UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended ~~April 03,~~October 02, 2021


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

For the transition period from ______________ to ______________

Commission file number 000-11917

THE DAVEY TREE EXPERT COMPANY

(Exact name of registrant as specified in its charter)


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

1500 North Mantua Street

P.O. Box 5193

Kent, OH 44240

(Address of principal executive offices) (Zip code)

(330) 673-9511

(Registrant's telephone number, including area code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

N/A

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

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

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

Large Accelerated Filer

☐

Accelerated Filer

☒

Emerging Growth Company

☐

Non-Accelerated Filer

☐

Smaller Reporting Company

☐

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

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

There were ~~22,609,336~~44,645,640 Common Shares, ~~$1.00~~$.50 par value, outstanding as of ~~April 30,~~October 29, 2021.

Index

The Davey Tree Expert Company

Quarterly Report on Form 10-Q

~~April 3,~~October 2, 2021

INDEX


						Page
Part I.	Financial Information

Item 1.	Financial Statements (Unaudited)
		Condensed Consolidated Balance Sheets				2
		Condensed Consolidated Statements of Operations				3
		Condensed Consolidated Statements of Comprehensive Income (Loss)				4
		Condensed Consolidated Statements of Shareholders' Equity				5
		Condensed Consolidated Statements of Cash Flows				67
		Notes to Condensed Consolidated Financial Statements
			A	—	Basis of Financial Statement Preparation	78
			B	—	Seasonality of Business	910
			C	—	Accounts Receivable, Net and Supplemental Balance-Sheet Information	911
			D	—	Business Combinations	1112
			E	—	Identified Intangible Assets and Goodwill, Net	1213
			F	—	Long-Term Debt and Commitments Related to Letters of Credit	1314
			G	—	Leases	1517
			H	—	Stock-Based Compensation	1819
			I	—	Income Taxes	2022
			J	—	Accumulated Other Comprehensive Income (Loss)	2122
			K	—	Per Share Amounts and Common and Redeemable Shares Outstanding	2224
			L	—	Operations by Business Segment	2325
			M	—	Revenue Recognition	2427
			N	—	Fair Value Measurements and Financial Instruments	2629
			O	—	Commitments and Contingencies	2831
			P	—	The Davey 401KSOP and Employee Stock Ownership Plan	3033

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations					3234
		Results of Operations				3335
		Liquidity and Capital Resources				3539
			Cash Flow Summary			3640
			Contractual Obligations Summary and Commercial Commitments			3741
			Capital Resources			3741
		Critical Accounting Policies and Estimates				3842
		Note Regarding Forward-Looking Statements				3842

Item 3.	Quantitative and Qualitative Disclosures about Market Risk					4044

Item 4.	Controls and Procedures					4044

Part II.	Other Information					4044

Item 1.	Legal Proceedings					4044

Item 1A.	Risk Factors					4146

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds					4247

Item 6.	Exhibits					4348

Exhibit Index						4449

Signatures						4551

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

- 1 -

Index

THE DAVEY TREE EXPERT COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands, except per share data dollar amounts)


		April 3, 2021		December 31, 2020			October 2, 2021		December 31, 2020
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash	Cash	$	28,761	$	16,201	Cash	$	33,057	$	16,201
Accounts receivable, net	Accounts receivable, net	221,685		252,921		Accounts receivable, net	283,702		252,921
Operating supplies	Operating supplies	12,801		10,206		Operating supplies	12,395		10,206
Other current assets	Other current assets	28,230		25,734		Other current assets	47,418		25,734
Total current assets	Total current assets	291,477		305,062		Total current assets	376,572		305,062

Property and equipment, net	Property and equipment, net	214,273		204,717		Property and equipment, net	229,575		204,717
Right-of-use assets - operating leases	Right-of-use assets - operating leases	71,389		55,893		Right-of-use assets - operating leases	81,789		55,893
Other assets	Other assets	30,597		29,756		Other assets	20,880		29,756
Intangible assets, net	Intangible assets, net	12,990		11,670		Intangible assets, net	11,825		11,670
Goodwill	Goodwill	53,647		48,256		Goodwill	55,072		48,256
Total assets	Total assets	$	674,373	$	655,354	Total assets	$	775,713	$	655,354
Liabilities and shareholders' equity	Liabilities and shareholders' equity					Liabilities and shareholders' equity
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	48,173	$	42,787	Accounts payable	$	43,013	$	42,787
Accrued expenses	Accrued expenses	66,146		98,441		Accrued expenses	92,665		98,441
Current portion of long-term debt and finance lease liabilities	Current portion of long-term debt and finance lease liabilities	16,514		21,813		Current portion of long-term debt and finance lease liabilities	33,488		21,813
Other current liabilities	Other current liabilities	59,701		56,831		Other current liabilities	61,671		56,831
Total current liabilities	Total current liabilities	190,534		219,872		Total current liabilities	230,837		219,872
Long-term debt	Long-term debt	103,134		77,068		Long-term debt	111,777		77,068
Lease liabilities - finance leases	Lease liabilities - finance leases	6,000		6,479		Lease liabilities - finance leases	7,886		6,479
Lease liabilities - operating leases	Lease liabilities - operating leases	49,233		36,612		Lease liabilities - operating leases	54,249		36,612
Self-insurance accruals	Self-insurance accruals	76,977		71,573		Self-insurance accruals	88,051		71,573
Other noncurrent liabilities	Other noncurrent liabilities	11,507		10,689		Other noncurrent liabilities	11,456		10,689
Total liabilities	Total liabilities	437,385		422,293		Total liabilities	504,256		422,293
Commitments and contingencies (Note O)	Commitments and contingencies (Note O)					Commitments and contingencies (Note O)
Redeemable common shares related to 401KSOP and Employee Stock Ownership Plan (ESOP); 5,177 and 5,113 shares at redemption value as of April 3, 2021 and December 31, 2020		155,307		153,387
Common shareholders' equity:
Common shares, $1.00 par value, per share; 48,000 shares authorized; 37,737 and 37,801 shares issued and outstanding before deducting treasury shares and which excludes 5,177 and 5,113 shares subject to redemption as of April 3, 2021 and December 31, 2020		37,737		37,801
Redeemable common shares related to 401KSOP and Employee Stock Ownership Plan (ESOP); 9,762 and 10,226 shares at redemption value as of October 2, 2021 and December 31, 2020*						Redeemable common shares related to 401KSOP and Employee Stock Ownership Plan (ESOP); 9,762 and 10,226 shares at redemption value as of October 2, 2021 and December 31, 2020*	160,097		153,387
Common shareholders' equity:*						Common shareholders' equity:*
Common shares, $0.50 par value, per share; 96,000 shares authorized; 76,066 and 75,602 shares issued and outstanding before deducting treasury shares and which excludes 9,762 and 10,226 shares subject to redemption as of October 2, 2021 and December 31, 2020						Common shares, $0.50 par value, per share; 96,000 shares authorized; 76,066 and 75,602 shares issued and outstanding before deducting treasury shares and which excludes 9,762 and 10,226 shares subject to redemption as of October 2, 2021 and December 31, 2020	38,033		37,801
Additional paid-in capital	Additional paid-in capital	109,774		110,069		Additional paid-in capital	125,178		110,069

Retained earnings	Retained earnings	210,567		206,711		Retained earnings	248,853		206,711
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(4,060)		(4,547)		Accumulated other comprehensive loss	(4,330)		(4,547)
		354,018		350,034			407,734		350,034
Less: Cost of common shares held in treasury; 20,075 shares at April 3, 2021 and 20,094 shares at December 31, 2020		272,337		270,360
Less: Cost of common shares held in treasury; 41,089 shares at October 2, 2021 and 40,187 shares at December 31, 2020						Less: Cost of common shares held in treasury; 41,089 shares at October 2, 2021 and 40,187 shares at December 31, 2020	296,374		270,360

Total common shareholders' equity	Total common shareholders' equity	81,681		79,674		Total common shareholders' equity	111,360		79,674
Total liabilities and shareholders' equity	Total liabilities and shareholders' equity	$	674,373	$	655,354	Total liabilities and shareholders' equity	$	775,713	$	655,354

* Prior period has been adjusted for the 2-for-one stock split.						* Prior period has been adjusted for the 2-for-one stock split.

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

- 2 -

Index

THE DAVEY TREE EXPERT COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(In thousands, except per share dollar amounts)


		Three Months Ended					Three Months Ended				Nine Months Ended
			April 3, 2021		March 28, 2020				October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020
Revenues	Revenues		$	298,821	$	288,280		Revenues	$	370,244	$	337,453	$	1,024,541	$	944,980

Costs and expenses:	Costs and expenses:							Costs and expenses:
Operating	Operating		199,035		198,605			Operating	232,599		208,638		650,909		598,225
Selling	Selling		52,687		50,112			Selling	67,353		60,203		178,876		162,287
General and administrative	General and administrative		25,351		21,542			General and administrative	20,739		19,891		69,712		60,477
Depreciation and amortization	Depreciation and amortization		13,458		14,604			Depreciation and amortization	14,127		13,825		41,287		42,553
Gain on sale of assets, net	Gain on sale of assets, net		(684)		(305)			Gain on sale of assets, net	(1,507)		(476)		(4,174)		(2,045)
Total costs and expenses	Total costs and expenses		289,847		284,558			Total costs and expenses	333,311		302,081		936,610		861,497

Income from operations	Income from operations		8,974		3,722			Income from operations	36,933		35,372		87,931		83,483

Other income (expense):	Other income (expense):							Other income (expense):
Interest expense	Interest expense		(1,274)		(1,946)			Interest expense	(1,449)		(1,579)		(4,093)		(5,477)
Interest income	Interest income		69		101			Interest income	39		1,688		161		1,885
Other, net	Other, net		(2,050)		(1,899)			Other, net	(2,298)		(1,499)		(5,548)		(4,550)

Income (loss) before income taxes			5,719		(22)
Income before income taxes								Income before income taxes	33,225		33,982		78,451		75,341

Income taxes (benefit)			1,292		(1)
Income taxes								Income taxes	8,298		9,447		20,554		20,945

Net income (loss)			$	4,427	$	(21)
Net income								Net income	$	24,927	$	24,535	$	57,897	$	54,396

Net income (loss) per share:
Net income per share:*								Net income per share:*

Basic	Basic		$	.19	$	0		Basic	$	.56	$	.54	$	1.28	$	1.18
Diluted	Diluted		$	.18	$	0		Diluted	$	.52	$	.51	$	1.21	$	1.13

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

Basic	Basic		22,841		23,187			Basic	44,885		45,748		45,257		45,912
Diluted	Diluted		23,958		24,171			Diluted	47,951		47,708		47,785		48,005

* Prior period has been adjusted for the 2-for-one stock split.								* Prior period has been adjusted for the 2-for-one stock split.

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

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

- 3 -

Index

THE DAVEY TREE EXPERT COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)

(In thousands)


		Three Months Ended			Three Months Ended						Nine Months Ended
			April 3, 2021			March 28, 2020			October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020
Net income (loss)			$	4,427		$	(21)
Net income								Net income	$	24,927	$	24,535	$	57,897	$	54,396
Components of other comprehensive income (loss), net of tax:	Components of other comprehensive income (loss), net of tax:							Components of other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	Foreign currency translation adjustments		450			(1,971)		Foreign currency translation adjustments	(788)		629		105		(610)

Amortization of defined benefit pension items:	Amortization of defined benefit pension items:							Amortization of defined benefit pension items:
Net actuarial loss	Net actuarial loss		25			16		Net actuarial loss	27		16		77		49
Prior service cost	Prior service cost		12			12		Prior service cost	11		13		35		36
Defined benefit pension plan adjustments	Defined benefit pension plan adjustments		37			28		Defined benefit pension plan adjustments	38		29		112		85

Other comprehensive income (loss), net of tax	Other comprehensive income (loss), net of tax		487			(1,943)		Other comprehensive income (loss), net of tax	(750)		658		217		(525)

Comprehensive income (loss)			$	4,914		$	(1,964)
Comprehensive income								Comprehensive income	$	24,177	$	25,193	$	58,114	$	53,871

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

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

- 4 -

Index

THE DAVEY TREE EXPERT COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)

(In thousands, except per share data)


		Common Shares		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss), Net of Tax		Common Shares Held in Treasury		Total Common Shareholders' Equity			Common Shares		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss), Net of Tax		Common Shares Held in Treasury		Total Common Shareholders' Equity
Balances at July 3, 2021														Balances at July 3, 2021	$	38,049	$	123,822	$	224,707	$	(3,580)	$	(290,253)	$	92,745
Net income														Net income	—		—		24,927		—		—		24,927
Change in 401KSOP and ESOP related shares														Change in 401KSOP and ESOP related shares	(16)		(529)		—		—		—		(545)
Shares sold to employees														Shares sold to employees	—		1,655		—		—		1,293		2,948
Options exercised														Options exercised	—		(228)		—		—		1,828		1,600

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

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

Balances at January 1, 2021	Balances at January 1, 2021	$	37,801	$	110,069	$	206,711	$	(4,547)	$	(270,360)	$	79,674	Balances at January 1, 2021	$	37,801	$	110,069	$	206,711	$	(4,547)	$	(270,360)	$	79,674
Net income	Net income	—		—		4,427		—		—		4,427		Net income	—		—		57,897		—		—		57,897
Change in 401KSOP and ESOP related shares	Change in 401KSOP and ESOP related shares	(64)		(1,855)		—		—		—		(1,919)		Change in 401KSOP and ESOP related shares	232		6,679		(13,628)		—		—		(6,717)
Shares sold to employees	Shares sold to employees	—		1,339		—		—		1,121		2,460		Shares sold to employees	—		7,098		—		—		6,645		13,743
Options exercised	Options exercised	—		(363)		—		—		646		283		Options exercised	—		(636)		—		—		3,849		3,213

Stock-based compensation	Stock-based compensation	—		584		—		—		—		584		Stock-based compensation	—		1,968		—		—		—		1,968
Dividends, $.025 per share		—		—		(571)		—		—		(571)
Dividends, $.043 per share *														Dividends, $.043 per share *	—		—		(2,127)		—		—		(2,127)

Currency translation adjustments	Currency translation adjustments	—		—		—		450		—		450		Currency translation adjustments	—		—		—		105		—		105
Defined benefit pension plans	Defined benefit pension plans	—		—		—		37		—		37		Defined benefit pension plans	—		—		—		112		—		112
Shares purchased	Shares purchased	—		—		—		—		(3,744)		(3,744)		Shares purchased	—		—		—		—		(36,508)		(36,508)
Balances at April 3, 2021		$	37,737	$	109,774	$	210,567	$	(4,060)	$	(272,337)	$	81,681
Balances at October 2, 2021														Balances at October 2, 2021	$	38,033	$	125,178	$	248,853	$	(4,330)	$	(296,374)	$	111,360

* Adjusted for the 2-for-one stock split.														* Adjusted for the 2-for-one stock split.

Common
Shares Additional
Paid-in
Capital Retained
Earnings Accumulated
Other
Comprehensive
Income (Loss),
Net of Tax Common
Shares
Held in
Treasury Total Common
Shareholders'
Equity
Balances at January 1, 2020 $ 37,767 $ 96,366 $ 177,711 $ (5,403) $ (246,595) $ 59,846
Net loss — — (21) — — (21)
Change in 401KSOP and ESOP related shares (89) (2,071) — — — (2,160)
Shares sold to employees — 2,566 — — 2,438 5,004
Options exercised — 15 — — 196 211
Stock-based compensation — 371 — — — 371
Dividends, $.025 per share — — (575) — — (575)
Currency translation adjustments — — — (1,971) — (1,971)
Defined benefit pension plans — — — 28 — 28
Shares purchased — — — — (8,061) (8,061)
Balances at March 28, 2020 $ 37,678 $ 97,247 $ 177,115 $ (7,346) $ (252,022) $ 52,672
Certain amounts in the prior year have been recast as a result of the change in accounting principle as discussed in Note A.
See notes to condensed consolidated financial statements (unaudited).

- 5 -

Index

THE DAVEY TREE EXPERT COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)

(In thousands, except per share data) (continued)


	Common Shares		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss), Net of Tax		Common Shares Held in Treasury		Total Common Shareholders' Equity
Balances at June 27, 2020	$	37,784	$	103,291	$	202,843	$	(6,586)	$	(262,210)	$	75,122
Net income	—		—		24,535		—		—		24,535
Change in 401KSOP and ESOP related shares	(44)		(1,067)		—		—		—		(1,111)
Shares sold to employees	—		1,119		—		—		1,058		2,177
Options exercised	—		84		—		—		458		542

Stock-based compensation	—		796		—		—		—		796
Dividends, $.013 per share *	—		—		(569)		—		—		(569)

Currency translation adjustments	—		—		—		629		—		629
Defined benefit pension plans	—		—		—		29		—		29
Shares purchased	—		—		—		—		(3,473)		(3,473)
Balances at September 26, 2020	$	37,740	$	104,223	$	226,809	$	(5,928)	$	(264,167)	$	98,677

Balances at January 1, 2020	$	37,767	$	96,366	$	177,711	$	(5,403)	$	(246,595)	$	59,846
Net income	—		—		54,396		—		—		54,396
Change in 401KSOP and ESOP related shares	(27)		(661)		(3,590)		—		—		(4,278)
Shares sold to employees	—		7,269		—		—		8,053		15,322
Options exercised	—		(489)		—		—		1,864		1,375

Stock-based compensation	—		1,738		—		—		—		1,738


Dividends, $.038 per share *	—		—		(1,708)		—		—		(1,708)

Currency translation adjustments	—		—		—		(610)		—		(610)
Defined benefit pension plans	—		—		—		85		—		85
Shares purchased	—		—		—		—		(27,489)		(27,489)
Balances at September 26, 2020	$	37,740	$	104,223	$	226,809	$	(5,928)	$	(264,167)	$	98,677

*Adjusted for the 2-for-one stock split.

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

See notes to condensed consolidated financial statements (unaudited).

- 6 -

Index

THE DAVEY TREE EXPERT COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)


		Three Months Ended					Nine Months Ended
		April 3, 2021		March 28, 2020			October 2, 2021		September 26, 2020
Operating activities	Operating activities					Operating activities
Net income (loss)		$	4,427	$	(21)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Net income						Net income	$	57,897	$	54,396
Adjustments to reconcile net income to net cash provided by operating activities:						Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	13,458		14,604		Depreciation and amortization	41,287		42,553
Other	Other	483		792		Other	(1,242)		35
Changes in operating assets and liabilities, net of assets acquired:	Changes in operating assets and liabilities, net of assets acquired:					Changes in operating assets and liabilities, net of assets acquired:
Accounts receivable	Accounts receivable	32,023		(17,161)		Accounts receivable	(30,268)		(34,801)
Accounts payable and accrued expenses	Accounts payable and accrued expenses	(29,732)		(7,532)		Accounts payable and accrued expenses	(9,471)		28,389
Self-insurance accruals	Self-insurance accruals	4,641		4,620		Self-insurance accruals	13,041		14,686
Prepaid expenses	Prepaid expenses	5,020		8,176		Prepaid expenses	(13,442)		(7,506)
Other, net	Other, net	(7,925)		(710)		Other, net	(401)		1,676
		17,968		2,789			(496)		45,032
Net cash provided by operating activities	Net cash provided by operating activities	22,395		2,768		Net cash provided by operating activities	57,401		99,428
Investing activities	Investing activities					Investing activities
Capital expenditures:	Capital expenditures:					Capital expenditures:
Equipment	Equipment	(16,972)		(18,960)		Equipment	(47,907)		(38,071)
Land and buildings	Land and buildings	(1,707)		(747)		Land and buildings	(8,728)		(2,408)
Purchases of businesses, net of cash acquired and debt incurred	Purchases of businesses, net of cash acquired and debt incurred	(8,207)		(1,826)		Purchases of businesses, net of cash acquired and debt incurred	(10,227)		(3,826)
Proceeds from sales of fixed assets		820		521
Other						Other	7,085		2,691

Net cash used in investing activities	Net cash used in investing activities	(26,066)		(21,012)		Net cash used in investing activities	(59,777)		(41,614)
Financing activities	Financing activities					Financing activities
Revolving credit facility borrowings	Revolving credit facility borrowings	48,000		244,500		Revolving credit facility borrowings	279,163		522,500
Revolving credit facility payments	Revolving credit facility payments	(23,000)		(163,500)		Revolving credit facility payments	(245,685)		(554,500)
Purchase of common shares for treasury	Purchase of common shares for treasury	(3,744)		(8,061)		Purchase of common shares for treasury	(36,508)		(27,489)
Sale of common shares from treasury	Sale of common shares from treasury	2,743		5,216		Sale of common shares from treasury	16,956		16,698
Dividends paid	Dividends paid	(571)		(575)		Dividends paid	(2,127)		(1,708)

Proceeds from notes payable	Proceeds from notes payable	49,439		27,166		Proceeds from notes payable	217,867		152,128
Payments of notes payable	Payments of notes payable	(55,411)		(29,866)		Payments of notes payable	(207,786)		(149,843)
Payments of finance leases	Payments of finance leases	(1,261)		(707)		Payments of finance leases	(2,688)		(1,525)
Net cash provided by financing activities		16,195		74,173
Net cash provided by (used in) financing activities						Net cash provided by (used in) financing activities	19,192		(43,739)
Effect of exchange rate changes on cash	Effect of exchange rate changes on cash	36		(100)		Effect of exchange rate changes on cash	40		(17)
Increase in cash	Increase in cash	12,560		55,829		Increase in cash	16,856		14,058

Cash, beginning of period	Cash, beginning of period	16,201		11,000		Cash, beginning of period	16,201		11,000
Cash, end of period	Cash, end of period	$	28,761	$	66,829	Cash, end of period	$	33,057	$	25,058
Supplemental cash flow information follows:	Supplemental cash flow information follows:					Supplemental cash flow information follows:
Interest paid	Interest paid	$	1,967	$	2,707	Interest paid	$	4,715	$	6,408
Income taxes paid	Income taxes paid	10,111		1,910		Income taxes paid	21,204		17,055

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

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

- 67 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~April 3,~~October 2, 2021

(Amounts in thousands, except share data)

A.Basis of Financial Statement Preparation

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

We have prepared the accompanying unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”), as codified in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), and with the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. The condensed consolidated financial statements include all adjustments which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. All such adjustments are of a normal, recurring nature. All intercompany accounts and transactions have been eliminated in consolidation and certain amounts in the three and nine months ended ~~March 28,~~September 26, 2020 have been recast to reflect the retrospective application of the change in accounting principle discussed in the Change in Accounting Method section of this note.

Certain information and disclosures required by U.S. GAAP for complete financial statements have been omitted in accordance with the rules and regulations of the SEC. We suggest that these condensed consolidated financial statements be read in conjunction with the financial statements included in our annual report on Form 10-K for the year ended December 31, 2020 (the “2020 Annual Report”).

Per Common Share Information--All common share and per share data have been retroactively adjusted to recognize a 2-for-one stock split of our common shares effective October 1, 2021. On September 20, 2021, in connection with the stock split, the Company filed a Certificate of Amendment to its 2017 Amended Articles of Incorporation with the Secretary of State of the State of Ohio, which became effective upon filing and (1) proportionately increased the authorized number of common shares from 48,000,000 to 96,000,000 and (2) proportionately decreased the par value of the issued and unissued common shares from $1.00 per share to $.50 per share.

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

While the coronavirus ("COVID-19") pandemic did not have a material adverse effect on our reported results for the first ~~three~~nine months of our 2021 fiscal year, the overall extent and duration of the impact of COVID-19 on businesses and economic activity generally remains unclear. The extent to which our operations may be impacted by COVID-19 will depend largely on future developments, which are highly uncertain due to its continual evolution and cannot be accurately predicted, including new information which may emerge concerning the severity of the outbreak and actions by government authorities to contain the pandemic or treat its impact, including reimposing previously-lifted measures and implementing vaccine mandates, which could impact our labor supply and future results of operations, as well as the possibility additional measures will be put in place, especially as sporadic outbreaks of COVID-19 continue to occur, and the success of vaccine rollouts and the effectiveness of such vaccines, among other things.

- 8 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 2, 2021

(Amounts in thousands, except share data)

The Company’s fiscal quarters each contain thirteen operating weeks, with the exception of the fourth quarter of a 53-week fiscal year, which contains fourteen operating weeks. The Company’s fiscal quarter that ended ~~April 3,~~October 2, 2021 is referred to as the ~~first~~third quarter of 2021, and the fiscal quarter ended ~~March 28,~~September 26, 2020 is referred to as the ~~first~~third quarter of 2020.

Change in Accounting Method--During the year ended December 31, 2020, we changed our method of accounting for our workers' compensation accruals from measuring the liabilities on a discounted basis to an undiscounted basis. We believe that measuring the

~~- 7 -~~

~~Index~~

~~The Davey Tree Expert Company~~

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

~~April 3, 2021~~

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

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

As a result of this change in method of accounting, our financial statements and corresponding footnotes for the ~~period~~three and nine months ended ~~March 28,~~September 26, 2020 ~~has~~have been recast to reflect the retrospective application of the change in accounting principle. We recorded the cumulative effect for the change in accounting principle as a decrease of $1,693 to retained earnings as of January 1, 2018. This change decreased our retained earnings by $2,059 at December 31, 2019.

The following tables present the effects of the change in accounting principle to our financial statements included herein:


		Three Months Ended March 28, 2020					Three Months Ended September 26, 2020						Nine Months Ended September 26, 2020
Statement of Operations	Statement of Operations		Prior to Change in Accounting Principle		Effect of Change			Recast		Statement of Operations	Prior to Change in Accounting Principle		Effect of Change		Recast		Prior to Change in Accounting Principle		Effect of Change		Recast

Operating expense	Operating expense		$	198,393	$	212		$	198,605	Operating expense	$	208,510	$	128	$	208,638	$	597,963	$	262	$	598,225
Total costs and expenses	Total costs and expenses		284,346		212			284,558		Total costs and expenses	301,953		128		302,081		861,235		262		861,497
Income from operations	Income from operations		3,934		(212)			3,722		Income from operations	35,500		(128)		35,372		83,745		(262)		83,483
Income (loss) before income taxes			190		(212)			(22)
Income before income taxes										Income before income taxes	34,110		(128)		33,982		75,603		(262)		75,341
Income tax expense (benefit)	Income tax expense (benefit)		17		(18)			(1)		Income tax expense (benefit)	9,483		(36)		9,447		21,018		(73)		20,945
Net income (loss)			173		(194)			(21)
Net income										Net income	24,627		(92)		24,535		54,585		(189)		54,396

Net income (loss) per share:
Net income per share:										Net income per share:
Basic	Basic		$	0.01	$	(0.01)		$	0	Basic	$	.54	$	—	$	.54	$	1.19	$	(.01)	$	1.18
Diluted	Diluted		$	0.01	$	(0.01)		$	0	Diluted	$	.52	$	(.01)	$	.51	$	1.14	$	(.01)	$	1.13

Three Months Ended
March 28, 2020
Cash Flow Prior to Change in Accounting Principle Effect of Change Recast
Net income (loss) $ 173 $ (194) $ (21)
Adjustments to reconcile net income (loss) to net cash provided by operating activities--other 810 (18) 792
Self-insurance accruals 4,408 212 4,620
Net cash provided by operating activities 2,768 0 2,768

- 9 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 2, 2021

(Amounts in thousands, except share data)


	Nine Months Ended September 26, 2020
Cash Flow	Prior to Change in Accounting Principle		Effect of Change		Recast

Net income	$	54,585	$	(189)	$	54,396
Adjustments to reconcile net income to net cash provided by operating activities--other	108		(73)		35
Self-insurance accruals	14,424		262		14,686
Net cash provided by operating activities	99,428		—		99,428

Recent Accounting Guidance

Accounting Standards Adopted in 2021

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

~~- 8 -~~

~~Index~~

~~The Davey Tree Expert Company~~

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

~~April 3, 2021~~

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

Income Taxes (ASU 2019-12)", which simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, including applicable interim periods. The Company adopted ASU 2019-12 beginning January 1, 2021. The adoption of ASU 2019-12 did not have a material effect on the Company's financial statements.

Accounting Standard Not Yet Adopted

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

B. Seasonality of Business

Due to the seasonality of our business, our operating results for the three and nine months ended ~~April 3,~~October 2, 2021 are not indicative of results that may be expected for any other interim period or for the year ending December 31, 2021. Our business seasonality traditionally results in higher revenues during the second and third quarters as compared with the first and fourth quarters of the year, while the methods of accounting for fixed costs, such as depreciation expense, amortization, rent and interest expense, are not significantly impacted by business seasonality.

- 10 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 2, 2021

(Amounts in thousands, except share data)

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

Accounts receivable, net, consisted of the following:


Accounts receivable, net	Accounts receivable, net	April 3, 2021		December 31, 2020		Accounts receivable, net	October 2, 2021		December 31, 2020
Accounts receivable	Accounts receivable	$	176,887	$	214,887	Accounts receivable	$	200,895	$	214,887
Unbilled receivables(1)	Unbilled receivables(1)	48,470		42,251		Unbilled receivables(1)	85,064		42,251
		225,357		257,138			285,959		257,138
Less allowances for credit losses	Less allowances for credit losses	3,672		4,217		Less allowances for credit losses	2,257		4,217
Accounts receivable, net	Accounts receivable, net	$	221,685	$	252,921	Accounts receivable, net	$	283,702	$	252,921

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

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


Other current assets	October 2, 2021		December 31, 2020
Refundable income taxes	$	2,215	$	—
Prepaid expenses	38,543		24,956


Other	6,660		778
Total	$	47,418	$	25,734


Property and equipment, net	October 2, 2021		December 31, 2020
Land and land improvements	$	19,924	$	19,731
Buildings and leasehold improvements	55,559		49,460
Equipment	653,656		623,847
	729,139		693,038
Less accumulated depreciation	499,564		488,321
Total	$	229,575	$	204,717


Other assets, noncurrent	October 2, 2021		December 31, 2020
Assets invested for self-insurance	$	11,859	$	19,359
Investment--cost-method affiliate	1,258		1,258
Deferred income taxes	3,194		4,167

Other	4,569		4,972
Total	$	20,880	$	29,756

- 911 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~April 3,~~October 2, 2021

(Amounts in thousands, except share data)

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


Accrued expenses	October 2, 2021		December 31, 2020
Employee compensation	$	33,163	$	36,108
Accrued compensated absences	12,399		14,534
Self-insured medical claims	1,221		2,065
Income tax payable	8,978		6,926
Customer advances, deposits	3,519		2,067
Taxes, other than income	28,681		30,354

Other	4,704		6,387
Total	$	92,665	$	98,441

Other current assets April 3,
2021 December 31,
2020
Refundable income taxes $ 1,955 $ 0
Prepaid expenses 20,081 24,956
Other 6,194 778
Total $ 28,230 $ 25,734


Other current liabilities	October 2, 2021		December 31, 2020
Notes payable	$	149	$	—
Current portion of:
Lease liability-operating leases	27,253		19,124
Self-insurance accruals	34,269		37,707
Total	$	61,671	$	56,831

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

Other assets, noncurrent April 3,
2021 December 31,
2020
Assets invested for self-insurance $ 18,859 $ 19,359
Investment--cost-method affiliate 1,258 1,258
Deferred income taxes 3,328 4,167
Other 7,152 4,972
Total $ 30,597 $ 29,756

Accrued expenses April 3,
2021 December 31,
2020
Employee compensation $ 16,946 $ 36,108
Accrued compensated absences 11,806 14,534
Self-insured medical claims 1,621 2,065
Income tax payable 41 6,926
Customer advances, deposits 3,580 2,067
Taxes, other than income 26,494 30,354
Other 5,658 6,387
Total $ 66,146 $ 98,441

Other current liabilities April 3,
2021 December 31,
2020
Current portion of:
Lease liability-operating leases $ 22,753 $ 19,124
Self-insurance accruals 36,948 37,707
Total $ 59,701 $ 56,831

~~- 10 -~~

~~Index~~

~~The Davey Tree Expert Company~~

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

~~April 3, 2021~~

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


Other noncurrent liabilities	Other noncurrent liabilities	April 3, 2021		December 31, 2020		Other noncurrent liabilities	October 2, 2021		December 31, 2020
Pension and retirement plans		$	8,063	$	7,365
Non-qualified retirement plans						Non-qualified retirement plans	$	8,516	$	7,365

Other	Other	3,444		3,324		Other	2,940		3,324
Total	Total	$	11,507	$	10,689	Total	$	11,456	$	10,689

D. Business Combinations

Our investments in businesses during the first ~~three~~nine months of 2021 were ~~$12,558,~~$16,376, including liabilities assumed of ~~$2,258~~$3,662 and debt issued, in the form of notes payable to the sellers, of ~~$2,093,~~$2,487, and have been included in our Residential and Commercial ~~segment.~~and Utility segments. 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 year ended December 31, 2020, our investment in businesses was $11,150, including liabilities assumed of $613 and debt issued, in the form of notes payable to the sellers, of $2,472.

- 12 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 2, 2021

(Amounts in thousands, except share data)

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


		Three Months Ended April 3, 2021		Year Ended December 31, 2020			Nine Months Ended October 2, 2021		Year Ended December 31, 2020
Detail of acquisitions:	Detail of acquisitions:					Detail of acquisitions:
Assets acquired:	Assets acquired:					Assets acquired:
Cash	Cash	$	36	$	0	Cash	$	199	$	—
Receivables	Receivables	581		10		Receivables	511		10
Operating supplies	Operating supplies	606		22		Operating supplies	976		22
Prepaid expense	Prepaid expense	121		6		Prepaid expense	121		6
Equipment	Equipment	3,655		1,932		Equipment	3,750		1,932
Deposits and other	Deposits and other	73		0		Deposits and other	1,574		—
Intangibles		2,108		3,545
Intangible assets						Intangible assets	2,434		3,545
Goodwill	Goodwill	5,378		5,635		Goodwill	6,811		5,635
Liabilities assumed	Liabilities assumed	(2,258)		(613)		Liabilities assumed	(3,662)		(613)
Debt issued for purchases of businesses	Debt issued for purchases of businesses	(2,093)		(2,472)		Debt issued for purchases of businesses	(2,487)		(2,472)
Cash paid	Cash paid	$	8,207	$	8,065	Cash paid	$	10,227	$	8,065

The results of operations of acquired businesses have been included in the condensed consolidated statements of operations beginning as of the effective dates of acquisition. The effect of these acquisitions on our consolidated revenues and results of operations for the period ended ~~April 3,~~October 2, 2021 was not significant. Pro forma net sales and results of operations for the acquisitions, had they occurred at the beginning of the ~~three~~nine months ended ~~April 3,~~October 2, 2021, are not material and, accordingly, are not provided.

~~- 11 -~~

~~Index~~

~~The Davey Tree Expert Company~~

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

~~April 3, 2021~~

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

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

E. Identified Intangible Assets and Goodwill, Net

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

April 3, 2021 December 31, 2020
Carrying
Amount Accumulated
Amortization Carrying
Amount Accumulated
Amortization
Amortized intangible assets:
Customer lists/relationships $ 31,743 $ 22,577 $ 30,402 $ 22,040
Employment-related 9,720 7,891 9,320 7,755
Tradenames 8,310 6,315 7,938 6,195
Amortized intangible assets 49,773 $ 36,783 47,660 $ 35,990
Less accumulated amortization 36,783 35,990
Identified intangible assets, net $ 12,990 $ 11,670
Goodwill $ 53,647 $ 48,256

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

Balance at
January 1, 2021
Acquisitions Translation
and Other
Adjustments
Balance at
April 3, 2021
Utility $ 4,911 $ 0 $ 0 $ 4,911
Residential and Commercial 43,345 5,378 13 48,736
Total $ 48,256 $ 5,378 $ 13 $ 53,647
Balance at
January 1, 2020
Acquisitions Translation
and Other
Adjustments
Balance at
December 31, 2020
Utility $ 4,911 $ 0 $ 0 $ 4,911
Residential and Commercial 37,374 5,635 336 43,345
Total $ 42,285 $ 5,635 $ 336 $ 48,256��


	October 2, 2021				December 31, 2020
	Carrying Amount		Accumulated Amortization		Carrying Amount		Accumulated Amortization
Amortized intangible assets:
Customer lists/relationships	$	31,847	$	23,576	$	30,402	$	22,040
Employment-related	9,822		8,161		9,320		7,755
Tradenames	8,426		6,533		7,938		6,195

Amortized intangible assets	50,095		$	38,270	47,660		$	35,990

Less accumulated amortization	38,270				35,990

Identified intangible assets, net	$	11,825			$	11,670

Goodwill	$	55,072			$	48,256

- 1213 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~April 3,~~October 2, 2021

(Amounts in thousands, except share data)

The changes in the carrying amounts of goodwill, by segment, for the nine months ended October 2, 2021 and the year ended December 31, 2020 were as follows:


	Balance at January 1, 2021		Acquisitions		Translation and Other Adjustments		Balance at October 2, 2021
Utility	$	4,911	$	—	$	—	$	4,911
Residential and Commercial	43,345		6,811		5		50,161

Total	$	48,256	$	6,811	$	5	$	55,072


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

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

Estimated future aggregate amortization expense of intangible assets--The estimated future aggregate amortization expense of intangible assets, as of ~~April 3,~~October 2, 2021, was as follows:


		Estimated Future Amortization Expense			Estimated Future Amortization Expense
Remaining nine months of 2021		$	2,212
Remaining three months of 2021				Remaining three months of 2021	$	743
2022	2022	2,827		2022	2,884
2023	2023	2,657		2023	2,714
2024	2024	2,182		2024	2,234
2025	2025	1,608		2025	1,634
2026				2026	1,060
Thereafter	Thereafter	1,504		Thereafter	556
		$	12,990		$	11,825

- 14 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 2, 2021

(Amounts in thousands, except share data)

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

Our long-term debt consisted of the following:


		April 3, 2021		December 31, 2020			October 2, 2021		December 31, 2020
Revolving credit facility:	Revolving credit facility:					Revolving credit facility:
Swing-line borrowings	Swing-line borrowings	$	10,000	$	0	Swing-line borrowings	$	14,191	$	—

LIBOR borrowings	LIBOR borrowings	15,000		0		LIBOR borrowings	20,000		—
		25,000		0			34,191		—
Senior unsecured notes:	Senior unsecured notes:					Senior unsecured notes:

3.99% Senior unsecured notes	3.99% Senior unsecured notes	50,000		50,000		3.99% Senior unsecured notes	50,000		50,000
4.00% Senior unsecured notes	4.00% Senior unsecured notes	25,000		25,000		4.00% Senior unsecured notes	25,000		25,000
		75,000		75,000			75,000		75,000
Term loans	Term loans	18,228		21,864		Term loans	34,524		21,864
		118,228		96,864			143,715		96,864
Less debt issuance costs	Less debt issuance costs	222		256		Less debt issuance costs	713		256
Less current portion	Less current portion	14,872		19,540		Less current portion	31,225		19,540
		$	103,134	$	77,068		$	111,777	$	77,068

Revolving Credit Facility~~--As of April 3,~~--In August 2021, ~~we had a~~the Company amended its revolving credit facility with ~~a group of banks,~~its existing bank group. The amended and restated credit agreement, which expires in ~~October 2022 and~~August 2026, permits borrowings, as defined, of up to ~~$250,000,~~$325,000, including a letter of credit sublimit of ~~$100,000~~$150,000 and a swing-line commitment of ~~$25,000.~~$30,000. Under certain circumstances, the amount available under the revolving credit facility may be increased to ~~$325,000.~~$425,000. The revolving credit facility contains certain affirmative and negative covenants customary for this type of facility and includes financial covenant ratios with respect to a maximum leverage ratio (not to exceed 3.00 to 1.00 with exceptions in case of material acquisitions) and a minimum interest coverage ratio (not less than 3.00 to 1.00), in each case subject to certain further restrictions as described in the credit agreement. As of ~~April 3,~~October 2, 2021, we had unused commitments under the facility approximating $~~222,123,~~287,931, with ~~$27,877~~$37,069 committed, consisting of borrowings of $~~25,000~~34,191 and issued letters of credit of $~~2,877.~~2,878.

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

~~- 13 -~~

~~Index~~

~~The Davey Tree Expert Company~~

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

~~April 3, 2021~~

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

greater of (i) the agent bank’s prime rate, (ii) LIBOR plus 1.50%, or (iii) the federal funds rate plus .50%. A commitment fee ranging from .10% to .225% is also required based on the average daily unborrowed commitment.

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~~Notes, which was amended in September 2021. Among other things, the amendment increased the total facility limit to $150,000 and extended the issuance period for subsequent series of promissory notes ~~may~~to be issued and sold pursuant to the Note Purchase and Shelf Agreement to September 2024. The amendment also amended certain provisions and covenants to generally conform them to the corresponding provisions and covenants in the amended and restated revolving credit agreement. In addition, the amendment and restatement of the revolving credit agreement in August 2021 provided that the Company is permitted to incur indebtedness arising under the Note Purchase and Shelf Agreement in an aggregate

- 15 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 2, 2021

(Amounts in thousands, except share data)

principal amount not to exceed $150,000. As the Company has previously issued notes in an aggregate amount of $75,000 under the Note Purchase and Shelf Agreement, it now has capacity to issue subsequent series of promissory notes pursuant to the Note Purchase and Shelf Agreement (the "Shelf Notes") in an aggregate ~~additional principal~~ amount ~~not~~of up to ~~exceed $50,000 ($25,000 of which was issued on February 5, 2019).~~$75,000.

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

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

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

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

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

Aggregate Maturities of Long-Term Debt--Aggregate maturities of long-term debt based on the principal amounts outstanding at ~~April 3,~~October 2, 2021 were as follows: 2021--$~~13,828;~~9,583; 2022--$~~27,318;~~22,573; 2023--$~~1,318;~~1,472; 2024--$~~15,764;~~15,896; 2025--$15,000; 2026--$49,191; and thereafter ~~$45,000.~~$30,000.

Accounts Receivable Securitization Facility--In May ~~2020,~~2021, the Company amended its Accounts Receivable Securitization Facility (the "AR Securitization program") to extend the scheduled termination date for an additional one year period, to ~~May 18, 2021.~~June 30, 2022. In addition to

~~- 14 -~~

~~Index~~

~~The Davey Tree Expert Company~~

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

~~April 3, 2021~~

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

extending the termination date, the amendment included a change to the letter of credit ("LC") issuance fee payable under the terms of the ~~agreement.~~agreement, as described below.

The AR Securitization program has a limit of $100,000, of which $83,355 was issued for LCs as of both ~~April 3,~~October 2, 2021 and December 31, 2020.

Under the AR Securitization program, Davey Tree transfers by selling or contributing current and future trade receivables to a wholly-owned, bankruptcy-remote financing subsidiary which pledges a perfected first priority security interest in the trade receivables--equal to the issued LCs as of ~~April 3,~~October 2, 2021--to the bank in exchange for the bank issuing LCs.

Fees payable to the bank include: (a) an LC issuance fee, payable on each settlement date, in the amount of ~~1.00%~~.90% per annum ~~(.90% previously)~~(1.00% prior to the May 2021 amendment) on the aggregate amount of all LCs outstanding plus outstanding reimbursement obligations (e.g., arising from drawn LCs), if any, and (b) an unused LC fee, payable monthly, equal to (i) .35% per annum for each day on which the sum of the total LCs outstanding plus any outstanding reimbursement obligations is greater than or equal to 50% of the facility limit and (ii) .45% per annum for each day on which the sum of the total LCs outstanding plus any outstanding reimbursement obligations is less than 50% of the facility limit. If an LC is drawn and the bank is not immediately reimbursed in full for the drawn amount, any outstanding reimbursement

- 16 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 2, 2021

(Amounts in thousands, except share data)

obligation will accrue interest at a per annum rate equal to a reserve-adjusted LIBOR or, in certain circumstances, a base rate equal to the higher of (i) the bank’s prime rate and (ii) the federal funds rate plus .50% and, following any default, 2.00% plus the greater of (a) adjusted LIBOR and (b) a base rate equal to the higher of (i) the bank’s prime rate and (ii) the federal funds rate plus .50%.

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

Total Commitments Related to Issued Letters of Credit--As of ~~April 3,~~October 2, 2021, total commitments related to issued LCs were ~~$88,243,~~$88,363, of which ~~$2,877~~$2,878 were issued under the revolving credit facility, $83,355 were issued under the AR Securitization program, and ~~$2,011~~$2,131 were issued under short-term lines of credit. As of December 31, 2020, total commitments related to issued LCs were $88,242, of which $2,877 were issued under the revolving credit facility, $83,355 were issued under the AR Securitization program, and $2,010 were issued under short-term lines of credit.

As of ~~April 3,~~October 2, 2021, we were in compliance with all debt covenants.

~~- 15 -~~

~~Index~~

~~The Davey Tree Expert Company~~

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

~~April 3, 2021~~

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

G. Leases

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


		Condensed Consolidated Balance Sheet Classification	April 3, 2021		December 31, 2020			Condensed Consolidated Balance Sheet Classification	October 2, 2021		December 31, 2020
Assets	Assets						Assets
Operating lease assets	Operating lease assets	Right-of-use assets - operating leases	$	71,389	$	55,893	Operating lease assets	Right-of-use assets - operating leases	$	81,789	$	55,893
Finance lease assets	Finance lease assets	Property and equipment, net	8,018		8,788		Finance lease assets	Property and equipment, net	10,782		8,788
Total lease assets	Total lease assets		$	79,407	$	64,681	Total lease assets		$	92,571	$	64,681
Liabilities	Liabilities						Liabilities
Current operating lease liabilities	Current operating lease liabilities	Other current liabilities	$	22,753	$	19,124	Current operating lease liabilities	Other current liabilities	$	27,253	$	19,124
Non-current operating lease liabilities	Non-current operating lease liabilities	Lease liabilities - operating leases	49,233		36,612		Non-current operating lease liabilities	Lease liabilities - operating leases	54,249		36,612
Total operating lease liabilities	Total operating lease liabilities		71,986		55,736		Total operating lease liabilities		81,502		55,736
Current portion of finance lease liabilities	Current portion of finance lease liabilities	Current portion of long-term debt and finance lease liabilities	1,642		2,273		Current portion of finance lease liabilities	Current portion of long-term debt and finance lease liabilities	2,263		2,273
Non-current finance lease liabilities	Non-current finance lease liabilities	Lease liabilities - finance leases	6,000		6,479		Non-current finance lease liabilities	Lease liabilities - finance leases	7,886		6,479
Total finance lease liabilities	Total finance lease liabilities		7,642		8,752		Total finance lease liabilities		10,149		8,752
Total lease liabilities	Total lease liabilities		$	79,628	$	64,488	Total lease liabilities		$	91,651	$	64,488

- 17 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 2, 2021

(Amounts in thousands, except share data)

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


			Three Months Ended						Three Months Ended			Nine Months Ended
		Condensed Consolidated Statements of Operations Classification		April 3, 2021		March 28, 2020			Condensed Consolidated Statements of Operations Classification	October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020

Operating lease cost	Operating lease cost	Operating expense		$	3,700	$	2,239	Operating lease cost	Operating expense	$	4,965	$	2,877	$	13,065	$	7,776
Operating lease cost	Operating lease cost	Selling expense		2,521		2,393		Operating lease cost	Selling expense	2,631		2,322		7,718		7,127
Operating lease cost	Operating lease cost	General and administrative expense		284		234		Operating lease cost	General and administrative expense	290		389		867		844
Finance lease cost:	Finance lease cost:							Finance lease cost:
Amortization of right-of-use assets	Amortization of right-of-use assets	Depreciation and amortization		588		351		Amortization of right-of-use assets	Depreciation and amortization	752		570		1,985		1,404
Interest expense on lease liabilities	Interest expense on lease liabilities	Interest expense		38		23		Interest expense on lease liabilities	Interest expense	52		45		134		103
Other lease cost (1)	Other lease cost (1)	Operating expense		875		1,767		Other lease cost (1)	Operating expense	999		1,216		2,839		3,895
Other lease cost (1)	Other lease cost (1)	Selling expense		316		371		Other lease cost (1)	Selling expense	360		284		1,013		953
Other lease cost (1)	Other lease cost (1)	General and administrative expense		13		9		Other lease cost (1)	General and administrative expense	8		13		28		31
Total lease cost	Total lease cost			$	8,335	$	7,387	Total lease cost		$	10,057	$	7,716	$	27,649	$	22,133

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

~~- 16 -~~

~~Index~~

~~The Davey Tree Expert Company~~

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

~~April 3, 2021~~

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

We often have options to renew lease terms for buildings and other assets. The exercise of lease renewal options is generally at our sole discretion. In addition, certain lease agreements may be terminated prior to their original expiration date at our discretion. We evaluate each renewal and termination option at the lease commencement date to determine if we are reasonably certain to exercise the option on the basis of economic factors. The ~~table below summarizes the~~ weighted average remaining lease ~~term~~terms as of ~~April 3, 2021.~~


~~Operating leases~~			~~4.1 years~~
~~Finance leases~~			~~5.5 years~~

October 2, 2021 was 3.9 years for operating leases and 5.2 years for finance leases.

The discount rate implicit within our leases is generally not determinable and therefore the Company determines the discount rate based on its incremental borrowing rate. The incremental borrowing rate for each lease is determined based on its term and the currency in which lease payments are made, adjusted for the impacts of collateral. The ~~table below summarizes the~~ weighted average discount ~~rate~~rates used to measure our lease liabilities as of ~~April 3, 2021.~~October 2, 2021 was 2.40% for operating leases and 2.04% for finance leases.


~~Operating leases~~	~~2.51~~	%
~~Finance leases~~	~~1.88~~	%

~~Supplemental Cash Flow Information Related to Leases~~

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

~~Maturity Analysis of Lease Liabilities~~

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


Supplemental Cash Flow Information Related to Leases	Nine Months Ended
	October 2, 2021		September 26, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	(21,822)	$	(15,222)
Operating cash flows from finance leases	(134)		(103)
Financing cash flows from finance leases	(2,688)		(1,525)
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	47,069		28,246
Finance leases	4,174		7,339

- 1718 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~April 3,~~October 2, 2021

(Amounts in thousands, except share data)


Maturity Analysis of Lease Liabilities		As of October 2, 2021
		Operating Leases		Finance Leases
	Remaining three months of 2021	$	7,706	$	554
	2022	27,259		2,361
	2023	20,061		2,151
	2024	13,395		2,029
	2025	9,607		1,510
	Thereafter	7,313		2,069
	Total lease payments	85,341		10,674
	Less interest	3,839		525
	Total	$	81,502	$	10,149

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

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

Three Months Ended
April 3,
2021 March 28,
2020
Compensation expense, all share-based payment plans $ 891 $ 745


	Three Months Ended				Nine Months Ended
	October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020
Compensation expense, all share-based payment plans	$	1,167	$	858	$	3,432	$	2,567

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 ~~$357~~$1,187 being recognized for the ~~three~~nine months ended ~~April 3,~~October 2, 2021 and ~~$342~~$1,067 for the ~~three~~nine months ended ~~March 28,~~September 26, 2020.

- 19 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 2, 2021

(Amounts in thousands, except share data)

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 ~~$125~~$343 for the ~~three~~nine months ended ~~April 3,~~October 2, 2021 and ~~$126~~$398 for the ~~three~~nine months ended ~~March 28,~~September 26, 2020. Beginning in 2021, management and the Compensation Committee replaced the issuance of stock options with performance-based restricted stock units ("PRSUs") for certain employees.

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

~~- 18 -~~

~~Index~~

~~The Davey Tree Expert Company~~

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

~~April 3, 2021~~

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

The following table summarizes our SSARs as of ~~April 3,~~October 2, 2021.


Stock-Settled Stock Appreciation Rights	Stock-Settled Stock Appreciation Rights	Number of Rights	Weighted- Average Award Date Value		Weighted- Average Remaining Contractual Life	Unrecognized Compensation Cost		Aggregate Intrinsic Value		Stock-Settled Stock Appreciation Rights	Number of Rights	Weighted- Average Award Date Value		Weighted- Average Remaining Contractual Life	Unrecognized Compensation Cost		Aggregate Intrinsic Value
Unvested, January 1, 2021	Unvested, January 1, 2021	105,236	$	3.73						Unvested, January 1, 2021	210,472	$	1.87
Granted	Granted	0	0							Granted	—	—
Forfeited	Forfeited	0	0							Forfeited	—	—
Vested	Vested	(41,511)	3.72							Vested	(85,938)	1.86
Unvested, April 3, 2021		63,725	$	3.74	1.3 years	$	201	$	1,912
Unvested, October 2, 2021										Unvested, October 2, 2021	124,534	$	1.88	0.8 years	$	121	$	2,042

Compensation costs for SSARs are determined using a fair-value method and amortized over the requisite service period. “Intrinsic value” is defined as the amount by which the fair market value of a common share exceeds the grant date price of a SSAR. Compensation expense for SSARs was ~~$41~~$120 for the ~~three~~nine months ended ~~April 3,~~October 2, 2021 and ~~$61~~$214 for the ~~three~~nine months ended ~~March 28,~~September 26, 2020.

Restricted Stock Units--During the ~~three~~nine months ended ~~April 3,~~October 2, 2021, the Compensation Committee awarded ~~84,821~~330,714 PRSUs to certain management ~~employees.~~employees and 19,200 RSUs to nonemployee directors. The Compensation Committee made similar awards in prior periods. The awards vest over specified periods. The following table summarizes PRSUs and RSUs as of ~~April 3,~~October 2, 2021.


Restricted Stock Units	Restricted Stock Units	Number of Stock Units	Weighted- Average Grant Date Value		Weighted- Average Remaining Contractual Life	Unrecognized Compensation Cost		Aggregate Intrinsic Value		Restricted Stock Units	Number of Stock Units	Weighted- Average Grant Date Value		Weighted- Average Remaining Contractual Life	Unrecognized Compensation Cost		Aggregate Intrinsic Value
Unvested, January 1, 2021	Unvested, January 1, 2021	255,307	$	20.09						Unvested, January 1, 2021	510,614	$	10.05
Granted	Granted	84,821	29.64							Granted	349,914	14.82
Forfeited	Forfeited	0	0							Forfeited	—	—
Vested	Vested	(40,274)	16.08							Vested	(120,368)	8.86
Unvested, April 3, 2021		299,854	$	20.09	2.6 years	$	4,924	$	8,996
Unvested, October 2, 2021										Unvested, October 2, 2021	740,160	$	12.49	2.4 years	$	6,182	$	12,139
Employee PRSUs	Employee PRSUs	264,704	$	23.62	2.9 years	$	4,611	$	7,941	Employee PRSUs	673,268	$	12.52	2.5 years	$	5,719	$	11,042
Nonemployee Director RSUs	Nonemployee Director RSUs	35,150	$	21.14	1.0 years	$	313	$	1,055	Nonemployee Director RSUs	66,892	$	12.20	1.6 years	$	463	$	1,097

- 20 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 2, 2021

(Amounts in thousands, except share data)

Compensation cost for PRSUs and RSUs is determined using a fair-value method and amortized on the straight-line recognition method over the requisite service period. “Intrinsic value” is defined as the amount by which the fair market value of a common share exceeds the grant date price of a PRSU or an RSU. Compensation expense on PRSUs and RSUs totaled ~~$368~~$1,782 for the ~~three~~nine months ended ~~April 3,~~October 2, 2021 and ~~$216~~$888 for the ~~three~~nine months ended ~~March 28,~~September 26, 2020.

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

~~- 19 -~~

~~Index~~

~~The Davey Tree Expert Company~~

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

~~April 3, 2021~~

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

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


		Three Months Ended					Nine Months Ended
		April 3, 2021		March 28, 2020			October 2, 2021		September 26, 2020
Volatility rate	Volatility rate	9.9	%	9.7	%	Volatility rate	9.9	%	9.7	%
Risk-free interest rate	Risk-free interest rate	.3	%	.6	%	Risk-free interest rate	.3	%	.7	%
Expected dividend yield	Expected dividend yield	.4	%	.4	%	Expected dividend yield	.4	%	.4	%
Expected life of awards (years)	Expected life of awards (years)	3.0		6.2		Expected life of awards (years)	3.0		8.1

General Stock Option Information--The following table summarizes activity under the stock option plans for the ~~three~~nine months ended ~~April 3,~~October 2, 2021.


Stock Options	Stock Options	Number of Options Outstanding	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life	Aggregate Intrinsic Value		Stock Options	Number of Options Outstanding	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life	Aggregate Intrinsic Value
Outstanding, January 1, 2021	Outstanding, January 1, 2021	1,408,659	$	16.67				Outstanding, January 1, 2021	2,817,318	$	8.34
Granted	Granted	0	0					Granted	—	—
Exercised	Exercised	(28,916)	12.49					Exercised	(307,180)	7.11
Forfeited	Forfeited	(7,290)	16.89					Forfeited	(37,090)	7.98
Outstanding, April 3, 2021		1,372,453	$	16.76	5.4 years	$	18,171
Outstanding, October 2, 2021								Outstanding, October 2, 2021	2,473,048	$	8.49	5.0 years	$	19,562

Exercisable, April 3, 2021		905,271	$	14.60	4.1 years	$	13,944
Exercisable, October 2, 2021								Exercisable, October 2, 2021	1,882,383	$	7.71	4.1 years	$	16,353

As of ~~April 3,~~October 2, 2021, there was approximately ~~$1,153~~$904 of unrecognized compensation cost related to stock options outstanding. The cost is expected to be recognized over a weighted-average period of ~~2.6~~3.7 years. “Intrinsic value” is defined as the amount by which the market price of a common share exceeds the exercise price of an option.

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

- 21 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 2, 2021

(Amounts in thousands, except share data)

I. Income Taxes

Our income tax provision for interim periods is determined using an estimate of our annual effective tax rate adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter we update our estimate of the annual effective tax rate and, if our estimated annual tax rate changes, we make a cumulative adjustment. The estimated annual effective tax rate for the ~~three~~nine months ended ~~April 3,~~October 2, 2021 was ~~27.9%~~26.1%. Our actual effective tax rate was ~~22.6%~~25.0% and ~~4.5%~~27.8% for the three months ended ~~April 3,~~October 2, 2021 and ~~March 28,~~September 26, 2020, respectively. Our actual effective tax rate was 26.2% and 27.8% for the nine months ended October 2, 2021 and September 26, 2020, respectively. The change in the effective tax rate from statutory tax rates was primarily due to the impact of state and local taxes, which was partially offset by favorable discrete items.

As of ~~April 3,~~October 2, 2021, we had unrecognized tax benefits of ~~$1,206,~~$754, of which ~~$759~~$307 would affect our effective rate if recognized, and accrued interest expense related to unrecognized benefits of ~~$76.~~$46. At December 31, 2020, we had unrecognized tax benefits of $1,183, of which

~~- 20 -~~

~~Index~~

~~The Davey Tree Expert Company~~

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

~~April 3, 2021~~

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

~~$735~~ $735 would affect our effective rate if recognized, and accrued interest expense related to unrecognized benefits of $72. Unrecognized tax benefits are the differences between a tax position taken, or expected to be taken, in a tax return, and the benefit recognized for financial reporting purposes.

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

The Company is routinely under audit by U.S. federal, state, local and Canadian authorities in the area of income tax. These audits include questioning the timing and the amount of income and deductions and the allocation of income and deductions among various tax jurisdictions. With the exception of U.S. state jurisdictions and Canada, the Company is no longer subject to examination by tax authorities for the years through 2016. As of ~~April 3,~~October 2, 2021, we believe it is reasonably possible that the total amount of unrecognized tax benefits will not significantly increase or decrease.

- 22 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 2, 2021

(Amounts in thousands, except share data)

J. Accumulated Other Comprehensive Income (Loss)

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

The following summarizes the components of other comprehensive income (loss) accumulated in shareholders’ equity for the three and nine months ended ~~April 3,~~October 2, 2021 and ~~the three months ended March 28,~~September 26, 2020:

Three Months Ended April 3, 2021 Foreign
Currency
Translation
Adjustments Defined
Benefit
Pension
Plans Accumulated
Other
Comprehensive
Income (Loss)
Balance at January 1, 2021 $ (3,738) $ (809) $ (4,547)
Other comprehensive income (loss) before reclassifications
Unrealized gains (losses) $ 450 $ 0 $ 450
Amounts reclassified from accumulated other comprehensive income (loss) 0 50 50
Tax effect 0 (13) (13)
Net of tax amount 450 37 487
Balance at April 3, 2021 $ (3,288) $ (772) $ (4,060)
Three Months Ended March 28, 2020 Foreign
Currency
Translation
Adjustments Defined
Benefit
Pension
Plans Accumulated
Other
Comprehensive
Income (Loss)
Balance at January 1, 2020 $ (4,633) $ (770) $ (5,403)
Other comprehensive income (loss) before reclassifications
Unrealized gains (losses) $ (1,971) $ 0 $ (1,971)
Amounts reclassified from accumulated other comprehensive income (loss) 0 38 38
Tax effect 0 (10) (10)
Net of tax amount (1,971) 28 (1,943)
Balance at March 28, 2020 $ (6,604) $ (742) $ (7,346)


Three Months Ended October 2, 2021	Foreign Currency Translation Adjustments		Defined Benefit Pension Plans		Accumulated Other Comprehensive Income (Loss)
Balance at July 3, 2021	$	(2,845)	$	(735)	$	(3,580)
Other comprehensive income (loss) before reclassifications
Unrealized gains (losses)	$	(788)	$	—	$	(788)

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

Three Months Ended September 26, 2020	Foreign Currency Translation Adjustments		Defined Benefit Pension Plans		Accumulated Other Comprehensive Income (Loss)
Balance at June 27, 2020	$	(5,872)	$	(714)	$	(6,586)
Other comprehensive income (loss) before reclassifications
Unrealized gains (losses)	$	629	$	—	$	629

Amounts reclassified from accumulated other comprehensive income (loss)	—		38		38
Tax effect	—		(9)		(9)
Net of tax amount	629		29		658
Balance at September 26, 2020	$	(5,243)	$	(685)	$	(5,928)

Nine Months Ended October 2, 2021	Foreign Currency Translation Adjustments		Defined Benefit Pension Plans		Accumulated Other Comprehensive Income (Loss)
Balance at January 1, 2021	$	(3,738)	$	(809)	$	(4,547)
Other comprehensive income (loss) before reclassifications
Unrealized gains (losses)	$	105	$	—	$	105

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

- 2123 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~April 3,~~October 2, 2021

(Amounts in thousands, except share data)


Nine Months Ended September 26, 2020	Foreign Currency Translation Adjustments		Defined Benefit Pension Plans		Accumulated Other Comprehensive Income (Loss)
Balance at January 1, 2020	$	(4,633)	$	(770)	$	(5,403)
Other comprehensive income (loss) before reclassifications
Unrealized gains (losses)	$	(610)	$	—	$	(610)

Amounts reclassified from accumulated other comprehensive income (loss)	—		114		114
Tax effect	—		(29)		(29)
Net of tax amount	(610)		85		(525)
Balance at September 26, 2020	$	(5,243)	$	(685)	$	(5,928)

The change in defined benefit pension plans of ~~$50~~$51 and $151 for the three and nine months ended ~~April 3,~~October 2, 2021, respectively and $38 and $114 for the three and nine months ended ~~March 28,~~September 26, 2020, isrespectively, was included in net periodic pension expense classified in the condensed consolidated statement of operations as ~~general and administrative expense or~~ other income (expense).

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


		Three Months Ended			Three Months Ended						Nine Months Ended
			April 3, 2021			March 28, 2020			October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020
Income available to common shareholders:	Income available to common shareholders:							Income available to common shareholders:
Net income (loss)			$	4,427		$	(21)
Net income								Net income	$	24,927	$	24,535	$	57,897	$	54,396

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

Basic weighted-average shares	Basic weighted-average shares		22,841			23,187		Basic weighted-average shares	44,885		45,748		45,257		45,912

Diluted:	Diluted:							Diluted:
Basic from above	Basic from above		22,841			23,187		Basic from above	44,885		45,748		45,257		45,912
Incremental shares from assumed:	Incremental shares from assumed:							Incremental shares from assumed:

Exercise of stock options and awards	Exercise of stock options and awards		1,117			984		Exercise of stock options and awards	3,066		1,960		2,528		2,093
Diluted weighted-average shares	Diluted weighted-average shares		23,958			24,171		Diluted weighted-average shares	47,951		47,708		47,785		48,005

Net income (loss) per share:
Net income per share:								Net income per share:

Basic	Basic		$	.19		$	0	Basic	$	.56	$	.54	$	1.28	$	1.18

Diluted	Diluted		$	.18		$	0	Diluted	$	.52	$	.51	$	1.21	$	1.13

- 24 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 2, 2021

(Amounts in thousands, except share data)

Common and Redeemable Shares Outstanding--A summary of the activity of the common and redeemable shares outstanding for the ~~three~~nine months ended ~~April 3,~~October 2, 2021 was as follows:

Common
Shares
Net of Treasury
Shares Redeemable
Shares Total
Shares outstanding at January 1, 2021 17,707,268 5,112,884 22,820,152
Shares purchased (106,409) (18,763) (125,172)
Shares sold 455 82,773 83,228
Options and awards exercised 60,895 0 60,895
Shares outstanding at April 3, 2021 17,662,209 5,176,894 22,839,103

~~- 22 -~~

~~Index~~

~~The Davey Tree Expert Company~~

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

~~April 3, 2021~~

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



	Common Shares Net of Treasury Shares	Redeemable Shares	Total
Shares outstanding at January 1, 2021	35,414,536	10,225,768	45,640,304
Shares purchased	(1,434,170)	(949,838)	(2,384,008)
Shares sold	470,490	486,112	956,602

Options and awards exercised	526,492	—	526,492
Shares outstanding at October 2, 2021	34,977,348	9,762,042	44,739,390

On ~~April 3,~~October 2, 2021, we had ~~22,839,103~~44,739,390 common and redeemable shares outstanding and employee options exercisable to purchase ~~905,271~~1,882,383 common shares.

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

L. Operations by Business Segment

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

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

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

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

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 2020 Annual Report.

- 2325 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~April 3,~~October 2, 2021

(Amounts in thousands, except share data)

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


		Utility		Residential and Commercial		All Other		Reconciling Adjustments			Consolidated			Utility		Residential and Commercial		All Other		Reconciling Adjustments			Consolidated

Three Months Ended April 3, 2021
Three Months Ended October 2, 2021													Three Months Ended October 2, 2021
Revenues	Revenues	$	173,853	$	124,507	$	461	$	0		$	298,821	Revenues	$	204,960	$	164,737	$	547	$	—		$	370,244
Income (loss) from operations	Income (loss) from operations	12,458		3,682		(6,102)		(1,064)		(a)	8,974		Income (loss) from operations	23,124		17,595		(2,701)		(1,085)		(a)	36,933
Interest expense	Interest expense							(1,274)			(1,274)		Interest expense							(1,449)			(1,449)
Interest income	Interest income							69			69		Interest income							39			39
Other income (expense), net	Other income (expense), net							(2,050)			(2,050)		Other income (expense), net							(2,298)			(2,298)
Income before income taxes	Income before income taxes										$	5,719	Income before income taxes										$	33,225
Segment assets, total	Segment assets, total	$	247,562	$	244,692	$	0	$	182,119	(b)	$	674,373	Segment assets, total	$	286,157	$	278,847	$	—	$	210,709	(b)	$	775,713

Three Months Ended March 28, 2020
Three Months Ended September 26, 2020													Three Months Ended September 26, 2020
Revenues	Revenues	$	185,749	$	101,953	$	578	$	0		$	288,280	Revenues	$	185,500	$	151,435	$	518	$	—		$	337,453
Income (loss) from operations	Income (loss) from operations	15,632		(5,661)		(4,907)		(1,342)		(a)	3,722		Income (loss) from operations	20,301		20,273		(2,886)		(2,316)		(a)	35,372
Interest expense	Interest expense							(1,946)			(1,946)		Interest expense							(1,579)			(1,579)
Interest income	Interest income							101			101		Interest income							1,688			1,688
Other income (expense), net	Other income (expense), net							(1,899)			(1,899)		Other income (expense), net							(1,499)			(1,499)
Loss before income tax benefit											$	(22)
Income before income taxes													Income before income taxes										$	33,982
Segment assets, total	Segment assets, total	$	291,426	$	221,956	$	0	$	161,768	(b)	$	675,150	Segment assets, total	$	296,519	$	227,977	$	—	$	147,188	(b)	$	671,684

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

Nine Months Ended September 26, 2020													Nine Months Ended September 26, 2020
Revenues													Revenues	$	547,984	$	396,293	$	703	$	—		$	944,980
Income (loss) from operations													Income (loss) from operations	56,817		42,242		(11,267)		(4,309)		(a)	83,483
Interest expense													Interest expense							(5,477)			(5,477)
Interest income													Interest income							1,885			1,885
Other income (expense), net													Other income (expense), net							(4,550)			(4,550)
Income before income taxes													Income before income taxes										$	75,341
Segment assets, total													Segment assets, total	$	296,519	$	227,977	$	—	$	147,188	(b)	$	671,684

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

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

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

- 26 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 2, 2021

(Amounts in thousands, except share data)

M. Revenue Recognition

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

Nature of Performance Obligations and Significant Judgments

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

Our contracts with our customers generally originate upon the completion of a quote for services for residential and commercial customers or the receipt of a purchase order (or similar work order) for utility customers. In some cases, our contracts are governed by master services agreements, in which case our contract under ASC 606 consists of the combination of the master services agreement and the quote/purchase order. Many of our contracts have a stated duration of one year or less or contain termination clauses that allow the customer to cancel the contract after a specified notice period, which is typically less than 90 days. Due to the fact that many of our arrangements allow

~~- 24 -~~

~~Index~~

~~The Davey Tree Expert Company~~

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

~~April 3, 2021~~

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

the customer to terminate for convenience, the duration of the contract for revenue recognition purposes generally does not extend beyond the services that we have actually transferred. As a result, many of our contracts are, in effect, day-to-day or month-to-month contracts.

Disaggregation of Revenue

The following tables disaggregate our revenue for the three and nine months ended ~~April 3,~~October 2, 2021 and ~~March 28,~~September 26, 2020 by major sources:

Three Months Ended April 3, 2021 Utility Residential
and
Commercial All Other Consolidated
Type of service:
Tree and plant care $ 123,967 $ 71,965 $ (163) $ 195,769
Grounds maintenance 0 29,799 0 29,799
Storm damage services 4,113 1,183 0 5,296
Consulting and other 45,773 21,560 624 67,957
Total revenues $ 173,853 $ 124,507 $ 461 $ 298,821
Geography:
United States $ 163,684 $ 115,882 $ 461 $ 280,027
Canada 10,169 8,625 0 18,794
Total revenues $ 173,853 $ 124,507 $ 461 $ 298,821
Three Months Ended March 28, 2020 Utility Residential
and
Commercial All Other Consolidated
Type of service:
  Tree and plant care $ 141,743 $ 60,257 $ (25) $ 201,975
  Grounds maintenance 0 23,066 0 23,066
  Storm damage services 523 637 0 1,160
  Consulting and other 43,483 17,993 603 62,079
     Total revenues $ 185,749 $ 101,953 $ 578 $ 288,280
Geography:
  United States $ 177,087 $ 95,052 $ 578 $ 272,717
  Canada 8,662 6,901 0 15,563
     Total revenues $ 185,749 $ 101,953 $ 578 $ 288,280


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

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

- 2527 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~April 3,~~October 2, 2021

(Amounts in thousands, except share data)


Three Months Ended September 26, 2020	Utility		Residential and Commercial		All Other		Consolidated
Type of service:
Tree and plant care	$	135,021	$	90,049	$	(10)	$	225,060
Grounds maintenance	—		36,296		—		36,296
Storm damage services	7,061		4,069		—		11,130
Consulting and other	43,418		21,021		528		64,967
Total revenues	$	185,500	$	151,435	$	518	$	337,453

Geography:
United States	$	176,528	$	140,571	$	518	$	317,617
Canada	8,972		10,864		—		19,836
Total revenues	$	185,500	$	151,435	$	518	$	337,453

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

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

Nine Months Ended September 26, 2020	Utility		Residential and Commercial		All Other		Consolidated
Type of service:
Tree and plant care	$	408,371	$	233,810	$	(121)	$	642,060
Grounds maintenance	—		100,352		—		100,352
Storm damage services	8,087		6,047		—		14,134
Consulting and other	131,526		56,084		824		188,434
Total revenues	$	547,984	$	396,293	$	703	$	944,980

Geography:
United States	$	522,094	$	369,297	$	703	$	892,094
Canada	25,890		26,996		—		52,886
Total revenues	$	547,984	$	396,293	$	703	$	944,980

- 28 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 2, 2021

(Amounts in thousands, except share data)

Contract Balances

Our contract liabilities consist of advance payments and billings in excess of costs incurred and deferred revenue. The Company recognized ~~$704~~$239 and $1,294 of revenue for the three and nine months ended ~~April 3,~~October 2, 2021, respectively, that was included in the contract liability balance at December 31, 2020 and ~~$942~~$150 and $1,411 of revenue for the three and nine months ended ~~March 28,~~September 26, 2020, respectively, that was included in the contract liability balance at December 31, 2019. Net contract liabilities consisted of the following:


		April 3, 2021		December 31, 2020			October 2, 2021		December 31, 2020
Contract liabilities - current	Contract liabilities - current	$	5,388	$	3,242	Contract liabilities - current	$	4,006	$	3,242
Contract liabilities - noncurrent	Contract liabilities - noncurrent	1,757		1,754		Contract liabilities - noncurrent	1,879		1,754
Net contract liabilities	Net contract liabilities	$	7,145	$	4,996	Net contract liabilities	$	5,885	$	4,996

N. Fair Value Measurements and Financial Instruments

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

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

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

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

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

- 2629 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~April 3,~~October 2, 2021

(Amounts in thousands, except share data)

Our assets and liabilities measured at fair value on a recurring basis at ~~April 3,~~October 2, 2021 were as follows:


				Fair Value Measurements at April 3, 2021 Using:									Fair Value Measurements at October 2, 2021 Using:
Assets and Liabilities Recorded at Fair Value on a Recurring Basis	Assets and Liabilities Recorded at Fair Value on a Recurring Basis	Total Carrying Value at April 3, 2021		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Assets and Liabilities Recorded at Fair Value on a Recurring Basis	Total Carrying Value at October 2, 2021		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:	Assets:									Assets:
Assets invested for self-insurance, classified as other current assets, current										Assets invested for self-insurance, classified as other current assets, current	$	5,500	$	5,500	$	—	$	—
Assets invested for self-insurance, classified as other assets, noncurrent	Assets invested for self-insurance, classified as other assets, noncurrent	$	18,859	$	18,859	$	0	$	0	Assets invested for self-insurance, classified as other assets, noncurrent	11,859		11,859		—		—

Liabilities:	Liabilities:									Liabilities:

Deferred compensation	Deferred compensation	$	3,875	$	0	$	3,875	$	0	Deferred compensation	$	4,299	$	—	$	4,299	$	—

Our assets and liabilities measured at fair value on a recurring basis at December 31, 2020 were as follows:


				Fair Value Measurements at December 31, 2020 Using:									Fair Value Measurements at December 31, 2020 Using:
Assets and Liabilities Recorded at Fair Value on a Recurring Basis	Assets and Liabilities Recorded at Fair Value on a Recurring Basis	Total Carrying Value at December 31, 2020		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Assets and Liabilities Recorded at Fair Value on a Recurring Basis	Total Carrying Value at December 31, 2020		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:	Assets:									Assets:
Assets invested for self-insurance, classified as other assets, noncurrent	Assets invested for self-insurance, classified as other assets, noncurrent	$	19,359	$	19,359	$	0	$	0	Assets invested for self-insurance, classified as other assets, noncurrent	$	19,359	$	19,359	$	—	$	—

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

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

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


		April 3, 2021				December 31, 2020					October 2, 2021				December 31, 2020
		Carrying Value		Fair Value		Carrying Value		Fair Value			Carrying Value		Fair Value		Carrying Value		Fair Value
Revolving credit facility, noncurrent	Revolving credit facility, noncurrent	$	25,000	$	25,000	$	0	$	0	Revolving credit facility, noncurrent	$	34,191	$	34,191	$	—	$	—
Senior unsecured notes, noncurrent	Senior unsecured notes, noncurrent	75,000		77,095		75,000		81,424		Senior unsecured notes, noncurrent	75,000		78,772		75,000		81,424
Term loans, noncurrent	Term loans, noncurrent	3,356		3,343		2,324		2,451		Term loans, noncurrent	3,299		3,447		2,324		2,451
Total	Total	$	103,356	$	105,438	$	77,324	$	83,875	Total	$	112,490	$	116,410	$	77,324	$	83,875

- 2730 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~April 3,~~October 2, 2021

(Amounts in thousands, except share data)

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

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

O. Commitments and Contingencies

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

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

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

The cases were mediated unsuccessfully in December 2018 and the State Court case was originally set for trial on January 22, 2019. However, as discussed below, all of the civil cases were later stayed on December 28, 2018 and currently remain stayed.

- 2831 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~April 3,~~October 2, 2021

(Amounts in thousands, except share data)

indictment was issued charging 2 former Wolf Tree employees and 1 other individual with various crimes, including conspiracy to murder the deceased. On December 17, 2018, the United States Attorney’s Office for the Southern District of Georgia informed the Company and Wolf Tree that they are also under investigation for potential violations of immigration and other laws relating to the subject matter of the ongoing criminal investigation referenced above. The Company and Wolf Tree are cooperating with the investigation and have met with both the civil and criminal divisions of the Department of Justice ("DOJ") to resolve the matter. Due to pandemic-related issues and delays on the side of the DOJ, the matter currently remains unresolved.

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

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

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

~~PG&E Bankruptcy Filing~~

On January 29, 2019, Pacific Gas & Electric Company, and its parent company PG&E Corporation, our largest utility customer, filed voluntary bankruptcy petitions under Chapter 11 of the United States Bankruptcy Code in the U.S. Bankruptcy Court for the Northern District of California. PG&E accounted for approximately 17% of revenues during 2020, and 12% in 2019. As a utility company, PG&E serves residential and industrial customers in California and has an ongoing obligation to continue to serve its customers, and we continue to perform under our contracts with PG&E post-petition. As of the date of the bankruptcy filing, we had pre-petition accounts receivable of approximately $15,000.

On July 1, 2020, PG&E emerged from Chapter 11, successfully completing its restructuring process and implementing its Plan of Reorganization ("the Plan"). Davey Tree has been paid in full on all amounts outstanding, including interest accrued on the past amounts due at the federal judgment rate. Further, Davey Tree's primary contracts were assumed by PG&E.

Northern California Wildfires

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

~~- 29 -~~

~~Index~~

~~The Davey Tree Expert Company~~

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

~~April 3, 2021~~

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

~~September 14, 2021.~~ An action was brought on October 8, 2019 in San Francisco County Superior Court, entitled Quinisha Kyree Abram, et al. v. ACRT, Inc., et. al, Case No. CGC-19-579861. ~~The action currently is stayed until July 28, 2021.~~

NaN additional actions were brought on January 28, 2021 in San Francisco County Superior Court, by fire victims represented by a trust, which was assigned contractual rights in the PG&E bankruptcy proceedings. These cases are entitled John K. Trotter, Trustee of the PG&E Fire Victim Trust v. Davey Resource Group, Inc., et al., Case No. CGC-21-589438; John K. Trotter, Trustee of the PG&E Fire Victim Trust v. Davey Resource Group, Inc., et al., Case No. CGC-21-589439; and John K. Trotter, Trustee of the PG&E Fire Victim Trust v. ACRT Pacific, LLC, et al., Case No. CGC-21-589441. On September 22, 2021, the court granted Davey Tree's petition to coordinate all cases, including Walker a California Judicial Council Coordination Proceeding, In Re North Bay Fire Cases, JCCP No. 4955. As a result of the coordination order, all five of the individual actions are stayed in their home jurisdictions. The ~~action~~next case management conference in JCCP No. 4955 is scheduled for December 6, 2021. These actions are currently in preliminary stages of pleadings, but Davey Tree ~~intends to respond and file an answer~~has responded, denying all liability in ~~this case.~~these cases.

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

- 32 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 2, 2021

(Amounts in thousands, except share data)

P. The Davey 401KSOP and Employee Stock Ownership Plan

On March 15, 1979, the Company consummated a plan, which transferred control of the Company to its employees. As a part of this plan, the Company initially sold 120,000 common shares (presently, ~~23,040,000~~46,080,000 common shares adjusted for stock splits) to its Employee Stock Ownership Trust (“ESOT”) for $2,700. The Employee Stock Ownership Plan (“ESOP”), in conjunction with the related ESOT, provided for the grant to certain employees of certain ownership rights in, but not possession of, the common shares held by the trustee of the ESOT. Annual allocations of shares have been made to individual accounts established for the benefit of the participants.

Defined Contribution and Savings Plans--Most employees are eligible to participate in The Davey 401KSOP and ESOP Plan. Effective January 1, 1997, the plan commenced operations and retained the existing ESOP participant accounts and incorporated a deferred savings plan (a “401(k) plan”) feature. Participants in the 401(k) plan are allowed to make before-tax contributions, within Internal Revenue Service established limits, through payroll deductions. Effective January 1, 2020, we match, in either cash or our common shares, 100% of the first 3 percent and 50% of the next 2 percent of each participant's before-tax contribution, limited to the first 5 percent of the employee’s compensation deferred each year. All nonbargaining domestic employees who attained age 21 and completed one year of service are eligible to participate. In May 2004, we adopted the 401K Match Restoration Plan, a defined contribution plan that supplements the retirement benefits of certain employees that participate in the savings plan feature of The Davey 401KSOP and ESOP Plan, but are limited in contributions because of tax rules and regulations.

Our common shares are not listed or traded on an established public trading market, and market prices are, therefore, not available. Semiannually, an independent stock valuation firm determines the fair market value of our common shares based upon our performance and financial condition. The Davey 401KSOP and ESOP Plan includes a put option for shares of the Company’s common stock distributed from the plan. Shares are distributed from the Davey 401KSOP and ESOP Plan to former participants of the plan, their beneficiaries, donees or heirs (each, a “participant”). Since our common stock is not currently traded on an established securities market, if the owners of distributed shares desire to sell their shares, the Company is required to purchase the shares at fair value for 2 60-day periods after distribution of the shares from the Davey 401KSOP and ESOP. The fair value of distributed shares subject to the put option totaled ~~$3,111~~$1,157 and $3,298 as of ~~April 3,~~October 2, 2021 and December 31, 2020, respectively. The fair value of the shares held in the Davey 401KSOP and ESOP totaled ~~$152,196~~$158,940 and $150,089 as of ~~April 3,~~October 2, 2021 and December 31, 2020, respectively. Due to the Company’s obligation under the put option, the distributed shares subject to the put option and the shares held in the Davey 401KSOP and ESOP (collectively referred to as 401KSOP and ESOP related shares) are recorded at fair value, classified as temporary equity in the mezzanine section of the consolidated

~~- 30 -~~

~~Index~~

~~The Davey Tree Expert Company~~

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

~~April 3, 2021~~

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

balance sheets and totaled ~~$155,307~~$160,097 and $153,387 as of ~~April 3,~~October 2, 2021 and December 31, 2020, respectively. Changes in the fair value of the 401KSOP and ESOP Plan related shares are reflected in retained earnings while net share activity associated with 401KSOP and ESOP Plan related shares are first reflected in additional paid-in capital and then retained earnings if additional paid-in capital is insufficient.

- 3133 -

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 organized by type or class of customer: Residential and Commercial, and Utility. Residential and Commercial provides services to our residential and commercial customers including: the treatment, preservation, maintenance, removal and planting of trees, shrubs and other plant life; the practice of landscaping, grounds maintenance, tree surgery, tree feeding and tree spraying; the application of fertilizer, herbicides and insecticides; and natural resource management and consulting, forestry research and development, and environmental planning. Utility is principally engaged in providing services to our utility customers--investor-owned, municipal utilities, and rural electric cooperatives--including: the practice of line-clearing and vegetation management around power lines and rights-of-way and chemical brush control, natural resource management and consulting, forestry research and development, and environmental planning. All other operating activities, including research, technical support and laboratory diagnostic facilities, are included in "All Other."

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

Impact of COVID-19

While the coronavirus ("COVID-19") pandemic did not have a material adverse effect on our reported results for the first ~~three~~nine months of 2021, COVID-19 has had, and will continue to have, an impact on businesses, financial markets and economic activity throughout the world.

We continue to take steps to support our employees and protect their health and safety, while also ensuring that our business can continue to operate and provide services to our customers. Our employees, where possible, continue to work from home and we continue to adhere to our safety protocols to ensure social distancing when providing services to our customers, including providing personal protective equipment and limiting contact within vehicles. We continue to provide additional administrative leave for employees affected by COVID-19 directly or indirectly and converted our 2021 Annual Meeting of Shareholders to a virtual-only format. ~~We are also working on an approach~~During the second and third quarters of 2021, we began to bring employees back to our corporate headquarters on a limited basis with increased safety protocols and in compliance with public health and government ~~guidance.~~guidance and also began to lift travel restrictions in situations where necessary. In the first ~~three~~nine months of 2021, we incurred expenses of ~~$460~~$1,058 as a result of the COVID-19 pandemic mainly for administrative leave and personal protective equipment. ~~We have also experienced a reduction of travel expenses of approximately $1,683 largely related to restrictions imposed as a response to the pandemic.~~

The extent to which our operations may be impacted by COVID-19 will depend largely on future developments, which are highly uncertain and cannot be accurately predicted, including the ~~emergence~~effects of new strains of the virus, the availability and effectiveness of vaccines, supply chain disruptions and actions by government authorities to contain the pandemic or treat its impact, including reimposing

- 34 -

Index

previously-lifted measures and implementing vaccine mandates, which could impact our labor supply and future results of operations, as well as the possibility that additional restrictions will be put in place, especially as sporadic outbreaks of COVID-19 continue to occur, among other things. The situation surrounding COVID-19 remains fluid, and the potential for a material impact on our business continues the longer ~~the coronavirus~~COVID-19 impacts the level of economic activity in the U.S. and globally. Even after the COVID-19 pandemic has subsided, we may experience an impact to our business as a result of ~~the current economic recession and~~ any economic downturn or recession that has occurred or may occur in the future.

~~- 32 -~~

~~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~~such percentages for the periods presented.


		Three Months Ended			Three Months Ended								Nine Months Ended
			April 3, 2021			March 28, 2020		Change			October 2, 2021		September 26, 2020		Change		October 2, 2021		September 26, 2020		Change
Revenues	Revenues		100.0	%		100.0	%	—	%	Revenues	100.0	%	100.0	%	—	%	100.0	%	100.0	%	—	%

Costs and expenses:	Costs and expenses:									Costs and expenses:
Operating	Operating		66.6			68.9		(2.3)		Operating	62.8		61.8		1.0		63.5		63.2		.3
Selling	Selling		17.6			17.4		.2		Selling	18.2		17.8		.4		17.5		17.2		.3
General and administrative	General and administrative		8.5			7.5		1.0		General and administrative	5.6		5.9		(.3)		6.8		6.4		.4
Depreciation and amortization	Depreciation and amortization		4.5			5.0		(.5)		Depreciation and amortization	3.8		4.1		(.3)		4.0		4.5		(.5)
Gain on sale of assets, net	Gain on sale of assets, net		(.2)			(.1)		(.1)		Gain on sale of assets, net	(.4)		(.1)		(.3)		(.4)		(.2)		(.2)

Income from operations	Income from operations		3.0			1.3		1.7		Income from operations	10.0		10.5		(.5)		8.6		8.9		(.3)

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

Income (loss) before income taxes			1.9			—		1.9
Income before income taxes										Income before income taxes	9.0		10.1		(1.1)		7.7		8.0		(.3)

Income taxes (benefit)			.4			—		.4
Income taxes										Income taxes	2.3		2.8		(.5)		2.0		2.2		(.2)

Net income (loss)			1.5	%		—	%	1.5	%
Net income										Net income	6.7	%	7.3	%	(.6)	%	5.7	%	5.8	%	(.1)	%

- 3335 -

Index

~~First Three Months—~~Third Quarter—Three Months Ended ~~April 3,~~October 2, 2021 Compared to Three Months Ended ~~March 28,~~September 26, 2020

Our results of operations for the three months ended ~~April 3,~~October 2, 2021 compared to the three months ended ~~March 28,~~September 26, 2020 were as follows:


		Three Months Ended									Three Months Ended
		April 3, 2021		March 28, 2020		Change		Percentage Change			October 2, 2021		September 26, 2020		Change		Percentage Change
Revenues	Revenues	$	298,821	$	288,280	$	10,541	3.7	%	Revenues	$	370,244	$	337,453	$	32,791	9.7	%

Costs and expenses:	Costs and expenses:									Costs and expenses:
Operating	Operating	199,035		198,605		430		.2		Operating	232,599		208,638		23,961		11.5
Selling	Selling	52,687		50,112		2,575		5.1		Selling	67,353		60,203		7,150		11.9
General and administrative	General and administrative	25,351		21,542		3,809		17.7		General and administrative	20,739		19,891		848		4.3
Depreciation and amortization	Depreciation and amortization	13,458		14,604		(1,146)		(7.8)		Depreciation and amortization	14,127		13,825		302		2.2
Gain on sale of assets, net	Gain on sale of assets, net	(684)		(305)		(379)		124.3		Gain on sale of assets, net	(1,507)		(476)		(1,031)		216.6
		289,847		284,558		5,289		1.9			333,311		302,081		31,230		10.3

Income from operations	Income from operations	8,974		3,722		5,252		141.1		Income from operations	36,933		35,372		1,561		4.4
Other income (expense):	Other income (expense):									Other income (expense):
Interest expense	Interest expense	(1,274)		(1,946)		672		(34.5)		Interest expense	(1,449)		(1,579)		130		(8.2)
Interest income	Interest income	69		101		(32)		(31.7)		Interest income	39		1,688		(1,649)		(97.7)
Other, net	Other, net	(2,050)		(1,899)		(151)		8.0		Other, net	(2,298)		(1,499)		(799)		53.3
Income (loss) before income taxes		5,719		(22)		5,741		nm
Income before income taxes										Income before income taxes	33,225		33,982		(757)		(2.2)

Income taxes (benefit)		1,292		(1)		1,293		nm
Income taxes										Income taxes	8,298		9,447		(1,149)		(12.2)

Net income (loss)		$	4,427	$	(21)	$	4,448	nm
nm--not meaningful
Net income										Net income	$	24,927	$	24,535	$	392	1.6	%

Revenues--Revenues of ~~$298,821~~$370,244 increased ~~$10,541~~$32,791 compared with ~~$288,280~~$337,453 in the third quarter of 2020. Utility Services increased $19,460 or 10.5% compared with the third quarter of 2020. The increase was attributable to new accounts as well as increased work year-over-year and price increases on existing accounts. Residential and Commercial Services increased $13,302 or 8.8% from the third quarter of 2020. Increases were primarily in tree and plant care revenues, grounds maintenance revenue and consulting and other revenue.

Operating Expenses--Operating expenses of $232,599 increased $23,961 compared with the third quarter of 2020. Utility Services increased $13,803 or 10.5% compared with the third quarter of 2020 but, as a percentage of revenue, remained at 71.0%. The increase was attributable to additional expenses for labor and benefits expenses, fuel expense, crew meals and lodging expenses, subcontractor expense, tools and parts expense and materials expense, which were partially offset by a decrease in rented equipment expense.Residential and Commercial Services increased $11,167 or 14.9% compared with the third quarter of 2020 and, as a percentage of revenue, increased to 52.4% from 49.7%. The increase was primarily attributable to increases in labor and benefits expenses, fuel expense, subcontractor expense, tools and parts expenses and materials expense.

Operating expenses for the third quarter of 2021 also included $204 of expenses related directly to COVID-19, including $80 for additional administrative leave offered to employees who have been unable to work due to COVID-19 imposed restrictions, whether from the virus itself or government imposed restrictions or closures. For the third quarter of 2020, the Company had $953 of expenses directly related to COVID-19.

- 36 -

Index

Fuel costs of $11,436 increased $3,336, or 41.2%, from the $8,100 incurred in the third quarter of 2020 and impacted operating expenses within all segments. The $3,336 increase included usage increases approximating $108 and price increases approximating $3,228.

Selling Expenses--Selling expenses of $67,353 increased $7,150 compared with the third quarter of 2020 and, as a percentage of revenues, increased to 18.2% from 17.8%. Utility Services increased $2,219 or 10.9% compared to the third quarter of 2020 but, as a percentage of revenue, remained at 11.0%. The increase was primarily attributable to increases in field management wages and incentive expense and travel expenses. Residential and Commercial Services increased $4,671 or 11.4% from the third quarter of 2020 and, as a percentage of revenue, increased to 27.7% from 27.0%. The increase was primarily attributable to an increase in field management and sales wage expenses and office rent.

General and Administrative Expenses--General and administrative expenses of $20,739 increased $848 from $19,891 in the third quarter of 2020. The increase was primarily attributable to increases in professional services, travel and living expenses and office expenses, which were partially offset by a decrease in salary expense.

Depreciation and Amortization Expense--Depreciation and amortization expense of $14,127 increased $302 from $13,825 incurred in the third quarter of 2020.

Gain on the Sale of Assets, Net--Gain on the sale of assets of $1,507 for the third quarter of 2021 increased $1,031 from the $476 gain in the third quarter of 2020. We sold more individual units of equipment at a higher average gain per unit in the third quarter of 2021 as compared with the third quarter of 2020.

Interest Expense--Interest expense of $1,449 decreased $130 from the $1,579 incurred in the third quarter of 2020.The decrease was attributable to lower average borrowing during the third quarter of 2021, as compared with the third quarter of 2020.

Other, Net--Other expense, net, of $2,298 increased $799 from the $1,499 of other expense incurred in the third quarter of 2020 and consisted of nonoperating income and expense, including pension expense and foreign currency transaction gains/losses on the intercompany account balances of our Canadian operations.

Income Taxes--Income taxes for the third quarter of 2021 were $8,298, as compared to $9,447 for the third quarter of 2020. Our tax provision for interim periods is determined using an estimate of our annual effective tax rate adjusted for discrete items, if any, that are taken into account in the relevant period. The effective tax rate for the third quarter of 2021 was 25.0% as compared with the third quarter of 2020 effective tax rate of 27.8%.

Net Income--Net income of $24,927 for the third quarter of 2021 was $392 more than the $24,535 net income for the third quarter of 2020.

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First Nine Months—Nine Months Ended October 2, 2021 Compared to Nine Months Ended September 26, 2020

Our results of operations for the nine months ended October 2, 2021 compared to the nine months ended September 26, 2020 were as follows:


	Nine Months Ended
	October 2, 2021		September 26, 2020		Change		Percentage Change
Revenues	$	1,024,541	$	944,980	$	79,561	8.4	%

Costs and expenses:
Operating	650,909		598,225		52,684		8.8
Selling	178,876		162,287		16,589		10.2
General and administrative	69,712		60,477		9,235		15.3
Depreciation and amortization	41,287		42,553		(1,266)		(3.0)
Gain on sale of assets, net	(4,174)		(2,045)		(2,129)		104.1
	936,610		861,497		75,113		8.7

Income from operations	87,931		83,483		4,448		5.3
Other income (expense):
Interest expense	(4,093)		(5,477)		1,384		(25.3)
Interest income	161		1,885		(1,724)		(91.5)
Other, net	(5,548)		(4,550)		(998)		21.9
Income before income taxes	78,451		75,341		3,110		4.1

Income taxes	20,554		20,945		(391)		(1.9)

Net income	$	57,897	$	54,396	$	3,501	6.4	%

Revenues--Revenues of $1,024,541 increased $79,561 compared with $944,980 in the first ~~three~~nine months of 2020. Utility Services ~~decreased $11,896~~increased $9,365 or ~~6.4%~~1.7% compared with the first ~~three~~nine months of 2020. The ~~decrease~~increase was primarily attributable to ~~less emergency work on our PG&E account as compared to the first three months of 2020, which was partially offset by~~ new accounts, as well as increased work year-over-year on other accounts and price increases on existing accounts within both our U.S. and Canadian ~~operations.~~operations, which was partially offset by less emergency work on our PG&E account as compared to the first nine months of 2020. Residential and Commercial Services increased ~~$22,554~~$69,231 or ~~22.1%~~17.5% compared with the first ~~three~~nine months of 2020. Increases were primarily in tree and plant care revenue, consulting and other revenue and grounds maintenance. In 2020, while our Residential and Commercial Services segment work was deemed essential services in most states, we experienced temporary shutdowns or work restrictions related to COVID-19 in a few states and certain Canadian provinces.

Operating Expenses--Operating expenses of ~~$199,035~~$650,909 increased ~~$430~~$52,684 compared with the first ~~three~~nine months of 2020 ~~but,~~and, as a percentage of revenues, ~~decreased~~increased to ~~66.6%~~63.5% from ~~68.9%~~63.2%. Utility Services ~~decreased $8,069~~increased $14,553 or ~~5.9%~~3.7% compared with the first ~~three~~nine months of 2020 ~~but,~~and, as a percentage of revenue, increased to ~~73.5%~~72.5% from ~~73.2%~~71.0%. The ~~decrease~~increase was attributable to ~~decreases~~increases in ~~labor~~fuel expense, materials expense, crew meals and ~~benefits expense~~lodging expenses and ~~subcontractor~~tools and parts expense, which were partially offset by ~~an increase~~decreases in ~~chemicals~~benefits expense, equipment expenses, and subcontractor expense. Residential and Commercial Services increased ~~$10,065~~$40,875 or ~~16.6%~~20.1% compared with the first ~~three~~nine months of 2020 ~~but,~~and, as a percentage of revenue, ~~decreased~~increased to ~~56.8%~~52.5% from ~~59.6%~~51.3%. The increase was primarily attributable to increases in labor and benefits expense, fuel expense, subcontractor expense, equipment expense, tool expense and materials expense.

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Operating expenses for the first ~~three~~nine months of 2021 also included ~~$460~~$1,058 of expenses related directly to COVID-19, including ~~$153~~$362 for additional administrative leave offered to employees who were unable to work due to COVID-19-related restrictions, whether from the virus itself or government imposed restrictions or closures. For the first ~~three~~nine months of 2020, the ~~company~~Company had ~~$812~~$3,148 of expenses directly related to COVID-19.

Fuel costs of ~~$8,238~~$29,970 increased ~~$202,~~$6,732, or ~~2.5%~~29.0%, from the ~~$8,036~~$23,238 incurred in the first ~~three~~nine months of 2020 and impacted operating expenses within all segments. The ~~$202~~$6,732 increase included usage increases approximating ~~$255~~$455 and price ~~decreases~~increases approximating ~~$53.~~$6,277.

Selling Expenses--Selling expenses of ~~$52,687~~$178,876 increased ~~$2,575~~$16,589 compared with the first ~~three~~nine months of 2020 and, as a percentage of revenue, increased to ~~17.6%~~17.5% from ~~17.4%~~17.2%. Utility Services increased ~~$212~~$1,996 or ~~1.1%~~3.3% compared to the first ~~three~~nine months of 2020 and, as a percentage of revenue, increased to ~~11.6%~~11.2% from ~~10.7%~~11.0%. The increase was primarily attributable to increases in field management wages and ~~computer expenses, partially offset by a decrease in~~ field management travel expense. Residential and Commercial Services experienced an increase of ~~$2,299~~$14,885 or ~~7.4%~~14.2% compared to the first ~~three~~nine months of 2020 but, as a percentage of revenue, decreased to ~~26.8%~~25.7% from ~~30.5%~~26.4%. The increase was primarily attributable to increases in field management wages and incentive expense, ~~which were partially offset by a decrease in~~ travel expense, computer expense and rent expense.

General and Administrative Expenses--General and administrative expenses of ~~$25,351~~$69,712 increased ~~$3,809~~$9,235 from ~~$21,542~~$60,477 in the first ~~three~~nine months of 2020. The increase was primarily attributable to increases in salary and incentive expense, professional services expense and computer ~~expenses, which were partially offset by a decrease in travel expense.~~expenses.

Depreciation and Amortization Expense--Depreciation and amortization expense of ~~$13,458~~$41,287 decreased ~~$1,146~~$1,266 from ~~$14,604~~$42,553 incurred in the first ~~three~~nine months of 2020. The decrease was attributable to lower capital expenditures in recent years and an increased use of operating leases for equipment.

Gain on the Sale of Assets, Net--Gain on the sale of assets of ~~$684~~$4,174 for the first ~~three~~nine months of 2021 increased ~~$379~~$2,129 from the ~~$305~~$2,045 gain in the first ~~three~~nine months of 2020. We sold ~~more individual~~a comparable number of units of equipment, but at a ~~greater~~higher average gain per unit during the first ~~three~~nine months of 2021 as compared with the first ~~three~~nine months of 2020.

Interest Expense--Interest expense of ~~$1,274~~$4,093 decreased ~~$672~~$1,384 from the ~~$1,946~~$5,477 incurred in the first ~~three~~nine months of 2020. The decrease was attributable to lower average borrowing during the first ~~three~~nine months of 2021, as compared with the first ~~three~~nine months of 2020.

Other, Net--Other expense, net, of ~~$2,050~~$5,548 increased ~~$151~~$998 from the ~~$1,899~~$4,550 expense incurred in the first ~~three~~nine months of 2020 and consisted of nonoperating income and expense, including pension expense and foreign currency gains/losses on the intercompany account balances of our Canadian operations.

Income Taxes--Income taxes for the first ~~three~~nine months of 2021 were ~~$1,292,~~$20,554, as compared to ~~a benefit of $1~~$20,945 for the first ~~three~~nine months of 2020. Our tax provision for interim periods is determined using an estimate of our annual effective tax rate adjusted for discrete items, if any, that are taken into account in the relevant period. The effective tax rate for the first ~~three~~nine months of 2021 was ~~22.6%~~26.2%. Our effective tax rate for the first ~~three~~nine months of 2020 was ~~4.5%~~27.8%. The change in the effective tax rate from statutory tax rates was primarily due to the impact of state and local taxes, which was partially offset by favorable discrete items.

Net Income--Net income of ~~$4,427~~$57,897 for the first ~~three~~nine months of 2021 was ~~$4,447~~$3,501 more than the net ~~loss~~income of ~~$21~~$54,396 for the first ~~three~~nine months of 2020.

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LIQUIDITY AND CAPITAL RESOURCES

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

Cash Flow Summary

Our cash flows from operating, investing and financing activities for the ~~three~~nine months ended ~~April 3,~~October 2, 2021 and ~~March 28,~~September 26, 2020 were as follows:


		Three Months Ended					Nine Months Ended
		April 3, 2021		March 28, 2020			October 2, 2021		September 26, 2020
Cash provided by (used in):	Cash provided by (used in):					Cash provided by (used in):
Operating activities	Operating activities	$	22,395	$	2,768	Operating activities	$	57,401	$	99,428
Investing activities	Investing activities	(26,066)		(21,012)		Investing activities	(59,777)		(41,614)
Financing activities	Financing activities	16,195		74,173		Financing activities	19,192		(43,739)
Effect of exchange rate changes on cash	Effect of exchange rate changes on cash	36		(100)		Effect of exchange rate changes on cash	40		(17)
Increase in cash	Increase in cash	$	12,560	$	55,829	Increase in cash	$	16,856	$	14,058

Cash Provided By Operating Activities--Cash provided by operating activities was ~~$22,395~~$57,401 for the first ~~three~~nine months of 2021, a ~~$19,627 increase~~$42,027 decrease when compared to the first ~~three~~nine months of 2020. The ~~$19,627 increase~~$42,027 decrease in operating cash flow was primarily attributable to the ~~increase in net income of $4,447 resulting from increased revenue and operating margins and a~~ change of ~~$49,184~~$37,860 related to accounts ~~receivable,~~payable and accrued expenses, and the change of $5,936 related to prepaid expenses, partially offset by a change of ~~$22,200~~$4,533 related to accounts ~~payable and accrued expenses.~~receivable.

Overall, accounts receivable ~~decreased $32,023~~increased $30,268 during the first ~~three~~nine months of 2021, as compared to an increase of ~~$17,161~~$34,801 during the first ~~three~~nine months of 2020. With respect to the change in accounts receivable arising from business levels, the “days-sales-outstanding” in accounts receivable (sometimes referred to as “DSO”) at the end of the first ~~three~~nine months of 2021 decreased by ~~ten~~two days to 6870 days, ~~when~~ compared to 7872 days at the end of the first three months of 2020. DSO at the end of the first three months of 2020 included approximately $15,000 of pre-petition receivables from PG&E, which were collected after PG&E emerged from bankruptcy in July 2020. Excluding the pre-petition receivables, DSO would have been 74 days at the end of the first threenine months of 2020.

Accounts payable and accrued expenses decreased ~~$29,732~~$9,471 in the first ~~three~~nine months of 2021, ~~or $22,200 more than~~a change of $37,860 compared to the ~~$7,532 decrease~~$28,389 increase in the first ~~three~~nine months of 2020. The ~~increase~~change was primarily related to ~~increases in~~the timing of estimated income ~~taxes~~tax payments and employer payroll taxes ~~payable.~~payable deferred in 2020 as a result of the Coronavirus Aid, Relief, and Economic Security Act. Self-insurance accruals increased ~~$4,641~~$13,041 in the first ~~three~~nine months of 2021, which was ~~$21 more~~$1,645 less than the increase of ~~$4,620~~$14,686 experienced in the first ~~three~~nine months of 2020. The increase was attributable to increased exposures within our workers compensation, general liability and vehicle liability lines of coverage.

Prepaid expenses increased $13,442 in the first nine months of 2021, a change of $5,936 compared to the $7,506 increase in the first nine months of 2020. The increase was primarily attributable to an increase in prepaid insurance premiums.

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

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Cash Used In Investing Activities--Cash used in investing activities for the first ~~three~~nine months of 2021 was ~~$26,066,~~$59,777, a ~~$5,054~~$18,163 increase when compared to the first ~~three~~nine months of 2020. The increase was primarily the result of increases in purchases of businesses, ~~which was~~equipment and land and buildings.

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~~partially offset by a decrease in capital expenditures. Our decrease in capital expenditures was partially the result of our increased use of operating leases for equipment.~~

Cash Provided by (Used In) Financing Activities--Cash provided by financing activities ~~of $16,195 decreased $57,978~~was $19,192 during the first ~~three~~nine months of 2021, a change of $62,931 as compared with ~~$74,173~~the $43,739 used during the first ~~three~~nine months of 2020. During the first ~~three~~nine months of 2021, our revolving credit facility, net provided ~~$25,000~~$33,478 in cash as compared with ~~$81,000 provided~~$32,000 used during the first ~~three~~nine months of 2020. We use the credit facility primarily for capital expenditures, redemptions of shares and payments of notes payable related to acquisitions. In the first quarter of 2020, we drew $50,000 from our revolving credit facility to provide additional liquidity as a precaution because of uncertainty resulting from COVID-19. The $50,000 was repaid during the second quarter of 2020. Notes payable ~~used a net $5,972~~increased $10,081 during the first ~~three~~nine months of 2021, ~~a decrease~~an increase of ~~$3,272~~$7,796 when compared to the ~~$2,700 used~~$2,285 increase in the first ~~three~~nine months of 2020. Treasury share transactions (purchases and sales) used ~~$1,001~~$19,552 for the first ~~three~~nine months of 2021, ~~$1,844 less~~$8,761 more than the ~~$2,845~~$10,791 used in the first ~~three~~nine months of 2020. Dividends paid of ~~$571~~$2,127 during the first ~~three~~nine months of 2021 ~~decreased $4~~increased $419 as compared with ~~$575~~$1,708 paid in the first ~~three~~nine months of ~~2020.~~2020, in part due to the increase in dividend paid per share implemented during the second quarter of 2021.

The Company currently repurchases common shares at shareholders’ requests in accordance with the terms of the Davey 401KSOP and ESOP Plan and also repurchases common shares from time to time at the Company’s discretion. The amount of common shares offered to the Company for repurchase by the holders of shares distributed from the Davey 401KSOP and ESOP Plan is not within the control of the Company, but is at the discretion of the shareholders. The Company expects to continue to repurchase its common shares, as offered by its shareholders from time to time, at their then current fair value. However, other than for repurchases pursuant to the put option under the Davey 401KSOP and ESOP Plan, as described in Note P, such purchases are not required, and the Company retains the right to discontinue them at any time. Repurchases of redeemable common shares at shareholders' request approximated ~~$195~~$6,860 and ~~$49~~$5,280 during the ~~three~~nine months ended ~~April 3,~~October 2, 2021 and ~~March 28,~~September 26, 2020, respectively. Share repurchases, other than redeemable common shares, approximated ~~$3,549~~$29,647 and ~~$8,012~~$22,209 during the ~~three~~nine months ended ~~April 3,~~October 2, 2021 and ~~March 28,~~September 26, 2020, respectively.

Contractual Obligations Summary and Commercial Commitments

As of ~~April 3,~~October 2, 2021, total commitments related to issued letters of credit were ~~$88,243,~~$88,363, of which ~~$2,877~~$2,878 were issued under the revolving credit facility, $83,355 were issued under the AR Securitization program, and ~~$2,011~~$2,131 were issued under short-term lines of credit. As of December 31, 2020, total commitments related to issued letters of credit were $88,242, of which $2,877 were issued under the revolving credit facility, $83,355 were issued under the AR Securitization program, and $2,010 were issued under short-term lines of credit.

Also, as is common in our industry, we have performance obligations that are supported by surety bonds, which expire during 2021 through 2023. We intend to renew the surety bonds where appropriate and as necessary.

Capital Resources

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

Business seasonality traditionally results in higher revenues during the second and third quarters as compared with the first and fourth quarters of the year, while our methods of accounting for fixed costs, such as depreciation and amortization expense, rent and interest expense, are not significantly impacted by business seasonality. Capital resources during these periods are equally affected. We satisfy seasonal working capital needs and other financing requirements with the revolving credit facility and other short-term lines of credit. We continually review our existing sources of financing and ~~evaluating~~evaluate alternatives. At ~~April 3,~~October 2, 2021, we had working capital of ~~$100,943,~~$145,735, short-term lines of credit approximating ~~$9,184~~$9,052 and ~~$222,123~~$287,931 available under our revolving credit ~~facility.~~facility, which was amended and

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restated in August 2021 and now permits up to $325,000 in borrowings. In addition, in September 2021, we amended the Note Purchase and Shelf Agreement, which among other things, increased the total facility limit by $50,000, to $150,000.

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

We believe our sources of capital, at this time, provide us with the financial flexibility to meet our capital-spending plans and to continue to complete business acquisitions for at least the next twelve months and for the reasonably foreseeable future. However, we cannot predict the full extent of the potential impact resulting from the COVID-19 pandemic on our business, results of operations and sources of capital.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

As discussed in our annual report on Form 10-K for the year ended December 31, 2020, we believe that our policies related to revenue recognition, the allowance for credit losses, stock valuation and self-insurance accruals are our “critical accounting policies and estimates”--those most important to the financial presentations and those that require the most difficult, subjective or complex judgments.

On an ongoing basis, we evaluate our estimates and assumptions, including those related to accounts receivable, specifically those receivables under contractual arrangements primarily with Utility customers; allowance for credit losses; and self-insurance accruals. We base our estimates on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates.

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. These statements relate to future events or our future financial performance. In some cases, forward-looking statements may be identified by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to differ materially from what is expressed or implied in these forward-looking statements. Some important factors that could cause actual results to differ materially from those in the forward-looking statements, some of which have been, and may further be, exacerbated by the COVID-19 pandemic, include:

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

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

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

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▪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.

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▪We could be materially adversely affected by wildfires in California and other areas as well as other severe weather events and natural disasters, which events may worsen or increase due to the effects of climate change, including negative impacts to our business, reputation, financial condition, results of operations, liquidity and cash flows.

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

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

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

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

▪We are subject to intense competition.

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

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

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

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

▪A disruption in our information technology systems, including a disruption related to cybersecurity, or the impact of costs incurred to comply with cybersecurity or data privacy regulations, could adversely affect our financial performance.

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

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

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

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

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

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

▪The uncertainties in the credit and financial markets, including the negative impact of COVID-19, may limit our access to capital.

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

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

▪Our facilities could be damaged or our operations could be disrupted, or our customers or vendors may be adversely affected, by events such as natural disasters, pandemics, such as COVID-19, or other public health concerns, terrorist attacks or other external events.

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

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Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We are under no duty to update any of the forward-looking statements after the date of this quarterly report on Form 10-Q to conform these statements to actual future results.

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The factors described above, as well as other factors that may adversely impact our actual results, are discussed in "Part I - Item 1A. Risk Factors." of our annual report on Form 10-K for the year ended December 31, 2020.

Item 3.Quantitative and Qualitative Disclosures about Market Risk.

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

Item 4.Controls and Procedures.

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

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

(b) Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the fiscal quarter ended ~~April 3,~~October 2, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II. Other Information

Items 3, 4 and 5 are not applicable.

Item 1. Legal Proceedings.

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of matters may be material to our results of operations for a particular period, depending upon the size of the loss or our income for that particular period.

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

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

On December 6, 2018, a former Wolf Tree employee pled guilty to conspiracy to conceal, harbor, and shield illegal aliens. On December 21, 2018, the United States federal prosecutors filed a motion to stay both actions on the grounds that on December 13, 2018, an indictment was issued charging two former Wolf Tree employees and one other individual with various crimes, including conspiracy to murder the deceased. On December 17, 2018, the United States Attorney’s Office for the Southern District of Georgia informed the Company and Wolf Tree that they are also under investigation for potential violations of immigration and other laws relating to the subject matter of the ongoing criminal investigation referenced above. The Company and Wolf Tree are cooperating with the investigation and have met with both the civil and criminal divisions of the Department of Justice ("DOJ") to resolve the matter. Due to pandemic-related issues and delays on the side of the DOJ, the matter currently remains unresolved.

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Item 1A.

Item 1A.Risk Factors.

Our Annual Report on Form 10-K for the year ended December 31, 2020, includes a detailed discussion of our risk factors. There have been no material changes to the risk factors described in the 2020 Form 10-K during the nine months ended October 2, 2021, except as ~~previously disclosed; however, some~~set forth below. Disclosure of risks should not be interpreted to imply that the ~~risk factors disclosed~~risks have not already materialized.

The proposed new regulation regarding mandatory COVID-19 vaccination of employees could impact our workforce and have a material adverse effect on our business and results of operations.

On September 9, 2021, President Biden announced a proposed new rule that would require all employers with at least 100 employees to ensure that their employees are fully vaccinated or require unvaccinated workers to get a negative test at least once a week. The U.S. Department of Labor’s Occupational Safety and Health Administration ("OSHA") is drafting an emergency regulation to carry out this mandate, which may take effect in the near future. As a company with more than 100 employees, it is anticipated that we would be subject to the OSHA regulation concerning COVID-19 vaccination. At this time, it is not possible to predict with certainty the exact impact that the proposed new regulation will have on us or on our ~~Annual Report~~workforce. The proposed new regulation, when implemented, in addition to customer-imposed mandates that have or could be required, could result in increased costs, labor disruptions or employee attrition. If we lose employees, it may be difficult in the current competitive labor market to find replacement employees, and this could have an adverse effect on future revenues and costs, which could be material. In addition, additional uncertainty could be caused by competing and potentially conflicting laws and regulations, such as the recent executive order issued by the governor of Texas prohibiting vaccine mandates. Accordingly, the proposed new OSHA regulation, when implemented, could have a material adverse effect on our business and results of operations.

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~~Form 10-K for the year ended December 31, 2020 have been, and could continue to further be, exacerbated by the impact of the COVID-19 pandemic.~~

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

The following table provides information on purchases of our common shares outstanding made by us during the first ~~three~~nine months of 2021. The numbers in the following table, as well as the number of shares authorized for repurchase, as described below, have been adjusted for a two-for-one stock split, effected in the form of a 100% stock dividend paid on October 15, 2021 to shareholders of record at the close of business on October 1, 2021.


Period	Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs	Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
Fiscal 2021	Fiscal 2021						Fiscal 2021
January 1 to January 30	January 1 to January 30	1,581	$	24.90	—	690,960	January 1 to January 30	3,162	$	12.45	—	1,381,920
January 31 to February 27	January 31 to February 27	170	24.90		—	690,960	January 31 to February 27	340	12.45		—	1,381,920
February 28 to April 3	February 28 to April 3	123,421	30.00		—	690,960	February 28 to April 3	246,842	15.00		—	1,381,920
Total First Quarter	Total First Quarter	125,172	29.93		—		Total First Quarter	250,344	14.96		—

April 4 to May 1							April 4 to May 1	519,438	15.00		—	1,381,920
May 2 to May 29							May 2 to May 29	544,434	15.00		—	1,381,920
May 30 to July 3							May 30 to July 3	505,996	15.00		353,874	1,028,046
Total Second Quarter							Total Second Quarter	1,569,868	15.00		353,874

July 4 to July 31							July 4 to July 31	—	16.40		—	1,028,046
August 1 to August 28							August 1 to August 28	242,088	16.40		—	1,028,046
August 29 to October 2							August 29 to October 2	321,708	16.40		131,418	3,896,628
Total Third Quarter							Total Third Quarter	563,796	16.40		131,418

Total Year-to-Date	Total Year-to-Date	125,172	$	29.93	—		Total Year-to-Date	2,384,008	$	15.33	485,292

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

At the Annual Meeting of Shareholders of the Company held on May 16, 2017, the shareholders of the Company approved proposals to amend the Company's Articles of Incorporation to (i) expand the Company's right of first refusal with respect to proposed transfers of shares of the Company's common shares, (ii) clarify provisions regarding when the Company may provide notice of its decision to exercise

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its right of first refusal with respect to proposed transfers of common shares by the estate or personal representative of a deceased shareholder, and (iii) grant the Company a right to repurchase common shares held by certain shareholders of the Company.

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

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

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~~Index~~

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

In accordance with the amendments to the Articles approved by the Company's shareholders at the 2017 Annual Meeting, on May 17, 2017, the Company's Board of Directors authorized the Company to repurchase up to ~~200,000~~400,000 common shares, which authorization was increased by an additional ~~1,000,000~~2,000,000 common shares in May ~~2018.~~2018 and increased further by an additional 3,000,000 common shares in September 2021. Of the ~~1,200,000~~5,400,000 total shares authorized, ~~690,960 remain~~3,896,628 remained available under the ~~program.~~program, as of October 2, 2021. Share repurchases may be made from time to time and the timing of any repurchases and the actual number of shares repurchased will depend on a variety of factors. The Company is not obligated to purchase any shares, and repurchases may be commenced, suspended or discontinued from time to time without prior notice. The repurchase program does not have an expiration date.

Item 6.Exhibits.

See the Exhibit Index ~~page~~ below.

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Exhibit Index

Exhibit No.

Description

3.1

2017 Amended Articles of Incorporation of the Davey Tree Expert Company (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 17, 2017).

3.2

Certificate of Amendment to the 2017 Amended Articles of Incorporation, dated as of September 20, 2021 (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 21, 2021).

3.3

2017 Amended and Restated Regulations of the Davey Tree Expert Company (Incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 17, 2017).

10.1

Fourth 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 August 18, 2021 (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 23, 2021).

10.2

First Amendment to Note Purchase and Private Shelf Agreement by and among PGIM, Inc., each of the Purchasers thereto, and The Davey Tree Expert Company dated September 20, 2021 (Incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on September 21, 2021).

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

99.1*

The Davey 401KSOP and ESOP (January 1, 2015 Restatement) (incorporated herein by reference to Exhibit 99.1 to the Company’s Registration Statement on Form S-8 (File No. 333-259875) filed with the Securities and Exchange Commission on September 29, 2021).

99.2*

First Amendment to The Davey 401KSOP and ESOP (January 1, 2015 Restatement) (incorporated herein by reference to Exhibit 99.2 to the Company’s Registration Statement on Form S-8 (File No. 333-259875) filed with the Securities and Exchange Commission on September 29, 2021).

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Exhibit No.

Description

99.3*

Second Amendment to The Davey 401KSOP and ESOP (January 1, 2015 Restatement) (incorporated herein by reference to Exhibit 99.3 to the Company’s Registration Statement on Form S-8 (File No. 333-259875) filed with the Securities and Exchange Commission on September 29, 2021).

99.4*

Third Amendment to The Davey 401KSOP and ESOP (January 1, 2015 Restatement) (incorporated herein by reference to Exhibit 99.4 to the Company’s Registration Statement on Form S-8 (File No. 333-259875) filed with the Securities and Exchange Commission on September 29, 2021).

99.5*

Fourth Amendment to The Davey 401KSOP and ESOP (January 1, 2015 Restatement) (incorporated herein by reference to Exhibit 99.5 to the Company’s Registration Statement on Form S-8 (File No. 333-259875) filed with the Securities and Exchange Commission on September 29, 2021).

99.6*

Fifth Amendment to The Davey 401KSOP and ESOP (January 1, 2015 Restatement) (incorporated herein by reference to Exhibit 99.6 to the Company’s Registration Statement on Form S-8 (File No. 333-259875) filed with the Securities and Exchange Commission on September 29, 2021).

99.7*

Sixth Amendment to The Davey 401KSOP and ESOP (January 1, 2015 Restatement) (incorporated herein by reference to Exhibit 99.7 to the Company’s Registration Statement on Form S-8 (File No. 333-259875) filed with the Securities and Exchange Commission on September 29, 2021).

99.8*

Seventh Amendment to The Davey 401KSOP and ESOP (January 1, 2015 Restatement) (incorporated herein by reference to Exhibit 99.8 to the Company’s Registration Statement on Form S-8 (File No. 333-259875) filed with the Securities and Exchange Commission on September 29, 2021).

99.9*

Eighth Amendment to The Davey 401KSOP and ESOP (January 1, 2015 Restatement) (incorporated herein by reference to Exhibit 99.9 to the Company’s Registration Statement on Form S-8 (File No. 333-259875) filed with the Securities and Exchange Commission on September 29, 2021).

99.10*

Ninth Amendment to The Davey 401KSOP and ESOP (January 1, 2015 Restatement) (incorporated herein by reference to Exhibit 99.10 to the Company’s Registration Statement on Form S-8 (File No. 333-259875) filed with the Securities and Exchange Commission on September 29, 2021

101

The following materials from the Company's Quarterly Report on Form 10-Q for the quarter ended ~~April 3,~~October 2, 2021, formatted in iXBRL (inline eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets (unaudited), (ii) the Condensed Consolidated Statements of Operations (unaudited), (iii) the Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited), (iv) the Condensed Consolidated Statements of Shareholders' Equity (unaudited), (v) the Condensed Consolidated Statements of Cash Flows (unaudited), and (vi) Notes to Condensed Consolidated Financial Statements (unaudited). The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.

Filed Herewith

104

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

Filed Herewith

* Management contracts or compensatory plans or arrangements.

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Signatures

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

THE DAVEY TREE EXPERT COMPANY

Date:

~~May 4,~~November 3, 2021

By:

/s/ Joseph R. Paul

Joseph R. Paul

Executive Vice President, Chief Financial Officer and Assistant Secretary

(Principal Financial Officer)

Date:

~~May 4,~~November 3, 2021

By:

/s/ Thea R. Sears

Thea R. Sears

Vice President and Controller

(Principal Accounting Officer)

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