QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
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 |
Large Accelerated Filer | ☐ | ☒ | Emerging Growth Company | ||||
Non-Accelerated Filer | ☐ | Smaller Reporting Company |
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. |
March 28, 2020 | December 31, 2019 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash | $ | $ | |||||
Accounts receivable, net | |||||||
Operating supplies | |||||||
Other current assets | |||||||
Total current assets | |||||||
Property and equipment, net | |||||||
Right-of-use assets - operating leases | |||||||
Other assets | |||||||
Intangible assets, net | |||||||
Goodwill | |||||||
Total assets | $ | $ | |||||
Liabilities and shareholders' equity | |||||||
Current liabilities: | |||||||
Accounts payable | $ | $ | |||||
Accrued expenses | |||||||
Current portion of long-term debt and finance lease liabilities | |||||||
Other current liabilities | |||||||
Total current liabilities | |||||||
Long-term debt | |||||||
Lease liabilities - finance leases | |||||||
Lease liabilities - operating leases | |||||||
Self-insurance reserve | |||||||
Other noncurrent liabilities | |||||||
Total liabilities | |||||||
Commitments and contingencies (Note P) | |||||||
Redeemable common shares related to 401KSOP and Employee Stock Ownership Plan (ESOP); 5,236 and 5,147 shares at redemption value as of March 28, 2020 and December 31, 2019 | |||||||
Common shareholders' equity: | |||||||
Common shares, $1.00 par value, per share; 48,000 shares authorized; 37,678 and 37,767 shares issued and outstanding before deducting treasury shares and which excludes 5,236 and 5,147 shares subject to redemption as of March 28, 2020 and December 31, 2019 | |||||||
Additional paid-in capital | |||||||
Retained earnings | |||||||
Accumulated other comprehensive loss | ( | ) | ( | ) | |||
Less: Cost of common shares held in treasury; 19,848 shares at March 28, 2020 and 19,737 shares at December 31, 2019 | |||||||
Total common shareholders' equity | |||||||
Total liabilities and shareholders' equity | $ | $ | |||||
See notes to condensed consolidated financial statements. |
Three Months Ended | |||||||
March 28, 2020 | March 30, 2019 | ||||||
Revenues | $ | $ | |||||
Costs and expenses: | |||||||
Operating | |||||||
Selling | |||||||
General and administrative | |||||||
Depreciation and amortization | |||||||
Gain on sale of assets, net | ( | ) | ( | ) | |||
Total costs and expenses | |||||||
Income from operations | |||||||
Other income (expense): | |||||||
Interest expense | ( | ) | ( | ) | |||
Interest income | |||||||
Other, net | ( | ) | ( | ) | |||
Income (loss) before income taxes | ( | ) | |||||
Income taxes (benefit) | ( | ) | |||||
Net income (loss) | $ | $ | ( | ) | |||
Net income (loss) per share: | |||||||
Basic | $ | $ | ( | ) | |||
Diluted | $ | $ | ( | ) | |||
Weighted-average shares outstanding: | |||||||
Basic | |||||||
Diluted | |||||||
See notes to condensed consolidated financial statements. |
Three Months Ended | ||||||||
March 28, 2020 | March 30, 2019 | |||||||
Net income (loss) | $ | $ | ( | ) | ||||
Components of other comprehensive income (loss), net of tax: | ||||||||
Foreign currency translation adjustments | ( | ) | ||||||
Amortization of defined benefit pension items: | ||||||||
Net actuarial loss | ||||||||
Prior service cost | ||||||||
Defined benefit pension plan adjustments | ||||||||
Other comprehensive (loss) income, net of tax | ( | ) | ||||||
Comprehensive (loss) income | $ | ( | ) | $ | ||||
See notes to condensed consolidated financial statements. |
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 January 1, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||
Net income | — | — | — | — | — | — | ||||||||||||||||||
Change in 401KSOP and ESOP related shares | ( | ) | ( | ) | — | — | — | — | — | ( | ) | |||||||||||||
Shares sold to employees | — | — | — | — | — | |||||||||||||||||||
Options exercised | — | — | — | — | — | |||||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | ||||||||||||||||||
Dividends, $.025 per share | — | — | — | ( | ) | — | — | — | ( | ) | ||||||||||||||
Currency translation adjustments | — | — | — | — | ( | ) | — | — | ( | ) | ||||||||||||||
Defined benefit pension plans | — | — | — | — | — | — | ||||||||||||||||||
Shares purchased | — | — | — | — | — | ( | ) | — | ( | ) | ||||||||||||||
Balances at March 28, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||
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 January 1, 2019 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||
Net loss | — | — | — | ( | ) | — | — | — | ( | ) | ||||||||||||||
Change in 401KSOP and ESOP related shares | ( | ) | ( | ) | — | — | — | — | — | ( | ) | |||||||||||||
Shares sold to employees | — | — | — | — | — | |||||||||||||||||||
Options exercised | — | ( | ) | — | — | — | — | |||||||||||||||||
Subscription shares | — | ( | ) | ( | ) | — | — | |||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | ||||||||||||||||||
Dividends, $.025 per share | — | — | — | ( | ) | — | — | — | ( | ) | ||||||||||||||
Currency translation adjustments | — | — | — | — | — | — | ||||||||||||||||||
Defined benefit pension plans | — | — | — | — | — | — | ||||||||||||||||||
Shares purchased | — | — | — | — | — | ( | ) | — | ( | ) | ||||||||||||||
Balances at March 30, 2019 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||
See notes to condensed consolidated financial statements. |
Three Months Ended | ||||||||
March 28, 2020 | March 30, 2019 | |||||||
Operating activities | ||||||||
Net income (loss) | $ | $ | ( | ) | ||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
Depreciation and amortization | ||||||||
Other | ||||||||
Changes in operating assets and liabilities, net of assets acquired: | ||||||||
Accounts receivable | ( | ) | ||||||
Accounts payable and accrued expenses | ( | ) | ( | ) | ||||
Self-insurance reserve | ( | ) | ||||||
Prepaid expenses | ||||||||
Other, net | ( | ) | ||||||
Net cash provided by operating activities | ||||||||
Investing activities | ||||||||
Capital expenditures: | ||||||||
Equipment | ( | ) | ( | ) | ||||
Land and buildings | ( | ) | ( | ) | ||||
Purchases of businesses, net of cash acquired | ( | ) | ( | ) | ||||
Proceeds from sales of fixed assets | ||||||||
Net cash used in investing activities | ( | ) | ( | ) | ||||
Financing activities | ||||||||
Revolving credit facility borrowings | ||||||||
Revolving credit facility payments | ( | ) | ( | ) | ||||
Purchase of common shares for treasury | ( | ) | ( | ) | ||||
Sale of common shares from treasury | ||||||||
Dividends paid | ( | ) | ( | ) | ||||
Proceeds from notes payable | ||||||||
Payments of notes payable | ( | ) | ( | ) | ||||
Payments of finance leases | ( | ) | ( | ) | ||||
Net cash provided by financing activities | ||||||||
Effect of exchange rate changes on cash | ( | ) | ( | ) | ||||
Increase in cash | ||||||||
Cash, beginning of period | ||||||||
Cash, end of period | $ | $ | ||||||
Supplemental cash flow information follows: | ||||||||
Interest paid | $ | $ | ||||||
Income taxes paid | ||||||||
See notes to condensed consolidated financial statements. |
A. | Basis of Financial Statement Preparation |
B. | Seasonality of Business |
C. | Accounts Receivable, Net and Supplemental Balance-Sheet Information |
Accounts receivable, net | March 28, 2020 | December 31, 2019 | |||||
Accounts receivable | $ | $ | |||||
Unbilled Receivables(1) | |||||||
Less allowances for doubtful accounts | |||||||
Accounts receivable, net | $ | $ |
(1) | Unbilled Receivables consist of work-in-process in accordance with the terms of contracts, primarily with utility services customers. |
Other current assets | March 28, 2020 | December 31, 2019 | |||||
Refundable income taxes | $ | $ | |||||
Prepaid expense | |||||||
Other | |||||||
Total | $ | $ |
Property and equipment, net | March 28, 2020 | December 31, 2019 | |||||
Land and land improvements | $ | $ | |||||
Buildings and leasehold improvements | |||||||
Equipment | |||||||
Less accumulated depreciation | |||||||
Total | $ | $ |
Other assets, noncurrent | March 28, 2020 | December 31, 2019 | |||||
Assets invested for self-insurance | $ | $ | |||||
Investment--cost-method affiliate | |||||||
Other | |||||||
Total | $ | $ |
Accrued expenses | March 28, 2020 | December 31, 2019 | |||||
Employee compensation | $ | $ | |||||
Accrued compensated absences | |||||||
Self-insured medical claims | |||||||
Income tax payable | |||||||
Customer advances, deposits | |||||||
Taxes, other than income | |||||||
Other | |||||||
Total | $ | $ |
Other current liabilities | March 28, 2020 | December 31, 2019 | |||||
Notes payable | $ | $ | |||||
Current portion of: | |||||||
Lease liability-operating leases | |||||||
Self-insurance reserve | |||||||
Total | $ | $ |
Other noncurrent liabilities | March 28, 2020 | December 31, 2019 | |||||
Pension and retirement plans | $ | $ | |||||
Deferred income taxes | |||||||
Other | |||||||
Total | $ | $ |
D. | Business Combinations |
March 28, 2020 | December 31, 2019 | ||||||
Detail of acquisitions: | |||||||
Assets acquired: | |||||||
Cash | $ | $ | |||||
Receivables | |||||||
Operating supplies | |||||||
Prepaid expense | |||||||
Equipment | |||||||
Deposits and other | |||||||
Intangibles | |||||||
Goodwill | |||||||
Liabilities assumed | ( | ) | ( | ) | |||
Debt issued for purchases of businesses | ( | ) | ( | ) | |||
Cash paid | $ | $ |
E. | Identified Intangible Assets and Goodwill, Net |
March 28, 2020 | December 31, 2019 | ||||||||||||||
Carrying Amount | Accumulated Amortization | Carrying Amount | Accumulated Amortization | ||||||||||||
Amortized intangible assets: | |||||||||||||||
Customer lists/relationships | $ | $ | $ | $ | |||||||||||
Employment-related | |||||||||||||||
Tradenames | |||||||||||||||
Amortized intangible assets | $ | $ | |||||||||||||
Less accumulated amortization | |||||||||||||||
Identified intangible assets, net | $ | $ | |||||||||||||
Goodwill | $ | $ |
Balance at January 1, 2020 | Acquisitions | Translation and Other Adjustments | Balance at March 28, 2020 | ||||||||||||
Utility | $ | $ | $ | $ | |||||||||||
Residential and Commercial | |||||||||||||||
Total | $ | $ | $ | $ | |||||||||||
Balance at January 1, 2019 | Acquisitions | Translation and Other Adjustments | Balance at March 30, 2019 | ||||||||||||
Utility | $ | $ | $ | $ | |||||||||||
Residential and Commercial | |||||||||||||||
Total | $ | $ | $ | $ |
Estimated Future Amortization Expense | ||||
Remaining nine months of 2020 | $ | |||
2021 | ||||
2022 | ||||
2023 | ||||
2024 | ||||
Thereafter | ||||
$ |
F. | Long-Term Debt and Commitments Related to Letters of Credit |
March 28, 2020 | December 31, 2019 | ||||||
Revolving credit facility: | |||||||
Swing-line borrowings | $ | $ | |||||
LIBOR borrowings | |||||||
Senior unsecured notes: | |||||||
5.09% Senior unsecured notes | |||||||
3.99% Senior unsecured notes | |||||||
4.00% Senior unsecured notes | |||||||
Term loans | |||||||
Less debt issuance costs | |||||||
Less current portion | |||||||
$ | $ |
G. | Leases |
Condensed Consolidated Balance Sheet Classification | March 28, 2020 | December 31, 2019 | |||||||
Assets | |||||||||
Operating lease assets | Right-of-use assets - operating leases | $ | $ | ||||||
Finance lease assets | Property and equipment, net | ||||||||
Total lease assets | $ | $ | |||||||
Liabilities | |||||||||
Current operating lease liabilities | Other current liabilities | $ | $ | ||||||
Non-current operating lease liabilities | Lease liabilities - operating leases | ||||||||
Total operating lease liabilities | |||||||||
Current portion of finance lease liabilities | Current portion of long-term debt and finance lease liabilities | ||||||||
Non-current finance lease liabilities | Lease liabilities - finance leases | ||||||||
Total finance lease liabilities | |||||||||
Total lease liabilities | $ | $ |
Three Months Ended | |||||||||
Condensed Consolidated Statements of Operations Classification | March 28, 2020 | March 30, 2019 | |||||||
Operating lease cost | Operating expense | $ | $ | ||||||
Operating lease cost | Selling expense | ||||||||
Operating lease cost | General and administrative expense | ||||||||
Finance lease cost: | |||||||||
Amortization of right-of-use assets | Depreciation and amortization | ||||||||
Interest expense on lease liabilities | Interest expense | ||||||||
Other lease cost (1) | Operating expense | ||||||||
Other lease cost (1) | Selling expense | ||||||||
Other lease cost (1) | General and administrative expense | ||||||||
Total lease cost | $ | $ |
Operating leases | |
Finance leases |
Operating leases | % | |
Finance leases | % |
Three Months Ended | |||||||
March 28, 2020 | March 30, 2019 | ||||||
Cash paid for amounts included in the measurement of lease liabilities: | |||||||
Operating cash flows from operating leases | $ | ( | ) | $ | ( | ) | |
Operating cash flows from finance leases | ( | ) | ( | ) | |||
Financing cash flows from finance leases | ( | ) | ( | ) | |||
Right-of-use assets obtained in exchange for lease obligations: | |||||||
Operating leases |
As of March 28, 2020 | ||||||||
Operating Leases | Finance Leases | |||||||
Remaining nine months of 2020 | $ | $ | ||||||
2021 | ||||||||
2022 | ||||||||
2023 | ||||||||
2024 | ||||||||
Thereafter | ||||||||
Total lease payments | ||||||||
Less interest | ||||||||
Total | $ | $ |
H. | Stock-Based Compensation |
Three Months Ended | |||||||
March 28, 2020 | March 30, 2019 | ||||||
Compensation expense, all share-based payment plans | $ | $ |
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, 2020 | $ | ||||||||||||||||
Granted | |||||||||||||||||
Forfeited | ( | ) | |||||||||||||||
Vested | ( | ) | |||||||||||||||
Unvested, March 28, 2020 | $ | $ | $ |
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, 2020 | $ | ||||||||||||||||
Granted | |||||||||||||||||
Forfeited | ( | ) | |||||||||||||||
Vested | ( | ) | |||||||||||||||
Unvested, March 28, 2020 | $ | $ | $ | ||||||||||||||
Employee PRSUs | $ | $ | $ | ||||||||||||||
Nonemployee Director RSUs | $ | $ | $ |
Three Months Ended | |||||
March 28, 2020 | March 30, 2019 | ||||
Volatility rate | % | % | |||
Risk-free interest rate | % | % | |||
Expected dividend yield | % | % | |||
Expected life of awards (years) |
Stock Options | Number of Options Outstanding | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Life | Aggregate Intrinsic Value | |||||||||
Outstanding, January 1, 2020 | $ | ||||||||||||
Granted | |||||||||||||
Exercised | |||||||||||||
Forfeited | ( | ) | |||||||||||
Outstanding, March 28, 2020 | $ | $ | |||||||||||
Exercisable, March 28, 2020 | $ | $ |
I. | Net Periodic Benefit Expense--Defined Benefit Pension Plans |
Three Months Ended | |||||||
March 28, 2020 | March 30, 2019 | ||||||
Components of pension expense (income) | |||||||
Service costs--increase in benefit obligation earned | $ | $ | |||||
Interest cost on projected benefit obligation | |||||||
Expected return on plan assets | ( | ) | |||||
Amortization of net actuarial loss | |||||||
Amortization of prior service cost | |||||||
Net pension expense of defined benefit pension plans | $ | $ |
J. | Income Taxes |
K. | Accumulated Other Comprehensive Income (Loss) |
Three Months Ended March 28, 2020 | Foreign Currency Translation Adjustments | Defined Benefit Pension Plans | Accumulated Other Comprehensive Income (Loss) | |||||||||
Balance at January 1, 2020 | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
Other comprehensive income (loss) before reclassifications | ||||||||||||
Unrealized gains (losses) | ( | ) | ( | ) | ||||||||
Amounts reclassified from accumulated other comprehensive income (loss) | ||||||||||||
Tax effect | ( | ) | ( | ) | ||||||||
Net of tax amount | ( | ) | ( | ) | ||||||||
Balance at March 28, 2020 | $ | ( | ) | $ | ( | ) | $ | ( | ) |
Three Months Ended March 30, 2019 | Foreign Currency Translation Adjustments | Defined Benefit Pension Plans | Accumulated Other Comprehensive Income (Loss) | |||||||||
Balance at January 1, 2019 | $ | ( | ) | $ | $ | ( | ) | |||||
Other comprehensive income (loss) before reclassifications | ||||||||||||
Unrealized gains (losses) | ||||||||||||
Amounts reclassified from accumulated other comprehensive income (loss) | ||||||||||||
Tax effect | ( | ) | ( | ) | ||||||||
Net of tax amount | ||||||||||||
Balance at March 30, 2019 | $ | ( | ) | $ | $ | ( | ) |
L. | Per Share Amounts and Common and Redeemable Shares Outstanding |
Three Months Ended | |||||||
March 28, 2020 | March 30, 2019 | ||||||
Income available to common shareholders: | |||||||
Net income (loss) | $ | $ | ( | ) | |||
Weighted-average shares: | |||||||
Basic: | |||||||
Outstanding | |||||||
Partially-paid share subscriptions | |||||||
Basic weighted-average shares | |||||||
Diluted: | |||||||
Basic from above | |||||||
Incremental shares from assumed: | |||||||
Exercise of stock subscription purchase rights | |||||||
Exercise of stock options and awards | |||||||
Diluted weighted-average shares | |||||||
Net income (loss) per share: | |||||||
Basic | $ | $ | ( | ) | |||
Diluted | $ | $ | ( | ) |
Common Shares Net of Treasury Shares | Redeemable Shares | Total | ||||||
Shares outstanding at January 1, 2020 | ||||||||
Shares purchased | ( | ) | ( | ) | ( | ) | ||
Shares sold | ||||||||
Options and awards exercised | ||||||||
Shares outstanding at March 28, 2020 |
M. | Operations by Business Segment |
Utility | Residential and Commercial | All Other | Reconciling Adjustments | Consolidated | ||||||||||||||||
Three Months Ended March 28, 2020 | ||||||||||||||||||||
Revenues | $ | $ | $ | $ | $ | |||||||||||||||
Income (loss) from operations | ( | ) | ( | ) | ( | ) | (a) | |||||||||||||
Interest expense | ( | ) | ( | ) | ||||||||||||||||
Interest income | ||||||||||||||||||||
Other income (expense), net | ( | ) | ( | ) | ||||||||||||||||
Income before income taxes | $ | |||||||||||||||||||
Segment assets, total | $ | $ | $ | $ | (b) | $ | ||||||||||||||
Three Months Ended March 30, 2019 | ||||||||||||||||||||
Revenues | $ | $ | $ | $ | $ | |||||||||||||||
Income (loss) from operations | ( | ) | ( | ) | (a) | |||||||||||||||
Interest expense | ( | ) | ( | ) | ||||||||||||||||
Interest income | ||||||||||||||||||||
Other income (expense), net | ( | ) | ( | ) | ||||||||||||||||
Loss before income tax benefit | $ | ( | ) | |||||||||||||||||
Segment assets, total | $ | $ | $ | $ | (b) | $ |
(a) |
(b) |
N. | Revenue Recognition |
Three Months Ended March 28, 2020 | Utility | Residential and Commercial | All Other | Consolidated | ||||||||||||
Type of service: | ||||||||||||||||
Tree and plant care | $ | $ | $ | ( | ) | $ | ||||||||||
Grounds maintenance | ||||||||||||||||
Storm damage services | ||||||||||||||||
Consulting and other | ||||||||||||||||
Total revenues | $ | $ | $ | $ | ||||||||||||
Geography: | ||||||||||||||||
United States | $ | $ | $ | $ | ||||||||||||
Canada | ||||||||||||||||
Total revenues | $ | $ | $ | $ |
Three Months Ended March 30, 2019 | Utility | Residential and Commercial | All Other | Consolidated | ||||||||||||
Type of service: | ||||||||||||||||
Tree and plant care | $ | $ | $ | ( | ) | $ | ||||||||||
Grounds maintenance | ||||||||||||||||
Storm damage services | ||||||||||||||||
Consulting and other | ||||||||||||||||
Total revenues | $ | $ | $ | $ | ||||||||||||
Geography: | ||||||||||||||||
United States | $ | $ | $ | $ | ||||||||||||
Canada | ||||||||||||||||
Total revenues | $ | $ | $ | $ |
March 28, 2020 | December 31, 2019 | ||||||
Contract liabilities - current | $ | $ | |||||
Contract liabilities - noncurrent | |||||||
Net contract liabilities | $ | $ |
O. | Fair Value Measurements and Financial Instruments |
Fair Value Measurements at March 28, 2020 Using: | ||||||||||||||||
Assets and Liabilities Recorded at Fair Value on a Recurring Basis | Total Carrying Value at March 28, 2020 | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||
Assets: | ||||||||||||||||
Assets invested for self-insurance, classified as other assets, noncurrent | $ | $ | $ | $ | ||||||||||||
Defined benefit pension plan assets | ||||||||||||||||
Liabilities: | ||||||||||||||||
Deferred compensation | $ | $ | $ | $ |
Fair Value Measurements at December 31, 2019 Using: | ||||||||||||||||
Assets and Liabilities Recorded at Fair Value on a Recurring Basis | Total Carrying Value at December 31, 2019 | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||
Assets: | ||||||||||||||||
Assets invested for self-insurance, classified as other assets, noncurrent | $ | $ | $ | $ | ||||||||||||
Defined benefit pension plan assets | ||||||||||||||||
Liabilities: | ||||||||||||||||
Deferred compensation | $ | $ | $ | $ |
March 28, 2020 | December 31, 2019 | |||||||||||||||
Carrying Value | Fair Value | Carrying Value | Fair Value | |||||||||||||
Revolving credit facility, noncurrent | $ | $ | $ | $ | ||||||||||||
Senior unsecured notes, noncurrent | ||||||||||||||||
Term loans, noncurrent | ||||||||||||||||
Total | $ | $ | $ | $ |
P. | Commitments and Contingencies |
Q. | The Davey 401KSOP and Employee Stock Ownership Plan |
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations. |
Three Months Ended | ||||||||
March 28, 2020 | March 30, 2019 | Change | ||||||
Revenues | 100.0 | % | 100.0 | % | — | % | ||
Costs and expenses: | ||||||||
Operating | 68.8 | 67.0 | 1.8 | |||||
Selling | 17.4 | 18.7 | (1.3 | ) | ||||
General and administrative | 7.5 | 7.7 | (.2 | ) | ||||
Depreciation and amortization | 5.0 | 5.7 | (.7 | ) | ||||
Gain on sale of assets, net | (.1 | ) | (.3 | ) | .2 | |||
Income from operations | 1.4 | 1.2 | .2 | |||||
Other income (expense): | ||||||||
Interest expense | (.7 | ) | (.9 | ) | .2 | |||
Interest income | — | — | — | |||||
Other, net | (.6 | ) | (.6 | ) | — | |||
Income (loss) before income taxes | .1 | (.3 | ) | .4 | ||||
Income taxes (benefit) | — | (.1 | ) | .1 | ||||
Net income (loss) | .1 | % | (.2 | )% | .3 | % |
Three Months Ended | ||||||||||||||
March 28, 2020 | March 30, 2019 | Change | Percentage Change | |||||||||||
Revenues | $ | 288,280 | $ | 247,889 | $ | 40,391 | 16.3 | % | ||||||
Costs and expenses: | ||||||||||||||
Operating | 198,393 | 166,016 | 32,377 | 19.5 | ||||||||||
Selling | 50,112 | 46,304 | 3,808 | 8.2 | ||||||||||
General and administrative | 21,542 | 19,044 | 2,498 | 13.1 | ||||||||||
Depreciation and amortization | 14,604 | 14,212 | 392 | 2.8 | ||||||||||
Gain on sale of assets, net | (305 | ) | (653 | ) | 348 | (53.3 | ) | |||||||
284,346 | 244,923 | 39,423 | 16.1 | |||||||||||
Income from operations | 3,934 | 2,966 | 968 | 32.6 | ||||||||||
Other income (expense): | ||||||||||||||
Interest expense | (1,946 | ) | (2,151 | ) | 205 | (9.5 | ) | |||||||
Interest income | 101 | 83 | 18 | 21.7 | ||||||||||
Other, net | (1,899 | ) | (1,655 | ) | (244 | ) | 14.7 | |||||||
Income (loss) before income taxes | 190 | (757 | ) | 947 | (125.1 | ) | ||||||||
Income taxes (benefit) | 17 | (264 | ) | 281 | (106.4 | ) | ||||||||
Net income (loss) | $ | 173 | $ | (493 | ) | $ | 666 | (135.1 | )% |
Three Months Ended | |||||||
March 28, 2020 | March 30, 2019 | ||||||
Cash provided by (used in): | |||||||
Operating activities | $ | 2,768 | $ | 11,428 | |||
Investing activities | (21,012 | ) | (24,977 | ) | |||
Financing activities | 74,173 | 17,564 | |||||
Effect of exchange rate changes on cash | (100 | ) | (12 | ) | |||
Increase in cash | $ | 55,829 | $ | 4,003 |
▪ | The coronavirus pandemic (COVID-19) has impacted, and could have a material adverse effect on our business, results of operations, financial position or cash flows. |
▪ | We may be unable to attract and retain a sufficient number of qualified employees for our field operations, and we may be unable to attract and retain qualified management personnel. |
▪ | We have significant contracts with our utility, commercial and government customers that include liability risk exposure as part of those contracts. Consequently, we have substantial excess-umbrella liability insurance, and increases in the cost of obtaining adequate insurance, or the inadequacy of our self-insurance reserves or insurance coverages, could negatively impact our liquidity and financial condition. |
▪ | 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. |
▪ | We could be materially adversely affected by wildfires in California and other areas as well as other severe weather events and natural disasters, including negative impacts to our business, reputation, financial condition, results of operations, liquidity and cash flows. |
▪ | Our business, other than tree services to utility customers, is highly seasonal and weather dependent. |
▪ | Significant customers, particularly utilities, may experience financial difficulties, resulting in payment delays or delinquencies. |
▪ | We are subject to litigation and third-party and governmental regulatory claims and adverse litigation judgments or settlements resulting from those claims could materially adversely affect our business. |
▪ | Significant increases in fuel prices for extended periods of time will increase our operating expenses. |
▪ | We are subject to intense competition. |
▪ | Various economic factors may adversely impact our customers’ spending and pricing for our services, and impede our collection of accounts receivable. |
▪ | The impact of regulations initiated as a response to possible changing climate conditions could have a negative effect on our results of operations or our financial condition. |
▪ | The seasonal nature of our business and changes in general and local economic conditions, among other factors, may cause our quarterly results to fluctuate, and our prior performance is not necessarily indicative of future results. |
▪ | We may misjudge a competitive bid and be contractually bound to an unprofitable contract. |
▪ | A disruption in our information technology systems, including a disruption related to cybersecurity, or the impact of costs incurred to comply with cybersecurity or data privacy regulations, could adversely affect our financial performance. |
▪ | We are dependent, in part, on our reputation of quality, integrity and performance. If our reputation is damaged, we may be adversely affected. |
▪ | Because no public market exists for our common shares, the ability of shareholders to sell their common shares is limited. |
▪ | Our failure to comply with environmental laws could result in significant liabilities, fines and/or penalties. |
▪ | We may encounter difficulties obtaining surety bonds or letters of credit necessary to support our operations. |
▪ | The uncertainties in the credit and financial markets may limit our access to capital. |
▪ | Fluctuations in foreign currency exchange rates may have a material adverse impact on our operating results. |
▪ | Significant increases in health care costs could negatively impact our results of operations or financial position. |
▪ | Our facilities could be damaged or our operations could be disrupted, or our customers or vendors may be adversely affected, by events such as natural disasters, pandemics, such as COVID-19, terrorist attacks or other external events. |
▪ | Our inability to properly verify the employment eligibility of our employees could adversely affect our business. |
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. |
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 2019 | |||||||||||
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 | — | ||||||||
Total Year-to-Date | 333,302 | $ | 24.19 | — |
Item 6. | Exhibits. |
Exhibit No. | Description | |||
Filed Herewith | ||||
Filed Herewith | ||||
Furnished Herewith | ||||
Furnished Herewith | ||||
101 | The following materials from the Company's Quarterly Report on Form 10-Q for the quarter ended March 28, 2020, formatted in iXBRL (inline eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets (unaudited), (ii) the Condensed Consolidated Statements of Operations (unaudited), (iii) the Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited), (iv) the Condensed Consolidated Statements of Shareholders' Equity (unaudited), (v) the Condensed Consolidated Statements of Cash Flows (unaudited), and (vi) Notes to Condensed Consolidated Financial Statements (unaudited). The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. | Filed Herewith | ||
104 | Cover Page Interactive Data File (embedded within the inline XBRL document) | Filed Herewith | ||
THE DAVEY TREE EXPERT COMPANY | ||||
Date: | May 5, 2020 | By: | /s/ Joseph R. Paul | |
Joseph R. Paul | ||||
Executive Vice President, Chief Financial Officer and Secretary | ||||
(Principal Financial Officer) | ||||
Date: | May 5, 2020 | By: | /s/ Thea R. Sears | |
Thea R. Sears | ||||
Vice President and Controller | ||||
(Principal Accounting Officer) |
1. | I have reviewed this quarterly report on Form 10-Q of The Davey Tree Expert Company; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: | May 5, 2020 | /s/ Patrick M. Covey |
Patrick M. Covey | ||
Chairman, President and Chief Executive Officer |
1. | I have reviewed this quarterly report on Form 10-Q of The Davey Tree Expert Company; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: | May 5, 2020 | /s/ Joseph R. Paul |
Joseph R. Paul | ||
Executive Vice President, Chief Financial Officer and Secretary |
1. | The Quarterly Report on Form 10-Q of the Company for the period ended March 28, 2020 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)), as applicable; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: | May 5, 2020 | /s/ Patrick M. Covey |
Patrick M. Covey | ||
Chairman, President and Chief Executive Officer |
1. | The Quarterly Report on Form 10-Q of the Company for the period ended March 28, 2020 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)), as applicable; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: | May 5, 2020 | /s/ Joseph R. Paul |
Joseph R. Paul | ||
Executive Vice President, Chief Financial Officer and Secretary |
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Leases Assets and liabilities (Details) - USD ($) $ in Thousands |
Mar. 28, 2020 |
Dec. 31, 2019 |
---|---|---|
Assets and Liabilities, Lessee [Abstract] | ||
Operating lease assets | $ 49,787 | $ 40,033 |
Finance lease assets | 2,832 | 3,183 |
Total lease assets | 52,619 | 43,216 |
Current operating lease liabilities | 16,920 | 14,665 |
Non-current operating lease liabilities | 32,712 | 25,200 |
Total operating lease liabilities | 49,632 | 39,865 |
Current portion of finance lease liabilities | (1,332) | (1,348) |
Non-current finance lease liabilities | 1,104 | 1,795 |
Total finance lease liabilities | 2,436 | 3,143 |
Total lease liabilities | $ 52,068 | $ 43,008 |
Identified Intangible Assets and Goodwill, Net (Details) - USD ($) $ in Thousands |
Mar. 28, 2020 |
Dec. 31, 2019 |
Mar. 30, 2019 |
Dec. 31, 2018 |
---|---|---|---|---|
Finite-Lived Intangible Assets [Line Items] | ||||
Identified intangible assets, gross | $ 44,356 | $ 44,094 | ||
Accumulated amortization | 33,261 | 33,160 | ||
Identified intangible assets, net | 11,095 | 10,934 | ||
Goodwill | 43,780 | 42,285 | $ 39,328 | $ 37,971 |
Customer lists/relationships [Member] | ||||
Finite-Lived Intangible Assets [Line Items] | ||||
Identified intangible assets, gross | 28,478 | 28,301 | ||
Accumulated amortization | 20,024 | 20,024 | ||
Employment-related [Member] | ||||
Finite-Lived Intangible Assets [Line Items] | ||||
Identified intangible assets, gross | 8,485 | 8,391 | ||
Accumulated amortization | 7,448 | 7,348 | ||
Tradenames [Member] | ||||
Finite-Lived Intangible Assets [Line Items] | ||||
Identified intangible assets, gross | 7,393 | 7,402 | ||
Accumulated amortization | $ 5,789 | $ 5,788 |
Commitments and contingencies Details (Details) $ in Thousands |
3 Months Ended | 12 Months Ended | |
---|---|---|---|
Mar. 28, 2020
USD ($)
|
Dec. 31, 2019 |
Dec. 31, 2018 |
|
Loss contingency, number of claims alleged | 3 | ||
Credit Concentration Risk [Member] | |||
Concentration risk, percentage | 12.00% | 12.00% | |
Customer Concentration Risk [Member] | |||
Pre-petition accounts receivable | $ 15,000 | ||
Former Davey employee defendants [Member] | |||
Loss contingency, number of defendants | 1 | ||
Wolf employee defendants [Member] | |||
Loss contingency, number of defendants | 2 | ||
Former Wolf employee defendants [Member] | |||
Loss contingency, number of defendants | 1 | ||
Employee and former employee defendants [Member] | |||
Loss contingency, number of defendants | 4 | ||
Former Wolf employee defendants indicted [Member] | |||
Loss contingency, number of defendants | 2 | ||
Other individuals [Member] | |||
Loss contingency, number of defendants | 1 |
Per Share Amounts and Common Shares Outstanding |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Per share amounts and common and redeemable shares outstanding [Text Block] | Per Share Amounts and Common and Redeemable Shares Outstanding We calculate our basic earnings per share by dividing net income or net loss by the weighted average number of common shares outstanding during the period. Diluted earnings per share are calculated in a similar manner, but include the effect of dilutive securities. To the extent these securities are antidilutive, they are excluded from the calculation of earnings per share. The per share amounts were computed as follows:
The potentially dilutive shares were excluded from the calculation of diluted net loss per share for the three months ended March 30, 2019 because their effect would have been anti-dilutive. Common and Redeemable Shares Outstanding--A summary of the activity of the common and redeemable shares outstanding for the three months ended March 28, 2020 follows:
On March 28, 2020, we had 23,066,474 common and redeemable shares outstanding and employee options exercisable to purchase 936,457 common shares. Stock Subscription Offering--Beginning May 2012, the Company offered to eligible employees and nonemployee directors the right to subscribe to common shares of the Company at $9.85 per share in accordance with the provisions of The Davey Tree Expert Company 2004 Omnibus Stock Plan and the rules of the Compensation Committee of the Company's Board of Directors (collectively, the "plan"). The offering period ended on August 1, 2012 and resulted in the subscription of 1,275,428 common shares for $12,563 at $9.85 per share. Under the plan, a participant in the offering purchasing common shares for an aggregate purchase price of less than $5 was required to pay with cash. All participants (excluding Company directors and officers) purchasing $5 or more of the common shares had an option to finance their purchase through a down-payment of at least 10% of the total purchase price and a seven-year promissory note for the balance due with interest at 2%. Payments on the promissory note were made either by payroll deductions or annual lump-sum payments of both principal and interest. Common shares purchased under the plan were pledged as security for the payment of the promissory note and the common shares were not issued until the promissory note was paid-in-full. Dividends were paid on all subscribed shares, subject to forfeiture to the extent that payment was not ultimately made for the shares. All participants in the offering purchasing in excess of $5 of common shares were granted a "right" to purchase one additional common share at a price of $9.85 per share for every three common shares purchased under the plan. As a result of the stock subscription, employees were granted rights to purchase 423,600 common shares. Each right could have been exercised at the rate of one-seventh per year and expired seven years after the date that the right was granted. Employees could not exercise a right if they ceased to be employed by the Company. All rights expired in August 2019.
|
Commitments and contingencies |
3 Months Ended |
---|---|
Mar. 28, 2020 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and contingencies [Text Block] | Commitments and Contingencies 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 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. 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. 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. PG&E Bankruptcy Filing On January 29, 2019, Pacific Gas & Electric Company, and its parent company PG&E Corporation, our largest utility customer, 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. PG&E accounted for approximately 12% of revenues during 2019, and 12% in 2018. As a utility company, PG&E serves residential and industrial customers in California and has an ongoing obligation to continue to serve its customers, and we continue to perform under our contracts with PG&E post-petition. As of the date of the bankruptcy filing, we had pre-petition accounts receivable of approximately $15,000. On January 31, 2020, PG&E filed a proposed reorganization agreement as part of its Chapter 11 bankruptcy proceeding. In the proposed plan, unsecured creditors, like Davey Tree, are proposed to be paid in full with interest accruing on the past amounts due at the federal judgment rate. The proposed reorganization agreement was approved to proceed by the bankruptcy court, but is still subject to the objection and confirmation process. PG&E has stated that it expects to complete the reorganization process by June 2020. While uncertainty exists as to the outcome of the bankruptcy proceedings, we do not anticipate PG&E's bankruptcy to have a material impact on our future cash flows and results of operations. Northern California Wildfires On October 7, 2019 and October 8, 2019, four lawsuits were filed against multiple vegetation management contractors to PG&E, including Davey Tree, for damages resulting from the Northern California wildfires. The filing dates - exactly two years after the start of the fires - suggest that these lawsuits are intended to preserve any claims that might otherwise have become barred by the applicable statute of limitations. Davey Tree has not been served with these complaints at this time. Further, it is unclear at this time whether plaintiffs intend to prosecute these claims separately from the PG&E bankruptcy or not. In the PG&E bankruptcy, the Tort Committee, representing wildfire victims from both the 2017 and 2018 Northern California wildfires, served subpoenas on numerous contractors of PG&E, including Davey Tree Surgery Company, Davey Resource Group, and Davey Tree. In addition, an action was brought against Davey Tree in Napa County Superior Court, entitled Donna Walker, et al. v. Davey Tree Surgery Company on August 8, 2019. On October 8, 2019, the court issued an order staying that action. The court deferred ruling on Davey’s demurrer and motion to dismiss the complaint based on the absence of PG&E as an indispensable party. The court instead stayed any activity in the case pending a status conference to be held on July 14, 2020, which is after the June 30, 2020 statutory deadline set for PG&E’s bankruptcy case to be resolved in order for PG&E to be eligible to participate in the Wildfire Fund established under Assembly Bill 1054. In all cases, the Company has denied all liability and will vigorously defend the actions.
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Stock-Based Compensation |
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Share-based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation[Text Block] | 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") -- was included in the results of operations as follows:
Stock-based compensation consisted of the following: Employee Stock Purchase Plan--Under the Employee Stock Purchase Plan, all full-time employees with one year of service are eligible to purchase, through payroll deduction, common shares. Employee purchases under the Employee Stock Purchase Plan are at 85% of the fair market value of the common shares--a 15% discount. We recognize compensation costs as payroll deductions are made. The 15% discount of total shares purchased under the plan resulted in compensation cost of $342 being recognized for the three months ended March 28, 2020 and $276 for the three months ended March 30, 2019. 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 $126 for the three months ended March 28, 2020 and $149 for the three months ended March 30, 2019. Stock-Settled Stock Appreciation Rights-- A SSAR 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 March 28, 2020.
Compensation costs for SSARs are determined using a fair-value method and amortized over the requisite service period. Compensation expense for SSARs was $61 for the three months ended March 28, 2020 and $95 for the three months ended March 30, 2019. Restricted Stock Units--During the three months ended March 28, 2020, the Compensation Committee awarded 86,959 PRSUs to certain management employees. The Compensation Committee made similar awards in prior periods. The awards vest over specified periods. The following table summarizes PRSUs and RSUs as of March 28, 2020.
Compensation cost for PRSUs and RSUs is determined using a fair-value method and amortized on the straight-line recognition method over the requisite service period. “Intrinsic value” is defined as the amount by which the fair market value of a common share exceeds the exercise price of a PRSU or an RSU. Compensation expense on PRSUs and RSUs totaled $216 for the three months ended March 28, 2020 and $233 for the three months ended March 30, 2019. We estimated the fair value of each stock-based award on the date of grant using a binomial option-pricing model. The binomial model considers a range of assumptions related to volatility, risk-free interest rate and employee exercise behavior. Expected volatilities utilized in the binomial model are based on historical volatility of our stock prices and other factors. Similarly, the dividend yield is based on historical experience and expected future changes. The binomial model also incorporates exercise and forfeiture assumptions based on an analysis of historical data. The expected life of the stock-based awards is derived from the output of the binomial model and represents the period of time that awards granted are expected to be outstanding. The fair values of stock-based awards granted were estimated at the dates of grant with the following weighted-average assumptions.
General Stock Option Information--The following table summarizes activity under the stock option plans for the three months ended March 28, 2020.
As of March 28, 2020, there was approximately $1,286 of unrecognized compensation cost related to stock options outstanding. The cost is expected to be recognized over a weighted-average period of 3.3 years. “Intrinsic value” is defined as the amount by which the market price of a common share exceeds the exercise price of an option. Common shares are issued from treasury upon the exercise of stock options, SSARs, RSUs, PRSUs or purchases under the Employee Stock Purchase Plan.
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Condensed Consolidated Statement of Shareholders' Equity Statement - USD ($) $ in Thousands |
Total |
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 |
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Stockholders' equity | $ (43,361) | $ (37,272) | $ (82,623) | $ (6,799) | $ (157,472) | $ 5,034 | $ 235,042 | $ 729 |
Net income (loss) | (493) | |||||||
Change in 401KSOP and ESOP related shares | (4,102) | (195) | (3,907) | |||||
Shares sold to employees | 4,409 | 1,953 | 2,456 | |||||
Options exercised | 67 | (14) | 81 | |||||
Subscription shares | 157 | (75) | (391) | 465 | 158 | |||
Stock-based compensation | $ 621 | 621 | ||||||
Dividends, per share | $ 0.025 | |||||||
Dividends | $ (590) | (590) | ||||||
Currency translation adjustments | 509 | 509 | ||||||
Defined benefit pension plans | 44 | 44 | ||||||
Shares purchased | (4,430) | 4,430 | ||||||
Stockholders' equity | (39,553) | (37,077) | (81,201) | (6,408) | (156,389) | 4,481 | (236,470) | (571) |
Stockholders' equity | (61,905) | (37,767) | (96,366) | 0 | (179,770) | 5,403 | 246,595 | 0 |
Net income (loss) | 173 | |||||||
Change in 401KSOP and ESOP related shares | (2,160) | (89) | (2,071) | |||||
Shares sold to employees | 5,004 | 2,566 | 2,438 | |||||
Options exercised | 211 | 15 | 196 | |||||
Stock-based compensation | $ 371 | 371 | ||||||
Dividends, per share | $ 0.025 | |||||||
Dividends | $ (575) | (575) | ||||||
Currency translation adjustments | (1,971) | (1,971) | ||||||
Defined benefit pension plans | 28 | 28 | ||||||
Shares purchased | (8,061) | 8,061 | ||||||
Stockholders' equity | $ (54,925) | $ (37,678) | $ (97,247) | $ 0 | $ (179,368) | $ 7,346 | $ (252,022) | $ 0 |
Business Combinations (Notes) |
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Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Combinations | Business Combinations Our investments in businesses during the first three months of 2020 were $2,740, including liabilities assumed of $380 and debt issued, in the form of notes payable to the sellers, of $534, 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 one year from the acquisition date. During the three months ended March 30, 2019, our investment in businesses was $4,056, including liabilities assumed of $245 and debt issued, in the form of notes payable to the sellers, of $895. The following table summarizes the preliminary purchase price allocation of the estimated fair values of the assets acquired and liabilities assumed:
The results of operations of acquired businesses have been included in the condensed 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 March 28, 2020 was not significant. Pro forma net sales and results of operations for the acquisitions, had they occurred at the beginning of the three months ended March 28, 2020, 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 useful life of six years and the non-competition agreements were assigned an average useful life of five years.
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Per Share Amounts and Common Shares Outstanding (Tables) |
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Schedule of earnings per share, basic and diluted [Table Text Block] | The per share amounts were computed as follows:
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Schedule of common and redeemable shares outstanding [Table Text Block] | A summary of the activity of the common and redeemable shares outstanding for the three months ended March 28, 2020 follows:
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Leases (Tables) |
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Schedule of assets and liabilities, leases [Table Text Block] | The following table summarizes the amounts recognized in our Condensed Consolidated Balance Sheet related to leases:
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Income and expenses, lessee [Table Text Block] | The components of lease cost recognized within our Condensed Consolidated Statements of Operations were as follows:
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Schedule of remaining weighted average lease term [Table Text Block] | The table below summarizes the weighted average remaining lease term as of March 28, 2020.
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Schedule of lease weighted average discount rate [Table Text Block] | The table below summarizes the weighted average discount rate used to measure our lease liabilities as of March 28, 2020.
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Supplemental cash flow information, leases [Table Text Block] | Supplemental Cash Flow Information Related to Leases
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Finance and operating lease, liability, maturity [Table Text Block] | Maturity Analysis of Lease Liabilities
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Leases Maturity (Details) - USD ($) $ in Thousands |
Mar. 28, 2020 |
Dec. 31, 2019 |
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Leases [Abstract] | ||
Remaining nine months of 2020 | $ 13,577 | |
2021 | 14,394 | |
2022 | 10,785 | |
2023 | 5,730 | |
2024 | 3,450 | |
Thereafter | 5,545 | |
Total lease payments | 53,481 | |
Less interest | 3,849 | |
Total | 49,632 | $ 39,865 |
Remaining nine months of 2020 | 700 | |
2021 | 1,246 | |
2022 | 320 | |
2023 | 120 | |
2024 | 49 | |
Thereafter | 91 | |
Total lease payments | 2,526 | |
Less interest | 90 | |
Total | $ 2,436 | $ 3,143 |
Document and Entity Information Document - shares |
3 Months Ended | |
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Mar. 28, 2020 |
May 01, 2020 |
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Entity Information [Line Items] | ||
Entity registrant name | THE DAVEY TREE EXPERT COMPANY | |
Entity central index key | 0000277638 | |
Current fiscal year end date | --12-31 | |
Entity filer category | Accelerated Filer | |
Document type | 10-Q | |
Document fiscal year focus | 2020 | |
Document fiscal period focus | Q1 | |
Amendment flag | false | |
Entity common stock, shares outstanding | 22,817,499 | |
Document Quarterly Report | true | |
Document Transition Report | false | |
Entity current reporting status | Yes | |
Entity shell company | false | |
Entity small business | false |
Basis of Financial Statement Preparation |
3 Months Ended |
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Mar. 28, 2020 | |
Accounting Policies [Abstract] | |
Basis of financial statement preparation [Text Block] | Basis of Financial Statement Preparation The condensed consolidated financial statements present the financial position, results of operations and cash flows of The Davey Tree Expert Company and its subsidiaries. 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 condensed 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, 2019 (the “2019 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 condensed 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. While the recent outbreak of the coronavirus ("COVID-19") did not have a material adverse effect on our reported results for our fiscal first quarter, the overall extent and duration of COVID-19 on businesses and economic activity generally remains unclear. 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 and actions by government authorities to contain the pandemic or treat its impact, among other things. 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 March 28, 2020 is referred to as the first quarter of 2020, and the fiscal quarter ended March 30, 2019 is referred to as the first quarter of 2019. Recent Accounting Guidance Accounting Standards Adopted in 2020 Accounting Standards Update 2016-13, Financial Instruments - Credit Losses (Topic 326)--In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326)." ASU 2016-13 replaces the incurred loss impairment methodology in current GAAP for most financial instruments, including trade receivables, with an impairment model, known as the current expected credit loss model that is based on expected losses rather than incurred losses. The Company adopted the new standard effective January 1, 2020, and it did not have a material effect on the Company's results of operations. Accounting Standards Not Yet Adopted Accounting Standards Update 2019-12, Income Taxes (Topic 740)– Simplifying the Accounting for Income Taxes--In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12), which simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, including applicable interim periods. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.
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Identified Intangible Assets and Goodwill, Net |
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Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Identified intangible assets and goodwill, net [Text Block] | Identified Intangible Assets and Goodwill, Net The carrying amounts of the identified intangible assets and goodwill acquired in connection with our acquisitions were as follows:
The changes in the carrying amounts of goodwill, by segment, for the three months ended March 28, 2020 and March 30, 2019 follow:
Estimated future aggregate amortization expense of intangible assets--The estimated future aggregate amortization expense of intangible assets, as of March 28, 2020 is as follows:
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Net Periodic Benefit Expense - Defined Benefit Pension Plans |
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Defined Benefit Plan, Net Periodic Benefit Cost (Credit) [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net periodic benefit expense--defined benefit pension plans [Text Block] | 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.
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 $1,677. The components of net periodic benefit expense, other than the service cost component, are included in the line item other income (expense) in the statement of operations.
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Accumulated Other Comprehensive Income (Loss) (Tables) |
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Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of other comprehensive income (loss) [Table Text Block] | The following summarizes the components of other comprehensive income (loss) accumulated in shareholders’ equity for the three months ended March 28, 2020 and the three months ended March 30, 2019:
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Long-Term Debt and Commitments Related to Letters of Credit (Tables) |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of long-term debt [Table Text Block] | Our long-term debt consisted of the following:
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Cover Page Entity type |
3 Months Ended |
---|---|
Mar. 28, 2020 | |
Entity Information [Line Items] | |
Entity filer category | Accelerated Filer |
Entity emerging growth company | false |
Entity small business | false |
Entity shell company | false |
Condensed Consolidated Statements of Comprehensive Income (Loss) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 28, 2020 |
Mar. 30, 2019 |
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Statement of Comprehensive Income [Abstract] | ||
Net income (loss) | $ 173 | $ (493) |
Components of other comprehensive income (loss), net of tax: | ||
Foreign currency translation adjustments | 1,971 | (509) |
Amortization of defined benefit pension items: | ||
Net actuarial loss | 16 | 32 |
Prior service cost | 12 | 12 |
Defined benefit pension plan adjustments | 28 | 44 |
Other comprehensive (loss) income, net of tax | (1,943) | 553 |
Comprehensive (loss) income | $ (1,770) | $ 60 |
Business Combinations (Details) - USD ($) $ in Thousands |
3 Months Ended | 12 Months Ended | |
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Mar. 28, 2020 |
Mar. 30, 2019 |
Dec. 31, 2019 |
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Investment in businesses | $ 2,740 | $ 4,056 | |
Liabilities assumed | 380 | 245 | $ 1,479 |
Debt issued for purchases of businesses | 534 | 895 | 2,612 |
Payments to Acquire Businesses, Gross | 1,826 | 8,529 | |
Cash | 0 | 3 | |
Receivables | 0 | 2,332 | |
Operating supplies | 23 | 84 | |
Prepaid expense | 0 | 27 | |
Equipment | 426 | 1,837 | |
Deposits and other | 0 | 96 | |
Intangibles | 935 | 4,067 | |
Goodwill | $ 1,356 | $ 1,232 | $ 4,174 |
Tradenames [Member] | |||
Finite-Lived Intangible Asset, Useful Life | 6 years | ||
Noncompete Agreements [Member] | |||
Finite-Lived Intangible Asset, Useful Life | 5 years |
Revenue Recognition Contract with customer, asset and liability (Details) - USD ($) $ in Thousands |
3 Months Ended | ||
---|---|---|---|
Mar. 28, 2020 |
Mar. 30, 2019 |
Dec. 31, 2019 |
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Revenue Recognition [Abstract] | |||
Liability recognized in revenue | $ 942 | $ 1,080 | |
Contract liabilities - current | 4,320 | $ 3,129 | |
Contract liabilities - noncurrent | 2,787 | 2,705 | |
Net contract liabilities | $ 7,107 | $ 5,834 |
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