Defined Benefit Pension Plans

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

During the fourth quarter 2008, our Board of Directors approved an amendment to freeze the ERP and the Restoration Plan, effective December 31, 2008 and implemented enhanced benefits to our defined contribution saving plan—The Davey 401KSOP and ESOP—effective January 1, 2009. The ERP was closed to new participants after December 2008. In connection with the freeze of the ERP and Restoration Plan, (i) benefits currently being paid to retirees continue and (ii) benefits accrued through December 31, 2008 for employees covered by the ERP were not affected. All ERP and Restoration Plan balances remain intact and participant account balances, as well as service credits for vesting and retirement eligibility, remain intact and continue in accordance with the terms of the plans. The freeze of the ERP and Restoration Plan eliminated future accruals only.


P.	Defined Benefit Pension Plans (continued)

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



	December 31,
	2012			2011
Change in benefit obligation
Projected benefit obligation at beginning of year	$	32,148		$	28,251
Service cost	185			134
Interest cost	1,657			1,671
Actuarial loss	4,604			3,324
Settlements	(356		)	—
Benefits paid	(2,193		)	(1,232		)
Projected benefit obligation at end of year	$	36,045		$	32,148
Accumulated benefit obligation at end of year	$	35,790		$	31,940



	December 31,
	2012			2011
Change in fair value of plan assets
Fair value of plan assets at beginning of year	$	22,078		$	23,867
Actual return on plan assets	2,588			(1,361		)
Employer contributions	840			804
Settlements	(356		)	—
Benefits paid	(2,193		)	(1,232		)
Fair value of plan assets at end of year	$	22,957		$	22,078



	December 31,
	2012			2011
Funded status of the plans
Fair value of plan assets	$	22,957		$	22,078
Projected benefit obligation	36,045			32,148
Funded status of the plans	$	(13,088	)	$	(10,070	)



	December 31,
	2012			2011
Amounts reported in the consolidated balance sheets
Current liability	$	(27	)	$	(41	)
Noncurrent liability	(13,061		)	(10,029		)
Funded status of the plans	$	(13,088	)	$	(10,070	)


P.	Defined Benefit Pension Plans (continued)

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



	At December 31, 2012				At December 31, 2011
	Pretax		Net of Tax		Pretax		Net of Tax
Amounts reported in accumulated other comprehensive income
Unrecognized net actuarial loss	$	17,636	$	10,577	$	15,179	$	9,158
Unrecognized prior service cost	82		49		96		59
	$	17,718	$	10,626	$	15,275	$	9,217

To the extent actuarial losses exceed the greater of 10% of the projected benefit obligation or market-related value of plan assets, the unrecognized actuarial losses will be amortized straight-line on a plan-by-plan basis, over the remaining expected future working lifetime of active participants. The total amount of unrecognized prior service cost and transition asset are also amortized straight-line on a plan-by-plan basis. The total amortization associated with these amounts that is expected to be recognized in net periodic benefit expense for 2013 follows:



	Year ending December 31, 2013
	Pretax		Net of Tax
Amortization of Costs Expected to be Recognized Next Year
Unrecognized net actuarial loss	$	1,387	$	860
Unrecognized prior service cost	14		9
	$	1,401	$	869

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



	December 31,
	2012		2011
For pension plans with accumulated benefit obligations in excess of plan assets
Projected benefit obligation	$	36,045	$	32,148
Accumulated benefit obligation	35,790		31,940
Fair value of plan assets	22,957		22,078

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



	December 31,
	2012		2011		2010
Actuarial assumptions
Discount rate	4.25	%	5.25	%	6.00	%
Expected long-term rate of return on plan assets	7.75		7.75		8.00


P.	Defined Benefit Pension Plans (continued)

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



	Year Ended December 31,
	2012			2011			2010
Components of pension expense (income)
Service costs--increase in benefit obligation earned	$	185		$	134		$	130
Interest cost on projected benefit obligation	1,657			1,671			1,625
Expected return on plan assets	(1,701		)	(1,908		)	(1,767		)
Settlement loss	219			—			—
Amortization of net actuarial loss	1,041			535			615
Amortization of prior service cost	14			14			14
Amortization of transition asset	—			(68		)	(69		)
Net pension expense of defined benefit pension plans	$	1,415		$	378		$	548

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

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

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

Rate-of-return-on-assets assumptions are made by major category of plan assets according to historical analysis, tempered for an assessment of possible future influences that could cause the returns to exceed or trail long-term patterns. The overall expected long-term rate-of-return-on-plan assets net of investment manager fees as at December 31, 2012, was 7.75%.


P.	Defined Benefit Pension Plans (continued)

Plan Assets--The fair values of our pension plan assets at December 31, 2012 by asset category, using the three-level hierarchy of fair value inputs, were as follows:



			Fair Value Measurements at December 31, 2012 Using:
Description	Total Carrying Value at December 31, 2012		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Asset Category
Money market funds	$	2,494	$	—	$	2,494	$	—
U.S. large-cap equities
Growth	2,482		2,482		—		—
Value	1,767		1,767		—		—
U.S. small/mid-cap equities
Growth	1,516		1,516		—		—
Value	2,149		2,149		—		—
International equities
Growth	2,183		2,183		—		—
Value	2,083		2,083		—		—
Fixed income	4,654		4,654		—		—
Multiclass world-allocation mutual funds	3,629		3,629		—		—
	$	22,957	$	20,463	$	2,494	$	—

The fair values of our pension plan assets at December 31, 2011 by asset category, using the three-level hierarchy of fair value inputs, were as follows:



			Fair Value Measurements at December 31, 2011 Using:
Description	Total Carrying Value at December 31, 2011		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Asset Category
Money market funds	$	2,183	$	—	$	2,183	$	—
U.S. large-cap equities
Growth	2,317		2,317		—		—
Value	2,136		2,136		—		—
U.S. small/mid-cap equities
Growth	1,816		1,816		—		—
Value	2,134		2,134		—		—
International equities
Growth	2,081		2,081		—		—
Value	2,017		2,017		—		—
Fixed income	4,199		4,199		—		—
Multiclass world-allocation mutual funds	3,195		3,195		—		—
	$	22,078	$	19,895	$	2,183	$	—


P.	Defined Benefit Pension Plans (continued)

Within the pension plan asset categories, the Level 1 investments are publicly traded in active markets and are valued using the net asset value, or closing price of the investment at the measurement date. Securities held by a money market fund are generally high quality and liquid; however, they are reflected as Level 2 because the inputs used to determine fair value are not quoted prices in an active market.

Expected Benefit Plan Contributions--We expect, as of December 31, 2012, to make defined-benefit contributions totaling $724 before December 31, 2013.

Expected Benefit Plan Payments--The benefits, as of December 31, 2012, expected to be paid to defined-benefit plan participants in each of the next five years, and in the aggregate for the five years thereafter, follow:



	Participants Benefits
Estimated future payments
Year ending December 31, 2013	$	1,253
2014	1,332
2015	1,404
2016	1,500
2017	1,630
Years 2018 to 2022	9,159

Multiemployer Defined Benefit Pension Plans--In providing services to our Utility Services customers, we contribute to multiemployer defined benefit pension plans under the terms of collective-bargaining agreements that cover certain of our union-represented employees.

These plans generally provide retirement benefits to participants based on their service to contributing employers. We do not administer these multiemployer plans. In general, these plans are managed by a board of trustees with the unions appointing certain trustees and other contributing employers of the plan appointing certain members. We generally are not represented on the board of trustees.

The risks of participating in these multiemployer plans are different from single-employer plans in that: (a) assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers; (b) if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be assumed by the remaining participating employers; and, (c) if we choose to stop participating in a multiemployer plan, we may be required to pay the plan an amount based on the underfunded status of the plan, referred to as a withdrawal liability.

Our participation in the multiemployer defined benefit pension plans is summarized in the table below. The “EIN/Pension Plan Number” column provides the Employer Identification Number (“EIN”) and the three-digit plan number. The most recent Pension Protection Act of 2006 (the “PPA”) zone status is from the Form 5500, “Annual Return/Report of Employee Benefit Plan,” filed by the plan and certified by the plan's actuary. The PPA zone status describes plans that are underfunded. Among other factors, plans in the “critical” red zone are generally less than 65% funded; plans in the “endangered” yellow zone are less than 80% funded; and, plans in the “safe” green zone are at least 80% funded.



Pension Fund	EIN/Pension Plan Number	Pension Protection Act Zone Status		FIB/RP Status Pending Implemented	Davey Tree Contributions						Surcharge Imposed	Expiration Dates of Bargaining Agreement
Pension Fund	EIN/Pension Plan Number	2012	2011	FIB/RP Status Pending Implemented	2012		2011		2010		Surcharge Imposed	Expiration Dates of Bargaining Agreement
National Electric Benefit Fund	53-0181657/001	Green	Green	No	$	417	$	442	$	380	No	Ranging from December 31, 2012 to June 30, 2017
Eighth District Electrical Pension Fund	84-6100393/001	Green	Green	No	75		60		47		No	December 31, 2013
					$	492	$	503	$	427


P.	Defined Benefit Pension Plans (continued)

We were not listed in the Form 5500 for either plan as having provided more than 5% of the total contributions.

Both the National Electric Benefit Fund and the Eighth District Electrical Pension Fund are green zone status--safe--which represents at least 80% funded and does not require a “financial improvement plan” (“FIP”) or a “rehabilitation plan” (“RP”).

The Eighth District Electrical Pension Fund for the plan year March 31, 2012 extended the amortization period used in the green-zone certification; specifically, the Rehabilitation Plan for the plan year ended March 31, 2009: (a) utilized the special 30-year amortization rules provided under federal pension law to amortize its investment loss for the plan year ended March 31, 2009, (b) expanded asset smoothing of this investment loss from five-years to ten-years, and (c) required a 25% increase in the pension-contribution rate in effect on April 1, 2009. The extended amortization period was not used in the PPA zone-status for Eighth District Electrical Pension plan for the (i) green-zone certification for the plan year ended March 31, 2011 and (ii) the green-zone certification for the plan year ending March 31, 2013.

We are party to seven collective-bargaining agreements with the National Electric Benefit Fund, with expiration dates ranging from December 31, 2012 (one plan presently in collective bargaining) to June 30, 2017 and one collective-bargaining agreement with Eighth District Electrical Pension Fund with an expiration date of December 31, 2013.