10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended October 1, 2011

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)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes S   No £

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

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

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

There were 13,824,921 Common Shares, $1.00 par value, outstanding as of October 28, 2011. 

The Davey Tree Expert Company

Quarterly Report on Form 10-Q

October 1, 2011

INDEX

		Page
Part I.	Financial Information
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Operations	3
	Condensed Consolidated Statements of Cash Flows	4
	Notes to Condensed Consolidated Financial Statements
	A —  Basis of Financial Statement Preparation	5
	B —  Seasonality of Business	6
	C —  Accounts Receivable, Net and Supplemental Balance-Sheet Information	6
	D —  Business Combinations and Identified Intangible Assets and Goodwill, Net	7
	E —   Long-Term Debt	8
	F —   Stock-Based Compensation	9
	G —  Net Periodic Benefit Cost—Defined Benefit Pension Plans	12
	H —  Income Taxes	13
	I  —  Comprehensive Income (Loss)	14
	J  —  Per Share Amounts and Common Shares Outstanding	15
	K —  Operations by Business Segment	16
	L  —  Fair Value Measurements and Financial Instruments	18
	M —  Contingencies	22
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
	Results of Operations	23
	Liquidity and Capital Resources	27
	Cash Flow Summary	28
	Off-Balance Sheet Arrangements	29
	Contractual Obligations Summary	29
	Capital Resources	30
	Recent Accounting Guidance	30
	Critical Accounting Policies and Estimates	31
	Note Regarding Forward-Looking Statements	31
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	33
Item 4.	Controls and Procedures	33
Part II.	Other Information
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 6.	Exhibits	36
Signatures		37
Exhibit Index		38

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

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THE DAVEY TREE EXPERT COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands, except per share data dollar amounts)

	October 1, 2011			December 31, 2010
Assets
Current assets:
Cash and cash equivalents	$	6,637		$	12,017
Accounts receivable, net	104,123			80,432
Operating supplies	5,639			4,961
Other current assets	20,563			18,465
Total current assets	136,962			115,875
Property and equipment	436,415			416,071
Less accumulated depreciation	304,444			286,444
	131,971			129,627
Other assets	18,706			14,950
Identified intangible assets and goodwill, net	27,544			27,855
	$	315,183		$	288,307
Liabilities and shareholders' equity
Current liabilities:
Accounts payable	$	28,659		$	27,759
Accrued expenses	31,105			30,873
Other current liabilities	40,387			31,410
Total current liabilities	100,151			90,042
Long-term debt	75,027			61,591
Self-insurance accruals	29,695			30,658
Other noncurrent liabilities	7,848			7,647
	212,721			189,938
Common shareholders' equity:
Common shares, $1.00 par value, per share; 24,000 shares authorized; 21,457 shares issued	21,457			21,457
Additional paid-in capital	1,544			—
Retained earnings	185,206			176,800
Accumulated other comprehensive loss	(3,285		)	(3,072		)
	204,922			195,185
Less: Cost of Common shares held in treasury; 7,525 shares at October 1, 2011 and 7,345 shares at December 31, 2010	102,460			96,816
	102,462			98,369
	$	315,183		$	288,307
See notes to condensed consolidated financial statements.

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THE DAVEY TREE EXPERT COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(In thousands, except per share dollar amounts)

	Three Months Ended						Nine Months Ended
	October 1, 2011			October 2, 2010			October 1, 2011			October 2, 2010
Revenues	$	178,799		$	156,493		$	484,076		$	441,074
Costs and expenses:
Operating	116,157			100,861			323,229			290,225
Selling	28,103			26,147			76,774			72,546
General and administrative	11,315			10,101			33,322			30,922
Depreciation and amortization	10,037			9,411			29,461			27,463
Gain on sale of assets, net	(155		)	(107		)	(399		)	(11		)
	165,457			146,413			462,387			421,145
Income from operations	13,342			10,080			21,689			19,929
Other income (expense):
Interest expense	(1,041		)	(827		)	(2,915		)	(1,868		)
Interest income	14			15			28			38
Other, net	(1,043		)	(957		)	(2,367		)	(2,074		)
Income before income taxes	11,272			8,311			16,435			16,025
Income taxes	4,310			3,470			6,360			6,586
Net income	$	6,962		$	4,841		$	10,075		$	9,439
Net income per share:
Basic	$	.50		$	.33		$	.72		$	.65
Diluted	$	.48		$	.32		$	.69		$	.62
Weighted-average shares outstanding:
Basic	13,993			14,504			14,059			14,614
Diluted	14,582			14,993			14,602			15,131
Dividends declared per share	$	.043		$	.043		$	.128		$	.128
See notes to condensed consolidated financial statements.

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THE DAVEY TREE EXPERT COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)

	Nine Months Ended
	October 1, 2011			October 2, 2010
Operating activities
Net income	$	10,075		$	9,439
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	29,461			27,463
Other	(129		)	1,330
Changes in operating assets and liabilities:
Accounts receivable	(23,675		)	(14,531		)
Operating liabilities	7,910			4,238
Other	(4,972		)	(3,728		)
	8,595			14,772
Net cash provided by operating activities	18,670			24,211
Investing activities
Capital expenditures:
Equipment	(30,898		)	(23,124		)
Land and buildings	(251		)	(440		)
Purchases of businesses	(962		)	(5,836		)
Other	940			708
Net cash used in investing activities	(31,171		)	(28,692		)
Financing activities
Revolving credit facility proceeds, net	13,900			(12,550		)
Purchase of common shares for treasury	(9,688		)	(13,228		)
Sale of common shares from treasury	5,267			5,394
Issuance of senior unsecured notes	—			30,000
Dividends	(1,779		)	(1,854		)
Other	(579		)	(1,678		)
Net cash provided by financing activities	7,121			6,084
(Decrease)/Increase in cash and cash equivalents	(5,380		)	1,603
Cash and cash equivalents, beginning of period	12,017			2,395
Cash and cash equivalents, end of period	$	6,637		$	3,998
Supplemental cash flow information follows:
Interest paid	$	3,348		$	1,710
Income taxes paid	2,762			5,742
Purchases of businesses:
Assets acquired:
Receivables	$	16		$	—
Equipment	321			1,886
Deposits and other	—			16
Intangibles	1,190			4,739
Prepaids	—			112
Liabilities assumed	(65		)	(917		)
Debt issued for purchases of businesses	(500		)	—
Cash paid	$	962		$	5,836
See notes to condensed consolidated financial statements.

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The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 1, 2011

(Amounts in thousands, except share data)

A. Basis of Financial Statement Preparation

The condensed consolidated financial statements present the financial position, results of operations and cash flows of The Davey Tree Expert Company and its subsidiaries. “We,” “us,” “our,” “Davey,” “Davey Tree” and the “Company” means The Davey Tree Expert Company and its subsidiaries, unless the context indicates otherwise.

We have prepared the accompanying unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and with the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. The consolidated financial statements include all adjustments which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. All such adjustments are of a normal, recurring nature. All significant intercompany accounts and transactions have been eliminated.

Certain information and disclosures required by U.S. GAAP for complete financial statements have been omitted in accordance with the rules and regulations of the SEC. We suggest that these condensed consolidated financial statements be read in conjunction with the financial statements included in our annual report on Form 10-K for the year ended December 31, 2010 (the “2010 Annual Report”).

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

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

Recent Accounting Guidance

The FASB Accounting Standards Codification--Changes to U.S. GAAP are established by the Financial Accounting Standards Board (the “FASB”) issuing Accounting Standards Updates (or “ASUs”) to the FASB’s Accounting Standards Codification™ (the “Codification”). The Codification is the single source of nongovernmental authoritative U.S. GAAP as well as all relevant U.S. SEC guidance in separate sections within the Codification. All other accounting guidance not included in the Codification is considered nonauthoritative. The Accounting Standards Updates are not authoritative in their own right; these updates 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 descriptions of the ASUs that follow, references relate to the Codification Topic and descriptive title.

Accounting Standards Update 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards-Fair Value Measurement--In May 2011, the FASB issued ASU 2011-04, “ Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards,” to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements. ASU 2011-04 is effective prospectively for interim and annual periods beginning after December 15, 2011 (that is, the quarter ending March 31, 2012 for us). We are currently evaluating the impact of pending adoption of ASU 2011-04.

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The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 1, 2011

(Amounts in thousands, except share data)

A. Basis of Financial Statement Preparation (continued)

Accounting Standards Update 2011-05, Presentation of Comprehensive Income--In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220), Presentation of Comprehensive Income.”  ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of equity and requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either (a) in a single continuous statement of comprehensive income or (b) in two separate but consecutive statements.  The amendments are effective retrospectively for fiscal years, and interim periods within those years, beginning after December 15, 2011 (that is, the quarter ending March 31, 2012 for us).  The guidance requires changes in presentation only and will have no effect on our financial position, results of operations or cash flows.

Accounting Standards Update 2011-09, Disclosure about an Employer's Participation in a Multiemployer Plan--In September 2011, the FASB issued ASU 2011-09, “Compensation-Retirement Benefits-Multiemployer Plans (Subtopic 715-80).”  ASU 2011-09 requires all nongovernmental entities that participate in multiemployer plans to provide additional qualitative and quantitative disclosures about financial obligations, risks and commitments, as well as the level of participation in multiemployer plans. The amendments in this ASU require employers to provide detailed information about significant multiemployer plans, including contributions made to the plans, financial health and funded status of the plans, and expiration of collective-bargaining agreements that require contributions to the plans. For nonpublic entities, such as Davey Tree, the amendments will be applied retrospectively for annual periods ending after December 15, 2012, with early adoption permitted. We are currently evaluating the impact of this ASU.

B. Seasonality of Business

Due to the seasonality of our business, our operating results for the nine months endedOctober 1, 2011 are not indicative of results that may be expected for any other interim period or for the year ending December 31, 2011. Business seasonality is the result of traditionally higher revenues during the second and third quarters as compared with the first and fourth quarters of the year, while the methods of accounting for fixed costs, such as depreciation expense, amortization, rent and interest expense, are not significantly impacted by business seasonality.

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

The following comprises accounts receivable, net, and other amounts included in the balance sheet:

Accounts receivable, net	October 1, 2011		December 31, 2010
Accounts receivable	$	91,395	$	74,985
Receivables under contractual arrangements	15,194		7,557
	106,589		82,542
Less allowances for doubtful accounts	2,466		2,110
Accounts receivable, net	$	104,123	$	80,432

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

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The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 1, 2011

(Amounts in thousands, except share data)

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

Other current assets	October 1, 2011		December 31, 2010
Refundable income taxes	$	1,745	$	4,689
Deferred income taxes	6,454		6,813
Prepaid expenses	11,478		5,349
Other	886		1,614
Total	$	20,563	$	18,465

Other assets, noncurrent	October 1, 2011		December 31, 2010
Assets invested for self-insurance	$	15,417	$	11,475
Other	3,289		3,475
Total	$	18,706	$	14,950

Accrued expenses	October 1, 2011		December 31, 2010
Employee compensation	$	14,109	$	13,599
Accrued compensated absences	7,297		6,552
Self-insured medical claims	3,655		2,918
Customer advances, deposits	—		1,068
Taxes, other than income	1,952		2,380
Other	4,092		4,356
Total	$	31,105	$	30,873

Other current liabilities	October 1, 2011		December 31, 2010
Notes payable	$	—	$	1,988
Current portion of long-term debt	8,043		5,670
Self-insurance accruals	32,344		23,752
Total	$	40,387	$	31,410

D. Business Combinations and Identified Intangible Assets and Goodwill, Net

During the first nine months of 2011, we acquired four businesses for $962 cash and the assumption of certain liabilities. The cash paid of $962 was preliminarily allocated, including the liabilities assumed, to the fair value of the primary assets acquired: fixed assets, intangibles and goodwill. The measurement period for purchase price allocations ends as soon as information of the facts and circumstances becomes available, but does not exceed twelve months. During the nine months endedOctober 2, 2010, we acquired one business for an aggregate purchase price of $6,753.

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The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 1, 2011

(Amounts in thousands, except share data)

D. Business Combinations and Identified Intangible Assets and Goodwill, Net (continued)

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

	October 1, 2011				December 31, 2010
Identified Intangible Assets and Goodwill, Net	Carrying Amount		Accumulated Amortization		Carrying Amount		Accumulated Amortization
Amortized intangible assets:
Customer lists/relationships	$	12,219	$	9,016	$	11,852	$	8,453
Employment-related	5,234		4,331		5,066		3,914
Tradenames	4,309		2,607		4,226		2,197
Amortized intangible assets	$	21,762	$	15,954	$	21,144	$	14,564
Less accumulated amortization	15,954				14,564
Identified intangibles, net	5,808				6,580
Unamortized intangible assets:
Goodwill not amortized	21,736				21,275
	$	27,544			$	27,855

E. Long-Term Debt

Our long-term debt consisted of the following:

	October 1, 2011		December 31, 2010
Revolving credit facility
Prime rate borrowings	$	6,900	$	—
LIBOR borrowings	37,000		30,000
	43,900		30,000
Senior unsecured notes	30,000		30,000
Term loans	9,170		7,261
	83,070		67,261
Less current portion	8,043		5,670
	$	75,027	$	61,591

Revolving Credit Facility and 5.09% Senior Unsecured Notes--We have a $140,000 revolving credit facility with a group of banks, which will expire in December 2014 and permits borrowings, as defined, up to $140,000 (previously $159,000) with a letter of credit sublimit of $100,000 and which, under certain circumstances, may be increased to $160,000.  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.

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The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 1, 2011

(Amounts in thousands, except share data)

E. Long-Term Debt (continued)

As at October 1, 2011, we had unused commitments under the facility approximating$46,724, with $93,276 committed, consisting of borrowings of$43,900 and issued letters of credit of$49,376. Borrowings outstanding bear interest, at Davey Tree’s option, of either (a) a base rate plus a margin adjustment ranging from .0% to .25% or (b) LIBOR plus a margin adjustment ranging from 1.25% to 1.75%--with the margin adjustments in both instances based on a ratio of funded debt to EBITDA. The base rate is the greater of (i) the agent bank’s prime rate, (ii) LIBOR plus 1.5%, or (iii) the federal funds rate plus .5%. A commitment fee ranging from .20% to .30% is also required based on the average daily unborrowed commitment.

During July 2010 we issued $30,000 of 5.09% Senior Unsecured Notes, Series A, due July 22, 2020 (the “5.09% Senior Notes”).  The 5.09% Senior Notes were issued pursuant to a Master Note Purchase Agreement (the “Purchase Agreement”), between the Company and the purchasers of the 5.09% Senior Notes.  Subsequent series of promissory notes may be issued pursuant to supplemental note purchase agreements in an aggregate additional principal amount not to exceed $20,000.

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

F. Stock-Based Compensation

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

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

	Three Months Ended				Nine Months Ended
	October 1, 2011		October 2, 2010		October 1, 2011		October 2, 2010
Compensation expense, all share-based payment plans	$	282	$	298	$	986	$	909

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The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 1, 2011

(Amounts in thousands, except share data)

F. Stock-Based Compensation (continued)

Stock-based compensation consisted of the following:

Employee Stock Purchase Plan--Under the Employee Stock Purchase Plan, all full-time employees with one year of service are eligible to purchase, through payroll deduction, common shares. Employee purchases under the Employee Stock Purchase Plan are at 85% of the fair market value of the common shares--a 15% discount. We recognize compensation costs as payroll deductions are made. The 15% discount of total shares purchased under the plan resulted in compensation cost of $302 being recognized for the nine months endedOctober 1, 2011 and $286for the nine months endedOctober 2, 2010.

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 October 1, 2011, there were 648,568 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 $229 for the nine months endedOctober 1, 2011 and $263 for the nine months endedOctober 2, 2010.

Stock-Settled Stock Appreciation Rights--During the nine months endedOctober 1, 2011, the Compensation Committee of the Board of Directors awarded 98,800 Stock-Settled Stock Appreciation Rights (“SSARs”) to certain management employees and 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.

The following table summarizes our SSARs as of October 1, 2011.

Stock-Settled Stock Appreciation Rights	Number of Rights		Weighted- Average Award Date Value		Weighted- Average Remaining Contractual Life	Unrecognized Compensation Cost		Aggregate Intrinsic Value
Unvested, January 1, 2011	148,159		$	3.34
Granted	98,800		3.60
Forfeited	—		—
Vested	(36,771	)	3.31
Unvested, October 1, 2011	210,188		$	3.47	3.5 years	$	605	$	3,783
Employee SSARs	182,680		$	3.60	3.4 years	$	539	$	3,288
Nonemployee Director SSARs	27,508		$	2.60	4.5 years	$	66	$	495

Compensation costs for stock appreciation rights are determined using a fair-value method and amortized over the requisite service period. Compensation expense for stock appreciation rights was $142 for the nine months endedOctober 1, 2011 and $78 for the nine months endedOctober 2, 2010.

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The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 1, 2011

(Amounts in thousands, except share data)

F. Stock-Based Compensation (continued)

Performance-Based Restricted Stock Units--During the nine months endedOctober 1, 2011, the Compensation Committee of the Board of Directors awarded 27,405 Performance-Based Restricted Stock Units to certain management employees. The Compensation Committee made similar awards in prior periods. The awards vest over specified periods. The following table summarizes Performance-Based Restricted Stock Units as of October 1, 2011.

Performance-Based Restricted Stock Units	Number of Stock Units		Weighted- Average Grant Date Value		Weighted- Average Remaining Contractual Life	Unrecognized Compensation Cost		Aggregate Intrinsic Value
Unvested, January 1, 2011	126,036		$	14.02
Granted	27,405		17.09
Forfeited	—		—
Vested	(26,093	)	11.73
Unvested, October 1, 2011	127,348		$	15.15	2.6 years	$	995	$	2,292

The fair value of the restricted stock units for awards made prior to January 1, 2006 is based on the market price of our common shares on the date of award and is recognized as compensation cost on the straight-line recognition method over the vesting period. Compensation cost for awards made after December 31, 2005 is determined using a fair-value method and amortized over the requisite service period. Compensation expense on restricted stock awards totaled $313 for the nine months endedOctober 1, 2011 and $282 for the nine months endedOctober 2, 2010.

For stock-based awards issued on or after January 1, 2006, we estimated the fair value of each award on the date of grant using a binomial option-pricing model. The binomial model considers a range of assumptions related to volatility, risk-free interest rate and employee exercise behavior. Expected volatilities utilized in the binomial model are based on historical volatility of our stock prices and other factors. Similarly, the dividend yield is based on historical experience and expected future changes. The binomial model also incorporates exercise and forfeiture assumptions based on an analysis of historical data. The expected life of the stock-based awards is derived from the output of the binomial model and represents the period of time that awards granted are expected to be outstanding.

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

	Nine Months Ended
	October 1, 2011		October 2, 2010
Volatility rate	11.9	%	12.2	%
Risk-free interest rate	2.9	%	3.4	%
Expected dividend yield	1.5	%	1.5	%
Expected life of awards (years)	8.9		8.8

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The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 1, 2011

(Amounts in thousands, except share data)

F. Stock-Based Compensation (continued)

General Stock Option Information--The following table summarizes activity under the stock option plans for the nine months endedOctober 1, 2011.

Stock Options	Number of Options Outstanding		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life	Unrecognized Compensation Cost		Aggregate Intrinsic Value
Outstanding, January 1, 2011	1,256,106		$	10.27
Granted	—		—
Exercised	(79,863	)	8.12
Forfeited	—		—
Outstanding, October 1, 2011	1,176,243		$	10.41	4.3 years	$	12,245	$	8,928
Exercisable, October 1, 2011	958,243		$	9.08	3.3 years			$	8,548

“Intrinsic value” is defined as the amount by which the market price of a common share exceeds the exercise price of an option.  Information regarding the stock options outstanding at October 1, 2011 is summarized below:

Stock Options Exercise Price		Number Outstanding	Weighted- Average Remaining Contractual Life	Weighted- Average Exercise Price		Number Exercisable	Weighted- Average Exercise Price
Employee options:	$ 6.75	527,675	2.2 years	$	6.75	527,675	$	6.75
	11.25	359,500	4.7 years	11.25		359,500	11.25
	16.00	134,400	8.1 years	16.00		26,400	16.00
	16.60	110,000	9.1 years	16.60		—	16.60
		1,131,575	4.4 years	$	10.24	913,575	$	8.79
Director options:	$10.00 to $16.40	44,668	2.4 years	14.95		44,668	14.95
		1,176,243	4.3 years	$	10.41	958,243	$	9.08

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

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

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

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The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 1, 2011

(Amounts in thousands, except share data)

G. Net Periodic Benefit Cost--Defined Benefit Pension Plans (continued)

	Three Months Ended						Nine Months Ended
	October 1, 2011			October 2, 2010			October 1, 2011			October 2, 2010
Components of pension cost
Service costs--increase in benefit obligation earned	$	33		$	33		$	100		$	98
Interest cost on projected benefit obligation	418			406			1,253			1,219
Expected return on plan assets	(476		)	(442		)	(1,430		)	(1,325		)
Amortization of net actuarial loss	134			154			401			461
Amortization of prior service cost	3			3			10			10
Amortization of transition asset	(17		)	(18		)	(51		)	(52		)
Net pension cost of defined-benefit pension plans	$	95		$	136		$	283		$	411

Employer Contributions--Contributions of $772 were made to our defined-benefit pension plans during the nine months endedOctober 1, 2011. We expect, as of October 1, 2011, to make additional defined-benefit plan contributions totaling $32 before December 31, 2011.

H. Income Taxes

Our income tax provision for interim periods is determined using an estimate of our annual effective tax rate adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter we update our estimate of the annual effective tax rate and, if our estimated annual tax rate changes, we make a cumulative adjustment. The 2011 annual effective tax rate is estimated to approximate 39%.  Our annual effective tax rate for 2010 was 42.2%.

At December 31, 2010 we had unrecognized tax benefits of $1,524, of which $853 would affect our effective rate if recognized, and accrued interest expense related to unrecognized benefits of $68. At October 1, 2011, there were no significant changes in the unrecognized benefits, including the amount that would affect our effective tax rate if recognized, or the accrued interest expense related to the unrecognized tax benefits. Unrecognized tax benefits are the differences between a tax position taken, or expected to be taken in a tax return, and the benefit recognized for financial reporting purposes.

The 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.  With the exception of U.S. state jurisdictions, the Company is no longer subject to examination by tax authorities for the years through 2008.   

As of October 1, 2011, if certain pending tax matters settle, we believe it is reasonably possible that additional payments will be made during the next twelve months within a range of $200 to $300. However, we do not anticipate an increase or decrease in our total uncertain tax positions during the next twelve months that would be material to our financial condition or the results of operations.

- 13 -

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 1, 2011

(Amounts in thousands, except share data)

I. Comprehensive Income (Loss)

Comprehensive income (or loss) is comprised of net income (or net loss) and other components, including currency translation adjustments, changes in the fair value of interest rate swaps qualifying as cash flow hedges, and defined-benefit pension plan adjustments. The components of comprehensive income (loss) follow:

	Three Months Ended						Nine Months Ended
	October 1, 2011			October 2, 2010			October 1, 2011			October 2, 2010
Comprehensive Income
Net income	$	6,962		$	4,841		$	10,075		$	9,439
Other comprehensive income (loss)
Currency translation adjustments	(1,558		)	862			(859		)	659
Interest rate swaps, change in fair value	244			84			685			81
Defined benefit pension plans -- amortization of net actuarial loss, prior service cost and transition asset	120			139			360			419
Other comprehensive income (loss), before income taxes	(1,194		)	1,085			186			1,159
Income tax expense, related to items of other comprehensive income	(139		)	(84		)	(399		)	(189		)
Other comprehensive income (loss)	(1,333		)	1,001			(213		)	970
Comprehensive income	$	5,629		$	5,842		$	9,862		$	10,409

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

	Currency Translation Adjustments			Interest Rate Swaps			Defined Benefit Pension Plans			Accumulated Other Comprehensive Income (Loss)
Balance at January 1, 2011	$	3,459		$	(645	)	$	(5,886	)	$	(3,072	)
Unrealized gains	(859		)	—			—			(859		)
Unrealized gains in fair value	—			685			—			685
Unrecognized amounts from defined benefit pension plans	—			—			360			360
Tax effect	—			(261		)	(138		)	(399		)
Net of tax amount	(859		)	424			222			(213		)
Balance at October 1, 2011	$	2,600		$	(221	)	$	(5,664	)	$	(3,285	)

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The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 1, 2011

(Amounts in thousands, except share data)

J. Per Share Amounts and Common Shares Outstanding

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

	Three Months Ended				Nine Months Ended
	October 1, 2011		October 2, 2010		October 1, 2011		October 2, 2010
Income available to common shareholders:
Net income	$	6,962	$	4,841	$	10,075	$	9,439
Weighted-average shares:
Basic:
Outstanding	13,993		14,504		14,059		14,614
Basic weighted-average shares	13,993		14,504		14,059		14,614
Diluted:
Basic from above	13,993		14,504		14,059		14,614
Incremental shares from assumed:
Exercise of stock options	589		488		543		517
Diluted weighted-average shares	14,582		14,992		14,602		15,131
Net income per share:
Basic	$	.50	$	.33	$	.72	$	.65
Diluted	$	.48	$	.32	$	.69	$	.62

Common Shares Outstanding--A summary of the activity of the common shares outstanding for the nine months endedOctober 1, 2011 follows: 

Shares outstanding at January 1, 2011	14,112,256
Shares purchased	(527,954	)
Shares sold	250,808
Options exercised	96,474
	(180,672	)
Shares outstanding at October 1, 2011	13,931,584

On October 1, 2011, we had 13,931,584 common shares outstanding, and employee and director options exercisable to purchase 958,243 common shares.

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The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 1, 2011

(Amounts in thousands, except share data)

K.    Operations by Business Segment

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 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 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. Segment information, including reconciling adjustments, is presented consistent with the basis described in the 2010 Annual Report.

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The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 1, 2011

(Amounts in thousands, except share data)

K.    Operations by Business Segment (continued)

Segment information reconciled to consolidated external reporting information follows:

	Utility Services		Residential Commercial Services		All Other			Reconciling Adjustments				Consolidated
Three Months Ended October 1, 2011
Revenues	$	86,038	$	76,522	$	16,239		$	—			$	178,799
Income (loss) from operations	3,336		9,400		2,117			(1,511		)	(a)	13,342
Interest expense								(1,041		)		(1,041		)
Interest income								14				14
Other income (expense), net								(1,043		)		(1,043		)
Income before income taxes												$	11,272
Segment assets, total	$	128,214	$	107,285	$	17,744		$	61,940		(b)	$	315,183
Three Months Ended October 2, 2010
Revenues	$	75,769	$	71,399	$	9,325		$	—			$	156,493
Income (loss) from operations	2,817		7,328		219			(284		)	(a)	10,080
Interest expense								(827		)		(827		)
Interest income								15				15
Other income (expense), net								(957		)		(957		)
Income before income taxes												$	8,311
Segment assets, total	$	111,651	$	105,183	$	12,091		$	58,030		(b)	$	286,955
Nine Months Ended October 1, 2011
Revenues	$	239,842	$	202,871	$	41,363						$	484,076
Income (loss) from operations	4,672		17,370		2,213			(2,566		)	(a)	21,689
Interest expense								(2,915		)		(2,915		)
Interest income								28				28
Other income (expense), net								(2,367		)		(2,367		)
Income before income taxes												$	16,435
Segment assets, total	$	128,214	$	107,285	$	17,744		$	61,940		(b)	$	315,183
Nine Months Ended October 2, 2010
Revenues	$	216,873	$	195,777	$	28,424		$	—			$	441,074
Income (loss) from operations	6,822		15,969		(1,793		)	(1,069		)	(a)	19,929
Interest expense								(1,868		)		(1,868		)
Interest income								38				38
Other income (expense), net								(2,074		)		(2,074		)
Income before income taxes												$	16,025
Segment assets, total	$	111,651	$	105,183	$	12,091		$	58,030		(b)	$	286,955

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

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

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

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The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 1, 2011

(Amounts in thousands, except share data)

L. Fair Value Measurements and Financial Instruments

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  Market participants are defined as buyers or sellers in the principal or most advantageous market for the asset or liability that are independent of the reporting entity, knowledgeable, and able and willing to transact for the asset or liability.

Valuation Hierarchy--A valuation hierarchy is used for presentation of the inputs to measure fair value.  This hierarchy prioritizes the inputs into three broad levels.  Level 1 inputs are 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 October 1, 2011, were as follows:

			Fair Value Measurements at October 1, 2011 Using:
Assets and Liabilities Recorded at Fair Value on a Recurring Basis	Total Carrying Value at October 1, 2011		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Assets invested for self-insurance, classified as other assets, noncurrent	$	15,417	$	15,417	$	—	$	—
Liabilities:
Interest rate swaps,  classified as accrued expenses	$	354	$	—	$	354	$	—
Fuel derivatives, classified as accrued expenses	251		—		251		—
Fuel derivatives, classified as other noncurrent liabilities	536				536
Deferred compensation	679		—		679		—

There were no transfers of assets or liabilities between Level 1 and Level 2 during the third quarter ended October 1, 2011.

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The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 1, 2011

(Amounts in thousands, except share data)

L. Fair Value Measurements and Financial Instruments (continued)

Our assets and liabilities measured at fair value on a recurring basis at December 31, 2010 were as follows:

			Fair Value Measurements at December 31, 2010 Using:
Assets and Liabilities Recorded at Fair Value on a Recurring Basis	Total Carrying Value at December 31, 2010		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Assets invested for self-insurance, classified as other assets, noncurrent	$	11,475	$	11,475	$	—	$	—
Liabilities:
Interest rate swaps, classified as accrued expenses	$	1,040	$	—	$	1,040	$	—
Deferred compensation	690		—		690		—

The estimated fair value of the deferred compensation--classified as Level 2--is based on the value of the Company’s common shares, determined by independent valuation.

Fair Value of Financial Instruments--The fair values of our current assets and current liabilities, including cash, accounts receivable, accounts payable, and accrued expenses among others, approximate their reported carrying values because of their short-term nature. The assets invested for self-insurance are money market funds--classified as Level 1--based on quoted market prices of the identical underlying securities in active markets. The estimated fair value of our derivative instruments are calculated based on market rates to settle the instruments, as discussed below, representing the amount we would receive upon sale or pay upon transfer. Financial instruments classified as noncurrent liabilities and their carrying values and fair values were as follows:

	October 1, 2011				December 31, 2010
Financial Instruments Recorded at Historical Carrying Value	Carrying Value		Fair Value		Carrying Value		Fair Value
Revolving credit facility, noncurrent	$	43,900	$	43,900	$	30,000	$	30,000
Senior unsecured notes	30,000		29,099		30,000		30,007
Term loans, noncurrent	1,127		1,126		1,591		1,593
Total	$	75,027	$	74,125	$	61,591	$	61,600

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

Market Risk and Derivative Financial Instruments

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

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The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 1, 2011

(Amounts in thousands, except share data)

L. Fair Value Measurements and Financial Instruments (continued)

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 a portion of variable debt.

Interest Rate Swaps--We hold interest rate swaps—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 2011 or 2010 and all related unrealized gains and losses were deferred in accumulated other comprehensive income (loss). The estimated fair values of our interest rate swaps are calculated based on market rates to settle the instruments--classified as Level 2 of the valuation hierarchy--and represent the estimated amounts we would pay upon transfer, taking into consideration current market rates and creditworthiness.

Fuel Derivatives--Beginning in the second quarter 2011, we entered into fuel derivatives as “economic hedges” related to fuel consumed by Davey Tree service vehicles. The objectives of the economic hedges are to fix the price of a portion of our fuel needs and mitigate the earnings and cash flow volatility attributable to the risk of changing prices.

Our fuel derivative contracts are not traded on public exchanges. The fair value of each fuel derivative contract is the sum of expected future settlements between contract counterparties. The expected future settlements are determined by comparing the contract fuel price to the expected forward fuel price as of each settlement date and applying the differences between the contract prices to the notional gallons in the fuel derivative contract. The expected forward fuel price is based on observable inputs of commodity exchange prices in an active market. The fuel derivatives are classified in Level 2 of the valuation hierarchy.

- 20 -

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 1, 2011

(Amounts in thousands, except share data)

L. Fair Value Measurements and Financial Instruments (continued)

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

	As of
	October 1, 2011		December 31, 2010
Cash Flow Hedges - Derivatives Designated as Hedging Instruments
Interest Rate Swaps:
Liability fair value of interest rate swaps, classified as accrued expenses	$	354	$	1,040
Notional amount of long-term debt hedged	$	30,000	$	30,000
Economic Hedges - Derivatives Not Designated as Hedging Instruments
Fuel Derivatives:
Liability fair value of fuel derivatives, classified as accrued expenses	$	251	$	—
Liability fair value of fuel derivatives, classified as other noncurrent liabilities	$	536	$	—
Longest remaining term, in months	27		—
Notional hedged volume, in thousands of gallons	2,800		—

	Three Months Ended				Nine Months Ended
	October 1, 2011		October 2, 2010		October 1, 2011		October 2, 2010
Cash Flow Hedges - Derivatives Designated as Hedging Instruments
Interest Rate Swaps:
Hedge gains, recognized in other comprehensive income	$	244	$	84	$	685	$	81
Economic Hedges - Derivatives Not Designated as Hedging Instruments
Fuel Derivatives:
Change in fair value, recognized in results of operations, as an increase in costs and expenses, operating	$	809	$	—	$	787	$	—

- 21 -

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 1, 2011

(Amounts in thousands, except share data)

M. Contingencies

We are party to a number of lawsuits, threatened lawsuits and other claims arising out of the normal course of business. With respect to all such matters, we record an accrual for a loss contingency when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. If we can only estimate a range of probable loss, an amount representing the low end of the range of probable outcomes is recorded.

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

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

Numerous lawsuits related to the Rice Canyon fire were filed against SDG&E, its parent company, Sempra Energy, and Davey. The earliest of the lawsuits naming Davey was filed on April 18, 2008. The court ordered that the lawsuits be organized into four groups based on type of plaintiff, namely insurance subrogation claimants, individual/business claimants, governmental claimants, and plaintiffs seeking class certification. Plaintiffs’ motions seeking class certification have since been denied. SDG&E has filed cross-complaints against Davey for contractual indemnity, declaratory relief, and breach of contract. SDG&E has reportedly settled many of the third-party claims and is now actively asserting damage claims against Davey.

Davey has notified its insurers of the Rice Canyon fire claims, is vigorously defending the third-party claims, and continues to work with the insurers both to defend the claims and to ensure coverage of any potential liabilities.

At this time, Davey believes that insurance coverage and recorded accruals are sufficient to provide for losses related to these potential liabilities.

However, due to the nature and extent of these claims, an adverse result in these proceedings leading to a loss in excess of Davey’s available insurance coverage could have a material and adverse effect on Davey’s business, financial condition, results of operations and cash flows. Adverse results, even if within the limits of Davey’s available insurance coverage, could materially and adversely (a) affect Davey’s ability to obtain comparable insurance in the future, or, (b) if such insurance were obtainable, affect the policy limits, premiums, self-insured retentions and other terms and conditions thereof.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Management’s Discussion and Analysis of Financial Condition and Results of Operations is provided as a supplement to the accompanying condensed consolidated financial statements and notes to help provide an understanding of our financial condition, cash flows and results of operations.

- 22 -

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 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 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

(Amounts in thousands, except share data)

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

	Three Months Ended						Nine Months Ended
	October 1, 2011		October 2, 2010		Percentage Change		October 1, 2011		October 2, 2010		Percentage Change
Revenues	100.0	%	100.0	%	14.3	%	100.0	%	100.0	%	9.7	%
Costs and expenses:
Operating	65.0		64.5		15.2		66.7		65.9		11.4
Selling	15.7		16.7		7.5		15.9		16.4		5.8
General and administrative	6.3		6.5		12.0		6.9		7.0		7.8
Depreciation and amortization	5.6		6.0		6.7		6.1		6.2		7.3
(Gain)/loss on sale of assets, net	(.1	)	(.1	)	nm		(.1	)	—		nm
Income from operations	7.5		6.4		32.4		4.5		4.5		8.8
Other income (expense):
Interest expense	(.6	)	(.5	)	25.9		(.6	)	(.4	)	56.0
Interest income	—		—		nm		—		—		nm
Other, net	(.6	)	(.6	)	9.0		(.5	)	(.5	)	14.1
Income before income taxes	6.3		5.3		35.6		3.4		3.6		2.6
Income taxes	2.4		2.2		24.2		1.3		1.5		(3.4	)
Net income	3.9	%	3.1	%	43.8	%	2.1	%	2.1	%	6.7	%
nm--not meaningful

- 23 -

Third Quarter—Three Months EndedOctober 1, 2011 Compared to Three Months EndedOctober 2, 2010

Our results of operations for the three months endedOctober 1, 2011 compared to the three months endedOctober 2, 2010 follows:

	Three Months Ended
	October 1, 2011			October 2, 2010			Change			% Change
Revenues	$	178,799		$	156,493		$	22,306		14.3	%
Costs and expenses:
Operating	116,157			100,861			15,296			15.2
Selling	28,103			26,147			1,956			7.5
General and administrative	11,315			10,101			1,214			12.0
Depreciation and amortization	10,037			9,411			626			6.7
(Gain)/loss on sale of assets, net	(155		)	(107		)	(48		)	nm
	165,457			146,413			19,044			13.0
Income from operations	13,342			10,080			3,262			32.4
Other income (expense):
Interest expense	(1,041		)	(827		)	(214		)	25.9
Interest income	14			15			(1		)	nm
Other, net	(1,043		)	(957		)	(86		)	9.0
Income before income taxes	11,272			8,311			2,961			35.6
Income taxes	4,310			3,470			840			24.2
Net income	$	6,962		$	4,841		$	2,121		43.8	%
nm--not meaningful

Revenues--Revenues of $178,799 increased $22,306 compared with $156,493 in the third quarter 2010. Utility Services increased $10,269 or 13.6% compared with the third quarter 2010. New contracts and increases on existing contracts within our U.S. and Canadian operations as well as storm-damage work arising from damage caused by Hurricane Irene along the east coast of the United States, account for the increase. Residential and Commercial Services increased $5,123 to $76,522 from the third quarter 2010. Residential and Commercial revenues for the third quarter 2011 were also favorably impacted by storm-damage work caused by Hurricane Irene, improved weather conditions and an increase in demand for services. Total revenue of $178,799 includes production incentive revenue, recognized under the completed-performance method,of $975during the third quarter 2011 compared with $922 during the third quarter 2010.

Operating Expenses--Operating expenses of $116,157 increased $15,296 compared with the third quarter 2010 and, as a percentage of revenues, increased .5% to 65.0%. Utility Services increased $9,140 or 15.7% compared with the third quarter 2010, and as a percentage of revenues increased 1.4% to 78.1%. Increased labor expense,fuel expense, equipment maintenance expense, materials expense and subcontractor expense, associated with the increase in revenues, account for the increase.Residential and Commercial Services increased $2,452 or 6.7% compared with the third quarter 2010 but, as a percentage of revenues, decreased .1% to 50.8%. Increased labor expense, fuel expense, equipment maintenance expense and materials and tools expense were partially offset by a reduction in subcontractor expense.

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Fuel costs of $8,666 increased $2,306, or 36.3%, from the $6,360 incurred in the third quarter 2010 and impacted operating expenses within all segments. The $2,306 increase included price increases approximating $2,087 and usage increases approximating $219. Operating costs and expenses includes $809 of cost associated with fuel derivatives that are fair valued.

Selling Expenses--Selling expenses of $28,103 increased $1,956 compared with the third quarter 2010 but as a percentage of revenues decreased 1.0% to 15.7%. Utility Services increased $265 or 4.4% over the third quarter 2010 and as a percentage of revenues decreased .7% to 7.3%. Increases in field management wages and incentive expense, field management travel expense,field management vehicle expense and office expensewere partially offset by a decrease in office support wages and professional services expense. Residential and Commercial Services experienced a decrease of $319 or 1.6% over the third quarter 2010. Decreases in office rent, sales and marketing expense and communication expense were partially offset by increases in field management wages and incentive expense, professional services expense and field management vehicle expense.

General and Administrative Expenses--General and administrative expenses of $11,315 increased $1,214 from $10,101 in the third quarter 2010. Increases in salary and incentive expense, professional service expense and computer expense were partially offset by decreases in pension expense, stock-based compensation expense, personnel development expense and postage expense.

Depreciation and Amortization Expense--Depreciation and amortization expense of $10,037 increased $626 from $9,411 in the third quarter of 2010.  The increase is attributable to an increase in capital expenditures for equipment.

Gain/Loss on the Sale of Assets, Net--Gain on the sale of assets was $155 for the third quarter 2011 as compared with $107 in the third quarter 2010.  The increase is the result of greater gains on fewer units of equipment disposed of in the third quarter 2011 as compared with the third quarter 2010.

Interest Expense--Interest expense of $1,041 increased $214 from the $827 incurred in the third quarter 2010.The increase is attributable to higher average debt levels necessary to fund operations and capital expenditures and higher average interest rates incurred on our 5.09% Senior Notes, issued during the third quarter 2010, as compared to the third quarter 2010.

Other, Net--Other, net, of $1,043 increased $86 from the $957 incurred in the third quarter 2010 and consisted of nonoperating income and expense, including foreign currency losses on the intercompany account balances of our Canadian operations.

Income Taxes--Income tax expense for the third quarter 2011 was $4,310, as compared to $3,470 for the third quarter 2010. Our tax provision for interim periods is determined using an estimate of our annual effective tax rate adjusted for discrete items, if any, that are taken into account in the relevant period. The 2011 annual effective tax rate is estimated to approximate 39%. Our annual effective tax rate for 2010 was 42.2%.

Net Income--Net income of $6,962 for the third quarter 2011 was $2,121 greater than the $4,841 experienced in the third quarter 2010.

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Nine Months EndedOctober 1, 2011 Compared to Nine Months EndedOctober 2, 2010

Our results of operations for the nine months endedOctober 1, 2011 compared to the nine months endedOctober 2, 2010 follows:

	Nine Months Ended
	October 1, 2011			October 2, 2010			Change			% Change
Revenues	$	484,076		$	441,074		$	43,002		9.7	%
Costs and expenses:
Operating	323,229			290,225			33,004			11.4
Selling	76,774			72,546			4,228			5.8
General and administrative	33,322			30,922			2,400			7.8
Depreciation and amortization	29,461			27,463			1,998			7.3
(Gain)/loss on sale of assets, net	(399		)	(11		)	(388		)	nm
	462,387			421,145			41,242			9.8
Income from operations	21,689			19,929			1,760			8.8
Other income (expense):
Interest expense	(2,915		)	(1,868		)	(1,047		)	56.0
Interest income	28			38			(10		)	nm
Other, net	(2,367		)	(2,074		)	(293		)	14.1
Income before income taxes	16,435			16,025			410			2.6
Income taxes	6,360			6,586			(226		)	(3.4	)
Net income	$	10,075		$	9,439		$	636		6.7	%
nm--not meaningful

Revenues--Revenues of $484,076 increased $43,002 compared with $441,074 in the first nine months of 2010. Utility Services increased $22,969 or 10.6% compared with the first nine months of 2010. New contracts coupled with increases on existing contracts within our U.S. and Canadian operations as well as storm-damage work arising from damage caused by Hurricane Irene along the east coast of the United States during the third quarter, account for the increase. Residential and Commercial Services increased $7,094 to $202,871 from the first nine months of 2010. Residential and Commercial revenues for the first nine months of 2011 were favorably impacted by improved weather conditions, an increase in demand for services during the second and third quarters and storm-damage work caused by Hurricane Irene. Total revenue of $484,076 includes production incentive revenue, recognized under the completed-performance method, of $3,363 during the first nine months of 2011 compared with $4,227during the first nine months of 2010.

Operating Expenses--Operating expenses of $323,229 increased $33,004 compared with the first nine months of 2010 and, as a percentage of revenues, increased 0.8% to 66.7%.Utility Services increased $22,855 or 13.7% compared with the first nine months of 2010, and as a percentage of revenues increased 2.1% to 79.1%. Increased labor expense, fuel expense, equipment maintenance expense and subcontractor expense, associated with the increase in revenues, was partially offset by a reduction in material expense. Residential and Commercial Services increased $3,433 or 3.3% compared with the first nine months of 2010 and, as a percentage of revenues, remained stable at 52.2%.Increased labor expense, equipment maintenance expense and fuel expense were partially offset by a reduction in subcontractor expense and material expense.

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Fuel costs of $23,312 increased $5,746, or 32.7%, from the $17,566 incurred in the first nine months of 2010 and impacted operating expenses within all segments. The $5,746 increase included price increases approximating $5,474 and usage increases approximating $272. Operating costs and expenses includes $787 of cost associated with fuel derivatives that are fair valued.

Selling Expenses--Selling expenses of $76,774 increased $4,228 compared with the first nine months of 2010 and as a percentage of revenues decreased .5% to 15.9%. Utility Services increased $843 or 4.9% from the first nine months of 2010. Increases in field management wages and incentive expense, field management travel expense, field management vehicle expense, employee development expense, rent expense and communication expense were partially offset by decreases in office expenses and professional services expense. Residential and Commercial Services experienced an increase of $1,168 or 2.2% over the first nine months of 2010. Increases in field management vehicle expense, rent expense, utilities expense, field management wages and incentive expense and communication expense were partially offset by reductions in sales and marketing expense and field management travel expense.

General and Administrative Expenses--General and administrative expenses of $33,322 increased $2,400 from $30,922 in the first nine months of 2010. Increases in salary and incentive expense, professional service expense, travel expense and stock-based compensation expense were partially offset by decreases in pension expense, personnel development expense, office supplies expense and postage expense.

Depreciation and Amortization Expense--Depreciation and amortization expense of $29,461 increased $1,998 from $27,463 in the first nine months of 2010 but, as a percentage of revenues,decreased .1% to 6.1%. The increase is attributable to an increase in capital expenditures for equipment.

Gain/Loss on the Sale of Assets, Net--Gain on the sale of assets was $399 for the first nine months of 2011 as compared with $11 in the first nine months of 2010. The increase is the result of an increase in the number of units of equipment disposed during the first nine months of 2011 as compared with the first nine months of 2010.

Interest Expense--Interest expense of $2,915 increased $1,047 from the $1,868 incurred in the first nine months of 2010. The increase is attributable to higher average debt levels necessary to fund operations and capital expenditures and higher average interest rates incurred on our 5.09% Senior Notes, issued during the third quarter 2010, as compared to the first nine months of 2010.

Other, Net--Other, net, of $2,367 increased $293 from the $2,074 incurred in the first nine months of 2010 and consisted of nonoperating income and expense, including foreign currency losses on the intercompany account balances of our Canadian operations.

Income Taxes--Income tax expense for the first nine months of 2011 was $6,360, as compared to $6,586 for the first nine months of 2010. Our tax provision for interim periods is determined using an estimate of our annual effective tax rate adjusted for discrete items, if any, that are taken into account in the relevant period. The 2011 annual effective tax rate is estimated to approximate 39%. Our annual effective tax rate for 2010 was 42.2%.

Net Income--Net income of $10,075 for the first nine months of 2011 was $636 more than the $9,439 experienced in the first nine months of 2010.

LIQUIDITY AND CAPITAL RESOURCES

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

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Cash Flow Summary

Our cash flows from operating, investing and financing activities, as reflected in the Condensed Consolidated Statements of Cash Flows for the nine months endedOctober 1, 2011 and October 2, 2010, are summarized as

follows:

	2011			2010
Cash provided by (used in):
Operating activities	$	18,670		$	24,211
Investing activities	(31,171		)	(28,692		)
Financing activites	7,121			6,058
(Decrease)/Increase in cash	$	(5,380	)	$	1,577

Cash Provided by Operating Activities--Cash provided by operating activities was $18,670 for the first nine months of 2011, or $5,541 less than the $24,211 provided in the first nine months of 2010. The decrease in operating cash flow was primarily attributable to $6,716 more cash used for operating assets and liabilities and an increase in depreciation and amortization of $1,998.

Overall, accounts receivable increased $23,675 during the first nine months of 2011, as compared to the increase of $14,531 during the first nine months of 2010. With respect to the change in accounts receivable arising from business levels, the “days-sales-outstanding” in accounts receivable (sometimes referred to as “DSO”) at the end of the first nine months of 2011 increased 3 days to 53 days, as compared to the end of the first nine months of 2010. The DSO at October 2, 2010 was 50 days.

Operating liabilities increased $7,910 in the first nine months of 2011, or $3,672 more than the $4,238 increase in the first nine months of 2010. Accounts payable and accrued expenses increased $281 during the first nine months of 2011 as compared with a decrease of $740 for the first nine months of 2010. Increases in employee compensation, professional services, advance payments from customers, compensated-absence accruals and self-insured medical claims were partially offset by decreases in vacation accruals, employee savings accruals and 401KSOP liabilities. Self-insurance accruals increased $7,629 in the first nine months of 2011, which was $2,651 more than the increase of $4,978 experienced in the first nine months of 2010. The increase occurred in all classifications -- workers’ compensation, general liability and vehicle liability--and resulted primarily from an overall increase in deductible amounts under commercial insurance and the self-insured risk retention.

Other, net, increased $4,972, $1,244 more than the $3,728 increase for the first nine months of 2010. The increase is attributable to increases in prepaid expenses, operating supplies and tax deposits.

Cash Used In Investing Activities--Cash used in investing activities for the first nine months of 2011 was $31,171, or $2,479 more than the $28,692 used during the first nine months of 2010. The increase was primarily the result of increased capital expenditures for equipment related to our business operations.

Cash Provided by Financing Activities--Cash provided by financing activities of $7,121 increased $1,063 during the first nine months of 2011 as compared with the $6,058 of cash provided during the first nine months of 2010. During the first nine months of 2011, our revolving credit facility provided $13,900 in cash as compared with the $12,550 borrowed during the first nine months of 2010. We use the credit facility primarily for capital expenditures and payments of notes payable related to acquisitions. Treasury share transactions (purchases and sales) used $3,439 less cash than the $7,860 used in the first nine months of 2010. Dividends paid of $1,779 decreased $75, as compared with $1,854 paid in the first nine months of 2010.

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Revolving Credit Facility and 5.09% Senior Unsecured Notes--We have a $140,000 revolving credit facility with a group of banks, which will expire in December 2014 and permits borrowings, as defined, up to $140,000 (previously $159,000) with a letter of credit sublimit of $100,000 and which, under certain circumstances, may be increased to $160,000. 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.

As at October 1, 2011, we had unused commitments under the facility approximating$46,724, with $93,276committed, consisting of borrowings of $43,900 and issued letters of credit of$49,376. Borrowings outstanding bear interest, at Davey Tree’s option, of either (a) a base rate plus a margin adjustment ranging from .0% to .25% or (b) LIBOR plus a margin adjustment ranging from 1.25% to 1.75%--with the margin adjustments in both instances based on a ratio of funded debt to EBITDA. The base rate is the greater of (i) the agent bank’s prime rate, (ii) LIBOR plus 1.5%, or (iii) the federal funds rate plus .5%. A commitment fee ranging from .20% to .30% is also required based on the average daily unborrowed commitment.

During July 2010 we issued $30,000 of 5.09% Senior Unsecured Notes, Series A, due July 22, 2020 (the “5.09% Senior Notes”). The 5.09% Senior Notes were issued pursuant to a Master Note Purchase Agreement (the “Purchase Agreement”), between the Company and the purchasers of the 5.09% Senior Notes. Subsequent series of promissory notes may be issued pursuant to supplemental note purchase agreements in an aggregate additional principal amount not to exceed $20,000.

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

Off-Balance Sheet Arrangements

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

Contractual Obligations Summary

The following summarizes our long-term contractual obligations, as at October 1, 2011, to make future payments for the periods indicated.

			Three Months Ending December 31, 2011
					Year Ending December 31,
Description	Total				2012		2013		2014		2015		Thereafter
Revolving credit facility	$	43,900	$	—	$	—	$	—	$	43,900	$	—	$	—
Senior unsecured notes	30,000		—		—		—		—		—		30,000
Term loans	9,170		2,201		5,835		617		517		—		—
Operating lease obligations	7,992		1,126		2,744		1,885		914		657		666
Self-insurance accruals	62,039		14,708		21,509		12,455		6,513		3,096		3,758
Purchase obligations	6,245		6,245		—		—		—		—		—
Other liabilities	7,848		2,945		458		702		500		650		2,593
	$	167,194	$	27,225	$	30,546	$	15,659	$	52,344	$	4,403	$	37,017

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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 for goods and services we have negotiated for delivery as of October 1, 2011. 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 October 1, 2011, have not been included in the summary above. Noncurrent deferred taxes and payments related to defined benefit pension plans are also not included in the summary.

As of October 1, 2011, we were contingently liable for letters of credit in the amount of $50,383, of which $49,376 is committed under the revolving credit facility. Substantially all of these letters of credit, which expire within a year, are planned for renewal as necessary.

Also, as is common in our industry, we have performance obligations that are supported by surety bonds, which expire during 2011 through 2014. We intend to renew the surety bonds where appropriate and as necessary.

Capital Resources

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

Business seasonality results in higher revenues during the second and third quarters as compared with the first and fourth quarters of the year, while our methods of accounting for fixed costs, such as depreciation expense, are not significantly impacted by business seasonality. Capital resources during these periods are equally affected. We satisfy seasonal working capital needs and other financing requirements with the revolving credit facility and three other short-term lines of credit. We are continually reviewing our existing sources of financing and evaluating alternatives. At October 1, 2011, we had working capital of $36,811, short-term lines of credit approximating $11,315 and $46,724 available under our revolving credit facility.

We believe our sources of capital, at this time, provide us with the financial flexibility to meet our capital-spending plans and to continue to complete business acquisitions.

RECENT ACCOUNTING GUIDANCE

The FASB Accounting Standards Codification--Changes to U.S. GAAP are established by the Financial Accounting Standards Board (the “FASB”) issuing Accounting Standards Updates (or “ASUs”) to the FASB’s Accounting Standards Codification™ (the “Codification”). The Codification is the single source of nongovernmental authoritative U.S. GAAP as well as all relevant U.S. Securities and Exchange Commission guidance in separate sections within the Codification. All other accounting guidance not included in the Codification is considered nonauthoritative. The Accounting Standards Updates are not authoritative in their own right; these updates 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 descriptions of the ASUs that follow, references relate to the Codification Topic and descriptive title.

Accounting Standards Update 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards-Fair Value Measurement--In May 2011, the FASB issued ASU 2011-04, “ Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards,” to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements. ASU 2011-04 is effective prospectively for interim and annual periods beginning after December 15, 2011 (that is, the quarter ending March 31, 2012 for us). We are currently evaluating the impact of pending adoption of ASU 2011-04.

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Accounting Standards Update 2011-05, Presentation of Comprehensive Income--In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (ASC Topic 220), Presentation of Comprehensive Income.” ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of equity and requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either (a) in a single continuous statement of comprehensive income or (b) in two separate but consecutive statements. The amendments are effective retrospectively for fiscal years, and interim periods within those years, beginning after December 15, 2011 (that is, the quarter ending March 31, 2012 for us). The guidance requires changes in presentation only and will have no effect on our financial position, results of operations or cash flows.

Accounting Standards Update 2011-09, Disclosure about an Employer's Participation in a Multiemployer Plan--In September 2011, the FASB issued ASU 2011-09, “Compensation-Retirement Benefits-Multiemployer Plans (Subtopic 715-80).” ASU 2011-09 requires all nongovernmental entities that participate in multiemployer plans to provide additional qualitative and quantitative disclosures about financial obligations, risks and commitments, as well as the level of participation in multiemployer plans. The amendments in this ASU require employers to provide detailed information about significant multiemployer plans, including contributions made to the plans, financial health and funded status of the plans, and expiration of collective-bargaining agreements that require contributions to the plans. For nonpublic entities, such as Davey Tree, the amendments will be applied retrospectively for annual periods ending after December 15, 2012, with early adoption permitted. We are currently evaluating the impact of this ASU.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

As discussed in our annual report on Form 10-K for the year ended December 31, 2010, we believe that our policies related to revenue recognition, the allowance for doubtful accounts and self-insurance accruals are our “critical accounting policies and estimates”—those most important to the financial presentations and those that require the most difficult, subjective or complex judgments.

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

NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

• The effects of the most recent economic downturn and the continuing financial and credit uncertainties 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 uncertainties in the credit and financial markets may limit our access to capital.

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

• We have significant contracts with our utility, commercial and government customers that include liability risk exposure as part of those contracts. Consequently, we have substantial excess-umbrella liability insurance, and increases in the cost of obtaining, or inability to obtain, 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 quarterly report on Form 10-Q to conform these statements to actual future results.

The factors described above, as well as other factors that may adversely impact our actual results, are discussed in our annual report on Form 10-K for the year ended December 31, 2010 in “ Part I - Item 1A. Risk Factors.”

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Item 3. Quantitative and Qualitative Disclosures about Market Risk.

During the nine months endedOctober 1, 2011, there have been no material changes in the market risk previously presented in our annual report on Form 10-K for the year ended December 31, 2010.

Item 4. Controls and Procedures.

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the design and operation of our disclosure controls and procedures were effective as of October 1, 2011 in ensuring that information required to be included in the reports that we file or submit under the Securities Exchange Act of 1934 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 Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

During the quarter ended October 1, 2011, there were no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

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The Davey Tree Expert Company

Part II. Other Information

Items 3, 4 and 5 are not applicable.

Item 1. Legal Proceedings.

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

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

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

California Fire Litigation: San Diego County--Davey Tree Surgery Company, a Davey subsidiary, and Davey Resource Group, a Davey division, have previously been sued, together with a utility services customer, San Diego Gas & Electric ("SDG&E"), and its parent company, as defendants, and as cross-defendants in cross-complaints filed by the utility service customer, in the Superior Court of the State of California in and for the County of San Diego, arising out of a wildfire in San Diego County that started on October 22, 2007, referred to as the Rice Canyon fire. The California Department of Forestry and Fire Protection issued a report concluding that the Rice Canyon fire was caused by SDG&E power lines and burned approximately 9,472 acres and damaged approximately 206 homes, two commercial properties and 40 outbuildings. The Consumer Protection and Safety Division of the California Public Utilities Commission issued a report concluding that the Rice Canyon fire was caused when a specific sycamore tree limb broke during Santa Ana wind conditions and fell on SDG&E's energized overhead conductors, causing the conductor to break.

Numerous lawsuits related to the Rice Canyon fire were filed against SDG&E, its parent company, Sempra Energy, and Davey. The earliest of the lawsuits naming Davey was filed on April 18, 2008. The court ordered that the lawsuits be organized into four groups based on type of plaintiff, namely insurance subrogation claimants, individual/business claimants, governmental claimants, and plaintiffs seeking class certification. Plaintiffs' motions seeking class certification have since been denied. SDG&E has filed cross-complaints against Davey for contractual indemnity, declaratory relief, and breach of contract. SDG&E has reportedly settled many of the third-party claims and is now actively asserting damage claims against Davey.

Davey has notified its insurers of the Rice Canyon fire claims, is vigorously defending the third-party claims, and continues to work with the insurers both to defend the claims and to ensure coverage of any potential liabilities.

At this time, Davey believes that insurance coverage and recorded accruals are sufficient to provide for losses related to these potential liabilities.

However, due to the nature and extent of these claims, an adverse result in these proceedings leading to a loss in excess of Davey's available insurance coverage could have a material and adverse effect on Davey's business, financial condition, results of operations and cash flows. Adverse results, even if within the limits of Davey's available insurance coverage, could materially and adversely (a) affect Davey's ability to obtain comparable insurance in the future, or, (b) if such insurance were obtainable, affect the policy limits, premiums, self-insured retentions and other terms and conditions thereof.

- 34 -

Ely v. Davey Tree Surgery Company--Davey Tree Surgery Company, a subsidiary of The Davey Tree Expert Company, has been named in a purported class-action lawsuit in the State of California filed on July 15, 2008 in the Superior Court of the State of California in and for the County of Alameda. The plaintiffs allege on behalf of themselves and a putative class that Davey Tree Surgery Company has failed to comply with California law concerning off-duty meal periods and the required content of paycheck stubs.

The plaintiffs allege that they and the putative “meal periods” class have not been provided with uninterrupted, duty-free 30-minute meal periods. In addition, plaintiffs allege that because they were supposedly made to work during their meal breaks, Davey Tree Surgery Company violated California's minimum wage law because they and the putative members were not paid minimum wage for their alleged work during meal breaks. Plaintiffs also contend Davey Tree Surgery Company violated California law by not including the time they and the putative “wage statement” class members worked during their meal periods, their hourly rates of pay and number of hours worked at each hourly rate on their paycheck stubs.

The Court granted plaintiffs' motion for class certification and certified both the “meal periods” class and the “wage statements” class; some individuals are members of both classes, while others are members of only one class. A trial is scheduled for January 30, 2012.

At this time, it is not reasonably possible to evaluate the likelihood of a favorable or unfavorable outcome to this matter or to estimate the amount or range of potential loss, if any. However, any potential losses from claims of this nature would not be insured, and therefore an adverse result could have a negative effect on Davey's business, financial condition, results of operations and cash flows which could be material. We intend to vigorously defend ourselves against this lawsuit, and we believe that our defenses against these claims are meritorious.

There have been no material changes in the quarterly period ended October 1, 2011 to the legal proceedings as described above and as previously reported in Part II, Item, "Legal Proceedings" in Davey Tree's Quarterly Report on Form 10-Q for the quarterly period ended July 2, 2011.

Item 1A. Risk Factors.

Information regarding risk factors appears in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Note Regarding Forward-Looking Statements” in Part I – Item 2 of this Form 10-Q and in Part I – Item 1A of our annual report on Form 10-K for the year ended December 31, 2010. There have been no material changes from the risk factors described previously in our annual report on Form 10-K for the year ended December 31, 2010.

- 35 -

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

The following table provides information on purchases of our common shares outstanding made by us during the first nine months of 2011.

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 2011
January 1 to January 29	—	—		n/a	n/a
January 30 to February 26	963	$	16.60	n/a	n/a
February 27 to April 2	64,644	18.40		n/a	n/a
Total First Quarter	65,607	18.37
April 3 to April 30	143,100	18.40		n/a	n/a
May 1 to May 28	135,305	18.40		n/a	n/a
May 29 to July 2	81,629	18.40		n/a	n/a
Total Second Quarter	360,034	18.40
July 3 to July 30	907	18.40		n/a	n/a
July 31 to August 27	53,228	18.00		n/a	n/a
August 28 to October 1	48,178	18.00		n/a	n/a
Total Third Quarter	102,313	18.00
Total Year to Date	527,954	18.32
n/a--Not applicable. There are no publicly announced plans or programs to purchase common shares.

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

Item 6. Exhibits.

See Exhibit Index page, below.

- 36 -

Signatures

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

			THE DAVEY TREE EXPERT COMPANY
		By:	/s/ David E. Adante
Date:	November 2, 2011		David E. Adante
			Executive Vice President, Chief Financial Officer and Secretary
			(Principal Financial Officer)
Date:	November 2, 2011	By:	/s/ Nicholas R. Sucic
			Nicholas R. Sucic
			Vice President and Controller
			(Principal Accounting Officer)

- 37 -

Exhibit Index

Exhibit No.	Description
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	Filed Herewith
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	Filed Herewith
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.	Furnished Herewith
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.	Furnished Herewith
101	The following materials from the Company's Quarterly Report on Form 10-Q for the quarter ended October 1, 2011 formatted in Extensible Business Reporting Language (“XBRL”): (i) the condensed consolidated statements of operations; (ii) the condensed consolidated balance sheets; (iii) the condensed consolidated statements of cash flows; and, (iv) related notes.	Furnished Herewith

- 38 -

EX-31.1

Exhibit 31.1

Certification

Certification of Chief Executive Officer

I, Karl J. Warnke, certify that:

1. I have reviewed this quarterly report on Form 10-Q of The Davey Tree Expert Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	November 2, 2011	/s/ Karl J. Warnke
		Karl J. Warnke
		Chairman, President and Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification

Certification of Chief Financial Officer

I, David E. Adante, certify that:

1. I have reviewed this quarterly report on Form 10-Q of The Davey Tree Expert Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	November 2, 2011	/s/ David E. Adante
		David E. Adante
		Executive Vice President, Chief Financial Officer and Secretary

EX-32.1

Exhibit 32.1

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Certification of Chief Executive Officer

I, Karl J. Warnke, Chairman, President and Chief Executive Officer of The Davey Tree Expert Company (the "Company"), do hereby certify in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1.) The Quarterly Report on Form 10-Q of the Company for the period ended October 1, 2011 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2.) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	November 2, 2011	/s/ Karl J. Warnke
		Karl J. Warnke
		Chairman, President and Chief Executive Officer

EX-32.2

Exhibit 32.2

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Certification of Chief Financial Officer

I, David E. Adante, Executive Vice President, Chief Financial Officer and Secretary of The Davey Tree Expert Company (the "Company"), do hereby certify in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1.) The Quarterly Report on Form 10-Q of the Company for the period ended October 1, 2011  (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2.) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	November 2, 2011	/s/ David E. Adante
		David E. Adante
		Executive Vice President, Chief Financial Officer and Secretary

XML

Condensed Consolidated Balance Sheets Parenthetical (USD $) In Thousands, except Per Share data	Oct. 01, 2011	Dec. 31, 2010
Common stock, par value	$ 1	$ 1
Common stock, shares authorized	24,000	24,000
Common stock, shares issued	21,457	21,457
Treasury stock, shares	7,525	7,345

XML

Condensed Consolidated Statements of Operations (USD $) In Thousands, except Per Share data	3 Months Ended		9 Months Ended
	Oct. 01, 2011	Oct. 02, 2010	Oct. 01, 2011	Oct. 02, 2010
Revenues	$ 178,799	$ 156,493	$ 484,076	$ 441,074
Costs and expenses:
Operating	116,157	100,861	323,229	290,225
Selling	28,103	26,147	76,774	72,546
General and administrative	11,315	10,101	33,322	30,922
Depreciation and amortization	10,037	9,411	29,461	27,463
(Gain) loss on sale of assets, net	(155)	(107)	(399)	(11)
Total costs and expenses	165,457	146,413	462,387	421,145
Income from operations	13,342	10,080	21,689	19,929
Other income (expense):
Interest expense	(1,041)	(827)	(2,915)	(1,868)
Interest income	14	15	28	38
Other, net	(1,043)	(957)	(2,367)	(2,074)
Income before income taxes	11,272	8,311	16,435	16,025
Income taxes	4,310	3,470	6,360	6,586
Net income	$ 6,962	$ 4,841	$ 10,075	$ 9,439
Net income per share:
Basic	$ 0.50	$ 0.33	$ 0.72	$ 0.65
Diluted	$ 0.48	$ 0.32	$ 0.69	$ 0.62
Weighted-average shares outstanding:
Basic	13,993	14,504	14,059	14,614
Diluted	14,582	14,993	14,602	15,131
Dividends declared per share	$ 0.043	$ 0.043	$ 0.128	$ 0.128

XML

Document and Entity Information	9 Months Ended
	Oct. 01, 2011	Oct. 28, 2011
Common shareholders' equity:
Entity Registrant Name	DAVEY TREE EXPERT CO
Entity Central Index Key	0000277638
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Document Type	10-Q
Document Period End Date	Oct. 01, 2011
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q3
Amendment Flag	false
Entity Common Stock, Shares Outstanding		13,824,921

XML

Net Periodic Benefit Cost - Defined Benefit Pension Plans

9 Months Ended

Oct. 01, 2011

Net Periodic Benefit Cost, Defined Benefit Pension Plans [Abstract]

Pension and Other Postretirement Benefits Disclosure [Text Block]

Net Periodic Benefit Cost--Defined Benefit Pension Plans

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

G. Net Periodic Benefit Cost--Defined Benefit Pension Plans (continued)

	Three Months Ended						Nine Months Ended
	October 1, 2011			October 2, 2010			October 1, 2011			October 2, 2010
Components of pension cost
Service costs--increase in benefit obligation earned	$	33		$	33		$	100		$	98
Interest cost on projected benefit obligation	418			406			1,253			1,219
Expected return on plan assets	(476		)	(442		)	(1,430		)	(1,325		)
Amortization of net actuarial loss	134			154			401			461
Amortization of prior service cost	3			3			10			10
Amortization of transition asset	(17		)	(18		)	(51		)	(52		)
Net pension cost of defined-benefit pension plans	$	95		$	136		$	283		$	411

Employer Contributions--Contributions of $772 were made to our defined-benefit pension plans during the nine months endedOctober 1, 2011. We expect, as of October 1, 2011, to make additional defined-benefit plan contributions totaling $32 before December 31, 2011.

XML

Financial Instruments and Fair Value Measurements

9 Months Ended

Oct. 01, 2011

Financial Instruments and Fair Value Measurements [Abstract]

Derivatives and Fair Value [Text Block]

Fair Value Measurements and Financial Instruments

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  Market participants are defined as buyers or sellers in the principal or most advantageous market for the asset or liability that are independent of the reporting entity, knowledgeable, and able and willing to transact for the asset or liability.

Valuation Hierarchy--A valuation hierarchy is used for presentation of the inputs to measure fair value.  This hierarchy prioritizes the inputs into three broad levels.  Level 1 inputs are 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 October 1, 2011, were as follows:

			Fair Value Measurements at October 1, 2011 Using:
Assets and Liabilities Recorded at Fair Value on a Recurring Basis	Total Carrying Value at October 1, 2011		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Assets invested for self-insurance, classified as other assets, noncurrent	$	15,417	$	15,417	$	—	$	—
Liabilities:
Interest rate swaps,  classified as accrued expenses	$	354	$	—	$	354	$	—
Fuel derivatives, classified as accrued expenses	251		—		251		—
Fuel derivatives, classified as other noncurrent liabilities	536				536
Deferred compensation	679		—		679		—

There were no transfers of assets or liabilities between Level 1 and Level 2 during the third quarter ended October 1, 2011.

L. Fair Value Measurements and Financial Instruments (continued)

Our assets and liabilities measured at fair value on a recurring basis at December 31, 2010 were as follows:

			Fair Value Measurements at December 31, 2010 Using:
Assets and Liabilities Recorded at Fair Value on a Recurring Basis	Total Carrying Value at December 31, 2010		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Assets invested for self-insurance, classified as other assets, noncurrent	$	11,475	$	11,475	$	—	$	—
Liabilities:
Interest rate swaps, classified as accrued expenses	$	1,040	$	—	$	1,040	$	—
Deferred compensation	690		—		690		—

The estimated fair value of the deferred compensation--classified as Level 2--is based on the value of the Company’s common shares, determined by independent valuation.

Fair Value of Financial Instruments--The fair values of our current assets and current liabilities, including cash, accounts receivable, accounts payable, and accrued expenses among others, approximate their reported carrying values because of their short-term nature. The assets invested for self-insurance are money market funds--classified as Level 1--based on quoted market prices of the identical underlying securities in active markets. The estimated fair value of our derivative instruments are calculated based on market rates to settle the instruments, as discussed below, representing the amount we would receive upon sale or pay upon transfer. Financial instruments classified as noncurrent liabilities and their carrying values and fair values were as follows:

	October 1, 2011				December 31, 2010
Financial Instruments Recorded at Historical Carrying Value	Carrying Value		Fair Value		Carrying Value		Fair Value
Revolving credit facility, noncurrent	$	43,900	$	43,900	$	30,000	$	30,000
Senior unsecured notes	30,000		29,099		30,000		30,007
Term loans, noncurrent	1,127		1,126		1,591		1,593
Total	$	75,027	$	74,125	$	61,591	$	61,600

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

Market Risk and Derivative Financial Instruments

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

L. Fair Value Measurements and Financial Instruments (continued)

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 a portion of variable debt.

Interest Rate Swaps--We hold interest rate swaps—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 2011 or 2010 and all related unrealized gains and losses were deferred in accumulated other comprehensive income (loss). The estimated fair values of our interest rate swaps are calculated based on market rates to settle the instruments--classified as Level 2 of the valuation hierarchy--and represent the estimated amounts we would pay upon transfer, taking into consideration current market rates and creditworthiness.

Fuel Derivatives--Beginning in the second quarter 2011, we entered into fuel derivatives as “economic hedges” related to fuel consumed by Davey Tree service vehicles. The objectives of the economic hedges are to fix the price of a portion of our fuel needs and mitigate the earnings and cash flow volatility attributable to the risk of changing prices.

Our fuel derivative contracts are not traded on public exchanges. The fair value of each fuel derivative contract is the sum of expected future settlements between contract counterparties. The expected future settlements are determined by comparing the contract fuel price to the expected forward fuel price as of each settlement date and applying the differences between the contract prices to the notional gallons in the fuel derivative contract. The expected forward fuel price is based on observable inputs of commodity exchange prices in an active market. The fuel derivatives are classified in Level 2 of the valuation hierarchy.

L. Fair Value Measurements and Financial Instruments (continued)

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

	As of
	October 1, 2011		December 31, 2010
Cash Flow Hedges - Derivatives Designated as Hedging Instruments
Interest Rate Swaps:
Liability fair value of interest rate swaps, classified as accrued expenses	$	354	$	1,040
Notional amount of long-term debt hedged	$	30,000	$	30,000
Economic Hedges - Derivatives Not Designated as Hedging Instruments
Fuel Derivatives:
Liability fair value of fuel derivatives, classified as accrued expenses	$	251	$	—
Liability fair value of fuel derivatives, classified as other noncurrent liabilities	$	536	$	—
Longest remaining term, in months	27		—
Notional hedged volume, in thousands of gallons	2,800		—

	Three Months Ended				Nine Months Ended
	October 1, 2011		October 2, 2010		October 1, 2011		October 2, 2010
Cash Flow Hedges - Derivatives Designated as Hedging Instruments
Interest Rate Swaps:
Hedge gains, recognized in other comprehensive income	$	244	$	84	$	685	$	81
Economic Hedges - Derivatives Not Designated as Hedging Instruments
Fuel Derivatives:
Change in fair value, recognized in results of operations, as an increase in costs and expenses, operating	$	809	$	—	$	787	$	—

XML

Accounts Receivable, Net and Supplemental Balance-Sheet Information

9 Months Ended

Oct. 01, 2011

Accounts Receivable, Net and Supplemental Balance Sheet Information [Abstract]

Accounts Receivable Net and Supplemental Balance Sheet Information [Text Block]

Accounts Receivable, Net and Supplemental Balance-Sheet Information

The following comprises accounts receivable, net, and other amounts included in the balance sheet:

Accounts receivable, net	October 1, 2011		December 31, 2010
Accounts receivable	$	91,395	$	74,985
Receivables under contractual arrangements	15,194		7,557
	106,589		82,542
Less allowances for doubtful accounts	2,466		2,110
Accounts receivable, net	$	104,123	$	80,432

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

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

Other current assets	October 1, 2011		December 31, 2010
Refundable income taxes	$	1,745	$	4,689
Deferred income taxes	6,454		6,813
Prepaid expenses	11,478		5,349
Other	886		1,614
Total	$	20,563	$	18,465

Other assets, noncurrent	October 1, 2011		December 31, 2010
Assets invested for self-insurance	$	15,417	$	11,475
Other	3,289		3,475
Total	$	18,706	$	14,950

Accrued expenses	October 1, 2011		December 31, 2010
Employee compensation	$	14,109	$	13,599
Accrued compensated absences	7,297		6,552
Self-insured medical claims	3,655		2,918
Customer advances, deposits	—		1,068
Taxes, other than income	1,952		2,380
Other	4,092		4,356
Total	$	31,105	$	30,873

Other current liabilities	October 1, 2011		December 31, 2010
Notes payable	$	—	$	1,988
Current portion of long-term debt	8,043		5,670
Self-insurance accruals	32,344		23,752
Total	$	40,387	$	31,410

XML

Comprehensive Income (Loss)

9 Months Ended

Oct. 01, 2011

Comprehensive Income (Loss) [Abstract]

Comprehensive Income (Loss) Note [Text Block]

Comprehensive Income (Loss)

Comprehensive income (or loss) is comprised of net income (or net loss) and other components, including currency translation adjustments, changes in the fair value of interest rate swaps qualifying as cash flow hedges, and defined-benefit pension plan adjustments. The components of comprehensive income (loss) follow:

	Three Months Ended						Nine Months Ended
	October 1, 2011			October 2, 2010			October 1, 2011			October 2, 2010
Comprehensive Income
Net income	$	6,962		$	4,841		$	10,075		$	9,439
Other comprehensive income (loss)
Currency translation adjustments	(1,558		)	862			(859		)	659
Interest rate swaps, change in fair value	244			84			685			81
Defined benefit pension plans -- amortization of net actuarial loss, prior service cost and transition asset	120			139			360			419
Other comprehensive income (loss), before income taxes	(1,194		)	1,085			186			1,159
Income tax expense, related to items of other comprehensive income	(139		)	(84		)	(399		)	(189		)
Other comprehensive income (loss)	(1,333		)	1,001			(213		)	970
Comprehensive income	$	5,629		$	5,842		$	9,862		$	10,409

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

	Currency Translation Adjustments			Interest Rate Swaps			Defined Benefit Pension Plans			Accumulated Other Comprehensive Income (Loss)
Balance at January 1, 2011	$	3,459		$	(645	)	$	(5,886	)	$	(3,072	)
Unrealized gains	(859		)	—			—			(859		)
Unrealized gains in fair value	—			685			—			685
Unrecognized amounts from defined benefit pension plans	—			—			360			360
Tax effect	—			(261		)	(138		)	(399		)
Net of tax amount	(859		)	424			222			(213		)
Balance at October 1, 2011	$	2,600		$	(221	)	$	(5,664	)	$	(3,285	)

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Per Share Amounts and Common Shares Outstanding

9 Months Ended

Oct. 01, 2011

Per Share Amounts and Common Shares Outstanding [Abstract]

Per Share Amounts and Shares Outstanding [Text Block]

Per Share Amounts and Common Shares Outstanding

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

	Three Months Ended				Nine Months Ended
	October 1, 2011		October 2, 2010		October 1, 2011		October 2, 2010
Income available to common shareholders:
Net income	$	6,962	$	4,841	$	10,075	$	9,439
Weighted-average shares:
Basic:
Outstanding	13,993		14,504		14,059		14,614
Basic weighted-average shares	13,993		14,504		14,059		14,614
Diluted:
Basic from above	13,993		14,504		14,059		14,614
Incremental shares from assumed:
Exercise of stock options	589		488		543		517
Diluted weighted-average shares	14,582		14,992		14,602		15,131
Net income per share:
Basic	$	.50	$	.33	$	.72	$	.65
Diluted	$	.48	$	.32	$	.69	$	.62

Common Shares Outstanding--A summary of the activity of the common shares outstanding for the nine months endedOctober 1, 2011 follows: 

Shares outstanding at January 1, 2011	14,112,256
Shares purchased	(527,954	)
Shares sold	250,808
Options exercised	96,474
	(180,672	)
Shares outstanding at October 1, 2011	13,931,584

On October 1, 2011, we had 13,931,584 common shares outstanding, and employee and director options exercisable to purchase 958,243 common shares.

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Income Taxes

9 Months Ended

Oct. 01, 2011

Income Taxes [Abstract]

Income Tax Disclosure [Text Block]

Income Taxes

Our income tax provision for interim periods is determined using an estimate of our annual effective tax rate adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter we update our estimate of the annual effective tax rate and, if our estimated annual tax rate changes, we make a cumulative adjustment. The 2011 annual effective tax rate is estimated to approximate 39%.  Our annual effective tax rate for 2010 was 42.2%.

At December 31, 2010 we had unrecognized tax benefits of $1,524, of which $853 would affect our effective rate if recognized, and accrued interest expense related to unrecognized benefits of $68. At October 1, 2011, there were no significant changes in the unrecognized benefits, including the amount that would affect our effective tax rate if recognized, or the accrued interest expense related to the unrecognized tax benefits. Unrecognized tax benefits are the differences between a tax position taken, or expected to be taken in a tax return, and the benefit recognized for financial reporting purposes.

The 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.  With the exception of U.S. state jurisdictions, the Company is no longer subject to examination by tax authorities for the years through 2008.   

As of October 1, 2011, if certain pending tax matters settle, we believe it is reasonably possible that additional payments will be made during the next twelve months within a range of $200 to $300. However, we do not anticipate an increase or decrease in our total uncertain tax positions during the next twelve months that would be material to our financial condition or the results of operations.

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Basis of Financial Statement Preparation

9 Months Ended

Oct. 01, 2011

Basis of Financial Statement Preparation [Abstract]

Basis of Presentation and Significant Accounting Policies [Text Block]

Basis of Financial Statement Preparation

The condensed consolidated financial statements present the financial position, results of operations and cash flows of The Davey Tree Expert Company and its subsidiaries. “We,” “us,” “our,” “Davey,” “Davey Tree” and the “Company” means The Davey Tree Expert Company and its subsidiaries, unless the context indicates otherwise.

We have prepared the accompanying unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and with the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. The consolidated financial statements include all adjustments which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. All such adjustments are of a normal, recurring nature. All significant intercompany accounts and transactions have been eliminated.

Certain information and disclosures required by U.S. GAAP for complete financial statements have been omitted in accordance with the rules and regulations of the SEC. We suggest that these condensed consolidated financial statements be read in conjunction with the financial statements included in our annual report on Form 10-K for the year ended December 31, 2010 (the “2010 Annual Report”).

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

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

Recent Accounting Guidance

The FASB Accounting Standards Codification--Changes to U.S. GAAP are established by the Financial Accounting Standards Board (the “FASB”) issuing Accounting Standards Updates (or “ASUs”) to the FASB’s Accounting Standards Codification™ (the “Codification”). The Codification is the single source of nongovernmental authoritative U.S. GAAP as well as all relevant U.S. SEC guidance in separate sections within the Codification. All other accounting guidance not included in the Codification is considered nonauthoritative. The Accounting Standards Updates are not authoritative in their own right; these updates 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 descriptions of the ASUs that follow, references relate to the Codification Topic and descriptive title.

Accounting Standards Update 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards-Fair Value Measurement--In May 2011, the FASB issued ASU 2011-04, “ Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards,” to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements. ASU 2011-04 is effective prospectively for interim and annual periods beginning after December 15, 2011 (that is, the quarter ending March 31, 2012 for us). We are currently evaluating the impact of pending adoption of ASU 2011-04.

A. Basis of Financial Statement Preparation (continued)

Accounting Standards Update 2011-05, Presentation of Comprehensive Income--In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220), Presentation of Comprehensive Income.”  ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of equity and requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either (a) in a single continuous statement of comprehensive income or (b) in two separate but consecutive statements.  The amendments are effective retrospectively for fiscal years, and interim periods within those years, beginning after December 15, 2011 (that is, the quarter ending March 31, 2012 for us).  The guidance requires changes in presentation only and will have no effect on our financial position, results of operations or cash flows.

Accounting Standards Update 2011-09, Disclosure about an Employer's Participation in a Multiemployer Plan--In September 2011, the FASB issued ASU 2011-09, “Compensation-Retirement Benefits-Multiemployer Plans (Subtopic 715-80).”  ASU 2011-09 requires all nongovernmental entities that participate in multiemployer plans to provide additional qualitative and quantitative disclosures about financial obligations, risks and commitments, as well as the level of participation in multiemployer plans. The amendments in this ASU require employers to provide detailed information about significant multiemployer plans, including contributions made to the plans, financial health and funded status of the plans, and expiration of collective-bargaining agreements that require contributions to the plans. For nonpublic entities, such as Davey Tree, the amendments will be applied retrospectively for annual periods ending after December 15, 2012, with early adoption permitted. We are currently evaluating the impact of this ASU.

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Business Combinations and Identified Intangible Assets and Goodwill, Net

9 Months Ended

Oct. 01, 2011

Business Combinations, Identified Intangible Assets and Goodwill, Net [Abstract]

Business Combinations, Identified Intangible Assets and Goodwill, Net [Text Block]

Business Combinations and Identified Intangible Assets and Goodwill, Net

During the first nine months of 2011, we acquired four businesses for $962 cash and the assumption of certain liabilities. The cash paid of $962 was preliminarily allocated, including the liabilities assumed, to the fair value of the primary assets acquired: fixed assets, intangibles and goodwill. The measurement period for purchase price allocations ends as soon as information of the facts and circumstances becomes available, but does not exceed twelve months. During the nine months endedOctober 2, 2010, we acquired one business for an aggregate purchase price of $6,753.

D. Business Combinations and Identified Intangible Assets and Goodwill, Net (continued)

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

	October 1, 2011				December 31, 2010
Identified Intangible Assets and Goodwill, Net	Carrying Amount		Accumulated Amortization		Carrying Amount		Accumulated Amortization
Amortized intangible assets:
Customer lists/relationships	$	12,219	$	9,016	$	11,852	$	8,453
Employment-related	5,234		4,331		5,066		3,914
Tradenames	4,309		2,607		4,226		2,197
Amortized intangible assets	$	21,762	$	15,954	$	21,144	$	14,564
Less accumulated amortization	15,954				14,564
Identified intangibles, net	5,808				6,580
Unamortized intangible assets:
Goodwill not amortized	21,736				21,275
	$	27,544			$	27,855

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Long-Term Debt

9 Months Ended

Oct. 01, 2011

Long-term Debt, by Current and Noncurrent [Abstract]

Long Term Debt [Text Block]

Long-Term Debt

Our long-term debt consisted of the following:

	October 1, 2011		December 31, 2010
Revolving credit facility
Prime rate borrowings	$	6,900	$	—
LIBOR borrowings	37,000		30,000
	43,900		30,000
Senior unsecured notes	30,000		30,000
Term loans	9,170		7,261
	83,070		67,261
Less current portion	8,043		5,670
	$	75,027	$	61,591

Revolving Credit Facility and 5.09% Senior Unsecured Notes--We have a $140,000 revolving credit facility with a group of banks, which will expire in December 2014 and permits borrowings, as defined, up to $140,000 (previously $159,000) with a letter of credit sublimit of $100,000 and which, under certain circumstances, may be increased to $160,000.  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.

E. Long-Term Debt (continued)

As at October 1, 2011, we had unused commitments under the facility approximating$46,724, with $93,276 committed, consisting of borrowings of$43,900 and issued letters of credit of$49,376. Borrowings outstanding bear interest, at Davey Tree’s option, of either (a) a base rate plus a margin adjustment ranging from .0% to .25% or (b) LIBOR plus a margin adjustment ranging from 1.25% to 1.75%--with the margin adjustments in both instances based on a ratio of funded debt to EBITDA. The base rate is the greater of (i) the agent bank’s prime rate, (ii) LIBOR plus 1.5%, or (iii) the federal funds rate plus .5%. A commitment fee ranging from .20% to .30% is also required based on the average daily unborrowed commitment.

During July 2010 we issued $30,000 of 5.09% Senior Unsecured Notes, Series A, due July 22, 2020 (the “5.09% Senior Notes”).  The 5.09% Senior Notes were issued pursuant to a Master Note Purchase Agreement (the “Purchase Agreement”), between the Company and the purchasers of the 5.09% Senior Notes.  Subsequent series of promissory notes may be issued pursuant to supplemental note purchase agreements in an aggregate additional principal amount not to exceed $20,000.

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

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Contingencies

9 Months Ended

Oct. 01, 2011

Contingencies [Abstract]

Legal Matters and Contingencies [Text Block]

Contingencies

We are party to a number of lawsuits, threatened lawsuits and other claims arising out of the normal course of business. With respect to all such matters, we record an accrual for a loss contingency when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. If we can only estimate a range of probable loss, an amount representing the low end of the range of probable outcomes is recorded.

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

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

Numerous lawsuits related to the Rice Canyon fire were filed against SDG&E, its parent company, Sempra Energy, and Davey. The earliest of the lawsuits naming Davey was filed on April 18, 2008. The court ordered that the lawsuits be organized into four groups based on type of plaintiff, namely insurance subrogation claimants, individual/business claimants, governmental claimants, and plaintiffs seeking class certification. Plaintiffs’ motions seeking class certification have since been denied. SDG&E has filed cross-complaints against Davey for contractual indemnity, declaratory relief, and breach of contract. SDG&E has reportedly settled many of the third-party claims and is now actively asserting damage claims against Davey.

Davey has notified its insurers of the Rice Canyon fire claims, is vigorously defending the third-party claims, and continues to work with the insurers both to defend the claims and to ensure coverage of any potential liabilities.

At this time, Davey believes that insurance coverage and recorded accruals are sufficient to provide for losses related to these potential liabilities.

However, due to the nature and extent of these claims, an adverse result in these proceedings leading to a loss in excess of Davey’s available insurance coverage could have a material and adverse effect on Davey’s business, financial condition, results of operations and cash flows. Adverse results, even if within the limits of Davey’s available insurance coverage, could materially and adversely (a) affect Davey’s ability to obtain comparable insurance in the future, or, (b) if such insurance were obtainable, affect the policy limits, premiums, self-insured retentions and other terms and conditions there

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Stock-Based Compensation

9 Months Ended

Oct. 01, 2011

Stock Based Compensation [Abstract]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

Stock-Based Compensation

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

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

	Three Months Ended				Nine Months Ended
	October 1, 2011		October 2, 2010		October 1, 2011		October 2, 2010
Compensation expense, all share-based payment plans	$	282	$	298	$	986	$	909

F. Stock-Based Compensation (continued)

Stock-based compensation consisted of the following:

Employee Stock Purchase Plan--Under the Employee Stock Purchase Plan, all full-time employees with one year of service are eligible to purchase, through payroll deduction, common shares. Employee purchases under the Employee Stock Purchase Plan are at 85% of the fair market value of the common shares--a 15% discount. We recognize compensation costs as payroll deductions are made. The 15% discount of total shares purchased under the plan resulted in compensation cost of $302 being recognized for the nine months endedOctober 1, 2011 and $286for the nine months endedOctober 2, 2010.

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 October 1, 2011, there were 648,568 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 $229 for the nine months endedOctober 1, 2011 and $263 for the nine months endedOctober 2, 2010.

Stock-Settled Stock Appreciation Rights--During the nine months endedOctober 1, 2011, the Compensation Committee of the Board of Directors awarded 98,800 Stock-Settled Stock Appreciation Rights (“SSARs”) to certain management employees and 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.

The following table summarizes our SSARs as of October 1, 2011.

Stock-Settled Stock Appreciation Rights	Number of Rights		Weighted- Average Award Date Value		Weighted- Average Remaining Contractual Life	Unrecognized Compensation Cost		Aggregate Intrinsic Value
Unvested, January 1, 2011	148,159		$	3.34
Granted	98,800		3.60
Forfeited	—		—
Vested	(36,771	)	3.31
Unvested, October 1, 2011	210,188		$	3.47	3.5 years	$	605	$	3,783
Employee SSARs	182,680		$	3.60	3.4 years	$	539	$	3,288
Nonemployee Director SSARs	27,508		$	2.60	4.5 years	$	66	$	495

Compensation costs for stock appreciation rights are determined using a fair-value method and amortized over the requisite service period. Compensation expense for stock appreciation rights was $142 for the nine months endedOctober 1, 2011 and $78 for the nine months endedOctober 2, 2010.

F. Stock-Based Compensation (continued)

Performance-Based Restricted Stock Units--During the nine months endedOctober 1, 2011, the Compensation Committee of the Board of Directors awarded 27,405 Performance-Based Restricted Stock Units to certain management employees. The Compensation Committee made similar awards in prior periods. The awards vest over specified periods. The following table summarizes Performance-Based Restricted Stock Units as of October 1, 2011.

Performance-Based Restricted Stock Units	Number of Stock Units		Weighted- Average Grant Date Value		Weighted- Average Remaining Contractual Life	Unrecognized Compensation Cost		Aggregate Intrinsic Value
Unvested, January 1, 2011	126,036		$	14.02
Granted	27,405		17.09
Forfeited	—		—
Vested	(26,093	)	11.73
Unvested, October 1, 2011	127,348		$	15.15	2.6 years	$	995	$	2,292

The fair value of the restricted stock units for awards made prior to January 1, 2006 is based on the market price of our common shares on the date of award and is recognized as compensation cost on the straight-line recognition method over the vesting period. Compensation cost for awards made after December 31, 2005 is determined using a fair-value method and amortized over the requisite service period. Compensation expense on restricted stock awards totaled $313 for the nine months endedOctober 1, 2011 and $282 for the nine months endedOctober 2, 2010.

For stock-based awards issued on or after January 1, 2006, we estimated the fair value of each award on the date of grant using a binomial option-pricing model. The binomial model considers a range of assumptions related to volatility, risk-free interest rate and employee exercise behavior. Expected volatilities utilized in the binomial model are based on historical volatility of our stock prices and other factors. Similarly, the dividend yield is based on historical experience and expected future changes. The binomial model also incorporates exercise and forfeiture assumptions based on an analysis of historical data. The expected life of the stock-based awards is derived from the output of the binomial model and represents the period of time that awards granted are expected to be outstanding.

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

	Nine Months Ended
	October 1, 2011		October 2, 2010
Volatility rate	11.9	%	12.2	%
Risk-free interest rate	2.9	%	3.4	%
Expected dividend yield	1.5	%	1.5	%
Expected life of awards (years)	8.9		8.8

F. Stock-Based Compensation (continued)

General Stock Option Information--The following table summarizes activity under the stock option plans for the nine months endedOctober 1, 2011.

Stock Options	Number of Options Outstanding		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life	Unrecognized Compensation Cost		Aggregate Intrinsic Value
Outstanding, January 1, 2011	1,256,106		$	10.27
Granted	—		—
Exercised	(79,863	)	8.12
Forfeited	—		—
Outstanding, October 1, 2011	1,176,243		$	10.41	4.3 years	$	12,245	$	8,928
Exercisable, October 1, 2011	958,243		$	9.08	3.3 years			$	8,548

“Intrinsic value” is defined as the amount by which the market price of a common share exceeds the exercise price of an option.  Information regarding the stock options outstanding at October 1, 2011 is summarized below:

Stock Options Exercise Price		Number Outstanding	Weighted- Average Remaining Contractual Life	Weighted- Average Exercise Price		Number Exercisable	Weighted- Average Exercise Price
Employee options:	$ 6.75	527,675	2.2 years	$	6.75	527,675	$	6.75
	11.25	359,500	4.7 years	11.25		359,500	11.25
	16.00	134,400	8.1 years	16.00		26,400	16.00
	16.60	110,000	9.1 years	16.60		—	16.60
		1,131,575	4.4 years	$	10.24	913,575	$	8.79
Director options:	$10.00 to $16.40	44,668	2.4 years	14.95		44,668	14.95
		1,176,243	4.3 years	$	10.41	958,243	$	9.08

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

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Condensed Consolidated Statements of Cash Flow (USD $) In Thousands	9 Months Ended
	Oct. 01, 2011	Oct. 02, 2010
Operating activities
Net income	$ 10,075	$ 9,439
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	29,461	27,463
Other	(129)	1,330
Changes in operating assets and liabilities:
Accounts receivable	(23,675)	(14,531)
Operating liabilities	7,910	4,238
Other	(4,972)	(3,728)
Adjustments to reconcile net income to cash provided by operating activities	8,595	14,772
Net cash provided by operating activities	18,670	24,211
Capital expenditures:
Equipment	(30,898)	(23,124)
Land and buildings	(251)	(440)
Purchases of businesses	(962)	(5,836)
Other	940	708
Net cash used in investing activities	(31,171)	(28,692)
Financing activities
Revolving credit facility proceeds, net	13,900	(12,550)
Purchase of common shares for treasury	(9,688)	(13,228)
Sale of common shares from treasury	5,267	5,394
Issuance of senior unsecured notes	0	30,000
Dividends	(1,779)	(1,854)
Other	(579)	(1,678)
Net cash provided by financing activities	7,121	6,084
(Decrease) Increase in cash and cash equivalents	(5,380)	1,603
Cash and cash equivalents, beginning of period	12,017	2,395
Cash and cash equivalents, end of period	6,637	3,998
Supplemental cash flow information follows:
Interest paid	3,348	1,710
Income taxes paid	2,762	5,742
Detail of acquisitions:
Receivables	16	0
Equipment	321	1,886
Deposits and other	0	16
Intangibles	1,190	4,739
Prepaids	0	112
Liabilities assumed	(65)	(917)
Debt issued for purchases of businesses	(500)	0
Cash paid	$ 962	$ 5,836

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Seasonality of Business

9 Months Ended

Oct. 01, 2011

Seasonality of Business [Abstract]

Seasonality [Text Block]

Seasonality of Business

Due to the seasonality of our business, our operating results for the nine months endedOctober 1, 2011 are not indicative of results that may be expected for any other interim period or for the year ending December 31, 2011. Business seasonality is the result of traditionally higher revenues during the second and third quarters as compared with the first and fourth quarters of the year, while the methods of accounting for fixed costs, such as depreciation expense, amortization, rent and interest expense, are not significantly impacted by business seasonality.

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Operations by Business Segment

9 Months Ended

Oct. 01, 2011

Operations by Business Segment [Abstract]

Segment Reporting Disclosure [Text Block]

Operations by Business Segment

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 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 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. Segment information, including reconciling adjustments, is presented consistent with the basis described in the 2010 Annual Report.

K.    Operations by Business Segment (continued)

Segment information reconciled to consolidated external reporting information follows:

	Utility Services		Residential Commercial Services		All Other			Reconciling Adjustments				Consolidated
Three Months Ended October 1, 2011
Revenues	$	86,038	$	76,522	$	16,239		$	—			$	178,799
Income (loss) from operations	3,336		9,400		2,117			(1,511		)	(a)	13,342
Interest expense								(1,041		)		(1,041		)
Interest income								14				14
Other income (expense), net								(1,043		)		(1,043		)
Income before income taxes												$	11,272
Segment assets, total	$	128,214	$	107,285	$	17,744		$	61,940		(b)	$	315,183
Three Months Ended October 2, 2010
Revenues	$	75,769	$	71,399	$	9,325		$	—			$	156,493
Income (loss) from operations	2,817		7,328		219			(284		)	(a)	10,080
Interest expense								(827		)		(827		)
Interest income								15				15
Other income (expense), net								(957		)		(957		)
Income before income taxes												$	8,311
Segment assets, total	$	111,651	$	105,183	$	12,091		$	58,030		(b)	$	286,955
Nine Months Ended October 1, 2011
Revenues	$	239,842	$	202,871	$	41,363						$	484,076
Income (loss) from operations	4,672		17,370		2,213			(2,566		)	(a)	21,689
Interest expense								(2,915		)		(2,915		)
Interest income								28				28
Other income (expense), net								(2,367		)		(2,367		)
Income before income taxes												$	16,435
Segment assets, total	$	128,214	$	107,285	$	17,744		$	61,940		(b)	$	315,183
Nine Months Ended October 2, 2010
Revenues	$	216,873	$	195,777	$	28,424		$	—			$	441,074
Income (loss) from operations	6,822		15,969		(1,793		)	(1,069		)	(a)	19,929
Interest expense								(1,868		)		(1,868		)
Interest income								38				38
Other income (expense), net								(2,074		)		(2,074		)
Income before income taxes												$	16,025
Segment assets, total	$	111,651	$	105,183	$	12,091		$	58,030		(b)	$	286,955

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

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

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

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Condensed Consolidated Balance Sheets (USD $) In Thousands	Oct. 01, 2011	Dec. 31, 2010
Current assets:
Cash and cash equivalents	$ 6,637	$ 12,017
Accounts receivable, net	104,123	80,432
Operating supplies	5,639	4,961
Other current assets	20,563	18,465
Total current assets	136,962	115,875
Property and equipment	436,415	416,071
Less accumulated depreciation	304,444	286,444
Property and equipment, net	131,971	129,627
Other assets	18,706	14,950
Identified intangible assets and goodwill, net	27,544	27,855
Total assets	315,183	288,307
Current liabilities:
Accounts payable	28,659	27,759
Accrued expenses	31,105	30,873
Other current liabilities	40,387	31,410
Total current liabilities	100,151	90,042
Long-term debt	75,027	61,591
Self-insurance accruals	29,695	30,658
Other noncurrent liabilities	7,848	7,647
Total liabilities	212,721	189,938
Common shareholders' equity:
Common shares, $1.00 par value, per share; 24,000 shares authorized; 21,457 shares issued	21,457	21,457
Additional paid-in capital	1,544	0
Retained earnings	185,206	176,800
Accumulated other comprehensive loss	(3,285)	(3,072)
Stockholders' Equity before Treasury Stock	204,922	195,185
Less: Cost of Common shares held in treasury; 7,525 shares at October 1, 2011 and 7,345 shares at December 31, 2010	102,460	96,816
Stockholders' Equity Attributable to Parent	102,462	98,369
Total liabilities and shareholders' equity	$ 315,183	$ 288,307