10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended October 3, 2015

¨ 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 x 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 x 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	x 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 x

There were 12,852,615 Common Shares, $1.00 par value, outstanding as of October 30, 2015.

Index

The Davey Tree Expert Company

Quarterly Report on Form 10-Q

October 3, 2015

INDEX



		Page
Part I.	Financial Information

Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Operations	3
	Condensed Consolidated Statements of Comprehensive Income	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements
	A — Basis of Financial Statement Preparation	6
	B — Seasonality of Business	7
	C — Accounts Receivable, Net and Supplemental Balance-Sheet and Operating Information	7
	D — Business Combinations	8
	E — Identified Intangible Assets and Goodwill, Net	9
	F — Long-Term Debt	9
	G — Stock-Based Compensation	10
	H — Net Periodic Benefit Cost—Defined Benefit Pension Plans	13
	I — Income Taxes	14
	J — Accumulated Other Comprehensive Income (Loss)	14
	K — Per Share Amounts and Common Shares Outstanding	15
	L — Operations by Business Segment	18
	M — Fair Value Measurements and Financial Instruments	20
	N — Contingencies	22

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
	Results of Operations	23
	Liquidity and Capital Resources	27
	Cash Flow Summary	27
	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	32

Item 4.	Controls and Procedures	33

Part II.	Other Information

Item 1.	Legal Proceedings	34

Item 1A.	Risk Factors	34

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40

Item 6.	Exhibits	40

Signatures		41

Exhibit Index		42

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 3, 2015			December 31, 2014
Assets
Current assets:
Cash	$	15,916		$	18,415
Accounts receivable, net	135,568			111,598
Operating supplies	6,822			6,968
Other current assets	28,728			30,215
Total current assets	187,034			167,196

Property and equipment	562,851			532,949
Less accumulated depreciation	392,151			372,066
	170,700			160,883

Other assets	20,088			18,862
Identified intangible assets and goodwill, net	35,294			34,063
	$	413,116		$	381,004
Liabilities and shareholders' equity
Current liabilities:
Accounts payable	$	33,106		$	42,140
Accrued expenses	34,999			34,925
Other current liabilities	43,248			31,288
Total current liabilities	111,353			108,353

Long-term debt	96,975			81,306
Self-insurance accruals	40,393			35,886
Other noncurrent liabilities	18,972			18,968
	267,693			244,513
Common shareholders' equity:

Common shares, $1.00 par value, per share; 48,000 shares authorized; 21,457 shares issued and outstanding before treasury shares as of October 3, 2015 and December 31, 2014	21,457			21,457
Additional paid-in capital	15,461			9,461
Common shares subscribed, unissued	8,820			9,381
Retained earnings	270,032			251,470
Accumulated other comprehensive loss	(14,680		)	(11,523		)
	301,090			280,246
Less: Cost of Common shares held in treasury; 8,526 shares at October 3, 2015 and 8,292 shares at December 31, 2014	151,257			138,155
Common shares subscription receivable	4,410			5,600

	145,423			136,491
	$	413,116		$	381,004

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 3, 2015			September 27, 2014			October 3, 2015			September 27, 2014
Revenues	$	224,981		$	216,604		$	624,046		$	587,174

Costs and expenses:
Operating	143,173			138,991			400,372			378,505
Selling	40,086			37,179			107,656			102,051
General and administrative	13,480			12,407			42,146			39,211
Depreciation and amortization	12,169			11,071			34,437			31,439
Gain on sale of assets, net	(104		)	(188		)	(553		)	(266		)
	208,804			199,460			584,058			550,940

Income from operations	16,177			17,144			39,988			36,234

Other income (expense):
Interest expense	(827		)	(676		)	(2,517		)	(2,101		)
Interest income	85			56			207			201
Other, net	(2,068		)	(1,112		)	(3,776		)	(2,417		)

Income before income taxes	13,367			15,412			33,902			31,917

Income taxes	5,193			5,755			13,324			12,225

Net income	$	8,174		$	9,657		$	20,578		$	19,692

Net income per share:
Basic	$	.58		$	.72		$	1.53		$	1.43
Diluted	$	.55		$	.69		$	1.47		$	1.39

Weighted-average shares outstanding:
Basic	14,144			13,428			13,442			13,745
Diluted	14,785			13,899			13,962			14,167

Dividends declared per share	$	.05		$	.05		$	.15		$	.14

See notes to condensed consolidated financial statements.

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THE DAVEY TREE EXPERT COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(In thousands)



	Three Months Ended						Nine Months Ended
	October 3, 2015			September 27, 2014			October 3, 2015			September 27, 2014
Net income	$	8,174		$	9,657		$	20,578		$	19,692
Components of other comprehensive income/(loss), net of tax:
Foreign currency translation adjustments	(1,561		)	(1,263		)	(3,828		)	(1,266		)
Adjustments to defined benefit pension plans:
Reclassification to results of operations:
Amortization of defined benefit pension items:
Net actuarial loss	213			109			668			329
Prior service cost	1			3			3			7
Defined benefit pension plan adjustments	214			112			671			336

Other comprehensive income/(loss), net of tax	(1,347		)	(1,151		)	(3,157		)	(930		)

Comprehensive income	$	6,827		$	8,506		$	17,421		$	18,762

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 3, 2015			September 27, 2014
Operating activities
Net income	$	20,578		$	19,692
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	34,437			31,439
Other	(1,626		)	(322		)
Changes in operating assets and liabilities:
Accounts receivable	(23,970		)	(20,570		)
Operating liabilities	5,522			(5,535		)
Other, net	1,706			(1,608		)
	16,069			3,404
Net cash provided by operating activities	36,647			23,096

Investing activities
Capital expenditures:
Equipment	(50,154		)	(40,152		)
Land and building	(2,264		)	(9,116		)
Purchases of businesses	(2,649		)	(9,544		)
Other	812			423
Net cash used in investing activities	(54,255		)	(58,389		)

Financing activities
Revolving credit facility proceeds, net	21,500			34,600
Purchase of common shares for treasury	(16,047		)	(13,242		)
Sale of common shares from treasury	8,083			8,143
Dividends	(2,015		)	(1,998		)
Proceeds from notes payable	3,588			9,072
Net cash provided by financing activities	15,109			36,575

(Decrease) increase in cash	(2,499		)	1,282

Cash, beginning of period	18,415			15,861
Cash, end of period	$	15,916		$	17,143

Supplemental cash flow information follows:
Interest paid	$	2,903		$	2,461
Income taxes paid	13,862			6,449

See notes to condensed consolidated financial statements.

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The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 3, 2015

(Amounts in thousands, except share data)


A.	Basis of Financial Statement Preparation

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

We have prepared the accompanying unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”), as codified in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), and with the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. The 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, 2014 (the “2014 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

Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606)--In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” which will replace all current U.S. GAAP guidance on revenue recognition and eliminate all industry-specific guidance.

The new revenue recognition guidance provides a unified model to determine when and how revenue is recognized. The underlying principle is that an entity should recognize revenue to depict the transfer of promised goods and services to customers in an amount that reflects the consideration for which the entity expects in exchange for those goods and services. The guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. Other major provisions include capitalization of certain contract costs, consideration of the time value of money in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The guidance also requires enhanced information to be presented in the financial statements regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers.

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The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 3, 2015

(Amounts in thousands, except share data)


A.	Basis of Financial Statement Preparation (continued)

original effective date, which for Davey Tree would be first quarter 2017. The new revenue guidance will supersede existing revenue guidance affecting our Company, and may also affect our business processes and our information technology systems. As a result, our evaluation of the effect of the new revenue guidance will extend over future periods.

Accounting Standards Update 2015-03--In April 2015, the FASB issued ASU 2015-03, “Imputation of Interest (Sub-Topic 835.30): Simplifying the Presentation of Debt Issuance Costs.” ASU 2015-03 requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. In August 2015, the FASB issued ASU 2015-15 clarifying the application of this guidance to line-of-credit arrangements. The amendments in the ASUs are effective retrospectively for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015, which for Davey Tree would be January 1, 2016. Early adoption is permitted for financial statements not previously issued. We do not expect the adoption of this guidance to have a significant impact on our consolidated financial statements.


B.	Seasonality of Business

Due to the seasonality of our business, our operating results for the nine months ended October 3, 2015 are not indicative of results that may be expected for any other interim period or for the year ending December 31, 2015. 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 and Operating Information

Accounts receivable, net, consisted of the following:



Accounts receivable, net	October 3, 2015		December 31, 2014
Accounts receivable	$	109,895	$	98,657
Receivables under contractual arrangements	28,773		15,362
	138,668		114,019
Less allowances for doubtful accounts	3,100		2,421
Accounts receivable, net	$	135,568	$	111,598

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 3, 2015

(Amounts in thousands, except share data)


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



Accrued expenses	October 3, 2015		December 31, 2014
Employee compensation	$	20,268	$	19,195
Accrued compensated absences	9,002		8,034
Self-insured medical claims	1,450		2,722
Customer advances, deposits	782		2,030
Taxes, other than income	3,140		2,054
Other	357		890
Total	$	34,999	$	34,925

Other Nonoperating Income (Expense), Net

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



	Three Months Ended						Nine Months Ended
	October 3, 2015			September 27, 2014			October 3, 2015			September 27, 2014
Other nonoperating income (expense), net	$	(2,068	)	$	(1,112	)	$	(3,776	)	$	(2,417	)

Other nonoperating income (expense), net, includes foreign currency losses on the intercompany balances of our Canadian operations of: (i) $367 for the third quarter of 2015; (ii) $126 for the third quarter of 2014; (iii) $464 for the first nine months of 2015; and, (iv) $78 for the first nine months of 2014.


D.	Business Combinations

Our investment in businesses during the first nine months of 2015 was $4,149, with no liabilities assumed and debt issued of $1,500. Measurement-period adjustments are not complete. The measurement period for purchase price allocations ends as soon as information of the facts and circumstances becomes available, but does not exceed one year from the acquisition date. During the nine months ended September 27, 2014, our investment in businesses was $12,702, with liabilities assumed of $1,078 and debt issued of $2,080.

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

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The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 3, 2015

(Amounts in thousands, except share data)


E.	Identified Intangible Assets and Goodwill, Net

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



	October 3, 2015				December 31, 2014
Identified Intangible Assets and Goodwill, Net	Carrying Amount		Accumulated Amortization		Carrying Amount		Accumulated Amortization
Amortized intangible assets:
Customer lists/relationships	$	17,220	$	13,471	$	16,076	$	12,560
Employment-related	7,401		6,091		7,026		5,776
Tradenames	5,535		4,439		5,286		4,153

Amortized intangible assets	$	30,156	$	24,001	$	28,388	$	22,489

Less accumulated amortization	24,001				22,489

Identified intangibles, net	6,155				5,899

Unamortized intangible assets:
Goodwill	29,139				28,164
	$	35,294			$	34,063


F.	Long-Term Debt

Our long-term debt consisted of the following:



	October 3, 2015		December 31, 2014
Revolving credit facility
Swing-line borrowings	$	—	$	7,500
LIBOR borrowings	66,000		37,000
	66,000		44,500
Senior unsecured notes	30,000		30,000
Term loans	20,175		15,087
	116,175		89,587
Less current portion	19,200		8,281
	$	96,975	$	81,306

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The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 3, 2015

(Amounts in thousands, except share data)


F.	Long-Term Debt (continued)

includes financial covenant ratios with respect to a maximum leverage ratio and a maximum balance-sheet leverage ratio.

As of October 3, 2015, we had unused commitments under the facility approximating $51,653, with $123,347 committed, consisting of borrowings of $66,000 and issued letters of credit of $57,347. Borrowings outstanding bear interest, at Davey Tree’s option, of either (a) a base rate or (b) LIBOR plus a margin adjustment ranging from .75% to 1.50%--with the margin adjustments in both instances based on the Company's leverage ratio at the time of borrowing. The base rate is the greater of (i) the agent bank’s prime rate, (ii) LIBOR plus 1.5%, or (iii) the federal funds rate plus .5%. A commitment fee ranging from .10% to .25% is also required based on the average daily unborrowed commitment.

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

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


G.	Stock-Based Compensation

Our shareholders approved the 2014 Omnibus Stock Plan (the “2014 Stock Plan”) at our annual meeting of shareholders on May 20, 2014. The 2014 Stock Plan replaced the expired 2004 Omnibus Stock Plan (the “2004 plan”) previously approved by the shareholders in 2004. The 2014 Stock Plan is administered by the Compensation Committee of the Board of Directors and will remain in effect for ten years. All directors of the Company and employees of the Company and its subsidiaries are eligible to participate in the 2014 Stock Plan. The 2014 Stock Plan (similar to the 2004 plan) continues the maintenance of the Employee Stock Purchase Plan, as well as provisions for the grant of stock options and other stock-based incentives. The 2014 Stock Plan provides for the grant of five percent of the number of the Company’s common shares outstanding as of the first day of each fiscal year plus the number of common shares that were available for grant of awards, but not granted, in prior years. In no event, however, may the number of common shares available for the grant of awards in any fiscal year exceed ten percent of the common shares outstanding as of the first day of that fiscal year. Common shares subject to an award that is forfeited, terminated, or canceled without having been exercised are generally added back to the number of shares available for grant under the 2014 Stock Plan.

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



	Three months ended				Nine Months Ended
	October 3, 2015		September 27, 2014		October 3, 2015		September 27, 2014
Compensation expense, all share-based payment plans	$	695	$	497	$	1,750	$	1,389

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The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 3, 2015

(Amounts in thousands, except share data)


G.	Stock-Based Compensation (continued)

Stock-based compensation consisted of the following:

Employee Stock Purchase Plan--Under the Employee Stock Purchase Plan, all full-time employees with one year of service are eligible to purchase, through payroll deduction, common shares. Employee purchases under the Employee Stock Purchase Plan are at 85% of the fair market value of the common shares--a 15% discount. We recognize compensation costs as payroll deductions are made. The 15% discount of total shares purchased under the plan resulted in compensation cost of $431 being recognized for the nine months ended October 3, 2015 and $330 for the nine months ended September 27, 2014.

Stock Option Plans--The stock options outstanding were awarded under a graded vesting schedule, measured at fair value, and have a term of ten years. Compensation costs for stock options are recognized over the requisite service period on the straight-line recognition method. Compensation cost recognized for stock options was $364 for the nine months ended October 3, 2015 and $285 for the nine months ended September 27, 2014.

Stock-Settled Stock Appreciation Rights--During the nine months ended October 3, 2015, the Compensation Committee awarded 133,550 stock-settled stock appreciation rights (“SSARs”) to certain management employees and nonemployee directors, which vest ratably over five years. A SSAR is an award that allows the recipient to receive common stock equal to the appreciation in the fair market value of our common stock between the date the award was granted and the conversion date of the shares vested.

The following table summarizes our SSARs as of October 3, 2015.



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, 2015	303,271		$	3.84
Granted	133,550		5.78
Forfeited	—		—
Vested	(90,684	)	3.72
Unvested, October 3, 2015	346,137		$	4.62	2.9 years	$	1,269	$	10,419

Employee SSARs	337,138		$	4.67	2.9 years	$	1,254	$	10,148
Nonemployee Director SSARs	8,999		$	2.23	1.1 years	$	15	$	271

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 $368 for the nine months ended October 3, 2015 and $296 for the nine months ended September 27, 2014.

Performance-Based Restricted Stock Units--During the nine months ended October 3, 2015, the Compensation Committee awarded 42,152 performance-based restricted stock units to certain directors and management employees. The Compensation Committee made similar awards in prior periods. The awards vest over specified periods. The following table summarizes performance-based restricted stock units as of October 3, 2015.

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The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 3, 2015

(Amounts in thousands, except share data)


G.	Stock-Based Compensation (continued)



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, 2015	117,709		$	21.14
Granted	42,152		29.14
Forfeited	—		—
Vested	(14,754	)	17.52

Unvested, October 3, 2015	145,107		$	23.83	2.7 years	$	2,097	$	4,368

Compensation cost for restricted stock awards is determined using a fair-value method and amortized on the straight-line recognition method over the requisite service period. Compensation expense on restricted stock awards totaled $587 for the nine months ended October 3, 2015 and $478 for the nine months ended September 27, 2014.

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

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 3, 2015		September 27, 2014
Volatility rate	10.9	%	11.2	%
Risk-free interest rate	2.1	%	2.6	%
Expected dividend yield	.7	%	1.1	%
Expected life of awards (years)	9.3		9.4

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The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 3, 2015

(Amounts in thousands, except share data)


G.	Stock-Based Compensation (continued)

General Stock Option Information--The following table summarizes activity under the stock option plans for the nine months ended October 3, 2015.



Stock Options	Number of Options Outstanding		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life	Aggregate Intrinsic Value
Outstanding, January 1, 2015	770,131		$	19.33
Granted	148,000		30.10
Exercised	(46,706	)	13.51
Forfeited	(34,700	)	24.27
Outstanding, October 3, 2015	836,725		$	21.36	6.4 years	$	7,313

Exercisable, October 3, 2015	397,345		$	16.46	4.0 years	$	5,420

As of October 3, 2015, there was approximately $1,961 of unrecognized compensation cost related to stock options outstanding. The cost is expected to be recognized over a weighted-average period of 3.4 years. “Intrinsic value” is defined as the amount by which the market price of a common share exceeds the exercise price of an option.

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


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

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



	Three Months Ended						Nine Months Ended
	October 3, 2015			September 27, 2014			October 3, 2015			September 27, 2014
Components of pension cost
Service costs--increase in benefit obligation earned	$	4		$	12		$	30		$	38
Interest cost on projected benefit obligation	376			405			1,131			1,214
Expected return on plan assets	(405		)	(499		)	(1,216		)	(1,495		)
Curtailment cost	—			—			49			—
Amortization of net actuarial loss	345			177			1,078			531
Amortization of prior service cost	1			4			5			10
Net pension cost of defined benefit pension plans	$	321		$	99		$	1,077		$	298

During the second quarter ended July 4, 2015, the Board of Directors approved a pension plan amendment for the Supplemental Executive Retirement Plan (the “SERP”) to cease the accrual of additional retirement benefits, resulting in recognition of plan curtailment cost of $49, which consisted of existing net prior service costs prior to

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Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 3, 2015

(Amounts in thousands, except share data)


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

the plan freeze. As required, we remeasured the SERP’s accumulated benefits obligation which, after the plan freeze, is being amortized based on the remaining life expectancy of plan participants instead of the remaining service period of these participants.


I.	Income Taxes

Our income tax provision for interim periods is determined using an estimate of our annual effective tax rate adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter we update our estimate of the annual effective tax rate and, if our estimated annual tax rate changes, we make a cumulative adjustment. The 2015 annual effective tax rate is estimated to approximate 39%. Our annual effective tax rate for 2014 was 39.5%.

At December 31, 2014, we had unrecognized tax benefits of $1,949, of which $1,512 would affect our effective rate if recognized, and accrued interest expense related to unrecognized benefits of $77. At October 3, 2015, there were no significant changes in the unrecognized tax benefits, including the amount that would affect our effective rate if recognized, or the accrued interest expense related to the unrecognized benefits. Unrecognized tax benefits are the differences between a tax position taken, or expected to be taken in a tax return, and the benefit recognized for financial reporting purposes.

The Company is routinely under audit by federal, state, local and Canadian authorities in the area of income tax. These audits include questioning the timing and the amount of income and deductions and the allocation of income and deductions among various tax jurisdictions. During the fourth quarter 2013, the U.S. Internal Revenue Service completed its audit of the Company's U.S. income tax returns for 2010 and 2011 and, during 2010, Canada Revenue Agency completed its audit of the Company's Canadian operations for 2006, 2007 and 2008. With the exception of U.S. state jurisdictions, the Company is no longer subject to examination by tax authorities for the years through 2010. As of October 3, 2015, we believe it is reasonably possible that the total amount of unrecognized tax benefits will not significantly increase or decrease.


J.	Accumulated Other Comprehensive Income (Loss)

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

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Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 3, 2015

(Amounts in thousands, except share data)


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

The following summarizes the components of other comprehensive income (loss) accumulated in shareholders’ equity for the nine months ended October 3, 2015 and nine months ended September 27, 2014:



	Foreign Currency Translation Adjustments			Defined Benefit Pension Plans			Accumulated Other Comprehensive Income (Loss)
Balance at January 1, 2015	$	(1,151	)	$	(10,372	)	$	(11,523	)
Other comprehensive income (loss) before reclassifications
Unrealized losses	$	(3,828	)	$	—		$	(3,828	)
Amounts reclassified from accumulated other comprehensive income (loss)	—			1,083			1,083
Tax effect	—			(412		)	(412		)
Net of tax amount	(3,828		)	671			(3,157		)
Balance at October 3, 2015	$	(4,979	)	$	(9,701	)	$	(14,680	)



	Foreign Currency Translation Adjustments			Defined Benefit Pension Plans			Accumulated Other Comprehensive Income (Loss)
Balance at January 1, 2014	$	1,647		$	(6,040	)	$	(4,393	)
Other comprehensive income (loss) before reclassifications
Unrealized losses	$	(1,266	)	$	—		$	(1,266	)
Amounts reclassified from accumulated other comprehensive income (loss)	—			541			541
Tax effect	—			(205		)	(205		)
Net of tax amount	(1,266		)	336			(930		)
Balance at September 27, 2014	$	381		$	(5,704	)	$	(5,323	)

The change in defined benefit pension plans of $1,083 for the nine months ended October 3, 2015 and the $541 for the nine months ended September 27, 2014 is included in net periodic pension expense and is classified in the condensed statement of operations as costs and expenses, general and administrative.

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Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 3, 2015

(Amounts in thousands, except share data)


K.	Per Share Amounts and Common Shares Outstanding

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



	Three Months Ended				Nine Months Ended
	October 3, 2015		September 27, 2014		October 3, 2015		September 27, 2014
Income available to common shareholders:
Net income	$	8,174	$	9,657	$	20,578	$	19,692

Weighted-average shares:
Basic:
Outstanding	14,032		13,307		13,107		13,382
Partially-paid share subscriptions	112		121		335		363
Basic weighted-average shares	14,144		13,428		13,442		13,745

Diluted:
Basic from above	14,144		13,428		13,442		13,745
Incremental shares from assumed:
Exercise of stock subscription purchase rights	82		77		68		55
Exercise of stock options and awards	559		394		452		367
Diluted weighted-average shares	14,785		13,899		13,962		14,167

Net income per share:
Basic	$	.58	$	.72	$	1.53	$	1.43

Diluted	$	.55	$	.69	$	1.47	$	1.39

Common Shares Outstanding--A summary of the activity of the common shares outstanding for the nine months ended October 3, 2015 follows:



Shares outstanding at January 1, 2015	13,164,933
Shares purchased	(526,995	)
Shares sold	210,156
Stock subscription offering -- cash purchases	30,954
Options and awards exercised	51,606
	(234,279	)
Shares outstanding at October 3, 2015	12,930,654

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Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 3, 2015

(Amounts in thousands, except share data)


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

On May 19, 2015, at the Annual Meeting of Shareholders, the Company's shareholders approved an increase in the number of the Company's authorized common shares, par value $1.00, to 48 million from 24 million. The number of authorized preferred shares of the Company remains at four million preferred shares, no par value, of which none were issued.

On October 3, 2015, we had 12,930,654 common shares outstanding, employee and director options exercisable to purchase 397,345 common shares, partially-paid subscriptions for 447,723 common shares and purchase rights outstanding for 182,696 common shares.

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

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

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

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

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Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 3, 2015

(Amounts in thousands, except share data)


L.	Operations by Business Segment

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

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

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

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

Measurement of Segment Profit and Loss and Segment Assets--We evaluate performance and allocate resources based primarily on operating income and also actively manage business unit operating assets. Segment information, including reconciling adjustments, is presented consistent with the basis described in our 2014 Annual Report.

Segment information reconciled to consolidated external reporting information follows:

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Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 3, 2015

(Amounts in thousands, except share data)


L.	Operations by Business Segment (continued)



	Utility		Residential and Commercial		All Other			Reconciling Adjustments				Consolidated
Three Months Ended October 3, 2015
Revenues	$	114,884	$	109,108	$	989		$	—			$	224,981
Income (loss) from operations	6,267		13,513		(1,378		)	(2,225		)	(a)	16,177
Interest expense								(827		)		(827		)
Interest income								85				85
Other income (expense), net								(2,068		)		(2,068		)
Income before income taxes												$	13,367
Segment assets, total	$	164,841	$	163,935	$	—		$	84,340		(b)	$	413,116

Three Months Ended September 27, 2014
Revenues	$	108,096	$	107,671	$	837		$	—			$	216,604
Income (loss) from operations	5,725		13,421		(514		)	(1,488		)	(a)	17,144
Interest expense								(676		)		(676		)
Interest income								56				56
Other income (expense), net								(1,112		)		(1,112		)
Income before income taxes												$	15,412
Segment assets, total	$	155,231	$	156,685	$	—		$	74,680		(b)	$	386,596

Nine Months Ended October 3, 2015
Revenues	$	323,804	$	298,200	$	2,042		$	—			$	624,046
Income (loss) from operations	17,630		32,336		(4,916		)	(5,062		)	(a)	39,988
Interest expense								(2,517		)		(2,517		)
Interest income								207				207
Other income (expense), net								(3,776		)		(3,776		)
Income before income taxes												$	33,902
Segment assets, total	$	164,841	$	163,935	$	—		$	84,340		(b)	$	413,116

Nine Months Ended September 27, 2014
Revenues	$	296,230	$	288,990	$	1,954		$	—			$	587,174
Income (loss) from operations	14,450		29,318		(4,121		)	(3,413		)	(a)	36,234
Interest expense								(2,101		)		(2,101		)
Interest income								201				201
Other income (expense), net								(2,417		)		(2,417		)
Income before income taxes												$	31,917
Segment assets, total	$	155,231	$	156,685	$	—		$	74,680		(b)	$	386,596

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


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


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

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Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 3, 2015

(Amounts in thousands, except share data)


M.	Fair Value Measurements and Financial Instruments

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

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

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

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

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

Our assets and liabilities measured at fair value on a recurring basis at October 3, 2015 were as follows:



			Fair Value Measurements at October 3, 2015 Using:
Assets and Liabilities Recorded at Fair Value on a Recurring Basis	Total Carrying Value at October 3, 2015		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	$	15,603	$	15,603	$	—	$	—

Liabilities:
Deferred compensation	$	1,570	$	—	$	1,570	$	—

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Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 3, 2015

(Amounts in thousands, except share data)


M.	Fair Value Measurements and Financial Instruments (continued)

Our assets and liabilities measured at fair value on a recurring basis at December 31, 2014 were as follows:



			Fair Value Measurements at December 31, 2014 Using:
Assets and Liabilities Recorded at Fair Value on a Recurring Basis	Total Carrying Value at December 31, 2014		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Assets invested for self-insurance, classified as other assets, noncurrent	$	13,684	$	13,684	$	—	$	—

Liabilities:
Deferred compensation	$	1,423	$	—	$	1,423	$	—

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

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



	October 3, 2015				December 31, 2014
	Carrying Value		Fair Value		Carrying Value		Fair Value
Revolving credit facility, noncurrent	$	66,000	$	66,000	$	44,500	$	44,500
Senior unsecured notes	24,000		24,728		30,000		30,688
Term loans, noncurrent	6,975		7,373		6,806		7,195
Total	$	96,975	$	98,101	$	81,306	$	82,383

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

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

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Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

October 3, 2015

(Amounts in thousands, except share data)


M.	Fair Value Measurements and Financial Instruments (continued)

instruments to manage risk, in part, associated with changes in interest rates and changes in fuel prices. Presently, we are not engaged in any hedging or derivative activities.


N.	Contingencies

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

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

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

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

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

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

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

During 2013, the Master Complaint for the lawsuits brought by governmental entities was dismissed with prejudice. In the third quarter 2015, the Master Complaints for the lawsuits by insurers and individuals were dismissed with prejudice. As a result, the Rice Canyon litigation involving or potentially involving Davey is now concluded.

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Index


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

(Amounts in thousands, except share data)

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

We provide a wide range of arboriculture, horticultural, environmental and consulting services to residential, utility, commercial and government entities throughout the United States and Canada.

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

RESULTS OF OPERATIONS

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



	Three Months Ended						Nine Months Ended
	October 3, 2015		September 27, 2014		Percentage Change		October 3, 2015		September 27, 2014		Percentage Change
Revenues	100.0	%	100.0	%	—	%	100.0	%	100.0	%	—	%

Costs and expenses:
Operating	63.6		64.2		(.6	)	64.2		64.4		(.2	)
Selling	17.8		17.2		.6		17.2		17.3		(.1	)
General and administrative	6.0		5.7		.3		6.8		6.7		.1
Depreciation and amortization	5.4		5.1		.3		5.5		5.4		.1
Gain on sale of assets, net	—		(.1	)	.1		(.1	)	—		(.1	)

Income from operations	7.2		7.9		(.7	)	6.4		6.2		.2

Other income (expense):
Interest expense	(.4	)	(.3	)	(.1	)	(.4	)	(.4	)	—
Interest income	—		—		—		—		—		—
Other, net	(.9	)	(.5	)	(.4	)	(.6	)	(.4	)	(.2	)

Income before income taxes	5.9		7.1		(1.2	)	5.4		5.4		—

Income taxes	2.3		2.7		(.4	)	2.1		2.1		—

Net income	3.6	%	4.4	%	(.8	)%	3.3	%	3.3	%	—	%

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Index

Third Quarter—Three Months Ended October 3, 2015 Compared to Three Months Ended September 27, 2014

Our results of operations for the three months ended October 3, 2015 compared to the three months ended September 27, 2014 follows:



	Three Months Ended
	October 3, 2015			September 27, 2014			Change			Percentage Change
Revenues	$	224,981		$	216,604		$	8,377		3.9	%

Costs and expenses:
Operating	143,173			138,991			4,182			3.0
Selling	40,086			37,179			2,907			7.8
General and administrative	13,480			12,407			1,073			8.6
Depreciation and amortization	12,169			11,071			1,098			9.9
Gain on sale of assets, net	(104		)	(188		)	84			nm
	208,804			199,460			9,344			4.7

Income from operations	16,177			17,144			(967		)	(5.6	)
Other income (expense):
Interest expense	(827		)	(676		)	(151		)	22.3
Interest income	85			56			29			51.8
Other, net	(2,068		)	(1,112		)	(956		)	86.0
Income before income taxes	13,367			15,412			(2,045		)	(13.3	)

Income taxes	5,193			5,755			(562		)	(9.8	)

Net Income	$	8,174		$	9,657		$	(1,483	)	(15.4	)%

nm--not meaningful

Revenues--Revenues of $224,981 increased $8,377 compared with $216,604 in the third quarter 2014. Utility increased $6,788 or 6.3% compared with the third quarter 2014. Rate increases and additional work obtained with multiple utility customers as well as new contracts obtained and increased productivity within our U.S. and Canadian operations accounted for the increase. Residential and Commercial increased $1,437 or 1.3% compared with the third quarter 2014. Increases in landscape services revenue, higher productivity, increased contract rates as well as additional revenue from the purchases of businesses account for the increase. Total revenues of $224,981 include production incentive revenue, recognized under the completed-performance method, of $110 during the third quarter 2015 compared with a reduction of $55 during the third quarter 2014.

Operating Expenses--Operating expenses of $143,173 increased $4,182 compared with the third quarter 2014 and, as a percentage of revenues, decreased .6% to 63.6%. Utility increased $4,079 or 5.0% compared with the third quarter 2014 but, as a percentage of revenues, decreased 1.0% to 74.7%. Increases in labor expense, equipment maintenance expense, crew expenses, tools and parts expense and subcontractor expense were partially offset by a reduction in fuel expense. Residential and Commercial decreased $538 or 1.0% compared with the third quarter 2014 and, as a percentage of revenues, decreased 1.3% to 50.7%. Decreases in fuel expense were partially offset by an increase in labor expense, equipment maintenance expense and subcontractor expense.

Fuel costs of $6,965 decreased $2,372, or 25.6%, from the $9,337 incurred in the third quarter 2014 and impacted operating expenses within all segments. The $2,372 decrease included price decreases approximating $2,531 and usage increases approximating $159.

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Index

Selling Expenses--Selling expenses of $40,086 increased $2,907 compared with the third quarter 2014 and as a percentage of revenues increased .6% to 17.8%. Utility increased $1,491 or 14.6% over the third quarter 2014 and as a percentage of revenues increased .7% to 10.2%. Increases in field management wages and incentive expense, travel and living expense, communication expense, information technology expense and employee development expense were partially offset by a decrease in field management auto expense and professional service expense. Residential and Commercial increased $1,619 or 5.9% over the third quarter 2014 and, as a percentage of revenues increased 1.2% to 26.8%. Increases in field management wages and incentive expense, office support wages, employee development expense and office rent expense were partially offset by a decrease in field management auto expense, professional service expense, field management travel expense, computer expense and communication expense.

General and Administrative Expenses--General and administrative expenses of $13,480 increased $1,073 from $12,407 in the third quarter 2014. Increases in salary and incentive expense, stock compensation expense, information technology expense, communication expense and travel and living expense were partially offset by decreases in professional services expense and office expenses.

Depreciation and Amortization Expense--Depreciation and amortization expense of $12,169 increased $1,098 from $11,071 in the third quarter of 2014. The increase is attributable to higher capital expenditures related to increased business volume and purchases of businesses.

Gain on the Sale of Assets, Net--Gain on the sale of assets was $104 for the third quarter 2015 as compared with a gain of $188 in the third quarter 2014. The decrease is the result of a reduction in the value received for equipment units sold in the third quarter 2015 as compared with the third quarter 2014.

Interest Expense--Interest expense of $827 increased $151 from the $676 incurred in the third quarter 2014. The increase is attributable to higher-average debt levels necessary to fund operations and capital expenditures during the third quarter of 2015, as compared with the third quarter of 2014.

Other, Net--Other, net, of $2,068 increased $956 from the $1,112 incurred in the third quarter 2014 and consisted of nonoperating income and expense, including foreign currency gains/losses on the intercompany account balances of our Canadian operations.

Income Taxes--Income tax expense for the third quarter 2015 was $5,193, as compared to $5,755 for the third quarter 2014. 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 2015 annual effective tax rate is estimated to approximate 39%. Our annual effective tax rate for 2014 was 39.5%.

Net Income--Net income of $8,174 for the third quarter 2015 was $1,483 less than the $9,657 experienced in the third quarter 2014.

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Nine Months Ended October 3, 2015 Compared to Nine Months Ended September 27, 2014

Our results of operations for the nine months ended October 3, 2015 compared to the nine months ended September 27, 2014 follows:



	Nine Months Ended
	October 3, 2015			September 27, 2014			Change			Percentage Change
Revenues	$	624,046		$	587,174		$	36,872		6.3	%

Costs and expenses:
Operating	400,372			378,505			21,867			5.8
Selling	107,656			102,051			5,605			5.5
General and administrative	42,146			39,211			2,935			7.5
Depreciation and amortization	34,437			31,439			2,998			9.5
Gain on sale of assets, net	(553		)	(266		)	(287		)	nm
	584,058			550,940			33,118			6.0

Income from operations	39,988			36,234			3,754			10.4
Other income (expense):
Interest expense	(2,517		)	(2,101		)	(416		)	19.8
Interest income	207			201			6			3.0
Other, net	(3,776		)	(2,417		)	(1,359		)	56.2
Income before income taxes	33,902			31,917			1,985			6.2

Income taxes	13,324			12,225			1,099			9.0

Net income	$	20,578		$	19,692		$	886		4.5	%

nm--not meaningful

Revenues--Revenues of $624,046 increased $36,872 compared with $587,174 in the first nine months of 2014. Utility Services increased $27,574 or 9.3% compared with the first nine months of 2014. Rate increases and additional work obtained with multiple utility customers coupled with new contracts obtained and increased productivity within our U.S. and Canadian operations account for the increase. Residential and Commercial Services increased $9,210 or 3.2% compared with the first nine months of 2014. Increases in landscape services revenue, increased contract rates on our liquid services and increased productivity on both liquid service applications and tree surgery work as well as additional revenue from the purchases of businesses account for the increase. Total revenues of $624,046 include production incentive revenue, recognized under the completed-performance method, of $2,271 during the first nine months of 2015 compared with $3,486 during the first nine months of 2014.

Operating Expenses--Operating expenses of $400,372 increased $21,867 compared with the first nine months of 2014 but, as a percentage of revenues, decreased .2% to 64.2%. Utility Services increased $18,213 or 8.2% compared with the first nine months of 2014 but, as a percentage of revenue decreased .7% to 74.2%. Increases in labor expense, subcontractor expense, crew expenses, equipment maintenance expense, tool and saw expense and material expense were partially offset by decreases in fuel expense and disposal expense. Residential and Commercial Services increased $2,719 or 1.8% compared with the first nine months of 2014 but, as a percentage of revenue decreased .8% to 52.5%. Increases in labor expense, equipment maintenance expense, materials expense, subcontractor expense and disposal expense were partially offset by a reduction in fuel expense, tool and saw expense and crew expenses.

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Fuel costs of $19,817 decreased $6,393, or 37.9%, from the $26,210 incurred in the first nine months of 2014 and impacted operating expenses within all segments. The $6,393 decrease included price decreases approximating $6,854 and usage increases approximating $461.

Selling Expenses--Selling expenses of $107,656 increased $5,605 compared with the first nine months of 2014 but, as a percentage of revenues decreased .1% to 17.2%. Utility Services increased $3,942 or 13.3% over the first nine months of 2014. Increases in field management wages and incentive expense, field management travel expense, employee development expense, office expense and employee development expense were partially offset by a decrease in communication expense, information technology expense and professional service expense. Residential and Commercial Services experienced an increase of $2,141 or 2.9% over the first nine months of 2014 but as a percentage of revenue decreased .1% to 25.7%. Increases in field management wages and incentive expense, office support wages, office rent expense and employee development expense were partially offset by a reduction in field management auto expense, information technology expense, communication expense, professional service expense and sales and marketing expense.

General and Administrative Expenses--General and administrative expenses of $42,146 increased $2,935 from $39,211 in the first nine months of 2014. Increases in salary and incentive expense, stock compensation expense, travel and living expenses, communication expense, employee development expense and pension expense were partially offset by decreases in professional services expense, relocation expense and auto expense.

Depreciation and Amortization Expense--Depreciation and amortization expense of $34,437 increased $2,998 from $31,439 in the first nine months of 2014. The increase is attributable to higher capital expenditures related to increased business volume and purchases of businesses.

Gain on the Sale of Assets, Net--Gain on the sale of assets was $553 for the first nine months of 2015 as compared with a gain of $266 in the first nine months of 2014. The increase is the result of an increase in the number of equipment units sold in the first nine months of 2015 as compared with the first nine months of 2014.

Interest Expense--Interest expense of $2,517 increased $416 from the $2,101 incurred in the first nine months of 2014. The increase is attributable to higher-average debt levels necessary to fund operations and capital expenditures during the first nine months of 2015, as compared with the first nine months of 2014.

Other, Net--Other, net, of $3,776 increased $1,359 from the $2,417 incurred in the first nine months of 2014 and consisted of nonoperating income and expense, including foreign currency gains/losses on the intercompany account balances of our Canadian operations.

Income Taxes--Income tax expense for the first nine months of 2015 was $13,324, as compared to $12,225 for the first nine months of 2014. 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 2015 annual effective tax rate is estimated to approximate 39%. Our annual effective tax rate for 2014 was 39.5%.

Net Income--Net income of $20,578 for the first nine months of 2015 was $886 more than the $19,692 experienced in the first nine months 2014.

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 for the nine months ended October 3, 2015 and September 27, 2014 follow:



	2015			2014
Cash provided by (used in):
Operating activities	$	36,647		$	23,096
Investing activities	(54,255		)	(58,389		)
Financing activities	15,109			36,575
(Decrease) increase in cash	$	(2,499	)	$	1,282

Cash Provided by Operating Activities--Cash provided by operating activities was $36,647 for the first nine months of 2015, or $13,551 more than the $23,096 provided in the first nine months of 2014. The $13,551 increase in operating cash flow was primarily attributable to an increase of $2,998 in depreciation and amortization, $10,971 less cash used from operating assets and liabilities and a $886 increase in net income.

Overall, accounts receivable increased $23,970 during the first nine months of 2015, as compared to the increase of $20,570 during the first nine months of 2014. 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 2015 increased one day to 55 days, as compared to the end of the first nine months of 2014. The DSO at September 27, 2014 was 54 days.

Operating liabilities increased $5,522 in the first nine months of 2015, or $11,057 more than the $5,535 decrease in the first nine months of 2014. Accounts payable and accrued expenses decreased $26 during the first nine months of 2015 as compared with a decrease of $11,893 for the first nine months of 2014. Decreases in group insurance accruals, trade payables, advance payments from customers and 401KSOP liabilities were partially offset by increases in employee compensation accruals, compensated-absence accruals, stock purchase plan withholdings and employee savings withholdings. Self-insurance accruals increased $5,548 in the first nine months of 2015, which was $810 less than the increase of $6,358 experienced in the first nine months of 2014. 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.

The change in operating assets and liabilities other, net, increased $1,706 for the first nine months of 2015 as compared with a decrease of $1,608 for the first nine months of 2014, with the $3,314 net change related primarily to a decrease in a note receivable and prepaid expenses and increases in deposits.

Cash Used In Investing Activities--Cash used in investing activities for the first nine months of 2015 was $54,255, or $4,134 less than the $58,389 used during the first nine months of 2014. Reductions in the purchases of land and building and purchases of businesses were partially offset by an increase in the purchase of equipment necessary to support business growth.

Cash Provided By Financing Activities--Cash provided by financing activities of $15,109 decreased $21,466 during the first nine months of 2015 as compared with $36,575 of cash provided during the first nine months of 2014. During the first nine months of 2015, our revolving credit facility provided $21,500 in cash as compared with the $34,600 provided during the first nine months of 2014. We use the credit facility primarily for capital expenditures and payments of notes payable related to acquisitions. Proceeds from notes payable provided $3,588 during the first nine months of 2015, $5,484 less than the $9,072 provided in the first nine months of 2014. Treasury share transactions (purchases and sales) used $7,964 for the first nine months of 2015, or $2,865 more cash than the $5,099 used in the first nine months of 2014, and included $1,191 of cash received from our common share subscriptions. Dividends paid of $2,015 during the first nine months of 2015 increased $17, as compared with $1,998 paid in the first nine months of 2014.

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Revolving Credit Facility and 5.09% Senior Unsecured Notes--We have a $175,000 revolving credit facility with a group of banks, which will expire in November 2018 and permits borrowings, as defined, up to $175,000, including a letter of credit sublimit of $100,000 and a swing-line commitment of $15,000. Under certain circumstances, the amount available under the revolving credit facility may be increased to $210,000. The revolving credit facility contains certain affirmative and negative covenants customary for this type of facility and includes financial covenant ratios with respect to a maximum leverage ratio and a maximum balance sheet leverage ratio. As of October 3, 2015, we were in compliance with all of the financial covenants contained in our revolving credit facility.

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

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

Off-Balance Sheet Arrangements

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

Contractual Obligations Summary

The following summarizes our long-term contractual obligations, as of October 3, 2015, to make future payments for the periods indicated.



			Three Months Ending December 31, 2015
					Year Ending December 31,
Description	Total				2016		2017		2018		2019		Thereafter
Revolving credit facility	$	66,000	$	—	$	—	$	—	$	66,000	$	—	$	—
Senior unsecured notes	30,000		—		6,000		6,000		6,000		6,000		6,000
Term loans	20,175		4,137		9,835		1,134		450		159		4,460
Operating lease obligations	12,871		1,453		4,470		2,918		1,764		868		1,398
Self-insurance accruals	63,301		8,135		20,169		12,711		7,867		4,224		10,195
Purchase obligations	7,240		7,240		—		—		—		—		—
Other liabilities	18,972		4,566		1,150		1,289		1,289		829		9,849
	$	218,559	$	25,531	$	41,624	$	24,052	$	83,370	$	12,080	$	31,902

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 3, 2015. Other liabilities include estimates of

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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 3, 2015, 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 3, 2015, we were contingently liable for letters of credit in the amount of $59,350, of which $57,347 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 2015 through 2017. We intend to renew the surety bonds where appropriate and as necessary.

Capital Resources

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

Business seasonality results in higher revenues during the second and third quarters as compared with the first and fourth quarters of the year, while our methods of accounting for fixed costs, such as depreciation and amortization expense, are not significantly impacted by business seasonality. Capital resources during these periods are equally affected. We satisfy seasonal working capital needs and other financing requirements with the revolving credit facility and other short-term lines of credit. We are continually reviewing our existing sources of financing and evaluating alternatives. At October 3, 2015, we had working capital of $75,681, short-term lines of credit approximating $7,130 and $51,653 available under our revolving credit facility.

We believe our sources of capital, at this time, provide us with the financial flexibility to meet our capital-spending plans and to continue to complete business acquisitions for at least the next twelve months and for the reasonably foreseeable future.

Recent Accounting Guidance

On July 9, 2015, the FASB approved a one-year deferral of the effective date of ASU 2014-09, which now becomes effective for Davey Tree beginning with the first quarter 2018 and can be adopted either retrospectively to each prior reporting period presented or as a cumulative-effect adjustment as of the date of adoption. The FASB also affirmed its proposal to permit all entities to apply the new revenue standard early, but not before the original effective date, which for Davey Tree would be first quarter 2017. The new revenue guidance will supersede existing revenue guidance affecting our Company, and may also affect our business processes and our

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information technology systems. As a result, our evaluation of the effect of the new revenue guidance will extend over future periods.

Accounting Standards Update 2015-03--In April 2015, the FASB issued ASU 2015-03, “Imputation of Interest (Sub-Topic 835.30): Simplifying the Presentation of Debt Issuance Costs.” ASU 2015-03 requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. In August 2015, the FASB issued ASU 2015-15 clarifying the application of this guidance to line-of-credit arrangements. The amendments in the ASUs are effective retrospectively for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015,which for Davey Tree would be January 1, 2016. Early adoption is permitted for financial statements not previously issued. We do not expect the adoption of this guidance to have a significant impact on our consolidated financial statements.

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, 2014, we believe that our policies related to revenue recognition, the allowance for doubtful accounts and self-insurance accruals are our “critical accounting policies and estimates”--those most important to the financial presentations and those that require the most difficult, subjective or complex judgments.

On an ongoing basis, we evaluate our estimates and assumptions, including those related to accounts receivable, specifically those receivables under contractual arrangements primarily with Utility 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, as amended. These statements relate to future events or our future financial performance. In some cases, forward-looking statements may be identified by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to differ materially from what is expressed or implied in these forward-looking statements. Some important factors that could cause actual results to differ materially from those in the forward-looking statements include:


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


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

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


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


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


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

•

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


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


•	We are subject to intense competition.


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


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


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


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


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


•	Our facilities could be damaged or our operations could be disrupted, or our customers or vendors may be adversely affected, by events such as natural disasters, pandemics, terrorist attacks or other external events.


•	A disruption in our information technology systems, including a disruption related to cybersecurity, could adversely affect our financial performance.


•	We are subject to third-party and governmental regulatory 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 "Part II - Item 1A. Risk Factors." of this quarterly report on Form 10-Q and in our annual report on Form 10-K for the year ended December 31, 2014 in “Part I - Item 1A. Risk Factors.”


Item 3.	Quantitative and Qualitative Disclosures about Market Risk.

During the quarter ended October 3, 2015, 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, 2014.

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Item 4.	Controls and Procedures.

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

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

(b) Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the fiscal quarter ended October 3, 2015 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.

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

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


Item 1A.	Risk Factors.

The factors described below represent the principal risks we face. Except as otherwise indicated, these factors may or may not occur and we are not in a position to express a view on the likelihood of any such factor

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occurring. Other factors may exist that we do not consider to be significant based on information that is currently available or that we are not currently able to anticipate.

Our business is highly seasonal and weather dependent.

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

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

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

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

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

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

We derive approximately 51% of our total revenues from our Utility segment, including approximately 8% of our total revenues from Pacific Gas & Electric Company. Significant adverse developments in the utility industry generally, or specifically for our major utility customers, could result in pressure to reduce costs by utility industry service providers (such as us), delays in payments of our accounts receivable, or increases in uncollectible accounts receivable, among other things. As a result, such developments could have an adverse effect on our results of operations.

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Our quarterly results may fluctuate.

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


▪	the seasonality of our business;


▪	the timing and volume of customers' projects;


▪	budgetary spending patterns of customers;


▪	the commencement or termination of service agreements;


▪	costs incurred to support growth internally or through acquisitions;


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


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


▪	general and local economic conditions.

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

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

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

We are subject to the risk of increased fuel costs.

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

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

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

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

Increases in our health insurance costs could adversely affect our results of operations and cash flows.

The costs of employee health care insurance have been increasing in recent years due to rising health care costs, legislative changes, and general economic conditions. Additionally, we may incur additional costs because of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the "Health Care Reform Laws"). Provisions of these laws have become and will become effective in calendar 2015 and at various dates over the next several years. Because of the breadth and complexity of these laws, the lack of regulations and guidance on implementation, and the phased-in nature of the new regulations, as well as other health care reform legislation considered by Congress and state legislations, we cannot predict with certainty the future effect of these laws on us. A continued increase in health care costs or additional costs incurred as a result of the Health Care Reform Laws or other future health care reform laws imposed by Congress or state legislations could have a negative impact on our financial position and results of operations.

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

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

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

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

We are subject to intense competition.

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

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Index

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

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

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

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

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

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

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

We may be adversely affected if our reputation is damaged.

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

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

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

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Index

We may be unable to attract and retain skilled management.

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

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

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

A disruption in our information technology systems, including a disruption related to cybersecurity, could adversely affect our financial performance.

We rely on the accuracy, capacity and security of our information technology systems. Despite the security measures that we have implemented, including those measures related to cybersecurity, our systems could be breached or damaged by computer viruses, natural or man-made incidents or disasters or unauthorized physical or electronic access. A breach could result in business disruption, theft of our intellectual property, trade secrets or customer information and unauthorized access to personnel information. To the extent that our business is interrupted or data is lost, destroyed or inappropriately used or disclosed, such disruptions could adversely affect our competitive position, reputation, relationships with our customers, financial condition, operating results and cash flows. In addition, we may be required to incur significant costs to protect against the damage caused by these disruptions or security breaches in the future.

We are subject to third-party and governmental regulatory claims and litigation.

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

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

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

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Index


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 2015.



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 2015
January 1 to January 31	378	$	27.80	n/a	n/a
February 1 to February 28	4,174	27.80		n/a	n/a
March 1 to April 4	97,505	30.10		n/a	n/a
Total First Quarter	102,057	30.00

April 5 to May 2	147,566	30.10		n/a	n/a
May 3 to May 30	114,890	30.10		n/a	n/a
May 31 to July 4	21,625	30.10		n/a	n/a
Total Second Quarter	284,081	30.10

July 5 to August 1	2,592	30.10		n/a	n/a
August 2 to August 29	25,588	31.50		n/a	n/a
August 30 to October 3	112,677	31.50		n/a	n/a
Total Third Quarter	140,857	31.47

Total Year-to-Date	526,995	$	30.45

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.; 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 were added to our treasury stock.


Item 6.	Exhibits.

See Exhibit Index page below.

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Index

Signatures

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



			THE DAVEY TREE EXPERT COMPANY

		By:	/s/ Joseph R. Paul
Date:	November 3, 2015		Joseph R. Paul
			Chief Financial Officer and Secretary
			(Principal Financial Officer)

Date:	November 3, 2015	By:	/s/ Nicholas R. Sucic
			Nicholas R. Sucic
			Vice President and Controller
			(Principal Accounting Officer)

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Index

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 3, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets (unaudited), (ii) the Condensed Consolidated Statements of Operations (unaudited), (iii) the Condensed Consolidated Statements of Comprehensive Income (unaudited), (iv) the Condensed Consolidated Statement of Cash Flows (unaudited), and (v) Notes to Condensed Consolidated Financial Statements (unaudited).	Filed Herewith

- 42 -



Date:	November 3, 2015	/s/ Karl J. Warnke
		Karl J. Warnke
		Chairman, President and Chief Executive Officer



Date:	November 3, 2015	/s/ Karl J. Warnke
		Karl J. Warnke
		Chairman, President and Chief Executive Officer

Accumulated Other Comprehensive Income (Loss) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Oct. 03, 2015	Sep. 27, 2014	Oct. 03, 2015	Sep. 27, 2014
Accumulated other comprehensive income (loss) [Roll Forward]
Balance at January 1, 2015			$ (11,523)	$ (4,393)
Unrealized losses	$ (1,561)	$ (1,263)	(3,828)	(1,266)
Amounts reclassified from accumulated other comprehensive income (loss)			1,083	541
Tax effect			(412)	(205)
Net of tax amount			(3,157)	(930)
Balance at October 3, 2015	(14,680)	(5,323)	(14,680)	(5,323)
Foreign currencty translation adjustments [Member]
Accumulated other comprehensive income (loss) [Roll Forward]
Balance at January 1, 2015			(1,151)	1,647
Unrealized losses			(3,828)	(1,266)
Amounts reclassified from accumulated other comprehensive income (loss)			0	0
Tax effect			0	0
Net of tax amount			(3,828)	(1,266)
Balance at October 3, 2015	(4,979)	381	(4,979)	381
Defined benefit pension plans [member]
Accumulated other comprehensive income (loss) [Roll Forward]
Balance at January 1, 2015			(10,372)	(6,040)
Unrealized losses			0	0
Amounts reclassified from accumulated other comprehensive income (loss)			1,083	541
Tax effect			(412)	(205)
Net of tax amount			671	336
Balance at October 3, 2015	$ (9,701)	$ (5,704)	$ (9,701)	$ (5,704)

Seasonality of Business	9 Months Ended
Seasonality of Business	Oct. 03, 2015
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Seasonality of Business [Text Block]	Seasonality of Business Due to the seasonality of our business, our operating results for the nine months ended October 3, 2015 are not indicative of results that may be expected for any other interim period or for the year ending December 31, 2015. 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.

Business Combinations (Details) - USD ($) $ in Thousands	9 Months Ended
Business Combinations (Details) - USD ($) $ in Thousands	Oct. 03, 2015	Sep. 27, 2014
Investment in businesses	$ 4,149	$ 12,702
Liabilities assumed	0	1,078
Debt issued	$ 1,500	$ 2,080


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


(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.


(1.)	The Quarterly Report on Form 10-Q of the Company for the period ended October 3, 2015 (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)), as applicable; and


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

Identified Intangible Assets and Goodwill, Net (Details) - USD ($) $ in Thousands	Oct. 03, 2015	Dec. 31, 2014
Finite-Lived Intangible Assets [Line Items]
Identified intangible assets, gross	$ 30,156	$ 28,388
Accumulated amortization	24,001	22,489
Identified intangible assets, net	6,155	5,899
Goodwill	29,139	28,164
Identified intangible assets and goodwill, net	35,294	34,063
Customer lists/relationships [Member]
Finite-Lived Intangible Assets [Line Items]
Identified intangible assets, gross	17,220	16,076
Accumulated amortization	13,471	12,560
Employment-related [Member]
Finite-Lived Intangible Assets [Line Items]
Identified intangible assets, gross	7,401	7,026
Accumulated amortization	6,091	5,776
Tradenames [Member]
Finite-Lived Intangible Assets [Line Items]
Identified intangible assets, gross	5,535	5,286
Accumulated amortization	$ 4,439	$ 4,153

Fair Value Measurements and Financial Instruments (Details) - Fair value, measurements, recurring [Member] - USD ($) $ in Thousands	Oct. 03, 2015	Dec. 31, 2014
Quoted prices in active markets (Level 1) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets invested for self-insurance, classified as other assets, noncurrent	$ 15,603	$ 13,684
Deferred compensation	0	0
Significant other observable inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets invested for self-insurance, classified as other assets, noncurrent	0	0
Deferred compensation	1,570	1,423
Significant unobservable inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets invested for self-insurance, classified as other assets, noncurrent	0	0
Deferred compensation	0	0
Total carrying value [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets invested for self-insurance, classified as other assets, noncurrent	15,603	13,684
Deferred compensation	$ 1,570	$ 1,423

Fair Value Measurements and Financial Instruments Fair Value of Financial Instruments (Details) - USD ($) $ in Thousands	Oct. 03, 2015	Dec. 31, 2014
Carrying value [Member]
Liabilities, fair value disclosure [Abstract]
Revolving credit facility, noncurrent	$ 66,000	$ 44,500
Senior unsecured notes	24,000	30,000
Term loans, noncurrent	6,975	6,806
Total	96,975	81,306
Fair value [Member]
Liabilities, fair value disclosure [Abstract]
Revolving credit facility, noncurrent	66,000	44,500
Senior unsecured notes	24,728	30,688
Term loans, noncurrent	7,373	7,195
Total	$ 98,101	$ 82,383

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Oct. 03, 2015	Dec. 31, 2014
Current assets:
Cash	$ 15,916	$ 18,415
Accounts receivable, net	135,568	111,598
Operating supplies	6,822	6,968
Other current assets	28,728	30,215
Total current assets	187,034	167,196
Property and equipment	562,851	532,949
Less accumulated depreciation	392,151	372,066
Property and equipment, net	170,700	160,883
Other assets	20,088	18,862
Identified intangible assets and goodwill, net	35,294	34,063
Total assets	413,116	381,004
Current liabilities:
Accounts payable	33,106	42,140
Accrued expenses	34,999	34,925
Other current liabilities	43,248	31,288
Total current liabilities	111,353	108,353
Long-term debt	96,975	81,306
Self-insurance accruals	40,393	35,886
Other noncurrent liabilities	18,972	18,968
Total liabilities	267,693	244,513
Common shareholders' equity:
Common shares, $1.00 par value, per share; 48,000 shares authorized; 21,457 shares issued and outstanding before treasury shares as of October 3, 2015 and December 31, 2014	21,457	21,457
Additional paid-in capital	15,461	9,461
Common shares subscribed, unissued	8,820	9,381
Retained earnings	270,032	251,470
Accumulated other comprehensive loss	(14,680)	(11,523)
Shareholders' equity before treasury stock	301,090	280,246
Less: Cost of Common shares held in treasury; 8,526 shares at October 3, 2015 and 8,292 shares at December 31, 2014	151,257	138,155
Common shares subscription receivable	4,410	5,600
Common shareholders' equity	145,423	136,491
Total liabilities and shareholders' equity	$ 413,116	$ 381,004

Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Oct. 03, 2015	Sep. 27, 2014
Operating activities
Net income	$ 20,578	$ 19,692
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	34,437	31,439
Other	(1,626)	(322)
Changes in operating assets and liabilities:
Accounts receivable	(23,970)	(20,570)
Operating liabilities	5,522	(5,535)
Other, net	1,706	(1,608)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:	16,069	3,404
Net cash provided by operating activities	36,647	23,096
Capital expenditures:
Equipment	(50,154)	(40,152)
Land and building	(2,264)	(9,116)
Purchases of businesses	(2,649)	(9,544)
Other	812	423
Net cash used in investing activities	(54,255)	(58,389)
Financing activities
Revolving credit facility proceeds, net	21,500	34,600
Purchase of common shares for treasury	16,047	13,242
Sale of common shares from treasury	8,083	8,143
Dividends	(2,015)	(1,998)
Proceeds from notes payable	3,588	9,072
Net cash provided by financing activities	15,109	36,575
(Decrease) increase in cash	(2,499)	1,282
Cash, beginning of period	18,415	15,861
Cash, end of period	15,916	17,143
Supplemental cash flow information follows:
Interest paid	2,903	2,461
Income taxes paid	$ 13,862	$ 6,449

Long-Term Debt (Narrative) (Details) $ in Thousands	9 Months Ended
Long-Term Debt (Narrative) (Details) $ in Thousands	Oct. 03, 2015 USD ($)	Dec. 31, 2014 USD ($)
Debt Instrument [Line Items]
Revolving credit facility, current borrowing capacity	$ 175,000
Revolving credit facility borrowings	66,000	$ 44,500
Revolving credit facility, maximum borrowing capacity	210,000
Unused commitments under credit facility	51,653
Senior unsecured notes	$ 30,000	30,000
Senior unsecured notes, interest rate	5.09%
Number of principal payments	5
Anniversary when principal payments begin	6
Minimum [Member]
Debt Instrument [Line Items]
Line of credit facility, commitment fee percentage	0.10%
Maximum [Member]
Debt Instrument [Line Items]
Revolving credit facility borrowings	$ 100,000
Line of credit facility, commitment fee percentage	0.25%
Line of credit [Member]
Debt Instrument [Line Items]
Committed under credit facility	$ 123,347
Line of credit [Member] \| London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument [Line Items]
Debt instrument, variable rate, base rate calculation	1.50%
Line of credit [Member] \| Base Rate, Federal Funds [Member]
Debt Instrument [Line Items]
Debt instrument, variable rate, base rate calculation	0.50%
Line of credit [Member] \| Minimum [Member] \| London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument [Line Items]
Outstanding borrowings interest rate margin adjustment, range	0.75%
Line of credit [Member] \| Maximum [Member] \| London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument [Line Items]
Outstanding borrowings interest rate margin adjustment, range	1.50%
Letter of credit [Member]
Debt Instrument [Line Items]
Letters of credit issued	$ 57,347
Swing-line borrowings [Member]
Debt Instrument [Line Items]
Revolving credit facility, current borrowing capacity	15,000
Revolving credit facility borrowings	$ 0	$ 7,500

Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares	Oct. 03, 2015	Dec. 31, 2014
Statement of Financial Position [Abstract]
Common shares, par value	$ 1.00	$ 1.00
Common shares, authorized	48,000,000	24,000,000
Common shares, issued	21,457,000	21,457,000
Common shares, outstanding	21,457,000	21,457,000
Common shares held in treasury	8,526,000	8,292,000

Document and Entity Information Document - shares	9 Months Ended
Document and Entity Information Document - shares	Oct. 03, 2015	Oct. 30, 2015
Entity Information [Line Items]
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. 03, 2015
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q3
Amendment Flag	false
Entity Common Stock, Shares Outstanding		12,852,615

Income Taxes	9 Months Ended
Income Taxes	Oct. 03, 2015
Income Tax Disclosure [Abstract]
Income taxes [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 2015 annual effective tax rate is estimated to approximate 39%. Our annual effective tax rate for 2014 was 39.5%. At December 31, 2014, we had unrecognized tax benefits of $1,949, of which $1,512 would affect our effective rate if recognized, and accrued interest expense related to unrecognized benefits of $77. At October 3, 2015, there were no significant changes in the unrecognized tax benefits, including the amount that would affect our effective rate if recognized, or the accrued interest expense related to the unrecognized benefits. Unrecognized tax benefits are the differences between a tax position taken, or expected to be taken in a tax return, and the benefit recognized for financial reporting purposes. The Company is routinely under audit by federal, state, local and Canadian authorities in the area of income tax. These audits include questioning the timing and the amount of income and deductions and the allocation of income and deductions among various tax jurisdictions. During the fourth quarter 2013, the U.S. Internal Revenue Service completed its audit of the Company's U.S. income tax returns for 2010 and 2011 and, during 2010, Canada Revenue Agency completed its audit of the Company's Canadian operations for 2006, 2007 and 2008. With the exception of U.S. state jurisdictions, the Company is no longer subject to examination by tax authorities for the years through 2010. As of October 3, 2015, we believe it is reasonably possible that the total amount of unrecognized tax benefits will not significantly increase or decrease.

Basis of Financial Statement Preparation (Policies)	9 Months Ended
Basis of Financial Statement Preparation (Policies)	Oct. 03, 2015
Accounting Policies [Abstract]
Basis of accounting, policy [Policy Text Block]	The condensed consolidated financial statements present the financial position, results of operations and cash flows of The Davey Tree Expert Company and its subsidiaries. When we refer to “we,” “us,” “our,” “Davey,” or “Davey Tree”, we mean The Davey Tree Expert Company and its subsidiaries, unless otherwise expressly stated or the context indicates otherwise. We have prepared the accompanying unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”), as codified in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), and with the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. The 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, 2014 (the “2014 Annual Report”).
Use of estimates, policy [Policy Text Block]	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.
Income tax, policy [Policy Text Block]	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.
Earnings per share, policy [Policy Text Block]	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.
Segment reporting, policy [Policy Text Block]	Measurement of Segment Profit and Loss and Segment Assets--We evaluate performance and allocate resources based primarily on operating income and also actively manage business unit operating assets. Segment information, including reconciling adjustments, is presented consistent with the basis described in our 2014 Annual Report.
Commitments and contingencies, policy [Policy Text Block]	We are party to a number of lawsuits, threatened lawsuits and other claims arising out of the normal course of business. With respect to all such matters, we record an accrual for a loss contingency when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. In addition, narrative information is provided for matters as to which management believes a material loss is reasonably possible. Management assesses all such matters, including the matter described below, based on current information and makes judgments concerning their potential outcome, giving due consideration to the nature of the claim, the amount and nature of damages sought and the probability of success. Management's judgment is made subject to the known uncertainty of litigation and management's judgment as to estimates made may prove materially different from actual results.

Per Share Amounts and Common Shares Outstanding Stock subscription (Details)	9 Months Ended
	Oct. 03, 2015 USD ($) $ / shares shares
Equity [Abstract]
Stock subscription offering, subscription price \| $ / shares	$ 19.70
Stock subscription offering, number of shares subscribed \| shares	637,714
stock subscription offering, value of shares subscribed	$ 12,563,000
Stock subscription offering, minimum financed amount	$ 5,000
Stock subscription offering, down payment	10.00%
Stock subscription offering, term (in years)	7 years
Stock subscription offering, interest rate	2.00%
Stock subscription offering, minimum amount to receive right	$ 5,000
Stock subscription offering, number of shares purchased to receive one right \| shares	3
Stock subscription offering, number of rights issued \| shares	211,800
Stock subscription offering, portion exercisable per year	14.29%
Stock subscription offering, right expiration term (in years)	7 years

Business Combinations (Notes)	9 Months Ended
Business Combinations (Notes)	Oct. 03, 2015
Business Combinations [Abstract]
Business Combinations	Business Combinations Our investment in businesses during the first nine months of 2015 was $4,149, with no liabilities assumed and debt issued of $1,500. Measurement-period adjustments are not complete. The measurement period for purchase price allocations ends as soon as information of the facts and circumstances becomes available, but does not exceed one year from the acquisition date. During the nine months ended September 27, 2014, our investment in businesses was $12,702, with liabilities assumed of $1,078 and debt issued of $2,080. The results of operations of acquired businesses have been included in the consolidated statements of operations beginning as of the effective dates of acquisition. The effect of these acquisitions on our consolidated revenues and results of operations was not significant.

Income Taxes (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
Income Taxes (Details) - USD ($) $ in Thousands	Oct. 03, 2015	Dec. 31, 2014
Income Tax Disclosure [Abstract]
Effective income tax rate	39.00%	39.50%
Unrecognized tax benefits	$ 1,949	$ 1,949
Unrecognized tax benefits that would impact effective tax rate	1,512	1,512
Unrecognized tax benefits, interest on income taxes accrued	$ 77	$ 77

Contingencies	9 Months Ended
Contingencies	Oct. 03, 2015
Commitments and Contingencies Disclosure [Abstract]
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. In addition, narrative information is provided for matters as to which management believes a material loss is reasonably possible. Management assesses all such matters, including the matter described below, based on current information and makes judgments concerning their potential outcome, giving due consideration to the nature of the claim, the amount and nature of damages sought and the probability of success. Management's judgment is made subject to the known uncertainty of litigation and management's judgment as to estimates made may prove materially different from actual results. California Fire Litigation: San Diego County--Davey Tree Surgery Company, a Davey subsidiary, and Davey Resource Group, a Davey division, along with the Company have previously been sued, together with a utility services customer, San Diego Gas & Electric ("SDG&E"), and its parent company, as defendants, and as cross-defendants in cross-complaints filed by SDG&E, in the Superior Court of the State of California in and for the County of San Diego, arising out of a wildfire in San Diego County that started on October 22, 2007, referred to as the Rice Canyon fire. Numerous lawsuits related to the Rice Canyon fire were filed against SDG&E, its parent company, Sempra Energy, and Davey. The earliest of the lawsuits naming Davey was filed on April 18, 2008. The Court ordered that the lawsuits be organized into four groups based on type of plaintiff, namely insurance subrogation claimants, individual/business claimants, governmental claimants, and plaintiffs seeking class certification. Plaintiffs motions seeking class certification were denied and the orders denying class certification were affirmed on appeal. SDG&E filed cross-complaints against Davey for contractual indemnity, declaratory relief, and breach of contract. During the third quarter 2012, Davey entered into a Settlement and Release Agreement (the “Agreement”) among Davey, SDG&E and Davey's insurers. Under the Agreement (a) Davey paid SDG&E an amount previously expensed and accrued as self-insurance, (b) Davey's insurers paid SDG&E amounts under Davey's insurance policies in effect during the period of the Rice Canyon fire, and (c) SDG&E dismissed its cross-complaints against Davey and agreed to defend and hold harmless Davey from any and all claims that are currently asserted against Davey. During 2013, the Master Complaint for the lawsuits brought by governmental entities was dismissed with prejudice. In the third quarter 2015, the Master Complaints for the lawsuits by insurers and individuals were dismissed with prejudice. As a result, the Rice Canyon litigation involving or potentially involving Davey is now concluded.