Three Months Ended		Six Months Ended
	July 3,          2004	June 28,         2003	July 3,          2004	June 28,        2003
Revenues	100.0 %	100.0 %	100.0 %	100.0 %
Costs and expenses:
Operating	64.7	62.9	66.0	66.2
Selling	14.9	15.1	16.2	16.2
General and administrative	6.2	6.6	7.7	8.1
Depreciation and amortization	4.8	5.4	5.5	6.2
Income from operations	9.4	10.0	4.6	3.3
Other income (expense):
Interest expense	(.4)	(.5)	(.5)	(.8)
Interest income	.2	.2	1.0	.2
Other, net	(.4)	(.0)	(.5)	(.1)
Income before income taxes	8.8	9.7	4.6	2.6
Income taxes	3.6	3.8	1.9	1.0
Net income	5.2 %	5.9 %	2.7 %	1.6 %

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Overview

Revenues of $191,744 for the first six months of 2004 were 18.8% higher than the first six months of 2003 of $161,442.  All operating segments experienced revenue increases from the same period last year.  Utility Services revenues increased 19.8% while Residential and Commercial Services were up 16.2%.  All other revenues, comprised of the Canadian operations and Davey Resource Group, were up 27.0%. 

Overall, income from operations of $8,746 increased $3,378 or 62.9% from the $5,368 experienced in 2003.  Utility Services and our Canadian operations contributed to the improvements, a reflection of the continued demand for services.

Net income of $5,186 was $2,632 greater than the $2,554 experienced in the first six months of 2003. The increase in net income was favorably impacted by higher revenues and income from operations, a decrease in interest expense, the result of lower interest rates and lower average debt levels, and by the recognition of $1,692 of interest income in connection with the collection of the prepetition accounts receivable from Pacific Gas & Electric.

 

Results of Operations--Three Months Ended July 3, 2004 Compared to Three Months Ended
June 28, 2003.

Revenues--Revenues of $112,259 increased $18,911 from the $93,348 earned in 2003. Residential and Commercial services increased $9,452 or 19.1% over the same period last year, the result of an additional long-term contract obtained within the state of New York related to the Asian Longhorned Beetle (ALB).Utility Services increased $7,490 or 21.9% from the prior year. Contract pricing adjustments, new contracts and increased productivity, within our eastern and western utility operations accounted for the increase.    Canadian operations increased $1,683 or 28.7% from the $5,866 earned in 2003.  New contracts and increases in existing contracts from 2003 as well as improved economic conditions and favorable weather account for the increase generally in all operations.

Operating Expenses--Operating expenses of $72,640 increased $13,907 from the second quarter of 2003 and as a percentage of revenues increased 1.8% to 64.7%. Residential and Commercial services increased $8,731 or 33.1% primarily for labor and materials associated with the addition of the Asian Longhorned Beetle contract within the state of New York.Utility Services increased $4,433 or 16.4% from the second quarter of 2003.  Additional costs for labor and equipment associated with the new contracts obtained within our eastern utility operations as well as additional costs related to the increased revenues within our western utility operations gave rise to the increase.    Canadian operations experienced an increase of $830 or 27.0% from the prior period for labor and equipment associated with the increased revenues.

Selling Expenses--Selling expenses of $16,735 increased $2,616 over the same period last year but as a percentage of revenues decreased .2% to 14.9%. Residential and Commercial Services experienced an increase of $1,542 or 15.0% over the same quarter last year. The increase is attributable to field management wages and incentives, advertising expense, branch office expenses and employee development expense.Utility Services experienced an increase of $743 or 24.2% over the same period last year, primarily for field management wages and incentives.  Canadian operations increased $436 or 40.1% from the second quarter 2003. Increased field management wages and incentives, the result of increased revenues, contributed to the increase.

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General and Administrative Expenses--General and administrative expenses of $6,922 increased $763 or 12.4% from the $6,159 experienced in 2003, but as a percentage of revenues declined .4% to 6.2%.Of the $763 increase, $426 relates to the adoption in May 2004 of the Supplemental Executive Retirement Plan and the Benefits Restoration Pension Plan, both defined benefit plans; the adoption in May 2004 of the 401KSOP Match Restoration Plan, a defined contribution plan that supplements the retirement benefits of certain employees that participate in the savings-plan-feature of The Davey 401KSOP and ESOP Plan, but are limited in contributions because of tax rules and regulations; and, the awards in May 2004 of 44,151 Performance Restricted-Stock Units to certain key employees. Increases in travel expenses of $112 and salaries and incentive expense of $88 also occurred, the result of increased revenues and stronger earnings performance.

Depreciation and Amortization Expense--Depreciation and amortization expense of $5,427 increased $414 from the $5,013 in the second quarter 2003, but as a percentage of revenues decreased .6% to 4.8%.  The increase is due to additional capital expenditures for equipment within Utility Services as a result of additional contracts obtained in 2004, and new business acquisitions within Residential and Commercial Services.

Interest Expense--Interest expense of $481 decreased $45 from the $526 incurred in second quarter 2003.  The decline continues to be the result of lower interest rates on bank borrowings and lower average levels of debt during the period.

Interest Income--Interest income of $217 decreased $16 from the $233 in the second quarter 2003. The decrease corresponds with the decrease in the balance outstanding of the common share subscription receivable at the end of the second quarter 2004 ($7,017) as compared with the end of the second quarter 2003 ($8,349).

Income Taxes--Income tax for the quarter was $4,055, as compared to $3,567 for the same quarter last year.  The effective tax rate was 41.0% as compared to 39.5% in the second quarter 2003.

Net Income--Net income for the quarter of $5,834 was $372 more than the $5,462 experienced in 2003, but as a percentage of revenues decreased .7% to 5.2%.

Results of Operations--Six Months Ended July 3, 2004 Compared to Six Months Ended
June 28, 2003.

Revenues--Revenues of $191,744 increased $30,302 from the $161,442 earned in 2003. Utility Services increased $13,366 or 19.8% from the prior year. Contract pricing adjustments, new contracts and increased productivity, within our eastern and western utility operations continue to account for the increase.  Residential and Commercial services increased $12,621 or 16.2% over the same period last year, the result of an additional long-term contract obtained within the state of New York related to the Asian Longhorned Beetle (ALB), and acquisitions made in 2003.  Canadian operations increased $3,775 or 42.8% from the $8,819 in 2003, with a portion of the additional revenues related to the infestation of the Asian Longhorned Beetle (ALB) within Canada.  New contracts and increases in existing contracts as well as improved economic conditions and favorable weather account for the increase generally in all operations.

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Operating Expenses--Operating expenses of $126,516 increased $19,557 from the $106,959 in 2003 but as a percentage of revenues decreased .2% to 66.0%.Residential and Commercial services increased $10,392 or 23.7% for labor and materials associatedwith the addition of the Asian Longhorned Beetle contract within the state of New York as well as an overall increase in revenues.Utility Services increased $7,431 or 13.9% from 2003.  Additional costs for labor and equipment associated with the start-up of new contracts obtained within our eastern utility operations as well as additional costs related to the increased revenues within our western utility operations gave rise to the increase. Canadian operations experienced an increase of $2,022 or 40.1% from the prior year for labor and subcontractor costs associated with the increased revenues.

Selling Expenses--Selling expenses of $31,032 increased $4,943 over the same period last year but as a percentage of revenues remained the same at 16.2%.  Residential and Commercial Services experienced an increase of $2,341 or 12.4% over the same period last year.The increase is attributable to field management wages and incentives, advertising expense and employee development expense.  Utility Services experienced an increase of $1,583 or 25.7% over the same period last year, primarily for field management wages and incentives associated with the increased revenue. Canadian operations increased $860 or 46.8% over the same period last year. Increased field management incentives, the result of increased revenues contributed to the increase.

General and Administrative Expenses--General and administrative expenses of $14,816 increased $1,807 or 13.9% from the $13,009 experienced in 2003, but as a percentage of revenues declined .4% to 7.7%.Of the $1,807 increase, $426 relates to the adoption in May 2004 of the Supplemental Executive Retirement Plan and the Benefits Restoration Pension Plan, both defined benefit plans; the adoption in May 2004 of the 401KSOP Match Restoration Plan, a defined contribution plan that supplements the retirement benefits of certain employees that participate in the savings-plan-feature of The Davey 401KSOP and ESOP Plan, but are limited in contributions because of tax rules and regulations; and, the awards in May 2004 of 44,151 Performance Restricted-Stock Units to certain key employees. Increases in salaries and incentive expense of $888 and travel expenses of $133 also occurred, the result of increased revenues and stronger earnings performance.

Depreciation and Amortization Expense--Depreciation and amortization expense of $10,634 increased $617 from the $10,017 in 2003, but as a percentage of revenues decreased .7% to 5.5%.  The increase is due to additional capital expenditures for equipment within Utility Services as a result of additional contracts obtained in 2004, and new business acquisitions within Residential and Commercial Services.

Interest Expense--Interest expense of $931 decreased $300 from the $1,231 incurred in the first six months of 2003.  The decline continues to be the result of lower interest rates on bank borrowings and lower average levels of debt during the period.

Interest Income--Interest income of $1,830 increased $1,505 from the $325 experienced in the same period last year and includes the recognition of $1,692 in connection with the collection of the prepetition accounts receivable from Pacific Gas & Electric. 

Income Taxes--Income tax was $3,604 as compared to $1,668 for the first six months of 2003.  The effective tax rate was 41.0% as compared to 39.5% during the same period last year.

Net Income--Net income of $5,186 was $2,632 more than the $2,554 experienced in 2003 and as a percentage of revenues increased 1.1% to 2.7%.

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LIQUIDITY AND CAPITAL RESOURCES

Our principal financial requirements are for capital spending, working capital and business acquisitions.

Cash increased $719 during the first six months of 2004.  Net cash provided by operating activities of $12,035 and financing activities of $8,643 were offset by $19,959 of cash used in investing activities.

Net Cash Provided By Operating Activities

Operating activities for the first six months of 2004 provided $12,035 of cash, a net increase of $6,805 as compared to the $5,230 provided during the first six months of 2003.  The $6,805 net increase is attributable to a higher level of net income, higher levels of depreciation and amortization, increases in self-insurance accruals, accounts payable and accrued expense as well as a larger decrease in other assets. Larger increases in accounts receivable partially offset the increase in cash provided.

Accounts receivable dollars increased $23,676 during the first six months of 2004 and "days-sales-outstanding" in accounts receivable increased seven days as at July 3, 2004 as compared with the end of the second quarter 2003. The increase in the days-sales-outstanding relates to our contract work performed in connection with the Asian Longhorned Beetle contract in New York as well as work performed for our utility service customers.

Operating liabilities provided $5,028 in cash, $4,220 more than the $808 provided in 2003.  The increase is attributable to an increase in accounts payable and accrued expenses and self-insurance accruals necessary to provide for future estimated claims payments in our vehicle, general liability and workers compensation lines of coverage. 

Other items provided $15,269 in cash, $15,638 more than the $369 used in the first six months of 2003 and is primarily the result of the $13,326 payment in settlement of allowed claims related to our prepetition accounts receivable with PG&E.

Pacific Gas & Electric ("PG&E") voluntarily filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code on April 6, 2001.  On June 19, 2003, it was announced that Pacific Gas & Electric Corporation ("PG&E Corporation," the parent company of PG&E), the staff of the California Public Utilities Commission ("CPUC"), and PG&E entered into a settlement agreement.  Subsequently, PG&E Corporation, PG&E, and the Official Committee of Unsecured Creditors ("OCC"), as co-proponents, filed the settlement agreement with the bankruptcy court.  In December 2003, the CPUC approved the settlement agreement and the bankruptcy court confirmed the plan of reorganization.

PG&E is one of the Company's largest utility customers.  Subsequent to the bankruptcy petition date, April 6, 2001, the Company continued to provide services under the terms of its contracts with PG&E.  The Company continues to perform services for PG&E and receives payment for post-petition date services performed.

On April 12, 2004, PG&E announced that its plan of reorganization under Chapter 11 of the U.S. Bankruptcy Code became effective and that the holders of record of allowed claims would be paid.  Davey Tree was a holder of allowed claims related to prepetition accounts receivable that arose prior to the filing date of PG&E's voluntary bankruptcy petition on April 6, 2001. On April 13, 2004, the Company received payment of $13,326, from PG&E in settlement of allowed claims related to prepetition accounts receivable.  The $13,326 payment was used to reduce borrowings outstanding under the Company's revolving credit facility in the second quarter of 2004.

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Net Cash Used in Investing Activities

Investing activities used $19,959 in cash, $8,717 more than the $11,242 used in 2003 and is the result of higher levels of capital expenditures for field equipment associated with increased revenues. Capital expenditures in 2004 are expected to materially exceed 2003 levels.

Net Cash Provided by Financing Activities

Financing activities provided $8,643 of cash, $2,906 more than the $5,737 provided last year.  Our revolving credit facility and other borrowings provided $2,833 more cash than that provided in 2003 and were used primarily for capital expenditures. Treasury share transactions (purchases and sales) used $168 less than the $1,419 used in 2003.  Dividends paid increased to $1,111 from the $1,016 paid in the first six months of 2003.

Revolving Credit Facility--The Company has a $90,000 three-year revolving credit facility with a group of banks, which will expire in November 2005 and permits borrowings, as defined, up to $90,000 with a letter of credit sublimit of $40,000 (amended in January 2004 to $40,000 from a previous $30,000 letter of credit sublimit). 

As of July 3, 2004, the Company had unused commitments under the facility approximating $15,369, with $74,631 committed, consisting of borrowings of $41,825and issued letters of credit of $32,806.  Borrowings outstanding bear interest, at the Company's option, at the agent bank's prime rate or LIBOR plus a margin adjustment ranging from 1.0% to 2.0%, based on a ratio of funded debt to EBITDA.  A commitment fee ranging from .20% to .45% is also required based on the average daily unborrowed commitment.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

Contractual Obligations Summary

The following is a summary of our long-term contractual obligations, as at July 3, 2004, to make future payments for the periods indicated.

 

		Six Months Ending December 31,	Year Ending December 31,
Description	Total	2004	2005	2006	2007	2008	Thereafter
Revolving credit facility	$  41,825	$                -	$  41,825	$            -	$          -	$          -	$              -
Term loans	2,209	444	810	665	290	-	-
Capital lease obligations	2,721	332	804	619	966	-	-
Operating lease obligations	4,625	938	1,313	958	736	359	321
Self-insurance accruals	29,946	6,493	9,244	6,425	3,665	1,841	2,278
	$  81,326	$        8,207	$  53,996	$    8,667	$  5,657	$  2,200	$      2,599

The self-insurance accruals in the summary above reflect the total of the undiscounted amount accrued as at July 3, 2004 and amounts estimated to be due each year may differ from actual payments required to fund claims.

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As of July 3, 2004, we were contingently liable for letters of credit in the amount of $37,036, of which $32,806 is committed under the revolving credit facility.  Substantially all of these letters of credit, which expire within a year, are planned for renewal as necessary.

Also, as is common with our industry, we have performance obligations that are supported by surety bonds, which expire during 2004 through 2007.  We intend to renew the performance bonds where appropriate and as necessary.

Capital Resources

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

Business seasonality results in higher revenues during the second and third quarters as compared with the first and fourth quarters of the year, while our methods of accounting for fixed costs, such as depreciation expense, are not significantly impacted by business seasonality. Capital resources during these periods are equally affected. We satisfy seasonal working capital needs and other financing requirements with the revolving credit facility and several other short-term lines of credit.  We are continuously reviewing our existing sources of financing and evaluating alternatives. At July 3, 2004, we had working capital of $41,831, short-term lines of credit approximating $3,624 and $15,369 available under our revolving credit facility.

Our sources of capital presently allow us the financial flexibility to meet our capital-spending plan and to complete business acquisitions.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented.  

The Company considers its critical accounting policies to be those that require the more significant estimates, judgments and assumptions in the preparation of its financial statements, including those related to accounts receivable, specifically those receivables under contractual arrangements primarily arising from Utility Services customers; allowances for doubtful accounts; and self-insurance accruals.  We base our estimates on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates.

There have been no significant changes in estimates, judgments and assumptions in the preparation of these interim financial statements from those used in the preparation of the Company's latest annual financial statements.

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Note Regarding Forward-Looking Statements

This quarterly report on Form 10-Q contains forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995).  These statements relate to future events or our future financial performance.  In some cases, forward-looking statements may be identified by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "continue" or the negative of these terms or other comparable terminology.  These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to differ materially from what is expressed or implied in these forward-looking statements.  Some important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to: (a) our business, other than tree services to utility customers, being highly seasonal and weather dependent; (b) significant customers, particularly utilities, may experience financial difficulties, resulting in payment delays or delinquencies; and (c) because no public market exists for our common shares, the ability of shareholders to sell their common shares could be limited.

Item 3.   Quantitative and Qualitative Disclosures about Market Risk

During the six months ended July 3, 2004, there have been no material changes in the reported market risks presented in the Company's Annual Report on Form 10-K for the year ended December 31, 2003.

Item 4.   Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to the Rule 13a-15 of the Exchange Act.  Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of July 3, 2004 in alerting them on a timely basis to material information required to be included in our periodic filings with the SEC.

There have been no significant changes in our internal control over financial reporting or in other factors that have materially affected or are reasonably likely to materially affect these internal controls over financial reporting subsequent to July 3, 2004.

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The Davey Tree Expert Company

Part II.  Other Information

Items 1, 3 and 5 are not applicable.
Item 2.   Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
	The following table provides information on purchases made by the Company of its Common Shares outstanding during the first six months of 2004.

 

Period	Total     Number of Shares     Purchased	Average     Price Paid   per Share	Total Number of     Shares Purchased   as Part of Publicly   Announced Plans           or Programs	Maximum Number     (or Approximate       Dollar Value) of        Shares that May Yet Be Purchased Under the       Plans or Programs
Fiscal 2004
January 4 to January 31	-	-	n/a	n/a
February 1 to February 28	12,538	$    13.50	n/a	n/a
February 29 to April 3	32,570	15.70	n/a	n/a
Total First Quarter	45,108	15.09
April 4 to May 1	81,941	15.70	n/a	n/a
May 2 to May 29	71,040	15.70	n/a	n/a
May 30 to July 3	19,766	15.70	n/a	n/a
Total Second Quarter	172,747	15.70
Total Year to Date	217,855	15.49

n/a--Not applicable. There are no publicly announced plans or programs to purchase Common Shares. The Company's stock is not listed or traded on an active stock market, and market prices are, therefore, not available.  Semiannually, an independent stock valuation firm determines the fair market value based upon the Company's performance and financial condition.  Since 1979, the Company has voluntarily made a ready market for all shareholders through its direct purchase of their common shares.  The purchases listed above were added to the treasury stock of the Company.

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Item 4.    Submission of Matters to a Vote of Security Holders
	An annual meeting of shareholders was held on May 18, 2004.  The following sets forth the actions considered and the results of the voting:

 

	Election of Directors Nominees for director for the term expiring on the date of the annual	Number of Shares
	meeting in 2007 -- All elected.	For	Against	Nonvotes
	R. Cary Blair	6,729,488	25,113	1,899,495
	Douglas K. Hall	6,731,529	23,072	1,899,495

	Description of Proposal Adoption of The Davey Tree Expert Company 2004 Omnibus Stock Plan	Number of Shares
	Plan -- Approved.	For	Against	Abstain	Nonvotes
		6,645,369	20,404	88,828	1,899,495

 

Item 6.    Exhibits and Reports on Form 8-K
	(a)     Exhibits (see Exhibit Index page, below)
	(b)     Reports on Form 8-K
	On April 15, 2004, the Company filed a Current Report on Form 8-K under Item 5 thereof          announcing that the Company received payment of $13,325,950 from Pacific Gas &          Electric Company in settlement of allowed claims related to pre-bankruptcy accounts          receivable.

 Signatures

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

 

		THE DAVEY TREE EXPERT COMPANY
	By:	/s/ David E. Adante
Date: August 11, 2004		David E. Adante
		Executive Vice President, Chief Financial Officer and Secretary
		(Principal Financial Officer)
Date: August 11, 2004	By:	/s/ Nicholas R. Sucic
		Nicholas R. Sucic
		Corporate Controller
		(Principal Accounting Officer)

 

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Exhibit Index

 

Exhibit No.	Description
10.1	2004 Omnibus Stock Plan	Filed Herewith
10.2	401KSOP Match Restoration Plan	Filed Herewith
10.3	Supplemental Executive Retirement Plan	Filed Herewith
10.4	Retirement Benefit Restoration Plan	Filed Herewith
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	Filed Herewith
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	Filed Herewith
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.	Furnished Herewith
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.	Furnished Herewith