Company Quick10K Filing
Quick10K
Davey Tree Expert
10-Q 2019-06-29 Quarter: 2019-06-29
10-Q 2019-03-30 Quarter: 2019-03-30
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-29 Quarter: 2018-09-29
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-07-01 Quarter: 2017-07-01
10-Q 2017-04-01 Quarter: 2017-04-01
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-10-01 Quarter: 2016-10-01
10-Q 2016-07-02 Quarter: 2016-07-02
10-Q 2016-04-02 Quarter: 2016-04-02
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-10-03 Quarter: 2015-10-03
10-Q 2015-07-04 Quarter: 2015-07-04
10-Q 2015-04-04 Quarter: 2015-04-04
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-27 Quarter: 2014-09-27
10-Q 2014-06-28 Quarter: 2014-06-28
10-Q 2014-03-29 Quarter: 2014-03-29
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-05-21 Enter Agreement, Off-BS Arrangement, Shareholder Vote, Exhibits
8-K 2019-04-23 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-03-07 Officers, Exhibits
8-K 2019-02-05 Off-BS Arrangement
8-K 2019-01-29 Other Events
8-K 2019-01-24 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-09-21 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-08-07 Accountant, Exhibits
8-K 2018-05-15 Shareholder Vote
8-K 2018-05-07 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-03-28 Officers
F Ford 40,690
IMO Imperial Oil 22,230
WPP WPP 15,850
GPK Graphic Packaging Holding 4,000
FBC Flagstar Bancorp 1,960
THFF First Financial 504
TKKS TKK Symphony Acquisition 314
CBNK Chicopee Bancorp 159
HEAR Turtle Beach 155
PHOT Growlife 0
DAVEY 2019-06-29
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II. Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 6. Exhibits.
EX-31.1 dt2019q210qex311.htm
EX-31.2 dt2019q210qex312.htm
EX-32.1 dt2019q210qex321.htm
EX-32.2 dt2019q210qex322.htm

Davey Tree Expert Earnings 2019-06-29

DAVEY 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 dt2019q210q.htm 10-Q Document

 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 29, 2019
OR
¨  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number 000-11917
davlogoca05.jpg
THE DAVEY TREE EXPERT COMPANY
(Exact name of registrant as specified in its charter)
Ohio
34-0176110
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
 
 
1500 North Mantua Street
P.O. Box 5193
Kent, Ohio 44240
(Address of principal executive offices) (Zip code)
 
(330) 673-9511
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
 
 
 
 
 
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
N/A
 
N/A
 
N/A
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x   No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes x   No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
¨ Large Accelerated Filer
 
x Accelerated Filer
 
¨ Emerging Growth Company
¨ Non-Accelerated Filer
 
¨ Smaller Reporting Company
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ¨ No x
There were 22,801,689 Common Shares, $1.00 par value, outstanding as of August 2, 2019
 
 
 
 
 



The Davey Tree Expert Company
Quarterly Report on Form 10-Q
June 29, 2019
INDEX
 
 
Page
Part I.
Financial Information
 
 
 
Item 1. 
Financial Statements (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
"We,” “us,” “our,” “Davey” and “Davey Tree,” unless the context otherwise requires, means The Davey Tree Expert Company and its subsidiaries.

- 1 -


THE DAVEY TREE EXPERT COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands, except per share data dollar amounts)
 
June 29,
2019
 
December 31,
2018
Assets
 
 
 
Current assets:
 
 
 
Cash
$
16,057

 
$
22,661

Accounts receivable, net
212,421

 
195,906

Operating supplies
13,332

 
14,415

Other current assets
11,526

 
22,086

Total current assets
253,336

 
255,068

Property and equipment
662,217

 
639,396

Less accumulated depreciation
454,811

 
437,111

     Total property and equipment, net
207,406

 
202,285

Right-of-use assets - operating leases
39,534

 

Other assets
20,016

 
21,769

Intangible assets and goodwill, net
49,857

 
47,501

Total assets
$
570,149

 
$
526,623

Liabilities and shareholders' equity
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
34,735

 
$
43,958

Accrued expenses
47,317

 
44,061

Current portion of long-term debt and finance lease liabilities
11,119

 
23,859

Other current liabilities
42,187

 
27,434

Total current liabilities
135,358

 
139,312

Long-term debt
166,374

 
155,563

Lease liabilities - finance leases
1,985

 
2,862

Lease liabilities - operating leases
25,825

 

Self-insurance reserve
58,246

 
56,351

Other noncurrent liabilities
10,378

 
10,125

Total liabilities
398,166

 
364,213

Commitments and contingencies (Note P)
 
 
 
Redeemable common shares related to 401KSOP and Employee Stock Ownership Plan (ESOP); 5,297 and 5,642 shares at redemption value as of June 29, 2019 and December 31, 2018
119,702

 
119,049

Common shareholders' equity:
 

 
 

Common shares, $1.00 par value, per share; 48,000 shares authorized; 37,617 and 37,272 shares issued and outstanding before deducting treasury shares and which excludes 5,297 and 5,642 shares subject to redemption as of June 29, 2019 and December 31, 2018
37,617

 
37,272

Additional paid-in capital
91,921

 
82,623

Common shares subscribed, unissued
5,948

 
6,799

Retained earnings
167,611

 
157,472

Accumulated other comprehensive loss
(5,269
)
 
(5,034
)
 
297,828

 
279,132

Less: Cost of common shares held in treasury; 20,114 shares at June 29, 2019 and 20,033 shares at December 31, 2018
245,116

 
235,042

Common shares subscription receivable
431

 
729

Total common shareholders' equity
52,281

 
43,361

Total liabilities and shareholders' equity
$
570,149

 
$
526,623

 
 
 
 
See notes to condensed consolidated financial statements.
 

 
 


- 2 -


THE DAVEY TREE EXPERT COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share dollar amounts)
 
 
Three Months Ended
 
Six Months Ended
 
June 29,
2019
 
June 30,
2018
 
June 29,
2019
 
June 30,
2018
Revenues
$
301,434

 
$
270,649

 
$
549,323

 
$
479,300

 
 
 
 
 
 
 
 
Costs and expenses:
 
 
 
 
 
 
 
Operating
187,778

 
167,682

 
353,794

 
312,305

Selling
50,629

 
44,317

 
96,933

 
83,974

General and administrative
18,671

 
17,358

 
37,715

 
35,076

Depreciation and amortization
14,590

 
13,938

 
28,802

 
27,059

Gain on sale of assets, net
(516
)
 
(2,446
)
 
(1,169
)
 
(3,248
)
Total costs and expenses
271,152

 
240,849

 
516,075

 
455,166

 
 
 
 
 
 
 
 
Income from operations
30,282

 
29,800

 
33,248

 
24,134

 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
Interest expense
(2,428
)
 
(1,754
)
 
(4,579
)
 
(3,155
)
Interest income
93

 
101

 
176

 
179

Other, net
(3,153
)
 
(1,052
)
 
(4,808
)
 
(2,714
)
 
 
 
 
 
 
 
 
Income before income taxes
24,794

 
27,095

 
24,037

 
18,444

 
 
 
 
 
 
 
 
Income taxes
5,047

 
5,381

 
4,783

 
3,357

 
 
 
 
 
 
 
 
Net income
$
19,747

 
$
21,714

 
$
19,254

 
$
15,087

 
 
 
 
 
 
 
 
Net income per share:
 
 
 
 
 
 
 
Basic
$
.86

 
$
.94

 
$
.83

 
$
.62

Diluted
$
.82

 
$
.89

 
$
.80

 
$
.59

 
 
 
 
 
 
 
 
Weighted-average shares outstanding:
 
 
 
 
 
 
 
Basic
22,915

 
23,121

 
23,139

 
24,439

Diluted
24,051

 
24,307

 
24,180

 
25,561

 
 
 
 
 
 
 
 
See notes to condensed consolidated financial statements.
 
 
 
 
 
 


- 3 -


THE DAVEY TREE EXPERT COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(In thousands)


 
Three Months Ended
 
Six Months Ended
 
June 29,
2019
 
June 30,
2018
 
June 29,
2019
 
June 30,
2018
Net income
$
19,747

 
$
21,714

 
$
19,254

 
$
15,087

Components of other comprehensive income/(loss), net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustments
698

 
(747
)
 
1,207

 
(1,579
)
Amortization of defined benefit pension items:
 
 
 
 
 
 
 
Net actuarial (gain) loss
(1,498
)
 
135

 
(1,466
)
 
269

Prior service cost
12

 
12

 
24

 
24

Defined benefit pension plan adjustments
(1,486
)
 
147

 
(1,442
)
 
293

 
 
 
 
 
 
 
 
Other comprehensive loss, net of tax
(788
)
 
(600
)
 
(235
)
 
(1,286
)
 
 
 
 
 
 
 
 
Comprehensive income
$
18,959

 
$
21,114

 
$
19,019

 
$
13,801

 
 
 
 
 
 
 
 
See notes to condensed consolidated financial statements.
 
 
 
 
 
 





- 4 -


THE DAVEY TREE EXPERT COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
(In thousands, except per share data)
 
Common Shares
Additional Paid-in Capital
Common Shares Subscribed, Unissued
Retained Earnings
Accumulated Other Comprehensive Income (Loss), Net of Tax
Common Shares Held in Treasury
Common Shares Subscription Receivable
Total Common Shareholders' Equity
Balances at March 30, 2019
$
37,077

$
81,201

$
6,408

$
156,389

$
(4,481
)
$
(236,470
)
$
(571
)
$
39,553

Net income



19,747




19,747

Change in 401KSOP and ESOP related shares
540

10,854


(7,945
)



3,449

Shares sold to employees

1,608




3,088


4,696

Options exercised

(995
)



2,208


1,213

Subscription shares

(493
)
(460
)


2,757

140

1,944

Stock-based compensation

(254
)





(254
)
Dividends, $.025 per shares



(580
)



(580
)
Currency translation adjustments




698



698

Defined benefit pension plans




(1,486
)


(1,486
)
Shares purchased





(16,699
)

(16,699
)
Balances at June 29, 2019
$
37,617

$
91,921

$
5,948

$
167,611

$
(5,269
)
$
(245,116
)
$
(431
)
$
52,281

 
 
 
 
 
 
 
 
 
Balances at January 1, 2019
$
37,272

$
82,623

$
6,799

$
157,472

$
(5,034
)
$
(235,042
)
$
(729
)
$
43,361

Net income



19,254




19,254

Change in 401KSOP and ESOP related shares
345

6,947


(7,945
)



(653
)
Shares sold to employees

3,561




5,544


9,105

Options exercised

(1,009
)



2,289


1,280

Subscription shares

(568
)
(851
)


3,222

298

2,101

Stock-based compensation

367






367

Dividends, $.05 per shares



(1,170
)



(1,170
)
Currency translation adjustments




1,207



1,207

Defined benefit pension plans




(1,442
)


(1,442
)
Shares purchased





(21,129
)

(21,129
)
Balances at June 29, 2019
$
37,617

$
91,921

$
5,948

$
167,611

$
(5,269
)
$
(245,116
)
$
(431
)
$
52,281

 
 
 
 
 
 
 
 
 
See notes to condensed consolidated financial statements.
 

 

 
 
 


- 5 -


THE DAVEY TREE EXPERT COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
(In thousands, except per share data)

 
Common Shares
Additional Paid-in Capital
Common Shares Subscribed, Unissued
Retained Earnings
Accumulated Other Comprehensive Income (Loss), Net of Tax
Common Shares Held in Treasury
Common Shares Subscription Receivable
Total Common Shareholders' Equity
Balances at March 31, 2018
$
36,269

$
58,132

$
7,457

$
136,229

$
(9,079
)
$
(201,489
)
$
(1,629
)
$
25,890

Net income



21,714




21,714

Change in 401KSOP and ESOP related shares
476

8,624


(3,701
)



5,399

Shares sold to employees

2,684




4,216


6,900

Options exercised

244




1,093


1,337

Subscription shares

(40
)
(326
)


404

182

220

Stock-based compensation

166






166

Dividends, $.025 per shares



(595
)



(595
)
Currency translation adjustments




(747
)


(747
)
Defined benefit pension plans




147



147

Shares purchased





(20,289
)

(20,289
)
Balances at June 30, 2018
$
36,745

$
69,810

$
7,131

$
153,647

$
(9,679
)
$
(216,065
)
$
(1,447
)
$
40,142

 
 
 
 
 
 
 
 
 
Balances at January 1, 2018
$
36,447

$
58,554

$
7,529

$
143,835

$
(8,393
)
$
(198,327
)
$
(1,775
)
$
37,870

Net income



15,087




15,087

Change in 401KSOP and ESOP related shares
298

5,398


(3,701
)



1,995

Shares sold to employees

4,444




6,522


10,966

Options exercised

264




1,202


1,466

Subscription shares

20

(398
)


538

328

488

Stock-based compensation

1,130






1,130

Dividends, $.05 per shares



(1,219
)



(1,219
)
Adoption of ASU 2014-09



(355
)



(355
)
Currency translation adjustments




(1,579
)


(1,579
)
Defined benefit pension plans




293



293

Shares purchased





(26,000
)

(26,000
)
Balances at June 30, 2018
$
36,745

$
69,810

$
7,131

$
153,647

$
(9,679
)
$
(216,065
)
$
(1,447
)
$
40,142

 
 
 
 
 
 
 
 
 
See notes to condensed consolidated financial statements.
 

 

 
 
 


- 6 -


THE DAVEY TREE EXPERT COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
 
 
Six Months Ended
 
 
June 29,
2019
 
June 30,
2018
Operating activities
 
 
 
 
Net income
 
$
19,254

 
$
15,087

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
28,802

 
27,059

Other
 
270

 
(129
)
Changes in operating assets and liabilities, net of assets acquired:
 
 
 
 
Accounts receivable
 
(15,960
)
 
(9,598
)
Accounts payable and accrued expenses
 
(609
)
 
(10,321
)
Self-insurance reserve
 
1,690

 
1,414

Prepaid expenses
 
9,178

 
3,955

Other, net
 
1,661

 
(4,805
)
 
 
25,032

 
7,575

Net cash provided by operating activities
 
44,286

 
22,662

Investing activities
 
 

 
 

Capital expenditures:
 
 

 
 

Equipment
 
(37,192
)
 
(40,228
)
Land and building
 
(229
)
 
(238
)
Purchases of businesses, net of cash acquired
 
(3,030
)
 
(2,544
)
Proceeds from sales of fixed assets
 
1,634

 
4,396

Net cash used in investing activities
 
(38,817
)
 
(38,614
)
Financing activities
 
 

 
 

Revolving credit facility borrowings
 
264,500

 
244,000

Revolving credit facility payments
 
(278,500
)
 
(205,000
)
Purchase of common shares for treasury
 
(21,129
)
 
(26,356
)
Sale of common shares from treasury
 
12,486

 
12,920

Dividends paid
 
(1,170
)
 
(1,218
)
Proceeds from notes payable
 
51,073

 
12,888

Payments of notes payable
 
(38,587
)
 
(21,343
)
Payments of finance leases
 
(860
)
 
(577
)
Net cash (used in) provided by financing activities
 
(12,187
)
 
15,314

Effect of exchange rate changes on cash
 
114

 

Decrease in cash
 
(6,604
)
 
(638
)
Cash, beginning of period
 
22,661

 
13,121

Cash, end of period
 
$
16,057

 
$
12,483

Supplemental cash flow information follows:
 
 

 
 

Interest paid
 
$
4,523

 
$
3,118

Income taxes paid
 
827

 
5,126

 
 
 
 
 
See notes to condensed consolidated financial statements.
 
 

 
 


- 7 -

The Davey Tree Expert Company
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 29, 2019
(Amounts in thousands, except share data)


A.
Basis of Financial Statement Preparation
The condensed consolidated financial statements present the financial position, results of operations and cash flows of The Davey Tree Expert Company and its subsidiaries. When we refer to “we,” “us,” “our,” “Davey,” or “Davey Tree”, we mean The Davey Tree Expert Company and its subsidiaries, unless otherwise expressly stated or the context indicates otherwise.
We have prepared the accompanying unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”), as codified in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), and with the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. The consolidated financial statements include all adjustments which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. All such adjustments are of a normal, recurring nature. All intercompany accounts and transactions have been eliminated.
Certain information and disclosures required by U.S. GAAP for complete financial statements have been omitted in accordance with the rules and regulations of the SEC. We suggest that these condensed consolidated financial statements be read in conjunction with the financial statements included in our annual report on Form 10-K for the year ended December 31, 2018 (the “2018 Annual Report”).
Use of Estimates in Financial Statement Preparation--The preparation of financial statements in accordance with U.S. GAAP requires the use of estimates and assumptions that affect reported amounts. Our consolidated financial statements include amounts that are based on management’s best estimates and judgments. Estimates are used for, but not limited to, accounts receivable valuation, depreciable lives of fixed assets, self-insurance reserves, income taxes and revenue recognition. Actual results could differ from those estimates.
The Company’s fiscal quarters each contain thirteen operating weeks, with the exception of the fourth quarter of a 53-week fiscal year, which contains fourteen operating weeks. The Company’s fiscal quarter that ended June 29, 2019 is referred to as the second quarter of 2019, and the fiscal quarter ended June 30, 2018 is referred to as the second quarter of 2018.
Recent Accounting Guidance
Accounting Standards Adopted in 2019
Accounting Standards Update 2016-02, Leases (Topic 842)--In February 2016, the FASB issued Accounting Standards Update ("ASU") 2016-02, “Leases (Topic 842).” ASU 2016-02, along with several subsequent updates, requires lessees to recognize assets and liabilities created by leases on their balance sheet along with additional disclosure information. The Company adopted the standard on January 1, 2019 using the Comparative Under ASC 840 approach, which permitted the Company to not recast historical periods for the adoption, and utilized practical expedients as available. The adoption of the new standard resulted in the recording, as of January 1, 2019, of operating right-of-use assets and lease liabilities of $37,429. The adoption of the new standard did not impact our consolidated results of operations and had no impact on our cash flows.
Accounting Standards Update 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220)--In February 2018, the FASB issued ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220)." ASU 2018-02 provides an option to reclassify the stranded tax effects within accumulated other comprehensive income to retained earnings as a result of the Tax Cuts and Jobs Act of 2017. The Company adopted ASU 2018-02 effective January 1, 2019 and did not elect to reclassify the income tax effects of the Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings.

- 8 -

The Davey Tree Expert Company
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 29, 2019
(Amounts in thousands, except share data)

A.
Basis of Financial Statement Preparation (continued)
SEC Release No. 33-10532, Disclosure Update and Simplification--In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements on the analysis of shareholders' equity for interim financial statements. Under the amendments, an analysis of changes in each caption of shareholders' equity presented in the balance sheet must be provided in a note or separate statement. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive income is required to be filed. We have incorporated the changes required by SEC Release No. 33-10532 in this report.
B.
Seasonality of Business
Due to the seasonality of our business, our operating results for the three and six months ended June 29, 2019 are not indicative of results that may be expected for any other interim period or for the year ending December 31, 2019. Our business seasonality traditionally results in higher revenues during the second and third quarters as compared with the first and fourth quarters of the year, while the methods of accounting for fixed costs, such as depreciation expense, amortization, rent and interest expense, are not significantly impacted by business seasonality.
C.
Accounts Receivable, Net and Supplemental Balance-Sheet Information
Accounts receivable, net, consisted of the following:
Accounts receivable, net
June 29,
2019
 
December 31,
2018
Accounts receivable
$
165,105

 
$
158,556

Receivables under contractual arrangements (1)
50,164

 
40,671

 
215,269

 
199,227

Less allowances for doubtful accounts
2,848

 
3,321

Accounts receivable, net
$
212,421

 
$
195,906

(1) 
Receivables under contractual arrangements consist of work-in-process in accordance with the terms of contracts, primarily with utility services customers.
The following items comprise the amounts included in the balance sheets:
Other current assets
June 29,
2019
 
December 31,
2018
Refundable income taxes
$

 
$
1,625

Prepaid expense
10,428

 
19,529

Other
1,098

 
932

Total
$
11,526

 
$
22,086


- 9 -

The Davey Tree Expert Company
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 29, 2019
(Amounts in thousands, except share data)

C.
Accounts Receivable, Net and Supplemental Balance-Sheet Information (continued)
Other assets, noncurrent
June 29,
2019
 
December 31,
2018
Assets invested for self-insurance
$
12,552

 
$
15,379

Investment--cost-method affiliate
1,218

 
1,218

Deferred income taxes
411

 
573

Other
5,835

 
4,599

Total
$
20,016

 
$
21,769

Accrued expenses
June 29,
2019
 
December 31,
2018
Employee compensation
$
18,966

 
$
24,086

Accrued compensated absences
10,316

 
9,711

Self-insured medical claims
4,845

 
3,343

Income tax payable
3,881

 
31

Customer advances, deposits
1,258

 
1,322

Taxes, other than income
4,830

 
2,546

Other
3,221

 
3,022

Total
$
47,317

 
$
44,061

Other current liabilities
June 29,
2019
 
December 31,
2018
Notes payable
$
1,609

 
$

Current portion of:
 
 
 
Lease liability-operating leases
13,341

 

Self-insurance reserves
27,237

 
27,434

Total
$
42,187

 
$
27,434

Other noncurrent liabilities
June 29,
2019
 
December 31,
2018
Pension and retirement plans
$
5,991

 
$
6,138

Other
4,387

 
3,987

Total
$
10,378

 
$
10,125

D.
Business Combinations
Our investments in businesses during the first six months of 2019 were $4,480, including liabilities assumed of $314 and debt issued, in the form of notes payable to the sellers, of $1,133, and have been included in our Residential and Commercial segment. Measurement-period adjustments are not complete. The measurement period for purchase price allocations ends as soon as information of the facts and circumstances becomes available, but does not exceed


- 10 -

The Davey Tree Expert Company
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 29, 2019
(Amounts in thousands, except share data)

D.
Business Combinations (continued)
one year from the acquisition date. During the six months ended June 30, 2018, our investment in businesses was $3,534, including debt issued, in the form of notes payable to the sellers, of $990.
The following table summarizes the preliminary purchase price allocation of the estimated fair values of the assets acquired and liabilities assumed:
 
June 29,
2019
 
December 31,
2018
Detail of acquisitions:
 
 
 
Assets acquired:
 

 
 

Cash
$
3

 
$

Receivables
41

 
1,311

Operating supplies
79

 
23

Prepaid expense
13

 
89

Equipment
830

 
4,079

Deposits and other

 
7

Intangibles
2,135

 
4,895

Goodwill
1,379

 
2,840

Liabilities assumed
(314
)
 
(2,381
)
Debt issued for purchases of businesses
(1,133
)
 
(2,402
)
Cash paid
$
3,033

 
$
8,461

The results of operations of acquired businesses have been included in the consolidated statements of operations beginning as of the effective dates of acquisition. The effect of these acquisitions on our consolidated revenues and results of operations for the period ended June 29, 2019 was not significant. Pro forma net sales and results of operations for the acquisitions, had they occurred at the beginning of the six months ended June 29, 2019, are not material and, accordingly, are not provided.
The acquired intangible assets consist of tradenames, non-competition agreements and customer relationships. The tradenames and customer relationships were assigned an average six-year useful life and the non-competition agreements were assigned an average five-year useful life.
Subsequent to June 29, 2019 and through August 6, 2019, we acquired two businesses approximating $932 with no liabilities assumed and debt issued of $157. The acquired companies are in our Residential and Commercial segment and are located in the British Columbia and Ontario, Canada markets. We do not expect the effect of these acquisitions on our consolidated revenues and results of operations, either individually or in the aggregate, to be significant.

- 11 -

The Davey Tree Expert Company
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 29, 2019
(Amounts in thousands, except share data)

E.
Identified Intangible Assets and Goodwill, Net
The carrying amounts of the identified intangible assets and goodwill acquired were as follows:
 
June 29, 2019
 
December 31, 2018
 
Carrying
Amount
 
Accumulated
Amortization
 
Carrying
Amount
 
Accumulated
Amortization
Amortized intangible assets:
 
 
 
 
 
 
 
Customer lists/relationships
$
26,892

 
$
19,073

 
$
25,179

 
$
18,251

Employment-related
8,184

 
7,144

 
8,133

 
6,954

Tradenames
7,118

 
5,608

 
6,858

 
5,435

 
 
 
 
 
 
 
 
Amortized intangible assets
42,194

 
$
31,825

 
40,170

 
$
30,640

 
 
 
 
 
 
 
 
Less accumulated amortization
31,825

 
 

 
30,640

 
 

 
 
 
 
 
 
 
 
Identified intangible assets, net
10,369

 
 

 
9,530

 
 

 
 
 
 
 
 
 
 
Goodwill
39,488

 
 

 
37,971

 
 

 
$
49,857

 
 

 
$
47,501

 
 

The changes in the carrying amounts of goodwill, by segment, for the six months ended June 29, 2019 and June 30, 2018 follow:
 
Balance at
January 1, 2019
 
Acquisitions
 
Translation
and Other
Adjustments
 
Balance at
June 29, 2019
Utility
$
4,911

 
$

 
$

 
$
4,911

Residential and Commercial
33,060

 
1,379

 
138

 
34,577

Total
$
37,971

 
$
1,379

 
$
138

 
$
39,488

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at
January 1, 2018
 
Acquisitions
 
Translation
and Other
Adjustments
 
Balance at
June 30, 2018
Utility
$
3,424

 
$

 
$

 
$
3,424

Residential and Commercial
32,053

 
1,013

 
(327
)
 
32,739

Total
$
35,477

 
$
1,013

 
$
(327
)
 
$
36,163


- 12 -

The Davey Tree Expert Company
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 29, 2019
(Amounts in thousands, except share data)

E.
Identified Intangible Assets and Goodwill, Net (continued)
Estimated future aggregate amortization expense of intangible assets--The estimated future aggregate amortization expense of intangible assets, as of June 29, 2019 is as follows:
 
 
Estimated Future
Amortization Expense
Year ending December 31, 2019
 
$
1,254

2020
 
2,327

2021
 
1,885

2022
 
1,655

2023
 
1,500

Thereafter
 
1,748

 
 
$
10,369

F.
Long-Term Debt and Commitments Related to Letters of Credit
Our long-term debt consisted of the following:
 
June 29,
2019
 
December 31,
2018
Revolving credit facility:
 
 
 
Swing-line borrowings
$
1,500

 
$
2,500

LIBOR borrowings
78,000

 
91,000

 
79,500

 
93,500

Senior unsecured notes:
 
 
 
5.09% Senior unsecured notes
12,000

 
12,000

3.99% Senior unsecured notes
50,000

 
50,000

4.00% Senior unsecured notes
25,000

 

 
87,000

 
62,000

Term loans
10,194

 
23,176

 
176,694

 
178,676

Less debt issuance costs
513

 
599

Less current portion
9,807

 
22,514

 
$
166,374

 
$
155,563

Revolving Credit Facility --As of June 29, 2019, we had a $250,000 revolving credit facility with a group of banks, which expires in October 2022 and permits borrowings, as defined, up to $250,000, including 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 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 credit agreement. As of June 29, 2019, we had unused commitments under the facility approximating $167,712, with $82,288 committed, consisting of borrowings of $79,500 and issued letters of credit of $2,788.

- 13 -

The Davey Tree Expert Company
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 29, 2019
(Amounts in thousands, except share data)

F.
Long-Term Debt and Commitments Related to Letters of Credit (continued)
Borrowings outstanding bear interest, at Davey Tree’s option, of either (a) a base rate or (b) LIBOR plus a margin adjustment ranging from .875% to 1.50%--with the margin adjustments in both instances based on the Company's leverage ratio at the time of borrowing. The base rate is the greater of (i) the agent bank’s prime rate, (ii) LIBOR plus 1.50%, or (iii) the federal funds rate plus .50%. A commitment fee ranging from .10% to .225% is also required based on the average daily unborrowed commitment.
5.09% Senior Unsecured Notes--During July 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 the Company and the purchasers of the 5.09% Senior Notes. The 5.09% Senior Notes are due July 22, 2020.
The 5.09% Senior Notes are equal in right of payment with our revolving credit facility and all other senior unsecured obligations of the Company. Interest is payable semiannually and five equal, annual principal payments commenced on July 22, 2016 (the sixth anniversary of issuance).  The Purchase Agreement contains customary events of default and covenants related to limitations on indebtedness and transactions with affiliates and the maintenance of certain financial ratios.
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 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 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.

- 14 -

The Davey Tree Expert Company
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 29, 2019
(Amounts in thousands, except share data)

F.
Long-Term Debt and Commitments Related to Letters of Credit (continued)
The net proceeds of all senior notes were used to pay down borrowings under our revolving credit facility.
Term loans--Periodically, the Company will enter into term loans for the procurement of insurance or to finance acquisitions.
Aggregate Maturities of Long-Term Debt--Aggregate maturities of long-term debt based on the principal amounts outstanding at June 29, 2019 were as follows: 2019--$8,414; 2020--$7,990; 2021--$5,523; 2022--$79,755; 2023--$12; and thereafter $75,000.
Accounts Receivable Securitization Facility--In May 2019, 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 19, 2020.
The AR Securitization program has a limit of $100,000, of which $67,438 was issued for letters of credit ("LCs") as of June 29, 2019.
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 June 29, 2019--to the bank in exchange for the bank issuing LCs.
Receivables from PG&E Corporation and its regulated utility subsidiary, Pacific Gas and Electric Company (collectively, "PG&E", which filed voluntary bankruptcy petitions under Chapter 11 of the United States Bankruptcy Code in the U.S. Bankruptcy Court for the Northern District of California, while remaining in the securitized pool, are considered ineligible and are excluded from performance ratios and reserves.
Fees payable to the bank include: (a) an LC issuance fee, payable on each settlement date, in the amount of .90% 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.
Total Commitments Related to Issued Letters of Credit--As of June 29, 2019, total commitments related to issued LCs were $72,236, of which $2,788 were issued under the revolving credit facility, $67,438 were issued under the AR Securitization program, and $2,010 were issued under short-term lines of credit. As of December 31, 2018, total commitments related to issued LCs were $72,565, of which $3,123 were issued under the revolving credit facility, $67,438 were issued under the AR Securitization program, and $2,004 were issued under short-term lines of credit.
As of June 29, 2019, we are in compliance with all debt covenants.

- 15 -

The Davey Tree Expert Company
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 29, 2019
(Amounts in thousands, except share data)

G.
Leases
We lease certain office and parking facilities, warehouse space, equipment, vehicles and information technology equipment under operating leases. Lease expense for these leases is recognized within the Condensed Consolidated Statements of Operations on a straight-line basis over the lease term, with variable lease payments recognized in the period those payments are incurred. The following table summarizes the amounts recognized in our Condensed Consolidated Balance Sheet related to leases:
 
Condensed Consolidated Balance Sheet Classification
 
June 29, 2019
Assets
 
 
 
Operating lease assets
Right-of-use assets - operating leases
 
$
39,534

Finance lease assets
Property and equipment, net
 
3,600

Total lease assets
 
 
$
43,134

Liabilities
 
 
 
Current operating lease liabilities
Other current liabilities
 
$
13,341

Non-current operating lease liabilities
Lease liabilities - operating leases
 
25,825

Total operating lease liabilities
 
 
39,166

Current portion of finance lease liabilities
Current portion of long-term debt and finance lease liabilities
 
1,312

Non-current finance lease liabilities
Lease liabilities - finance leases
 
1,985

Total finance lease liabilities
 
 
3,297

Total lease liabilities
 
 
$
42,463


The components of lease cost recognized within our Condensed Consolidated Statement of Operations were as follows:
 
 
 
Three Months Ended
 
Six Months Ended
 
Condensed Consolidated Statement of
Operations Classification
 
June 29, 2019
 
June 29, 2019
 
 
 
 
 
 
Operating lease cost
Operating expense
 
$
1,629

 
$
3,067

Operating lease cost
Selling expense
 
2,158

 
4,325

Operating lease cost
General and administrative expense
 
202

 
403

Finance lease cost:
 
 
 
 
 
Amortization of right-of-use assets
Depreciation and amortization
 
340

 
685

Interest expense on lease liabilities
Interest expense
 
29

 
63

Other lease cost (1)
Operating expense
 
1,011

 
1,730

Other lease cost (1)
Selling expense
 
270

 
616

Other lease cost (1)
General and administrative expense
 
1

 
3

Total lease cost
 
 
$
5,640

 
$
10,892

 
 
 
 
 
 
(1) Other lease cost includes short-term lease costs and variable lease costs.
 
 
 
 

- 16 -

The Davey Tree Expert Company
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 29, 2019
(Amounts in thousands, except share data)

G.
Leases (continued)
We often have options to renew lease terms for buildings and other assets. The exercise of lease renewal options is generally at our sole discretion. In addition, certain lease agreements may be terminated prior to their original expiration date at our discretion. We evaluate each renewal and termination option at the lease commencement date to determine if we are reasonably certain to exercise the option on the basis of economic factors. The table below summarizes the weighted average remaining lease term as of June 29, 2019.
Operating leases
3.6 years
Finance leases
2.8 years
The discount rate implicit within our leases is generally not determinable and therefore the Company determines the discount rate based on its incremental borrowing rate. The incremental borrowing rate for each lease is determined based on its term and the currency in which lease payments are made, adjusted for the impacts of collateral. The table below summarizes the weighted average discount rate used to measure our lease liabilities as of June 29, 2019.
Operating leases
3.93
%
Finance leases
3.42
%
Supplemental Cash Flow Information Related to Leases
 
Six Months Ended
 
June 29, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
Operating cash flows from operating leases
$
(8,175
)
Operating cash flows from finance leases
(63
)
Financing cash flows from finance leases
(860
)
Right-of-use assets obtained in exchange for lease obligations:
 
Operating leases
47,779

Maturity Analysis of Lease Liabilities
 
 
As of June 29, 2019
 
 
Operating Leases
 
Finance
Leases
Remaining six months of 2019
 
$
7,648

 
$
508

2020
 
13,242

 
1,371

2021
 
9,778

 
1,206

2022
 
6,504

 
272

2023
 
2,855

 
82

Thereafter
 
1,731

 

Total lease payments
 
41,758

 
3,439

Less interest
 
2,592

 
142

Total
 
$
39,166

 
$
3,297


- 17 -

The Davey Tree Expert Company
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 29, 2019
(Amounts in thousands, except share data)

G.
Leases (continued)
 
 
 
 
December 31, 2018
 
 
 
 
Operating Leases
2019
 
 
 
$
14,023

2020
 
 
 
11,272

2021
 
 
 
7,712

2022
 
 
 
5,129

2023
 
 
 
2,060

Thereafter
 
 
 
1,923

Total lease payments
 
 
 
$
42,119

H.
Stock-Based Compensation
Our shareholders approved the 2014 Omnibus Stock Plan (the “2014 Stock Plan”) at our annual meeting of shareholders on May 20, 2014. The 2014 Stock Plan replaced the expired 2004 Omnibus Stock Plan (the “2004 plan”) previously approved by the shareholders in 2004. The 2014 Stock Plan is administered by the Compensation Committee of the Board of Directors and has a term of ten years. All directors of the Company and employees of the Company and its subsidiaries are eligible to participate in the 2014 Stock Plan. The 2014 Stock Plan (similar to the 2004 plan) continues the maintenance of the Employee Stock Purchase Plan, as well as provisions for the grant of stock options and other stock-based incentives. The 2014 Stock Plan provides for the grant of five percent of the number of the Company’s common shares outstanding as of the first day of each fiscal year plus the number of common shares that were available for grant of awards, but not granted, in prior years. In no event, however, may the number of common shares available for the grant of awards in any fiscal year exceed ten percent of the common shares outstanding as of the first day of that fiscal year. Common shares subject to an award that is forfeited, terminated, or canceled without having been exercised are generally added back to the number of shares available for grant under the 2014 Stock Plan.
Stock-based compensation expense under all share-based payment plans -- our Employee Stock Purchase Plan, stock option plans, stock-settled stock appreciation rights ("SSARs") and restricted stock units ("RSUs") -- are included in the results of operations as follows:
 
Three Months Ended
 
Six Months Ended
 
June 29,
2019
 
June 30,
2018
 
June 29,
2019
 
June 30,
2018
Compensation expense, all share-based payment plans
$
776

 
$
769

 
$
1,529

 
$
1,793

Stock-based compensation consisted of the following:
Employee Stock Purchase Plan--Under the Employee Stock Purchase Plan, all full-time employees with one year of service are eligible to purchase, through payroll deduction, common shares. Employee purchases under the Employee Stock Purchase Plan are at 85% of the fair market value of the common shares--a 15% discount. We recognize compensation costs as payroll deductions are made. The 15% discount of total shares purchased under the

- 18 -

The Davey Tree Expert Company
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 29, 2019
(Amounts in thousands, except share data)

H.
Stock-Based Compensation (continued)
plan resulted in compensation cost of $536 being recognized for the six months ended June 29, 2019 and $488 for the six months ended June 30, 2018.
Stock Option Plans--The stock options outstanding were awarded under a graded vesting schedule, measured at fair value, and have a term of ten years. Compensation costs for stock options are recognized over the requisite service period on the straight-line recognition method. Compensation cost recognized for stock options was $315 for the six months ended June 29, 2019 and $346 for the six months ended June 30, 2018.
Stock-Settled Stock Appreciation Rights-- A SSARs is an award that allows the recipient to receive common shares equal to the appreciation in the fair market value of our common shares between the date the award was granted and the conversion date of the shares vested. Effective January 1, 2019, Management and the Compensation Committee replaced the issuance of future SSARs with performance-based restricted stock units ("PRSUs") for certain management employees.
The following table summarizes our SSARs as of June 29, 2019.
Stock-Settled
Stock Appreciation Rights
 
Number
of
Rights
 
Weighted-
Average
Award Date
Value
 
Weighted-
Average
Remaining
Contractual
Life
 
Unrecognized
Compensation
Cost
 
Aggregate
Intrinsic
Value
Unvested, January 1, 2019
 
380,982

 
$
3.42

 
 
 
 
 
 
Granted
 

 

 
 
 
 
 
 
Forfeited
 

 

 
 
 
 
 
 
Vested
 
(115,080
)
 
3.31

 
 
 
 
 
 
Unvested, June 29, 2019
 
265,902

 
$
3.47

 
1.9 years
 
$
734

 
$
5,611

Compensation costs for SSARs are determined using a fair-value method and amortized over the requisite service period. Compensation expense for SSARs was $190 for the six months ended June 29, 2019 and $290 for the six months ended June 30, 2018.
Restricted Stock Units--During the six months ended June 29, 2019, the Compensation Committee awarded 29,046 PRSUs to certain management employees and 11,942 RSUs to nonemployee directors. The Compensation Committee made similar awards in prior periods. The awards vest over specified periods. The following table summarizes PRSUs and RSUs as of June 29, 2019.

- 19 -

The Davey Tree Expert Company
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 29, 2019
(Amounts in thousands, except share data)

H.
Stock-Based Compensation (continued)
Restricted Stock Units
 
Number
of
Stock
Units
 
Weighted-
Average
Grant Date
Value
 
Weighted-
Average
Remaining
Contractual
Life
 
Unrecognized
Compensation
Cost
 
Aggregate
Intrinsic
Value
Unvested, January 1, 2019
 
247,838

 
$
15.68

 
 
 
 
 
 
Granted
 
40,988

 
20.45

 
 
 
 
 
 
Forfeited
 

 

 
 
 
 
 
 
Vested
 
(60,474
)
 
13.55

 
 
 
 
 
 
Unvested, June 29, 2019
 
228,352

 
$
17.10

 
2.4 years
 
$
2,078

 
$
4,818

Employee PRSUs
 
196,930

 
$
16.79

 
2.5 years
 
$
1,666

 
$
4,155

Nonemployee Director RSUs
 
31,422

 
$
19.01

 
2.0 years
 
$
412

 
$
663

Compensation cost for RSUs is determined using a fair-value method and amortized on the straight-line recognition method over the requisite service period. Compensation expense on RSUs totaled $488 for the six months ended June 29, 2019 and $669 for the six months ended June 30, 2018.
We estimated the fair value of each stock-based award on the date of grant using a binomial option-pricing model. The binomial model considers a range of assumptions related to volatility, risk-free interest rate and employee exercise behavior. Expected volatilities utilized in the binomial model are based on historical volatility of our stock prices and other factors. Similarly, the dividend yield is based on historical experience and expected future changes. The binomial model also incorporates exercise assumptions based on an analysis of historical data. The expected life of the stock-based awards is derived from the output of the binomial model and represents the period of time that awards granted are expected to be outstanding.
The fair values of stock-based awards granted were estimated at the dates of grant with the following weighted-average assumption.
 
Six Months Ended
 
June 29,
2019
 
June 30,
2018
Volatility rate
9.9
%
 
10.1
%
Risk-free interest rate
2.3
%
 
2.7
%
Expected dividend yield
.7
%
 
.7
%
Expected life of awards (years)
8.8

 
9.2


- 20 -

The Davey Tree Expert Company
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 29, 2019
(Amounts in thousands, except share data)

H.
Stock-Based Compensation (continued)
General Stock Option Information--The following table summarizes activity under the stock option plans for the six months ended June 29, 2019.
Stock Options
 
Number
of
Options
Outstanding
 
Weighted-
Average
Exercise
Price
 
Weighted-
Average
Remaining
Contractual
Life
 
Aggregate
Intrinsic
Value
Outstanding, January 1, 2019
 
1,466,264

 
$
13.94

 
 
 
 
Granted
 
151,145

 
21.10

 
 
 
 
Exercised
 
(75,139
)
 
10.43

 
 
 
 
Forfeited
 
(4,200
)
 
16.06

 
 
 
 
Outstanding, June 29, 2019
 
1,538,070

 
$
14.81

 
5.9 years
 
$
9,674

 
 
 
 
 
 
 
 
 
Exercisable, June 29, 2019
 
1,039,125

 
$
13.05

 
4.8 years
 
$
8,365

As of June 29, 2019, there was approximately $1,662 of unrecognized compensation cost related to stock options outstanding. The cost is expected to be recognized over a weighted-average period of 2.3 years. “Intrinsic value” is defined as the amount by which the market price of a common share exceeds the exercise price of an option. 
Common shares are issued from treasury upon the exercise of stock options, SSARs, RSUs, PRSUs or purchases under the Employee Stock Purchase Plan.
I.
Net Periodic Benefit Expense--Defined Benefit Pension Plans
The results of operations included the following net periodic benefit expense (income) recognized related to our defined-benefit pension plans.
 
Three Months Ended
 
Six Months Ended
 
June 29,
2019
 
June 30,
2018
 
June 29,
2019
 
June 30,
2018
Components of pension expense (income)
 
 
 
 
 
 
 
Service costs--increase in benefit obligation earned
$
30

 
$
100

 
$
75

 
$
200

Interest cost on projected benefit obligation
61

 
179

 
136

 
359

Expected return on plan assets
(14
)
 
(57
)
 
(37
)
 
(115
)
Settlement loss
1,677

 

 
1,677

 

Amortization of net actuarial loss
31

 
182

 
75

 
364

Amortization of prior service cost
16

 
16

 
32

 
32

Net pension expense of defined benefit pension plans
$
1,801

 
$
420

 
$
1,958

 
$
840



- 21 -

The Davey Tree Expert Company
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 29, 2019
(Amounts in thousands, except share data)

I.
Net Periodic Benefit Expense--Defined Benefit Pension Plans (continued)
During April 2019, we entered into an agreement to purchase a guaranteed group annuity contract from a third-party insurance company which unconditionally and irrevocably guarantees the full-payment of all annuity payments to the remaining 231 participants in our Employee Retirement Plan (“ERP”) for which benefits were frozen effective December 31, 2008. The April 2019 agreement transferred all remaining ERP benefit obligations to the third-party insurance company, resulting in a pretax actuarial settlement loss of $1,677.
The components of net periodic benefit expense, other than the service cost component, are included in the line item other income (expense) in the statement of operations.
J.
Income Taxes
Our income tax provision for interim periods is determined using an estimate of our annual effective tax rate adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter we update our estimate of the annual effective tax rate and, if our estimated annual tax rate changes, we make a cumulative adjustment. The estimated annual effective tax rate for the six months ended June 29, 2019 was 19.9%. Our annual effective tax rate for the six months ended June 30, 2018 was estimated at 18.2%. Our effective tax rate was 20.4% and 19.9% for the three months ended June 29, 2019 and June 30, 2018, respectively. The change in the effective tax rate from statutory tax rates is primarily due to the impact of favorable discrete items.
As of June 29, 2019, we had unrecognized tax benefits of $1,332, of which $606 would affect our effective rate if recognized, and accrued interest expense related to unrecognized benefits of $40. At December 31, 2018, we had unrecognized tax benefits of $1,325, of which $599 would affect our effective rate if recognized, and accrued interest expense related to unrecognized benefits of $35. Unrecognized tax benefits are the differences between a tax position taken, or expected to be taken in a tax return, and the benefit recognized for financial reporting purposes. We recognize interest accrued related to unrecognized tax benefits in income tax expense. Penalties, if incurred, would be recognized as a component of income tax expense.
The Company is routinely under audit by federal, state, local and Canadian authorities in the area of income tax. These audits include questioning the timing and the amount of income and deductions and the allocation of income and deductions among various tax jurisdictions. The Company has been audited by the Internal Revenue Service through 2016. With the exception of U.S. state jurisdictions, the Company is no longer subject to examination by tax authorities for the years through 2016. As of June 29, 2019, we believe it is reasonably possible that the total amount of unrecognized tax benefits will not significantly increase or decrease.

- 22 -

The Davey Tree Expert Company
Notes to Condensed Consolidated Financial Statements (Unaudited)