UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2009

OR

  £  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)

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

None

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

Common Shares, $1.00 par value

Indicate by check mark if the registrant is a well-known seasoned issuer (as defined in Rule 405 of the Securities Act).  Yes £  No S

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.  Yes £  No S

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. S

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 £     Accelerated Filer S     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 Act).  Yes £  No S

There were 14,585,216 Common Shares outstanding as of March 5, 2010.  The aggregate market value of the Common Shares held by nonaffiliates of the registrant as of July 4, 2009 was $187,899,424.  For purposes of this calculation, it is assumed that the registrant's affiliates include the registrant's Board of Directors and its executive officers.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive Proxy Statement for the 2010 Annual Meeting of Shareholders, to be held on May 18, 2010, are incorporated by reference into Part III (to be filed within 120 calendar days of the registrant’s fiscal year end).

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NOTE REGARDING FORWARD-LOOKING STATEMENTS

This annual report on Form 10-K contains forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995) in "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations," "Item 7A - Quantitative and Qualitative Disclosures About Market Risk," and elsewhere. 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 current economic downturn and the financial and credit crisis may reduce our customers’ spending, adversely impact 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 current economic downturn 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 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.

§   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 may become 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.

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 annual report on Form 10-K to conform these statements to actual future results.

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THE DAVEY TREE EXPERT COMPANY FORM 10-K For the Year Ended December 31, 2009 TABLE OF CONTENTS
	Page
Note Regarding Forward-Looking Statements	2
PART I
Item 1.      Business	4
Item 1A.   Risk Factors	6
Item 1B.   Unresolved SEC Staff Comments	9
Item 2.      Properties	9
Item 3.      Legal Proceedings	10
Item 4.      Reserved
Executive Officers of the Company	10
PART II
Item 5.      Market for Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	12
Item 6.      Selected Financial Data for the Past Five Years	15
Item 7.     Management's Discussion and Analysis of Financial Condition and Results of Operations	16
Item 7A.  Quantitative and Qualitative Disclosures About Market Risk	28
Item 8.      Financial Statements and Supplementary Data	28
Item 9.     Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	28
Item 9A.  Controls and Procedures	28
Item 9B.   Other Information	30
PART III
Item 10.   Directors, Executive Officers and Corporate Governance	31
Item 11.   Executive Compensation	31
Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	31
Item 13.   Certain Relationships and Related Transactions, and Director Independence	31
Item 14.   Principal Accountant Fees and Services	31
PART IV
Item 15.   Exhibits and Financial Statement Schedules	31
Signatures	32
Exhibit Index	33

“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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PART I

Item 1.  Business.

General

The Davey Tree Expert Company, which was founded in 1880 and incorporated in 1909, and its subsidiaries ("we" or "us") have two primary operating segments that provide a variety of horticultural services to our customers throughout the United States and Canada.

Our Residential and Commercial Services segment provides for the treatment, preservation, maintenance, cultivation, planting and removal of trees, shrubs and other plant life. Its services also include landscaping, tree surgery, tree feeding, and tree spraying, as well as the application of fertilizers, herbicides and insecticides.

Our Utility Services segment is principally engaged in line clearing for public utilities, including the clearing of tree growth from power lines, clearance of rights-of-way and chemical brush control.

We also provide other services related to natural resource management and consulting, urban and utility forestry research and development and environmental planning.  We also maintain research, technical support and laboratory diagnostic facilities.

Competition and Customers

Our Residential and Commercial Services group is one of the largest national tree care organizations, and competes with other national and local firms with respect to its services.  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 is the second largest organization in the industry, and competes principally with one major national competitor, as well as several smaller regional firms.

Principal methods of competition in both operating segments are customer service, marketing, image, performance and reputation.  Our program to meet our competition stresses the necessity for our employees to have and project to customers a thorough knowledge of all horticultural services provided, and utilization of modern, well-maintained equipment.  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.

We provide a wide range of horticultural services to private companies, public utilities, local, state and federal agencies, and a variety of industrial, commercial and residential customers. During 2009, we had revenues of approximately $60.4 million, or approximately 11% of total revenues, to Pacific Gas & Electric Company (“PG&E”), one of our largest customers.

Regulation and Environment

Our facilities and operations, in common with those of the industry generally, are subject to governmental regulations designed to protect the environment.  This is particularly important with respect to our services regarding insect and disease control, because these services involve to a considerable degree the blending and application of spray materials, which require formal licensing in most areas. Constant changes in 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 the market for our services.  We believe that we comply in all material respects with existing federal, state and local laws regulating the use of materials in our spraying operations as well as the other aspects of our business that are subject to any such regulation.

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Marketing

We solicit business from residential customers principally through referrals, direct mail programs and to a lesser extent through the placement of advertisements in national magazines and trade journals, local newspapers and "yellow pages" telephone directories.  Business from utility and commercial customers is obtained principally through negotiated contracts and competitive bidding.  We carry out all of our sales and services through our employees.  We generally do not use agents, and do not franchise our name or business.

Seasonality

Our business is seasonal, primarily due to fluctuations in horticultural services provided to Residential and Commercial customers and to a lesser extent by budget constraints imposed on our Utility customers.  Because of this seasonality, we have historically incurred losses in the first quarter, while sales and earnings are generally highest in the second and third quarters of the calendar year.  Consequently, this has created heavy demands for additional working capital at various times throughout the year.  We borrow primarily against bank commitments in the form of a revolving credit facility to provide the necessary funds for our operations.  You can find more information about our bank commitments in “Liquidity and Capital Resources” under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on pages 16-28 of this report.

Other Factors

Due to rapid changes in equipment technology and intensity of use, we must constantly update our equipment and processes to ensure that we provide competitive services to our customers and continue our compliance with the Occupational Safety and Health Act.

We own several trademarks including "Davey," "Davey and design," "Arbor Green Pro," "Arbor Green," "Davey Tree and design," "Davey Expert Co. and design" and "Davey and design (Canada)."  Through substantial advertising and use, we believe that these trademarks have become of value in the identification and acceptance of our products and services.

Employees

We employed approximately 6,350 employees at December 31, 2009.  However, employment levels fluctuate due to seasonal factors affecting our business.  We consider our employee relations to be good.

Domestic and Foreign Operations

We sell our services to customers in the United States and Canada.

We do not consider the risks attendant to our business with foreign customers, other than currency exchange risks, to be materially different from those attendant to our business with domestic customers.

Financial Information About Segments and Geographic Areas

Certain financial information regarding our operations by segment and geographic area is contained in Note S to our consolidated financial statements, which are included in Part II, Item 8 of this report.

Access to Company Information

Davey Tree’s internet address is http://www.davey.com.  Through our internet website, by hyperlink to the SEC’s website (http://www.sec.gov), we make available, free of charge, our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports.  Availability of the reports occurs contemporaneously with the electronic posting to the SEC’s website as the reports are electronically filed with or furnished to the Securities and Exchange Commission.

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The following documents are also made available on our website and a copy will be mailed, without charge, upon request to our Corporate Secretary:

§   Code of Ethics

§   Code of Ethics for Financial Matters

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.

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 ongoing economic downturn and the recent financial and credit crisis may adversely impact our customers’ future spending as well as pricing and payment for our services, thus negatively impacting our operations and growth.

Based on a number of economic indicators, the economic activity has slowed substantially over the past two years. The rate at which the economy will recover and the length of time that the economy will remain slow continues to be uncertain. Slowing economic activity 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 the determination of our backlog. A reduction in cash flow and the lack of availability of debt or equity financing may result in a reduction in our customers’ spending for our services and may also impact the ability of our customers to pay amounts owed to us, which 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 52% of our total revenues from our Utility Services segment, including approximately 11% of our total revenues from PG&E.  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 the current economic downturn.

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 these 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 California fire-suppression claims).  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.

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.

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.

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We are subject to intense competition.

We believe that each aspect of our business is highly competitive.  Principal methods of competition in both 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. We cannot be certain that our competitors will not 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.

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 disease control, 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 believe that we comply in all material respects with existing federal, state and local laws, regulations and licensing requirements regulating the use of materials in our spraying operations as well as the other aspects of our business that are subject to any such regulation.  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.

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

Various 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 that changing climate conditions, if any, 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 periods, 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.

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We may be adversely affected if our reputation is damaged.

We are dependent 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.

We are subject to claims and litigation.

From time-to-time, customers, vendors or employees 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 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 1B.  Unresolved SEC Staff Comments.

There are no unresolved comments from the Staff of the Securities and Exchange Commission.

Item 2.  Properties.

Our corporate headquarters campus is located in Kent, Ohio which, along with several other properties in the surrounding area, includes the Davey Institute's research, technical support and laboratory diagnostic facilities.

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We conduct administrative functions through our headquarters and our offices in Livermore, California (Utility Services).  Our Canadian operations’ administrative functions are conducted through properties located in the provinces of Ontario and British Columbia.  We believe our properties are well maintained, in good condition and suitable for our present operations.  A summary of our properties follows:

Segment	Number of Properties	How Held	Square Footage	Number of States or Provinces
Residential and Commercial Services	28	Owned	189,652	15
Utility Services	3	Owned	36,037	3
Residential and Commercial, and Utility	2	Owned	12,400	2

We also rent approximately 120 properties in 30 states and three provinces.

None of our owned or rented properties used by our business segments is individually material to our operations.

Item 3.  Legal Proceedings.

We are a party to routine litigation incidental to our business. We do not believe that this litigation, individually or in the aggregate, will have a material effect on our business, financial condition or results of operations.

Item 4.  Reserved.

Pursuant to Instruction G of Form 10-K the following is included as an unnumbered item to PART I.

Executive Officers of the Company.

Our executive officers and their present positions and ages as of March 2, 2010 follow:

Name	Position	Age
Karl J. Warnke	Chairman, President and Chief Executive Officer	58
David E. Adante	Executive Vice President, Chief Financial Officer and Secretary	58
Howard D. Bowles	Senior Vice President and General Manager, Davey Tree Surgery Company	66
Marjorie L. Conner, Esquire	Assistant Secretary and Counsel	52
Patrick M. Covey	Executive Vice President - Operations	46
George M. Gaumer	Vice President and General Manager, Commercial Landscape Services	57
Fred W. Johnson	Vice President, Operations Support Services	65
Steven A. Marshall	Executive Vice President - Operations	58
Gordon L. Ober	Vice President - Personnel Recruiting and Development	60
Joseph R. Paul, CPA	Treasurer	48
Richard A. Ramsey	Vice President and General Manager, Canadian Operations	60
Nicholas R. Sucic, CPA	Vice President and Controller	63

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Mr. Warnke was elected Chairman, President and Chief Executive Officer, effective May 20, 2009, and continues to serve as President and Chief Executive Officer, having been appointed in January 2007.  He was President and Chief Operating Officer from 1999 through December 31, 2006. Prior to that time, he served as Executive Vice President and General Manager - Utility Services, having been appointed in January 1993.  Previously, having joined the Company in 1980, Mr. Warnke performed all aspects of tree services and also held various managerial positions, including Operations Manager, Operations Support Services, Equipment and Safety functions and Operations Vice President.

Mr. Adante was elected Executive Vice President, Chief Financial Officer and Secretary in May 1993.

Mr. Bowles was elected Senior Vice President and General Manager of Davey Tree Surgery Company in January 2000.  Prior to that time, he served as Vice President and General Manager of Davey Tree Surgery Company.

Ms. Conner was elected Assistant Secretary and Counsel in May 1998.  Prior to that time, she served as Manager of Legal and Treasury Services.

Mr. Covey was elected Executive Vice President - Operations, effective January 1, 2007, and served as Vice President and General Manager of the Davey Resource Group, having been appointed in March 2005. Prior to that time, Mr. Covey was Vice President, Southern Operations, Utility Services, having been appointed in January 2003. Previously, having joined the Company in August 1991, Mr. Covey held various managerial positions, including Manager of Systems and Process Management and Administrative Manager, Utility Services.

Mr. Gaumer was elected Vice President and General Manager of Commercial Landscape Services in March 2005.  Prior to that time, he served as Vice President of Commercial Grounds Management, having been appointed in 2001.

Mr. Johnson was elected Vice President, Operations Support Services, a corporate vice-president, in January 2003. From 1999 to January 2003, he served as Vice President of Operations Support Services.  Prior to joining us, Mr. Johnson served in various capacities, including director of operations and director of sales, at Lesco, Inc., a specialty provider of products for the professional turf care and green industry markets, from 1986 to 1999.  Prior to joining Lesco, Mr. Johnson held various management positions at TruGreen/Chemlawn, a provider of lawn care, tree and shrub services and a segment of The Servicemaster Company, from 1979 to 1986.

Mr. Marshall was elected Executive Vice President - Operations, effective January 1, 2007, and served as Vice President and General Manager of Eastern Utility Services, having been appointed in January 2003.  Prior to that time, he served as Vice President--Southern Operations, Utility Service, having been appointed in January 1997. Previously, having joined the Company in 1977, Mr. Marshall held various managerial positions, including Operations Manager, Regional Manager and District Manager.

Mr. Ober was elected Vice President - Personnel Recruiting and Development in February 2000.  Prior to that time, he served as Vice President - New Ventures.

Mr. Paul was elected Treasurer in December 2005 when he joined the Company.  He is a certified public accountant.  Prior to joining us, Mr. Paul served as corporate controller for AccessPoint Openings, LLC, a holding company of distribution and manufacturing companies in the building products industry, having been associated with that firm since 1998. Mr. Paul served in various capacities including director of business expansion and integration at Applied Industrial Technologies, an industrial distributor, from 1993 to 1998.  Prior to joining Applied Industrial Technologies, Mr. Paul was an audit manager with Deloitte & Touche, having been associated with that firm since 1986.

Mr. Ramsey was elected Vice President and General Manager - Canadian Operations in January 2000.  Prior to that time, he served as Vice President and General Manager - Commercial Services.

Mr. Sucic was elected Vice President and Controller, effective January 1, 2007, and served as Corporate Controller and Chief Accounting Officer since having joined the Company in November 2001.  He is a certified public accountant.  Prior to joining us, Mr. Sucic served as chief financial officer of Vesper Corporation, a manufacturer of products for industry, from 2000 to 2001; of Advanced Lighting Technologies, Inc., a designer, manufacturer and marketer of metal halide lighting products, from 1996 to 2000; and of various asset management units at The Prudential Investment Corporation, from 1989 to 1996.  Prior to joining Prudential, Mr. Sucic was a partner with Ernst & Young LLP, having been associated with that firm since 1970.

Page 11

Our officers serve from the date of their election to the next organizational meeting of the Board of Directors and until their respective successors are elected.

PART II

Item 5.  Market for Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

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 our 401KSOP, 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, 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 the Company 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.

Record Holders and Common Shares

On March 5, 2010 we had 3,023 record holders of our common shares.

On March 5, 2010 we had 14,585,216 common shares outstanding, options exercisable to purchase 1,005,551 common shares and partially-paid subscriptions for 197,990 common shares. The 2002 stock subscription purchase rights expired in August 2009.

The partially-paid subscriptions relate to common shares purchased at $6.00 per share, in connection with the stock subscription offering completed in August 2002, whereby some employees opted to finance their subscription with a down-payment of at least 10% of their total purchase price and a seven-year promissory note for the balance due, with interest at 4.75%. Promissory note payments, of both principal and interest, are made by annual lump-sum payment or payroll deduction, either monthly or biweekly. The promissory notes are expected to be paid-in-full during the first quarter 2010 for stock subscription financing payments made by biweekly payroll deduction.  All other promissory notes have been paid or, in a few instances, canceled.  The promissory notes outstanding are collateralized with the common shares subscribed and the common shares are only issued when the related promissory note is paid-in-full.  Dividends are paid on all unissued subscribed shares.

Stock subscription purchase rights were granted to employees (excluding directors, officers and certain operations management) to purchase one additional common share at the price of $6.00 per share for every two common shares purchased in connection with the stock subscription offering completed in August 2002.  Each right was exercisable at the rate of one-seventh per year and all stock subscription rights were either exercised or, if unexercised, expired in August 2009.

Dividends

The following table sets forth, for the periods indicated, the dividends declared per common share (in cents):

	Year Ended December 31,
Quarter	2009	2008
1	4.25	4.25
2	4.25	4.25
3	4.25	4.25
4	4.25	4.25
Total	17.00	17.00

We presently expect to pay comparable cash dividends in 2010.

Page 12

Recent Sale of Unregistered Securities

None.

Purchases of Equity Securities

The following table provides information on purchases made by the Company of our common shares during the fiscal year ended December 31, 2009.

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 2009
January 1 to January 31		-		-		n/a		n/a
February 1 to February 28		-		-		n/a		n/a
March 1 to April 4		130,468	$	16.40		n/a		n/a
Total First Quarter		130,468		16.40
April 5 to May 2		229,590		16.40		n/a		n/a
May 3 to May 30		160,972		16.40		n/a		n/a
May 31 to July 4		270,749		16.40		n/a		n/a
Total Second Quarter		661,311		16.40
July 5 to August 1		-		-		n/a		n/a
August 2 to August 29		66,282		16.00		n/a		n/a
August 30 to October 3		129,855		16.00		n/a		n/a
Total Third Quarter		196,137		16.00
October 4 to October 31		180,475		16.00		n/a		n/a
November 1 to December 5		141,520		16.00		n/a		n/a
December 6 to December 31		99,705		16.00		n/a		n/a
Total Fourth Quarter		421,700		16.00
Total Year to Date		1,409,616		16.22
n/a--Not applicable. There are no publicly announced plans or programs to purchase common shares.

Page 13

Stock Performance Graph

Comparison of five-year cumulative return among The Davey Tree Expert Company, S&P 500 Stock Index and Selected Peer Group Companies Index

The following Performance Graph compares cumulative total shareholder returns for The Davey Tree Expert Company common shares during the last five years to the Standard & Poor’s 500 Stock Index and to an index of selected peer group companies. The peer group, which is the same group used by the Company’s independent stock valuation firm, consists of: ABM Industries Incorporated; Comfort Systems USA, Inc.; Dycom Industries, Inc.; FirstService Corporation; Quanta Services, Inc.; Rollins, Inc.; and Scotts Miracle-Gro Company. Each of the three measures of cumulative total return assumes reinvestment of dividends.

Comparison of Five-Year Cumulative Total Return

The Davey Tree Expert Company

	2004	2005	2006	2007	2008	2009
Davey Tree	100	114	133	164	172	176
S&P 500 Index	100	105	121	128	81	102
Peer Group	100	116	138	154	116	133

The Performance Graph and related information above shall not be deemed “soliciting material” or be “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that we specifically incorporate it by reference into such filing.

Page 14

Item 6.  Selected Financial Data for the Past Five Years.

	Fiscal Year Ended December 31,
	2009			2008			2007			2006			2005
	(In thousands, except ratio and per share data)
Operating Statement Data:
Revenues	$	562,111		$	595,797		$	506,138		$	467,534		$	431,611
Costs and expenses:
Operating		360,623			382,143			324,415			305,106			283,596
Selling		89,266			95,327			82,449			74,513			69,944
General and administrative		47,077			45,607			38,476			34,126			29,815
Depreciation		36,280			34,374			28,085			26,991			24,147
Amortization of intangible assets		1,677			1,482			1,148			1,291			1,416
Gain on sale of assets, net		(623	)		(992	)		(515	)		(309	)		(521	)
Income from operations		27,811			37,856			32,080			25,816			23,214
Interest expense		(2,380	)		(3,417	)		(3,422	)		(2,768	)		(2,196	)
Interest income		25			220			404			176			260
Other expense		(1,880	)		(2,920	)		(542	)		(1,301	)		(825	)
Income before income taxes		23,576			31,739			28,520			21,923			20,453
Income taxes		9,199			12,718			10,441			7,906			7,142
Net income	$	14,377		$	19,021		$	18,079		$	14,017		$	13,311
Earnings per share--diluted	$	.92		$	1.14		$	1.07		$	.80		$	.75
Shares used for computing per share amounts--diluted		15,636			16,751			16,844			17,460			17,768
Other Financial Data:
Depreciation and amortization	$	37,957		$	35,856		$	29,233		$	28,282		$	25,563
Capital expenditures		21,838			37,033			37,587			32,435			31,985
Cash flow provided by (used in):
Operating activities		53,538			55,282			52,341			38,372			32,237
Investing activities		(21,457	)		(51,356	)		(38,801	)		(34,419	)		(31,682	)
Financing activities		(33,049	)		(2,382	)		(13,822	)		(5,297	)		1,646
Cash dividends declared per share	$	.1700		$	.1700		$	.1625		$	.1525		$	.1425

Page 15

	As of December 31,
	2009		2008		2007		2006		2005
	(In thousands, except ratio and per share data)
Balance Sheet Data:
Working capital	$	16,306	$	20,803	$	20,443	$	24,598	$	26,859
Current ratio		1.20		1.23		1.29		1.38		1.46
Property and equipment, net		128,802		141,013		108,239		96,522		90,768
Total assets		266,072		291,002		231,649		207,980		194,129
Long-term debt		45,843		60,187		32,099		31,951		29,065
Other long-term liabilities		41,494		45,523		33,728		29,283		28,108
Shareholders' equity		97,223		94,783		94,382		82,076		78,553
Common shares:
Issued		21,457		21,457		21,457		21,457		21,457
In treasury		6,885		6,939		6,926		6,436		6,456
Net outstanding		14,572		14,518		14,531		15,021		15,001
Stock options:
Outstanding		1,324		1,331		1,422		1,536		1,812
Exercisable		1,003		1,039		848		666		1,198
ESOT valuation per share	$	16.60	$	16.40	$	15.80	$	12.95	$	11.25

Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations.

(Amounts in thousands, except share data)

Management’s Discussion and Analysis of Results of Operations and Financial Condition (“MD&A”) is provided as a supplement to the accompanying consolidated financial statements and notes to help provide an understanding of our financial condition, cash flows and results of operations.  MD&A is organized as follows:

§   Overview of 2009 Results;

§   Results of Operations, including fiscal 2009 compared to fiscal 2008, fiscal 2008 compared to fiscal 2007, and Canadian dollar translation adjustments and rate-change effects, and other matters;

§   Liquidity and Capital Resources, including cash flow summary, off-balance sheet arrangements, and capital resources;

§   Recent Accounting Guidance;

§   Critical Accounting Policies and Estimates; and

§   Market Risk Information, including interest rate risk and foreign currency rate risk.

Page 16

OVERVIEW OF 2009 RESULTS

General

We provide a wide range of horticultural services to residential, commercial, utility and institutional customers throughout the United States and Canada.

Our Business--Our operating results are reported in two segments: Residential and Commercial Services, and Utility Services for operations in the United States and Canada. Residential and Commercial Services includes the treatment, preservation, maintenance, cultivation, planting and removal of trees, shrubs and other plant life; its services also include landscaping, tree surgery, tree feeding, and tree spraying, as well as the application of fertilizer, herbicides and insecticides. Utility Services includes line clearing for investor-owned and municipal utilities, including the clearing of tree growth from power lines, clearance of rights-of-way and chemical brush control.

Davey Resource Group, which provides services related to natural resource management and consulting, forestry research and development, and environmental planning and also maintains research, technical support and laboratory diagnostic facilities, is a nonreportable segment and, along with other operating activities, is 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.

	Year Ended December 31,									Percentage Change
	2009			2008			2007				2009/2008			2008/2007
Revenues		100.0	%		100.0	%		100.0	%		(5.7	%)		17.7	%
Costs and expenses:
Operating		64.1			64.1			64.1			(5.6	)		17.8
Selling		15.9			16.0			16.3			(6.4	)		15.6
General and administrative		8.4			7.7			7.6			3.2			18.5
Depreciation		6.5			5.8			5.6			5.5			22.4
Amortization of intangible assets		.3			.2			.2			13.2			29.1
Gain on sale of assets, net		(.1	)		(.2	)		(.1	)		(37.2	)		92.6
		95.1			93.6			93.7			(4.2	)		17.7
Income from operations		4.9			6.4			6.3			(26.5	)		18.0
Other income (expense):
Interest expense		(.4	)		(.6	)		(.7	)		(30.3	)		(.1	)
Interest income		-			-			-		nm			nm
Other		(.3	)		(.5	)		-		nm			nm
Income before income taxes		4.2			5.3			5.6			(25.7	)		11.3
Income taxes		1.6			2.1			2.0			32.1			32.1
Net income		2.6	%		3.2	%		3.6	%		(24.4	%)		5.2	%
nm--not meaningful

Revenues of $562,111 were 5.7% lower than last year’s revenues of $595,797. Utility Services revenues decreased 5.5% and Residential and Commercial Services decreased 7.2%.

Overall, income from operations of $27,811 decreased 26.5% from the $37,856 experienced in the prior year.  Income from operations was $17,992 in Utility Services (a 16.8% decrease over 2008) and $9,969 for Residential and Commercial Services (a 44.0% decrease over 2008).

Net income of $14,377 was $4,644, or 24.4%, lower than the $19,021 earned in 2008. The decrease in net income was due to lower revenues in 2009.

Page 17

Operating activities in 2009 provided cash of $53,538 as compared to $55,282 provided in 2008.  The $1,744 net decrease was primarily attributable to (i) a decrease in net income of $4,644, (ii) an increase of $2,101 in depreciation and amortization expense and, (iii) less cash of $438 provided by changes in other operating assets and liabilities.

Investing activities used $21,457 in cash, or $29,899 less than that used in 2008, the result of reductions in expenditures for equipment, land and buildings and purchases of businesses.

Financing activities used $33,049 in 2009, an increase of $30,667 compared with $2,382 used in 2008. We had payments on our revolving credit facility of $13,900 as compared to borrowings of $24,650 in 2008. Purchases of common shares for treasury of $22,872 were partially offset by net cash received of $8,524 from the sale of common shares and common shares subscriptions.  Dividends paid during 2008 totaled $2,548.

Fiscal 2009 Compared to Fiscal 2008

A comparison of our fiscal year 2009 results to 2008 follows:

	Year Ended December 31,
	2009			2008			Change			% Change
Revenues	$	562,111		$	595,797		$	(33,686	)		(5.7	%)
Costs and expenses:
Operating		360,623			382,143			(21,520	)		(5.6	)
Selling		89,266			95,327			(6,061	)		(6.4	)
General and administrative		47,077			45,607			1,470			3.2
Depreciation		36,280			34,374			1,906			5.5
Amortization of intangible assets		1,677			1,482			195			13.2
Gain on sale of assets, net		(623	)		(992	)		(369	)		(37.2	)
		534,300			557,941			(23,641	)		(4.2	)
Income from operations		27,811			37,856			(10,045	)		(26.5	)
Other income (expense):
Interest expense		(2,380	)		(3,417	)		1,037			(30.3	)
Interest income		25			220			(195	)		(88.6	)
Other		(1,880	)		(2,920	)		(1,040	)		(35.6	)
Income before income taxes		23,576			31,739			(8,163	)		(25.7	)
Income taxes		9,199			12,718			(3,519	)		(27.7	)
Net income	$	14,377		$	19,021		$	(4,644	)		(24.4	%)

Revenues--Revenues of $562,111 decreased $33,686 compared with the $595,797 reported in 2008. Utility Services decreased $16,939, or 5.5%, from the prior year. Additional revenues of $8,486 from a business acquired in March 2008 were offset by reduced revenue from existing contracts.  Revenues for 2008 also included incremental storm damage work of approximately $7,000 arising from hurricane damage in the southern United States.  Residential and Commercial Services decreased $18,045, or 7.2%, from 2008. Revenues of $19,360 from a new business acquired in June 2008 were offset by reductions in tree surgery and landscape services in all other residential and commercial operations due to lower customer demand, which has been affected by the current economic conditions.  Total consolidated revenue of $562,111 includes production incentive revenue, recognized under the completed-performance method, of $6,388 during 2009 as compared with $4,671 during 2008.

Page 18

Operating Expenses--Operating expenses of $360,623 decreased $21,520 from the prior year, and as a percentage of revenues remained stable at 64.1%.  Utility Services experienced a decrease of $11,699, or 5.1%, from 2008, but as a percentage of revenues increased .2% to 74.2%. Decreases in employee labor and benefits expense, fuel expense, subcontractor expense and material and tools expense associated with the decreased revenues were partially offset by an increase in equipment expense. Residential and Commercial Services decreased $10,956, or 8.4%, compared with 2008 and as a percentage of revenue decreased .6% to 51.9% and includes $9,720 of expenses related to the business acquired in the second quarter of 2008. The additional expenses associated with the acquired business were offset by reductions in all other residential and commercial operations.  Decreases in labor expense, material expense, fuel expense and subcontractor expense associated with the decrease in revenues was partially offset by an increase in equipment expense.

Fuel costs declined in 2009 as compared with fuel costs for 2008 and impacted operating expenses within all segments.  During 2009, fuel expense of $20,639 decreased $10,564, or 34%, from the $31,203 incurred in 2008.  Substantially all of the $10,564 decrease relates to a decrease in the price of fuel.

Selling Expenses--Selling expenses of $89,266 decreased $6,061 from 2008 and as a percentage of revenues decreased .1% to 15.9%.Utility Services decreased $3,718, or 13.5%, from 2008, primarily related to field management wages and incentives, travel expense, vehicle expense, communication expense and employee development expense and were partially offset by increases in branch office wages, office rent and utilities expense. Residential and Commercial Services decreased $3,283, or 5.0%, from the prior year 2008 and include $5,023 related to the business acquired in the second quarter of 2008. The increase in expense from the acquired business was offset by reductions in all other residential and commercial operations.  Decreases in field management wages and incentive expense, field management travel expense, auto expense, employee development expense and marketing expense was partially offset by increases in office rent, utilities and branch office wages.

General and Administrative Expenses-- General and administrative expenses increased $1,470 to $47,077, a 3.2% increase, from the $45,607 experienced in 2008 and as a percentage of revenues increased .7% to 8.4%. The increase is attributable to an increase in salary and incentive expense, professional services expense, communication expense and office rent and maintenance expense, partially offset by reductions in pension expense and relocation expense.  The general and administrative expenses for the business acquired in June 2008 were $4,007 in 2008 and $7,733 in 2009. Excluding the business acquired in June 2008, total general and administrative expenses for 2009 would have approximated $43,060 as compared with $45,607 in 2008.

Depreciation and Amortization Expense--Depreciation and amortization expense of $37,957 increased $2,101 from the prior year and as a percentage of revenues increased .8% to 6.8%.  The dollar increase is attributable to additional capital expenditures for equipment, buildings and the businesses that were purchased in 2008.

Gain on Sale of Assets--Gain on the sale of assets of $623 decreased $369 from the $992 experienced in 2008.The decrease is the result of fewer units being disposed of in addition to a change in the mix of equipment disposed of in 2009.  Gain on the sale of assets in 2008 included the sale of aerial trucks, while none were disposed of in 2009.

Interest Expense--Interest expense of $2,380 decreased $1,037, or 30.3%, from the $3,417 incurred in 2008.  The decrease is attributable to lower interest rates on bank borrowings and lower average debt levels as compared with the prior year.

Other, Net--Other, net of $1,880 decreased $1,040 from the $2,920 experienced in 2008.  Other, net, includes foreign currency gains of $176 for 2009 as compared with foreign currency losses of $1,029 for 2008 on the intercompany balances of our Canadian operations.

Income Taxes--Income tax expense for 2009 was $9,199.  The 2009 effective tax rate of 39.0% includes a 2.9% state income tax rate, net of federal benefit. The 2008 tax rate of 40.1% included a 3.9% state income tax rate, net of federal benefit.

Net Income--Net income of $14,377 was $4,644 lower than the $19,021 earned in 2008.  The 24.4% decrease in net income was primarily due to lower revenues in 2009.

Page 19

Fiscal 2008 Compared to Fiscal 2007

A comparison of our fiscal year 2008 results to 2007 follows:

	Year Ended December 31,
	2008			2007			Change			% Change
Revenues	$	595,797		$	506,138		$	89,659			17.7	%
Costs and expenses:
Operating		382,143			324,415			57,728			17.8
Selling		95,327			82,449			12,878			15.6
General and administrative		45,607			38,476			7,131			18.5
Depreciation		34,374			28,085			6,289			22.4
Amortization of intangible assets		1,482			1,148			334			29.1
Gain on sale of assets, net		(992	)		(515	)		(477	)		92.6
		557,941			474,058			83,883			17.7
Income from operations		37,856			32,080			5,776			18.0
Other income (expense):
Interest expense		(3,417	)		(3,422	)		5			(.1	)
Interest income		220			404			(184	)		(45.5	)
Other		(2,920	)		(542	)		(2,378	)	nm
Income before income taxes		31,739			28,520			3,219			11.3
Income taxes		12,718			10,441			2,277			21.8
Net income	$	19,021		$	18,079		$	942			5.2	%
nm--not meaningful

Revenues--Revenues of $595,797 increased $89,659 over the $506,138 reported in 2007. Utility Services increased $60,491, or 24.4%, from the prior year.New business from an acquisition, storm damage arising from hurricane damage incurred in the southern United States (primarily from hurricanes Gustav and Ike) as well as new contracts and increases in existing contracts accounted for the increase. Residential and Commercial Services increased $26,701, or 12.0%, from 2007.New business from acquisitions and expanded operations accounted for the increase. Total consolidated revenues of $595,797 include production incentive revenue, recognized under the completed-performance method of $4,872, as compared with $3,401 in 2007.

Operating Expenses--Operating expenses of $382,143 increased $57,728 from the prior year, and as a percentage of revenues remained stable at 64.1%.  Utility Services experienced an increase of $44,411, or 24.2%, from 2007, but as a percentage of revenues decreased .1% to 74.0%.  Increases in labor expense, subcontractor expense, equipment and crew travel expense associated with the storm damage work and increased revenues in all utility operations account for the increase.  Residential and Commercial Services increased $14,033, or 12.0%, compared with 2007 but as a percentage of revenue decreased .1% to 52.5%. The increase is attributable to additional labor, equipment, subcontractor, and material expense associated with the increased revenue.

The increase in fuel prices impacted operating expenses within all segments.  For 2008, fuel expense of $31,203 increased $8,244, or 35.9 %, more than the fuel expense of $22,959 for 2007.  Approximately $1,623 of the 2008 increase related to usage.

Selling Expenses--Selling expenses of $95,327 increased $12,878 from 2007 but as a percentage of revenues decreased .3% to 16.0%.Utility Services increased $4,420, or 19.1%, over 2007, primarily for field management wages and incentives, travel expenses, employee development and training expense and rent expense associated with the increased revenue. Residential and Commercial Services experienced an increase of $6,935, or 11.8%, over the prior year 2007, the result of increases in field management wages and incentives, field management auto expense and branch office wages.

Page 20

General and Administrative Expenses--General and administrative expenses increased $7,131 to $45,607, a 18.5% increase, from the $38,476 experienced in 2007 and as a percentage of revenues increased .1% to 7.7%. The increase of $7,131 includes general and administrative expenses of the acquired businesses of $4,880 as well as increases in salary expense, professional services and office supplies.  These increases were partially offset by reductions in incentive expense and stock-based compensation expense.

Depreciation and Amortization Expense--Depreciation and amortization expense of $35,856 increased $6,623 from the prior year and as a percentage of revenues increased .2% to 6.0%.The increase is attributable to additional capital expenditures for buildings, purchases of businesses and equipment necessary to support the increase in business levels.

Gain on Sale of Assets--Gain on the sale of assets of $992 increased $477 from the $515 experienced in 2007.The increase is due to an increase in the number of vehicles disposed of and the amount received for those vehicles as compared to the prior year.

Interest Expense--Interest expense of $3,417 decreased $5, or .1%, from the $3,422 incurred in 2007.  Increases in our bank borrowings were offset by significantly lower interest rates charged on those bank borrowings as compared with 2007.

Other, Net--Other, net of $2,920 increased $2,378 from the $542 experienced in 2007.  Other, net, includes foreign currency losses of $1,029 for 2008 as compared with foreign currency gains of $1,024 for 2007 on the intercompany balances of our Canadian operations.

Income Taxes--Income tax expense for 2008 was $12,718.  The 2008 effective tax rate of 40.1% includes a 3.9% state income tax rate, net of federal benefit. The 2007 tax rate of 36.6% included a 2.9% state income tax rate, net of federal benefit.

Net Income--Net income of $19,021 was $942 higher than the $18,079 earned in 2007.  The 5.2% increase in net income was primarily due to higher revenues in 2008 and better operating margins.

Canadian Dollar Translation Adjustments and Rate-Change Effects

Currency Translation Adjustments--All assets and liabilities of our Canadian operations are translated into United States dollars at balance-sheet date exchange rates while revenues and expenses are translated at weighted-average exchange rates in effect during the interim periods of operations reported.  Currency translation adjustments are a component of other comprehensive income or loss and are recorded as accumulated other comprehensive loss in shareholders’ equity.

Canadian Dollar Rate-Change Effects--During 2009, the United States dollar strengthened in relation to the Canadian dollar. As a result, the weighted-average exchange rate for the year ended December 31, 2009 compared unfavorably with the weighted-average Canadian-dollar exchange rates that existed for the year ended December 31, 2008.

It is not possible to precisely measure the impact on operating results from Canadian dollar exchange rate changes. However, if Canadian operating results for the year ended December 31, 2009 were translated at the exchange rates in effect during the comparable period of 2008, revenues would have been approximately $3,359 higher and income from operations would have been approximately $382 higher.

The effect of exchange rate changes on cash balances held in Canadian dollars was not significant.

Income Tax—Liabilities for Uncertain Tax Positions

The amount of income taxes we pay is subject to audit by U.S. federal, state and Canadian tax authorities, which may result in proposed assessments. Our estimate for the potential outcome for any uncertain tax issue is highly judgmental. Uncertain tax positions are recognized only if they are more-likely-than-not to be upheld during examination based on their technical merits.  The measurement of the uncertain tax position is based on the largest benefit amount that is more-likely-than-not (determined on a cumulative probability basis) to be realized upon settlement of the matter. If payment of these amounts ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period when we determine the liabilities are no longer necessary. If the estimate of tax liabilities proves to be less than the ultimate assessment, a further charge to expense may result.

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At December 31, 2009, income tax authorities in tax jurisdictions both in the United States and Canada were conducting routine audits of our income tax returns filed in prior years. As at December 31, 2009, we are unable to estimate the range of any reasonably possible increase or decrease in uncertain tax positions that may occur within the next twelve months resulting from the eventual outcome of the years currently under examination. However, we do not anticipate any such outcome will result in a material change to our financial condition or results of operations.

Goodwill—Impairment Tests

Annually, we perform the impairment tests for goodwill during the fourth quarter. Impairment of goodwill is tested at the reporting-unit level, which for us are also our business segments. Impairment of goodwill is tested by comparing the reporting unit’s carrying value, including goodwill, to the fair value of the reporting unit. The fair values of the reporting units are estimated using discounted projected cash flows. If the carrying value of the reporting unit exceeds its fair value, goodwill is considered impaired and a second step is performed to measure the amount of impairment loss, if any. We conducted our annual impairment tests and determined that no impairment loss was required to be recognized in 2009 or for any prior periods. There were no events or circumstances from the date of our assessment through December 31, 2009 that would impact this conclusion.

The fair values of the reporting units were estimated using discounted projected cash flows for the goodwill impairment tests and analysis that required judgmental assumptions about revenues, operating margins, growth rates, discount rates, and working capital requirements. In determining those judgmental assumptions, we consider data, including--for each reporting unit--its annual budget for the upcoming year, its longer-term performance expectations, anticipated future cash flows and market data. Assumptions were also made for perpetual growth rates for periods beyond the forecast period.

If the fair values of the reporting units were less than the carrying values of the reporting units (including recorded goodwill), determined through the discounted projected cash flow methodology, goodwill impairment may be present. In such an instance, we would measure the goodwill impairment loss, if any, based upon the fair value of the underlying assets and liabilities of the impacted reporting unit, including any unrecognized intangible assets, and estimate the implied fair value of goodwill. An impairment loss would be recognized to the extent that a reporting unit’s recorded goodwill exceeded the implied fair value of goodwill.

The carrying value of the recorded goodwill for all reporting units totaled $20,748 at December 31, 2009. Based upon the goodwill impairment analysis conducted in the fourth quarter 2009, a hypothetical reduction in the fair value of the individual reporting units, ranging from approximately 52% to 81%, would not have resulted in the carrying value of the individual reporting units exceeding the reduced fair value.

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, as reflected in the Consolidated Statements of Cash Flow for the years ended December 31, 2009 and December 31, 2008, are summarized as follows:

	2009			2008
Cash provided by (used in):
Operating activities	$	53,538		$	55,282
Investing activities		(21,457	)		(51,356	)
Financing activities		(33,049	)		(2,382	)
Increase(Decrease) in cash	$	(968	)	$	1,544

Net Cash Provided by Operating Activities--Operating activities in 2009 provided cash of $53,538 as compared to $55,282 provided in 2008.  The $1,415 net decrease was primarily attributable to (i) a decrease in net income of $4,644, (ii) an increase of $2,101 in depreciation and amortization expense, and (iii) less cash of $438 provided by changes in other operating assets and liabilities.

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Overall, accounts receivable dollars decreased $10,060 in 2009 as compared to the $1,327 increase experienced in 2008. With respect to the change in accounts receivable arising from business levels, the “days-sales-outstanding” in accounts receivable (“DSO”) at the end of 2009 increased 1 day to 51 days, as compared to 2008.  The DSO at December 31, 2008 was 50 days.

Accounts payable and accrued expenses decreased $6,753 in 2009, compared to an increase of $659 experienced in 2008.Decreases in trade payables, employee compensation expense, compensated-absence accruals, self-insured medical claims and advance payments from customers were partially offset by increases in 401KSOP accruals and employee savings accruals.

Self-insurance accruals decreased $3,326 in 2009, as compared to the increase of $3,296 experienced in 2008.  The decrease occurred in all classifications—workers’ compensation, general liability and vehicle liability--and resulted primarily from an overall decrease in deductible amounts under commercial insurance or the self-insured risk retention.

Other assets, net, decreased $1,930 in 2009, as compared to the $279 increase in 2008.  Decrease in operating supplies and pension assets were partially offset by an increase in prepaid expenses and deposits.

Net Cash Used in Investing Activities--Investing activities used $21,457 in cash, $29,899 less than the $51,356 used in 2008.  The decrease is a result of reductions in capital expenditures for equipment, land and buildings as well as the purchases of businesses.  The use of cash in 2008 includes the purchase of businesses totaling $15,718.

Net Cash Used in Financing Activities--Financing activities used $33,049, $30,667 more than the $2,382 used in 2008. We had payments under our revolving credit facility of $13,900 as compared with the $24,650 borrowed in 2008. We use the credit facility primarily for capital expenditures and payments of notes payable, primarily related to acquisitions. Payments of long-term debt and capital leases totaled $1,650. Purchases of common shares for treasury of $22,872 were partially offset by net cash received of $8,524 from the sale of common shares and common shares subscriptions.  Dividends paid during 2008 totaled $2,548.

Revolving Credit Facility--We have a $159,000 revolving credit facility with a group of banks, which will expire in December 2011 and permits borrowings, as defined, up to $159,000  with a letter of credit sublimit of $100,000. The revolving credit facility contains certain affirmative and negative covenants customary for this type of facility and includes financial covenant ratios, as defined, with respect to funded debt to EBITDA (earnings before interest, taxes, depreciation and amortization), and funded debt to capitalization. Included in the credit facility is a $4,750 term loan which requires quarterly principal installments of $250, plus interest, and was a $7,000 seven-year term loan when entered into in November 2007.

Contractual Obligations Summary

The following is a summary of our long-term contractual obligations, as at December 31, 2009, to make future payments for the periods indicated.

			Contractual Obligations Due -- Year Ending December 31,
Description	Total		2010		2011		2012		2013		2014		Thereafter
Revolving credit facility	$	42,550	$	1,000	$	38,800	$	1,000	$	1,000	$	750	$	-
Term loans		9,787		5,494		2,702		730		480		381		-
Capital lease obligations		196		196		-		-		-		-		-
Operating lease obligations		13,173		4,956		3,430		1,979		1,333		532		943
Self-insurance accruals		56,719		21,045		14,558		8,781		3,906		1,626		6,803
Purchase obligations		3,729		3,729		-		-		-		-		-
Other liabilities		8,846		3,120		505		555		392		278		3,996
	$	135,000	$	39,540	$	59,995	$	13,045	$	7,111	$	3,567	$	11,742

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The self-insurance accruals in the summary above reflect the total of the undiscounted amount accrued, for which amounts estimated to be due each year may differ from actual payments required to fund claims.  Purchase obligations in the summary above represent open purchase-order amounts we anticipate will become payable within the next year for goods and services we have negotiated for delivery as of December 31, 2009. 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 December 31, 2009, 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 at December 31, 2009, we were contingently liable to our principal banks for letters of credit in the amount of $62,282 of which $59,827 is committed under the revolving credit facility. Substantially all of these letters of credit, which expire within a year, are planned for renewal as appropriate.

Also, as is common with our industry, we have performance obligations that are supported by surety bonds, which expire during 2010 through 2014.  We intend to renew the performance bonds where appropriate and as necessary.

Off-Balance Sheet Arrangements

There are no “off-balance sheet arrangements” as that term is defined in Regulation S-K, Item 303(a)(4)(ii) under the Securities Exchange Act of 1934.

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 and interest expense, are not significantly impacted by business seasonality.  Capital resources during these periods are equally affected.  We satisfy seasonal working capital needs and other financing requirements with the revolving credit facility and several other short-term lines of credit.  We are continually reviewing our existing sources of financing and evaluating alternatives.  At December 31, 2009, we had working capital of $16,306, unused short-term lines of credit approximating $9,482, and $56,623 available under our revolving credit facility.

Our sources of capital presently allow us the financial flexibility to meet our capital spending plan and to complete business acquisitions.

RECENT ACCOUNTING GUIDANCE

New Accounting Standards Updates

FASB ASC Topic 105, Generally Accepted Accounting Principles--In June 2009, the Financial Accounting Standards Board (the “FASB”) issued its final Statement of Financial Accounting Standards No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162” (“FAS 168”). FAS 168 established the Accounting Standards Codification (the “Codification” or “FASB ASC”) as the single source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. SEC rules and interpretive releases are also sources of authoritative U.S. GAAP for SEC registrants. FAS 168 established two levels of U.S. GAAP – authoritative and nonauthoritative – and was incorporated into the Codification at FASB ASC Topic 105, “Generally Accepted Accounting Principles.”

The Codification supersedes all existing non-SEC accounting and reporting standards and was effective for us beginning July 5, 2009.  As the Codification was not intended to change or alter existing U.S. GAAP, it did not affect our financial position, results of operations or cash flows.

The Codification simplifies user access to all authoritative accounting guidance by reorganizing U.S. GAAP pronouncements into a single source arranged by topic within a consistent structure.Following FAS 168, the FASB will not issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts; instead, it will issue Accounting Standards Updates. The FASB will not consider Accounting Standards Updates as authoritative in their own right; these updates will serve only to update the Codification, provide background information about the guidance, and provide the bases for conclusions on the changes in the Codification.

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In the description of Accounting Standards Updates that follows, references relate to Codification Topics and their descriptive titles, as appropriate.

FASB ASC Topic 820, Fair Value Measurements--On January 1, 2009, we fully adopted, as required, FASB ASC Topic 820, “Fair Value Measurements, which had no effect on our financial position, results of operations or cash flows.

Accounting standards define fair value as 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.  Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. Preference is given to observable inputs. These two types of inputs create the following fair value hierarchy, which prioritizes the inputs into three broad levels.  Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.  Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.  Level 3 inputs are unobservable inputs based on our own assumptions 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.

FASB ASC Topic 815, Derivatives and Hedging Activities--In March 2008, the FASB issued new guidance, which is now a part of FASB ASC 815, “Derivatives and Hedging Activities,” requiring entities to provide enhanced reporting relating to: (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedge items are accounted for under FAS 133, “Accounting for Derivative Instruments and Hedging Activities” (“FAS 133”) and its related interpretations; and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. We adopted the new guidance effective January 1, 2009. The reporting requirements, applied prospectively, are included in Note H, “Financial Instruments and Fair Value Measurements.”

FASB ASC Topic 825, Financial Instruments--We adopted the revisions to U.S. GAAP included in FASB ASC Topic 825, “Financial Instruments,” effective July 4, 2009, which requires information about the fair value of financial instruments in interim reporting periods as well as annual financial statements. The required information is included in Note H, “Financial Instruments and Fair Value Measurements.”  The adoption of the revised guidance in FASB ASC Topic 825 did not affect our financial position, results of operations or cash flows.

FASB ASC Topic 805, Business Combinations--We adopted the revisions to FASB ASC Topic 805, “Business Combinations,” in the first quarter 2009. The revisions retain the previous underlying concepts in that all business combinations are still required to be accounted for at fair value under the acquisition method of accounting but the revisions changed the method of applying the acquisition method in a number of significant aspects. The adoption of the revised guidance in FASB Topic 805 did not have a material impact on our condensed consolidated financial statements.

FASB ASC Topic 350, Intangibles—Goodwill and Other--The revised guidance to FASB ASC Topic 350, “Intangibles—Goodwill and Other,” amended the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. The revised guidance was effective prospectively for intangibles acquired on or after January 1, 2009 and did not have a material effect on our financial position, results of operations or cash flows.

FASB ASC Topic 715, Compensation—Retirement Benefits--In December 2008, the FASB issued new guidance requiring enhanced information about the plan assets of a company’s defined benefit pension and other postretirement plans. The enhanced information required is intended to provide users of financial statements with a greater understanding of: (a) how investment allocation decisions are made, including the factors that are pertinent to an understanding of investment policies and strategies; (b) the major categories of plan assets; (c) the inputs and valuation techniques used to measure the fair value of plan assets; (d) the effect of fair value measurements using significant unobservable inputs (referred to as Level 3 inputs) on changes in plan assets for the period; and (e) significant concentrations of risk within plan assets. The new guidance, which is now part of FASB Topic ASC 715, was effective for us as of our year end December 31, 2009.

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New Accounting Standards Update Not Yet Effective

FASB Accounting Standards Update 2010-06, Improving Disclosures about Fair Value Measurements--In January 2010, the FASB issued Accounting Standards Update (“ASU”) 2010-06, “Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements,” which adds disclosure requirements about transfers in and out of Levels 1 and 2 and separate disclosures about activity relating to Level 3 measurements and clarifies input and valuation techniques. This ASU is effective for interim and annual periods beginning after December 15, 2009 (that is, the quarter ending April 3, 2010 for us), except for the Level 3 disclosures, which are effective for fiscal years beginning after December 15, 2010 (that is, the quarter ending April 2, 2011 for us) and for interim periods within those years. We are currently evaluating the impact of adopting the guidance as to any required disclosures.

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.

On an ongoing basis, we evaluate our estimates and assumptions, including those related to accounts receivable, specifically those receivables under contractual arrangements primarily arising from 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.

We believe the following 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.

Revenue Recognition--Revenues from Residential and Commercial Services are recognized as the services are provided and amounts are determined to be collectible. Revenues from contractual arrangements, primarily with Utility Services customers, are recognized based on costs incurred to total estimated contract costs. Changes in estimates and assumptions related to total estimated contract costs may have a material effect on the amounts reported as receivables arising from contractual arrangements and the corresponding amounts of revenues and profit.

Utility Services Customers--We generate a significant portion of revenues and corresponding accounts receivable from our Utility Services customers in the utility industry. One Utility Services customer, PG&E, approximated 11% of revenues during 2009, 11% during 2008 and 10% during 2007.  Adverse conditions in the utility industry or individual utility customer operations may affect the collectibility of our receivables or our ability to generate ongoing revenues.

Allowance for Doubtful Accounts--In determining the allowance for doubtful accounts, we evaluate the collectibility of our accounts receivable based on a combination of factors. In circumstances where we are aware of a specific customer’s inability to meet its financial obligations to us (e.g., bankruptcy filings), we record a specific allowance for doubtful accounts against amounts due to reduce the net recognized receivable to the amount we reasonably believe will be collected. For all other customers, we recognize allowances for doubtful accounts based on the length of time the receivables are past due. If circumstances change (e.g., unexpected material adverse changes in a major customer’s ability to meet its financial obligation to us or higher than expected customer defaults), our estimates of the recoverability of amounts could differ from the actual amounts recovered.

Self-Insurance Accruals--We are generally self-insured for losses and liabilities related primarily to workers’ compensation, vehicle liability and general liability claims. We use commercial insurance as a risk-reduction strategy to minimize catastrophic losses. We accrue ultimate losses based upon estimates of the aggregate liability for claims incurred using certain actuarial assumptions followed in the insurance industry and based on our specific experience.

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Our self-insurance accruals include claims for which the ultimate losses will develop over a period of years. Accordingly, our estimates of ultimate losses can change as claims mature. Our accruals also are affected by changes in the number of new claims incurred and claim severity. The methodology for estimating ultimate losses and the total cost of claims were determined by third-party consulting actuaries; the resulting accruals are continually reviewed by us, and any adjustments arising from changes in estimates are reflected in income.

Our self-insurance accruals are based on estimates and, while we believe that the amounts accrued are adequate, the ultimate claims may be in excess of or less than the amounts provided.

MARKET RISK INFORMATION

In the normal course of business, we are exposed to market risk related to changes in interest rates and changes in foreign currency exchange rates.  We do not hold or issue derivative financial instruments for trading or speculative purposes.

Interest Rate Risk

We are exposed to market risk related to changes in interest rates on long-term debt obligations. The interest rates on substantially all of our long-term debt outstanding are variable.  We have entered into interest rate contracts -- derivative financial instruments with the objective of altering interest rate exposures related to variable debt.

The following table provides information, as of December 31, 2009, about our debt obligations and interest rate contracts. For debt obligations, the table presents principal cash flows, weighted-average interest rates by expected maturity dates and fair values. For the interest rate contracts, the table presents the underlying face (notional) amount, weighted-average interest rate by contractual maturity dates and the fair value to settle the contract at December 31, 2009. Weighted-average interest rates used for variable-rate obligations are based on rates as derived from published spot rates, in effect as at December 31, 2009.

																				Fair Value
	Expected Maturity Date																			December 31,
	2010			2011			2012			2013			2014			Thereafter		Total		2009
Liabilities
Long-term debt:
Fixed rate	$	2,626		$	155		$	100		$	100		$	-		$	-	$	2,981	$	2,955
Average interest rate		1.8	%		2.7	%		.0	%		.0	%		-
Variable rate	$	5,354		$	41,348		$	1,630		$	1,380		$	1,130		$	-	$	50,842	$	50,842
Average interest rate		2.6	%		4.0	%		5.0	%		5.7	%		6.0	%		-
Interest rate derivative instruments
Interest rate contracts:
Pay fixed, notional amount	$	-		$	20,000		$	10,000		$	-		$	-		$	-	$	30,000	$	(1,355	)
Average pay rate					2.56	%		5.15	%
Average receive rate					.23	%		.24	%

Interest rates on the variable-rate debt, as of December 31, 2009, ranged from .9%to 3.3%.

The interest rate contracts each have an underlying face (notional) amount of $10,000, which is used to calculate the cash flow to be exchanged and does not represent the exposure to credit loss.If we were to have settled the contracts at December 31, 2009 (fair value), we would have paid $1,355.

Foreign Currency 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.

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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.

For the year ended December 31, 2009, the result of a hypothetical 10% uniform change in the value of the U.S. dollar as compared with the Canadian dollar would not have a material effect on our results of operations or our financial position.  Our sensitivity analysis of the effects of changes in foreign currency exchange rates does not factor in a potential change in sales levels or local currency prices.

Impact of Inflation

The impact of inflation on the results of operations has not been significant in recent years.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk.

The information set forth in “Market Risk Information” under Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” is incorporated herein by reference.

Item 8.  Financial Statements and Supplementary Data.

Our consolidated financial statements are attached hereto and listed on page F-1 of this annual report.

Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A.  Controls and Procedures.

(a) Management’s Discussion of Controls Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control framework and processes were designed to provide reasonable assurance to management and the Board of Directors that our financial reporting is reliable and that our consolidated financial statements for external purposes have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP").

Our management recognizes its responsibility for fostering a strong ethical climate so that our affairs are conducted according to the highest standards of personal and corporate conduct.

Our internal controls over financial reporting include policies and procedures that:

§   provide for the maintenance of records that, in reasonable detail, accurately and fairly reflect our business transactions;

§   provide reasonable assurance that transactions are recorded properly to allow for the preparation of financial statements in accordance with U.S. GAAP; and

§   provide reasonable assurance that the unauthorized acquisition, use, or disposition of our assets will be prevented, or at the minimum, detected in a timely manner.

We maintain a dynamic system of internal controls and processes--including internal controls over financial reporting--designed to ensure reliable financial recordkeeping, transparent financial reporting and protection of physical and intellectual property.

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No system of internal control over financial reporting can provide absolute guarantees, but only reasonable assurances of the prevention or detection of misstatements. Our processes, however, contain self-monitoring mechanisms, and actions will be taken to correct deficiencies as they are identified.

Our management assessed the effectiveness of our internal control over financial reporting and concluded that, as of December 31, 2009, such internal control is effective.  In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in “Internal Control--Integrated Framework.”  To comply with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, we designed and implemented a structured and comprehensive compliance process to evaluate our internal control over financial reporting across the enterprise.

In addition, we maintain a testing program that assesses the effectiveness of internal control over financial reporting, including testing of the five COSO elements, and recommend improvements.

Our independent auditor, Ernst & Young LLP, with direct access to our Board of Directors through our Audit Committee, has audited the consolidated financial statements prepared by us. Their report on the consolidated financial statements is included elsewhere herein.

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

As of the end of the period covered by this Form 10-K, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934).  Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the design and operation of our disclosure controls and procedures were effective as of the end of the period covered by this Form 10-K in ensuring that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended,  is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

(c) Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2009 based on the framework in “Internal Control--Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on that evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2009.

Our independent auditor, Ernst & Young LLP, an independent registered public accounting firm, has issued an audit report on our internal control over financial reporting, which is included in this report.

/s/ Karl J. Warnke	/s/ David E. Adante	/s/ Nicholas R. Sucic
Chairman, President and Chief Executive Officer	Executive Vice President, Chief Financial Officer and Secretary	Vice President and Controller

Kent, Ohio

March 11, 2010

(d) Changes in Internal Control Over Financial Reporting

There have been no significant changes in our internal control over financial reporting or in other factors that have materially affected or are reasonably likely to materially affect these internal controls over financial reporting subsequent to the date we carried out our evaluation.

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(e) Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of

The Davey Tree Expert Company

We have audited The Davey Tree Expert Company’s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). The Davey Tree Expert Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting.  Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, The Davey Tree Expert Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based onthe COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of The Davey Tree Expert Company as of December 31, 2009 and 2008, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2009 of The Davey Tree Expert Company and our report dated March 11, 2010 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Akron, Ohio

March 11, 2010

Item 9B.  Other Information.

None.

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PART III

Item 10.  Directors, Executive Officers and Corporate Governance.

Information about our executive officers is included in the section "Executive Officers of the Company,” pursuant to Instruction G of Form 10-K as an unnumbered item to Part I of this report.

Information about our directors is in the section "Election of Directors" of our 2010 Proxy Statement, which is incorporated into this report by reference.

Information about our audit committee and our audit committee financial experts is in the section “Committees of the Board of Directors; Shareholder Nominations; Attendance” of our 2010 Proxy Statement, which is incorporated into this report by reference.

Information required by Item 405 of Regulation S-K is in the section “Section 16(a) Beneficial Ownership Reporting Compliance” of our 2010 Proxy Statement, which is incorporated into this report by reference.

We have adopted a Code of Ethics for Financial Matters that applies to our principal executive officer, principal financial officer and principal accounting officer, or persons performing similar functions.  That Code is available on our website or upon request, as described in this report in Item 1. “Business - Access to Company Information.”  We intend to disclose, on our website, any amendments to, or waiver of, any provision of that Code that would otherwise be required to be disclosed under the rules of the Securities and Exchange Commission.

Item 11.  Executive Compensation.

Information about executive and director compensation is in the sections “Compensation Discussion and Analysis,” "Compensation of Executive Officers" and "Compensation of Directors" of our 2010 Proxy Statement, which are incorporated into this report by reference.

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Information about ownership of our common shares by certain persons is in the section "Ownership of Common Shares" of our 2010 Proxy Statement, which is incorporated into this report by reference.  Information about our securities authorized for issuance under equity compensation plans is in the section “Equity Compensation Plans Information” of our 2010 Proxy Statement, which is incorporated into this report by reference.

Item 13.  Certain Relationships and Related Transactions, and Director Independence.

Information about certain transactions between us and our affiliates and certain other persons and the independence of directors is in the section “Corporate Governance” of our 2010 Proxy Statement, which is incorporated into this report by reference.

Item 14.  Principal Accountant Fees and Services.

Information about our principal accountant’s fees and services is in the section “Independent Auditors” of our 2010 Proxy Statement, which is incorporated into this report by reference.

PART IV

Item 15.  Exhibits and Financial Statement Schedules.

(a) (1) and (a) (2) Financial Statements and Schedules.

The response to this portion of Item 15 is set forth on page F-1 of this report.

(b) Exhibits.

The exhibits to this Form 10-K are submitted as a separate section of this report. See Exhibit Index.

Page 31

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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 onMarch 11, 2010.

	THE DAVEY TREE EXPERT COMPANY
	By:     /s/ Karl J. Warnke
	Karl J. Warnke, Chairman, President and
	Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 11, 2010.
/s/ R. Douglas Cowan	/s/ John E. Warfel
R. Douglas Cowan, Director	John E. Warfel, Director
/s/ J. Dawson Cunningham	/s/ Karl J. Warnke
J. Dawson Cunningham, Director	Karl J. Warnke, Director,
	Chairman, President and Chief Executive Officer
	(Principal Executive Officer)
/s/ William J. Ginn
William J. Ginn, Director
	/s/ David E. Adante
	David E. Adante, Executive Vice President,
	Chief Financial Officer and Secretary
/s/ Douglas K. Hall	(Principal Financial Officer)
Douglas K. Hall, Director
	/s/ Nicholas R. Sucic
/s/ Sandra W. Harbrecht	Nicholas R. Sucic, Vice President and Controller
Sandra W. Harbrecht, Director	(Principal Accounting Officer)

Page 32

EXHIBIT INDEX
Exhibit No.	Description
3.1	2003 Amended Articles of Incorporation (Incorporated by reference to Exhibit 3.3 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 27, 2003).
3.2	1987 Amended and Restated Regulations of The Davey Tree Expert Company (Incorporated by reference to Exhibit 3.2 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2006).
10.1	Amended and Restated Credit Agreement among the Company, as borrower, Various Lending Institutions, as banks, KeyBank National Association, as lead arranger, syndication agent and administrative agent, and National City Bank, as documentation agent, dated as of November 21, 2006 (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated November 22, 2006).
10.2	Acknowledgment of Commitment Increase dated as of May 15, 2008, made to the Amended and Restated Credit Agreement among the Company, as borrower, Various Lending Institutions, as banks, and KeyBank National Association, as administrative agent for the banks, dated as of November 21, 2006 (Incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 28, 2008).
10.3	1994 Omnibus Stock Plan (Incorporated by reference to Exhibit 10.1 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2004).
10.4	2004 Omnibus Stock Plan (Incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 3, 2004).
10.5	2004 401KSOP Match Restoration Plan (Incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 3, 2004).
10.6	Supplemental Executive Retirement Plan (Incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 3, 2004).
10.7	Retirement Benefit Restoration Plan (Incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 3, 2004).
10.8	The Davey Tree Expert Company Board of Directors Revised Deferred Compensation Plan (Incorporated by reference to Exhibit 10.9 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2004).
10.9	Agreement, dated as of December 8, 2006, between the Company and R. Douglas Cowan (Incorporated by reference to Exhibit 10.8 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2006).
10.10	Letter Agreement, dated November 27, 2009, between the Company and Robert A. Stefanko.	Filed Herewith
21	Subsidiaries of the Registrant.	Filed Herewith
23	Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.	Filed Herewith
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	Filed Herewith
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	Filed Herewith
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.	Furnished Herewith
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.	Furnished Herewith

The documents listed as Exhibits 10.3 through 10.9 constitute management contracts or compensatory plans or arrangements.

The Registrant is a party to certain instruments, copies of which will be furnished to the Securities and Exchange Commission upon request, defining the rights of holders of long-term debt.

Page 33

ANNUAL REPORT ON FORM 10-K

ITEM 8, ITEM 15(a)(1) and (2)

LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CERTAIN EXHIBITS

FINANCIAL STATEMENTS SCHEDULES

YEAR ENDED DECEMBER 31, 2009

THE DAVEY TREE EXPERT COMPANY

KENT, OHIO

LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
FORM 10-K - ITEM 15(a)(1) AND (2)
THE DAVEY TREE EXPERT COMPANY
The following consolidated financial statements of The Davey Tree Expert Company are included in Item 8:
Audited Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets -- December 31, 2009 and 2008	F-3
Consolidated Statements of Operations -- Years ended December 31, 2009, 2008 and 2007	F-4
Statements of Consolidated Shareholders' Equity -- Years ended December 31, 2009, 2008 and 2007	F-5
Consolidated Statements of Cash Flows -- Years ended December 31, 2009, 2008 and 2007	F-6
Notes to Consolidated Financial Statements -- December 31, 2009
A – Our Business	F-7
B – Accounting Policies	F-7
C – Recent Accounting Guidance	F-10
D – Business Combinations	F-12
E – Accounts Receivable, Net	F-12
F – Supplemental Balance Sheet, Operating and Cash Flow Information	F-13
G – Identified Intangible Assets and Goodwill, Net	F-14
H – Financial Instruments and Fair Value Measurements	F-15
I – Short-Term and Long-Term Debt	F-18
J – Self-Insurance Accruals	F-19
K – Lease Obligations	F-20
L – Common Shares and Preferred Shares	F-20
M – The Davey 401KSOP and Employee Stock Ownership Plan	F-21
N – Stock-Based Compensation	F-22
O – Defined Benefit Pension Plans	F-26
P – Income Taxes	F-31
Q – Comprehensive Income (Loss)	F-33
R – Earnings Per Share	F-34
S – Operations by Business Segment and Geographic Information	F-34
T – Commitments and Contingencies	F-36
U – Quarterly Results of Operations (Unaudited)	F-37
Financial Statement Schedules:
None
All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted.

F-1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of

The Davey Tree Expert Company

We have audited the accompanying consolidated balance sheets of The Davey Tree Expert Company as of December 31, 2009 and 2008, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2009.  These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Davey Tree Expert Company at December 31, 2009 and 2008, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), The Davey Tree Expert Company’s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 11, 2010 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Akron, Ohio

March 11, 2010

F-2

THE DAVEY TREE EXPERT COMPANY

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share dollar amounts)

	December 31,
	2009			2008
Assets
Current assets:
Cash	$	2,395		$	3,363
Accounts receivable, net		71,691			81,751
Operating supplies		4,968			5,520
Prepaid expenses		5,563			5,391
Other current assets		13,201			15,287
Total current assets		97,818			111,312
Property and equipment:
Land and land improvements		12,916			12,687
Buildings and leasehold improvements		24,784			24,337
Equipment		357,970			348,552
		395,670			385,576
Less accumulated depreciation		266,868			244,563
		128,802			141,013
Other assets		13,429			12,026
Identified intangible assets and goodwill, net		26,023			26,651
	$	266,072		$	291,002
Liabilities and shareholders' equity
Current liabilities:
Short-term debt	$	7,981		$	8,584
Accounts payable		26,166			29,869
Accrued expenses		26,124			29,171
Self-insurance accruals		21,045			22,069
Current portion of capital lease obligations		196			816
Total current liabilities		81,512			90,509
Long-term debt		45,843			60,187
Capital lease obligations		-			165
Self-insurance accruals		32,648			34,950
Other liabilities		8,846			10,408
		168,849			196,219
Common shareholders' equity:
Common shares, $1.00 par value, per share; 24,000 shares authorized; 21,457 shares issued and outstanding as of
December 31, 2009 and 2008		21,457			21,457
Additional paid-in capital		328			4,848
Common shares subscribed, unissued		1,204			5,850
Retained earnings		165,293			153,464
Accumulated other comprehensive income (loss)		(4,949	)		(9,633	)
		183,333			175,986
Less: Cost of Common shares held in treasury:  6,885 in 2009 and 6,939 in 2008		86,084			80,356
Common shares subscription receivable		26			847
		97,223			94,783
	$	266,072		$	291,002
See notes to consolidated financial statements.

F-3

THE DAVEY TREE EXPERT COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share dollar amounts)

	Year Ended December 31,
	2009			2008			2007
Revenues	$	562,111		$	595,797		$	506,138
Costs and expenses:
Operating		360,623			382,143			324,415
Selling		89,266			95,327			82,449
General and administrative		47,077			45,607			38,476
Depreciation		36,280			34,374			28,085
Amortization of intangible assets		1,677			1,482			1,148
Gain on sale of assets, net		(623	)		(992	)		(515	)
		534,300			557,941			474,058
Income from operations		27,811			37,856			32,080
Other income (expense):
Interest expense		(2,380	)		(3,417	)		(3,422	)
Interest income		25			220			404
Other		(1,880	)		(2,920	)		(542	)
Income before income taxes		23,576			31,739			28,520
Income taxes		9,199			12,718			10,441
Net income	$	14,377		$	19,021		$	18,079
Share data:
Earnings per share--basic	$	.97		$	1.21		$	1.13
Earnings per share--diluted	$	.92		$	1.14		$	1.07
Weighted-average shares outstanding:
Basic		14,866			15,784			15,992
Diluted		15,636			16,751			16,844
Dividends declared per share	$	.1700		$	.1700		$	.1625
See notes to consolidated financial statements.

F-4

THE DAVEY TREE EXPERT COMPANY
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
(In thousands, except per share data)
	2009						2008						2007
	Shares			Amount			Shares			Amount			Shares			Amount
Common shares
At beginning and end of year		21,457		$	21,457			21,457		$	21,457			21,457		$	10,728
Additional paid-in capital
At beginning of year					4,848						7,953						5,453
Shares sold to employees					155						3,071						1,563
Shares issued in connection with stock split					-						(10,729	)					-
Shares issued in connection with acquisition					-						5,254						-
Options exercised					(312	)					(397	)					(185	)
Subscription shares, issued					(4,638	)					(1,275	)					(396	)
Stock-based compensation					275						971						1,518
At end of year					328						4,848						7,953
Common shares subscribed, unissued
At beginning of year		975			5,850			1,262			7,571			1,394			8,369
Common shares, issued		(774	)		(4,646	)		(287	)		(1,721	)		(122	)		(740	)
Cancellations		-			-			-			-			(10	)		(58	)
At end of year		201			1,204			975			5,850			1,262			7,571
Retained earnings
At beginning of year					153,464						137,132						121,624
Net income					14,377						19,021						18,079
Dividends, $ .1625 per share					-						-						(2,571	)
Dividends, $ .1700 per share					-						(2,689	)					-
Dividends, $ .1700 per share					(2,548	)					-						-
At end of year					165,293						153,464						137,132
Accumulated other comprehensive
income (loss), net of tax
At beginning of year					(9,633	)					400						(3,025	)
Currency translation adjustments					2,886						(3,806	)					2,320
Net gain (loss) on interest rate contracts					217						(715	)					(354	)
Defined benefit pension plans					1,581						(5,512	)					1,459
At end of year					(4,949	)					(9,633	)					400
Common shares held in treasury
At beginning of year		6,939			(80,356	)		6,926			(67,310	)		6,436			(57,654	)
Shares purchased		1,410			(22,872	)		1,921			(28,081	)		1,176			(16,974	)
Shares sold to employees		(558	)		5,488			(606	)		2,087			(478	)		5,413
Shares issued in connection with acquisition		-			-			(930	)		9,438			-			-
Options exercised		(132	)		2,323			(85	)		514			(84	)		769
Subscription shares, issued		(774	)		9,333			(287	)		2,996			(124	)		1,136
At end of year		6,885			(86,084	)		6,939			(80,356	)		6,926			(67,310	)
Common shares subscription receivable
At beginning of year		(975	)		(847	)		(1,262	)		(2,092	)		(1,394	)		(3,419	)
Payments		774			821			287			1,245			122			1,275
Cancellations		-			-			-			-			10			52
At end of year		(201	)		(26	)		(975	)		(847	)		(1,262	)		(2,092	)
Common Shareholders' Equity at December 31		14,572		$	97,223			14,518		$	94,783			14,531		$	94,382
Comprehensive Income
Net income				$	14,377					$	19,021					$	18,079
Net other comprehensive income (loss)					4,684						(10,033	)					3,425
Total comprehensive income				$	19,061					$	8,988					$	21,504
See notes to consolidated financial statements.

F-5

THE DAVEY TREE EXPERT COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Year Ended December 31,
	2009			2008			2007
Operating activities
Net income	$	14,377		$	19,021		$	18,079
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		36,280			34,374			28,085
Amortization		1,677			1,482			1,148
Gain on sale of assets		(623	)		(992	)		(515	)
Deferred income taxes		(1,141	)		294			(2,100	)
Other		1,057			(1,246	)		48
Changes in operating assets and liabilities:
Accounts receivable		10,060			(1,327	)		(1,582	)
Accounts payable and accrued expenses		(6,753	)		659			5,411
Self-insurance accruals		(3,326	)		3,296			6,039
Other assets, net		1,930			(279	)		(2,272	)
		39,161			36,261			34,262
Net cash provided by operating activities		53,538			55,282			52,341
Investing activities
Capital expenditures:
Equipment		(21,431	)		(36,171	)		(32,670	)
Land and buildings		(407	)		(862	)		(4,917	)
Proceeds from sales of property and equipment		1,089			1,395			1,261
Purchases of businesses		(708	)		(15,718	)		(2,475	)
Net cash used in investing activities		(21,457	)		(51,356	)		(38,801	)
Financing activities
Revolving credit facility proceeds (payments), net		(13,900	)		24,650			300
Borrowings (payments) of notes payable		(603	)		2,348			49
Payments of long-term debt and capital leases		(1,650	)		(5,129	)		(3,455	)
Purchase of common shares for treasury		(22,872	)		(28,081	)		(16,974	)
Sale of common shares from treasury		7,703			5,274			7,554
Cash received on common share subscriptions		821			1,245			1,275
Dividends		(2,548	)		(2,689	)		(2,571	)
Net cash used in financing activities		(33,049	)		(2,382	)		(13,822	)
Increase (Decrease) in cash		(968	)		1,544			(282	)
Cash, beginning of year		3,363			1,819			2,101
Cash, end of year	$	2,395		$	3,363		$	1,819
See notes to consolidated financial statements.

F-6

The Davey Tree Expert Company

Notes to Consolidated Financial Statements

December 31, 2009

(In thousands, except share data)

A. Our Business

We provide a wide range of horticultural services to residential, commercial, utility and institutional customers throughout the United States and Canada.

Residential and Commercial Services provides for the treatment, preservation, maintenance, cultivation, planting and removal of trees, shrubs and other plant life; its services also include the practice of landscaping, tree surgery, tree feeding, and tree spraying, as well as the application of fertilizer, herbicides and insecticides.

Utility Services is principally engaged in the practice of line clearing for public utilities, including the clearing of tree growth from power lines, clearance of rights-of-way and chemical brush control.

Resource Group provides services related to natural resource management and consulting, forestry research and development, and environmental planning and also maintains research, technical support and laboratory diagnostic facilities.

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

B.  Accounting Policies

Principles of Consolidation and Basis of Presentation--The consolidated financial statements include the accounts of Davey Tree and our wholly-owned subsidiaries and were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). All significant intercompany accounts and transactions have been eliminated.

Use of Estimates in Financial Statement Preparation--The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts. Estimates are used for, but not limited to, accounts receivable valuation, depreciable lives of fixed assets, self-insurance accruals, and revenue recognition. Actual results could differ from those estimates.

Property and Equipment--Property and equipment are stated at cost. Repair and maintenance costs are expensed as incurred. Depreciation is computed for financial reporting purposes by the straight-line method for land improvements, building and leasehold improvements and by the declining method for equipment, based on the estimated useful lives of the assets, as follows:

Land improvements	5 to 20 years
Buildings	5 to 20 years
Equipment	3 to 10 years
Leasehold improvements	Shorter of lease term or estimated useful life; ranging from 5 to 20 years

The amortization of assets acquired under capital leases is included in depreciation expense.

Long-Lived Assets--We assess potential impairment to our long-lived assets, other than goodwill, when there is evidence that events or changes in circumstances have made recovery of the asset’s carrying value unlikely and the carrying amount of the asset exceeds the estimated future undiscounted cash flow. In the event the assessment indicates that the carrying amounts may not be recoverable, an impairment loss would be recognized to reduce the asset’s carrying amount to its estimated fair value based on the present value of the estimated future cash flows.

F-7

The Davey Tree Expert Company

Notes to Consolidated Financial Statements--(Continued)

December 31, 2009

(In thousands, except share data)

B.  Accounting Policies (continued)

Intangible Assets--Intangible assets with finite lives, primarily customer lists, noncompete agreements and tradenames, are amortized by the straight-line method based on their estimated useful lives, ranging from one to ten years.

Goodwill--Goodwill is recorded when the cost of acquired businesses exceeds the fair value of the identified net assets acquired. Goodwill is not amortized, but tested for impairment annually or when events or circumstances indicate that impairment may have occurred. Annually, we perform the impairment tests for goodwill during the fourth quarter. Impairment of goodwill is tested at the reporting-unit level, which for us are also our business segments. Impairment of goodwill is tested by comparing the reporting unit’s carrying value, including goodwill, to the fair value of the reporting unit. The fair values of the reporting units are estimated using discounted projected cash flows. If the carrying value of the reporting unit exceeds its fair value, goodwill is considered impaired and a second step is performed to measure the amount of impairment loss, if any. We conducted our annual impairment tests and determined that no impairment loss was required to be recognized in 2009 or for any prior periods. There were no events or circumstances from the date of our assessment through December 31, 2009 that would impact this conclusion.

Self-Insurance Accruals--We are generally self-insured for losses and liabilities related primarily to workers’ compensation, vehicle liability and general liability claims. We use commercial insurance as a risk-reduction strategy to minimize catastrophic losses. Ultimate losses are accrued based upon estimates of the aggregate liability for claims incurred using certain actuarial assumptions followed in the insurance industry and based on Company-specific experience.

The self-insurance accruals include claims for which the ultimate losses will develop over a period of years. Accordingly, the estimates of ultimate losses can change as claims mature. The accruals also are affected by changes in the number of new claims incurred and claim severity. The methods for estimating the ultimate losses and the total cost of claims were determined by external consulting actuaries; the resulting accruals are reviewed by management, and any adjustments arising from changes in estimates are reflected in income. The self-insurance accruals are based on estimates, and while management believes that the amounts accrued are adequate and not excessive, the ultimate claims may be in excess of or less than the amounts provided.

Stock-Based Compensation--Stock-based compensation cost for all share-based payment plans is measured at fair value on the date of grant and recognized over the employee service period on the straight-line recognition method for awards expected to vest. The fair value of all stock-based payment plans— stock option plans, stock-settled stock appreciation rights, and performance-based restricted stock units as well as our Employee Stock Purchase Plan—is determined by the number of awards granted and the price of our common stock. The fair value of each award is estimated 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 share 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.

Defined Benefit Pension Plans--We record annual expenses relating to our defined benefit pension plans based on calculations that include various actuarial assumptions, including discount rates and expected long-term rates of return on plan assets. Actuarial assumptions are reviewed annually with modifications made to the assumptions, if necessary, based on current rates and trends. The effects of the actuarial gains or losses are amortized over future service periods. The funded status (that is, the projected benefit obligation less the fair value of plan assets) for each plan is reported in our balance sheet using a December 31 measurement date. Changes in the funded status of the plans are recognized in the year in which the changes occur and reported in comprehensive income (loss).

F-8

The Davey Tree Expert Company

Notes to Consolidated Financial Statements--(Continued)

December 31, 2009

(In thousands, except share data)

B.  Accounting Policies (continued)

Income Taxes--We compute taxes on income in accordance with the tax rules and regulations where the income is earned. The income tax rates imposed by these taxing authorities vary. Taxable income may differ from pretax income for financial reporting purposes. To the extent differences are due to revenue and expense items reported in one period for tax purposes and in another period for financial reporting purposes, provision for deferred taxes is made. Changes in tax rates and laws are reflected in income in the period when such changes are enacted.  We account for uncertain tax positions by recognizing the financial statement effects of a tax position only when, based upon the technical merits, it is more-likely-than-not that the position will be sustained upon examination.

Earnings Per Share--Basic earnings per share is determined by dividing the income available to common shareholders by the weighted-average number of common shares outstanding. Diluted earnings per share is computed similar to basic earnings per share except that the weighted-average number of shares is increased to include the effect of stock awards that were granted and outstanding during the period and the assumed exercise of stock subscription rights.

Revenue Recognition--Revenues from residential and commercial services are recognized as the services are provided and amounts are determined to be collectible.  Revenues from contractual arrangements, primarily with utility services customers, are recognized based on costs incurred to total estimated contract costs.  During the performance of such contracts, estimated final contract prices and costs are periodically reviewed and revisions are made, as required, to the revenue recognized. On cost-plus-fee contracts, revenue is recognized to the extent of costs incurred plus a proportionate amount of fees earned, and on time-and-material contracts, revenue is recognized to the extent of billable rates times hours worked, plus material and other reimbursable costs incurred. Revisions arise in the normal course of providing services to utility services customers and generally relate to changes in contract specifications and cost allowability. Such revisions are recorded when realization is probable and can be reliably estimated.

Concentration of Credit Risk--Credit risk represents the accounting loss that would be recognized if the counterparties failed to perform as contracted. The principal financial instruments subject to credit risk follow:

Cash and Interest Rate Contracts: To limit our exposure, we transact our business and maintain interest rate contracts with high credit-quality financial institutions.

Accounts Receivable: Our residential and commercial customers are located geographically throughout the United States and Canada and, as to commercial customers, within differing industries; thus, minimizing credit risk.  The credit exposure of utility services customers is directly affected by conditions within the utility industries as well as the financial condition of individual customers. One utility services customer approximated 11% of revenues during 2009, 11% during 2008 and 10% during 2007.  To reduce credit risk, we evaluate the credit of customers, but generally do not require advance payments or collateral.  Exposure to losses on receivables is principally dependent on each customer’s financial condition.

Currency Translation Adjustments--All assets and liabilities of our Canadian operations are translated into United States dollars at year-end exchange rates while revenues and expenses are translated at weighted-average exchange rates in effect during the year.  Translation adjustments are recorded as accumulated other comprehensive income (loss) in shareholders’ equity.

Interest Rate Risk Management--We have entered into interest rate contracts with the objective of altering interest rate exposures related to variable rate debt. In the interest rate contracts, we have agreed with a financial institution to exchange, at specified intervals, the difference between fixed and floating interest amounts calculated on an agreed-upon notional principal amount.

F-9

The Davey Tree Expert Company

Notes to Consolidated Financial Statements--(Continued)

December 31, 2009

(In thousands, except share data)

B.  Accounting Policies (continued)

Comprehensive Income (Loss)--Comprehensive income (loss) includes net income and other comprehensive income or loss. Other comprehensive income (loss) refers to revenues, expenses, gains and losses that under U.S. GAAP are included in comprehensive income but are excluded from net income as these amounts are recorded directly as an adjustment to shareholders’ equity, net of tax.

C.  Recent Accounting Guidance

New Accounting Standards Updates

The FASB Accounting Standards Codification--In June 2009, the Financial Accounting Standards Board (the “FASB”) issued its final Statement of Financial Accounting Standards No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162” (“FAS 168”). FAS 168 established the Accounting Standards Codification (the “Codification” or “FASB ASC”) as the single source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. SEC rules and interpretive releases are also sources of authoritative U.S. GAAP for SEC registrants. FAS 168 established two levels of U.S. GAAP – authoritative and nonauthoritative – and was incorporated into the Codification at FASB ASC Topic 105, “Generally Accepted Accounting Principles.”

The Codification supersedes all existing non-SEC accounting and reporting standards and was effective for us beginning July 5, 2009.  As the Codification was not intended to change or alter existing U.S. GAAP, it did not affect our financial position, results of operations or cash flows.

The Codification simplifies user access to all authoritative accounting guidance by reorganizing U.S. GAAP pronouncements into a single source arranged by topic within a consistent structure.Following FAS 168, the FASB will not issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts; instead, it will issue Accounting Standards Updates. The FASB will not consider Accounting Standards Updates as authoritative in their own right; these updates will serve only to update the Codification, provide background information about the guidance, and provide the bases for conclusions on the changes in the Codification.

In the description of Accounting Standards Updates that follows, references relate to Codification Topics and their descriptive titles, as appropriate.

FASB ASC Topic 820, Fair Value Measurements--On January 1, 2009, we fully adopted, as required, FASB ASC Topic 820, “Fair Value Measurements”, which had no effect on our financial position, results of operations or cash flows.

Accounting standards define fair value as 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.  Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. Preference is given to observable inputs. These two types of inputs create the following fair value hierarchy, which prioritizes the inputs into three broad levels.  Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.  Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.  Level 3 inputs are unobservable inputs based on our own assumptions 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.

F-10

The Davey Tree Expert Company

Notes to Consolidated Financial Statements--(Continued)

December 31, 2009

(In thousands, except share data)

C.  Recent Accounting Guidance (continued)

FASB ASC Topic 815, Derivatives and Hedging Activities--In March 2008, the FASB issued new guidance, which is now a part of FASB ASC Topic 815, “Derivatives and Hedging Activities,” requiring entities to provide enhanced reporting relating to: (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedge items are accounted for; and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. We adopted the new guidance effective January 1, 2009. The reporting requirements are included in Note H, “Financial Instruments and Fair Value Measurements.”

FASB ASC Topic 825, Financial Instruments--We adopted the revisions to U.S. GAAP included in FASB ASC Topic 825, “Financial Instruments,” effective July 4, 2009, which requires information about the fair value of financial instruments in interim reporting periods as well as annual financial statements. The required information is included in Note H, “Financial Instruments and Fair Value Measurements.”  The adoption of the revised guidance in FASB ASC Topic 825 did not affect our financial position, results of operations or cash flows.

FASB ASC Topic 805, Business Combinations--We adopted the revisions to FASB ASC Topic 805, “Business Combinations,” in the first quarter 2009. The revisions retain the previous underlying concepts in that all business combinations are still required to be accounted for at fair value under the acquisition method of accounting but the revisions changed the method of applying the acquisition method in a number of significant aspects. The adoption of the revised guidance in FASB Topic 805 did not have a material impact on our condensed consolidated financial statements.

FASB ASC Topic 350, Intangibles—Goodwill and Other--The revised guidance to FASB ASC Topic 350, “Intangibles—Goodwill and Other,” amended the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. The revised guidance was effective prospectively for intangibles acquired on or after January 1, 2009 and did not have a material effect on our financial position, results of operations or cash flows.

FASB ASC Topic 715, Compensation—Retirement Benefits--In December 2008, the FASB issued new guidance requiring enhanced information about the plan assets of a company’s defined benefit pension and other postretirement plans. The enhanced information required is intended to provide users of financial statements with a greater understanding of: (a) how investment allocation decisions are made, including the factors that are pertinent to an understanding of investment policies and strategies; (b) the major categories of plan assets; (c) the inputs and valuation techniques used to measure the fair value of plan assets; (d) the effect of fair value measurements using significant unobservable inputs (referred to as Level 3 inputs) on changes in plan assets for the period; and (e) significant concentrations of risk within plan assets. The reporting requirements, now part of FASB ASC Topic 715, are included in Note O, “Defined Benefit Pension Plans.”

New Accounting Standards Update Not Yet Effective

FASB Accounting Standards Update 2010-06, Improving Disclosures about Fair Value Measurements--In January 2010, the FASB issued Accounting Standards Update (“ASU”) 2010-06, “Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements,” which adds disclosure requirements about transfers in and out of Levels 1 and 2 and separate disclosures about activity relating to Level 3 measurements and clarifies input and valuation techniques. This ASU is effective for interim and annual periods beginning after December 15, 2009 (that is, the quarter ending April 3, 2010 for us), except for the Level 3 disclosures, which are effective for fiscal years beginning after December 15, 2010 (that is, the quarter ending April 2, 2011 for us) and for interim periods within those years. We are currently evaluating the impact of adopting the guidance as to any required disclosures.

F-11

The Davey Tree Expert Company

Notes to Consolidated Financial Statements--(Continued)

December 31, 2009

(In thousands, except share data)

D.  Business Combinations

Our investments in businesses were: (a) $1,500 in 2009, including liabilities assumed of $42 and debt issued of $750; (b) $60,182 in 2008, including liabilities assumed of $23,478 and debt issued of $6,239; and (c) $4,612 in 2007, including liabilities assumed of $330 and debt issued of $1,807.

The net assets of the businesses acquired are accounted for under the purchase method and were recorded at their fair values at the dates of acquisition. The excess of the purchase price over the estimated fair values of the net assets acquired was recorded as an increase in goodwill of approximately $506 in 2009 (all of which is deductible for tax purposes), $11,703 in 2008 (of which $1,797 is deductible for tax purposes and $9,906 is not deductible for tax purposes); and $1,820 in 2007 (all of which is deductible for tax purposes).

The results of operations of acquired businesses have been included in the consolidated statements of operations beginning as of the effective dates of acquisition.  The effect of these acquisitions on our consolidated revenues and results of operations for the years ended December 31, 2009, 2008 or 2007 was not significant.

E.  Accounts Receivable, Net

Accounts receivable, net, consisted of the following:

	December 31,
	2009		2008
Accounts receivable	$	66,703	$	76,328
Receivables under contractual arrangements		7,044		7,858
		73,747		84,186
Less allowances for doubtful accounts		2,056		2,435
	$	71,691	$	81,751

 

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

F-12

The Davey Tree Expert Company

Notes to Consolidated Financial Statements--(Continued)

December 31, 2009

(In thousands, except share data)

F.  Supplemental Balance Sheet, Operating and Cash Flow Information

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

	December 31,
Other current assets	2009		2008
Refundable income taxes	$	3,805	$	4,776
Deferred income taxes		7,845		7,674
Other		1,551		2,837
Total	$	13,201	$	15,287
	December 31,
Other assets, noncurrent		2009		2008
Deferred income taxes	$	2,546	$	4,317
Deposits		1,396		1,420
Assets invested for self-insurance		9,487		6,289
Total	$	13,429	$	12,026
	December 31,
Accrued expenses		2009		2008
Employee compensation	$	11,335	$	13,100
Accrued compensated absences		5,654		5,064
Self-insured medical claims		2,319		2,601
Customer advances, deposits		1,075		1,995
Taxes, other than income		1,932		1,803
Other		3,809		4,608
Total	$	26,124	$	29,171
	December 31,
Other liabilities, noncurrent		2009		2008
Pension and retirement plans	$	6,124	$	8,034
Other		2,722		2,374
Total	$	8,846	$	10,408

Other nonoperating income (expense), net, included in the statements of operations follows:

	Year ended December 31,
	2009			2008			2007
Other nonoperating expense, net	$	(1,880	)	$	(2,920	)	$	(542	)

Other nonoperating income (expense), net, includes foreign currency (i) gains of $176 for 2009, (ii) losses of $1,029 for 2008 and (iii) gains of $1,024 for 2007 on the intercompany balances of our Canadian operations.

F-13

The Davey Tree Expert Company

Notes to Consolidated Financial Statements--(Continued)

December 31, 2009

(In thousands, except share data)

F.  Supplemental Balance Sheet, Operating and Cash Flow Information (continued)

Supplemental cash flow information follows:

	Year Ended December 31,
Supplemental cash flow information	2009			2008			2007
Interest paid	$	2,397		$	3,434		$	3,249
Income taxes paid, net		7,598			13,211			14,963
Noncash transactions:
Common shares, two-for-one split	$	-		$	10,729		$	-
Debt issued for purchases of businesses		750			6,239			1,807
Common shares issued for purchase of business		-			14,692			-
Detail of acquisitions:
Assets acquired:
Cash	$	-		$	55		$	-
Receivables		-			8,413			-
Operating supplies		-			897			-
Prepaid expense		-			339			-
Equipment		653			33,038			811
Deposits and other		-			917			-
Intangibles		847			16,523			3,801
Liabilities assumed		(42	)		(23,478	)		(330	)
Debt issued for purchases of businesses		(750	)		(6,239	)		(1,807	)
Common shares issued for purchase of business		-			(14,692	)		-
Cash paid	$	708		$	15,773		$	2,475

G.  Identified Intangible Assets and Goodwill, Net

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

	Weighted-
	Average	December 31, 2009				December 31, 2008
	Amortization	Carrying		Accumulated		Carrying		Accumulated
	Period (Years)	Amount		Amortization		Amount		Amortization
Amortized intangible assets:
Customer lists/relationships	5.9 years	$	9,181	$	7,735	$	8,971	$	7,121
Employment-related	4.9 years		4,881		3,321		4,796		2,744
Tradenames	6.6 years		3,954		1,685		3,785		1,208
Total			18,016	$	12,741		17,552	$	11,073
Less accumulated amortization			12,741				11,073
Identified intangibles, net			5,275				6,479
Unamortized intangible assets:
Goodwill	Not amortized		20,748				20,172
		$	26,023			$	26,651

F-14

The Davey Tree Expert Company

Notes to Consolidated Financial Statements--(Continued)

December 31, 2009

(In thousands, except share data)

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

The changes in the carrying amounts of goodwill, by segment, for the year ended December 31, 2009 follow:

	Balance at				Translation		Balance at
	January 1,				and Other		December 31,
	2009		Acquisitions		Adjustments		2009
Utility Services	$	1,314	$	-	$	-	$	1,314
Residential and Commercial Services		17,111		506		70		17,687
Resource Group		1,747		-		-		1,747
Total	$	20,172	$	506	$	70	$	20,748

Estimated future aggregate amortization expense of intangible assets--The estimated aggregate amortization expense of intangible assets, as of December 31, 2009, in each of the next five years follows:

		Estimated Future
		Amortization Expense
Year ending December 31, 2010	$	1,545
2011		1,300
2012		1,056
2013		697
2014		302

H.  Financial Instruments and Fair Value Measurements

Financial Instruments--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 fair value of our assets invested for self-insurance, consisting of money market savings account deposits, approximates the carrying value and is classified as other assets, noncurrent.  Financial instruments classified as noncurrent liabilities and their carrying values and fair values were as follows:

	December 31, 2009				December 31, 2008
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
Revolving credit facility, noncurrent	$	41,550	$	41,550	$	55,450	$	55,450
Term loans, noncurrent		4,293		4,267		4,737		4,703
Total	$	45,843	$	45,817	$	60,187	$	60,153

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 term loans is determined based on expected future weighted-average interest rates with the same remaining maturities.

F-15

The Davey Tree Expert Company

Notes to Consolidated Financial Statements--(Continued)

December 31, 2009

(In thousands, except share data)

H.  Financial Instruments and Fair Value Measurements (continued)

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 and changes in interest rates.  We do not hold or issue derivative financial instruments for trading or speculative purposes. We manage interest rate risk by using derivative financial instruments, specifically interest rate swaps.

Foreign Currency 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.

Interest Rate Risk--We are exposed to market risk related to changes in interest rates on long-term debt obligations. The interest rates on substantially all of our long-term debt outstanding are variable.  We have entered into interest rate swap contracts -- derivative financial instruments--with the objective of altering interest rate exposures related to variable debt.

Interest Rate Swaps--As of December 31, 2009, we held interest rate swap contracts—cash-flow hedges—to effectively convert a portion of our variable-rate revolving credit borrowings to a fixed rate, thus reducing the impact of interest-rate changes on future interest expense. Under the contracts, we agree with the counterparty to exchange, at specified intervals, the difference between variable rate and fixed rate amounts calculated on a notional principal amount. These interest rate swaps have reset dates and fixed-rate indices that match those of our underlying variable-rate long-term debt and have been designated as cash-flow hedges for a portion of that debt. As all of the critical terms of our interest rate swap contracts match the debt to which they pertain, there was no ineffectiveness related to these interest rate swaps in 2009, 2008 or 2007 and all related unrealized gains and losses were deferred in accumulated other comprehensive income (loss). No material amounts were recognized in the results of operations related to our interest rate swaps during 2009, 2008 or 2007.

We had two interest rate swaps with the notional value totaling $20,000 as of December 31, 2008 and, during the first quarter 2009, we entered into another interest rate swap, with the three interest rate swaps having a notional value totaling $30,000 as of December 31, 2009. The following summarizes the amount of the long-term debt hedged (which is the notional principal amount of the interest rate swaps), the percentage of long-term debt hedged and the gross fair value of the asset / (liability) position of the interest rate swaps.

	December 31,
	2009	2008
Amount of long-term debt hedged	$             30,000	$             20,000
Percentage of long-term debt	65%	33%
Gross fair value asset/(liability) position, classified as accrued expenses	$            (1,355)	$            (1,704)

F-16

The Davey Tree Expert Company

Notes to Consolidated Financial Statements--(Continued)

December 31, 2009

(In thousands, except share data)

H.  Financial Instruments and Fair Value Measurements (continued)

The following summarizes the amount of the gains (losses) recognized in other comprehensive income from the interest rate swaps.

	Year Ended December 31,
	2009		2008			2007
Derivatives in cash-flow hedging relationship
Interest rate swaps	$	350	$	(1,153	)	$	(570	)

Fair Value Measurements

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.  The hierarchy prioritizes the inputs into three broad levels.  Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.  Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.  Level 3 inputs are unobservable inputs based on our own assumptions 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 December 31, 2009 and December 31, 2008, were as follows:

			Fair Value Measurements at December 31, 2009 Using:
	Total		Quoted prices		Significant		Significant
	Carrying		in		other observable		unobservable
	Value at		active markets		inputs		inputs
Description	December 31, 2009		(Level 1)		(Level 2)		(Level 3)
Assets:
Assets invested for self-insurance, classified as other assets, noncurrent	$	9,487	$	9,487	$	-	$	-
Liabilities:
Interest rate swaps,  classified as accrued expenses	$	1,355	$	-	$	1,355	$	-
Deferred compensation		773		-		773		-

F-17

The Davey Tree Expert Company

Notes to Consolidated Financial Statements--(Continued)

December 31, 2009

(In thousands, except share data)

H.  Financial Instruments and Fair Value Measurements (continued)

			Fair Value Measurements at December 31, 2008 Using:
	Total		Quoted prices		Significant		Significant
	Carrying		in		other observable		unobservable
	Value at		active markets		inputs		inputs
Description	December 31, 2008		(Level 1)		(Level 2)		(Level 3)
Assets:
Assets invested for self-insurance, classified as other assets, noncurrent	$	6,289	$	6,289	$	-	$	-
Liabilities:
Interest rate swaps,  classified as accrued expenses	$	1,704	$	-	$	1,704	$	-
Deferred compensation		994		-		994		-

The fair values of our defined benefit pension plan assets at December 31, 2009 by asset category, using the three-level hierarchy of fair value inputs, are included in Note O, “Defined Benefit Pension Plans.”

I. Short-Term and Long-Term Debt

Short-term debt consisted of the following:

	December 31,
	2009		2008
Notes payable	$	1,487	$	1,220
Current portion of long-term debt		6,494		7,364
	$	7,981	$	8,584

At December 31, 2009, we also had unused short-term lines of credit with several banks totaling $9,482, generally at the banks' prime rate or LIBOR plus a margin adjustment of 1.0% or 1.75%.  Long-term debt consisted of the following:

	December 31,
	2009		2008
Revolving credit facility
Prime rate borrowings	$	7,800	$	3,700
LIBOR borrowings		30,000		47,000
Term loan		4,750		5,750
		42,550		56,450
Term loans		9,787		11,101
		52,337		67,551
Less current portion		6,494		7,364
	$	45,843	$	60,187

F-18

The Davey Tree Expert Company

Notes to Consolidated Financial Statements--(Continued)

December 31, 2009

(In thousands, except share data)

I. Short-Term and Long-Term Debt (continued)

Revolving Credit Facility--We have a $159,000 revolving credit facility with a group of banks, which will expire in December 2011 and permits borrowings, as defined, up to $159,000 with a letter of credit sublimit of $100,000. The revolving credit facility contains certain affirmative and negative covenants customary for this type of facility and includes financial covenant ratios, as defined, with respect to funded debt to EBITDA (earnings before interest, taxes, depreciation and amortization), and funded debt to capitalization. Included in the credit facility is a $4,750 term loan which requires quarterly principal installments of $250, plus interest, and was a $7,000 seven-year term loan when entered into in November 2007.

As of December 31, 2009, we had unused commitments under the facility approximating $56,623, with $102,377 committed under the facility, consisting of borrowings of $42,550 (including the $4,750 term loan) and issued letters of credit of $59,827.  Borrowings outstanding bear interest, at our option, at the agent bank’s prime rate or LIBOR plus a margin adjustment ranging from .65% to 1.45%, based on a ratio of funded debt to EBITDA.  A commitment fee ranging from .11% to .19% is also required based on the average daily unborrowed commitment.

Term Loans, Weighted-Average Interest Rate--The weighted-average interest on the term loans approximated 3.51% at December 31, 2009 and 5.33% at December 31, 2008.

Aggregate Maturities of Long-Term Debt--Aggregate maturities of long-term debt for the five years subsequent to December 31, 2009 were as follows: 2010--$6,494; 2011--$41,502; 2012--$1,730; 2013--$1,480; 2014--$1,131.

J.  Self-Insurance Accruals

Components of our self-insurance accruals for workers’ compensation, vehicle liability and general liability follow:

	December 31,
	2009		2008
Workers' compensation	$	32,434	$	33,264
Present value discount		3,026		3,050
		29,408		30,214
Vehicle liability		6,523		4,712
General liability		17,762		22,093
Total		53,693		57,019
Less current portion		21,045		22,069
Noncurrent portion	$	32,648	$	34,950

The changes in our self-insurance accruals and the discount rate used for the workers’ compensation accrual are summarized in the table below.

	December 31,
	2009			2008
Balance, beginning of year	$	57,019		$	48,963
Acquired businesses		-			4,760
Provision for claims		26,025			27,090
Payment of claims		29,351			23,794
Balance, end of year	$	53,693		$	57,019
Workers' compensation discount rate		3.85	%		4.50	%

F-19

The Davey Tree Expert Company

Notes to Consolidated Financial Statements--(Continued)

December 31, 2009

(In thousands, except share data)

K.  Lease Obligations

Assets acquired under capital leases and included in property and equipment consisted of the following:

	December 31,
	2009		2008
Equipment	$	407	$	511
Less accumulated amortization		201		227
	$	206	$	284

We also lease facilities under noncancelable operating leases, which are used for district office and warehouse operations. These leases extend for varying periods of time up to five years and, in some cases, contain renewal options. Minimum rental commitments under all capital and noncancelable operating leases, as of December 31, 2009 were as follows:

	Lease Obligations
Minimum lease obligations	Capital		Operating
Year ending December 31, 2010	$	200	$	4,956
2011		-		3,430
2012		-		1,979
2013		-		1,333
2014		-		532
2015 and after		-		943
Total minimum lease payments		200	$	13,173
Amounts representing interest		4
Present value of net minimum lease payments		196
Less current portion		196
Long-term capital lease obligations, December 31, 2009	$	-

Total rent expense under all operating leases was $5,772 in 2009, $4,856 in 2008 and $3,643 in 2007.

L.  Common Shares and Preferred Shares

Preferred Shares--We have authorized a class of 4,000,000 preferred shares, no par value, of which none were issued.

Common Shares--The number of common shares authorized is 24,000,000, par value $1.00. The number of common shares issued was 21,456,880 during each of the three years in the period ended December 31, 2009. The number of shares in the treasury for each of the three years in the period ended December 31, 2009 was as follows: 2009--6,884,652;  2008--6,938,836;  and 2007--6,925,100.

Our common shares are not listed or traded on an established public trading market, and market prices are, therefore, not available. Semiannually, an independent stock valuation firm determines the fair market value of our common shares based upon our performance and financial condition. 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. During 2009, purchases of common shares totaled 1,409,616 shares for $22,872 in cash; we also had direct sales to directors and employees of 271,384 shares for $2,457, excluding those shares issued through either the exercise of options or the Employee Stock Purchase Plan. We also sold 63,727 shares to our 401(k) plan for $1,034and issued 71,422 shares to participant accounts to satisfy our liability for the 2008 employer match in the amount of $1,166.  The liability accrued at December 31, 2009 for the 2009 employer match was $2,239. There were also 151,208 shares purchased during 2009 under the Employee Stock Purchase Plan.

F-20

The Davey Tree Expert Company

Notes to Consolidated Financial Statements--(Continued)

December 31, 2009

(In thousands, except share data)

L.  Common Shares and Preferred Shares (continued)

Common Shares Outstanding--The table below reconciles the activity of the common shares outstanding.

	December 31,
	2009			2008
Shares outstanding, beginning of year		14,518,044			14,531,780
Shares purchased		(1,409,616	)		(1,921,264	)
Shares sold		557,741			605,428
Shares issued for purchase of business		-			929,890
Stock subscription offering, employee cash purchases		774,392			286,844
Options exercised		131,667			85,366
		54,184			(13,736	)
Shares outstanding, end of year		14,572,228			14,518,044

On December 31, 2009, we had 14,572,228 common shares outstanding, employee and director options exercisable to purchase 1,002,551 common shares and partially-paid subscriptions for 200,658 common shares.

The partially-paid subscriptions relate to common shares purchased at $6.00 per share in connection with the stock subscription offering completed in August 2002, whereby some employees opted to finance their subscription with a down-payment of at least 10% of their total purchase price and a seven-year promissory note for the balance due, with interest at 4.75% per year.  Promissory note payments, of both principal and interest, are made by annual lump-sum payments or payroll deductions, either monthly or biweekly.  The promissory notes are expected to be paid-in-full during the first quarter 2010 for stock subscription financing payments made by biweekly payroll deduction.  All other promissory notes have been paid or, in a few instances, canceled.  The promissory notes outstanding are collateralized with the common shares subscribed and the common shares are only issued when the related promissory note is paid-in-full.  Dividends are paid on all unissued subscribed shares.

Stock subscription purchase rights were granted to employees (excluding directors, officers and certain operations management) to purchase one additional common share at the price of $6.00 per share for every two common shares purchased in connection with the stock subscription offering completed in August 2002.  Each right was exercisable at the rate of one-seventh per year and all stock subscription rights were either exercised or, if unexercised, expired in August 2009.

M.  The Davey 401KSOP and Employee Stock Ownership Plan

On March 15, 1979, we consummated a plan, which transferred control of the Company to our employees. As a part of this plan, we initially sold 120,000 common shares (presently, 11,520,000 common shares adjusted for stock splits) to our Employee Stock Ownership Trust (“ESOT”) for $2,700. The Employee Stock Ownership Plan (“ESOP”), in conjunction with the related ESOT, provided for the grant to certain employees of certain ownership rights in, but not possession of, the common shares held by the trustee of the Trust. Annual allocations of shares have been made to individual accounts established for the benefit of the participants.

F-21

The Davey Tree Expert Company

Notes to Consolidated Financial Statements--(Continued)

December 31, 2009

(In thousands, except share data)

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

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

During the fourth quarter of 2008, our Board of Directors approved an amendment to freeze the (i) Employee Retirement Plan and the (ii) Benefit Restoration Pension Plan, effective December 31, 2008, and enhanced benefits were implemented to our defined contribution savings plan—The Davey 401KSOP and ESOP—effective January 1, 2009. Our matching contributions to The Davey 401KSOP and ESOP (i) increased to a 2009 potential maximum of 100% of the first one percent and 50% of the next three percent―up to a four percent deferral―from (ii) the 2008 potential maximum of 50% of a three percent deferral (subject to the Internal Revenue Service limit of $16,500 in 2009 for employee contributions). This represents an increase in our potential maximum contribution from 1.5% to 2.5%.

Total compensation for these plans, consisting primarily of the employer match was $2,239 in 2009, $1,166 in 2008, and $1,107 in 2007.

N.  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 Plans--The Stock Plan consolidates into a single plan provisions for the grant of stock options and other stock-based incentives and maintenance of the Employee Stock Purchase Plan. Prior to adoption of the Stock Plan and its predecessor, the 1994 Omnibus Stock Plan, we had two qualified stock option plans available for officers and management employees; the final grant of awards under those plans was December 10, 1993. The maximum number of shares that may be issued upon exercise of stock options, other than director options and nonqualified stock options, is 3,200,000 during the ten-year term of the Stock Plan. Shares purchased since 1994 under the Employee Stock Purchase Plan were 3,454,393. With 2009 as the transition year, each continuing nonemployee director receives an annual award of 3,000 stock-settled stock appreciation rights that vest ratably over five years. Prior to the transition to stock-settled stock appreciation rights, each nonemployee director elected or appointed received a director option with the right to purchase, for six years, 4,000 common shares at the fair market value per share at date of grant, exercisable six months from the date of grant. The aggregate number of common shares available for grant and the maximum number of shares granted annually are based on formulas defined in the Stock Plan.  The grant of awards, other than director options, is at the discretion of the Compensation Committee of the Board of Directors.  Shares available for grant at December 31, 2009 were 793,814.

F-22

The Davey Tree Expert Company

Notes to Consolidated Financial Statements--(Continued)

December 31, 2009

(In thousands, except share data)

N.  Stock-Based Compensation (continued)

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:

	Year Ended December 31,
	2009		2008		2007
Compensation expense, all share-based payment plans	$	1,307	$	1,201	$	1,520
Income tax benefit		329		304		442

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. Purchases under the plan, at 85% of the fair market value of the common shares, have been as follows:

	Year Ended December 31,
	2009		2008		2007
Number of employees participating		1,217		1,200		990
Shares purchased during the year		151,208		136,737		125,274
Weighted-average per share purchase price paid	$	13.76	$	13.70	$	11.61
Cumulative shares purchased since 1982		8,074,201		7,922,993		7,786,256

Compensation costs are recognized as payroll deductions are made. The 15% discount of total shares purchased under the plan resulted in compensation cost recognized of $367 in 2009, $331 in 2008 and $256 in 2007.

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 December 31, 2009, there were 665,668 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 $356 in 2009, $349 in 2008 and $343 in 2007.

Stock-Settled Stock Appreciation Rights--During the year ended December 31, 2009, the Compensation Committee of the Board of Directors awarded 74,200 Stock-Settled Stock Appreciation Rights (“SSARs”) to certain management employees and 5,222 SSARs awarded to nonemployee directors, which vest ratably over five years.  A stock-settled stock appreciation right 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.

F-23

The Davey Tree Expert Company

Notes to Consolidated Financial Statements--(Continued)

December 31, 2009

(In thousands, except share data)

N.  Stock-Based Compensation (continued)

The following table summarizes our SSARs as of December 31, 2009.

						Weighted-
				Weighted-		Average
				Average		Remaining	Unrecognized		Aggregate
Stock-Settled	Number of			Award Date		Contractual	Compensation		Intrinsic
Stock Appreciation Rights	Rights			Value		Life	Cost		Value
Unvested, January 1, 2009		-		$	-
Granted		79,422			2.82
Forfeited		(3,000	)		2.56
Vested		(3,000	)		2.84
Unvested, December 31, 2009		73,422		$	2.83	4.0 years	$	167	$	1,175
Employee SSARs		71,200		$	2.84	4.0 years	$	162	$	1,139
Nonemployee Director SSARs		2,222		$	2.56	4.4 years	$	5	$	36

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 totaled $57 in 2009.  There was no expense for stock appreciation rights in prior years.

Performance-Based Restricted Stock Units--During March 2009, the Compensation Committee of the Board of Directors awarded 30,856 Performance-Based Restricted Stock Units to certain management employees. Similar awards were made in prior periods. The awards vest over specified periods. The following table summarizes Performance-Based Restricted Stock Units as of December 31, 2009.

						Weighted-
				Weighted-		Average
				Average		Remaining	Unrecognized	Aggregate
Performance-Based	Number of			Grant Date		Contractual	Compensation	Intrinsic
Restricted Stock Units	Stock Units			Value		Life	Cost	Value
Unvested, January 1, 2009		123,980		$	11.96
Granted		30,856			15.23
Forfeited		-			-
Vested		(36,170	)		11.55
Unvested, December 31, 2009		118,666		$	12.94	2.8 years	$                               761	$                            1,899

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, amortized over the requisite service period. “Intrinsic value” is defined as the amount by which the fair market value of a common share of stock exceeds the exercise price of a performance-based restricted stock unit. Compensation expense on restricted stock awards totaled $527 in 2009, $521 in 2008 and $921 in 2007.

F-24

The Davey Tree Expert Company

Notes to Consolidated Financial Statements--(Continued)

December 31, 2009

(In thousands, except share data)

N.  Stock-Based Compensation (continued)

For stock-based awards issued on or after January 1, 2006, the fair value of each award was estimated 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 share 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 assumptions:

	Year Ended December 31,
	2009		2008		2007
Expected volatility rate		12.4%		12.8%		13.4%
Risk-free interest rate		2.9%		2.2%		4.6%
Expected dividend yield		1.5%		1.5%		1.5%
Expected life of awards (years)		9.4		7.4		5.0

General Stock Option Information--The following table summarizes activity under the stock option plans for the year ended December 31, 2009.

						Weighted-
				Weighted-		Average
	Number of			Average		Remaining	Unrecognized		Aggregate
	Options			Exercise		Contractual	Compensation		Instrinic
Stock Options	Outstanding			Price		Life	Cost		Value
Outstanding, January 1, 2009		1,330,550		$	8.63
Granted		137,000			16.00
Exercised		(134,999	)		7.51
Forfeited		(9,000	)		11.25
Outstanding, December 31, 2009		1,323,551		$	9.49	5.3 years	$	12,560	$	8,616
Exercisable, December 31, 2009		1,002,551		$	8.27	4.5 years			$	7,750

F-25

The Davey Tree Expert Company

Notes to Consolidated Financial Statements--(Continued)

December 31, 2009

(In thousands, except share data)

N.  Stock-Based Compensation (continued)

“Intrinsic value” is defined as the amount by which the market price of a common share of stock exceeds the exercise price of an option.  Information regarding the stock options outstanding at December 31, 2009 is summarized below:

				Weighted-	Weighted-				Weighted-
				Average	Average				Average
Stock Options		Number		Remaining	Exercise		Number		Exercise
Exercise Price		Outstanding		Contractual Life	Price		Exercisable		Price
Employee options:
	$                6.75		691,483	3.9 years	$	6.75		691,483	$	6.75
	11.25		426,400	6.4 years		11.25		242,400		11.25
	16.00		137,000	9.8 years		16.00		-		16.00
			1,254,883	5.4 years		9.29		933,883		7.92
Director options:
	$7.85 to $16.40		68,668	3.2 years		13.11		68,668		13.11
			1,323,551	5.3 years		9.49		1,002,551		8.27

We issue common shares from treasury upon the exercise of stock options, stock-settled stock appreciation rights, performance-based restricted stock units or purchases under the Employee Stock Purchase Plan.

O.  Defined Benefit Pension Plans

We have four noncontributory defined benefit pension plans that cover certain of our U.S. employees. Plans include the Employee Retirement Plan (“ERP”) and another plan for bargaining employees not covered by union pension plans that provides benefits at a fixed monthly amount based upon length of service.  During May 2004, we adopted a Supplemental Executive Retirement Plan (“SERP”) and a Benefit Restoration Pension Plan (“Restoration Plan”) for certain key employees. Both the SERP and the Restoration Plan are defined benefit plans under which nonqualifed supplemental pension benefits will be paid in addition to amounts paid under our qualified retirement defined benefit pension plans, which are subject to Internal Revenue Service limitations on covered compensation.

The ERP includes participants that no longer accrue service-related benefits, but instead, may participate in the enhanced defined contribution plan—The Davey 401KSOP and ESOP. Because of the deterioration in the global stock and financial markets during 2008, the value of the assets held by our ERP was negatively affected. Given the lower asset values, it was anticipated that our cash flow and earnings in 2009 and beyond would be negatively affected, with the belief that the adverse financial impacts on us were far in excess of the benefits that would accrue to our employees. After careful consideration, during the fourth quarter 2008, our Board of Directors approved an amendment to freeze the ERP and the Restoration Plan, effective December 31, 2008 and implemented enhanced benefits to our defined contribution saving plan—The Davey 401KSOP and ESOP—effective January 1, 2009. The ERP was closed to new participants after December 2008.

In connection with the freeze of the ERP and Restoration Plan, (i) benefits currently being paid to retirees continue and (ii) benefits accrued through December 31, 2008 for employees covered by the ERP were not affected. All ERP and Restoration Plan balances remain intact and participant account balances, as well as service credits for vesting and retirement eligibility, remain intact and continue in accordance with the terms of the plans. The freeze of the ERP and Restoration Plan eliminated future accruals only. In connection with the freeze of the ERP and the Restoration Plan, we recognized a curtailment charge of $80 and, in connection with the finalization of our pension actuarial valuations as of December 31, 2008, we recognized a reduction in the pension benefit obligation of $2,906 and a reduction in the net actuarial loss reported in other comprehensive income (loss) of $1,801, net of tax, during 2008.

F-26

The Davey Tree Expert Company

Notes to Consolidated Financial Statements--(Continued)

December 31, 2009

(In thousands, except share data)

O.  Defined Benefit Pension Plans (continued)

The change in benefit obligations and the fair value of plans assets follows:

	December 31,
	2009			2008
Change in benefit obligation
Projected benefit obligation at beginning of year	$	25,759		$	25,532
Service cost		117			1,806
Interest cost		1,587			1,660
Curtailments		-			(2,906	)
Actuarial loss		1,674			1,449
Benefits paid		(1,664	)		(1,782	)
Projected benefit obligation at end of year	$	27,473		$	25,759
Accumulated benefit obligation at end of year	$	27,308		$	25,604

	December 31,
	2009			2008
Change in fair value of plan assets
Fair value of plan assets at beginning of year	$	19,013		$	28,615
Actual return on plan assets		4,923			(8,195	)
Employer contributions		149			375
Benefits paid		(1,664	)		(1,782	)
Fair value of plan assets at end of year	$	22,421		$	19,013
	December 31,
		2009			2008
Funded status of the plans
Fair value of plan assets	$	22,421		$	19,013
Projected benefit obligation		27,473			25,759
Funded status of the plans	$	(5,052	)	$	(6,746	)

	December 31,
	2009			2008
Amounts reported in the consolidated balance sheets
Current liability	$	(17	)	$	(14	)
Noncurrent liability		(5,035	)		(6,732	)
Funded status of the plans	$	(5,052	)	$	(6,746	)

F-27

The Davey Tree Expert Company

Notes to Consolidated Financial Statements--(Continued)

December 31, 2009

(In thousands, except share data)

O.  Defined Benefit Pension Plans (continued)

Amounts included in accumulated other comprehensive income (loss), related to our defined benefit pension plans follow:

	At December 31, 2009						At December 31, 2008
	Pretax			Net of Tax			Pretax			Net of Tax
Amounts reported in accumulated other comprehensive income
Unrecognized net actuarial loss	$	9,969		$	6,174		$	12,574		$	7,789
Unrecognized prior service cost		120			74			134			83
Unrecognized transition asset		(136	)		(84	)		(205	)		(127	)
	$	9,953		$	6,164		$	12,503		$	7,745

To the extent actuarial losses exceed the greater of 10% of the projected benefit obligation or market-related value of plan assets, the unrecognized actuarial losses will be amortized straight-line on a plan-by-plan basis, over the remaining expected future working lifetime of active participants. The total amount of unrecognized prior service cost and transition asset are also amortized straight-line on a plan-by-plan basis. The total amortization associated with these amounts that is expected to be recognized in net periodic benefit expense for 2010 is follows:

	Year Ending
	December 31, 2010
	Pretax			Net of Tax
Amortization of Costs Expected to be Recognized Next Year
Unrecognized net actuarial loss	$	615		$	381
Unrecognized prior service cost		13			8
Unrecognized transition asset		(69	)		(42	)
	$	559		$	347

The aggregate projected benefit obligation, accumulated benefit obligation and fair value of plan assets for plans in which the fair value of plan assets is less than either the projected benefit obligation or accumulated benefit obligation follow:

	December 31,
	2009		2008
For pension plans with accumulated benefit obligations in excess of plan assets
Projected benefit obligation	$	27,473	$	25,759
Accumulated benefit obligation		27,308		25,604
Fair value of plan assets		22,421		19,013

The actuarial assumptions follow.  The discount rates were used to measure the year-end benefit obligation and compute pension expense for the subsequent year.

	December 31,
	2009			2008			2007
Actuarial assumptions
Discount rate		6.00	%		6.25	%		6.25	%
Expected long-term rate of return on plan assets		8.00			8.00			8.00
Rate of increase in future compensation levels		3.50			3.50			4.50

F-28

The Davey Tree Expert Company

Notes to Consolidated Financial Statements--(Continued)

December 31, 2009

(In thousands, except share data)

O.  Defined Benefit Pension Plans (continued)

Net periodic benefit expense (income) associated with the defined benefit pension plans included the following components:

	Year Ended December 31,
	2009			2008			2007
Components of pension expense (income)
Service costs--increase in benefit obligation earned	$	117		$	1,806		$	1,581
Interest cost on projected benefit obligation		1,587			1,660			1,589
Expected return on plan assets		(1,485	)		(2,245	)		(2,146	)
Curtailments		-			80			-
Settlements		-			-			72
Amortization of net actuarial loss		841			40			256
Amortization of prior service cost		14			31			32
Amortization of transition asset		(69	)		(69	)		(72	)
Net pension expense of defined benefit pension plans	$	1,005		$	1,303		$	1,312

In 2007, the post-retirement mortality table was updated to better anticipate future experience. “Settlements” in the above table reflects vested obligations fully-settled with former employees whose accrued benefits had a present value of less than $5.

Multiemployer Pension Plans Contributions--In addition to the Company-sponsored defined benefit plans, we contribute to several multiemployer plans. Total pension expense for multiemployer plans was $2,172 in 2009, $2,109 in 2008, and $2,004 in 2007.

Investment Strategy and Risk Management for Plan Assets--Our investment strategy is to manage the plan assets in order to pay retirement benefits to plan participants while minimizing our cash contributions over the life of the plans. This is accomplished by preserving capital through diversification in high-quality investments through the use of investment managers and mutual funds.  Performance of all investment managers and mutual funds is monitored quarterly and evaluated over rolling three-to-five year periods.

The plan assets are divided into asset classes that include equity, fixed income, and alternative investments and allocated among target allocations to include: (a) equities of a minimum 60% to a maximum of 70%; (b) fixed income and cash of a minimum 20% to a maximum of 30%; and, (c) alternative investments of a minimum of zero to a maximum of 10%. The purpose of the equity asset class is to provide a total return that simultaneously provides for growth in principal and current income while at the same time preserving the purchasing power of the plan assets, even though assets invested in equities have greater market volatility and risk.  The purpose of the fixed income asset class is to provide a deflation hedge, to reduce the overall volatility of plan assets and to produce current income in support of the needs of the plan.  The purpose of alternative investments is the diversification benefit of alternative strategies.

Equity assets are to be allocated within certain ranges among the asset categories of large cap growth, and value; small/midcap growth, and value; and international growth, and value.  Each of the equity asset categories are assigned to an appropriate asset manager or mutual fund.  Fixed income assets are allocated within a certain range to mutual funds of fixed income securities.  Alternative investment assets are allocated within a certain range to mutual funds and may include the use of leverage.  Short-selling, securities lending, financial futures, margins, options, and derivatives are not used.  Investments in nonmarketable securities, commodities, or direct ownership of real estate are prohibited.

F-29

The Davey Tree Expert Company

Notes to Consolidated Financial Statements--(Continued)

December 31, 2009

(In thousands, except share data)

O.  Defined Benefit Pension Plans (continued)

Rate-of-return-on-assets assumptions are made by major category of plan assets according to historical analysis, tempered for an assessment of possible future influences that could cause the returns to exceed or trail long-term patterns. The overall expected long-term rate-of-return-on-plan assets net of investment manager fees as at December 31, 2009, was 8%.

Plan Assets--The fair values of our pension plan assets at December 31, 2009 by asset category, using the three-level hierarchy of fair value inputs, were as follows:

	Total		Fair Value Measurements at December 31, 2009 Using:
	Carrying		Quoted prices		Significant		Significant
	Value at		in		other observable		unobservable
	December 31,		active markets		inputs		inputs
Description	2009		(Level 1)		(Level 2)		(Level 3)
Asset Category
Cash	$	569	$	569	$	-	$	-
U.S. large-cap
Growth		3,052		3,052		-		-
Value		3,006		3,006		-		-
U.S. small/mid-cap
Growth		1,591		1,591		-		-
Value		1,842		1,842
International
Growth		2,898		2,898		-		-
Value		2,760		2,760		-		-
Fixed income		5,712		5,220		492
Alternative investments		991		991		-		-
	$	22,421	$	21,929	$	492	$	-

Expected Benefit Plan Contributions--We expect, as of December 31, 2009, to make defined-benefit contributions totaling $417 before December 31, 2010.

Expected Benefit Plan Payments--The benefits, as of December 31, 2009, expected to be paid to defined-benefit plan participants in each of the next five years, and in the aggregate for the five years thereafter, follow:

	Participants
	Benefits
Estimated future payments
Year ending December 31, 2010	$	1,166
2011		1,201
2012		1,237
2013		1,278
2014		1,331
Years 2015 to 2019		7,851

F-30

The Davey Tree Expert Company

Notes to Consolidated Financial Statements--(Continued)

December 31, 2009

(In thousands, except share data)

P.  Income Taxes

Income before income taxes was attributable to the following sources:

	Year Ended December 31,
	2009		2008		2007
United States	$	18,239	$	27,033	$	21,432
Canada		5,337		4,706		7,088
Total	$	23,576	$	31,739	$	28,520

The provision for income taxes follows:

	Year Ended December 31,
	2009		2008		2007
Currently payable:
Federal	$	5,598	$	6,384	$	9,629
State		1,404		1,850		1,333
Canadian		1,699		1,992		2,112
Total current		8,701		10,226		13,074
Deferred taxes		498		2,492		(2,633	)
Total taxes on income	$	9,199	$	12,718	$	10,441

A reconciliation of the expected statutory U.S. federal rate to our actual effective income tax rate follows:

	Year Ended December 31,
	2009			2008			2007
Statutory U.S. federal tax rate		35.0	%		35.0	%		35.0	%
State income taxes, net of federal benefit		2.9			3.9			2.9
Effect of Canadian income taxes		(.7	)		.3			(.6	)
All other, net		1.8			.9			(.7	)
Effective income tax rate		39.0	%		40.1	%		36.6	%

Deferred income taxes reflect the tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Significant components of our current net deferred tax assets and liabilities at December 31, were as follows:

	December 31,
	2009		2008
Deferred tax assets:
Accrued compensated absences	$	1,197	$	1,043
Self-insurance accruals		6,135		5,909
Other assets (liabilities), net		513		722
Net deferred income tax assets--current	$	7,845	$	7,674

F-31

The Davey Tree Expert Company

Notes to Consolidated Financial Statements--(Continued)

December 31, 2009

(In thousands, except share data)

P.  Income Taxes (continued)

Significant components of our noncurrent net deferred tax assets and liabilities at December 31, were as follows:

	December 31,
	2009		2008
Deferred tax assets:
Self-insurance accruals	$	13,738	$	13,918
Intangibles		267		251
Accrued expenses and other liabilities		495		427
Accrued stock compensation		1,010		1,047
Defined benefit pension plans		1,682		2,417
Other future deductible amounts, net		1,489		1,349
		18,681		19,409
Deferred tax liabilities:
Property and equipment		16,135		15,092
		16,135		15,092
Net deferred income tax assets --noncurrent	$	2,546	$	4,317

We do not provide U.S. federal income taxes on the undistributed earnings of our Canadian operations, which are considered to be indefinitely reinvested, and the amount of such taxes that may be applicable is not readily determinable given the various tax planning alternatives that we could employ should we decide to repatriate those earnings.

The amount of income taxes we pay is subject to audit by U.S. federal, state and Canadian tax authorities, which may result in proposed assessments. Our estimate for the potential outcome for any uncertain tax issue is highly judgmental. Uncertain tax positions are recognized only if they are more-likely-than-not to be upheld during examination based on their technical merits.  The measurement of the uncertain tax position is based on the largest benefit amount that is more-likely-than-not (determined on a cumulative probability basis) to be realized upon settlement of the matter. If payment of these amounts ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period when we determine the liabilities are no longer necessary. If the estimate of tax liabilities proves to be less than the ultimate assessment, a further charge to expense may result.

The balance of unrecognized benefits and the amount of related interest and penalties at December 31, were as follows:

	December 31,
	2009		2008
Unrecognized tax benefits	$	2,165	$	1,910
Portion, if recognized, would reduce tax expense and effective tax rate		1,560		1,310
Accrued interest on unrecognized tax benefits		290		220
Accrued penalties on unrecognized benefits		-		-

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

F-32

The Davey Tree Expert Company

Notes to Consolidated Financial Statements--(Continued)

December 31, 2009

(In thousands, except share data)

P.  Income Taxes (continued)

The tax years from 2006 to 2009 generally remain open to examination by the major tax jurisdictions. The Company’s U.S. tax returns for 2007 and 2008 are currently being examined by the Internal Revenue Service, the 2007 Canadian tax return is being examined by Revenue Canada Agency, and other various state and province returns are also being examined.  As at December 31, 2009, we are unable to estimate the range of any reasonably possible increase or decrease in uncertain tax positions that may occur within the next twelve months resulting from the eventual outcome of the years currently under examination. However, we do not anticipate any such outcome will result in a material change to our financial condition or results of operations.

The changes in our unrecognized tax benefits are summarized in the table below.

	Year Ended December 31,
	2009			2008			2007
Balance, beginning of year	$	1,910		$	1,518		$	1,832
Additions based on tax positions related to the current year		363			542			222
Additions for tax positions of prior years		972			705			187
Reductions for tax positions of prior years		(203	)		-			(274	)
Lapses in statutes of limitations		(877	)		(855	)		(449	)
Balance, end of year	$	2,165		$	1,910		$	1,518

Q.  Comprehensive Income (Loss)

Comprehensive income (loss) is comprised of net income and other adjustments that relate to currency translation adjustments, changes in the fair value of interest rate contracts qualifying as cash flow hedges, and defined benefit pension plan adjustments. We do not provide income taxes on currency translation adjustments, as the earnings of our Canadian operations are considered to be indefinitely reinvested.

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

							Defined			Accumulated
	Currency			Interest			Benefit			Other
	Translation			Rate			Pension			Comprehensive
	Adjustments			Contracts			Plans			Income/(Loss)
Balance at January 1, 2007	$	655		$	12		$	(3,692	)	$	(3,025	)
Unrealized gains (losses)		2,320			-			-			2,320
Unrealized losses in fair value		-			(570	)		-			(570	)
Unrecognized amounts from defined benefit pension plans		-			-			2,352			2,352
Tax effect		-			216			(893	)		(677	)
Net of tax amount		2,320			(354	)		1,459			3,425
Balance at December 31, 2007	$	2,975		$	(342	)	$	(2,233	)	$	400
Unrealized gains (losses)		(3,806	)		-			-			(3,806	)
Unrealized losses in fair value		-			(1,153	)		-			(1,153	)
Unrecognized amounts from defined benefit pension plans		-			-			(8,900	)		(8,900	)
Tax effect		-			438			3,388			3,826
Net of tax amount		(3,806	)		(715	)		(5,512	)		(10,033	)
Balance at December 31, 2008	$	(831	)	$	(1,057	)	$	(7,745	)	$	(9,633	)
Unrealized gains (losses)		2,886			-			-			2,886
Unrealized gains in fair value		-			350			-			350
Unrecognized amounts from defined benefit pension plans		-			-			2,550			2,550
Tax effect		-			(133	)		(969	)		(1,102	)
Net of tax amount		2,886			217			1,581			4,684
Balance at December 31, 2009	$	2,055		$	(840	)	$	(6,164	)	$	(4,949	)

F-33

The Davey Tree Expert Company

Notes to Consolidated Financial Statements--(Continued)

December 31, 2009

(In thousands, except share data)

R.  Earnings Per Share

Earnings per share is computed as follows:

	Year Ended December 31,
	2009		2008		2007
Income available to common shareholders:
Net income	$	14,377	$	19,021	$	18,079
Weighted-average shares:
Basic:
Outstanding		14,665,076		14,809,035		14,730,058
Partially-paid share subscriptions		200,658		975,050		1,261,894
Basic weighted-average shares		14,865,734		15,784,085		15,991,952
Diluted:
Basic from above		14,865,734		15,784,085		15,991,952
Incremental shares from assumed:
Exercise of stock subscription purchase rights		182,194		311,070		279,418
Exercise of stock options		588,217		655,424		572,860
Diluted weighted-average shares		15,636,145		16,750,579		16,844,230
Share data:
Earnings per share--basic	$	.97	$	1.21	$	1.13
Earnings per share--diluted	$	.92	$	1.14	$	1.07

S.  Operations by Business Segment and Geographic Information

Our operating results are reported in two segments: Residential and Commercial Services, and Utility Services.

Residential and Commercial Services provides for the treatment, preservation, maintenance, cultivation, planting and removal of trees, shrubs and other plant life; its services also include landscaping, tree surgery, tree feeding, and tree spraying, as well as the application of fertilizer, herbicides and insecticides. Utility Services is principally engaged in line clearing for investor-owned and municipal utilities, including the clearing of tree growth from power lines, clearance of rights-of-way and chemical brush control. Davey Resource Group, which provides services related to natural resource management and consulting, forestry research and development, and environmental planning and also maintains research, technical support and laboratory diagnostic facilities, is a nonreportable segment and, along with other operating activities, is 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. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies except that (a) we compute and recognize depreciation expense for our segments only by the straight-line method and (b) state income taxes are allocated to the segments. Corporate expenses are substantially allocated among the operating segments, but the nature of expenses allocated may differ from year-to-year. There are no intersegment revenues.

Segment assets are those generated or directly used by each segment, and include accounts receivable, inventory, and property and equipment.

F-34

The Davey Tree Expert Company

Notes to Consolidated Financial Statements--(Continued)

December 31, 2009

(In thousands, except share data)

S.  Operations by Business Segment and Geographic Information (continued)

Information on reportable segments and reconciliation to the consolidated financial statements follows:

			Residential
	Utility		Commercial		All		Reconciling
	Services		Services		Other		Adjustments				Consolidated
Fiscal Year 2009
Revenues	$	291,306	$	231,412	$	39,393	$	-			$	562,111
Income (loss) from operations		17,992		9,969		6,426		(6,576	)	(a)	27,811
Interest expense								(2,380	)			(2,380	)
Interest income								25				25
Other income (expense), net								(1,880	)			(1,880	)
Income before income taxes											$	23,576
Depreciation	$	19,775	$	13,407	$	1,393	$	1,705		(b)	$	36,280
Amortization		465		292		9		911				1,677
Capital expenditures		13,351		6,387		403		1,697				21,838
Segment assets, total		112,872		95,843		11,625		45,732		(c)		266,072
Fiscal Year 2008
Revenues	$	308,245	$	249,457	$	38,095	$	-			$	595,797
Income (loss) from operations		21,624		17,786		6,142		(7,696	)	(a)		37,856
Interest expense								(3,417	)			(3,417	)
Interest income								220				220
Other income (expense), net								(2,920	)			(2,920	)
Income before income taxes											$	31,739
Depreciation	$	17,932	$	12,171	$	1,378	$	2,893		(b)	$	34,374
Amortization		372		208		9		893				1,482
Capital expenditures		29,829		5,162		757		1,285				37,033
Segment assets, total		129,922		98,422		12,150		50,508		(c)		291,002
Fiscal Year 2007
Revenues	$	247,754	$	222,756	$	35,628	$	-			$	506,138
Income (loss) from operations		16,145		20,096		5,984		(10,145	)	(a)		32,080
Interest expense								(3,422	)			(3,422	)
Interest income								404				404
Other income (expense), net								(542	)			(542	)
Income before income taxes											$	28,520
Depreciation	$	13,949	$	9,730	$	1,123	$	3,283		(b)	$	28,085
Amortization		-		153		77		918				1,148
Capital expenditures		18,343		13,052		1,192		5,000				37,587
Segment assets, total		96,929		73,441		11,167		50,112		(c)		231,649

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)	Reduction to straight-line depreciation expense from declining balance method and depreciation and amortization of corporate assets.
(c)	Corporate assets include cash, prepaid expenses, corporate facilities, enterprise-wide information systems, intangibles, and deferred and other nonoperating assets.

F-35

The Davey Tree Expert Company

Notes to Consolidated Financial Statements--(Continued)

December 31, 2009

(In thousands, except share data)

S.  Operations by Business Segment and Geographic Information (continued)

Geographic Information--The following presents revenues and long-lived assets by geographic territory:

	Year Ended December 31,
	2009		2008		2007
Revenues
United States	$	507,257	$	535,308	$	451,078
Canada		54,854		60,489		55,060
	$	562,111	$	595,797	$	506,138
	December 31,
		2009		2008		2007
Long-lived assets, net
United States	$	93,559	$	130,228	$	102,966
Canada		15,039		15,069		17,003
	$	108,598	$	145,297	$	119,969

T.  Commitments and Contingencies

At December 31, 2009, we were contingently liable to our principal banks in the amount of $62,282 for letters of credit outstanding primarily related to insurance coverage.

In certain circumstances, we have performance obligations that are supported by surety bonds in connection with our contractual commitments.

We are party to a number of lawsuits, threatened lawsuits and other claims arising out of the normal course of business. Management is of the opinion that liabilities which may result are adequately covered by insurance, or reflected in the self-insurance accruals, and would not be material in relation to the financial position or results of operations.

F-36

The Davey Tree Expert Company

Notes to Consolidated Financial Statements--(Continued)

December 31, 2009

(In thousands, except share data)

U.  Quarterly Results of Operations (Unaudited)

The following is a summary of the results of operations for each quarter of 2009 and 2008.

	Fiscal 2009, Three Months Ended
	Apr 4			Jul 4		Oct 3		Dec 31
Revenues	$	128,222		$	155,980	$	149,272	$	128,637
Gross profit		41,124			59,525		53,482		47,357
Income (loss) from operations		(1,910	)		15,502		9,479		4,740
Net income (loss)		(2,037	)		8,939		4,965		2,510
Net income (loss) per share -- Basic	$	(.14	)	$	.61	$	.33	$	.98
Net income (loss) per share -- Diluted	$	(.14	)	$	.57	$	.32	$	.94
ESOT Valuation per share	$	16.40		$	16.40	$	16.00	$	16.60
	Fiscal 2008, Three Months Ended
	Mar 29			Jun 28		Sept 27		Dec 31
Revenues	$	115,599		$	158,826	$	173,559	$	147,813
Gross profit		36,278			58,011		63,122		56,243
Income (loss) from operations		(940	)		17,165		12,772		8,859
Net income (loss)		(1,334	)		9,623		6,894		3,838
Net income (loss) per share -- Basic	$	(.09	)	$	.65	$	.44	$	.25
Net income (loss) per share -- Diluted	$	(.09	)	$	.62	$	.42	$	.24
ESOT Valuation per share	$	15.80		$	15.80	$	16.40	$	16.40
Fourth quarters 2009 and 2008 include a decrease in casualty insurance expense that had the effect of increasing the fourth quarter gross profit for 2009 and 2008 by approximately $6,202 and $7,355, respectively.

*  *  *  *  *

F-37