EDGAR 10-K Filing

Company CIK: 277638
Filing Year: 2021
Filename: 277638_10-K_2021_0000277638-21-000003.json

---

ITEM 1. BUSINESS
Item 1. Business.
General
The Davey Tree Expert Company, which was founded in 1880 and incorporated in Ohio in 1909, and its subsidiaries ("we" or "us") provide a wide range of arboricultural, horticultural, environmental and consulting services to our customers throughout the United States and Canada. We have two reportable operating segments organized by type or class of customer: Residential and Commercial, and Utility.
Our Residential and Commercial segment 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.
Our Utility segment 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 and rights-of-way and chemical brush control, natural resource management and consulting, forestry research and development and environmental planning.
We also maintain research, technical support and laboratory diagnostic facilities.
Competition and Customers
Our Residential and Commercial segment is one of the largest national tree care organizations in the United States, and competes with other national and local firms with respect to its services. On a national level, our competition is primarily landscape construction and maintenance companies as well as residential and commercial lawn care companies. At a local and regional level, our competition comes mainly from small, local companies which are engaged primarily in tree care and lawn services. Our Utility segment is the second largest organization in the industry in the United States, and competes principally with one major national competitor, Asplundh Tree Expert, LLC, as well as several smaller regional firms.
Principal methods of competition in both operating segments are customer service, marketing, image, performance and reputation. Our program to meet our competition stresses the necessity for our employees to have and project to customers a thorough knowledge of all horticultural services provided, and utilization of modern, well-maintained equipment. Pricing is not always a critical factor in a customer's decision with respect to our Residential and Commercial segment; however, pricing is generally the principal method of competition for our Utility segment, although in most instances consideration is given to reputation and past production performance.
We provide a wide range of horticultural services to private companies, public utilities, local, state and federal agencies, and a variety of industrial, commercial and residential customers. During 2020, we had revenues of approximately $216 million, or approximately 17% of total revenues, from Pacific Gas & Electric Company ("PG&E"), our largest customer.
Regulation and Environment
We are subject to various federal, state and local laws, rules and regulations relating to, among other things, labor, wages, health and safety matters, immigration, employee benefits and privacy and customer data security as well as requirements of federal and state transportation
agencies with respect to vehicles in our fleet. Noncompliance with these laws and regulations can subject us to fines or civil or criminal prosecution and could have a material adverse effect on our reputation, business, and results of operations.
Additionally, our facilities and operations, in common with those of the industry generally, are subject to governmental regulations designed to protect the environment. This is particularly important with respect to our services regarding insect and disease control, because these services involve, to a considerable degree, the blending and application of spray materials, which require formal licensing in most areas. Constant changes in environmental conditions, environmental awareness, technology and social attitudes make it necessary for us to maintain a high degree of awareness of the impact such changes have on the market for our services. We believe that we comply in all material respects with existing federal, state and local laws regulating the use of materials in our spraying operations as well as the other aspects of our business that are subject to any such regulation.
Marketing
We solicit business from residential customers principally through referrals, direct mail programs and to a lesser extent through the placement of advertisements in national magazines and trade journals, local newspapers and "yellow pages" telephone directories. We also employ online marketing and lead generation strategies, including email marketing campaigns, search engine optimization, search engine marketing, and social media communication. Business from utility and commercial customers is obtained principally through negotiated contracts and competitive bidding. We carry out all of our sales and services through our employees. We generally do not use agents, and do not franchise our name or business.
Seasonality
Our business is seasonal, primarily due to fluctuations in horticultural services provided to Residential and Commercial customers. We can also be affected to a lesser extent by budget constraints of our Utility customers. Because of this seasonality, we have historically incurred losses in the first quarter, while sales and earnings are generally highest in the second and third quarters of the calendar year. Consequently, this has created heavy demands for additional working capital at various times throughout the year. We borrow primarily against bank commitments in the form of a revolving credit facility and issue notes to provide the necessary funds for our operations. You can find more information about our bank commitments in “Liquidity and Capital Resources” of this report under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Other Factors
Due to rapid changes in equipment technology and intensity of use, we must constantly update our equipment and processes to ensure that we provide competitive services to our customers and continue our compliance with the Occupational Safety and Health Act.
We own several trademarks including "Davey," "Davey and Design," "Arbor Green Pro," "Arbor Green," and "Davey Resource Group." Through substantial advertising and use, we believe that these trademarks have become of value in the identification and acceptance of our products and services.
Human Capital
Our values - safety, integrity, expertise, leadership, stewardship and perseverance - are built on the foundation that our people are the key to our success and sustainability as a company. We aim to engage and inspire our employees every day, providing them with education and development opportunities to help them grow personally and professionally. As of December 31, 2020, we employed approximately
9,600 people, of which approximately 92% were in the United States and 8% were in our Canadian locations. Of our active employees, 98% are full time, 2% are part time and 17% are covered by a collective bargaining agreement. We consider our employee relations to be good.
We encourage you to visit our website for more detailed information regarding our Human Capital programs and initiatives. Nothing on our website shall be deemed incorporated by reference into this Annual Report on Form 10-K.
Oversight
Our board of directors provides oversight on certain human capital matters, including employee ownership programs and employee relations issues. The compensation committee of our board of directors oversees risks related to our employment policies and our compensation and benefit arrangements. Our Human Resource and Legal departments also have responsibility for advising, educating, and assisting the business on human resource matters and executing our overall human capital management strategies. In addition, the board of directors and the compensation committee receive regular updates from our Chief Executive Officer regarding human capital matters.
Employee Attraction and Retention
As a provider of arboricultural, horticultural, environmental and consulting services, attracting and retaining top talent is critical to our success. We actively recruit candidates who share our commitment to advance the green industry. While our industry faces challenges of seasonal employment and high average turnover, our structure as an employee-owned company enables our talented employees to invest in us as we invest in them. Our recruiting and employee development team cultivates employee strength by recruiting, training and retaining a diverse and talented workforce. The team supports the hiring and early employee experiences of our workforce by utilizing recruiting hubs, which allow for better support to our employees while addressing hiring needs across the U.S. and Canada. We also offer a referral bonus program which encourages current employees to recommend people to join our Company. Employees receive a cash bonus for referring an individual who becomes an employee and remains employed at least 90 days.
We recognize that everyone deserves respect and equal treatment, regardless of gender, race, ethnicity, age, disability, sexual orientation, gender identity, cultural background or religious belief. As of December 31, 2020, women represented 12% of our total employees, and minorities (defined as those who identify as Black/African American, Hispanic/Latino, American Indian/Alaskan Native, Asian, Hawaiian/Pacific Islander and/or two or more races) represented 30% of our U.S. employees.
Education and Development
To sustain our growth, it is imperative that we invest in our employees’ personal and professional development. For nearly 140 years, employee education has been fundamental to our success, equipping each employee with the tools they need to deliver the best possible care to our clients. Through our Learning Management System ("LMS"), employees can access our extensive online education and development programs, consisting of over 640 courses covering 15 topics. In addition to online LMS training, we offer multiple in-person training opportunities at our Davey Institute and regional workshop sessions. The largest onsite training-the Davey Institute of Tree Sciences ("D.I.T.S.")-takes place each February in Kent, Ohio. A modern-day take on the original experiences taught by John Davey, D.I.T.S. is open to employees from all over the U.S. and Canada, and the program still uses a combination of lecture and outdoor experiential learning. Due to COVID-19 restrictions, in-person trainings have been moved to a virtual format.
Additionally, ongoing partnerships with trade associations as well as an associate’s degree program offered through Kent State University provide Davey employees with opportunities to continue their education and advance their careers at Davey.
Safe Business Practices
Safety lies at the heart of our company. Our safety program - The Road to Zero - encourages a culture of communication, collaboration and consistency. We view safety and skills training as a continuous development tool and we provide both in-person and distance learning activities to 100% of our field employees each year through our safety department. Davey operates in regions across the United States and Canada where fire seasons and changing climate increase the risk of fire on and around our job sites. In areas with increased fire risk, employees complete an annual fire prevention curriculum developed in collaboration with multiple fire safety and forestry agencies.
In 2017, we implemented our Close Call Communicator, an electronic company-wide platform for safety communication. The platform allows employees to report a close call incident and share those incidents across the company to build tools and tactics for prevention. Employees are encouraged to watch out for potential situations that may put themselves or their co-workers at risk and to speak up if they see something. These efforts serve to improve the holistic management of safety across our operations.
Compensation, Benefits and Well-being
We offer fair, competitive compensation and benefits that support our employees’ overall health and well-being but recognize that supporting our employees does not end there. We encourage employees to plan for their future, and after one year of service, our employees are eligible to invest in our 401(k) plan, where we will match up to 5% of employees’ contributions, or by becoming a shareholder and enrolling in our stock purchase plan, where they can purchase shares of the company at a 15% discount. Both are great ways to save for retirement. We also offer a family scholarship program to assist employees with approved college education tuition and expenses for their children and legal wards.
We have a long-standing tradition of giving back to our communities across the U.S. and Canada, and we encourage our employees to get involved in the communities where they live and work to help grow a better future. In 2018, we launched the Green Leaders program, which recognizes employees’ volunteer activities that are meaningful to them, as well as supporting initiatives that promote trees, sustainable landscapes and the environment. In 2020, employees invested over 8,900 hours to organizations that were meaningful to them. We also encourage employees to give back by offering a charitable matching gift program whereby we match employees’ eligible contributions up to a preset limit.
In response to the COVID-19 pandemic, we implemented additional changes that we determined were in the best interest of our employees as well as the communities in which we operate. This included having our employees work from home to the extent possible, implementing additional safety measures for employees and customers to ensure social distancing when providing services, additional personal protective equipment and additional paid administrative leave of up to ten working days per employee for those who cannot work due to circumstances related to COVID-19.
Core to our values is being there for our people when the unexpected happens. We have two employee assistance programs in place to support our employees. The first is our emergency employee assistance program, which provides grants to employees for food, shelter and other basic needs due to unexpected financial hardships. The second, is our COVID-19 relief program through the Davey Company Foundation, which provides tax-free payments to employees for eligible expenses incurred as a result of the pandemic.
Domestic and Foreign Operations
We sell our services to customers in the United States and Canada.
We do not consider the risks associated with our business with foreign customers, other than currency exchange risks, to be materially different from those of our domestic customers.
Access to Company Information
Davey Tree’s internet address is http://www.davey.com. Through our internet website, by hyperlink to the Securities and Exchange Commission (“SEC”) website (http://www.sec.gov), we make available, free of charge, our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports. Availability of the reports occurs contemporaneously with the electronic posting to the SEC’s website as the reports are electronically filed with or furnished to the SEC. The information on our website is not a part of this Annual Report on Form 10-K.
The following documents are also made available on our website and a copy will be mailed, without charge, upon request to our Corporate Secretary:
▪Code of Ethics
▪Code of Ethics for Financial Matters

---

ITEM 1A. RISK FACTORS
Item 1A. Risk Factors.
The factors described below represent the material risks we face. Except as otherwise indicated, these factors may or may not occur and we are not in a position to express a view on the likelihood of any such factor occurring. Other factors may exist that we do not consider to be material based on information that is currently available or that we are not currently able to anticipate.
Risk Related to the COVID-19 Pandemic
Our business, results of operations, financial position or cash flow could in the future be materially adversely impacted by the coronavirus pandemic (COVID-19).
The global spread of the coronavirus pandemic (COVID-19) has created significant volatility and uncertainty and economic disruption. The extent to which COVID-19 impacts our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict including: the duration and scope of the pandemic, including any surge in cases in the United States and potential challenges caused by an increase in indoor activities due to cold and/or inclement weather, as well as the emergence of new COVID-19 variants, some of which may be more transmissible than the initial strain, and the availability and effectiveness of COVID-19 vaccines and other treatments; the impact of the pandemic on economic activity, including the current recession in the United States and the possibility that any future recovery from the COVID-19 pandemic and related impact may also be slowed or reversed by a number of factors, including new or additional resurgences in COVID-19 infections; government imposed restrictions in response to the pandemic and the possibility that previously-lifted restrictions will be reimposed, or additional restrictions put in place; the effect on our customers and their demand for our services; and the ability of our customers to pay for our services. Clients may slow down decision making, delay planned work or seek to terminate existing agreements. The degree of impact of COVID-19 on our customer sales demand will depend on the extent and duration of the economic contraction.
We have taken steps to support our employees and protect their health and safety, while also ensuring that our business can continue to operate and provide services to our customers. Where possible, we have transitioned our employees to work from home and implemented measures to ensure social distancing when providing services to our customers. The resources available to employees working remotely may not enable them to maintain the same level of productivity and efficiency, and these and other employees may face additional
demands on their time, such as increased responsibilities resulting from school closures or the illness of family members. Our increased reliance on remote access to our information systems could also increase our exposure to potential data breaches. There is no certainty that such measures will be sufficient to mitigate the risks posed by COVID-19, in which case our employees may become sick, our ability to perform critical functions could be harmed, and our business and operations could be negatively impacted.
While COVID-19 did not have a material adverse effect on our reported results for the year ended December 31, 2020, due to the inherent uncertainty surrounding COVID-19 given its continual evolution, such as the previous resurgences in cases and the emergence of new strains of COVID-19, we are unable to predict the ultimate impact that it may have on our business, including how it will impact our customers, employees, supply chain and liquidity. The situation surrounding COVID-19 remains fluid, and the potential for a material impact on our business increases the longer the coronavirus impacts the level of economic activity in the U.S. and globally. Even after the COVID-19 pandemic has subsided, we may experience an impact to our business as a result of the current economic recession and any economic downturn or recession that may occur in the future.
Risks Related to Our Industry in Which We Intend to Compete
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. Additionally, changes to the laws and regulations that govern the classification or wages of workers may require us to make changes to our operations and may negatively impact our business, increase our costs and expose us to various liabilities.
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.
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 our Residential and Commercial segment; however, pricing is generally the principal method of competition for our Utility segment, although in most instances consideration is also 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. We may also seek acquisitions or other transactions to further enhance our competitive position, and have, in the past, acquired businesses aimed at
expanding the geography and scope of our services. Such acquisitions or other transactions involve risks and may present financial or operational challenges and may not provide the benefits intended.
We could be materially adversely affected by wildfires in California and other areas and other severe weather events and natural disasters, including negative impacts to our business, reputation, financial condition, results of operations, liquidity and cash flows.
Our financial condition, results of operations, liquidity and cash flows could be materially affected by potential losses resulting from the impact of wildfires and other major weather events and natural disasters, in California and other areas, which have in the past and could in the future expose the Company to litigation and liabilities pursuant to the Company’s indemnification obligations to its customers. Such weather events and natural disasters could result in severe business disruptions, property damage, injuries or loss of life. Such events could result in significant decreases in revenues, cost increases, and other financial difficulties to the Company’s customers and could cause them to file for bankruptcy protection, as occurred with PG&E in 2019, which emerged from bankruptcy in July 2020. Any such event could have a material adverse effect on our business, reputation, financial condition, results of operations, liquidity and cash flows. Further, these events could result in government enforcement actions or regulatory penalties, litigation and/or civil or governmental actions, including investigations, citations and fines, against our customers and against us if any related losses are found to be the result of their or our activities and services. Any litigation relating to wildfires could take a number of years to resolve due to the complexity of the matters, including ongoing investigations into the cause of the fire and the number of claims or parties that may be involved.
Any regulatory responses or wildfire reforms taken by the state of California or any other jurisdiction where we have operations could adversely impact our business, financial condition, results of operations, liquidity and cash flows.
Our business is dependent upon service to our utility customers and we may be affected by developments in the utility industry.
We derive approximately 57% of our total revenues from our Utility segment. Significant adverse developments in the utility industry generally, or specifically for our major utility customers, including the January 2019 Chapter 11 filing by PG&E, from which it emerged July 2020, 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.
Risks Related to Our Business and Financial Condition
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-related 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.
Furthermore, many customers, particularly utilities, prefer to do business with contractors with significant financial resources, who can provide substantial insurance coverage. Should we be unable to renew our excess liability insurance and other commercial insurance policies at competitive rates, this loss would have an adverse effect on our financial condition and results of operations.
The unavailability or cancellation of third-party insurance coverage may have a material adverse effect on our financial condition and results of operations as well as disrupt our operations.
Any of our existing excess insurance coverage may not be renewed upon the expiration of the coverage period or future coverage may not be available at competitive rates for the required limits. In addition, our third-party insurers could fail, suddenly cancel our coverage or otherwise be unable to provide us with adequate insurance coverage. If any of these events occur, they may have a material adverse effect on our financial condition and results of operations as well as disrupt our operations. For example, we have operations in California, which has an environment prone to wildfires. Should our third-party insurers determine to exclude coverage for wildfires in the future, we could be exposed to significant liabilities, which would have a material adverse effect on our financial condition and results of operations and potentially disrupt our California operations.
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.
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.
On January 29, 2019, our largest customer, PG&E, filed for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code, from which it emerged in July 2020. Our total outstanding pre-petition receivables from PG&E as of December 31, 2019 were approximately $15 million, for which the Company received payment in full during the third and fourth quarters of 2020. The Company's primary contracts were assumed by PG&E and we continue to perform work for PG&E under the terms of our contract.
We are subject to third-party and governmental regulatory claims and litigation and adverse litigation judgments or settlements resulting from those claims could materially adversely affect our business.
From time-to-time, customers, vendors, employees, governmental regulatory authorities and others may make claims and take legal action against us. Allegations, claims or proceedings may, for example, relate to personal injury, property damage, general liability claims, vehicle accidents involving our vehicles and our employees, regulatory issues, contract disputes or employment matters and may include class actions. Defending against these and other such claims and proceedings is costly and time consuming and may divert management’s
attention and personnel resources from our normal business operations, and the outcome of many of these claims and proceedings cannot be predicted. 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. While we carry a broad range of insurance for the protection of our assets and operations, such insurance may not fully cover all material expenses related to potential allegations, claims and proceedings, or any adverse judgments, fines or settlements that may result. We reserve currently for anticipated losses and related expenses in excess of anticipated insurance coverage that may exist.
We are subject to the risk of changes in 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 cause our operating expenses to fluctuate. An increase in cost with partial or no corresponding compensation from customers would lead to lower margins that would have an adverse effect on our results of operations.
We cannot predict the impact that policies regarding 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. The change in the U.S. presidential administration may result in the prioritization of environmental policies, such as climate change mitigation and adaptation measures. 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 perceived climate change could have a negative effect on our results of operations or our financial condition.
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, including the impact of the COVID-19 pandemic and resulting recession in the United States.
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 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.
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, or the systems of third parties upon whom we rely, could be breached or damaged by computer viruses, natural or man-made incidents or disasters or unauthorized physical or electronic access. A cyberattack or breach involving our information technology systems or those of our suppliers or other partners could result in business disruption, including disruptions in critical systems, corruption or loss of data, loss or theft of funds, theft of our intellectual property, trade secrets, customer information or other data and unauthorized access to, or release of, 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 and could expose us to data loss, allow others to unfairly compete with us, and subject us to litigation, government enforcement actions, regulatory penalties and costly response measures. 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, and we may not have adequate insurance coverage to compensate us for any losses relating to such events.
Because the techniques used to obtain unauthorized access to, or disable, degrade or sabotage, information technology systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques, implement adequate preventative measures or remediate any intrusion on a timely or effective basis. Moreover, the development and maintenance of these preventative and detective measures is costly and requires ongoing monitoring and updating as technologies change and efforts to overcome security measures become more sophisticated. We, therefore, remain potentially vulnerable to additional known or yet unknown threats, as in some instances, we, or our suppliers and other partners, may be unaware of an incident or its magnitude and effects. We also face the risk that we may expose our customers or partners to cybersecurity attacks. Any of these factors could have a material adverse effect on us.
In addition, we may incur costs in order to comply with cybersecurity or data privacy regulations in the regions in which we operate. Such regulations may impose additional requirements on us and increase our regulatory and litigation risk.
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.
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 may be adversely affected if we are unable to obtain necessary surety bonds or letters of credit.
We utilize surety bonds and letters of credit on a project-by-project basis and for our self-insurance program. 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.
Economic conditions may adversely impact our customers’ future spending as well as pricing and payment for our services, thus negatively impacting our operations and growth.
Various economic factors, such as the current U.S. economic recession caused by the impact of the COVID-19 pandemic, may adversely impact the demand for our services and potentially result in depressed prices for our services and the delay or cancellation of projects. That may make it difficult to estimate our customers' requirements for our services and, therefore, add uncertainty to customer demand. Various economic factors, such as the recession, and customers' confidence in future economic conditions may cause a reduction in our customers' spending for our services and 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.
We may not have access to capital in the future due to 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. Economic disruptions, such as the current recession, 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 effect of foreign currency exchange rate fluctuations, which may have a material adverse impact on us.
We are exposed to foreign currency exchange rate risk resulting from our operations in Canada, where we provide a comprehensive range of horticultural services. Our financial results could be affected by factors such as changes in the foreign currency exchange rate or differing economic conditions in the Canadian markets as compared with the markets for our services in the United States. Our earnings are affected by translation exposures from currency fluctuations in the value of the U.S. dollar as compared to the Canadian dollar.
Revenues from customers in Canada are subject to foreign currency exchange. Thus, certain revenues and expenses have been, and are expected to be, subject to the effect of foreign currency fluctuations, and these fluctuations may have a material adverse impact on our operating results and asset values and could reduce shareholders’ equity. In addition, if we expand our Canadian operations, exposures to gains and losses on foreign currency transactions may increase.
Increases in our health insurance costs and uncertainty about federal health care policies could adversely affect our results of operations and cash flows.
Our ability to offer affordable health care coverage to our employees is a significant expense to the business. Changes in our employees' behavior, cost of health care programs offered by third party providers or any future legislation or regulations that may be implemented at the federal or state level could impact our ability to provide health care coverage. Significant increases in the cost of health care coverage over time could have a material negative impact on our financial position, results of operations and cash flows and may also limit our ability to attract and retain qualified employees.
Our inability to properly verify the employment eligibility of our employees could adversely affect our business.
We utilize the U.S. government’s E-Verify program to assist in verifying the employment eligibility of potential new employees and require all new potential employees provide us with government-specified documentation evidencing their employment eligibility. However, the use of E-Verify does not guarantee that we will successfully identify all applicants who are ineligible for employment. While we believe we are in compliance with applicable laws and regulations of U.S. Immigration and Customs Enforcement, it is possible some of our employees may, without our knowledge, be unauthorized workers. The employment of unauthorized workers may subject the Company to fines, penalties and other costs related to compliance with laws and regulations as well as adverse publicity that negatively impacts our reputation and brand and may make it more difficult to hire and retain qualified employees. Our operations may also be impacted by additional costs to hire and train new employees. Furthermore, immigration laws have been an area of considerable political focus in recent years, and, from time-to-time, the U.S. government considers or implements changes to federal immigration laws, regulations or enforcement programs. Changes in immigration or work authorization laws may increase our obligations for compliance and oversight, which could subject us to additional costs and potential liability and make our hiring process more cumbersome, or reduce the availability of potential employees.
Our business could be negatively impacted by corporate citizenship and environmental, social and governance matters and/or our reporting of such matters.
There is an increasing focus from certain customers, consumers, employees, and other stakeholders concerning corporate citizenship and sustainability matters. From time to time, we communicate certain initiatives, including goals, regarding environmental matters, responsible sourcing and social investments, including pursuant to our Corporate Responsibility Report. We could fail, or be perceived to fail, in our achievement of such initiatives or goals, or we could fail in fully and accurately reporting our progress on such initiatives and goals. In addition, we could be criticized for the scope of such initiatives or goals or perceived as not acting responsibly in connection with these matters. Our business could be negatively impacted by such matters. Any such matters, or related corporate citizenship and sustainability matters, could have a material adverse effect on our business.
Because no public market exists for our common shares, the ability of shareholders to sell their 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, the ability of shareholders to sell these shares is limited. While we have provided a ready market for
shareholders through our direct purchase of common shares, we are generally under no obligation to do so and may discontinue such purchases at any time. In addition, pursuant to our Articles of Incorporation and other plans and agreements pursuant to which our employees and non-employee directors have received our common shares, our common shares are subject to transfer restrictions that may limit the ability of shareholders to transfer their shares to individuals or entities other than our employees or our subsidiaries, including rights of first refusal and repurchase rights held by us and the Employee Stock Ownership Trust, which is the trust for the Company's Employee Stock Ownership Plan.
There can be no assurance that we will continue to declare cash dividends.
Our Board of Directors has adopted a dividend policy pursuant to which we currently pay a cash dividend on our common stock on a quarterly basis. Our ability to pay cash dividends depends on, among other things, our cash flows from operations, our cash requirements, our financial condition, the degree to which we are/or become leveraged, contractual restrictions binding on us, provisions of applicable law and other factors that our Board of Directors may deem relevant. The declaration and payment of any dividend is subject to the approval of our Board of Directors and our dividend may be discontinued or reduced at any time. There can be no assurance that we will declare cash dividends in the future in any particular amounts, or at all.
Natural disasters, pandemics, terrorist attacks and other external events could adversely affect our business.
Natural disasters, public health epidemics or pandemics, such as the COVID-19 coronavirus, 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, and may pose the risk that we or our employees, contractors, suppliers, customers and other business partners may be prevented from conducting business activities for an indefinite period of time. The occurrence of any such event could adversely affect our business, financial condition and results of operations.

---

ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments.
There are no unresolved comments from the Staff of the SEC.

---

ITEM 2. PROPERTIES
Item 2. Properties.
Our corporate headquarters campus is located in Kent, Ohio, which, along with several other properties in the surrounding area, includes The Davey Institute's research, technical support and laboratory diagnostic facilities.
We conduct administrative functions through our headquarters and our offices in Livermore, California (Utility Services). Our Canadian operations’ administrative functions are conducted through properties located in the provinces of Ontario and British Columbia. We believe our properties are well maintained, in good condition and suitable for our present operations. A summary of our owned properties follows:
Segment Number of Properties How Held Square Footage Number of
States or Provinces
Residential and Commercial 33 Owned 337,456 15
Utility 3 Owned 36,307 3
Residential and Commercial, and Utility 4 Owned 43,406 4
We also lease approximately 197 properties in 31 states and five provinces.
None of our owned or leased properties used by our business segments is individually material to our operations.

---

ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings.
We are party to a number of lawsuits, threatened lawsuits and other claims arising out of the normal course of business. On a quarterly basis, we assess our liabilities and contingencies in connection with outstanding legal proceedings utilizing the latest information available. Where it is probable that we will incur a loss and the amount of the loss can be reasonably estimated, we record a liability in our consolidated financial statements. These legal accruals may be increased or decreased to reflect any relevant developments on a quarterly basis. Where a loss is not probable or the amount of the loss is not estimable, we do not record a legal accrual, consistent with applicable accounting guidance. Based on information currently available to us, advice of counsel, and available insurance coverage, we believe that our established accruals are adequate and the liabilities arising from the legal proceedings will not have a material adverse effect on our consolidated financial condition. We note, however, that in light of the inherent uncertainty in legal proceedings there can be no assurance that the ultimate resolution of a matter will not exceed established accruals. As a result, the outcome of a particular matter or a combination of matters may be material to our results of operations for a particular period, depending upon the size of the loss or our income for that particular period.
In November 2017, a suit was filed in Savannah, Georgia state court (“State Court”) against Davey Tree, its subsidiary, Wolf Tree, Inc. ("Wolf Tree"), a former Davey employee, two Wolf Tree employees, and a former Wolf Tree employee alleging various acts of negligence and seeking compensatory and punitive damages for wrongful death and assault and battery of the plaintiff’s husband, a Wolf Tree employee, who was shot and killed in August 2017.
In July 2018, a related survival action was filed by the deceased’s estate against Davey Tree, its subsidiary, Wolf Tree, and four current and former employees in Savannah, Georgia, which arises out of the same allegations, seeks compensatory and punitive damages and also includes three Racketeer Influenced and Corrupt Organizations Act ("RICO") claims under Georgia law seeking compensatory damages, treble damages, and punitive damages. The 2018 case was removed to the United States District Court for the Southern District of Georgia, Savannah Division (“Federal Court”), on August 2, 2018. The Company filed a motion to dismiss the RICO claims. Plaintiffs filed a motion to remand the case to state court, which the Company has opposed.
The cases were mediated unsuccessfully in December 2018 and the State Court case was originally set for trial on January 22, 2019. However, as discussed below, all of the civil cases were later stayed on December 28, 2018 until the conclusion of criminal proceedings against individuals and currently remain stayed.
On December 6, 2018, a former Wolf Tree employee pled guilty to conspiracy to conceal, harbor, and shield illegal aliens. On December 21, 2018, the United States federal prosecutors filed a motion to stay both actions on the grounds that on December 13, 2018, an indictment was issued charging two former Wolf Tree employees and one other individual with various crimes, including conspiracy to murder the deceased. On December 17, 2018, the United States Attorney’s Office for the Southern District of Georgia informed the Company and Wolf Tree that they are also under investigation for potential violations of immigration and other laws relating to the subject matter of the ongoing criminal investigation referenced above. The Company and Wolf Tree are cooperating with the investigation and have met with both the civil and criminal divisions of the Department of Justice ("DOJ") to resolve the matter. Due to pandemic-related issues and delays on the side of the DOJ, the matter currently remains unresolved.
On December 28, 2018, the State Court granted the United States’ motion to stay but indicated that it would nonetheless consider certain pending matters, including: (1) Plaintiff and a co-defendant’s motions that Davey Tree be forced to produce privileged documents and
testimony, which had been submitted to a Special Master for recommendation; and (2) the Defendants’ motions for summary judgment. On January 11, 2019, the Special Master issued his recommendation that both Plaintiff and the co-defendant’s motions to force Davey to disclose privileged information be denied. The State Court judge has not yet moved on the recommendation. On January 29, 2019, the State Court heard oral argument on Defendants’ motions for summary judgment, and the motions remain pending during the stay of the cases.
On January 28, 2019, the Federal Court also granted the United States’ motion to stay. On January 29, 2019, the State Court ordered the parties to return to mediation, which occurred on April 17, 2019 but was unsuccessful in resolving the matters. All civil cases continue to remain stayed.
In both cases, the Company has denied all liability and is vigorously defending the action. It also has retained separate counsel for some of the individual defendants, each of whom has denied all liability and also is vigorously defending the action.

---

ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures.
Not applicable.
Information about our Executive Officers.
Our executive officers and their present positions and ages as of March 1, 2021 follow:
Name Age Position Years
with
Company Served as an
Executive Officer
Since
Patrick M. Covey 57 Chairman, President and Chief Executive Officer 29 2007
Joseph R. Paul, CPA 59 Executive Vice President, Chief Financial Officer and Secretary 15 2005
Christopher J. Bast, CPA, CTP 53 Vice President and Treasurer 7 2013
James E. Doyle 52 Executive Vice President and General Manager, Davey Tree Expert Co. of Canada, Limited 31 2014
Gregory M. Ina 49 Executive Vice President, The Davey Institute and Employee Development 25 2016
Dan A. Joy 63 Executive Vice President and General Manager, Commercial Landscape Services and Operations Support Services 44 2013
Brent R. Repenning 49 Executive Vice President, U.S. Utility and Davey Resource Group 26 2014
Erika J. Schoenberger 41 Vice President, General Counsel and Assistant Secretary 3 2018
Thea R. Sears, CPA 52 Vice President and Controller 27 2010
James F. Stief 66 Executive Vice President, U.S. Residential Operations 42 2010
Mr. Covey was appointed Chairman effective March 6, 2020, Chief Executive Officer effective July 21, 2017 and served as President and Chief Operating Officer since March 4, 2016 and as a Director since May 20, 2014. He previously served as President and Chief Operating Officer, U.S. Operations, having been appointed in April 2014, and as Chief Operating Officer, U.S. Operations, having been appointed in February 2012. Prior to that time, Mr. Covey served as Executive Vice President, having been appointed in January 2007, Vice President and General Manager of the Davey Resource Group, having been appointed in March 2005, and Vice President, Southern Operations, Utility Services, having been appointed in January 2003. Previously, having joined Davey Tree in August 1991, Mr. Covey held various managerial positions, including Manager of Systems and Process Management and Administrative Manager, Utility Services.
Mr. Paul was elected Executive Vice President, Chief Financial Officer and Secretary effective March 4, 2016 and previously served as Chief Financial Officer and Secretary, having been appointed in March 2013. Prior to that time, he served as Vice President and Treasurer, having been appointed in May 2011. Mr. Paul joined Davey Tree as Treasurer in December 2005.
Mr. Bast was elected Vice President effective September 18, 2017 having previously served as Treasurer since April 2013. Mr. Bast joined Davey Tree in March 2013 and prior to joining us, served in various management positions from 1994 to 2013 at Diebold, Incorporated, a provider of self-service delivery and security systems.
Mr. Doyle was elected Executive Vice President and General Manager, Davey Tree Expert Co. of Canada, Limited (“Davey Tree Limited”), effective May 21, 2014 and previously served as Vice President and General Manager, Davey Tree Limited, having been appointed in February 2012. Prior to that time, he served as Vice President and General Manager, Operations, Davey Tree Limited, having been appointed in May 2011, and Vice President, Operations, Davey Tree Limited, having been appointed in January 2006. Previously, having joined Davey Tree in 1989, Mr. Doyle held various managerial positions, including District Manager and Operations Manager.
Mr. Ina was elected Executive Vice President, The Davey Institute and Employee Development in July 2017, having previously served as Vice President and General Manager of Research, Recruiting and Human Resource Development effective April 4, 2016, and having previously been elected an officer effective March 4, 2016. Prior to this time, he served as Vice President and General Manager of the Davey Institute, having been appointed in May 2009, and General Manager of the Davey Institute, having been appointed in May 2006. Previously, having joined Davey Tree in 1996, Mr. Ina held various managerial and operational positions in the Davey Institute and Davey Resource Group.
Mr. Joy was elected Executive Vice President and General Manager, Commercial Landscape Services and Operations Support Services, effective August 15, 2014 and previously served as Executive Vice President and General Manager, Commercial Landscape Services, having been appointed in May 2014. Prior to that time, he served as Vice President and General Manager, Commercial Landscape Services, having been appointed in May 2013, and Vice President, Commercial Landscape Services, having been appointed in December 2004. Previously, having joined Davey Tree in 1976, Mr. Joy held various managerial positions, including Operations Manager, District Manager and Assistant District Manager.
Mr. Repenning was elected Executive Vice President, U.S. Utility and Davey Resource Group in July 2017, having previously served as Senior Vice President, Davey Resource Group and Eastern Utility, effective October 2, 2016 and as Vice President and General Manager, Davey Resource Group, having been appointed in June 2010. Prior to that time, he served as Vice President, Davey Resource Group, having been appointed in October 2009. Previously, having joined Davey Tree in 1994, Mr. Repenning held various managerial and operational positions, including Regional Manager, Production Manager and Supervisor.
Ms. Schoenberger was elected Assistant Secretary in September 2018 having joined the Company in August 2018 as Vice President and General Counsel. Prior to joining Davey Tree, Ms. Schoenberger served as General Counsel, Corporate Secretary and Senior Vice
President at the Oneida Group, Inc., a global marketer of tabletop and food preparation products from September 2013 until she joined the Company. Prior to that, she was a Partner at Frost Brown Todd, LLC, a national full service law firm.
Ms. Sears was elected Vice President effective September 18, 2017 having served as Controller since September 16, 2016 and prior to that, served as Assistant Controller, having been appointed in May 2010. Prior to that time, she served as Manager of Financial Accounting, having been appointed in April 1998, and as Supervisor of Financial Accounting, having been appointed in September 1995. Having joined Davey Tree in 1993, Ms. Sears has held a variety of roles in financial reporting, managerial reporting and operations accounting.
Mr. Stief was elected Executive Vice President, U.S. Residential Operations, effective February 12, 2012 and previously served as Vice President and General Manager, Residential/Commercial Services, since January 2010. Prior to that time, Mr. Stief served as Vice President and General Manager, South, West and Central Residential/Commercial Operations, having been appointed in January 2007, and Vice President South, West and Central Residential/Commercial Operations, having been appointed in January 1997. Previously, having joined Davey Tree in 1978, Mr. Stief held various managerial positions, including Operations Manager and District Manager.
Our officers serve from the date of their election to the next organizational meeting of the Board of Directors and until their respective successors are elected.
PART II

---

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our common shares are not listed or traded on an established public trading market and market prices are, therefore, not available. Semiannually, for purposes of the Davey 401KSOP and ESOP, the fair market value of our common shares is determined by an independent stock valuation firm, based upon our performance and financial condition, using a peer group of comparable companies selected by that firm. The peer group currently consists of: ABM Industries Incorporated; Comfort Systems USA, Inc.; Dycom Industries, Inc.; FirstService Corporation; MYR Group, Inc.; Quanta Services, Inc.; Rollins, Inc.; and Scotts Miracle-Gro Company. The semiannual valuations are effective for a period of six months and the per-share price established by those valuations is the price at which our Board of Directors has determined our common shares will be bought and sold during that six-month period in transactions involving Davey Tree or one of its employee benefit or stock purchase plans. Since 1979, we have provided a ready market for all shareholders through our direct purchase of their common shares, although we are under no obligation to do so (other than for repurchases pursuant to the put option under The Davey 401KSOP and ESOP Plan, as described in Note M). These purchases are added to our treasury stock.
The following table sets forth, for the periods indicated, the high and low common share price (in dollars) and the cash dividends declared per common share (in cents).
Common Stock Price Range Cash
Dividends
Declared
High Low
Fiscal Year 2020
First quarter ended March 28, 2020 $ 24.20 $ 22.60 2.5
Second quarter ended June 27, 2020 24.20 24.20 2.5
Third quarter ended September 26, 2020 24.90 24.20 2.5
Fourth quarter ended December 31, 2020 24.90 24.90 2.5
Fiscal Year 2019
First quarter ended March 30, 2019 21.10 19.70 2.5
Second quarter ended June 29, 2019 21.10 21.10 2.5
Third quarter ended September 28, 2019 22.60 21.10 2.5
Fourth quarter ended December 31, 2019 22.60 22.60 2.5
On December 4, 2020, our Board of Directors approved a change to our dividend policy. Under the revised dividend policy, on an annual basis, we will now target a dividend yield in the range of .4% to .5%. The Board will evaluate the dividend on a semiannual basis in conjunction with our independent stock valuation and if the current annual dividend is less than .4% of our current stock price, the Board intends to increase the quarterly cash dividend.
The declaration of future cash dividends will be subject to the Board's final determination based on a number of factors, including our financial performance and available cash resources, the terms of our indebtedness, our cash requirements and alternative uses of cash that the Board may conclude would represent an opportunity to generate a greater return on investment for us. The dividend policy may be revised, suspended or cancelled at the discretion of the Board at any time.
Record Holders and Common Shares
On March 5, 2021, we had 4,371 record holders of our common shares.
On March 5, 2021, we had 22,824,170 common shares outstanding and options exercisable to purchase 940,277 common shares.
Recent Sales of Unregistered Securities
None.
Purchases of Equity Securities
The following table provides information on purchases made by the Company of our common shares during the fiscal year ended December 31, 2020.
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 of
Shares that May
Yet Be Purchased
Under the Plans
or Programs
Fiscal 2020
January 1 to January 25 1,005 $ 22.60 - 866,570
January 26 to February 22 645 22.60 - 866,570
February 23 to March 28 331,652 24.20 - 866,570
Total First Quarter 333,302 24.19 -
March 29 to April 25 297,079 24.20 - 866,570
April 26 to May 23 251,981 24.20 - 866,570
May 24 to June 27 110,488 24.20 - 866,570
Total Second Quarter 659,548 24.20 -
June 28 to July 25 1,128 24.20 - 866,570
July 26 to August 22 51,039 24.90 - 866,570
August 23 to September 26 87,434 24.90 - 866,570
Total Third Quarter 139,601 24.89 -
September 27 to October 24 257,824 24.90 175,610 690,960
October 25 to November 28 153,046 24.90 - 690,960
November 29 to December 31 54,608 24.90 - 690,960
Total Fourth Quarter 465,478 24.90 175,610
Total Year to Date 1,597,929 $ 24.46 175,610
At the Annual Meeting of Shareholders of the Company held on May 16, 2017, the shareholders of the Company approved proposals to amend the Company's Articles of Incorporation to (i) expand the Company's right of first refusal with respect to proposed transfers of shares of the Company's common shares, (ii) clarify provisions regarding when the Company may provide notice of its decision to exercise its right of first refusal with respect to proposed transfers of common shares by the estate or personal representative of a deceased shareholder, and (iii) grant the Company a right to repurchase common shares held by certain shareholders of the Company.
On May 10, 2017, the Board of Directors of the Company adopted a policy regarding the Company's exercise of the repurchase rights granted to the Company through amendments to the Company's Articles of Incorporation, as approved by shareholders on May 16, 2017.
Until further action by the Board, it is the policy of the Company not to exercise its repurchase rights under the amended Articles with respect to shares of the Company's common shares held by current and retired employees and current and former directors of the Company (subject to exceptions set forth in the policy) (collectively, "Active Shareholders"), their spouses, their first-generation descendants and trusts established exclusively for their benefit.
Until further action by the Board, it is also the policy of the Company not to exercise its rights under the amended Articles to repurchase shares of the Company's common shares proposed to be transferred by an Active Shareholder to his or her spouse, a first-generation descendant, or a trust established exclusively for the benefit of one or more of an Active Shareholder, his or her spouse and first-generation descendants of an Active Shareholder, or upon the death of an Active Shareholder, such transfers from the estate or personal representative of a deceased Active Shareholder. The Board may suspend, change or discontinue the policy at any time without prior notice.
In accordance with the amendments to the Articles approved by the Company's shareholders at the 2017 Annual Meeting on May 17, 2017, the Company's Board of Directors authorized the Company to repurchase up to 200,000 common shares, which authorization was increased by an additional 1,000,000 common shares in May 2018. Of the 1,200,000 total shares authorized, 690,960 remain available under the program. Share repurchases may be made from time to time and the timing of any repurchases and the actual number of shares repurchased will depend on a variety of factors. The Company is not obligated to purchase any shares, and repurchases may be commenced, suspended or discontinued from time to time without prior notice. The repurchase program does not have an expiration date.
Stock Performance Graph
Comparison of five-year cumulative return among The Davey Tree Expert Company, S&P 500 Stock Index and Selected Peer Group Companies Index
The following Performance Graph compares cumulative total shareholder returns (assuming an initial investment of $100 on December 31, 2015 and reinvestment of dividends) for The Davey Tree Expert Company common shares during the last five years to the Standard & Poor’s 500 Stock Index (the "S&P 500 Index") and to an index of selected peer group companies. The peer group, which is the same group used by Davey’s independent stock valuation firm, consists of: ABM Industries Incorporated; Comfort Systems USA, Inc.; Dycom Industries, Inc.; FirstService Corporation; MYR Group, Inc.; Quanta Services, Inc.; Rollins, Inc.; and Scotts Miracle-Gro Company. The peer group are all publicly held companies deemed to be engaged in similar lines of business.
2015 2016 2017 2018 2019 2020
Davey Tree 100 108 118 131 151 188
S&P 500 Index 100 112 136 130 171 203
Peer Group 100 141 174 152 178 297
The Performance Graph and related information above shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that we specifically incorporate it by reference into such filing.

---

ITEM 6. SELECTED FINANCIAL DATA
Item 6. Selected Financial Data.
Fiscal Year Ended December 31,
2020 2019 2018 2017 2016
(In thousands, except ratio and per share data)
Operating Statement Data:
Revenues $ 1,287,552 $ 1,143,720 $ 1,024,791 $ 915,958 $ 845,678
Costs and expenses:
Operating 823,297 730,096 666,141 587,443 541,785
Selling 227,392 209,148 184,388 167,934 152,106
General and administrative 89,528 76,738 67,462 59,403 58,293
Depreciation 53,888 57,292 54,914 50,702 47,284
Amortization of intangible assets 2,827 2,545 2,055 2,384 2,306
Gain on sale of assets, net (3,581) (2,055) (5,106) (3,989) (4,664)
Income from operations 94,201 69,956 54,937 52,081 48,568
Interest expense (6,899) (8,514) (7,039) (4,886) (4,393)
Interest income 2,135 348 350 292 255
Other expense (5,555) (8,112) (11,505) (9,603) (7,485)
Income before income taxes 83,882 53,678 36,743 37,884 36,945
Income taxes 22,945 12,628 9,385 16,075 14,885
Net income $ 60,937 $ 41,050 $ 27,358 $ 21,809 $ 22,060
Earnings per share--diluted * $ 2.65 $ 1.71 $ 1.07 $ .82 $ .81
Shares used for computing per share amounts--diluted * 23,033 23,978 25,481 26,697 27,247
Other Financial Data:
Depreciation and amortization $ 56,715 $ 59,837 $ 56,969 $ 53,086 $ 49,590
Capital expenditures 51,650 58,355 60,410 57,100 56,646
Cash flow provided by (used in):
Operating activities 152,081 83,353 62,104 56,776 55,370
Investing activities (54,928) (63,322) (61,377) (59,518) (54,808)
Financing activities (92,059) (31,824) 9,065 6,410 (7,721)
Cash dividends declared per share * $ .10 $ .10 $ .10 $ .10 $ .10
Certain amounts in prior years have been recast as a result of the change in accounting principle as discussed in Note B
As of December 31,
2020 2019 2018 2017 2016
(In thousands, except ratio and per share data)
Balance Sheet Data:
Working capital $ 85,190 $ 115,753 $ 115,756 $ 80,468 $ 59,868
Current ratio 1.39 1.70 1.83 1.63 1.50
Property and equipment, net 204,717 199,850 202,285 193,183 179,436
Total assets 655,354 596,924 527,410 474,116 424,793
Long-term debt 83,547 145,149 158,425 119,210 92,623
Other long-term liabilities 118,874 101,702 69,575 66,224 62,801
Redeemable common shares related to 401KSOP and Employee Stock Ownership Plan (ESOP) 153,387 124,555 119,049 123,520 124,201
Total common shareholders' equity 79,674 59,846 41,049 36,177 26,596
Redeemable common shares * 5,113 5,147 5,642 6,467 7,057
Common shares: *
Issued 37,801 37,767 37,272 36,447 35,857
Less: In treasury 20,094 19,737 20,033 18,693 17,991
Net outstanding 22,820 23,177 22,881 24,221 24,923
Stock options: *
Outstanding 1,409 1,428 1,466 1,529 1,599
Exercisable 940 938 890 801 751
ESOT valuation per share * $ 30.00 $ 24.20 $ 21.10 $ 19.10 $ 17.60
* 2016 has been adjusted for a two-for-one stock split, effective June 1, 2017.
Certain amounts in prior years have been recast as a result of the change in accounting principle as discussed in Note B

---

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
(Amounts in thousands, except share data)
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is provided as a supplement to the accompanying consolidated financial statements and notes to help provide an understanding of our financial condition, cash flows and results of operations. MD&A is organized as follows:
▪Overview of 2020 Results;
▪Results of Operations, including fiscal 2020 compared to fiscal 2019;
▪Liquidity and Capital Resources, including cash flow summary, contractual obligations summary, off-balance sheet arrangements, and capital resources;
▪Recent Accounting Guidance;
▪Critical Accounting Policies and Estimates; and
▪Market Risk Information, including interest rate risk and foreign currency exchange rate risk.
OVERVIEW OF 2020 RESULTS
General
We provide a wide range of arboricultural, horticultural, environmental and consulting services to residential, utility, commercial and governmental entities throughout the United States and Canada.
Our Business--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 and rights-of-way and chemical brush control, 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.”
Impact of COVID-19
While the coronavirus ("COVID-19") pandemic did not have a material adverse effect on our reported results for the year ended December 31, 2020, the overall extent and duration of the impact of COVID-19 on businesses and economic activity generally remains unclear due to the inherent uncertainty surrounding COVID-19, given its continual evolution.
We have taken steps to support our employees and protect their health and safety, while also ensuring that our business can continue to operate and provide services to our customers. Where possible, we have transitioned our employees to work from home and implemented measures to ensure social distancing when providing services to our customers, including providing personal protective equipment and limiting contact within vehicles. We have also provided additional administrative leave for employees affected by COVID-19 directly or indirectly and converted our 2020 Annual Meeting of Shareholders to a virtual-only format. During 2020, we incurred expenses of $4,627 as a result of the COVID-19 pandemic mainly for administrative leave and personal protective equipment. We have also experienced a reduction of travel expenses of approximately $5,800 largely related to restrictions imposed as a response to the pandemic.
The extent to which our operations may be impacted by COVID-19 will depend largely on future developments, which are highly uncertain and cannot be accurately predicted, including new information which may emerge concerning the severity of the outbreak, any resurgence of cases in the United States and potential challenges caused by the colder winter months, including the onset of the cold and flu season, and actions by government authorities to contain the pandemic or treat its impact, including reimposing previously-lifted measures and the possibility additional restrictions will be put in place, among other things. The situation surrounding COVID-19 remains fluid, and the potential for a material impact on our business increases the longer the coronavirus impacts the level of economic activity in the U.S. and globally. Even after the COVID-19 pandemic has subsided, we may experience an impact to our business as a result of the current economic recession and any economic downturn or recession that may occur in the future.
RESULTS OF OPERATIONS
The following table sets forth our consolidated results of operations as a percentage of revenues and the percentage change in dollar amounts of the results of operations for the periods presented:
Year Ended December 31, Percentage Change
2020 2019 2018 2020/2019 2019/2018
Revenues 100.0 % 100.0 % 100.0 % 12.6 % 11.6 %
Costs and expenses:
Operating 63.8 63.8 65.0 12.8 9.6
Selling 17.7 18.3 18.0 8.7 13.4
General and administrative 7.0 6.7 6.6 16.7 13.7
Depreciation 4.2 5.0 5.4 (5.9) 4.3
Amortization of intangible assets .2 .2 .2 11.1 23.8
Gain on sale of assets, net (.3) (.2) (.5) 74.3 (59.8)
92.7 93.9 94.6 11.1 10.7
Income from operations 7.3 6.1 5.4 34.7 27.3
Other income (expense):
Interest expense (.5) (.7) (.7) (19.0) 21.0
Interest income 0.2 - - nm nm
Other (.4) (.7) (1.1) (31.5) (29.5)
Income before income taxes 6.5 4.7 3.6 56.3 46.1
Income taxes 1.8 1.1 0.9 81.7 34.6
Net income 4.7 % 3.6 % 2.7 % 48.4 % 50.0 %
nm--not meaningful
Fiscal 2020 Compared to Fiscal 2019
A comparison of our fiscal year 2020 results to 2019 follows:
Year Ended December 31,
2020 2019 Change % Change
Revenues $ 1,287,552 $ 1,143,720 $ 143,832 12.6 %
Costs and expenses:
Operating 823,297 730,096 93,201 12.8
Selling 227,392 209,148 18,244 8.7
General and administrative 89,528 76,738 12,790 16.7
Depreciation 53,888 57,292 (3,404) (5.9)
Amortization of intangible assets 2,827 2,545 282 11.1
Gain on sale of assets, net (3,581) (2,055) 1,526 74.3
1,193,351 1,073,764 119,587 11.1
Income from operations 94,201 69,956 24,245 34.7
Other income (expense):
Interest expense (6,899) (8,514) 1,615 (19.0)
Interest income 2,135 348 1,787 nm
Other (5,555) (8,112) 2,557 (31.5)
Income before income taxes 83,882 53,678 30,204 56.3
Income taxes 22,945 12,628 10,317 81.7
Net income $ 60,937 $ 41,050 $ 19,887 48.4 %
Certain amounts in prior years have been recast as a result of the change in accounting principle as discussed in Note B
nm--not meaningful
Revenues--Revenues of $1,287,552 increased $143,832 compared with the $1,143,720 reported in 2019. Utility increased $131,562, or 21.7%, from the prior year. The increase was primarily attributable to additional revenues from increased work year-over-year on existing accounts, rate increases and new accounts. Most of our Utility Services segment work was deemed essential services and was not significantly affected by COVID-19. Residential and Commercial increased $10,702, or 2.0%, from 2019. Increases, primarily in tree surgery, plant care, storm damage services and consulting services, were partially offset by decreases in grounds maintenance. While our Residential and Commercial Services segment work was deemed essential services in most states, we experienced temporary shutdowns or work restrictions related to COVID-19 in a few states and certain Canadian provinces. Where possible, Residential and Commercial Services employees affected by a shutdown or work restrictions were reassigned to assist with Utility Services operations.
Operating Expenses--Operating expenses of $823,297 increased $93,201 from the prior year, but as a percentage of revenues remained at 63.8%. Utility experienced an increase of $86,160, or 19.5%, from 2019, but as a percentage of revenues decreased to 71.4% from 72.7%. Increases in employee labor and benefits expense, equipment expense, subcontractor expense, and crew expenses were partially offset by decreases in fuel expense and disposal expense. Residential and Commercial decreased $3,585, or 1.3%, compared with 2019 and as a percentage of revenue decreased to 51.1% from 52.8%. Decreases in materials expense, subcontractor expense, and fuel expense, were offset by increases in employee labor and benefits expense and equipment expense.
Operating expenses for the period also included $4,627 of expenses related directly to COVID-19, including $3,080 for additional administrative leave offered to employees who have been unable to work due to COVID-19 imposed restrictions whether from the virus itself or government imposed restrictions or closures.
Fuel costs decreased in 2020 as compared with fuel costs for 2019 and impacted operating expenses within both segments. During 2020, fuel expense of $31,597 decreased $4,713, or 13.0%, from the $36,310 incurred in 2019. The $4,713 decrease included price decreases approximating $4,981 and usage increases approximating $268.
Selling Expenses--Selling expenses of $227,392 increased $18,244 from 2019 but as a percentage of revenues decreased to 17.7% from 18.3%. Utility increased $9,727, or 13.6%, from 2019 but as a percentage of revenue decreased to 11.0% from 11.8%. Increases in wages and incentive expense, rent expense, utilities expense and taxes were partially offset by decreases in travel expense and employee development expense. Residential and Commercial increased $7,962, or 5.6%, from 2019 and as a percentage of revenue increased to 27.3% from 26.4%. Increases in field management wages and incentive expense, office rent and marketing expenses were partially offset by decreases in travel expense and employee development expense.
General and Administrative Expenses--General and administrative expenses increased $12,790 to $89,528, an increase of 16.7% from the $76,738 experienced in 2019 and as a percentage of revenues increased to 7.0% from 6.7%. Increases in salary and incentive expense and computer expense were partially offset by reductions in travel expense and professional service expenses.
Depreciation and Amortization Expense--Depreciation and amortization expense of $56,715 decreased $3,122 from the prior year and as a percentage of revenues decreased to 4.4% from 5.2%. The decrease was attributable to lower capital expenditures in recent years and an increased use of operating leases for equipment.
Gain on Sale of Assets--Gain on the sale of assets of $3,581 increased $1,526 from the $2,055 recognized in 2019. The increase is the result of the sale of more vehicles and equipment in 2020 as in 2019, at a higher average gain per unit in 2020 as compared with our average gain in 2019.
Interest Expense--Interest expense of $6,899 decreased $1,615 from the $8,514 incurred in 2019. The decrease is attributable to lower average debt levels and borrowing rates necessary to fund operations and capital expenditures.
Interest Income--Interest income of $2,135 increased 1,787 from the $348 of interest income in 2019. The increase is attributable to interest on PG&E pre-petition receivables which was approved by the United States Bankruptcy Court and received during the third and fourth quarter of 2020.
Other, Net--Other, net of $5,555 decreased $2,557 from the $8,112 experienced in 2019. Other, net, consisted of nonoperating income and expense, including pension expense and foreign currency gains/losses on the intercompany account balances of our Canadian operations.
Income Taxes--Income taxes for 2020 were $22,945, an effective tax rate of 27.4%, compared with income taxes for 2019 of $12,628, or an effective tax rate of 23.4%. The increase of 4.0% in the effective tax rate as compared to 2019 relates primarily to the termination of the pension plan in 2019 and the discrete benefit to the rate which occurred as a result, as well as the variance in the exercise of equity awards, which were significantly less in 2020 as compared to 2019, resulting in a smaller tax benefit in 2020.
Net Income--Net income of $60,937 was $19,887 more than the $41,050 earned in 2019.
Fiscal 2019 Compared to Fiscal 2018
A detailed discussion of the prior year 2019 to 2018 year-over-year changes has been omitted from this Form 10-K and can be found in Part II, Item 7. Management's Discussion and Analysis, in the 2019 Annual Report on Form 10-K filed with the SEC on March 9, 2020; which specific discussion is incorporated herein by reference.
Goodwill-Impairment Tests
Annually, we perform the impairment tests for goodwill during the fourth quarter. Impairment of goodwill is tested at the reporting-unit level, which for us are also our business segments. Impairment of goodwill is tested by comparing the reporting unit’s carrying value, including goodwill, to the fair value of the reporting unit. The fair values of the reporting units are estimated using discounted projected cash flows. If the carrying value of the reporting unit exceeds its fair value, goodwill is considered impaired and an impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit's fair value, not to exceed the carrying value of the goodwill allocated to that reporting unit. We conducted our annual impairment tests and determined that no impairment loss was required to be recognized in 2020 or for any prior periods. There were no events or circumstances from the date of our assessment through December 31, 2020 that would impact this conclusion.
The fair values of the reporting units were estimated using discounted projected cash flows for the goodwill impairment tests and analysis that required judgmental assumptions about revenues, operating margins, growth rates, discount rates, and working capital requirements. In determining those judgmental assumptions, we consider data, including--for each reporting unit--its annual budget for the upcoming year, its longer-term performance expectations, anticipated future cash flows and market data. Assumptions were also made for perpetual growth rates for periods beyond the forecast period.
If the fair values of the reporting units were less than the carrying values of the reporting units (including recorded goodwill), determined through the discounted projected cash flow methodology, goodwill impairment may be present. In such an instance, an impairment charge would be recognized for the amount by which the reporting unit’s carrying amount of goodwill exceeded the reporting unit's fair value of goodwill, not to exceed the carrying value of the goodwill allocated to that reporting unit.
The carrying value of the recorded goodwill for all reporting units totaled approximately $48,256 at December 31, 2020. Based upon the goodwill impairment analysis conducted in the fourth quarter 2020, the determined fair value of the reporting units exceeded their carrying value by more than a significant amount.
LIQUIDITY AND CAPITAL RESOURCES
Our principal financial requirements are for capital spending, working capital and business acquisitions. Cash generated from operations, our revolving credit facility and note issuances are our primary sources of capital.
Cash Flow Summary
Our cash flows from operating, investing and financing activities, as reflected in the Consolidated Statements of Cash Flow for the years ended December 31, 2020 and December 31, 2019, are summarized as follows:
2020 2019
Cash provided by (used in):
Operating activities $ 152,081 $ 83,353
Investing activities (54,928) (63,322)
Financing activities (92,059) (31,824)
Effect of exchange rate changes on cash 107 132
Increase/(Decrease) in cash $ 5,201 $ (11,661)
Net Cash Provided by Operating Activities--Operating activities in 2020 provided cash of $152,081 as compared to $83,353 provided in 2019. The $68,728 net increase was primarily attributable to (i) an increase of $4,806 in the change in self-insurance accruals, (ii) an
increase of $45,389 in the change in accounts payable and accrued expenses, and (iii) an $11,207 decrease in the change in accounts receivable.
Overall, accounts receivable increased $21,366 in 2020 as compared to the increase of $32,573 experienced in 2019. The increase in 2020 was attributable to the timing of payments from Utility segment customers including payment in full of the pre-petition receivables of approximately $15,000 from PG&E. With respect to the change in accounts receivable arising from business levels, the “days-sales-outstanding” in accounts receivable (“DSO”) at the end of 2020 decreased by six days to 67 days, as compared to 2019. The DSO at December 31, 2019 was 73 days, with the prior year being impacted by the PG&E pre-petition receivables. DSO excluding PG&E pre-petition receivables would have been 69 days at the end of 2019. We use DSO to monitor trends in customer payment patterns and collection efforts.
Accounts payable and accrued expenses increased $52,577 in 2020, a $45,389 change from the increase of $7,188 experienced in 2019. The increase was primarily attributable to increases in payroll taxes payable, trade payables, and employee compensation accruals. The increase in payroll taxes payable are attributable to the deferral of certain federal payroll taxes under the Coronavirus Aid, Relief, and Economic Security ("CARES") Act. Accounts payable was impacted by lower payables for equipment and income taxes payable were impacted by the timing of estimated payments.
Self-insurance accruals increased $13,597 in 2020, a change of $4,806 compared to the increase of $8,791 experienced in 2019. The increase occurred within our workers compensation and general liability classifications and resulted primarily from an overall increase in deductible amounts under commercial insurance or the self-insured risk retention.
Net Cash Used in Investing Activities--Investing activities used $54,928 in cash, $8,394 less than the $63,322 used in 2019. The decrease was primarily attributable to a decrease in expenditures for equipment. Our decrease in capital expenditures is partially the result of our increased use of operating leases for equipment.
Net Cash Used in Financing Activities--Financing activities used $92,059 in cash in 2020, $60,235 more than the $31,824 of cash used in 2019. Our borrowing on our revolving credit facility decreased $62,000 as compared with the $31,500 decrease during 2019. We use the revolving credit facility primarily for capital expenditures and payments of notes payable, primarily related to acquisitions. Proceeds from notes payable totaled $269,445 and payments of notes payable totaled $281,985 during 2020. Purchases of common shares for treasury of $39,079 were partially offset by net cash received of $25,827 from the sale of common shares. Dividends paid during 2020 totaled $2,271.
The Company currently repurchases common shares at the shareholders’ request in accordance with the terms of the Davey 401KSOP and ESOP Plan and also repurchases common shares from time to time at the Company’s discretion. The amount of common shares offered to the Company for repurchase by the holders of shares distributed from the Davey 401KSOP and ESOP Plan is not within the control of the Company, but is at the discretion of the shareholders. The Company expects to continue to repurchase its common shares, as offered by its shareholders from time to time, at their then current fair value. However, other than for repurchases pursuant to the put option under the Davey 401KSOP and ESOP Plan, as described in Note M, such purchases are not required, and the Company retains the right to discontinue them at any time. Repurchases of redeemable common shares from the Davey 401KSOP and ESOP at the shareholders’ request approximated $8,206 and $12,051 in 2020 and 2019, respectively. Purchases of common shares, other than redeemable common shares, approximated $30,873 and $22,596 in 2020 and 2019, respectively.
Revolving Credit Facility--In October 2017, we amended and restated our revolving credit facility, as further amended in September 2018, as discussed below. The Amended and Restated Credit Agreement provides for a revolving credit facility with a group of banks under
which up to an aggregate of $250,000 is available, with a letter of credit sublimit of $100,000 and a swing line commitment of $25,000. Under certain circumstances, the amount available under the revolving credit facility may be increased to $325,000.
The Amended and Restated Credit Agreement extended the term of the revolving credit facility to October 6, 2022 from November 7, 2018. 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 (not to exceed 3.00 to 1.00 with exceptions in case of material acquisitions) and a minimum interest coverage ratio (not less than 3.00 to 1.00), in each case subject to certain further restrictions as described in the Amended and Restated Credit Agreement. As of December 31, 2020, we were in compliance with all financial covenants contained in our revolving credit facility.
As of December 31, 2020, we had unused commitments under the facility approximating $247,123, and $2,877 committed, which consisted of issued letters of credit of $2,877. Borrowings outstanding bear interest, at our option, of either (a) the base rate or (b) LIBOR plus a margin adjustment ranging from .875% to 1.50%--with the margin adjustments 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 .225% is also required based on the average daily unborrowed commitment.
5.09% Senior Unsecured Notes--On July 22, 2010, we issued 5.09% Senior Unsecured Notes, Series A (the "5.09% Senior Notes") in the aggregate principal amount of $30,000 pursuant to a Master Note Purchase Agreement (the “Purchase Agreement”), between Davey Tree and the purchasers of the 5.09% Senior Notes. The 5.09% Senior Notes were due and repaid in full on July 22, 2020.
The 5.09% Senior Notes were equal in right of payment with our revolving credit facility and all other senior unsecured obligations of the Company. Interest was payable semiannually and five equal, annual principal payments commenced on July 22, 2016 (the sixth anniversary of issuance). The Purchase Agreement contained customary events of default and covenants related to limitations on indebtedness and transactions with affiliates and the maintenance of certain financial ratios.
3.99% Senior Unsecured Notes--On September 21, 2018, we issued 3.99% Senior Notes, Series A (the "3.99% Senior Notes"), in the aggregate principal amount of $50,000. The 3.99% Senior Notes are due September 21, 2028. The 3.99% Senior Notes were issued pursuant to a Note Purchase and Private Shelf Agreement (the “Note Purchase and Shelf Agreement”) between the Company, PGIM, Inc. and the purchasers of the 3.99% Senior Notes. Subsequent series of promissory notes may be issued pursuant to the Note Purchase and Shelf Agreement (the "Shelf Notes") in an aggregate additional principal amount not to exceed $50,000 ($25,000 of which was issued on February 5, 2019).
The 3.99% 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 of $10,000 commence on September 21, 2024 (the sixth anniversary of issuance). The Note Purchase and Shelf Agreement contains customary events of default and covenants related to limitations on indebtedness and transactions with affiliates and the maintenance of certain financial ratios. The Company may prepay at any time all, or from time to time any part of, the outstanding principal amount of the 3.99% Senior Notes, subject to the payment of a make-whole amount.
In conjunction with the issuance of the 3.99% Senior Notes, on September 21, 2018, the Company entered into an amendment to its revolving credit facility. The amendment amended certain provisions and covenants in the credit agreement to generally conform them to the corresponding provisions and covenants in the Note Purchase and Shelf Agreement. The amendment also permitted the Company to incur indebtedness arising under the Note Purchase and Shelf Agreement in an aggregate principal amount not to exceed $75,000, which included the $50,000 of 3.99% Senior Notes, plus an additional $25,000 in Shelf Notes (which were issued on February 5, 2019).
4.00% Senior Unsecured Notes--On February 5, 2019, we issued 4.00% Senior Notes, Series B (the "4.00% Senior Notes") pursuant to the Note Purchase and Shelf Agreement in the aggregate principal amount of $25,000. The 4% Senior Notes are due September 21, 2028. Subsequent series of shelf notes may be issued pursuant to the Note Purchase and Shelf Agreement in an aggregate additional principal amount not to exceed $25,000. A further amendment to the revolving credit facility would be required for such a transaction to be permissible under the revolving credit facility. The 4.00% 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 September 21, 2024 (the sixth anniversary of issuance of the 3.99% Senior Notes).
The net proceeds of all senior notes were used to pay down borrowings under our revolving credit facility.
As of December 31, 2020, we were in compliance with all financial covenants contained in our senior notes.
Term loans--Periodically, the company will enter into term loans for the procurement of insurance or to finance acquisitions.
Accounts Receivable Securitization Facility--In May 2020, the Company amended its Accounts Receivable Securitization Facility (the "AR Securitization program") to extend the scheduled termination date for an additional one year period, to May 18, 2021. In addition to extending the termination date, the amendment included a change to the letter of credit ("LC") issuance fee payable under the terms of the agreement.
The AR Securitization program has a limit of $100,000, of which $83,355 and $76,732 were issued for LCs as of December 31, 2020 and December 31, 2019, respectively.
Under the AR Securitization program, Davey Tree transfers by selling or contributing current and future trade receivables to a wholly-owned, bankruptcy-remote financing subsidiary which pledges a perfected first priority security interest in the trade receivables--equal to the issued LCs as of December 31, 2020--to the bank in exchange for the bank issuing LCs.
Fees payable to the bank include: (a) an LC issuance fee, payable on each settlement date, in the amount of 1.00% per annum on the aggregate amount of all LCs outstanding plus outstanding reimbursement obligations (e.g., arising from drawn LCs), if any, and (b) an unused LC fee, payable monthly, equal to (i) .35% per annum for each day on which the sum of the total LCs outstanding plus any outstanding reimbursement obligations is greater than or equal to 50% of the facility limit and (ii) .45% per annum for each day on which the sum of the total LCs outstanding plus any outstanding reimbursement obligations is less than 50% of the facility limit. If an LC is drawn and the bank is not immediately reimbursed in full for the drawn amount, any outstanding reimbursement obligation will accrue interest at a per annum rate equal to a reserve-adjusted LIBOR or, in certain circumstances, a base rate equal to the higher of (i) the bank’s prime rate and (ii) the federal funds rate plus .50% and, following any default, 2.00% plus the greater of (a) adjusted LIBOR and (b) a base rate equal to the higher of (i) the bank’s prime rate and (ii) the federal funds rate plus .50%.
The agreements underlying the AR Securitization program contain various customary representations and warranties, covenants, and default provisions which provide for the termination and acceleration of the commitments under the AR Securitization program in circumstances including, but not limited to, failure to make payments when due, breach of a representation, warranty or covenant, certain insolvency events or failure to maintain the security interest in the trade receivables, and defaults under other material indebtedness.
Contractual Obligations Summary
The following is a summary of our long-term contractual obligations, at December 31, 2020, to make future payments for the periods indicated:
Contractual Obligations Due -- Year Ending December 31,
Description Total 2021 2022 2023 2024 2025 Thereafter
Senior unsecured notes $ 92,970 $ 2,995 $ 2,995 $ 2,995 $ 17,995 $ 17,396 $ 48,594
Term loans 22,304 19,723 1,882 699 - - -
Financing lease obligations 9,193 2,414 1,527 1,327 1,245 1,151 1,529
Operating lease obligations 58,611 20,427 16,249 9,778 5,434 2,616 4,107
Self-insurance accruals 109,280 37,598 25,987 15,869 9,605 5,441 14,780
Purchase obligations 29,666 29,666 - - - - -
Other liabilities 10,689 1,145 1,330 2,156 2,540 1,750 1,768
$ 332,713 $ 113,968 $ 49,970 $ 32,824 $ 36,819 $ 28,354 $ 70,778
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 that we anticipate will become payable within the next year for goods and services we have negotiated for delivery as of December 31, 2020. Other liabilities include estimates of future expected funding requirements related to retirement plans and other sundry items. Because their future cash outflows are uncertain, accrued income tax liabilities for uncertain tax positions, as of December 31, 2020, have not been included in the summary above. Noncurrent deferred taxes are also not included in the summary.
As of December 31, 2020, total commitments related to issued letters of credit were $88,242, of which $2,877 were issued under the revolving credit facility, $83,355 were issued under the AR securitization facility, and $2,010 were issued under short-term lines of credit. As of December 31, 2019, total commitments related to issued letters of credit were $81,619, of which $2,877 were issued under the revolving credit facility, $76,732 were issued under the AR securitization facility, and $2,010 were issued under short-term lines of credit.
Also, as is common with our industry, we have performance obligations that are supported by surety bonds, which expire during 2021 through 2023. We intend to renew the performance bonds where appropriate and as necessary.
Off-Balance Sheet Arrangements
There are no “off-balance sheet arrangements” as that term is defined in Regulation S-K, Item 303(a)(4)(ii) under the Securities Exchange Act of 1934, as amended.
Capital Resources
Cash generated from operations and our revolving credit facility are our primary sources of capital.
Cash of $16,201 as of December 31, 2020 included $12,967 in the U.S. and $3,234 in Canada, all of which is subject to U.S. federal income taxes and Canadian taxes if repatriated to the U.S. Currently, we do not expect to repatriate any portion of our 2020 Canadian earnings to satisfy our 2021 U.S. based cash flow needs.
Business seasonality results in higher revenues during the second and third quarters as compared with the first and fourth quarters of the year, while our methods of accounting for fixed costs, such as depreciation and interest expense, are not significantly impacted by business seasonality. Capital resources during these periods are equally affected. We satisfy seasonal working capital needs and other financing
requirements with the revolving credit facility and several other short-term lines of credit. We are continually reviewing our existing sources of financing and evaluating alternatives. At December 31, 2020, we had working capital of $85,190, unused short-term lines of credit approximating $9,168, and $247,123 available under our revolving credit facility.
Our sources of capital presently allow us the financial flexibility to meet our capital spending plan and to complete business acquisitions for at least the next twelve months and for the foreseeable future.
RECENT ACCOUNTING GUIDANCE
See Note C - Recent Accounting Guidance for a discussion of our recent accounting guidance.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented.
On an ongoing basis, we evaluate our estimates and assumptions, including those related to accounts receivable, specifically those receivables under contractual arrangements primarily arising from Utility customers; allowance for credit losses; and self-insurance accruals. We base our estimates on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates.
We believe the following are our “critical accounting policies and estimates”--those most important to the financial presentations and those that require the most difficult, subjective or complex judgments.
Revenue Recognition--We recognize revenue in accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers. Performance obligations are satisfied as our services are provided to customers. See Note S for a detailed description of our revenue recognition policy.
Allowance for Credit Losses--In determining the allowance for credit losses, we evaluate the collectibility of our accounts receivable based on a combination of factors. In circumstances where we are aware of a specific customer’s inability to meet its financial obligations to us (e.g., bankruptcy filings), we evaluate each specific situation to determine the collectibility given the facts and circumstances and if necessary, record a specific allowance for credit losses against amounts due to reduce the net recognized receivable to the amount we reasonably believe will be collected. For all other customers, we recognize allowances for credit losses based on the length of time the receivables are past due. If circumstances change (e.g., unexpected material adverse changes in a major customer’s ability to meet its financial obligation to us or higher than expected customer defaults), our estimates of the recoverability of amounts could differ from the actual amounts recovered.
Self-Insurance Accruals--We are generally self-insured for losses and liabilities related primarily to workers’ compensation, vehicle liability and general liability claims. We use commercial insurance as a risk-reduction strategy to minimize catastrophic losses. Self-insurance accruals consist of the projected settlement value of reported and unreported claims. Ultimate losses are accrued based upon estimates of the aggregate liability for claims incurred using certain actuarial assumptions followed in the insurance industry and based on Company-specific experience.
Our self-insurance accruals include claims for which the ultimate losses will develop over a period of years. Estimating ultimate losses of reported and unreported claims is subject to a high degree of variability as it involves complex estimates that are generally derived using a variety of actuarial estimation techniques and numerous assumptions and expectations about future events, many of which are highly uncertain. Accordingly, our estimates of ultimate losses can change as claims mature. Our accruals also are affected by changes in the number of new claims incurred and claim severity. The methods for estimating the ultimate losses and the total cost of claims were determined by third-party consulting actuaries; the resulting accruals are reviewed by management, and any adjustments arising from changes in estimates are reflected in income.
Our self-insurance accruals are based on estimates and, while we believe that the amounts accrued are adequate and not excessive, the ultimate claims may be in excess of or less than the amounts provided. Changes in claims incurred, claim severity, or other estimates and judgments used by management could have a material impact on the amount and timing of expense for any period.
Stock Valuation--On March 15, 1979, we consummated a plan, which transferred control of the Company to our employees. The Employee Stock Ownership Plan (“ESOP”), in conjunction with the related Employee Stock Ownership Trust ("ESOT"), provided for the grant to certain employees of certain ownership rights in, but not possession of, the common shares held by the trustee of the ESOT. Annual allocations of shares have been made to individual accounts established for the benefit of the participants. Since our common stock is not currently traded on an established securities market, if the owners of distributed shares desire to sell their shares, the Company is required to purchase the shares at fair value for two 60-day periods after distribution of the shares from the Davey 401KSOP and ESOP.
Because there is no trading of the Company’s common stock on an established securities market, the market price of the Company’s common stock is determined by the Company. As part of the process to determine the market price, an independent valuation is obtained, which is approved by the Company's Board of Directors. The process includes comparing the Company’s financial results to those of comparable companies that are publicly traded ("comparable publicly traded companies"). The purpose of the process is to determine a value for the Company’s common stock that is comparable to the stock value of comparable publicly traded companies by considering both the results of the stock market and the relative financial results of comparable publicly traded companies. The fair valuation of the shares utilizes two valuation approaches, the Market Approach and the Income Approach, to derive a basis of value. Some key assumptions used in the stock valuation include growth rate, discount rate, rate of capital expenditures, net worth, earnings and appropriate valuation multiples.
If circumstances change (e.g., change in the macro economic factors, key assumptions included within valuation), our estimates of the share price could differ from time to time.
MARKET RISK INFORMATION
In the normal course of business, we are exposed to market risk related to changes in interest rates, changes in foreign currency exchange rates and changes in the price of fuel. We do not hold or issue derivative financial instruments for trading or speculative purposes. We use derivative financial instruments to manage risk, in part, associated with changes in interest rates and changes in fuel prices.
Interest Rate Risk
We are exposed to market risk related to changes in interest rates on long-term debt obligations. We regularly monitor and measure our interest rate risk and, to the extent that we believe we are exposed, from time-to-time we have entered into interest rate swap contracts--derivative financial instruments--with the objective of altering interest rate exposures related to a portion of our variable debt.
The following table provides information, as of December 31, 2020, about our debt obligations, including principal cash flows, weighted-average interest rates by expected maturity dates and fair values. Weighted-average interest rates used for variable-rate obligations are based on rates as derived from published spot rates, in effect as of December 31, 2020.
Expected Maturity Date Fair Value
December 31,
2021 2022 2023 2024 2025 Thereafter Total
Liabilities
Long-term debt:
Fixed rate $ 19,509 $ 1,673 $ 652 $ 15,000 $ 15,000 $ 45,000 $ 96,834 $ 103,384
Average interest rate 3.8 % 4.8 % 4.2 % 4.0 % 4.0 % 4.0 %
Variable rate $ 30 $ - $ - $ - $ - $ - $ 30 $ 30
Average interest rate 3.3 % - % - % - % - % - %
The interest rate on the variable-rate debt, as of December 31, 2020, was 3.3%.
Foreign Currency Exchange Rate Risk
We are exposed to market risk related to foreign currency exchange rate risk resulting from our operations in Canada, where we provide a comprehensive range of horticultural services. Our financial results could be affected by factors such as changes in the foreign currency exchange rate or differing economic conditions in the Canadian markets as compared with the markets for our services in the United States. Our earnings are affected by translation exposures from currency fluctuations in the value of the U.S. dollar as compared to the Canadian dollar. Similarly, the Canadian dollar-denominated assets and liabilities may result in financial exposure as to the timing of transactions and the net asset / liability position of our Canadian operations.
For the year ended December 31, 2020, the result of a hypothetical 10% uniform change in the value of the U.S. dollar as compared with the Canadian dollar would not have a material effect on our results of operations or our financial position. Our sensitivity analysis of the effect of changes in foreign currency exchange rates does not factor in a potential change in sales levels or local currency prices. Presently, we do not engage in hedging activities related to our foreign currency exchange rate risk.
Commodity Price Risk
We are subject to market risk from fluctuating prices of fuel--both diesel and gasoline. In prior years we have used fuel derivatives as "economic hedges" related to fuel consumed by Davey Tree service vehicles. Presently, we are not engaged in any hedging or derivative activities.
Impact of Inflation
The impact of inflation on the results of operations has not been significant in recent years.

---

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The information set forth in “Market Risk Information” under Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” is incorporated herein by reference.

---

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data.
Our consolidated financial statements are attached hereto and listed on page of this annual report.

---

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.

---

ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures.
Management’s Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Form 10-K, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 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 Form 10-K 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.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control framework and processes were designed to provide reasonable assurance to management and the Board of Directors that our financial reporting is reliable and that our consolidated financial statements for external purposes have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”).
Our management recognizes its responsibility for fostering a strong ethical climate so that our affairs are conducted according to the highest standards of personal and corporate conduct.
Our internal control over financial reporting includes policies and procedures that: (i) provide for the maintenance of records that, in reasonable detail, accurately and fairly reflect our business transactions; (ii) provide reasonable assurance that transactions are recorded properly to allow for the preparation of financial statements in accordance with U.S. GAAP; and (iii) provide reasonable assurance that the unauthorized acquisition, use, or disposition of our assets will be prevented or detected in a timely manner. We maintain a dynamic system of internal controls and processes--including internal control over financial reporting-designed to ensure reliable financial recordkeeping, transparent financial reporting and protection of physical and intellectual property.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation as of December 31, 2020, as to the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on that evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2020.
Our independent registered public accounting firm has issued an audit report on our internal control over financial reporting, which is included in this report.
/s/ Patrick M. Covey /s/ Joseph R. Paul /s/ Thea R. Sears
Patrick M. Covey
Chairman, President and Chief Executive Officer
Joseph R. Paul
Executive Vice President, Chief Financial Officer and Secretary
Thea R. Sears
Vice President and Controller
Kent, Ohio
March 8, 2021
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the fourth quarter 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of The Davey Tree Expert Company
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of The Davey Tree Expert Company (the “Company”) as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2020, of the Company and our report dated March 8, 2021, expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding a change in accounting for its workers’ compensation accruals.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.  
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Cleveland, Ohio
March 8, 2021

---

ITEM 9B. OTHER INFORMATION
Item 9B. Other Information.
None.
PART III

---

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance.
Information about our executive officers is included in the section "Information about our Executive Officers,” pursuant to Instruction G of Form 10-K as an unnumbered item to Part I of this report.
Information about our directors will be included in the sections "Proposal One-Election of Directors" and "Corporate Governance-Board Independence" of our 2021 Proxy Statement, which is incorporated into this report by reference.
Information about our audit committee and our audit committee financial experts will be included in the sections "Corporate Governance-Audit Committee” and "Corporate Governance-Committees of the Board of Directors" of our 2021 Proxy Statement, which are incorporated into this report by reference.
Information required by Item 405 of Regulation S-K will be included in the section "Ownership of Common Shares-Delinquent Section 16(a) Reports” of our 2021 Proxy Statement, which is incorporated into this report by reference. See also the section titled "Corporate Governance-Shareholder Nominations for Director," which is incorporated into this report by reference.
We have adopted a Code of Ethics for Financial Matters that applies to our principal executive officer, principal financial officer and principal accounting officer, or persons performing similar functions. That Code is available on our website or upon request, as described in this report in Item 1. “Business - Access to Company Information.” We intend to disclose, on our website at www.davey.com, any amendments to, or waiver of, any provision of that Code that would otherwise be required to be disclosed under the rules of the SEC.

---

ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation.
Information about executive and director compensation will be included in the sections “Compensation Discussion and Analysis,” "Report of the Compensation Committee," "Compensation Risk Analysis," "Compensation of Named Executive Officers," "2020 Director Compensation", and "Corporate Governance-Compensation Committee Interlocks and Insider Participation" of our 2021 Proxy Statement, which are incorporated into this report by reference.

---

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Information about ownership of our common shares by certain persons will be included in the section "Ownership of Common Shares" of our 2021 Proxy Statement, which is incorporated into this report by reference. Information about our securities authorized for issuance under equity compensation plans will be included in the section “Compensation of Named Executive Officers-Equity Compensation Plan Information” of our 2021 Proxy Statement, which is incorporated into this report by reference.

---

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Information about certain transactions between us and our affiliates and certain other persons and the independence of directors will be included in the sections “Corporate Governance-Board Independence” and "Corporate Governance-Transactions with Related Persons, Promoters and Certain Control Persons" of our 2021 Proxy Statement, which are incorporated into this report by reference.

---

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accountant Fees and Services.
Information about our principal accountant’s fees and services is in the section “The Independent Registered Public Accounting Firm” of our 2021 Proxy Statement, which is incorporated into this report by reference.
PART IV

---

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits and Financial Statement Schedules.
(a) (1) and (a) (2) Financial Statements and Schedules.
The response to this portion of Item 15 is set forth on page of this report.
(b) Exhibits.
The exhibits to this Form 10-K are submitted as a separate section of this report. See Exhibit Index.