Davey Tree Expert 10Q 2014 Q1 Quarterly report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 29, 2014

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

For the transition period from ______________ to ______________

Commission file number 000-11917

THE DAVEY TREE EXPERT COMPANY

(Exact name of registrant as specified in its charter)



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

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

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

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 S No £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes S No £

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



(Check one):	£ Large Accelerated Filer	S Accelerated Filer
	£ Non-Accelerated Filer	£ Smaller Reporting Company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ NoS

There were 13,373,207 Common Shares, $1.00 par value, outstanding as of May 2, 2014.

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The Davey Tree Expert Company

Quarterly Report on Form 10-Q

March 29, 2014

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		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 Loss	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements
	A — Basis of Financial Statement Preparation	6
	B — Seasonality of Business	6
	C — Accounts Receivable, Net and Supplemental Balance-Sheet Information	6
	D — Business Combinations	7
	E — Identified Intangible Assets and Goodwill, Net	7
	F — Long-Term Debt	8
	G — Stock-Based Compensation	9
	H — Net Periodic Benefit Cost—Defined Benefit Pension Plans	12
	I — Income Taxes	13
	J — Accumulated Other Comprehensive Income (Loss)	13
	K — Per Share Amounts and Common Shares Outstanding	14
	L — Operations by Business Segment	15
	M — Fair Value Measurements and Financial Instruments	16
	N — Contingencies	20

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
	Results of Operations	21
	Liquidity and Capital Resources	24
	Cash Flow Summary	24
	Off-Balance Sheet Arrangements	25
	Contractual Obligations Summary	25
	Capital Resources	26
	Critical Accounting Policies and Estimates	26
	Note Regarding Forward-Looking Statements	26

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	28

Item 4.	Controls and Procedures	28

Part II.	Other Information

Item 1.	Legal Proceedings	29

Item 1A.	Risk Factors	29

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34

Item 6.	Exhibits	35

Signatures		36

Exhibit Index		37

We,” “Us,” “Our,” “Davey” and “Davey Tree,” unless the context otherwise requires, means The Davey Tree Expert Company and its subsidiaries.

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THE DAVEY TREE EXPERT COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands, except per share data dollar amounts)



	March 29, 2014			December 31, 2013
Assets
Current assets:
Cash	$	14,361		$	15,861
Accounts receivable, net	101,474			105,256
Operating supplies	7,086			5,661
Other current assets	26,833			25,238
Total current assets	149,754			152,016

Property and equipment	499,981			484,150
Less accumulated depreciation	354,412			347,266
	145,569			136,884

Other assets	16,709			16,917
Identified intangible assets and goodwill, net	29,174			27,561
	$	341,206		$	333,378
Liabilities and shareholders' equity
Current liabilities:
Accounts payable	$	37,721		$	37,922
Accrued expenses	22,263			36,858
Other current liabilities	27,946			30,491
Total current liabilities	87,930			105,271

Long-term debt	76,016			50,034
Self-insurance accruals	37,289			34,655
Other noncurrent liabilities	12,404			12,280
	213,639			202,240
Common shareholders' equity:

Common shares, $1.00 par value, per share; 24,000 shares authorized; 21,457 shares issued and outstanding before treasury shares as of March 29, 2014	21,457			21,457
Additional paid-in capital	6,505			5,008
Common shares subscribed, unissued	10,100			10,467
Retained earnings	226,329			230,975
Accumulated other comprehensive loss	(5,255		)	(4,393		)
	259,136			263,514
Less: Cost of Common shares held in treasury; 7,925 shares at March 29, 2014 and 8,018 shares at December 31, 2013	124,536			125,034
Common shares subscription receivable	7,033			7,342

	127,567			131,138
	$	341,206		$	333,378
See notes to condensed consolidated financial statements.

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THE DAVEY TREE EXPERT COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(In thousands, except per share dollar amounts)



	Three Months Ended
	March 29, 2014			March 30, 2013
Revenues	$	157,387		$	143,265

Costs and expenses:
Operating	109,231			101,060
Selling	29,059			25,575
General and administrative	13,899			13,255
Depreciation and amortization	9,900			9,486
Loss (gain) on sale of assets, net	23			(102		)
	162,112			149,274

Loss from operations	(4,725		)	(6,009		)

Other income (expense):
Interest expense	(719		)	(623		)
Interest income	69			83
Other, net	(805		)	(703		)

Loss before income taxes	(6,180		)	(7,252		)

Income tax benefits	(2,169		)	(2,640		)

Net loss	$	(4,011	)	$	(4,612	)

Net loss per share--basic and diluted	$	(.29	)	$	(.33	)

Weighted-average shares outstanding--basic and diluted	13,606			13,885

Dividends declared per share	$	.045		$	.045
See notes to condensed consolidated financial statements.

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THE DAVEY TREE EXPERT COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited)

(In thousands)



	Three Months Ended
	March 29, 2014			March 30, 2013
Net loss	$	(4,011	)	$	(4,612	)
Components of other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(974		)	(557		)
Reclassification to results of operations:
Amortization of defined benefit pension items:
Net actuarial loss	110			215
Prior service cost	2			2
Defined benefit pension plan adjustments	112			217

Other comprehensive loss	(862		)	(340		)

Comprehensive loss	$	(4,873	)	$	(4,952	)
See notes to condensed consolidated financial statements.

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THE DAVEY TREE EXPERT COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)



	Three Months Ended
	March 29, 2014			March 30, 2013
Operating activities
Net loss	$	(4,011	)	$	(4,612	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	9,900			9,486
Other	(266		)	(255		)
Changes in operating assets and liabilities:
Accounts receivable	3,782			16,907
Operating liabilities	(11,872		)	(13,074		)
Other, net	(2,741		)	(2,460		)
	(1,197		)	10,604
Net cash (used in) provided by operating activities	(5,208		)	5,992

Investing activities
Capital expenditures:
Equipment	(17,972		)	(17,395		)
Land and buildings	(131		)	(2,490		)
Purchases of businesses	(2,178		)	—
Other	70			(846		)
Net cash used in investing activities	(20,211		)	(20,731		)

Financing activities
Revolving credit facility proceeds, net	25,700			5,200
Purchase of common shares for treasury	(2,344		)	(1,351		)
Sale of common shares from treasury	4,216			4,073
Dividends	(633		)	(649		)
Other	(3,020		)	(2,760		)
Net cash provided by financing activities	23,919			4,513

Decrease in cash	(1,500		)	(10,226		)

Cash, beginning of period	15,861			19,647
Cash, end of period	$	14,361		$	9,421

Supplemental cash flow information follows:
Interest paid	$	1,060		$	1,054
Income taxes paid	1,321			417
See notes to condensed consolidated financial statements.

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The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 29, 2014

(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. “We,” “us,” “our,” “Davey,” “Davey Tree” and the “Company” means The Davey Tree Expert Company and its subsidiaries, unless 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”) and with the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. The consolidated financial statements include all adjustments which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. All such adjustments are of a normal, recurring nature. All significant intercompany accounts and transactions have been eliminated.

Certain information and disclosures required by U.S. GAAP for complete financial statements have been omitted in accordance with the rules and regulations of the SEC. We suggest that these condensed consolidated financial statements be read in conjunction with the financial statements included in our annual report on Form 10-K for the year ended December 31, 2013 (the “2013 Annual Report”).

Use of Estimates in Financial Statement Preparation--The preparation of financial statements in accordance with U.S. GAAP requires the use of estimates and assumptions that affect reported amounts. Our 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 and revenue recognition. Actual results could differ from those estimates.

Interim Results of Operations--Interim results may not be indicative of calendar year performance because of seasonal and short-term variations.


B.	Seasonality of Business

Due to the seasonality of our business, our operating results for the three months ended March 29, 2014 are not indicative of results that may be expected for any other interim period or for the year ending December 31, 2014. Business seasonality is the result of traditionally 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.

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The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 29, 2014

(Amounts in thousands, except share data)


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

The following comprise accounts receivable, net, and other:



Accounts receivable, net	March 29, 2014		December 31, 2013
Accounts receivable	$	84,538	$	93,156
Receivables under contractual arrangements	19,318		14,309
	103,856		107,465

Less allowances for doubtful accounts	2,382		2,209

Accounts receivable, net	$	101,474	$	105,256

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

The following comprise the amounts included in the balance sheet:



Accrued expenses	March 29, 2014		December 31, 2013
Employee compensation	$	9,091	$	18,578
Accrued compensated absences	6,882		6,953
Self-insured medical claims	2,713		2,503
Customer advances, deposits	409		2,191
Taxes, other than income	2,389		5,730
Other	779		903
Total	$	22,263	$	36,858


D.	Business Combinations

Our investment in businesses during the first three months of 2014 was $2,645, including liabilities assumed of $10 and debt issued of $457. The cash paid was preliminarily allocated, including the liabilities assumed, to the fair value of the primary assets acquired: fixed assets, intangibles and goodwill. The measurement period for purchase price allocations ends as soon as information of the facts and circumstances becomes available, but does not exceed twelve months. During the three months ended March 30, 2013, we had no business acquisitions.

The results of operations of acquired businesses have been included in the consolidated statements of operations beginning as of the effective dates of acquisition. The effect of these acquisitions on our consolidated revenues and results of operations was not significant.

Investment in Businesses Subsequent to March 29, 2014--Subsequent to March 29, 2014 and through the end of April 2014, we made an investment in a business approximating $6,500, including liabilities assumed of $1,700 and debt issued of $1,880.

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The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 29, 2014

(Amounts in thousands, except share data)


E.	Identified Intangible Assets and Goodwill, Net

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



	March 29, 2014				December 31, 2013
Identified Intangible Assets and Goodwill, Net	Carrying Amount		Accumulated Amortization		Carrying Amount		Accumulated Amortization
Amortized intangible assets:
Customer lists/relationships	$	14,887	$	11,669	$	14,429	$	11,398
Employment-related	5,828		5,511		5,631		5,474
Tradenames	4,911		3,884		4,525		3,754

Amortized intangible assets	$	25,626	$	21,064	$	24,585	$	20,626

Less accumulated amortization	21,064				20,626

Identified intangibles, net	4,562				3,959

Unamortized intangible assets:
Goodwill	24,612				23,602
	$	29,174			$	27,561


F.	Long-Term Debt

Our long-term debt consisted of the following:



	March 29, 2014		December 31, 2013
Revolving credit facility
Swing-line borrowings	$	5,700	$	—
LIBOR borrowings	40,000		20,000
	45,700		20,000
Senior unsecured notes	30,000		30,000
Term loans	5,905		8,468
	81,605		58,468
Less current portion	5,589		8,434
	$	76,016	$	50,034

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The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 29, 2014

(Amounts in thousands, except share data)


F.	Long-Term Debt (continued)

including a letter of credit sublimit of $100,000 and a swing-line commitment of $15,000 (the previous agreement permitted borrowings up to $140,000 with a letter of credit sublimit of $100,000). Under certain circumstances, the amount available under the revolving credit facility may be increased to $210,000. 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 and a maximum balance sheet leverage ratio.

As of March 29, 2014, we had unused commitments under the facility approximating $75,396, with $99,604 committed, consisting of borrowings of $45,700 and issued letters of credit of $53,904. Borrowings outstanding bear interest, at Davey Tree’s option, of either (a) a base rate or (b) LIBOR plus a margin adjustment ranging from .75% to 1.50%--with the margin adjustments in both instances based on the Company's leverage ratio at the time of borrowing. The base rate is the greater of (i) the agent bank’s prime rate, (ii) LIBOR plus 1.5%, or (iii) the federal funds rate plus .5%. A commitment fee ranging from .10% to .25% is also required based on the average daily unborrowed commitment.

We issued $30,000 of 5.09% Senior Unsecured Notes, Series A, during July 2010 that are due July 22, 2020 (the “5.09% Senior Notes”). The 5.09% Senior Notes were issued pursuant to a Master Note Purchase Agreement (the “Purchase Agreement”) between the Company and the purchasers of the 5.09% Senior Notes.

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


G.	Stock-Based Compensation

The Davey Tree Expert Company 2004 Omnibus Stock Plan (the “Stock Plan”) was approved by our shareholders at our annual shareholders' meeting in May 2004. The Stock Plan is administered by the Compensation Committee of the Board of Directors, with the maximum number of common shares that may be granted to or purchased by all employees and directors under the Stock Plan being 10,000,000. In addition to the maintenance of the Employee Stock Purchase Plan, the Stock Plan provides for the grant of stock options, restricted stock, stock appreciation rights, stock purchase rights, stock equivalent units, cash awards, and other stock or performance-based incentives. These awards are payable in cash or common shares, or any combination thereof, as established by the Compensation Committee.

Stock-based compensation expense under all share-based payment plans -- our Employee Stock Purchase Plan, stock option plans, stock-settled stock appreciation rights and performance-based restricted stock units -- included in the results of operations follows:



	Three Months Ended
	March 29, 2014		March 30, 2013
Compensation expense, all share-based payment plans	$	420	$	359

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The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 29, 2014

(Amounts in thousands, except share data)


G.	Stock-Based Compensation (continued)

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 $104 being recognized for the three months ended March 29, 2014 and $99 for the three months ended March 30, 2013.

Stock Option Plans--Stock options awarded before January 1, 2006 were granted at an exercise price equal to the fair market value of our common shares at the dates of grant. Stock options awarded on or after January 1, 2006 were required to be measured at fair value. At March 29, 2014, there were 641,365 stock options outstanding that were awarded after January 1, 2006. The stock options were awarded under a graded vesting schedule 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 $76 for the three months ended March 29, 2014 and $41 for the three months ended March 30, 2013.

Stock-Settled Stock Appreciation Rights--During the three months ended March 29, 2014, the Compensation Committee awarded 127,050 stock-settled stock appreciation rights (“SSARs”) to certain management employees and nonemployee directors, which vest ratably over five years. A SSAR is an award that allows the recipient to receive common stock equal to the appreciation in the fair market value of our common stock between the date the award was granted and the conversion date of the shares vested.

The following table summarizes our SSARs as of March 29, 2014.



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, 2014	283,453		$	3.15
Granted	127,050		4.88
Forfeited	—		—
Vested	(77,216	)	3.28
Unvested, March 29, 2014	333,287		$	3.78	2.7 years	$	1,155	$	8,799

Employee SSARs	303,554		$	3.92	2.7 years	$	1,105	$	8,014
Nonemployee Director SSARs	29,733		$	2.32	2.2 years	$	50	$	785

Compensation costs for stock appreciation rights are determined using a fair-value method and amortized over the requisite service period. Compensation expense for stock appreciation rights was $95 for the three months ended March 29, 2014 and $94 for the three months ended March 30, 2013.

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The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 29, 2014

(Amounts in thousands, except share data)


G.	Stock-Based Compensation (continued)

Performance-Based Restricted Stock Units--During the three months ended March 29, 2014, the Compensation Committee awarded 32,661 performance-based restricted stock units to certain directors and management employees. The Compensation Committee made similar awards in prior periods. The awards vest over specified periods. The following table summarizes performance-based restricted stock units as of March 29, 2014.



Performance-Based 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, 2014	95,558		$	19.03
Granted	32,661		24.51
Forfeited	—		—
Vested	(9,748	)	13.92

Unvested, March 29, 2014	118,471		$	20.96	3.4 years	$	1,754	$	3,128

The fair value of the restricted stock units for awards made prior to January 1, 2006 is based on the market price of our common shares on the date of award and is recognized as compensation cost on the straight-line recognition method over the vesting period. Compensation cost for awards made after December 31, 2005 is determined using a fair-value method and amortized over the requisite service period. Compensation expense on restricted stock awards totaled $145 for the three months ended March 29, 2014 and $125 for the three months ended March 30, 2013.

For stock-based awards issued on or after January 1, 2006, we estimated the fair value of each 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.

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



	Three Months Ended
	March 29, 2014		March 30, 2013
Volatility rate	11.2	%	11.3	%
Risk-free interest rate	2.7	%	1.6	%
Expected dividend yield	1.5	%	1.5	%
Expected life of awards (years)	9.0		8.9

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The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 29, 2014

(Amounts in thousands, except share data)


G.	Stock-Based Compensation (continued)

General Stock Option Information--The following table summarizes activity under the stock option plans for the three months ended March 29, 2014.



Stock Options	Number of Options Outstanding		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life	Aggregate Intrinsic Value
Outstanding, January 1, 2014	662,246		$	16.68
Granted	—		—
Exercised	(20,881	)	12.44
Forfeited	—		—
Outstanding, March 29, 2014	641,365		$	16.82	5.8 years	$	6,147

Exercisable, March 29, 2014	321,265		$	13.05	3.7 years	$	4,287

As of March 29, 2014, there was approximately $790 of unrecognized compensation cost related to stock options outstanding. The cost is expected to be recognized over a weighted-average period of 2.6 years. “Intrinsic value” is defined as the amount by which the market price of a common share exceeds the exercise price of an option.

Common shares are issued from treasury upon the exercise of stock options, stock appreciation rights, restricted stock units or purchases under the Employee Stock Purchase Plan.


H.	Net Periodic Benefit Cost--Defined Benefit Pension Plans

The results of operations included the following net periodic benefit cost recognized related to our defined-benefit pension plans.



	Three Months Ended
	March 29, 2014			March 30, 2013
Components of pension cost
Service costs--increase in benefit obligation earned	$	13		$	55
Interest cost on projected benefit obligation	404			379
Expected return on plan assets	(498		)	(440		)
Amortization of net actuarial loss	177			347
Amortization of prior service cost	3			3
Net pension cost of defined benefit pension plans	$	99		$	344

Employer Contributions--Contributions of $120 were made to our defined-benefit pension plans during the three months ended March 29, 2014. We expect, as of March 29, 2014, to make additional defined-benefit plan contributions totaling $1,310 before December 31, 2014.

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The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 29, 2014

(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 2014 annual effective tax rate is estimated to approximate 39%. Our annual effective tax rate for 2013 was 37.5%.

At December 31, 2013, we had unrecognized tax benefits of $1,221, of which $942 would affect our effective rate if recognized, and accrued interest expense related to unrecognized benefits of $41. At March 29, 2014, there were no significant changes in the unrecognized tax benefits, including the amount that would affect our effective rate if recognized, or the accrued interest expense related to the unrecognized benefits. 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.

The Company is routinely under audit by federal, state, local and Canadian authorities in the area of income tax. These audits include questioning the timing and the amount of income and deductions and the allocation of income and deductions among various tax jurisdictions. During the fourth quarter 2013, the U.S. Internal Revenue Service completed its audit of the Company's U.S. income tax returns for 2010 and 2011 and, during 2010, Canada Revenue Agency completed its audit of the Company's Canadian operations for 2006, 2007 and 2008. With the exception of U.S. state jurisdictions, the Company is no longer subject to examination by tax authorities for the years through 2009. As of March 29, 2014, we believe it is reasonably possible that the total amount of unrecognized tax benefits will not significantly increase or decrease.


J.	Accumulated Other Comprehensive Income (Loss)

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

The following summarizes the components of other comprehensive income (loss) accumulated in shareholders’ equity:



	Foreign Currency Translation Adjustments			Defined Benefit Pension Plans			Accumulated Other Comprehensive Income (Loss)
Balance at January 1, 2014	$	1,647		$	(6,040	)	$	(4,393	)
Other comprehensive income (loss) before reclassifications
Unrealized losses	(974		)	—			(974		)
Amounts reclassified from accumulated other comprehensive income (loss)	—			180			180
Tax effect	—			(68		)	(68		)
Net of tax amount	(974		)	112			(862		)
Balance at March 29, 2014	$	673		$	(5,928	)	$	(5,255	)

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The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 29, 2014

(Amounts in thousands, except share data)


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

The change in defined benefit pension plans of $112, net of tax, for the three months ended March 29, 2014 is included in net periodic pension expense and is classified in the condensed statement of operations as costs and expenses, general and administrative.


K.	Per Share Amounts and Common Shares Outstanding

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



	Three Months Ended
	March 29, 2014			March 30, 2013
Income available to common shareholders:
Net loss	$	(4,011	)	$	(4,612	)

Weighted-average shares:
Basic:
Outstanding	13,478			13,749
Partially-paid share subscriptions	128			136
Basic weighted-average shares	13,606			13,885

Diluted:
Basic from above	13,606			13,885
Incremental shares from assumed:
Exercise of stock subscription purchase rights	44			22
Exercise of stock options and awards	359			428
Diluted weighted-average shares	14,009			14,335

Net loss per share--basic and diluted	$	(.29	)	$	(.33	)

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Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 29, 2014

(Amounts in thousands, except share data)


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

Common Shares Outstanding--A summary of the activity of the common shares outstanding for the three months ended March 29, 2014 follows:



Shares outstanding at January 1, 2014	13,438,611
Shares purchased	(89,030	)
Shares sold	130,029
Stock subscription offering -- cash purchases	18,623
Options and awards exercised	33,676
	93,298
Shares outstanding at March 29, 2014	13,531,909

On March 29, 2014, we had 13,531,909 common shares outstanding, employee and director options exercisable to purchase 321,265 common shares, partially-paid subscriptions for 512,692 common shares and purchase rights outstanding for 203,807 common shares.

Stock Subscription Offering--Beginning May 2012, the Company offered to eligible employees and nonemployee directors the right to subscribe to common shares of the Company at $19.70 per share in accordance with the provisions of The Davey Tree Expert Company 2004 Omnibus Stock Plan and the rules of the Compensation Committee of the Company's Board of Directors (collectively, the "plan"). The offering period ended on August 1, 2012 and resulted in the subscription of 637,714 common shares for $12,563 at $19.70 per share.

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

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

All participants in the offering purchasing in excess of $5 of common shares were granted a "right" to purchase one additional common share at a price of $19.70 per share for every three common shares purchased under the plan. As a result of the stock subscription, employees were granted rights to purchase 211,800 common shares. Each right may be exercised at the rate of one-seventh per year and will expire seven years after the date that the right was granted. Employees may not exercise a right should they cease to be employed by the Company.


L.	Operations by Business Segment

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

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Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 29, 2014

(Amounts in thousands, except share data)


L.	Operations by Business Segment (continued)

Residential and Commercial Services--Residential and Commercial Services provides services to our residential and commercial customers including: the treatment, preservation, maintenance, removal, 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 Services--Utility Services 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, rights-of-way and chemical brush control; and, natural resource management and consulting, forestry research and development, and environmental planning.

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

Measurement of Segment Profit and Loss and Segment Assets--We evaluate performance and allocate resources based primarily on operating income and also actively manage business unit operating assets. Segment information, including reconciling adjustments, is presented consistent with the basis described in our 2013 Annual Report.

Segment information reconciled to consolidated external reporting information follows:



	Utility Services		Residential Commercial Services			All Other			Reconciling Adjustments				Consolidated
Three Months Ended March 29, 2014
Revenues	$	89,292	$	67,807		$	288		$	—			$	157,387
Income (loss) from operations	2,785		(4,237		)	(2,516		)	(757		)	(a)	(4,725		)
Interest expense									(719		)		(719		)
Interest income									69				69
Other income (expense), net									(805		)		(805		)
Loss before income taxes													$	(6,180	)
Segment assets, total	$	140,643	$	130,437		$	—		$	70,126		(b)	$	341,206

Three Months Ended March 30, 2013
Revenues	$	85,812	$	56,897		$	556		$	—			$	143,265
Income (loss) from operations	141		(4,023		)	(1,561		)	(566		)	(a)	(6,009		)
Interest expense									(623		)		(623		)
Interest income									83				83
Other income (expense), net									(703		)		(703		)
Loss before income taxes													$	(7,252	)
Segment assets, total	$	134,873	$	123,484		$	—		$	59,724		(b)	$	318,081

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


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


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

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Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 29, 2014

(Amounts in thousands, except share data)


M.	Fair Value Measurements and Financial Instruments

Fair value is the price that would be received to sell an asset or 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--A valuation hierarchy is used for presentation of the inputs to measure fair value. This hierarchy prioritizes the inputs into three broad levels. Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 inputs are unadjusted quoted prices for similar assets and liabilities in active markets, unadjusted quoted prices for identical or similar assets in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability. Level 3 inputs are unobservable inputs used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

Our assets and liabilities measured at fair value on a recurring basis at March 29, 2014, were as follows:



			Fair Value Measurements at March 29, 2014 Using:
Assets and Liabilities Recorded at Fair Value on a Recurring Basis	Total Carrying Value at March 29, 2014		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Assets invested for self-insurance, classified as other assets, noncurrent	$	12,323	$	12,323	$	—	$	—

Liabilities:
Deferred compensation	$	1,285	$	—	$	1,285	$	—

Our assets and liabilities measured at fair value on a recurring basis at December 31, 2013 were as follows:



			Fair Value Measurements at December 31, 2013 Using:
Assets and Liabilities Recorded at Fair Value on a Recurring Basis	Total Carrying Value at December 31, 2013		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Assets invested for self-insurance, classified as other assets, noncurrent	$	12,716	$	12,716	$	—	$	—

Liabilities:
Deferred compensation	$	1,144	$	—	$	1,144	$	—

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Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 29, 2014

(Amounts in thousands, except share data)


M.	Fair Value Measurements and Financial Instruments (continued)

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

Fair Value of Financial Instruments--Fair value information is required to be presented for all financial instruments, whether reported at fair value or historical carrying value.

The fair values of our current 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. The assets invested for self-insurance and derivative instruments are reported at fair value. Financial instruments classified as noncurrent liabilities and their carrying values and fair values were as follows:



	March 29, 2014				December 31, 2013
Financial Instruments Recorded at Historical Carrying Value	Carrying Value		Fair Value		Carrying Value		Fair Value
Revolving credit facility, noncurrent	$	45,700	$	45,700	$	20,000	$	20,000
Senior unsecured notes	30,000		29,018		30,000		28,219
Term loans, noncurrent	316		316		34		34
Total	$	76,016	$	75,034	$	50,034	$	48,253

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

Market Risk and Derivative Financial Instruments

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. We use derivative financial instruments from time-to-time to manage risks, in part, associated with changes in interest rates and changes in fuel prices.

Foreign Currency Exchange Rate Risk--We are exposed to market risk related to foreign currency exchange rate risk resulting from our operations in Canada, where we provide a comprehensive range of horticultural services. Our financial results could be affected by factors such as changes in the foreign currency exchange rate or differing economic conditions in the Canadian markets as compared with the markets for our services in the United States. Our earnings are affected by translation exposures from currency fluctuations in the value of the U.S. dollar as compared to the Canadian dollar. Similarly, the Canadian dollar-denominated assets and liabilities may result in financial exposure as to the timing of transactions and the net asset / liability position of our Canadian operations. Presently, we do not engage in hedging activities related to our foreign currency rate risk.

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Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 29, 2014

(Amounts in thousands, except share data)


M.	Fair Value Measurements and Financial Instruments (continued)

Interest Rate Risk--We are exposed to market risk related to changes in interest rates on long-term debt obligations. We regularly monitor and measure our interest rate risk and, to the extent that we believe we are exposed, from time-to-time we have entered into interest rate swap contracts--derivative financial instruments--with the objective of altering interest rate exposures related to a portion of variable debt.

Fuel Derivatives--From time-to-time we have entered into fuel derivatives as “economic hedges” related to fuel consumed by Davey Tree service vehicles. The objectives of the economic hedges are to fix the price of a portion of our fuel needs and mitigate the earnings and cash flow volatility attributable to the risk of changing prices.

The following table sets forth quantitative information related to our derivatives instruments and where amounts were recorded in our consolidated financial statements.



	Three Months Ended
	March 29, 2014		March 30, 2013
Economic Hedges - Derivatives Not Designated as Hedging Instruments
Fuel Derivatives:
Change in fair value, recognized in results of operations, as a reduction in operating costs and expenses	$	—	$	238

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Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 29, 2014

(Amounts in thousands, except share data)


N.	Contingencies

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

With respect to all such matters, we record an accrual for a loss contingency when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. In addition, narrative information is provided for matters as to which management believes a material loss is reasonably possible.

Management assesses all such matters, including the matter described below, based on current information and makes judgments concerning their potential outcome, giving due consideration to the nature of the claim, the amount and nature of damages sought and the probability of success. Management's judgment is made subject to the known uncertainty of litigation and management's judgment as to estimates made may prove materially different from actual results.

California Fire Litigation: San Diego County--Davey Tree Surgery Company, a Davey subsidiary, and Davey Resource Group, a Davey division, along with the Company have previously been sued, together with a utility services customer, San Diego Gas & Electric ("SDG&E"), and its parent company, as defendants, and as cross-defendants in cross-complaints filed by SDG&E, in the Superior Court of the State of California in and for the County of San Diego, arising out of a wildfire in San Diego County that started on October 22, 2007, referred to as the Rice Canyon fire.

Numerous lawsuits related to the Rice Canyon fire were filed against SDG&E, its parent company, Sempra Energy, and Davey. The earliest of the lawsuits naming Davey was filed on April 18, 2008. The Court ordered that the lawsuits be organized into four groups based on type of plaintiff, namely insurance subrogation claimants, individual/business claimants, governmental claimants, and plaintiffs seeking class certification. Plaintiffs' motions seeking class certification were denied and the orders denying class certification were affirmed on appeal. SDG&E filed cross-complaints against Davey for contractual indemnity, declaratory relief, and breach of contract.

During the third quarter 2012, Davey entered into a Settlement and Release Agreement (the “Agreement”) among Davey, SDG&E and Davey's insurers.

Under the Agreement (a) Davey paid SDG&E an amount previously expensed and accrued as self-insurance, (b) Davey's insurers paid SDG&E amounts under Davey's insurance policies in effect during the period of the Rice Canyon fire, and (c) SDG&E dismissed its cross-complaints against Davey and agreed to defend and hold harmless Davey from any and all claims that are currently asserted against Davey.

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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 arboriculture, horticultural, environmental and consulting services to residential, utility, commercial and government entities throughout the United States and Canada.

Our Business--Our operating results are reported in two segments: Residential and Commercial Services, and Utility Services. Residential and Commercial Services provides services to our residential and commercial customers including: the treatment, preservation, maintenance, removal, 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 Services 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, rights-of-way and chemical brush control; and, natural resource management and consulting, forestry research and development, and environmental planning.

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

RESULTS OF OPERATIONS

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



	Three Months Ended
	March 29, 2014		March 30, 2013		Percentage Change
Revenues	100.0	%	100.0	%	—	%

Costs and expenses:
Operating	69.4		70.5		(1.1	)
Selling	18.5		17.9		.6
General and administrative	8.8		9.3		(.5	)
Depreciation and amortization	6.3		6.6		(.3	)
Loss (gain) on sale of assets, net	—		(.1	)	.1

Loss from operations	(3.0	)	(4.2	)	1.2

Other income (expense):
Interest expense	(.5	)	(.4	)	(.1	)
Interest income	—		.1		(.1	)
Other, net	(.4	)	(.5	)	.1

Loss before income taxes	(3.9	)	(5.0	)	1.1

Income tax benefits	(1.4	)	(1.8	)	.4

Net loss	(2.5	)%	(3.2	)%	.7	%

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Index

First Quarter—Three Months Ended March 29, 2014 Compared to Three Months Ended March 30, 2013

Our results of operations for the three months ended March 29, 2014 compared to the three months ended March 30, 2013 follows:



	Three Months Ended
	March 29, 2014			March 30, 2013			Change			Percentage Change
Revenues	$	157,387		$	143,265		$	14,122		9.9	%

Costs and expenses:
Operating	109,231			101,060			8,171			8.1
Selling	29,059			25,575			3,484			13.6
General and administrative	13,899			13,255			644			4.9
Depreciation and amortization	9,900			9,486			414			4.4
Loss (gain) on sale of assets, net	23			(102		)	125			nm
	162,112			149,274			12,838			8.6

Loss from operations	(4,725		)	(6,009		)	1,284			(21.4	)
Other income (expense):
Interest expense	(719		)	(623		)	(96		)	15.4
Interest income	69			83			(14		)	(16.9	)
Other, net	(805		)	(703		)	(102		)	14.5
Loss before income taxes	(6,180		)	(7,252		)	1,072			(14.8	)

Income tax benefits	(2,169		)	(2,640		)	471			(17.8	)

Net loss	$	(4,011	)	$	(4,612	)	$	601		(13.0	)%

nm--not meaningful

Revenues--Revenues of $157,387 increased $14,122 compared with $143,265 in the first quarter 2013. Utility Services increased $3,480 or 4.1% compared with the first quarter 2013. Increased production within our U.S. and Canadian operations along with contract rate increases with one of our largest utility customers accounted for the increase. Residential and Commercial Services increased $10,910 or 19.2% from the first quarter 2013. Significant winter weather and snow fall in the northern parts of the U.S. generated additional snow plowing revenue during the first quarter 2014, and along with an increase in tree pruning and removals, account for the increase. Total revenues of $157,387 include production incentive revenue, recognized under the completed-performance method, of $2,647 during the first quarter 2014 compared with $2,450 during the first quarter 2013.

Operating Expenses--Operating expenses of $109,231 increased $8,171 compared with the first quarter 2013 and, as a percentage of revenues, decreased 1.1% to 69.4%. Utility Services decreased $389 or .6% compared with the first quarter 2013 and, as a percentage of revenues, decreased 3.5% to 75.3%. Decreases in material expense, subcontractor expense, tools and saw expense and equipment transfer expense were partially offset by increases in labor expense, fuel expense and repair and maintenance expense. Residential and Commercial Services increased $7,764 or 23.0% compared with the first quarter 2013 and, as a percentage of revenues, increased 1.8% to 61.1%. Increases in labor expense, equipment maintenance expense, material expense, tools and parts expense, fuel expense and subcontractor expense were partially offset by a reduction in crew expenses and disposal expense.

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Index

Fuel costs of $7,622 increased $343, or 4.7%, from the $7,279 incurred in the first quarter 2013 and impacted operating expenses within all segments. The $343 increase included price increases approximating $328 and usage increases approximating $15.

Selling Expenses--Selling expenses of $29,059 increased $3,484 compared with the first quarter 2013 and as a percentage of revenues increased .6% to 18.5%. Utility Services increased $626 or 7.3% over the first quarter 2013 and as a percentage of revenues increased .3% to 10.3%. Increases in field management wages and incentive expense, communication expense, professional service expense and computer expense were partially offset by a decrease in field management auto expense, office rent expense, travel and living expense and employee development expense. Residential and Commercial Services experienced an increase of $2,626 or 14.7% over the first quarter 2013. Increases in field management wages and incentive expense, office support wages, field management auto expense, office rent expense, sales and marketing expense and communication expense were partially offset by a decrease in travel and living expense.

General and Administrative Expenses--General and administrative expenses of $13,899 increased $644 from $13,255 in the first quarter 2013. Increases in salary and incentive expense, stock compensation expense, professional service expense, rent expense and office supplies were partially offset by decreases in pension expense, travel and living expense and employee development expense.

Depreciation and Amortization Expense--Depreciation and amortization expense of $9,900 increased $414 from $9,486 in the first quarter of 2013. The increase is attributable to higher capital expenditures related to increased business volume and purchases of businesses.

Loss (Gain) on the Sale of Assets, Net--Loss on the sale of assets was $23 for the first quarter 2014 as compared with a gain of $102 in the first quarter 2013. The decrease is the result of a reduction in the number of equipment units sold in the first quarter 2014 as compared with the first quarter 2013.

Interest Expense--Interest expense of $719 increased $96 from the $623 incurred in the first quarter 2013. The increase is attributable to higher average debt levels necessary to fund operations and capital expenditures as compared to the first quarter 2013.

Other, Net--Other, net, of $805 increased $102 from the $703 incurred in the first quarter 2013 and consisted of nonoperating income and expense, including fair value changes on fuel derivatives and foreign currency gains/losses on the intercompany account balances of our Canadian operations.

Income Taxes--Income tax benefits for the first quarter 2014 was $2,169, as compared to $2,640 for the first quarter 2013. 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 2014 annual effective tax rate is estimated to approximate 39%. Our annual effective tax rate for 2013 was 37.5%.

Net Loss--Net loss of $4,011 for the first quarter 2014 was $601 less than the $4,612 experienced in the first quarter 2013.

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Index

LIQUIDITY AND CAPITAL RESOURCES

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

Cash Flow Summary

Our cash flows from operating, investing and financing activities for the three months ended March 29, 2014 and March 30, 2013 follow:



	2014			2013
Cash provided by (used in):
Operating activities	$	(5,208	)	$	5,992
Investing activities	(20,211		)	(20,731		)
Financing activities	23,919			4,513
Decrease in cash	$	(1,500	)	$	(10,226	)

Cash (Used In) Provided by Operating Activities--Cash used by operating activities was $5,208 for the first three months of 2014, or $11,200 more than the $5,992 provided in the first three months of 2013. The $11,200 decrease in operating cash flow was primarily attributable to an increase of $414 in depreciation and amortization, $12,204 more cash used from operating assets and liabilities which was offset by a $601 decrease in net loss.

Overall, accounts receivable decreased $3,782 during the first three months of 2014, as compared to the decrease of $16,907 during the first three months of 2013. 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 months of 2014 decreased 4 days to 59 days, as compared to the end of the first three months of 2013. The DSO at March 30, 2013 was 63 days.

Operating liabilities decreased $11,872 in the first three months of 2014, or $1,202 less than the $13,074 decrease in the first three months of 2013. Accounts payable and accrued expenses decreased $14,806 during the first three months of 2014 as compared with a decrease of $14,739 for the first three months of 2013. Decreases in trade payables, employee compensation and 401KSOP liabilities were partially offset by increases in compensated-absence accruals, stock purchase withholdings, professional services accruals and advance payments from customers. Self-insurance accruals decreased $2,934 in the first three months of 2014, which was $1,269 less than the increase of $1,665 experienced in the first three months of 2013. The decrease occurred primarily in our workers’ compensation classifications and resulted primarily from an overall decrease in deductible amounts under commercial insurance and the self-insured risk retention.

The change in operating assets and liabilities other, net, increased $2,741 for the first three months of 2014 as compared with the increase of $2,460 for the first three months of 2013, with the $281 net change related primarily to an increase in operating supplies and tax deposits.

Cash Used In Investing Activities--Cash used in investing activities for the first three months of 2014 was $20,211, or $520 less than the $20,731 used during the first three months of 2013. Increases in equipment necessary to support business growth and the purchase of businesses was partially offset by a reduction in the purchase of land and buildings.

Cash Provided By Financing Activities--Cash provided by financing activities of $23,919 increased $19,406 during the first three months of 2014 as compared with $4,513 of cash provided during the first three months of 2013. During the first three months of 2014, our revolving credit facility provided $25,700 in cash as compared with the $5,200 provided during the first three months of 2013. We use the credit facility primarily for capital expenditures and payments of notes payable related to acquisitions. Payments on notes payable used $3,020 during the first three months of 2014, $260 more than the $2,760 used in the first three months of 2013. Treasury share transactions (purchases and sales) provided $1,872 for the first three months of 2013, or $850 less cash than the $2,722 provided in the first three months of 2013, and included $58 of cash received from our common share

- 24 -

Index

subscriptions. Dividends paid of $633 decreased $16, as compared with $649 paid in the first three months of 2013.

Revolving Credit Facility and 5.09% Senior Unsecured Notes--We have a $175,000 revolving credit facility with a group of banks, which will expire in November 2018 and permits borrowings, as defined, up to $175,000, including a letter of credit sublimit of $100,000 and a swing-line commitment of $15,000 (the previous agreement permitted borrowings up to $140,000 with a letter of credit sublimit of $100,000). Under certain circumstances, the amount available under the revolving credit facility may be increased to $210,000. 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 and a maximum balance sheet leverage ratio.

During July 2010 we issued $30,000 of 5.09% Senior Unsecured Notes, Series A, due July 22, 2020 (the “5.09% Senior Notes”). The 5.09% Senior Notes were issued pursuant to a Master Note Purchase Agreement (the “Purchase Agreement”) between us and the purchasers of the 5.09% Senior Notes.

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

Off-Balance Sheet Arrangements

There are no “off-balance sheet arrangements” as that term is defined in Securities and Exchange Commission Regulation S-K, Item 303(a)(4)(ii).

Contractual Obligations Summary

The following summarizes our long-term contractual obligations, as of March 29, 2014, to make future payments for the periods indicated.



			Nine Months Ending December 31, 2014
					Year Ending December 31,
Description	Total				2015		2016		2017		2018		Thereafter
Revolving credit facility	$	45,700	$	—	$	—	$	—	$	—	$	45,700	$	—
Senior unsecured notes	30,000		—		—		6,000		6,000		6,000		12,000
Term loans	5,905		5,589		175		141		—		—		—
Operating lease obligations	12,485		3,358		3,119		2,348		1,455		1,016		1,189
Self-insurance accruals	59,646		15,301		13,110		8,227		4,418		2,010		16,580
Purchase obligations	11,015		11,015		—		—		—		—		—
Other liabilities	12,404		2,522		794		795		862		864		6,567
	$	177,155	$	37,785	$	17,198	$	17,511	$	12,735	$	55,590	$	36,336

The self-insurance accruals in the summary above reflect the total of the undiscounted amount accrued, for which amounts estimated to be due each year may differ from actual payments required to fund claims. Purchase

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obligations in the summary above represent open purchase-order amounts we anticipate will become payable for goods and services we have negotiated for delivery as of March 29, 2014. Other liabilities include estimates of future expected funding requirements related to retirement plans and other sundry items. Because their future cash outflows are uncertain, accrued income tax liabilities for uncertain tax positions, as of March 29, 2014, have not been included in the summary above. Noncurrent deferred taxes and payments related to defined benefit pension plans are also not included in the summary.

As of March 29, 2014, we were contingently liable for letters of credit in the amount of $54,909, of which $53,904 is committed under the revolving credit facility. Substantially all of these letters of credit, which expire within a year, are planned for renewal as necessary.

Also, as is common in our industry, we have performance obligations that are supported by surety bonds, which expire during 2014 through 2017. We intend to renew the surety bonds where appropriate and as necessary.

Capital Resources

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

Business seasonality 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 expense, are not significantly impacted by business seasonality. Capital resources during these periods are equally affected. We satisfy seasonal working capital needs and other financing requirements with the revolving credit facility and other short-term lines of credit. We are continually reviewing our existing sources of financing and evaluating alternatives. At March 29, 2014, we had working capital of $61,824, short-term lines of credit approximating $11,074 and $75,396 available under our revolving credit facility.

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 foreseeable future.

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, 2013, we believe that our policies related to revenue recognition, the allowance for doubtful accounts 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 Services customers; allowance for doubtful accounts; 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.

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


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


•	The effects of the uneven economic recovery and the continuing financial and credit uncertainties may adversely impact our customers’ spending and pricing for our services, and impede our collection of accounts receivable.


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


•	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.


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


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

•

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.


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


•	We are subject to intense competition.


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


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


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


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


•	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.


•	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, terrorist attacks or other external events.


•	We are subject to claims and litigation that may have an adverse effect on us.


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

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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.

The factors described above, as well as other factors that may adversely impact our actual results, are discussed in "Part II - Item 1A. Risk Factors." of this quarterly report on Form 10-Q and in our annual report on Form 10-K for the year ended December 31, 2013 in “Part I - Item 1A. Risk Factors.”


Item 3.	Quantitative and Qualitative Disclosures about Market Risk.

During the three months ended March 29, 2014, there have been no material changes in the market risk previously presented in our annual report on Form 10-K for the year ended December 31, 2013.


Item 4.	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) of the Securities Exchange Act of 1934). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the design and operation of our disclosure controls and procedures were effective as of March 29, 2014 in ensuring that information required to be included in the reports that we file or submit under the Securities Exchange Act of 1934 (i) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

During the quarter ended March 29, 2014, there were no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

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The Davey Tree Expert Company


Part II.	Other Information

Items 3, 4 and 5 are not applicable.


Item 1.	Legal Proceedings.

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

During the third quarter 2012, Davey entered into a Settlement and Release Agreement (the “Agreement”) among Davey, SDG&E and Davey's insurers.


Item 1A.	Risk Factors.

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

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Our business is highly seasonal and weather dependent.

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

The effects of the uneven economic recovery and the continuing financial and credit uncertainties may adversely impact our customers’ future spending as well as pricing and payment for our services, thus negatively impacting our operations and growth.

While the economy has shown signs of improvement, sustainability of economic recovery remains uncertain. A slowing or stoppage in economic recovery may adversely impact the demand for our services and potentially result in depressed prices for our services and the delay or cancellation of projects. This makes it difficult to estimate our customers' requirements for our services and, therefore, adds uncertainty to customer demand. Increased uncertainty about the economy may cause a reduction in our customers' spending for our services and may also impact the ability of our customers to pay amounts owed, which could reduce our cash flow and adversely impact our debt or equity financing. These events could have a material adverse effect on our operations and our ability to grow at historical levels.

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

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

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

We derive approximately 48% of our total revenues from our Utility Services segment, including approximately 10% of our total revenues from Pacific Gas & Electric Company. Significant adverse developments in the utility industry generally, or specifically for our major utility customers, could result in pressure to reduce costs by utility industry service providers (such as us), delays in payments of our accounts receivable, or increases in uncollectible accounts receivable, among other things. As a result, such developments could have an adverse effect on our results of operations.

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Our quarterly results may fluctuate.

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


▪	the seasonality of our business;


▪	the timing and volume of customers' projects;


▪	budgetary spending patterns of customers;


▪	the commencement or termination of service agreements;


▪	costs incurred to support growth internally or through acquisitions;


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


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


▪	general and local economic conditions.

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

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

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

We are subject to the risk of increased fuel costs.

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

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

We are generally self-insured for losses and liabilities related to workers' compensation, vehicle liability and general liability claims (including any wild fire-suppression claims, up to certain retained coverage limits). A liability for unpaid claims and associated expenses, including incurred but not reported losses, is actuarially determined and reflected in our consolidated balance sheet as an accrued liability. The determination of such claims and expenses, and the extent of the need for accrued liabilities, are continually reviewed and updated. If we were to experience insurance claims or costs above our estimates and were unable to offset such increases with earnings, our business could be adversely affected. Also, where we self-insure, a deterioration in claims management, whether by our management or by a third-party claims administrator, could lead to delays in settling claims, thereby increasing claim costs, particularly as it relates to workers’ compensation. In addition, catastrophic uninsured claims filed against us or the inability of our insurance carriers to pay otherwise-insured claims would have an adverse effect on our financial condition.

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

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

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

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

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

We are subject to intense competition.

We believe that each aspect of our business is highly competitive. Principal methods of competition in our operating segments are customer service, marketing, image, performance and reputation. Pricing is not always a critical factor in a customer’s decision with respect to Residential and Commercial Services; however, pricing is generally the principal method of competition for our Utility Services, although in most instances consideration is given to reputation and past production performance. On a national level, our competition is primarily landscape construction and maintenance companies as well as residential and commercial lawn care companies. At a local and regional level, our competition comes mainly from small, local companies which are engaged primarily in tree care and lawn services. Our Utility Services group competes principally with one major national competitor, as well as several smaller regional firms. Furthermore, competitors may have lower costs because privately-owned companies operating in a limited geographic area may have significantly lower labor and overhead costs. Our competitors may develop the expertise, experience and resources to provide services that are superior in both price and quality to our services. These strong competitive pressures could inhibit our success in bidding for profitable business and may have a material adverse effect on our business, financial condition and results of operations.

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

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

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

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

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

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

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

We may be adversely affected if our reputation is damaged.

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

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

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

We may be unable to attract and retain skilled management.

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

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

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

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We are subject to claims and litigation.

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

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

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


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 months of 2014.



Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
Fiscal 2014
January 1 to January 25	1,318	$	23.90	n/a	n/a
January 26 to February 22	332	23.90		n/a	n/a
February 23 to March 29	87,380	26.40		n/a	n/a
Total First Quarter	89,030	26.35

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

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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.; Pike Electric Corporation; 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. The purchases described above are added to our treasury stock.


Item 6.	Exhibits.

See Exhibit Index page below.

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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

		By:	/s/ Joseph R. Paul
Date:	May 6, 2014		Joseph R. Paul
			Chief Financial Officer and Secretary
			(Principal Financial Officer)

Date:	May 6, 2014	By:	/s/ Nicholas R. Sucic
			Nicholas R. Sucic
			Vice President and Controller
			(Principal Accounting Officer)

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Exhibit Index



Exhibit No.	Description

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

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

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

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

101	The following materials from the Company's Quarterly Report on Form 10-Q for the quarter ended March 29, 2014, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statement of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements.	Filed Herewith

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Davey Tree Expert 10-Q2014 Q1 Quarterly report

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