28, 2019

(Amounts in thousands, except share data)


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 ~~two~~2 reportable operating segments organized by type or class of customer: Residential and Commercial, and Utility.

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

Utility--Utility is principally engaged in providing services to our utility customers--investor-owned, municipal utilities, and rural electric cooperatives--including: the practice of line-clearing and vegetation management around power lines and rights-of-way and chemical brush control; and 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 ~~2016~~2018 Annual Report.

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

September ~~30, 2017~~28, 2019

(Amounts in thousands, except share data)

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


M.	Operations by Business Segment (continued)

Segment information reconciled to consolidated external reporting information follows:


	Utility		Residential and Commercial		All Other			Reconciling Adjustments				Consolidated			Utility		Residential and Commercial		All Other			Reconciling Adjustments				Consolidated
Three Months Ended September 30, 2017
Three Months Ended September 28, 2019
Revenues	$	124,540	$	124,678	$	370		$	—			$	249,588		$	160,088	$	146,769	$	616		$	—			$	307,473
Income (loss) from operations	6,854		14,616		(838		)	(1,931		)	(a)	18,701			10,941		17,667		(3,456		)	(2,369		)	(a)	22,783
Interest expense								(1,278		)		(1,278		)								(2,018		)		(2,018		)
Interest income								67				67										94				94
Other income (expense), net								(1,416		)		(1,416		)								(1,886		)		(1,886		)
Income before income taxes												$	16,074													$	18,973
Segment assets, total	$	180,031	$	206,946	$	—		$	92,632		(b)	$	479,609		$	247,031	$	238,692	$	—		$	115,475		(b)	$	601,198

Three Months Ended October 1, 2016
Three Months Ended September 29, 2018
Revenues	$	110,700	$	112,211	$	808		$	—			$	223,719		$	135,768	$	130,408	$	(858	)	$	—			$	265,318
Income (loss) from operations	4,337		12,156		(1,012		)	(439		)	(a)	15,042			6,198		13,360		(3,615		)	(1,358		)	(a)	14,585
Interest expense								(1,159		)		(1,159		)								(1,811		)		(1,811		)
Interest income								62				62										80				80
Other income (expense), net								(1,066		)		(1,066		)								(1,322		)		(1,322		)
Income before income taxes												$	12,879													$	11,532
Segment assets, total	$	169,796	$	177,275	$	—		$	96,814		(b)	$	443,885		$	222,194	$	214,374	$	—		$	85,087		(b)	$	521,655

Nine Months Ended September 30, 2017
Nine Months Ended September 28, 2019
Revenues	$	349,921	$	335,564	$	1,953		$	—			$	687,438		$	451,749	$	404,134	$	913		$	—			$	856,796
Income (loss) from operations	13,782		34,871		(4,725		)	(4,257		)	(a)	39,671			26,816		44,772		(11,825		)	(3,732		)	(a)	56,031
Interest expense								(3,607		)		(3,607		)								(6,597		)		(6,597		)
Interest income								210				210										270				270
Other income (expense), net								(3,200		)		(3,200		)								(6,694		)		(6,694		)
Income before income taxes												$	33,074													$	43,010
Segment assets, total	$	180,031	$	206,946	$	—		$	92,632		(b)	$	479,609		$	247,031	$	238,692	$	—		$	115,475		(b)	$	601,198

Nine Months Ended October 1, 2016
Nine Months Ended September 29, 2018
Revenues	$	316,013	$	311,490	$	1,812		$	—			$	629,315		$	382,951	$	361,218	$	449		$	—			$	744,618
Income (loss) from operations	11,398		31,946		(5,098		)	(4,038		)	(a)	34,208			14,277		37,089		(10,171		)	(2,476		)	(a)	38,719
Interest expense								(3,186		)		(3,186		)								(4,966		)		(4,966		)
Interest income								190				190										259				259
Other income (expense), net								(2,821		)		(2,821		)								(4,036		)		(4,036		)
Income before income taxes												$	28,391													$	29,976
Segment assets, total	$	169,796	$	177,275	$	—		$	96,814		(b)	$	443,885		$	222,194	$	214,374	$	—		$	85,087		(b)	$	521,655

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 28, 2019

(Amounts in thousands, except share data)


M.	Operations by Business Segment (continued)

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


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


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


N.	Revenue Recognition

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

Nature of Performance Obligations and Significant Judgments

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

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

Disaggregation of Revenue

The following tables disaggregate our revenue for the three and nine months ended September 28, 2019 and September 29, 2018 by major sources:



Three Months Ended September 28, 2019	Utility		Residential and Commercial		All Other			Consolidated
Type of service:
Tree and plant care	$	119,449	$	85,112	$	(86	)	$	204,475
Grounds maintenance	—		40,721		—			40,721
Storm damage services	1,709		1,550		��			3,259
Consulting and other	38,930		19,386		702			59,018
Total revenues	$	160,088	$	146,769	$	616		$	307,473
Geography:
United States	$	150,118	$	135,868	$	616		$	286,602
Canada	9,970		10,901		—			20,871
Total revenues	$	160,088	$	146,769	$	616		$	307,473

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

September ~~30, 2017~~28, 2019

(Amounts in thousands, except share data)


M.N.	Revenue Recognition (continued)



Three Months Ended September 29, 2018	Utility		Residential and Commercial		All Other			Consolidated
Type of service:
Tree and plant care	$	99,766	$	79,709	$	(1,542	)	$	177,933
Grounds maintenance	—		26,024		—			26,024
Storm damage services	1,894		1,082		—			2,976
Consulting and other	34,108		23,593		684			58,385
Total revenues	$	135,768	$	130,408	$	(858	)	$	265,318
Geography:
United States	$	125,302	$	120,105	$	(858	)	$	244,549
Canada	10,466		10,303		—			20,769
Total revenues	$	135,768	$	130,408	$	(858	)	$	265,318



Nine Months Ended September 28, 2019	Utility		Residential and Commercial		All Other			Consolidated
Type of service:
Tree and plant care	$	335,658	$	231,988	$	(90	)	$	567,556
Grounds maintenance	—		114,320		—			114,320
Storm damage services	2,933		4,163		—			7,096
Consulting and other	113,158		53,663		1,003			167,824
Total revenues	$	451,749	$	404,134	$	913		$	856,796
Geography:
United States	$	420,701	$	376,304	$	913		$	797,918
Canada	31,048		27,830		—			58,878
Total revenues	$	451,749	$	404,134	$	913		$	856,796

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 28, 2019

(Amounts in thousands, except share data)


N.	Revenue Recognition (continued)



Nine Months Ended September 29, 2018	Utility		Residential and Commercial		All Other			Consolidated
Type of service:
Tree and plant care	$	283,200	$	222,646	$	(1,553	)	$	504,293
Grounds maintenance	—		86,612		—			86,612
Storm damage services	5,729		2,892		—			8,621
Consulting and other	94,022		49,068		2,002			145,092
Total revenues	$	382,951	$	361,218	$	449		$	744,618
Geography:
United States	$	354,416	$	332,488	$	449		$	687,353
Canada	28,535		28,730		—			57,265
Total revenues	$	382,951	$	361,218	$	449		$	744,618

Contract Balances

Our contract liabilities consist of advance payments and billings in excess of costs incurred and deferred revenue. The Company has recognized $119 and $1,925 of revenue for the three and nine months ended September 28, 2019 that was included in the contract liability balance at December 31, 2018 and $149 and $1,371 of revenue for the three and nine months ended September 29, 2018 that was included in the contract liability balance at December 31, 2017. Net contract liabilities consisted of the following:



	September 28, 2019		December 31, 2018
Contract liabilities - current	$	3,454	$	2,907
Contract liabilities - noncurrent	2,621		2,287
Net contract liabilities	$	6,075	$	5,194


O.	Fair Value Measurements and Financial Instruments

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

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

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

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 28, 2019

(Amounts in thousands, except share data)


O.	Fair Value Measurements and Financial Instruments (continued)

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

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

Our assets and liabilities measured at fair value on a recurring basis at September ~~30, 2017~~28, 2019 were as follows:



			Fair Value Measurements at September 28, 2019 Using:
Assets and Liabilities Recorded at Fair Value on a Recurring Basis	Total Carrying Value at September 28, 2019		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Assets invested for self-insurance, classified as other assets, noncurrent	$	13,302	$	13,302	$	—	$	—
Defined benefit pension plan assets	13		—		13		—

Liabilities:
Deferred compensation	$	2,605	$	—	$	2,605	$	—

Fair Value Measurements at
September 30, 2017 Using:
Assets and Liabilities Recorded at
Fair Value on a Recurring Basis
Total
Carrying
Value at
September 30, 2017

Quoted Prices
in
Active
Markets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)
Assets:
Assets invested for self-insurance, classified as other assets, noncurrent $ 17,794
$ 17,794
$ —
$ —

Liabilities:
Deferred compensation $ 2,105
$ —
$ 2,105
$ —
Our assets and liabilities measured at fair value on a recurring basis at December 31, 2018 were as follows:



			Fair Value Measurements at December 31, 2018 Using:
Assets and Liabilities Recorded at Fair Value on a Recurring Basis	Total Carrying Value at December 31, 2018		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Assets invested for self-insurance, classified as other assets, noncurrent	$	15,379	$	15,379	$	—	$	—
Defined benefit pension plan assets	3,758		—		3,758		—

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

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

September ~~30, 2017~~28, 2019

(Amounts in thousands, except share data)


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

~~Our assets and liabilities measured at fair value on a recurring basis at~~ ~~December 31, 2016~~ ~~were as follows:~~

Fair Value Measurements at
December 31, 2016 Using:
Assets and Liabilities Recorded at
Fair Value on a Recurring Basis
Total
Carrying
Value at
December 31,
2016

Quoted Prices in
Active
Markets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)
Assets:
Assets invested for self-insurance, classified as other assets, noncurrent $ 15,492
$ 15,492
$ —
$ —

Liabilities:
Deferred compensation $ 1,837
$ —
$ 1,837
$ —

The assets invested for self-insurance are money market 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.

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



	September 28, 2019				December 31, 2018
	Carrying Value		Fair Value		Carrying Value		Fair Value
Revolving credit facility, noncurrent	$	65,000	$	65,000	$	93,500	$	93,500
Senior unsecured notes, noncurrent	75,000		81,278		56,000		56,002
Term loans, noncurrent	6,031		6,425		6,662		6,868
Total	$	146,031	$	152,703	$	156,162	$	156,370

September 30, 2017 December 31, 2016

Carrying
Value

Fair
Value

Carrying
Value

Fair
Value
Revolving credit facility, noncurrent $ 97,000
$ 97,000
$ 67,000
$ 67,000
Senior unsecured notes 12,000
12,387
18,000
18,509
Term loans, noncurrent 8,258
10,353
7,623
9,854
Total $ 117,258
$ 119,740
$ 92,623
$ 95,363

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.

~~Index~~

~~The Davey Tree Expert Company~~

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

~~September 30, 2017~~

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


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

In November 2017, a suit was filed in Savannah, Georgia state court (“State Court”) against Davey Tree, its subsidiary, Wolf Tree, Inc. ("Wolf Tree"), a former Davey employee, 2 Wolf Tree employees, and a former Wolf Tree employee alleging various acts of negligence and seeking compensatory and punitive damages for wrongful death and assault

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 28, 2019

(Amounts in thousands, except share data)


P.	Commitments and Contingencies (continued)

and battery of the plaintiff’s husband, a Wolf Tree employee, who was shot and killed in August 2017. The case was mediated unsuccessfully in December 2018 and was set for trial on January 22, 2019.

In July 2018, a related survival action was filed by the deceased’s estate against Davey Tree, its subsidiary, Wolf Tree, and 4 current and former employees in Savannah, Georgia, which ~~may result~~arises out of the same allegations, seeks compensatory and punitive damages and also includes 3 Racketeer Influenced and Corrupt Organizations ("RICO") claims under Georgia law seeking compensatory damages, treble damages, and punitive damages. The 2018 case was removed to the United States District Court for the Southern District of Georgia, Savannah Division, on August 2, 2018 (“Federal Court”). The Company filed a motion to dismiss the RICO claims. Plaintiffs filed a motion to remand the case to state court, which the Company has opposed. The motions are ~~adequately covered by insurance, or reflected~~pending.

On December 6, 2018, a former Wolf Tree employee pled guilty to conspiracy to conceal, harbor, and shield illegal aliens. On December 21, 2018, the United States federal prosecutors filed a motion to stay both actions on the grounds that on December 13, 2018, an indictment was issued charging 2 former Wolf Tree employees and 1 other individual with various crimes, including conspiracy to murder the deceased. On December 17, 2018, the United States Attorney’s Office for the Southern District of Georgia informed the Company and Wolf Tree that they are also under investigation for potential violations of immigration and other laws relating to the subject matter of the ongoing criminal investigation referenced above. The Company and Wolf Tree are cooperating with the investigation.

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

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

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

PG&E Bankruptcy Filing

On January 29, 2019, Pacific Gas & Electric Company, and its parent company PG&E Corporation, our largest utility customer, filed voluntary bankruptcy petitions under Chapter 11 of the United States Bankruptcy Code in the ~~self-insurance accruals,~~U.S. Bankruptcy Court for the Northern District of California. PG&E accounted for approximately 12% of revenues during 2018, and ~~would not~~11% in 2017. As a utility company, PG&E serves residential and industrial customers in California and has an ongoing obligation to continue to serve its customers, and we continue to perform under our contracts with PG&E post-petition. As of the date of the bankruptcy filing, we had pre-petition accounts receivable of approximately $15,000 which we believe to be ~~material in relation~~collectible. While uncertainty exists as to the ~~financial position or~~outcome of the bankruptcy proceedings, we do not anticipate PG&E's bankruptcy to have a material impact on our future cash flows and results of operations.

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 28, 2019

(Amounts in thousands, except share data)


P.	Commitments and Contingencies (continued)

Northern California Wildfires

On October 7, 2019 and October 8, 2019, 4 lawsuits were filed against multiple vegetation management contractors to Pacific Gas and Electric Company (“PG&E”), including Davey Tree, for damages resulting from the Northern California wildfires. The filing dates - exactly two years after the start of the fires - suggest that these lawsuits are intended to preserve any claims that might otherwise have become barred by the applicable statute of limitations. Davey Tree has not been served with these complaints at this time. Further, it is unclear at this time whether plaintiffs intend to prosecute these claims separately from the PG&E bankruptcy or not.

In addition, an action had been brought against Davey Tree in Napa County Superior Court, entitled Donna Walker, et al. v. Davey Tree Surgery Company. On October 8, 2019, the court issued an order staying that action. The court deferred ruling on Davey’s demurrer and motion to dismiss the complaint based on the absence of PG&E as an indispensable party. The court instead stayed any activity in the case pending a status conference to be held on July 14, 2020, which is after the June 30, 2020 statutory deadline set for PG&E’s bankruptcy case to be resolved in order for PG&E to be eligible to participate in the Wildfire Fund established under Assembly Bill 1054.

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


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

On March 15, 1979, the Company consummated a plan, which transferred control of the Company to its employees. As a part of this plan, the Company initially sold 120,000 common shares (presently, 23,040,000 common shares adjusted for stock splits) to its Employee Stock Ownership Trust (“ESOT”) for $2,700. The Employee Stock Ownership Plan (“ESOP”), in conjunction with the related ESOT, provided for the grant to certain employees of ownership rights in, but not possession of, the common shares held by the trustee of the ESOT. Annual allocations of shares have been made to individual accounts established for the benefit of the participants.

Defined Contribution and Savings Plans--Most employees are eligible to participate in The Davey 401KSOP and ESOP Plan. Effective January 1, 1997, the plan commenced operations and retained the existing ESOP participant accounts and incorporated a deferred savings plan (a “401(k) plan”) feature. Participants in the 401(k) plan are allowed to make before-tax contributions, within Internal Revenue Service established limits, through payroll deductions. Effective January 1, 2009 we match, in either cash or our common shares, 100% of the first ~~one~~1 percent and 50% of the next ~~three~~3 percent of each participant's before-tax contribution, limited to the first ~~four~~4 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.

Our common shares are not listed or traded on an established public trading market, and market prices are, therefore, not available. Semiannually, an independent stock valuation firm determines the fair market value of our common shares based upon our performance and financial condition. The Davey 401KSOP and ESOP Plan includes a put option for shares of the Company’s common stock distributed from the plan. Shares are distributed from the Davey 401KSOP and ESOP Plan to former participants of the plan, their beneficiaries, donees or heirs (each, a “participant”). Since our common stock is not currently traded on an established securities market, if the owners of distributed shares desire to sell their shares, the Company is required to purchase the shares at fair value for ~~two~~2 60-day periods after distribution of the shares from the Davey 401KSOP and ESOP. The fair value of distributed shares subject to the put option totaled ~~$2,020~~$3,992 and ~~$1,148~~$6,288 as of September ~~30, 2017~~28, 2019 and December 31, ~~2016,~~2018, respectively. The fair value of the shares held in the Davey 401KSOP and ESOP totaled ~~$121,458~~$115,766 and ~~$123,053~~$112,761 as of September ~~30, 2017~~ 28, 2019

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 28, 2019

(Amounts in thousands, except share data)


Q.	The Davey 401KSOP and Employee Stock Ownership Plan (continued)

and December 31, ~~2016,~~2018, 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 ~~$123,478~~$119,758 and ~~$124,201~~$119,049 as of September ~~30, 2017~~28, 2019 and December 31, ~~2016,~~2018, respectively. Changes in the fair value of the 401KSOP and ESOP Plan related shares are reflected in retained earnings while net share activity associated with 401KSOP and ESOP Plan related shares are first reflected in additional paid-in capital and then retained earnings if additional paid-in capital is insufficient.

~~Index~~


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: 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; and,~~control, natural resource management and consulting, forestry research and development, and environmental planning. All other operating activities, including research, technical support and laboratory diagnostic facilities, are included in "All Other."

Index

RESULTS OF OPERATIONS

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


	Three Months Ended						Nine Months Ended						Three Months Ended						Nine Months Ended
	September 30, 2017		October 1, 2016		Percentage Change		September 30, 2017		October 1, 2016		Percentage Change		September 28, 2019		September 29, 2018		Percentage Change		September 28, 2019		September 29, 2018		Percentage Change
Revenues	100.0	%	100.0	%	—	%	100.0	%	100.0	%	—	%	100.0	%	100.0	%	—	%	100.0	%	100.0	%	—	%

Costs and expenses:
Operating	63.2		63.6		(.4	)	64.4		64.0		.4		62.8		64.5		(1.7	)	63.8		64.9		(1.1	)
Selling	18.2		18.1		.1		17.7		17.8		(.1	)	18.5		18.6		(.1	)	18.0		17.9		.1
General and administrative	5.8		6.7		(.9	)	6.8		7.4		(.6	)	6.5		6.3		.2		6.7		7.0		(.3	)
Depreciation and amortization	5.5		5.8		(.3	)	5.7		5.8		(.1	)	5.0		5.6		(.6	)	5.2		5.6		(.4	)
Gain on sale of assets, net	(.2	)	(.8	)	.6		(.4	)	(.4	)	—		(.2	)	(.5	)	.3		(.2	)	(.6	)	.4

Income from operations	7.5		6.7		.8		5.8		5.4		.4		7.4		5.5		1.9		6.5		5.2		1.3

Other income (expense):
Interest expense	(.5	)	(.5	)	—		(.5	)	(.5	)	—		(.7	)	(.7	)	—		(.7	)	(.7	)	—
Interest income	—		—		—		—		—		—		—		—		—		—		—		—
Other, net	(.6	)	(.5	)	(.1	)	(.5	)	(.4	)	(.1	)	(.6	)	(.5	)	(.1	)	(.8	)	(.5	)	(.3	)

Income before income taxes	6.4		5.7		.7		4.8		4.5		.3		6.1		4.3		1.8		5.0		4.0		1.0

Income taxes	2.3		2.1		.2		1.8		1.8		—		1.8		1.2		.6		1.2		.9		.3

Net income	4.1	%	3.6	%	.5	%	3.0	%	2.7	%	.3	%	4.3	%	3.1	%	1.2	%	3.8	%	3.1	%	.7	%

Index

Third Quarter—Three Months EndedSeptember ~~30, 2017~~28, 2019 Compared to Three Months Ended~~October 1, 2016~~ September 29, 2018

Our results of operations for the three months endedSeptember ~~30, 2017~~28, 2019 compared to the three months ended~~October 1, 2016~~ September 29, 2018 follows:


	Three Months Ended											Three Months Ended
	September 30, 2017			October 1, 2016			Change			Percentage Change		September 28, 2019			September 29, 2018			Change			Percentage Change
Revenues	$	249,588		$	223,719		$	25,869		11.6	%	$	307,473		$	265,318		$	42,155		15.9	%

Costs and expenses:
Operating	157,615			142,333			15,282			10.7		193,137			171,125			22,012			12.9
Selling	45,508			40,528			4,980			12.3		56,921			49,367			7,554			15.3
General and administrative	14,501			14,921			(420		)	(2.8	)	19,895			16,758			3,137			18.7
Depreciation and amortization	13,749			12,765			984			7.7		15,319			14,807			512			3.5
Gain on sale of assets, net	(486		)	(1,870		)	1,384			(74.0	)	(582		)	(1,324		)	742			(56.0	)
	230,887			208,677			22,210			10.6		284,690			250,733			33,957			13.5

Income from operations	18,701			15,042			3,659			24.3		22,783			14,585			8,198			56.2
Other income (expense):
Interest expense	(1,278		)	(1,159		)	(119		)	10.3		(2,018		)	(1,811		)	(207		)	11.4
Interest income	67			62			5			8.1		94			80			14			17.5
Other, net	(1,416		)	(1,066		)	(350		)	32.8		(1,886		)	(1,322		)	(564		)	42.7
Income before income taxes	16,074			12,879			3,195			24.8		18,973			11,532			7,441			64.5

Income taxes	5,837			4,738			1,099			23.2		5,539			3,148			2,391			76.0

Net income	$	10,237		$	8,141		$	2,096		25.7	%	$	13,434		$	8,384		$	5,050		60.2	%

nm--not meaningful

Revenues--Revenues of ~~$249,588~~$307,473 increased ~~$25,869~~$42,155 compared with ~~$223,719~~$265,318 in the third quarter ~~2016.~~of 2018. Utility Services increased ~~$13,840~~$24,320 or ~~12.5%~~17.9% compared with the third quarter ~~2016.~~of 2018. The increase is attributable to new accounts as well as increased ~~storm-related services primarily related to Hurricane Irma in the Southeast United States.~~work year-over-year and price increases on existing accounts. Residential and Commercial Services increased ~~$12,467~~$16,361 or ~~11.1%~~12.5% from the third quarter of 2018. Increases were primarily in grounds maintenance and tree and plant care revenues.

Operating Expenses--Operating expenses of $193,137 increased $22,012 compared with the third quarter ~~2016. Increases in storm-related services primarily related~~of 2018. Utility Services increased $15,157 or 14.9% compared with the third quarter of 2018 but, as a percentage of revenue, decreased to ~~Hurricane Irma in the Southeast United States, tree surgery, spraying~~73.0% from 74.9%. The increase is attributable to additional expenses for labor, fuel, subcontractor expense, and ~~pest management~~crew meals and lodging expenses, which were partially offset by a decrease in ~~mowing~~chemical expense.Residential and ~~landscape materials. Total revenues of $249,588 include a reduction of production incentive revenue, recognized under the completed-performance method,of $35during the third quarter 2017 compared with a reduction of $56 during the third quarter 2016.~~

~~Operating Expenses--Operating expenses of $157,615~~Commercial Services increased ~~$15,282~~$6,144 or 8.9% compared with the third quarter ~~2016~~of 2018 but, as a percentage of ~~revenues,~~revenue, decreased ~~.4%~~ to ~~63.2%~~51.2% from 52.8%. ~~Utility increased $8,369 or 10.0% compared with the third quarter 2016 but, as a percentage of revenues, decreased 1.6%~~The increase is primarily attributable to ~~73.9%. Increases in~~additional expenses for labor, ~~expenses, fuel expense,~~equipment maintenance, subcontractor expense ~~mileage, crew sustenance~~ and ~~insurance expense were partially offset by decreases in equipment maintenance~~materials expense.Residential and Commercial increased $6,603 or 11.4% compared with the third quarter 2016 and, as a percentage of revenues, increased .1% to 51.6%. Increases in labor expense, subcontractor expense, material, insurance, fuel, and equipment expense were the largest contributors to the increase.

Fuel costs of ~~$7,148~~$9,720 increased ~~$913,~~$350, or ~~14.6%~~3.7%, from the ~~$6,235~~$9,370 incurred in the third quarter ~~2016~~of 2018 and impacted operating expenses within all segments. The ~~$913~~$350 increase included usage increases approximating $344 and price increases approximating ~~$386 and usage increases approximating $527.~~

$6.

Index

Selling Expenses--Selling expenses of ~~$45,508~~$56,921 increased ~~$4,980~~$7,554 compared with the third quarter ~~2016 and as a percentage~~ of revenues increased .1% to 18.2%. Utility increased $2,588 or 23.7% over the third quarter 2016 and as a percentage of revenues increased 1.0% to 10.9%. Increases in field management wages and incentives, taxes and communication expense were partially offset by a decrease in travel expenses. Residential and Commercial increased $2,497 or 8.2% over the third quarter 20162018 but, as a percentage of revenues, decreased ~~.7%~~ to ~~26.5%~~18.5% from 18.6%. Utility Services increased $3,625 or 24.7% compared to the third quarter of 2018 and, as a percentage of revenue, increased to 11.4% from 10.8%. The increase is attributable to increases in field management wages and incentive expense and travel expense. Residential and Commercial Services increased $4,043 or 11.3% over the third quarter of 2018 but, as a percentage of revenue, decreased to 27.1% from 27.4%. Increases in field management wages and incentive expense, ~~office support wages~~rent and ~~benefits, and employee development~~communication expenses were partially offset by a decrease in ~~sales and marketing expense.~~office support wages.

General and Administrative Expenses--General and administrative expenses of ~~$14,501 decreased $420~~$19,895 increased $3,137 from ~~$14,921~~$16,758 in the third quarter ~~2016. Decreases in~~of 2018. The increases are attributable to salary and incentive expense, travel and living expenses, computer expenses, general insurance expense and ~~travel expenses were partially offset by increases in professional services~~a $1,200 settlement of a class action wage and ~~employee development expense.~~hour lawsuit.

Depreciation and Amortization Expense--Depreciation and amortization expense of ~~$13,749~~$15,319 increased ~~$984~~$512 from ~~$12,765~~$14,807 incurred in the third quarter of ~~2016. The increase is attributable~~2018, primarily due to increased capital expenditures ~~necessary to support the business~~ and purchases of ~~businesses.~~businesses in recent years.

Gain on the Sale of Assets, Net--Gain on the sale of assets of ~~$486~~$582 for the third quarter ~~2017~~of 2019 decreased ~~$1,384~~$742 from the ~~$1,870~~$1,324 gain in the third quarter ~~2016 due to fewer average sales prices on~~of 2018. We sold fewer units ~~sold as compared to~~of equipment but experienced a higher average gain per unit in the third quarter ~~2016.~~of 2019 as compared with the third quarter of 2018. In the third quarter of 2018, we also sold a parcel of real estate at a gain, while we did not have any real estate sales in the third quarter of 2019.

Interest Expense--Interest expense of ~~$1,278~~$2,018 increased ~~$119~~$207 from the ~~$1,159~~$1,811 incurred in the third quarter ~~2016.~~ of 2018.Theincrease is attributable to higher interest rates and ~~higher-average~~higher average debt levels necessary to fund operations and capital expenditures during the third quarter of ~~2017,~~2019, as compared with the third quarter of ~~2016.~~2018.

Other, Net--Other expense, net, of ~~$1,416~~$1,886 increased ~~$350~~$564 from the ~~$1,066~~$1,322 expense incurred in the third quarter ~~2016~~of 2018 and consisted of nonoperating income and expense, including foreign currency transaction gains/losses on the intercompany account balances of our Canadian operations.

Income Taxes--Income ~~tax expense~~taxes for the third quarter ~~2017 was $5,837,~~of 2019 were $5,539, as compared to ~~$4,738~~$3,148 for the third quarter ~~2016.~~of 2018. Our tax provision for interim periods is determined using an estimate of our annual effective tax rate adjusted for discrete items, if any, that are taken into account in the relevant period. The effective tax rate as of the third quarter of 2019 was 29.2%, as compared with the third quarter of 2018 of 27.3%.

Net Income--Net income of $13,434 for the third quarter of 2019 was $5,050 more than the $8,384 net income for the third quarter of 2018.

Index

First Nine Months—Nine Months Ended September 28, 2019 Compared to Nine Months Ended September 29, 2018

Our results of operations for the nine months ended September 28, 2019 compared to the nine months ended September 29, 2018 follows:



	Nine Months Ended
	September 28, 2019			September 29, 2018			Change			Percentage Change
Revenues	$	856,796		$	744,618		$	112,178		15.1	%

Costs and expenses:
Operating	546,931			483,430			63,501			13.1
Selling	153,854			133,341			20,513			15.4
General and administrative	57,610			51,834			5,776			11.1
Depreciation and amortization	44,121			41,866			2,255			5.4
Gain on sale of assets, net	(1,751		)	(4,572		)	2,821			(61.7	)
	800,765			705,899			94,866			13.4

Income from operations	56,031			38,719			17,312			44.7
Other income (expense):
Interest expense	(6,597		)	(4,966		)	(1,631		)	32.8
Interest income	270			259			11			4.2
Other, net	(6,694		)	(4,036		)	(2,658		)	65.9
Income before income taxes	43,010			29,976			13,034			43.5

Income taxes	10,322			6,505			3,817			58.7

Net income	$	32,688		$	23,471		$	9,217		39.3	%

Revenues--Revenues of $856,796 increased $112,178 compared with $744,618 in the first nine months of 2018. Utility Services increased $68,798 or 18.0% compared with the first nine months of 2018. The increase is attributable to new accounts, as well as increased work year-over-year and price increases on existing accounts within both our U.S. and Canadian operations. Residential and Commercial Services increased $42,916 or 11.9% from the first nine months of 2018. Increases were predominately in tree and plant care, consulting and grounds maintenance.

Operating Expenses--Operating expenses of $546,931 increased $63,501 compared with the first nine months of 2018 but, as a percentage of revenues, decreased to 63.8% from 64.9%. Utility Services increased $40,473 or 14.0% compared with the first nine months of 2018 but, as a percentage of revenue, decreased to 73.0% from 75.5%. The increase was attributable to additional labor expense, equipment maintenance expense, fuel expense, subcontractor expense and meals and lodging expense, which were partially offset by a decrease in materials expense.Residential and Commercial Services increased $22,126 or 11.6% compared with the first nine months of 2018 but, as a percentage of revenue, decreased to 52.7% from 52.9%. The increase was attributable to increases in labor expense, fuel, equipment maintenance expense, subcontractor expense, materials expense, disposal expense and meals and lodging expense.

Fuel costs of $26,721 increased $1,709, or 6.8%, from the $25,012 incurred in the first nine months of 2018 and impacted operating expenses within all segments. The $1,709 increase included usage increases approximating $1,117 and price increases approximating $592.

Index

Selling Expenses--Selling expenses of $153,854 increased $20,513 compared with the first nine months of 2018 and, as a percentage of revenue, increased to 18.0% from 17.9%. Utility Services increased $12,705 or 30.9% over the first nine months of 2018 and, as a percentage of revenue, increased to 11.9% from 10.7%. The increase was attributable to additional field management wages and incentive expense, travel expense and communication expense. Residential and Commercial Services experienced an increase of $7,961 or 8.4% over the first nine months of 2018 but, as a percentage of revenue, decreased to 25.5% from 26.3%. Increases in field management wages and incentive expense, office rent expense, and communication expense were partially offset by a decrease in office support wages.

General and Administrative Expenses--General and administrative expenses of $57,610 increased $5,776 from $51,834 in the first nine months of 2018. Increases in salary and incentive expense, computer expense, travel expense, general insurance expense and a $1,200 settlement of a class action wage and hour lawsuit were partially offset by decreases in professional services and rent expense.

Depreciation and Amortization Expense--Depreciation and amortization expense of $44,121 increased $2,255 from $41,866 incurred in the first nine months of 2018. The increase was attributable to higher capital expenditures and purchases of businesses in recent years necessary to support the business.

Gain on the Sale of Assets, Net--Gain on the sale of assets of $1,751 for the first nine months of 2019 decreased $2,821 from the $4,572 gain in the first nine months of 2018. We sold fewer individual units of equipment during the first nine months of 2019 as compared with the first nine months of 2018 at a lower average gain per unit. In 2018, we also sold two parcels of real estate at gains, while we did not have any real estate sales in the first nine months of 2019.

Interest Expense--Interest expense of $6,597 increased $1,631 from the $4,966 incurred in the first nine months of 2018.The increase is attributable to higher interest rates and higher average debt levels during the first nine months of 2019, as compared with the first nine months of 2018.

Other, Net--Other expense, net, of $6,694 increased $2,658 from the $4,036 expense incurred in the first nine months of 2018 and consisted of nonoperating income and expense, including foreign currency gains/losses on the intercompany account balances of our Canadian operations.

Income Taxes--Income taxes for the first nine months of 2019 were $10,322, as compared to $6,505 for the first nine months of 2018. 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 ~~three months ended September 30, 2017 is estimated to approximate 37.8%. Our annual effective tax rate for the three months ended October 1, 2016 was estimated at 39.2%.~~

~~Net Income--Net income of $10,237 for the third quarter 2017 was $2,096 more than the $8,141 experienced in the third quarter 2016.~~

~~Index~~

~~First Nine Months—Nine Months Ended September 30, 2017 Compared to Nine Months Ended October 1, 2016~~

~~Our results of operations for the nine months ended September 30, 2017 compared to the nine months ended October 1, 2016 follows:~~

Nine Months Ended
September 30,
2017 October 1,
2016 Change
Percentage
Change
Revenues $ 687,438
$ 629,315
$ 58,123
9.2 %

Costs and expenses:

Operating 442,799
402,638
40,161
10.0
Selling 121,858
111,717
10,141
9.1
General and administrative 46,808
46,735
73
.2
Depreciation and amortization 38,939
36,396
2,543
7.0
Gain on sale of assets, net (2,637 ) (2,379 ) (258 ) 10.8
647,767
595,107
52,660
8.8

Income from operations 39,671
34,208
5,463
16.0
Other income (expense):

Interest expense (3,607 ) (3,186 ) (421 ) 13.2
Interest income 210
190
20
10.5
Other, net (3,200 ) (2,821 ) (379 ) 13.4
Income before income taxes 33,074
28,391
4,683
16.5

Income taxes 12,501
11,129
1,372
12.3

Net income $ 20,573
$ 17,262
$ 3,311
19.2 %

nm--not meaningful

~~Revenues--Revenues of $687,438 increased $58,123 compared with $629,315 in the~~ first nine months of ~~2016. Utility Services increased $33,908 or 10.7% compared with the first nine months of 2016. The increase~~2019 is attributable to increased storm-related services primarily related to Hurricane Irma in the Southeast United States and increased work year-over-year on existing accounts as well as new accounts. Residential and Commercial Services increased $24,074 or 7.7% from the first nine months of 2016. Increases in tree surgery, spraying, landscaping and pest management were partially offset by decreases in snow removal and mowing revenues. Total revenues of $687,438 include production incentive revenue, recognized under the completed-performance method,~~of $1,021during the first nine months of 2017 compared with $1,040 during the first nine months of 2016.~~

~~Operating Expenses~~--Operating expenses of $442,799 increased $40,161 compared with the first nine months of 2016 and, as a percentage of revenues, increased .4% to 64.4%. Utility Services increased $26,056 or 11.0% compared with the first nine months of 2016 and, as a percentage of revenue increased .3% to 75.2%. Increases in labor expense, fuel, subcontractor expense, crew expense and insurance were partially offset by decreases in material, equipment maintenance expense and saw expense.Residential and Commercial Services increased $12,310 or 7.5% compared with the first nine months of 2016 but, as a percentage of revenue remained at 52.4%. Increases in labor expense, equipment maintenance expense, materials expense and insurance expense were partially offset by reductions in tools and parts expense.

Fuel costs of $19,471 increased $3,101, or 18.9%, from the $16,370 incurred in the first nine months of 2016 and impacted operating expenses within all segments. The $3,101 increase included price increases approximating $2,212 and usage increases approximating $889.

~~Index~~

~~Selling Expenses~~--Selling expenses of $121,858 increased $10,141 compared with the first nine months of 2016 but, as a percentage of revenues decreased .1% to 17.7%. Utility Services increased $4,321 or 13.0% over the first nine months of 2016 and, as a percentage of revenue increased .2% to 10.7%. Increases in field management wages and incentive expense, employee development expense and communication expense were partially offset by decreases in field management travel expense and employee development expense. Residential and Commercial Services experienced an increase of $6,356 or 7.8% over the first nine months of 2016 but as a percentage of revenue remained at 26.1%. Increases in field management wages and incentive expense, communication expense and employee development expense were partially offset by decreases in computer expense and sales, promotion and marketing expenses.

~~General and Administrative Expenses~~--General and administrative expenses of $46,808 increased $73 from $46,735 in the first nine months of 2016. Increases in salary and incentive expense and professional service expense were partially offset by decreases in insurance expense.

~~Depreciation and Amortization Expense~~--Depreciation and amortization expense of $38,939 increased $2,543 from $36,396 incurred in the first nine months of 2016. The increase is attributable to higher capital expenditures necessary to support the business and purchases of businesses.

~~Gain on the Sale of Assets, Net--Gain on the sale of assets of $2,637 for the first nine months of 2017 increased $258 from the $2,379 gain in the first nine months of 2016due to more units sold in the first nine months of 2017 as compared with the first nine months of 2016.~~

~~Interest Expense--Interest expense of $3,607 increased $421 from the $3,186 incurred in the first nine months of 2016.~~The increase is attributable to higher-average debt levels necessary to fund operations, capital expenditures and purchases of businesses during the first nine months of 2017, as compared with the first nine months of 2016.

~~Other, Net~~--Other, net, of $3,200 increased $379 from the $2,821 incurred in the first nine months of 2016 and consisted of nonoperating income and expense, including foreign currency transaction gains/losses on the intercompany account balances of our Canadian operations.

~~Income Taxes~~--Income tax expense for the first nine months of 2017 was $12,501, as compared to $11,129 for the first nine months of 2016. 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 2017 effective tax rate for the first nine months of 2017 is estimated to approximate 37.8%24.0%. Our effective tax rate for the first nine months of ~~2016~~2018 was ~~39.2%~~21.7%. The change in the effective tax rate from statutory tax rates is primarily due to the impact of favorable discrete items.

Net Income--Net income of ~~$20,573~~$32,688 for the first nine months of ~~2017~~2019 was ~~$3,311~~$9,217 more than the ~~$17,262 experienced in~~net income of $23,471 for the first nine months of ~~2016.~~

2018.

LIQUIDITY AND CAPITAL RESOURCES

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

Our cash flows from operating, investing and financing activities for the nine months endedSeptember ~~30, 2017~~28, 2019 and ~~October 1, 2016~~September 29, 2018 follow:

Cash Provided By Operating Activities--Cash provided by operating activities was ~~$38,429~~$57,214 for the first nine months of ~~2017,~~2019, or ~~$2,886~~$32,417 more than the ~~$35,543~~$24,797 provided in the first nine months of ~~2016.~~2018. The ~~$2,886~~$32,417 increase in operating cash flow was primarily attributable to an increase of ~~$2,543~~$17,415 in ~~depreciation~~accounts payable and ~~amortization, a $3,311 increase in net income,~~accrued expenses and a ~~$729 decrease~~$16,195 change in ~~cash provided by operating~~other assets and liabilities, ~~excluding accounts receivable,~~ partially offset by ~~$2,362 more cash used by~~an increase of $11,586 in accounts receivable.

Overall, accounts receivable increased ~~$23,135~~$35,956 during the first nine months of ~~2017,~~2019, as compared to ~~the~~an increase of ~~$20,773~~$24,370 during the first nine months of ~~2016.~~2018. 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 nine months of ~~2017~~2019 increased ~~five~~by two days to 6269 days, aswhen compared to 67 days at the end of the first nine months of ~~2016. The~~2018, with the current nine months being impacted by the pre-petition receivables of approximately $15,000 from PG&E. DSO excluding PG&E pre-petition receivables would be 65 days at ~~October 1, 2016 was 57 days.~~the end of the first nine months of 2019.

~~Operating liabilities~~Accounts payable and accrued expenses increased ~~$12,139~~$18,691 in the first nine months of ~~2017,~~2019, or ~~$1,867~~$17,415 more than the ~~$10,272~~$1,276 increase in the first nine months of ~~2016. Accounts payable and accrued expenses increased $3,754 during the first nine months of 2017 as compared with a decrease of $46 for the first nine months of 2016.~~2018. Increases in ~~trade payables, self insurance accruals,~~ income taxes payable, advance payments from customers, and ~~employee compensation accruals~~trade payables were partially offset by ~~decreases~~a decrease in ~~advance payments from customers.~~accrued employee compensation. Self-insurance ~~accruals~~reserves increased ~~$8,385~~$5,952 in the first nine months of ~~2017,~~2019, which was ~~$1,933 less~~$561 more than the increase of ~~$10,318~~$5,391 experienced in the first nine months of 2016. The increase occurred within our workers' compensation, general liability and vehicle liability classifications and resulted primarily from an overall increase in deductible amounts under commercial insurance and the self-insured risk retention.2018.

~~The change in operating~~Operating assets and liabilities other, net, ~~increased $9,644~~provided $3,212 of cash for the first nine months of ~~2017~~2019 as compared with ~~an increase~~using $12,983 of ~~$7,048~~cash for the first nine months of ~~2016, with the $2,596~~2018. The $16,195 net change related primarily to ~~increases~~decreases in operating supplies, ~~prepaid expenses~~deposits and ~~a decrease in~~ pension ~~and post-retirement benefits.~~contributions.

Cash Used In Investing Activities--Cash used in investing activities for the first nine months of ~~2017~~2019 was ~~$52,448,~~$47,554, or ~~$2,559 more~~$3,131 less than the ~~$49,889~~$50,685 used during the first nine months of ~~2016. An increase~~2018. The decrease was primarily the result of decreases in ~~the purchase of businesses and~~ capital expenditures for equipment ~~land~~of $2,541 and ~~buildings~~a decrease in purchases of businesses of $4,441, which was partially offset by ~~an increase~~a decrease in proceeds from ~~sale~~the sales of ~~assets.~~fixed assets of $3,334.

Cash ~~Provided By~~Used In Financing Activities--Cash ~~provided by~~used in financing activities of ~~$15,248 decreased $3,244~~$18,716 increased $41,999 during the first nine months of ~~2017~~2019 as compared with ~~$18,492~~$23,283 of cash provided during the first nine months of ~~2016.~~2018. During the first nine months of ~~2017,~~2019, our revolving credit facility, ~~provided $30,000~~net used $28,500 in cash as compared with ~~$28,500 provided~~$8,000 used during the first nine months of ~~2016.~~2018. We use the credit facility primarily for capital expenditures, redemptions of shares and payments of notes payable related to acquisitions. ~~Payments~~Notes payable provided a net $24,173, including $25,000 of ~~notes payable used $4,610~~cash provided by the issuance of 4.00% Senior Notes during the first nine months of ~~2017, an increase~~2019, a decrease of ~~$2,704~~$26,315 when compared to the ~~$1,906~~$50,488 provided in the first nine months of 2018, including $50,000 provided by the issuance of 3.99% Senior Notes during the first nine months of 2018. The proceeds of the 4.00% Senior Notes were used to pay down the revolving credit facility. Treasury share transactions (purchases and sales) used $11,583 for the first nine months of 2019, $5,140 less than the $16,723 used in the first nine months of ~~2016. Treasury share transactions (purchases and sales) used $8,244 for the first nine months of 2017, $2,109 more than the $6,135 used in the first nine months of 2016,~~2018, and included ~~$1,043~~$715 of cash received from our

common share subscriptions. Dividends paid of ~~$1,898~~$1,745 during the first nine months of ~~2017~~2019 decreased ~~$69~~$73 as compared with ~~$1,967~~$1,818 paid in the first nine months of ~~2016.~~2018.

The Company currently repurchases common shares at the shareholders’ request 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 O,Q, such purchases are not required, and the Company retains the right to discontinue them at any time. Repurchases of redeemable common shares ~~from~~at the ~~Davey 401KSOP~~shareholders' request approximated $8,761 and ~~ESOP approximated $8,778 and $3,808 for~~$20,353 during the nine months ended September ~~30, 2017~~28, 2019 and ~~October 1, 2016,~~September 29, 2018, respectively. Share repurchases, other than redeemable common shares, approximated ~~$10,734~~$16,674 and ~~$11,524~~$10,960 during the nine months ended September ~~30, 2017~~28, 2019 and ~~October 1, 2016,~~September 29, 2018, respectively.

~~Revolving Credit Facility~~--As of September 30, 2017, we had a $175,000 revolving credit facility with a group of banks, which was to expire in November 2018 and permitted borrowings, as defined, up to $175,000, including a letter of credit sublimit of $100,000 and a swing-line commitment of $15,000. Under certain circumstances, the amount available under the revolving credit facility could be increased to $210,000. The revolving credit facility contained certain affirmative and negative covenants customary for this type of facility and included financial covenant ratios with respect to a maximum leverage ratio and a maximum balance-sheet leverage ratio.

~~As of September 30, 2017, we had unused commitments under the facility approximating$73,929, with $101,071 committed, consisting of borrowings of$97,000 and issued letters of credit of$4,071.~~

Borrowings outstanding bore interest, at Davey Tree’s option, of either (a) a base rate or (b) LIBOR plus a margin adjustment ranging from .75% to 1.50%--with the margin adjustments in both instances based on the Company's leverage ratio at the time of borrowing. The base rate was 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 .25% was also required based on the average daily unborrowed commitment.

On October 6, 2017, we entered into a $250,000 Third Amended and Restated Credit Agreement (the “Credit Agreement”) with a syndicate of financial institutions as lenders and issuing banks, which replaces the $175,000 credit agreement, dated as of November 7, 2013. The Credit Agreement provides for a revolving credit commitment of $250,000, which includes a letter of credit commitment of $100,000 and a swing line commitment of $25,000. Under certain circumstances, we may increase the revolving credit commitment amount to $325,000. The commitments will expire on October 6, 2022, or such earlier date on which the commitments shall have been terminated in accordance with the provisions of the Credit Agreement. Proceeds of borrowings under the Credit Agreement may be used for working capital, capital expenditures and other general corporate purposes.

Borrowings under the Credit Agreement bear interest at a rate per annum equal to, at our election, (a) LIBOR plus a margin of .875% to 1.50% that is adjusted based on the Company's leverage ratio at the time of such borrowings or (b) the base rate. Fees payable by the Company under the Credit Agreement include a letter of credit fee (the margin applicable to LIBOR borrowings), a letter of credit fronting fee with respect to each letter of credit (.10%) and commitment fees on the average daily unused portion of the total revolving credit commitment (a range of .10% to .225%, based on the Company's leverage ratio).

The Credit Agreement contains customary events of default and restrictive covenants (subject to negotiated exceptions and baskets), including restrictions on liens, indebtedness, investments and loans, acquisitions and mergers, sales of assets, and payments of dividends and stock repurchases. In addition, during the term of the Credit Agreement, the Company is required to maintain a maximum leverage ratio (not to exceed 3.00 to 1.00,

with exceptions in case of material acquisitions) and a maximum interest coverage ratio (less than 3.00 to 1.00), in each case subject to certain further restrictions as described in the Credit Agreement.

~~5.09% Senior Unsecured Notes~~--The senior unsecured notes are due July 22, 2020 and were issued during July 2010 as 5.09% Senior Unsecured Notes, Series A (the "5.09% Senior Notes"), pursuant to a Master Note Purchase Agreement (the “Purchase Agreement”) between the Company and the purchasers of the 5.09% Senior Notes.

The 5.09% Senior Notes are equal in right of payment with our revolving credit facility and all other senior unsecured obligations of the Company. Interest is payable semiannually and five equal, annual principal payments commenced on July 22, 2016 (thesixth anniversary of issuance). The Purchase Agreement contains customary events of default and covenants related to limitations on indebtedness and transactions with affiliates and the maintenance of certain financial ratios.

~~Accounts Receivable Securitization Facility~~--On May 8, 2017, the Company amended its accounts receivable securitization facility to extend the scheduled termination date for an additional one-year period and increase the limit of the facility from $60,000 to $100,000.

~~As of September 30, 2017, we had issued letters of credit of $58,150 under the terms of the AR securitization program.~~

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 letters of credit as of September 30, 2017--to the bank in exchange for the bank issuing letters of credit ("LCs").

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.

Contractual Obligations Summary and Commercial Commitments

~~The following summarizes our long-term contractual obligations, as of~~ ~~September 30, 2017, to make future payments for the periods indicated:~~

The self-insurance accruals in the summary above reflect the total of the undiscounted amount accrued, for which amounts estimated to be due each year may differ from actual payments required to fund claims. Purchase obligations in the summary above represent open purchase-order amounts that we anticipate will become payable for goods and services that we have negotiated for delivery as of ~~September 30, 2017~~. Other liabilities include estimates of future expected funding requirements related to retirement plans and other sundry items. Because their future cash outflows are uncertain, accrued income tax liabilities for uncertain tax positions, as of ~~September 30, 2017, have not been included in the summary above. Noncurrent deferred taxes and payments related to defined benefit pension plans are also not included in the summary.~~

As of September ~~30, 2017,~~28, 2019, total commitments related to issued letters of credit were ~~$64,221,~~$81,655, of which ~~$4,071~~$2,913 were issued under the revolving credit facility, ~~$58,150~~$76,732 were issued under the AR ~~securitization~~Securitization program, and ~~$2,000~~$2,010 were issued under short-term lines of credit. As of December 31, ~~2016,~~2018, total commitments related to issued ~~letters of credit~~LCs were ~~$64,225,~~$72,565, of which ~~$4,071~~$3,123 were issued under the revolving credit facility, ~~$58,150~~$67,438 were issued under the AR ~~securitization facility,~~Securitization program, and $2,004 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 ~~2017~~2019 through ~~2023~~.2023. We intend to renew the surety bonds where appropriate and as necessary.

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

Business seasonality traditionally results in higher revenues during the second and third quarters as compared with the first and fourth quarters of the year, while our methods of accounting for fixed costs, such as depreciation and amortization expense, rent and interest expense, are not significantly impacted by business seasonality. Capital resources during these periods are equally affected. We satisfy seasonal working capital needs and other financing requirements with the revolving credit facility and other short-term lines of credit. We are continually reviewing our existing sources of financing and evaluating alternatives. At September ~~30, 2017,~~28, 2019, we had working capital of ~~$82,295,~~$116,150, and short-term lines of credit approximating ~~$7,204~~$6,696 and ~~$73,929~~$182,087 available under our revolving credit facility.

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

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

~~Accounting Standards Adopted in 2017~~

~~Accounting Standards Update 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting~~--In March 2016, the FASB issued ASU 2016-09, “Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,” with the objective to simplify several aspects of the accounting for share-based payment transactions, including: the income tax consequences; classification of awards as either equity or liabilities; classification of certain items on the statement of cash flows; and, accounting for forfeitures. ASU 2016-09 became effective for Davey Tree on January 1, 2017 and we elected to make an accounting policy change to recognize forfeitures as they occur. The adoption impact on the consolidated condensed balance sheet was a cumulative-effect adjustment of $162, increasing opening retained earnings and decreasing additional paid-in capital.

~~Accounting Standards Update 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting~~--In May 2017, the FASB issued ASU 2017-09, “Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting,” which provides guidance on which changes in the terms or conditions of a share-based payment award require modification accounting under Topic 718. Modification accounting is required for changes in terms or conditions unless the fair value, vesting condition and classification of the modified award is the same as the original award. The update is effective for annual and interim periods beginning after December 15, 2017, which for Davey Tree would be January 1, 2018. Early adoption is permitted. We do not expect the adoption of ASU 2017-09 to have a material impact on our consolidated financial statements.

ASU 2017-07, service costs will be included within the same income statement line item as other compensation costs arising from services rendered by pertinent employees during the period. The other components of net periodic benefit pension cost will be presented separately outside of income from operations. Additionally, only service costs may be capitalized in assets. ASU 2017-07 is effective for fiscal years beginning after December 15, 2017, which for Davey Tree is January 1, 2018. Management has not yet completed its assessment of the impact of the new standard on the Company’s consolidated financial statements.

~~Subsequent to the issuance of ASU 2014-09, the FASB has provided additional implementation guidance updates related to ASU 2014-09, including:~~

~~necessary changes to our systems, policies and the related internal controls as a result. We plan to adopt ASU 2014-09 using the modified retrospective approach effective January 1, 2018.~~

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

As discussed in our annual report on Form ~~10-K/A~~10-K for the year ended December 31, ~~2016~~,2018, we believe that our policies related to revenue recognition, the allowance for doubtful accounts, stock valuation and self-insurance ~~accruals~~reserves are our “critical accounting policies and estimates”--those most important to the financial presentations and those that require the most difficult, subjective or complex judgments.

On an ongoing basis, we evaluate our estimates and assumptions, including those related to accounts receivable, specifically those receivables under contractual arrangements primarily with Utility customers; allowance for

doubtful accounts; and self-insurance ~~accruals.~~reserves. We base our estimates on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates.

This quarterly report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. These statements relate to future events or our future financial performance. In some cases, forward-looking statements may be identified by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to differ materially from what is expressed or implied in these forward-looking statements. Some important factors that could cause actual results to differ materially from those in the forward-looking statements include:

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

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.

The factors described above, as well as other factors that may adversely impact our actual results, are discussed in "Part III - Item 1A. Risk Factors." of ~~this quarterly report on Form 10-Q and in~~ our annual report on Form ~~10-K/A~~10-K for the year ended December 31, ~~2016~~ ~~in “Part I - Item 1A. Risk Factors.”~~2018.

~~Index~~


Item 3.	Quantitative and Qualitative Disclosures about Market Risk.

During the ~~quarter~~nine months ended September ~~30, 2017~~,28, 2019, there ~~have been~~were no material changes in the market risk previously presented in our annual report on Form 10-K for the year ended December 31, ~~2016~~.

2018.


Item 4.	Controls and Procedures.

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

~~Under~~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, ~~we carried out an evaluation~~ 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 ~~due to the material weakness described below,~~ the design and operation of our disclosure controls and procedures were ~~not~~ effective at the reasonable assurance level as of the end of the period covered by this ~~Form 10-Q~~report in ensuring that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Based upon our initial evaluation, our management concluded that our internal control over financial reporting was effective as of July 1, 2017. Subsequent to filing previously issued quarterly reports on Form 10-Q, including April 1, 2017 and July 1, 2017 financial statements, an error was discovered related to the classification of shares of the Company’s common stock held by the Davey 401KSOP and ESOP Plan which were historically classified as permanent equity rather than temporary equity in the mezzanine section of the balance sheet. This error resulted in a material misstatement of the financial statements and required restatement of the financial statements included in the Company’s Form 10-K for the year ended December 31, 2016 as well as the financial statements included in the Company's Form 10-Q's for the quarters ended April 1, 2017 and July 1, 2017. This error, which was not detected timely by management, was the result of inadequate design, as well as insufficient operating effectiveness, of the control pertaining to the Company’s review of redemption provisions and associated fair value and classification of the common shares held by the Davey 401KSOP and ESOP (the Plan) as well as shares distributed from the Plan, which remain subject to redemption. The deficiency is considered to be indicative of a material weakness in our internal control over financial reporting. The material weakness continued to exist as of September 30, 2017.

(b) Changes in Internal Control over Financial Reporting

We have begun to enhance our controls and procedures in an effort to remediate the material weakness discussed above, including improving the precision of our review controls relating to the redemption provisions and associated fair value and classification of our common shares related to the Plan. We expect to fully remediate the above mentioned material weakness before the end of the fiscal year ending December 31, 2017. There were no changes in our internal control over financial reporting during the ~~fourth~~fiscal quarter ~~2016~~ended September 28, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ~~We continue to evaluate the effectiveness of our disclosure controls and procedures and our internal control over financial reporting on an ongoing basis and take action as appropriate.~~

The Davey Tree Expert Company


Part II.	Other Information

Items 1, 3, 4 and 5 are not applicable.


Item 1.	Legal Proceedings.

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

Index

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

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

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 RICO claims under Georgia law seeking compensatory damages, treble damages, and punitive damages. The 2018 case was removed to the United States District Court for the Southern District of Georgia, Savannah Division, on August 2, 2018 (“Federal Court”). The Company filed a motion to dismiss the RICO claims. Plaintiffs filed a motion to remand the case to state court, which the Company has opposed. The motions are pending.

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


Item 1A.	Risk Factors.

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

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

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

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

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

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

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

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

We derive approximately 51% of our total annual revenues from our Utility segment, including approximately 12% of our total annual revenues from Pacific Gas & Electric Company. Significant adverse developments in the utility industry generally, or specifically for our major utility customers, could result in pressure to reduce costs by utility industry service providers (such as us), delays in payments of our accounts receivable, or increases in uncollectible accounts receivable, among other things. As a result, such developments could have an adverse effect on our results of operations.

~~Our quarterly results may fluctuate.~~

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


▪	~~the seasonality of our business;~~


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

~~Index~~


▪	~~budgetary spending patterns of customers;~~


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


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


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


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


▪	~~general and local economic conditions.~~

~~Accordingly, our operating results in any particular quarter may not be indicative of the results that you can expect for any other quarter or~~Form 10-K for the ~~entire year.~~

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

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

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

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

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

We are exposed to foreign currency exchange rate risk resulting from our operations in Canada, where we provide a comprehensive range of horticultural services. Fluctuations in foreign currency exchange rates may make our services more expensive for others to purchase or increase our operating costs, affecting our competitiveness and our profitability. Our financial results could be affected by factors such as changes in the foreign currency exchange rate or differing economic conditions in the Canadian markets as compared with the markets for our services in the United States. Our earnings are affected by translation exposures from currency fluctuations in the value of the U.S. dollar as compared to the Canadian dollar.

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

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

We are generally self-insured for losses and liabilities related to workers' compensation, vehicle liability and general liability claims (including any wildfire-related claims, up to certain retained coverage limits). A liability for unpaid claims and associated expenses, including incurred but not reported losses, is actuarially determined

~~Index~~

and reflected in our consolidated balance sheet as an accrued liability. The determination of such claims and expenses, and the extent of the need for accrued liabilities, are continually reviewed and updated. If we were to experience insurance claims or costs above our estimates and were unable to offset such increases with earnings, our business could be adversely affected. Also, where we self-insure, a deterioration in claims management, whether by our management or by a third-party claims administrator, could lead to delays in settling claims, thereby increasing claim costs, particularly as it relates to workers’ compensation. In addition, catastrophic uninsured claims filed against us or the inability of our insurance carriers to pay otherwise-insured claims would have an adverse effect on our financial condition.

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

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

The costs of employee health care insurance have been increasing in recent years due to rising health care costs, legislative changes, and general economic conditions. We cannot predict what other health care programs and regulations will ultimately be implemented at the federal or state level or the effect of any future legislation or regulations on our business, results of operations and cash flows. In addition, we cannot predict when and if Congress will repeal and/or replace certain health care programs and regulations at the federal level and the impact that such changes would have on our business. A continued increase in health care costs or additional costs incurred as a result of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 or other future health care reform laws imposed by Congress or state legislatures could have a negative impact on our financial position, results of operations and cash flows.

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

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

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

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

~~We are subject to intense competition.~~

We believe that each aspect of our business is highly competitive. Principal methods of competition in our operating segments are customer service, marketing, image, performance and reputation. Pricing is not always a critical factor in a customer’s decision with respect to our Residential and Commercial segment; however, pricing is generally the principal method of competition for our Utility segment, although in most instances consideration is given to reputation and past production performance. On a national level, our competition is primarily landscape construction and maintenance companies as well as residential and commercial lawn care companies. At a local and regional level, our competition comes mainly from small, local companies which are engaged

~~Index~~

primarily in tree care and lawn services. Our Utility segment competes principally with one major national competitor, as well as several smaller regional firms. Furthermore, competitors may have lower costs because privately-owned companies operating in a limited geographic area may have significantly lower labor and overhead costs. Our competitors may develop the expertise, experience and resources to provide services that are superior in both price and quality to our services. These strong competitive pressures could inhibit our success in bidding for profitable business and may have a material adverse effect on our business, financial condition and results of operations.

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

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

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

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

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

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

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

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

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

~~Index~~

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

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

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

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

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

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

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

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

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

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

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

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

~~We have identified a material weakness in our internal control over financial reporting that resulted in the restatement of certain of our financial statements.~~

~~We are restating our consolidated financial statements for the fiscal~~ year ended December 31, ~~2016 and for~~2018, includes a detailed discussion of our risk factors. There have been no material changes to the ~~first and second quarterly periods of 2017 to correct an accounting error in the method historically used by the~~risk factors as previously disclosed.

Index

Company to classify shares of the Company’s common stock held by The Davey 401KSOP and ESOP Plan on the Company’s consolidated balance sheet. For a discussion of this error and the related adjustment, see Note B to the Consolidated Financial Statements of the Company included in this report. In connection with this restatement, we have identified a material weakness in our internal controls over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. As a result of the material weakness, management has concluded that we did not maintain effective internal control over financial reporting or effective disclosure controls and procedures as of December 31, 2016. The material weakness continued to exist as of April 1, 2017, July 1, 2017 and September 30, 2017.

As further described in Part I, Item 4 “Controls and Procedures,” we have undertaken steps to remediate our internal control over financial reporting. If we are unable to successfully remediate our existing or any future material weaknesses in our internal control over financial reporting, the accuracy and timing of our financial reporting may be adversely affected, our liquidity, access to capital and perceptions of our creditworthiness may be adversely affected, we may be unable to maintain compliance with securities law and debt instruments regarding the timely filing of periodic reports, we may be subject to regulatory investigations and penalties, we may suffer defaults under our debt instruments, and the valuation of our shares may be impacted.

As a result of the restatement and the remediation of our ineffective disclosure controls and procedures and material weakness in our internal control over financial reporting, we have become subject to additional costs and risks, including costs for accounting and legal fees. In addition, the attention of our management team has been diverted by these efforts. We could also be subject to regulatory, shareholder or other actions in connection with the restatement, which would, regardless of the outcome, consume management’s time and attention and may result in additional legal, accounting and other costs. In addition, the restatement and related matters could impair our reputation and could cause our customers, lenders, employees, shareholders, insurers, vendors, and other counterparties to lose confidence in us. Each of these occurrences could have an adverse effect on our business, results of operations, and financial condition.

~~Index~~


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

The following table provides information on purchases of our common shares outstanding made by us during the first nine months of ~~2017~~2019. The numbers in the following table have been adjusted for a two-for-one stock split, effected in the form of a 100% stock dividend paid on June 15, 2017 to shareholders of record at the close of business on June 1, 2017.

Period
Total
Number of
Shares
Purchased

Average
Price
Paid per
Share

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

Maximum Number (or
Approximate Dollar
Value) of Shares that
May Yet Be Purchased
Under the Plans or
Programs
Fiscal 2017
January 1 to January 28 610
$ 16.95
n/a n/a
January 29 to February 25 548
16.95
n/a n/a
February 26 to April 1 117,878
17.60
n/a n/a
Total First Quarter 119,036
17.59

April 2 to April 29 270,158
17.60
n/a n/a
April 30 to May 27 434,290
17.60
— 200,000
May 28 to July 1 118,551
17.60
— 200,000
Total Second Quarter 822,999
17.60

July 2 to July 29 550
17.60
— 200,000
July 30 to August 26 72,969
18.30
— 200,000
August 27 to September 30 64,237
18.30
— 200,000
Total Third Quarter 137,756
18.30

Total Year-to-Date 1,079,791
$ 17.69

n/a--Not applicable. There are no publicly announced plans or programs to purchase common shares.



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

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

June 30 to July 27	1,114	22.60		—	913,044
July 28 to August 24	100,558	22.60		—	913,044
August 25 to September 28	88,606	22.60		—	913,044
Total Third Quarter	190,278	22.60		—

Total Year-to-Date	1,192,841	$	21.34	41,448

Our common shares are not listed or traded on an established public trading market and market prices are, therefore, not available. Semiannually, for purposes of the Davey 401KSOP and ESOP, the fair market value of our common shares is determined by an independent stock valuation firm, based upon our performance and financial condition, using a peer group of comparable companies selected by that firm. The peer group currently consists of: ABM Industries Incorporated; Comfort Systems USA, Inc.; Dycom Industries, Inc.; MYR Group, Inc.; Quanta Services, Inc.; Rollins, Inc.; and Scotts Miracle-Gro Company. The semiannual valuations are effective for a period of six months and the per-share price established by those valuations is the price at which our Board of Directors has determined our common shares will be bought and sold during that six-month period in transactions involving Davey Tree or one of its employee benefit or stock purchase plans. Since 1979, we have provided a ready market for all shareholders through our direct purchase of their common shares, although we are under no obligation to do so (other than for repurchases pursuant to the put option under The Davey 401KSOP and ESOP Plan, as described in Note O,Q, The Davey 401KSOP and Employee Stock Ownership Plan). The purchases described above were added to our treasury stock.

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

~~Index~~

of first refusal with respect to proposed transfers of shares of the Company's common shares, (ii) clarify provisions regarding when the Company may provide notice of its decision to exercise its right of first refusal with respect to proposed transfers of common shares by the estate or personal representative of a deceased shareholder, and (iii) grant the Company a right to repurchase common shares held by certain shareholders of the Company.

Index

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

Until further action by the Board, it ~~will be~~is the policy of the Company not to exercise its repurchase rights under the amended Articles with respect to shares of the Company's common shares held by current and retired employees and current and former directors of the Company (subject to exceptions set forth in the policy) (collectively, "Active Shareholders"), their spouses, their first-generation descendants and trusts established exclusively for their benefit.

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

~~On May 17, 2017, in~~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 ~~100,000~~200,000 common shares, ~~(200,000~~which authorization was increased by an additional 1,000,000 common shares ~~on a post-split basis).~~in May 2018. Of the 1,200,000 total shares authorized, 913,044 remain available under the program. Share repurchases may be made from time to time and the timing of any repurchases and the actual number of shares repurchased will depend on a variety of factors. The Company is not obligated to purchase any shares, and repurchases may be commenced, suspended or discontinued ~~form~~from time otto time without prior notice. The repurchase program does not have an expiration date.


Item 6.	Exhibits.

See Exhibit Index page below.

Index

Exhibit Index



Exhibit No.	Description

~~10.1~~ *	~~Agreement, dated as of July 22, 2017, between the Company and Karl J. Warnke~~.	~~Filed Herewith~~

~~10.2~~31.1	Third Amended and Restated Credit Agreement among The Davey Tree Expert Company, as borrower, various lending institutions party thereto, as banks, KeyBank National Association, as lead arranger, syndication agent and administrative agent, and PNC Bank, National Association and Wells Fargo Bank, N.A., as co-documentation agents, dated as of October 6, 2017 (Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on October 12, 2017).

~~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 September ~~30, 2017,~~28, 2019, formatted in ~~XBRL (eXtensible~~iXBRL (inline eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets (unaudited), (ii) the Condensed Consolidated Statements of Operations (unaudited), (iii) the Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited), (iv) the Condensed Consolidated Statements of Shareholders' Equity (unaudited), (v) the Condensed Consolidated Statements of Cash Flows (unaudited), and ~~(v)~~(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 contract or compensatory plan or arrangement.

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.



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



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

~~1500 North Mantua Street~~Title of each class		Trading Symbol(s)	Name of each exchange on which registered
~~P.O. Box 5193~~N/A
~~Kent, Ohio 44240~~
~~(Address of principal executive offices) (Zip code)~~

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


	September 30, 2017			December 31, 2016			September 28, 2019			December 31, 2018
Assets
Current assets:
Cash	$	10,235		$	9,006		$	13,702		$	22,661
Accounts receivable, net	171,022			146,134			232,245			195,906
Operating supplies	9,760			7,277			12,030			14,415
Other current assets	20,825			16,356			30,884			22,086
Total current assets	211,842			178,773			288,861			255,068

Property and equipment	613,396			588,650			662,256			639,396
Less accumulated depreciation	419,621			409,214			461,705			437,111
	193,775			179,436

Total property and equipment, net							200,551			202,285
Right-of-use assets - operating leases							40,189			—
Other assets	31,633			31,354			21,677			21,769
Identified intangible assets and goodwill, net	42,359			34,376
	$	479,609		$	423,939
Intangible assets and goodwill, net							49,920			47,501
Total assets							$	601,198		$	526,623
Liabilities and shareholders' equity
Current liabilities:
Accounts payable	$	38,679		$	41,283		$	39,276		$	43,958
Accrued expenses	46,973			37,659			61,220			44,061
Current portion of long-term debt and finance lease liabilities							30,532			23,859
Other current liabilities	43,895			39,963			41,683			27,434
Total current liabilities	129,547			118,905			172,711			139,312

Long-term debt	117,020			92,290			145,564			155,563
Self-insurance accruals	48,062			39,746
Lease liabilities - finance leases							1,787			2,862
Lease liabilities - operating leases							25,878			—
Self-insurance reserve							62,643			56,351
Other noncurrent liabilities	17,319			20,819			10,487			10,125
	311,948			271,760

Redeemable common shares related to 401KSOP and Employee Stock Ownership Plan (ESOP); 6,747 and 7,057 shares at redemption value as of September 30, 2017 and December 31, 2016	123,478			124,201

Common shareholders' equity:*

Common shares, $1.00 par value, per share; 48,000 shares authorized; 36,167 and 35,857 shares issued and outstanding before deducting treasury shares and which excludes 6,747 and 7,057 shares subject to redemption as of September 30, 2017 and December 31, 2016	36,167			35,857
Total liabilities							419,070			364,213
Commitments and contingencies (Note P)
Redeemable common shares related to 401KSOP and Employee Stock Ownership Plan (ESOP); 5,299 and 5,642 shares at redemption value as of September 28, 2019 and December 31, 2018							119,758			119,049
Common shareholders' equity:
Common shares, $1.00 par value, per share; 48,000 shares authorized; 37,615 and 37,272 shares issued and outstanding before deducting treasury shares and which excludes 5,299 and 5,642 shares subject to redemption as of September 28, 2019 and December 31, 2018							37,623			37,272
Additional paid-in capital	53,164			41,626			91,448			82,623
Common shares subscribed, unissued	7,694			8,209			110			6,799
Retained earnings	148,075			133,951			180,470			157,472
Accumulated other comprehensive loss	(9,193		)	(12,162		)	(5,636		)	(5,034		)
	235,907			207,481			304,015			279,132
Less: Cost of common shares held in treasury; 18,415 shares at September 30, 2017 and 17,991 shares at December 31, 2016	189,794			176,530
Less: Cost of common shares held in treasury; 19,671 shares at September 28, 2019 and 20,033 shares at December 31, 2018							241,631			235,042
Common shares subscription receivable	1,930			2,973			14			729
Total common shareholders' equity	44,183			27,978			62,370			43,361
	$	479,609		$	423,939

* Adjusted for two-for-one stock split
Total liabilities and shareholders' equity							$	601,198		$	526,623

See notes to condensed consolidated financial statements.


	Nine Months Ended						Nine Months Ended
	September 30, 2017			October 1, 2016			September 28, 2019			September 29, 2018
Operating activities
Net income	$	20,573		$	17,262		$	32,688		$	23,471
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	38,939			36,396			44,121			41,866
Other	(443		)	(566		)	(1,106		)	(834		)
Changes in operating assets and liabilities:
Changes in operating assets and liabilities, net of assets acquired:
Accounts receivable	(23,135		)	(20,773		)	(35,956		)	(24,370		)
Operating liabilities	12,139			10,272
Accounts payable and accrued expenses							18,691			1,276
Self-insurance reserve							5,952			5,391
Prepaid expenses							(10,388		)	(9,020		)
Other, net	(9,644		)	(7,048		)	3,212			(12,983		)
	17,856			18,281			24,526			1,326
Net cash provided by operating activities	38,429			35,543			57,214			24,797

Investing activities
Capital expenditures:
Equipment	(44,727		)	(47,062		)	(45,148		)	(47,689		)
Land and building	(3,641		)	(1,863		)	(1,108		)	(591		)
Purchases of businesses, net of cash acquired	(7,452		)	(3,797		)	(3,800		)	(8,241		)
Other	3,372			2,833
Proceeds from sales of fixed assets							2,502			5,836
Net cash used in investing activities	(52,448		)	(49,889		)	(47,554		)	(50,685		)

Financing activities
Revolving credit facility proceeds, net	30,000			28,500
Revolving credit facility borrowings							358,000			396,500
Revolving credit facility payments							(386,500		)	(404,500		)
Purchase of common shares for treasury	(19,512		)	(15,332		)	(25,435		)	(30,958		)
Sale of common shares from treasury	11,268			9,197			13,852			14,235
Dividends	(1,898		)	(1,967		)
Dividends paid							(1,745		)	(1,818		)
Proceeds from notes payable							95,200			72,746
Payments of notes payable	(4,610		)	(1,906		)	(71,027		)	(22,258		)
Net cash provided by financing activities	15,248			18,492

Increase in cash	1,229			4,146

Payments of finance leases							(1,061		)	(664		)
Net cash (used in) provided by financing activities							(18,716		)	23,283
Effect of exchange rate changes on cash							97			—
Decrease in cash							(8,959		)	(2,605		)
Cash, beginning of period	9,006			16,030			22,661			13,121
Cash, end of period	$	10,235		$	20,176		$	13,702		$	10,516

Supplemental cash flow information follows:
Interest paid	$	4,079		$	3,534		$	7,355		$	5,163
Income taxes paid	7,189			4,725			2,239			7,898

See notes to condensed consolidated financial statements.



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



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



~~(Check one):~~Large Accelerated Filer	☐		¨ ~~Large~~ Accelerated Filer	☒		x ~~Accelerated~~Emerging Growth Company	☐
Non-Accelerated Filer	☐		¨ ~~Emerging Growth Company~~
		¨ ~~Non-Accelerated Filer (Do not check if a smaller reporting company)~~		¨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. ¨



						Page
Part I.	Financial Information

Item 1.	Financial Statements (Unaudited)
		Condensed Consolidated Balance Sheets				2
		Condensed Consolidated Statements of Operations				3
		Condensed Consolidated Statements of Comprehensive Income (Loss)				4
		Condensed Consolidated Statements of ~~Cash Flows~~Shareholders' Equity				5
		Condensed Consolidated Statements of Cash Flows				7
		Notes to Condensed Consolidated Financial Statements
			A	—	Basis of Financial Statement Preparation	68
			B	—	Seasonality of Business	9
			C	—	Accounts Receivable, Net and Supplemental Balance-Sheet Information	109
			D	—	Business Combinations	11
			E	—	Identified Intangible Assets and Goodwill, Net	12
			F	—	Long-Term Debt and Commitments Related to Letters of Credit	13
			G ~~— Stock-Based Compensation~~	15—	Leases	16
			H ~~— Net Periodic Benefit Cost--Defined Benefit Pension Plans~~	18
	I — ~~Income Taxes~~	18
	~~J — Accumulated Other Comprehensive Income (Loss)~~Stock-Based Compensation	19
			I	—	Net Periodic Benefit Expense--Defined Benefit Pension Plans	22
			J	—	Income Taxes	22
			K	—	Accumulated Other Comprehensive Income (Loss)	23
			L	—	Per Share Amounts and Common and Redeemable Shares Outstanding	2025
			L M	—	Operations by Business Segment	2227
			M N	—	Revenue Recognition	29
			O	—	Fair Value Measurements and Financial ~~Instruments~~Information	2431
			~~N — Contingencies~~P	26—	Commitments and Contingencies	33
			O Q	—	The Davey 401KSOP and Employee Stock Ownership Plan	2635

Item 2.	~~Management’s~~Management's Discussion and Analysis of Financial Condition and Results of Operations					27
	~~Results of Operations~~	27
	~~Liquidity and Capital Resources~~	31
	~~Cash Flow Summary~~	32
	~~Contractual Obligations Summary and Commercial Commitments~~	35
	~~Capital Resources~~	35
	~~Recent Accounting Guidance~~	36
		~~Critical Accounting Policies and Estimates~~Results of Operations				38
	~~Note Regarding Forward-Looking Statements~~	3837

~~Item 3.~~	~~Quantitative and Qualitative Disclosures about Market Risk~~	40

~~Item 4.~~	~~Controls and Procedures~~	40

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

~~Item 1A.~~	~~Risk Factors~~Liquidity of Capital Resources	41

~~Item 2.~~Cash Flow Summary				42
			Contractual Obligations Summary and Commercial Commitments			43
			Capital Resources			43
		Critical Accounting Policies and Estimates				43
		Note Regarding Forward-Looking Statements				44

Item 3.	Quantitative and Qualitative Disclosures about Market Risk					45

Item 4.	Controls and Procedures					45

Part II.	Other Information					45

Item 1.	Legal Proceedings					45

Item 1A.	Risk Factors					46

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds					47

Item 6.	Exhibits					48

Exhibit Index						49

Signatures						50

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



	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 June 29, 2019	$	37,617	$	91,921		$	5,948		$	167,611		$	(5,269	)	$	(245,116	)	$	(431	)	$	52,281
Net income	—		—			—			13,434			—			—			—			13,434
Change in 401KSOP and ESOP related shares	6		(61		)	—			—			—			—			—			(55		)
Shares sold to employees	—		193			—			—			—			250			—			443
Options exercised	—		216			—			—			—			283			—			499
Subscription shares	—		(1,413		)	(5,838		)	—			—			7,258			417			424
Stock-based compensation	—		592			—			—			—			—			—			592
Dividends, $.025 per share	—		—			—			(575		)	—			—			—			(575		)
Currency translation adjustments	—		—			—			—			(384		)	—			—			(384		)
Defined benefit pension plans	—		—			—			—			17			—			—			17
Shares purchased	—		—			—			—			—			(4,306		)	—			(4,306		)
Balances at September 28, 2019	$	37,623	$	91,448		$	110		$	180,470		$	(5,636	)	$	(241,631	)	$	(14	)	$	62,370

Balances at January 1, 2019	$	37,272	$	82,623		$	6,799		$	157,472		$	(5,034	)	$	(235,042	)	$	(729	)	$	43,361
Net income	—		—			—			32,688			—			—			—			32,688
Change in 401KSOP and ESOP related shares	351		6,886			—			(7,945		)	—			—			—			(708		)
Shares sold to employees	—		3,754			—			—			—			5,794			—			9,548
Options exercised	—		(793		)	—			—			—			2,572			—			1,779
Subscription shares	—		(1,981		)	(6,689		)	—			—			10,480			715			2,525
Stock-based compensation	—		959			—			—			—			—			—			959
Dividends, $.075 per share	—		—			—			(1,745		)	—			—			—			(1,745		)
Currency translation adjustments	—		—			—			—			823			—			—			823
Defined benefit pension plans	—		—			—			—			(1,425		)	—			—			(1,425		)
Shares purchased	—		—			—			—			—			(25,435		)	—			(25,435		)
Balances at September 28, 2019	$	37,623	$	91,448		$	110		$	180,470		$	(5,636	)	$	(241,631	)	$	(14	)	$	62,370

See notes to condensed consolidated financial statements.


a.	ASU 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (‘Update 2015-14’),” which responded to stakeholders’ requests to defer the effective date of the guidance in ASU 2014-09.


c.	~~ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing (‘Update 2016-10’),” which clarifies multiple aspects of Topic 606.~~


d.	ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients (‘Update 2016-12’),” which provides clarifying guidance in a few narrow areas and adds some practical expedients to the guidance.



	September 30, 2017				December 31, 2016
Identified Intangible Assets and Goodwill, Net	Carrying Amount		Accumulated Amortization		Carrying Amount		Accumulated Amortization
Amortized intangible assets:
Customer lists/relationships	$	21,717	$	16,449	$	17,822	$	15,171
Employment-related	7,390		6,567		7,032		6,386
Tradenames	5,961		5,071		5,634		4,860

Amortized intangible assets	$	35,068	$	28,087	$	30,488	$	26,417

Less accumulated amortization	28,087				26,417

Identified intangibles, net	6,981				4,071

Unamortized intangible assets:
Goodwill	35,378				30,305
	$	42,359			$	34,376



	Balance at January 1, 2017		Acquisitions		Translation and Other Adjustments		Balance at September 30, 2017
Utility	$	3,424	$	—	$	—	$	3,424
Residential and Commercial	26,881		5,027		46		31,954
Total	$	30,305	$	5,027	$	46	$	35,378



	September 30, 2017		December 31, 2016
Revolving credit facility
Swing-line borrowings	$	7,000	$	10,000
LIBOR borrowings	90,000		57,000
	97,000		67,000
Senior unsecured notes	18,000		24,000
Term loans	20,410		16,151
Capital leases	2,573		2,343
	137,983		109,494
Less debt issuance costs	229		333
Less current portion	20,734		16,871
	$	117,020	$	92,290



	Common Shares		Redeemable
	Net of Treasury Shares		Shares		Total
Shares outstanding at January 1, 2017	17,866,236		7,056,904		24,923,140
Shares purchased	(486,877	)	(592,914	)	(1,079,791	)
Shares sold	184,669		283,427		468,096
Stock subscription offering -- cash purchases	69,227		—		69,227
Options and awards exercised	118,370		—		118,370
Shares outstanding at September 30, 2017	17,751,625		6,747,417		24,499,042



			Fair Value Measurements at September 30, 2017 Using:
Assets and Liabilities Recorded at Fair Value on a Recurring Basis	Total Carrying Value at September 30, 2017		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Assets invested for self-insurance, classified as other assets, noncurrent	$	17,794	$	17,794	$	—	$	—

Liabilities:
Deferred compensation	$	2,105	$	—	$	2,105	$	—



			Three Months Ending December 31, 2017
					Year Ending December 31,
Description	Total				2018		2019		2020		2021		Thereafter
Revolving credit facility	$	97,000	$	—	$	97,000	$	—	$	—	$	—	$	—
Senior unsecured notes	18,000		—		6,000		6,000		6,000		—		—
Term loans	20,410		14,039		1,141		895		4,335		—		—
Capital lease obligations	2,573		685		694		664		520		10		—
Operating lease obligations	14,360		1,592		4,559		3,380		2,398		1,165		1,266
Self-insurance accruals	71,223		13,686		18,162		12,570		7,828		4,256		14,721
Purchase obligations	11,313		11,313		—		—		—		—		—
Other liabilities	17,319		1,343		1,343		1,385		1,965		2,351		8,932
	$	252,198	$	42,658	$	128,899	$	24,894	$	23,046	$	7,782	$	24,919


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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