Shimmick Corp 10-K

Item 5. Market for R egistrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Our common stock, par value $0.01 per share, trades on the NASDAQ Global Select Market under the trading symbol "SHIM". Holders Substantially all of our stockholders maintain their shares in "street name" accounts and are not individually stockholders of record. According to the records of our transfer agent, there were five stockholders of record as of March 25, 2024. Dividends We do not intend to declare or pay dividends on our common stock in the near-term. Instead, we anticipate that all of our future earnings will be retained to support our operations and to finance the growth and development of our business. Any future determination to pay dividends will be made by our board of directors, subject to applicable laws, and will depend on a number of factors, including our financial condition, liquidity and capital requirements, contractual restrictions, general economic conditions and other factors that our board of directors may deem relevant. Stock Performance Graph Not applicable as we are a “smaller reporting company,” as defined in the Exchange Act. Use of Proceeds On November 16, 2023, we completed our IPO, in which we issued and sold 3,575,000 shares of our common stock at an initial public offering price of $7.00 per share. We raised net proceeds of approximately $19 million, after deducting the underwriting discount of $2 million and offering expenses of $4 million. All shares sold in our IPO were registered pursuant to a registration statement on Form S-1 (File No. 333-274870) (as amended, the “Registration Statement”), declared effective by the SEC on November 13, 2023. Roth Capital Partners, LLC acted as representative of the underwriters for the offering. The offering terminated after the sale of all securities registered pursuant to the Registration Statement. No payments for such expenses were made directly or indirectly to (i) any of our officers or directors or their associates, (ii) any persons owning 10% or more of any class of our equity securities, or (iii) any of our affiliates. As contemplated in the Registration Statement, we used the net proceeds of the offering, together with cash on hand, to repay all outstanding borrowing under our Revolving Credit Facility. There was no material change in the use of the net proceeds from our IPO from the expected use of proceeds described in the Registration Statement. Issuer Repurchase of Equity Securities None. Item 6. [Res erved] 45 Item 7. Manag ement’s Discussion and Analysis of Financial Condition and Results of Operations. Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to assist in understanding and assessing the trends and significant changes in our results of operations and financial condition. Historical results may not be indicative of future performance. The statements in this discussion regarding industry outlook, our expectations regarding our future performance, liquidity and capital resources and all other non-historical statements in this discussion are forward looking statements and are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those discussed in or implied by forward looking statements as a result of various factors, including those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in "Forward-Looking Statements" and “Risk Factors” as well as those described from time to time in our future reports with the SEC. This discussion should be read in conjunction with our audited consolidated financial statements and the notes thereto included elsewhere in this Annual Report on Form 10-K. In this discussion, we use certain non-GAAP financial measures. Explanation of these non-GAAP financial measures and reconciliation to the most directly comparable GAAP financial measures are included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations. Investors should not consider non-GAAP financial measures in isolation or as substitutes for financial information presented in compliance with GAAP. Overview We are a leading provider of water and other critical infrastructure solutions nationwide. We have a long history of successfully completing complex water projects, ranging from the world’s largest wastewater recycling and purification system in California to the iconic Hoover Dam. According to Engineering News Record, in 2023, Shimmick was nationally ranked as a top ten builder of water supply (#6), dams and reservoirs (#7), and water treatment and desalination plants (#7). Shimmick is led by industry veterans, many with over 20 years of experience, and works closely with its customers to deliver complete solutions, including long-term operations and maintenance. We selectively focus on infrastructure projects relating to water treatment, water resources and other critical infrastructure. As of December 29, 2023, we had a backlog of projects of approximately $1.1 billion, with over half of that amount comprised of water projects. We believe we have the ability to self-perform many of these projects, differentiating us from many of our competitors. Self-performance enables us to better control the critical aspects of our projects, reducing the risk of cost and schedule overruns. On November 16, 2023, the Company completed its initial public offering of 3,575,000 shares of common stock at a price to the public of $7.00 per share (the “IPO”). The net proceeds to the Company from the IPO were approximately $23 million, after deducting underwriting discounts and commissions and before estimated offering expenses payable by the Company. The Company’s common stock began trading on the NASDAQ Global Market on November 14, 2023. Our History and the AECOM Sale Transactions Overview Shimmick was founded in 1990 in California and operated as a regional infrastructure construction contractor throughout California for nearly 30 years. In 2017, AECOM acquired Shimmick and consolidated it with its existing construction services, which included former construction operations from Morrison Knudsen, Washington Group International, and others. In January 2021, we were sold by AECOM and began operating as an independent company under new private ownership ("AECOM Sale Transactions") under a December 2020 Purchase Agreement with SCC Group, a special purpose entity formed for the purpose of entering into and consummating the sale transactions including acquiring 100% of the stock of the Company and certain other assets related to our business and our subsidiaries to the extent owned by Seller Entities or their affiliates. 46 On November 19, 2021, SCC Group was merged with SCCI National Holdings, Inc., with SCCI National Holdings, Inc. becoming the surviving entity. In the intervening period between January 2, 2021 and November 19, 2021, SCC Group’s assets and liabilities consisted of its investment in SCCI National Holdings, Inc., as well as rights to receive any net working capital settlement and any obligation to pay contingent consideration related to its January 2, 2021 acquisition of SCCI National Holdings, Inc. Retained Claim Reimbursements The Purchase Agreement provides that the Seller Entities will retain the right to participate in a portion of the net proceeds of any cash, cash equivalents or other assets received or recovered from any claims relating to certain specified Legacy Projects that were ongoing at the time of closing. AECOM is entitled to a percentage of proceeds we may receive, subject to a specified cap for each such Legacy Project. Earn Out Considerations As additional consideration, the Seller Entities were entitled to receive a one-time additional cash payment based on the performance of the business for the 36-month period beginning October 3, 2020 and ending September 29, 2023 based on specified aggregate Adjusted EBITDA (as defined in the Purchase Agreement) thresholds set forth in the Purchase Agreement. No earnout was achieved based on the Company's calculation of Adjusted EBITDA (as defined in the Purchase Agreement) of the business to date and no corresponding additional cash payment has been made, or is expected to be made, to Seller Entities. Shared Tax Benefits Pursuant to the internal reorganization of its business in early 2020, AECOM agreed to make an election under Treasury Regulations Section 1.1502-36(d)(6) that could result in certain tax benefits to us (in the form of cash or a reduction in liability for taxes). We are obligated to share with AECOM actual tax benefits realized (i.e., in cash or through an actual reduction in liability for tax). Other Items We have agreed to indemnify the Seller Entities for any costs or expenses incurred under any outstanding letters of credit, surety bonds, guarantees, advance payment guarantees and other contractual obligations arising from or relating to the assets purchased or the liabilities assumed under the Purchase Agreement, including bonds relating to the Legacy Projects. Further, the Seller Entities have provided a conditional guaranty required by any surety bonds and/or a bonding program relating to certain guaranteed obligations and payment obligations with respect to the certain other assets related to our business and our subsidiaries to the extent owned by Seller Entities or their affiliates. For additional information regarding AECOM, see “ Risk Factors — Risks Related to Our Business and Industry — We are involved in ongoing disputes with our prior owner, AECOM, which could adversely impact our business ,” “ — We may be required to make additional payments to AECOM pursuant to contractual arrangements” and “— If AECOM defaults on its contractual obligations under agreements in which we are a beneficiary, our business could be materially and adversely impacted. ” Key Factors Affecting Our Performance and Results of Operations We expect that our results of operations will be affected by a number of factors which have discussed below. Weather, natural disasters and emergencies. The results of our business in a given period can be impacted by adverse weather conditions, severe weather events, natural disasters or other emergencies, which include, among other things, heavy or prolonged snowfall or rainfall, hurricanes, tropical storms, tornadoes, floods, blizzards, extreme temperatures, wildfires, post-wildfire floods and debris flows, pandemics and earthquakes. These conditions and events can negatively impact our financial results due to, among other things, the termination, deferral or delay of projects, reduced productivity and exposure to significant liabilities. 47 Seasonality. Typically, our revenue is lowest in the first quarter of the year because cold, snowy or wet conditions can create challenging working environments that are more costly for our customers or cause delays on projects. Second quarter revenue is typically higher than those in the first quarter, as some projects begin, but continued cold and wet weather can often impact productivity. Third quarter revenue is typically the highest of the year, as a greater number of projects are underway and operating conditions, including weather, are normally more accommodating. Project geographic location will also dictate how seasonality affects productivity and timing. Also, the holiday season and inclement weather can sometimes cause delays during the fourth quarter, reducing revenue and increasing costs. Our Ability to Fulfill Backlog Orders . Our backlog consists of the estimated amount of services to be completed from future work on uncompleted contracts or work that has been awarded with contracts still being negotiated. It also includes revenue from change orders and renewal options. Most of our contracts are cancelable on short or no advance notice. Reductions in backlog due to cancellation by a customer, or for other reasons, could significantly reduce the revenue that we actually receive from contracts in backlog. In the event of a project cancellation, we may be reimbursed for certain costs, but we typically have no contractual right to the total revenues reflected in our backlog. Backlog amounts are determined based on target price estimates that incorporate historical trends, anticipated seasonal impacts, experience from similar projects and from communications with our customers. These estimates may prove inaccurate, which could cause estimated revenue to be realized in periods later than originally expected, or not at all. As a result, our backlog as of any particular date is an uncertain indicator of future revenue and earnings. In addition, contracts included in our backlog may not be profitable. If our backlog fails to materialize, our business, financial condition, results of operations and cash flows could be materially and adversely affected. Our Ability to Obtain New Projects. We selectively bid on projects that we believe offer an opportunity to meet our profitability objectives or that offer the opportunity to enter promising new markets. The potential customers conduct rigorous competitive processes for awarding many contracts. We will potentially face strong competition and pricing pressures for any additional contract awards from other government agencies, and we may be required to qualify or continue to qualify under various multiple award task order contract criteria. In addition, as is customary in the construction business, we are required to provide surety bonds to our customers to secure our performance under construction contracts. Our ability to obtain surety bonds primarily depends upon our capitalization, working capital, past performance, management expertise and reputation, as well as certain external factors, including the overall capacity of the surety market. Surety companies consider such factors in relationship to the amount of our backlog and their underwriting standards, which may change from time to time. Events that adversely affect the insurance and bonding markets generally may result in bonding becoming more difficult to obtain in the future, or being available only at a significantly greater cost. If are unable to obtain adequate bonding or if the cost of bonding materially increased, it would limit the amount that we can bid on new contracts, limit the competitiveness of our bids, and could have a material adverse effect on our future revenue and business prospects. Our Ability to Successfully Expand our Footprint . We review our bidding opportunities to attempt to minimize concentration of work with any one customer, in any one industry, or in tight labor markets. We believe that by carefully positioning ourselves in markets that have meaningful barriers to entry, like those with highly technical or specialized scopes of work, we can continue to be competitive. For example, we target projects with significant, highly-technical work that we can self-perform. We believe this provides us with a distinct pricing advantage, as well as better risk management. In addition, as a result of federal and state-level infrastructure initiatives, we believe that funding for technical construction projects may exceed capacity, enabling us to opportunistically target smaller specialized projects with less risk at higher margins. We may be limited in our ability to expand our footprint by barriers to entry to new markets, competition, and availability of capital and skilled labor. We primarily compete for new contracts independently, seeking to win and complete new projects directly for our customers. Our customers primarily award contracts using one of two methods: the traditional public “competitive bid” method, in which price is the major determining factor, or through a “best value” proposal, where contracts are awarded based on a combination of technical qualifications, proposed project team, schedule, the ability to obtain 48 surety bonds, past performance on similar projects and price, which we believe creates a barrier to entry. Contracts are principally awarded on a fixed-price basis, and we earn and recognize revenue using an input measure of total costs incurred divided by total costs expected to be incurred. Our Ability to Obtain Approval of Change Orders and Successfully Pursue Claims. We are subject to variation in scope and cost of projects from our original projections. In certain circumstances, we seek to collect or assert claims against customers, engineers, consultants, subcontractors or others involved in a project for additional costs exceeding the contract price or for amounts not included in the original contract price. Our experience has often been that public sector customers have been willing to negotiate equitable adjustments in the contract compensation or completion time provisions if unexpected circumstances arise. However, this process may result in disputes over whether the work performed is beyond the scope of the work included in the original project plans and specifications or, if the customer agrees that the work performed qualifies as extra work, the price that the customer is willing to pay for the extra work. Public sector customers may seek to impose contractual risk-shifting provisions more aggressively or there could be statutory and other legal prohibitions that prevent or limit contract changes or equitable adjustments. Our Ability to Control Project Costs . Our costs primarily consist of payroll, equipment, materials, and other project related expenses. With a consistent focus on profitability by our management team, we leverage information technology and utilize financial systems to improve project execution and control costs. However, if we are unable to accurately estimate the overall risks, requirements or costs when we bid on or negotiate a contract that is ultimately awarded to us, we may achieve a lower than anticipated profit or incur a loss on the contract. Also, our labor and training expenses may increase as a result of a shortage in the supply of skilled personnel. We may not be able to pass these expenses on to our customers, which could adversely affect our profitability. To the extent that we are unable to buy construction equipment necessary for our needs, either due to a lack of available funding or equipment shortages in the marketplace, we may be forced to rent equipment on a short-term basis, which could increase the costs of performing our contracts. If we are unable to continue to maintain the equipment in our fleet, we may be forced to obtain third-party repair services, which could increase our costs. In addition, the market value of our equipment may unexpectedly decline at a faster rate than anticipated. Our Ability to Control Selling General and Administrative Costs . Because we now exist as a public company, we will incur significant expenses on an ongoing basis that we did not incur as a private company. Those costs include additional director and officer liability insurance expenses, stock exchange listing expenses, as well as third-party and internal resources related to accounting, auditing, Sarbanes-Oxley Act compliance, legal and investor and public relations expenses. These costs will generally be selling, general and administrative expenses. We have also implemented the 2023 Omnibus Incentive Plan to align our equity compensation program with public company plans and practices, which we expect will increase our stock-based compensation expense. Joint Ventures. We participate in various construction joint ventures in order to share expertise, risk and resources for certain highly complex, large, and/or unique projects. Generally, each construction joint venture is formed to accomplish a specific project and is jointly controlled by the joint venture partners. We select our joint venture partners based on our analysis of their construction and financial capabilities, expertise in the type of work to be performed and past working relationships, among other criteria. The joint venture agreements typically provide that our interests in any profits and assets, and our respective share in any losses and liabilities, that may result from the performance of the contract are limited to our stated percentage interest in the project. Under each joint venture agreement, one partner is designated as the sponsor. The sponsoring partner typically provides administrative, accounting and much of the project management support for the project and generally receives a fee from the joint venture for these services. We have been designated as the sponsoring partner in some venture projects and are a non-sponsoring partner in others. We incur transaction and integration costs prior to fully realizing the benefits of acquisition synergies. Joint ventures often require significant investments before they begin operations and we incur many of these costs prior to realizing any gain on the investment in the joint venture. If we are unable to recoup these costs, it could have a significant impact on our business. How We Assess Performance of Our Business 49 Revenue We currently derive our revenue predominantly by providing infrastructure, operations and management services around the United States. We generally recognize revenue over-time as performance obligations are satisfied and control over promised goods or services are transferred to our customers. Gross Margin Gross margin represents revenue less contract costs. Contract costs consist of all direct and indirect costs on contracts, including raw materials, labor, equipment costs, and subcontractor costs. Selling, General, and Administrative Expenses Selling, general and administrative expenses consist primarily of salaries and personnel costs for our administrative, finance and accounting, legal, information systems, human resources and certain managerial employees. Additional expenses include audit, consulting and professional fees, travel, insurance, office space rental costs, property taxes and other corporate and overhead expenses. Equity in Earnings of Unconsolidated Joint Ventures Equity in earnings of unconsolidated joint ventures includes our return on investment in unconsolidated joint ventures. Results of Operations The following table sets forth selected financial data for the fiscal year ended December 29, 2023 compared to the fiscal year ended December 30, 2022: Fiscal Year Ended % of Revenue December 29, December 30, $ % December 29, December 30, (In thousands, except percentage data) 2023 2022 Change Change 2023 2022 Revenue $ 632,806 $ 664,158 $ (31,352 ) (5 )% 100 % 100 % Cost of revenue 610,434 640,643 (30,209 ) (5 ) 96 96 Gross margin 22,372 23,515 (1,143 ) (5 ) 4 4 Selling, general and administrative expenses 61,507 60,442 1,065 2 10 9 Amortization of intangibles 2,618 2,632 (14 ) (1 ) 0 0 Total operating expenses 64,125 63,074 1,051 2 10 9 Equity in earnings of unconsolidated joint ventures 10,354 52,471 (42,117 ) (80 ) 2 8 Gain on sale of assets 31,834 — 31,834 100 5 — Income from operations 435 12,912 (12,477 ) (97 ) 0 2 Other expense, net 2,721 8,731 (6,010 ) (69 ) 0 1 Net (loss) income before income tax (2,286 ) 4,181 (6,467 ) (155 ) (0 ) 1 Income tax expense — 1,274 (1,274 ) — — — Net (loss) income $ (2,286 ) $ 2,907 $ (5,193 ) (179 )% 0 % 0 % 50 Revenue and gross margin The following table sets forth selected revenue and gross margin data for the fiscal year ended December 29, 2023 compared to the fiscal year ended December 30, 2022: (In thousands, except percentage data) Shimmick Projects Legacy Projects Consolidated Total Fiscal Year 2023 Revenue $ 434,297 $ 198,509 $ 632,806 Gross margin 29,023 (6,651 ) 22,372 Gross margin (%) 7 % (3 )% 4 % Fiscal Year 2022 Revenue $ 350,667 $ 313,491 $ 664,158 Gross margin 24,284 (769 ) 23,515 Gross margin (%) 7 % 0 % 4 % Variances Fiscal Year 2023 to Fiscal Year 2022 Increase (Decrease) Revenue $ 83,630 $ (114,982 ) $ (31,352 ) Revenue (%) 24 % (37 )% (5 )% Gross margin 4,739 (5,882 ) (1,143 ) Shimmick Projects Projects started after the AECOM Sale Transactions ("Shimmick Projects") have focused on water infrastructure and other critical infrastructure. As a result of management's shift in job bidding strategy toward higher margin, lower risk jobs, total revenue recognized on these Shimmick Projects increased by $84 million to $434 million for the fiscal year ended December 29, 2023 as compared to $351 million for the fiscal year ended December 30, 2022 and gross margin increased $5 million, or 20%. Legacy Projects As part of the AECOM Sale Transactions, we assumed the Legacy Projects and backlog that were started under AECOM. Legacy Projects revenue decreased $115 million and gross margin was negative $7 million, a decrease of $6 million as compared to fiscal year ended December 30, 2022, primarily as a result of projects winding down and an unfavorable settlement on a Legacy Project. The negative gross margin is primarily the result of a subset of these projects (“Legacy Loss Projects”) that have experienced significant cost overruns due to the COVID pandemic, design issues and other factors. On this subset, we have recognized the estimated costs to complete and the loss expected from these projects. As these Legacy Loss Projects continue to wind down to completion, no further gross margin will be recognized and in some cases, there may be additional costs associated with these jobs. Revenue recognized on these Legacy Loss Projects was $99 million and $123 million for the fiscal years ended December 29, 2023 and December 30, 2022, respectively. Gross margin recognized on these Legacy Loss Projects was ($14) million and ($23) million for the fiscal years ended December 29, 2023 and December 30, 2022, respectively. Selling, general and administrative expenses Selling, general and administrative expenses increased by $1 million, or 2%, primarily resulting from higher legal, professional services and other costs. Equity in earnings of unconsolidated joint ventures Equity in earnings of unconsolidated joint ventures decreased $42 million, or 80%, primarily due to a $56 million impact from the settlement of claims for three infrastructure projects during the fiscal year ended December 30, 2022 that did not re-occur in the fiscal year ended December 29, 2023. 51 Gain on sale of assets Gain on sale of assets increased $32 million driven by the sale of non-core business contracts for $30 million as discussed in Note 5 - Property, Plant and Equipment and Intangible Assets, of the notes to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K, as well as a gain on sale of an office building for $2 million. Other expense, net Other expense, net was $3 million for the fiscal year ended December 29, 2023, compared to $9 million in the fiscal year ended December 30, 2022. Other expense, net for the fiscal year ended December 29, 2023 primarily related to interest expense on the Revolving Credit Facility while other expense, net during the fiscal year ended December 30, 2022 was primarily driven by a change in the fair value of contingent consideration from the AECOM Sale Transactions. Income tax expense No taxable income was recognized for the fiscal year ended December 29, 2023, thus no income tax expense was recorded. For the fiscal year ended December 30, 2022, there was approximately $1 million of tax expense after accounting for the utilization of NOL carryforwards. Net (loss) income Net (loss) income decreased by $5 million to a net loss of $2 million for the fiscal year ended December 29, 2023, due to a decrease in income from operations primarily due to a decrease in equity in earnings of unconsolidated joint ventures partially offset by gain on sale of assets as well as a decrease in other expense, net. Non-GAAP financial measures We report our financial results in accordance with GAAP. However, management believes that certain non-GAAP financial measures provide investors with additional useful information in evaluating our performance. Therefore, to supplement our consolidated financial statements, we provide investors with certain non-GAAP financial measures, including Adjusted net income and Adjusted EBITDA. Adjusted net income Adjusted net income represents Net (loss) income attributable to Shimmick Corporation adjusted to eliminate changes in fair value of contingent consideration, transaction-related costs, stock-based compensation, and legal fees and other costs for a Legacy Loss Project. We have included Adjusted net income in this Annual Report on Form 10-K because it is a key measure used by our management and board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short and long-term operational plans. In particular, we believe that the exclusion of the income and expenses eliminated in calculating Adjusted net income can provide a useful measure for period-to-period comparisons of our core business. Accordingly, we believe that Adjusted net income provides useful information to investors and others in understanding and evaluating our results of operations. Our use of Adjusted net income as an analytical tool has limitations, and you should not consider it in isolation or as a substitute for analysis of our financial results as reported under GAAP. Some of these limitations are: • Adjusted net income does not reflect changes in, or cash requirements for, our working capital needs, • Adjusted net income does not reflect the potentially dilutive impact of stock-based compensation, and 52 • other companies, including companies in our industry, might calculate Adjusted net income or similarly titled measures differently, which reduces their usefulness as comparative measures. Because of these and other limitations, you should consider Adjusted net income alongside Net (loss) income attributable to Shimmick Corporation, which is the most directly comparable GAAP measure. See reconciliation below. Adjusted EBITDA Adjusted EBITDA represents our net (loss) income attributable to Shimmick Corporation before interest expense, income tax expense and depreciation and amortization, adjusted to eliminate changes in fair value of contingent consideration, transaction-related costs, stock-based compensation, and legal fees and other costs for a Legacy Loss Project. We have included Adjusted EBITDA in this Annual Report on Form 10-K because it is a key measure used by our management and board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short and long-term operational plans. In particular, we believe that the exclusion of the income and expenses eliminated in calculating Adjusted EBITDA can provide a useful measure for period-to-period comparisons of our core business. Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our results of operations. Our use of Adjusted EBITDA as an analytical tool has limitations, and you should not consider it in isolation or as a substitute for analysis of our financial results as reported under GAAP. Some of these limitations are: • although depreciation and amortization are non-cash charges, the assets being depreciated and amortized might have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements, • Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs, • Adjusted EBITDA does not reflect the potentially dilutive impact of stock-based compensation, • Adjusted EBITDA does not reflect interest or tax payments that would reduce the cash available to us, and • other companies, including companies in our industry, might calculate Adjusted EBITDA or similarly titled measures differently, which reduces their usefulness as comparative measures. 53 Because of these and other limitations, you should consider Adjusted EBITDA alongside Net (loss) income attributable to Shimmick Corporation, which is the most directly comparable GAAP measure. See reconciliation below: Fiscal Year Ended December 29, December 30, (In thousands) 2023 2022 Net (loss) income attributable to Shimmick Corporation $ (2,546 ) $ 3,760 Changes in fair value of contingent consideration (174 ) 9,462 Transaction-related costs 2,595 3,104 Stock-based compensation 2,062 2,295 Legal fees and other costs for a Legacy Loss Project (1) 8,740 10,904 Adjusted net income $ 10,677 $ 29,525 Fiscal Year Ended December 29, December 30, (In thousands) 2023 2022 Net (loss) income attributable to Shimmick Corporation $ (2,546 ) $ 3,760 Depreciation and amortization 17,121 15,979 Interest expense 2,284 226 Income tax expense — 1,274 Changes in fair value of contingent consideration (174 ) 9,462 Transaction-related costs 2,595 3,104 Stock-based compensation 2,062 2,295 Legal fees and other costs for a Legacy Loss Project (1) 8,740 10,904 Adjusted EBITDA $ 30,082 $ 47,004 (1) Consists of legal fees and other costs incurred in connection with claims relating to a Legacy Loss Project. Liquidity and Capital Resources Capital Requirements and Sources of Liquidity During the fiscal year ended December 29, 2023, our capital expenditures were approximately $7 million compared to $10 million for the fiscal year ended December 30, 2022. Historically, we have had significant cash requirements in order to organically expand our business to undertake new projects. Our cash requirements include costs related to increased expenditures for equipment, facilities and information systems, purchase of materials and production of materials and cash to fund our organic expansion into new markets, including through joint ventures. Our working capital needs are driven by the seasonality and growth of our business, with our cash requirements greater in periods of growth. Additional cash requirements resulting from our growth include the costs of additional personnel, enhancing our information systems and, in the future, our integration of any acquisitions and our compliance with laws and rules applicable to being a public company. We have historically relied upon cash available through operating activities, in addition to credit facilities and existing cash balances, to finance our working capital requirements and to support our growth. On November 16, 2023, we completed our IPO pursuant to which we issued and sold an aggregate of 3,575,000 shares of common stock at a price to the public of $7.00 per share. We received aggregate net proceeds of approximately $19 million after deducting underwriting discounts and commissions of $2 million and other offering expenses of $4 million. We will continue to monitor the capital markets and may continue raising additional capital through the issuance of our common shares, authorized preferred shares or other securities. We regularly monitor potential capital sources, including equity and debt financing, in an effort to meet our planned expenditures and liquidity requirements. Our future success will be highly dependent on our ability to access outside sources of capital. 54 As is customary in our business, we are required to provide surety bonds to secure our performance under our contracts. Our ability to obtain surety bonds primarily depends upon our capitalization, working capital, past performance, management expertise and reputation and certain external factors, including the overall capacity of the surety market. Surety companies consider such factors in relationship to the amount of our backlog and their underwriting standards, which may change from time to time. We have pledged proceeds and other rights under our contracts to our bond surety company. Events that affect the insurance and bonding markets may result in bonding becoming more difficult to obtain in the future, or being available only at a significantly greater cost. To date, we have not encountered difficulties or material cost increases in obtaining new surety bonds, and we believe our balance sheet position supports our ability to fulfill our surety bond requirements. We believe that our operating, investing and financing cash flows are sufficient to fund our operations for at least the next twelve months. However, future cash flows are subject to a number of variables, and significant additional expenditures will be required to conduct our operations. Furthermore, as a result of the completion of our IPO on November 16, 2023, we expect to incur additional costs associated with being a public company. There can be no assurance that operations and other capital resources will provide cash in sufficient amounts to maintain planned or future levels of expenditures. In the event we make one or more acquisitions and the amount of capital required is greater than the amount we have available for acquisitions at that time, we could be required to reduce the expected level of expenditures and/or seek additional capital. If we seek additional capital, we may do so through joint ventures, asset sales, offerings of debt or equity securities or other means. We cannot guarantee that this additional capital will be available on acceptable terms or at all. If we are unable to obtain the funds we need, we may not be able to complete acquisitions that may be favorable to us or finance the expenditures necessary to conduct our operations. Total debt outstanding is presented on the consolidated balance sheets as follows: (In thousands) December 29, 2023 December 30, 2022 Revolving Credit Facility $ 29,914 $ — Total debt 29,914 — Unamortized debt issuance costs (287 ) — Long-term debt, net $ 29,627 $ — Revolving Credit Facility On March 27, 2023, we entered into the Revolving Credit Facility with MidCap Financial Services, LLC, which originally provided a total commitment of $30 million. The Revolving Credit Facility was subsequently amended on June 30, 2023 and September 22, 2023. As amended, the Revolving Credit Facility provides for a total commitment of $35 million and bears interest at an annual rate of adjusted term SOFR, subject to a 1.0% floor, plus 4.50%. Further, the Revolving Credit Facility is subject to an annual collateral management fee of 0.50% and an annual unused line fee of 0.50%. The Revolving Credit Facility Agreement matures on March 27, 2028 and requires the Company to maintain a leverage ratio that does not exceed 1.75 to 1.0. The Company is not aware of any instances of noncompliance with financial covenants as of December 29, 2023. Following the IPO, we used the net proceeds we received from our IPO, together with cash on hand, to repay all outstanding borrowing under our Revolving Credit Facility. Subsequent to the repayment, we drew $30 million on our Revolving Credit Facility to fund working capital requirements. Project Financing Agreement On March 26, 2024, we entered into a Project Financing Agreement with Berkshire Hathaway Specialty Insurance Company, National Liability & Fire Insurance Company and National Indemnity Company (collectively "Berkshire") which provides an advance of up to $25 million in exchange for security interest in the assigned and secured collateral specified in the Project Financing Agreement. If drawn, the advance will be used to satisfy bond and bonded contract obligations and bears interest at an annual rate of adjusted term SOFR, subject to a 1.0% floor, plus 4.50%. All funds provided by Berkshire under the Project Financing Agreement as well as all accrued interest are due and payable in full on March 28, 2028. 55 Cash Flows Analysis The following table sets forth our cash flows for the periods indicated: Fiscal Year Ended December 29, December 30, (In thousands) 2023 2022 Net cash used in operating activities $ (88,100 ) $ (3,084 ) Net cash provided by investing activities 22,050 4,197 Net cash provided by (used in) financing activities 47,875 (931 ) Net (decrease) increase in cash, cash equivalents and restricted cash (18,175 ) 182 Cash, cash equivalents and restricted cash, beginning of period 82,085 81,903 Cash, cash equivalents and restricted cash, end of period $ 63,910 $ 82,085 Operating Activities During the fiscal year ended December 29, 2023, net cash used in operating activities was $88 million, compared to net cash used in operating activities of $3 million for the fiscal year ended December 30, 2022. Cash flows used in operating activities were driven by reduced net income, adjusted for various non-cash items and changes in accounts receivable, due from unconsolidated joint ventures, contract assets, accounts payable, contract liabilities and accrued expenses balances (collectively, “Contract Capital”), as discussed below, accrued salaries and wages and other assets and liabilities. Changes in Contract Capital—The change in operating assets and liabilities varies due to fluctuations and timing in operating activities and Contract Capital. The changes in the components of Contract Capital during the fiscal years ended December 29, 2023 and December 30, 2022 were as follows: Fiscal Year Ended December 29, December 30, (In thousands) 2023 2022 Accounts receivable, net $ 2,251 $ 41,574 Due from unconsolidated joint ventures 313 7,079 Contract assets (9,334 ) (46,736 ) Accounts payable 13,747 10,436 Contract liabilities (47,940 ) (94,165 ) Accrued expenses (26,861 ) 31,471 Changes in Contract Capital, net $ (67,824 ) $ (50,341 ) During the fiscal year ended December 29, 2023, the decrease in Contract Capital was $68 million, which was primarily driven by decreases in contract liabilities and accrued expenses. The Company’s Contract Capital fluctuations are impacted by the mix of projects in backlog, seasonality, the timing of new awards and related payments for work performed and the contract billings to the customer as projects are completed. Contract Capital is also impacted at period-end by the timing of accounts receivable collections and accounts payable payments for projects. The impact on cash flows from operations in the fiscal years ended December 29, 2023 and December 30, 2022 from Legacy Loss Projects was cash used of approximately $65 million and $96 million, respectively. Investing Activities For the fiscal year ended December 29, 2023, net cash provided by investing activities was $22 million, which primarily consisted of cash proceeds from the sale of non-core business contracts of $30 million, proceeds from sale of assets of $6 million ($4 million due to sale of an office building), and return of investment in unconsolidated joint ventures of $16 million, partially offset by unconsolidated joint venture equity contributions of $23 million and purchases of property, plant and equipment of $7 million. 56 For the fiscal year ended December 30, 2022, net cash provided by investing activities was $4 million, which primarily consisted of a net working capital settlement in association with the AECOM Sale Transactions of $32 million and proceeds from sale of assets of $2 million, partially offset by unconsolidated joint venture equity contributions of $20 million, and purchases of property, plant and equipment of $10 million. Financing Activities For the fiscal year ended December 29, 2023, net cash provided by financing activities was $48 million, which primarily consisted of net proceeds from the Revolving Credit Facility borrowings of $30 million and IPO proceeds of $25 million, partially offset by payments of IPO costs of $6 million. For the fiscal year ended December 30, 2022, net cash used in financing activities was $1 million, which primarily consisted of distributions to non-controlling interests. Letters of Credit We obtain standby letters of credit as required from time to time by our insurance carriers. At December 29, 2023 and December 30, 2022, the total amounts of standby letters of credit outstanding were $0 and $8 million, respectively. Contractual Obligations Contractual obligations of the Company consisted of liabilities associated with remaining lease payments through the fiscal years ending through December 31, 2028 of approximately $10 million, $8 million, $4 million, $2 million and $2 million, respectively, and approximately $1 million in the aggregate thereafter based on balances outstanding as of December 29, 2023. See Note 10 - Leases, of the notes to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K. Backlog Our backlog consists of the remaining unearned revenue on awarded contracts, including our pro-rata share of work to be performed by unconsolidated joint ventures, less the joint venture partners’ pro-rata share of work to be performed by consolidated joint ventures. We include in backlog estimates of the amount of consideration to be received, including bonuses, awards, incentive fees, fixed-price awards, claims, unpriced change orders, penalties, minimum customer commitments on cost plus arrangements, liquidated damages and certain time and material arrangements in which the estimated value is firm or can be estimated with a reasonable amount of certainty in both timing and amounts. As construction on our contracts progresses, we increase or decrease backlog to take account of changes in estimated quantities under fixed-price contracts, as well as to reflect changed conditions, change orders and other variations from initially anticipated contract revenue and costs, including completion penalties and bonuses. Substantially all of the contracts in our backlog may be canceled or modified at the election of the customer. As of December 29, 2023, we had a backlog of projects of approximately $1.1 billion, with over half of that amount comprised of water projects. We believe we have the ability to self-perform many of these projects, enabling us to compete for complex projects and differentiating us from many of our competitors. Self-performance also enables us to better control the critical aspects of our projects, reducing the risk of cost and schedule overruns. 57 The following table presents the Company's percentage of backlog by customer type, contract type and backlog recognized: As of (In millions) December 29, 2023 Backlog by customer type: State and local agencies 74 % Federal agencies 14 % Private owners 12 % Total backlog 100 % As of (In millions) December 29, 2023 Backlog by contract type: Fixed-price 86 % Cost reimbursable 14 % Total backlog 100 % As of (In millions) December 29, 2023 Estimated backlog recognized: 0 to 24 months 80 % 25 to 36 months 9 % Beyond 36 months 11 % Total backlog 100 % Off-Balance Sheet Arrangements In our joint ventures, the liability of each partner is usually joint and several. This means that each joint venture partner may become liable for the entire risk of performance guarantees provided by each partner to the customer. Typically each joint venture partner indemnifies the other partners for any liabilities incurred in excess of the liabilities the other party is obligated to bear under the respective joint venture agreement. We are unable to estimate the maximum potential amount of future payments that we could be required to make under outstanding performance guarantees related to joint venture projects due to a number of factors, including but not limited to, the nature and extent of any contractual defaults by our joint venture partners, resource availability, potential performance delays caused by the defaults, the location of the projects, and the terms of the related contracts. Critical Accounting Estimates The discussion of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. We evaluate our estimates and assumptions on an ongoing basis. The results of our analysis form the basis for making assumptions about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and the impact of such differences may be material to our consolidated financial statements. Revenue Recognition and Estimated Costs to Complete Projects The Company recognizes revenue from signed contracts with customers, change orders (approved and unapproved) and claims on those contracts that we conclude to be enforceable under the terms of the signed contracts. Many of 58 the Company’s contracts have one clearly identifiable performance obligation. However, some contracts provide the customer an integrated service that includes two or more of services associated with construction, operations and management. The determination of the number of performance obligations in a contract requires significant judgment and could change the timing of the amount of revenue recorded for a given period. Determination of the contract price is dependent upon a number of factors, including the accuracy of a variety of estimates made at the consolidated balance sheet date, such as estimated costs at completion. Additionally, the Company is required to make estimates for the amount of consideration to be received, including variable compensation such as bonuses, awards, incentive fees, claims, unapproved change orders, unpriced change orders, penalties, and liquidated damages. The Company’s estimates of variable consideration and determination of whether to include such amounts in the contract price are based largely on the Company’s assessment of legal enforceability, anticipated performance, and any other information (historical and forecasted) that is reasonably available to the Company. Management continuously monitors factors that may affect the quality of its estimates, and makes adjustments accordingly. The Company has numerous contracts that are in various stages of completion which require estimates to determine the forecasted costs at completion. Due to the nature of the work left to be performed on many of the Company’s contracts, the estimation of total cost at completion (“EAC”) for fixed-price contracts is complex, subject to many variables and requires significant judgment. Estimates of total cost at completion are made each period and changes in these estimates are accounted for prospectively as cumulative adjustments to revenue recognized in the current period. If estimates of costs to complete fixed-price contracts indicate a loss, a provision is made through a contract write-down for the total loss anticipated in the cost of revenue. Change Orders Contracts are often modified to account for changes in contract specifications and requirements. Most of the Company’s contract modifications are for goods or services that are not distinct from existing contracts due to the significant integration provided in the context of the contract and are accounted for as if they were part of the original contract. The effect of a contract modification on the transaction price and the Company’s measure of progress for the performance obligation to which it relates are recognized as an adjustment to revenue (either as an increase or decrease) on a cumulative catch-up basis during the period the modification occurs and throughout the remainder of the contract. Claims Recognition Sometimes the Company seeks claims for amounts in excess of the contract price for delays, errors in specifications and designs, contract terminations, change orders in dispute or other causes of additional costs incurred. Costs attributable to claims from customers are treated as costs of contract performance as incurred. Income Taxes The Company accounts for income taxes under the asset and liability method prescribed by the Accounting Standards Codification Topic 740 — Income Taxes (“ASC 740”). This method requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Under this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the consolidated financial statements and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company recognizes deferred tax assets to the extent that its management believes these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If the Company determines that it would be able to realize its deferred tax assets in the future in excess of their net recorded amount, it will make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. Emerging Growth Company and Smaller Reporting Company 59 We are an “emerging growth company,” as defined in the JOBS Act. For so long as we are an emerging growth company, we will, among other things: • not be required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, • not be required to hold a nonbinding advisory stockholder vote on executive compensation pursuant to Section 14A(a) of the Exchange Act, • not be required to seek stockholder approval of any golden parachute payments not previously approved pursuant to Section 14A(b) of the Exchange Act, • be exempt from any rule adopted by the Public Company Accounting Oversight Board, requiring mandatory audit firm rotation and identification of critical audit matters, • be subject to reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and • be subject to reduced obligations with respect to financial data, including presenting only two years of audited financial statements and only two years of selected financial data in this Annual Report on Form 10-K. In addition, Section 107 of the JOBS Act provides that an emerging growth company can use the extended transition period provided in Section 7(a)(2)(B) of the Securities Act, for complying with new or revised accounting standards. This permits an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. We will continue to qualify as an emerging growth company until the earliest of: • the last day of our fiscal year following the fifth anniversary of the date of our initial public offering, • the last day of our fiscal year in which we have annual gross revenue of $1.235 billion or more, • the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt, and • the date on which we are deemed to be a “large accelerated filer,” which will occur at such time as we (1) have an aggregate worldwide market value of common equity securities held by non-affiliates of $700.0 million or more as of the last business day of our most recently completed second fiscal quarter, (2) have been required to file annual and quarterly reports under the Exchange Act for a period of at least 12 months and (3) have filed at least one annual report pursuant to the Exchange Act. We are also a smaller reporting company as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as our voting and non-voting common stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700 million measured on the last business day of our second fiscal quarter. 60 Item 7A. Quantita tive and Qualitative Disclosures About Market Risk. Not applicable as we are a “smaller reporting company,” as defined in the Exchange Act. Item 8. Financia l Statements and Supplementary Data. The independent registered public accounting firm’s report and consolidated financial statements listed below of this Annual Report are filed as part of this report. Consolidated Financial Statements of the Company Report of Independent Registered Public Accounting Firm (PCAOB ID: 34 ) Consolidated Balance Sheets as of December 29, 2023 and December 30, 2022 Consolidated Statements of Operations for the Fiscal Years Ended December 29, 2023 and December 30, 2022 Consolidated Statements of Stockholders’ Equity for the Fiscal Years Ended December 29, 2023 and December 30, 2022 Consolidated Statements of Cash Flows for the Fiscal Years Ended December 29, 2023 and December 30, 2022 Notes to Consolidated Financial Statements 61 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Shimmick Corporation Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Shimmick Corporation (the "Company") as of December 29, 2023 and December 30, 2022, the related consolidated statements of operations, stockholders’ equity, and cash flows, for each of the two fiscal years in the period ended December 29, 2023, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 29, 2023 and December 30, 2022, and the results of its operations and its cash flows for each of the two fiscal years in the period ended December 29, 2023, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ DELOITTE & TOUCHE LLP Denver, Colorado March 28, 2024 We have served as the Company's auditor since 2022. 62 Shimmick Corporation Consolidated Ba lance Sheets (In thousands, except share data) December 29, December 30, 2023 2022 ASSETS CURRENT ASSETS Cash and cash equivalents $ 62,939 $ 77,762 Restricted cash 971 4,323 Accounts receivable, net 54,178 56,430 Contract assets, current 125,943 80,901 Prepaids and other current assets 13,427 14,060 TOTAL CURRENT ASSETS 257,458 233,476 Property, plant and equipment, net 46,373 55,208 Intangible assets, net 9,244 12,044 Contract assets, non-current 48,316 84,024 Lease right-of-use assets 23,855 22,690 Investment in unconsolidated joint ventures 21,283 17,363 Deferred tax assets 17,252 18,851 Other assets 2,871 3,143 TOTAL ASSETS $ 426,652 $ 446,799 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 81,589 $ 67,541 Contract liabilities, current 115,785 163,725 Accrued salaries, wages and benefits 26,911 36,248 Accrued expenses 33,897 60,758 Other current liabilities 13,071 12,672 TOTAL CURRENT LIABILITIES 271,253 340,944 Long-term debt, net 29,627 — Lease liabilities, non-current 15,045 14,442 Contract liabilities, non-current 3,215 1,846 Contingent consideration 15,488 15,662 Deferred tax liabilities 17,252 18,851 Other liabilities 4,282 3,459 TOTAL LIABILITIES 356,162 395,204 Commitments and Contingencies (Note 12) STOCKHOLDERS' EQUITY Common stock, $ 0.01 par value, 100,000,000 shares authorized as of December 29, 2023 and December 30, 2022; 25,493,877 and 21,908,800 shares issued and outstanding as of December 29, 2023 and December 30, 2022, respectively 255 219 Additional paid-in-capital 24,445 3,341 Retained earnings 46,537 49,083 Non-controlling interests ( 747 ) ( 1,048 ) TOTAL STOCKHOLDERS' EQUITY 70,490 51,595 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 426,652 $ 446,799 See accompanying notes to the consolidated financial statements. 63 Shimmick Corporation Consolidated S tatements of Operations (In thousands, except per share data) Fiscal Year Ended December 29, December 30, 2023 2022 Revenue $ 632,806 $ 664,158 Cost of revenue 610,434 640,643 Gross margin 22,372 23,515 Selling, general and administrative expenses 61,507 60,442 Amortization of intangibles 2,618 2,632 Total operating expenses 64,125 63,074 Equity in earnings of unconsolidated joint ventures 10,354 52,471 Gain on sale of assets 31,834 — Income from operations 435 12,912 Other expense, net 2,721 8,731 Net (loss) income before income tax ( 2,286 ) 4,181 Income tax expense — 1,274 Net (loss) income ( 2,286 ) 2,907 Net income (loss) attributable to non-controlling interests 260 ( 853 ) Net (loss) income attributable to Shimmick Corporation $ ( 2,546 ) $ 3,760 Net (loss) income attributable to Shimmick Corporation per common share Basic $ ( 0.11 ) $ 0.17 Diluted $ ( 0.11 ) $ 0.17 See accompanying notes to the consolidated financial statements. 64 Shimmick Corporation Consolidated Statements of Stock holders' Equity (In thousands, except share data) Common Stock Additional Paid-in- Retained Non-Controlling Total Stockholders' Shares Amount Capital Earnings Interests Equity Balance as of December 31, 2021 21,908,800 $ 219 $ 1,046 $ 45,323 $ 433 $ 47,021 Net income (loss) — — — 3,760 ( 853 ) 2,907 Stock-based compensation — — 2,295 — — 2,295 Distributions to non-controlling interests — — — — ( 628 ) ( 628 ) Balance as of December 30, 2022 21,908,800 $ 219 $ 3,341 $ 49,083 $ ( 1,048 ) $ 51,595 Common Stock Additional Paid-in- Retained Non-Controlling Total Stockholders' Shares Amount Capital Earnings Interests Equity Balance as of December 30, 2022 21,908,800 $ 219 $ 3,341 $ 49,083 $ ( 1,048 ) $ 51,595 Net (loss) income — — — ( 2,546 ) 260 ( 2,286 ) Initial Public Offering, net of costs 3,575,000 36 19,029 — — 19,065 Exercise of stock options 10,077 — 13 — — 13 Stock-based compensation — — 2,062 — — 2,062 Contributions from non-controlling interests — — — — 301 301 Distributions to non-controlling interests — — — — ( 260 ) ( 260 ) Balance as of December 29, 2023 25,493,877 $ 255 $ 24,445 $ 46,537 $ ( 747 ) $ 70,490 See accompanying notes to the consolidated financial statements. 65 Shimmick Corporation Consolidated Statem ents of Cash Flows (In thousands) Fiscal Year Ended December 29, December 30, 2023 2022 Cash Flows From Operating Activities Net (loss) income $ ( 2,286 ) $ 2,907 Adjustments to reconcile net (loss) income to net cash used in operating activities: Stock-based compensation 2,062 2,295 Depreciation and amortization 17,121 15,979 Equity in earnings of unconsolidated joint ventures ( 10,354 ) ( 52,471 ) Return on investment in unconsolidated joint ventures 14,682 59,651 Gain on sale of assets ( 31,834 ) — Other ( 47 ) 9,462 Changes in operating assets and liabilities: Accounts receivable, net 2,251 41,574 Due from unconsolidated joint ventures 313 7,079 Contract assets ( 9,334 ) ( 46,736 ) Accounts payable 13,747 10,436 Contract liabilities ( 47,940 ) ( 94,165 ) Accrued expenses ( 26,861 ) 31,471 Accrued salaries, wages and benefits ( 8,975 ) 4,149 Other assets and liabilities ( 645 ) 5,285 Net cash used in operating activities ( 88,100 ) ( 3,084 ) Cash Flows From Investing Activities Net working capital settlement in association with business combination — 32,000 Purchases of property, plant and equipment ( 7,042 ) ( 10,443 ) Proceeds from sale of assets 35,975 1,722 Unconsolidated joint venture equity contributions ( 23,170 ) ( 19,709 ) Return of investment in unconsolidated joint ventures 16,287 627 Net cash provided by investing activities 22,050 4,197 Cash Flows From Financing Activities Payments on finance lease obligation ( 303 ) ( 303 ) Net borrowings on revolving credit facility 29,915 — Contributions from non-controlling interests 301 — Distributions to non-controlling interests ( 260 ) ( 628 ) Proceeds from IPO 25,025 — Payments of IPO costs ( 5,961 ) — Other ( 842 ) — Net cash provided by (used in) financing activities 47,875 ( 931 ) Net (decrease) increase in cash, cash equivalents and restricted cash ( 18,175 ) 182 Cash, cash equivalents and restricted cash, beginning of period 82,085 81,903 Cash, cash equivalents and restricted cash, end of period $ 63,910 $ 82,085 Reconciliation of cash, cash equivalents and restricted cash to the Consolidated Balance Sheets Cash and cash equivalents 62,939 77,762 Restricted cash 971 4,323 Total cash, cash equivalents and restricted cash $ 63,910 $ 82,085 See accompanying notes to the consolidated financial statements. 66 Shimmick Corporation Notes to the Consolidate d Financial Statements Note 1. Business and Organization Shimmick Corporation (“Shimmick”, “we”, “our”, “us”, “its” or the “Company”) was founded in 1990 in California and operated as a regional infrastructure construction contractor throughout California for nearly 30 years. In 2017, AECOM acquired Shimmick and consolidated it with its existing construction services, which included former legacy construction operations from Morrison Knudsen, Washington Group International, and others. In January 2021, we consummated the AECOM Sale Transactions and began operating as an independent company under new private ownership (the "AECOM Sale Transactions"). The accompanying consolidated financial statements include the accounts of Shimmick Corporation and its subsidiaries, unless otherwise indicated. On September 12, 2023, the Company changed its name from SCCI National Holdings, Inc. to Shimmick Corporation. On November 16, 2023, Shimmick completed its initial public offering of 3,575,000 shares of common stock at a price to the public of $ 7.00 per share (the "IPO"). The net proceeds to Shimmick from the IPO were approximately $ 19 million after deducting underwriting discounts and commissions and other offering expenses of $ 6 million. Shimmick’s common stock began trading on the NASDAQ Global Market on November 14, 2023. Note 2. Basis of Presentation and Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”), and in conformity with the rules and regulations of the Securities and Exchange Commission. A statement of comprehensive income is not presented as the Company’s results of operations do not contain any items classified as comprehensive income. All intercompany accounts and transactions have been eliminated. In preparing these consolidated financial statements, subsequent events were evaluated through the time the financial statements were issued. Financial statements are considered issued when they are widely distributed to all stockholders and other financial statement users, or filed with the SEC. Change in Presentation Certain prior period balances in the consolidated balance sheets and statements of cash flows and accompanying notes have been combined or rounded to conform to current period presentation. These changes had no impact on net (loss) income, cash flows, assets and liabilities, or equity previously reported. Stock Split On October 23, 2023, the Board of Directors (the "Board") approved an amendment to the Company’s Certificate of Incorporation in order to effect a stock split of the Company’s Common Stock. Further, the Board authorized 100,000,000 shares of Common Stock, with a par value of $ 0.01 par value per share and 25,000,000 shares of Preferred Stock, with a par value of $ 0.01 per share. Upon the effectiveness of the filing of the amendment, each share of common stock, par value $ 0.01 per share (the “Old Common Stock”), issued and outstanding automatically, without further action on the part of the Company or any holder of such Old Common Stock, was reclassified as and became 2.7386 validly issued, fully paid and non-assessable shares of Common Stock. There were no fractional shares issued with respect to the reclassification of shares of Old Common Stock. In lieu of fractional shares, the Company rounded up to the nearest whole number of shares of Common Stock. The Company has retro-actively applied the stock split made effective on October 23, 2023, to share and per share amounts in the consolidated financial statements. 67 Fiscal Year The Company’s fiscal years consist of 52 or 53 weeks, ending on the Friday closest to December 31. Fiscal year 2023 commenced on December 31, 2022 and ended on December 29, 2023. Fiscal year 2022 commenced on January 1, 2022 and ended on December 30, 2022. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from estimates and significant estimates affecting amounts reported in the consolidated financial statements are: • project revenues, costs and profits at completion of the Company’s contracts with customers, including recognition of estimated losses on uncompleted contracts; • claims against customers and recoveries of costs from subcontractors, vendors and others; • provisions for income taxes and related valuation allowances and tax uncertainties; • recoverability of equity method investments; • accruals for estimated liabilities, including litigation accruals; • fair value of assets and liabilities acquired under the Purchase Agreement; and • amounts owed to AECOM for contingent consideration. Revenue Recognition The Company derives revenue predominantly by providing construction and operations and management services to government and commercial clients throughout the United States. The Company’s construction, operations and management services are usually provided in association with capital projects, which are predominantly fixed-price contracts that are billed based on project milestones. Contracts with clients may contain advance billing terms, milestone billings based on the completion of certain phases of work or services provided to date, and contract retentions. For further discussion regarding the Company’s revenue from contracts with clients by type of contract, see Note 3 - Revenue, Receivables and Contract Assets and Liabilities. Step 1: Contract Identification The Company does not recognize revenue unless an identified contract with a customer is established. A contract with a customer exists when it has approval and commitment from both parties, the rights and obligations of the parties are identified, payment terms are identified, the contract has commercial substance, and collectability is probable. The Company also evaluates whether a contract should be combined with other contracts and accounted for as a single contract. This evaluation requires judgment and could change the timing of the amount of revenue and profit recorded for a given period. 68 Step 2: Identify Performance Obligations Next, each performance obligation in the contract is identified. A performance obligation is a promise to provide a distinct good or service or a series of distinct goods or services to the customer. Revenue is recognized separately for each performance obligation in the contract. Many of the Company’s contracts have one clearly identifiable performance obligation. However, many contracts provide the customer an integrated service that includes two or more of services associated with construction, operations and management. For these contracts, the Company does not consider the integrated services to be distinct within the context of the contract when the separate scopes of work combine into a single commercial objective or capability for the customer. Accordingly, the Company generally identifies one performance obligation in each contract. The determination of the number of performance obligations in a contract requires significant judgment and could change the timing of the amount of revenue recorded for a given period. Step 3: Determine Contract Price After determining the performance obligations in the contract, the Company determines the contract price. The contract price is the amount of consideration expected to be received from the customer for completing the performance obligation(s). In a fixed-price contract, the contract price is a single lump-sum amount. In reimbursable and time and materials-based contracts, the contract price is determined by the agreed upon rates or reimbursements for time and materials expended in completing the performance obligation(s) in the contract. In the course of providing its services, the Company routinely subcontracts and collaborates with partners providing services and incurs other direct costs. The Company controls the services provided by subcontractors and accounts for such cost at the gross amount as the company is considered the principal. Determination of the contract price is dependent upon a number of factors, including the accuracy of a variety of estimates made at the consolidated balance sheet date, such as estimated costs at completion. Additionally, the Company is required to make estimates for the amount of consideration to be received, including bonuses, awards, incentive fees, claims, unapproved change orders, unpriced change orders, penalties, and liquidated damages. Variable consideration is included in the estimate of the transaction price only to the extent that it is probable that a significant reversal of revenue would not occur when the contingency is resolved. The Company estimates the amount of revenue to be recognized on variable consideration through predominantly applying the most likely amount method. The Company’s estimates of variable consideration and determination of whether to include such amounts in the contract price are based largely on the Company’s assessment of legal enforceability, anticipated performance, and any other information (historical and forecasted) that is reasonably available to the Company. Management continuously monitors factors that may affect the quality of its estimates, and material changes in estimates are disclosed accordingly. Step 4: Assign Contract Price to Performance Obligations After determining the contract price, the Company assigns such price to the performance obligation(s) in the contract. If a contract has multiple performance obligations, the Company assigns the contract price to each performance obligation based on the stand-alone selling prices of the distinct services that comprise each performance obligation. Step 5: Recognize Revenue as Performance Obligations are Satisfied The Company records revenue for contracts with customers as the contracts’ performance obligations are satisfied. Under fixed-unit price contracts, the Company performs a number of units of work at an agreed price per unit with the total payment under the contract determined by the actual number of units delivered. Revenue is recognized for fixed-price contracts using the input method measured on a cost-to-cost basis. This method is reasonable in measuring performance towards completion because it measures the value of all goods and services transferred to the customer. The Company recognizes revenue on performance obligations associated with cost reimbursable contracts based on actual direct costs incurred and the applicable fixed rate or portion of the fixed fee earned as of the consolidated balance sheet date. Under time-and-materials price contracts, the Company negotiates hourly billing rates and charges its customers based on the actual time that it expends on a project. In addition, customers reimburse the 69 Company for materials and other direct incidental expenditures incurred in connection with its performance under the contract. The Company applies a practical expedient to recognize revenue in the amount in which it has the right to invoice if its right to consideration is equal to the value of performance completed to date. Costs incurred may include direct labor, direct materials, subcontractor costs and indirect costs, such as salaries and benefits, supplies and tools, equipment costs and insurance costs. Indirect costs are charged to projects based upon direct costs and overhead allocation rates per dollar of direct costs incurred or direct labor hours worked. The Company has numerous contracts that are in various stages of completion which require estimates to determine the forecasted costs at completion. Due to the nature of the work left to be performed on many of the Company’s contracts, the estimation of total cost at completion for fixed-price contracts is complex, subject to many variables and requires significant judgment. Estimates of total cost at completion are made each period and changes in these estimates are accounted for prospectively as cumulative adjustments to revenue recognized in the current period. If estimates of costs to complete fixed-price contracts indicate a loss, a provision is made through a contract write-down for the total loss anticipated. Change Orders Contracts are often modified to account for changes in contract specifications and requirements. Most of the Company’s contract modifications are for goods or services that are not distinct from existing contracts due to the significant integration provided in the context of the contract and are accounted for as if they were part of the original contract. The effect of a contract modification on the transaction price and the Company’s measure of progress for the performance obligation to which it relates are recognized as an adjustment to revenue (either as an increase or decrease) on a cumulative catch-up basis. Claims Sometimes the Company seeks claims for amounts in excess of the contract price for delays, errors in specifications and designs, contract terminations, change orders in dispute or other causes of additional costs incurred. Costs attributable to claims from customers are treated as costs of contract performance as incurred. Government Contracts The Company’s federal government and certain state and local agency contracts are subject to, among other regulations, regulations issued under the Federal Acquisition Regulations (“FAR”). These regulations can limit the recovery of certain specified indirect costs on contracts and subjects the Company to ongoing multiple audits by government agencies such as the Defense Contract Audit Agency (“DCAA”). In addition, most of the Company’s federal and state and local contracts are subject to termination at the discretion of the client. Audits by the DCAA and other agencies consist of reviews of the Company’s overhead rates, operating systems and cost proposals to ensure that the Company accounted for such costs in accordance with the Cost Accounting Standards of the FAR (“CAS”). If the DCAA determines the Company has not accounted for such costs consistent with CAS, the DCAA may disallow these costs. There can be no assurance that audits by the DCAA or other governmental agencies will not result in material cost disallowances in the future. There are no ongoing audits and or material adjustments related to noncompliance are required. The Company is in compliance with all federal and state regulations and is not aware of any material adjustments as of the consolidated balance sheet dates. Commitments and Contingencies For asserted claims and assessments, liabilities are recorded when an unfavorable outcome of a matter is concluded to be probable and the loss is reasonably estimable. With respect to unasserted claims or assessments, management must first determine that the probability that an assertion will be made is likely. Then, a determination as to the likelihood of an unfavorable outcome and the ability to reasonably estimate the potential loss is made. Legal matters are reviewed on a continuous basis to determine if there has been a change in management’s judgment regarding the likelihood of an unfavorable outcome or the estimate of a potential loss. Legal costs are expensed as incurred. 70 Joint Ventures and Variable Interest Entities The Company’s joint ventures, the combination of two or more partners, are generally formed for the execution of a specific contract. Management of the joint venture is typically controlled by a joint venture management committee, comprised of representatives from the joint venture partners. The joint venture management committee normally provides management oversight and controls decisions which could have a significant impact on the joint venture. Some of the Company’s joint ventures have no employees and minimal operating expenses. For these joint ventures, the Company’s employees perform work for the joint venture, which is then billed to a third-party client by the joint venture. For consolidated joint ventures of this type, the Company records the entire amount of the services performed and the costs associated with these services, including the services provided by the other joint venture partners, in the Company’s results of operations. For certain of these joint ventures where a fee is added by an unconsolidated joint venture to client billings, these fees are eliminated to the extent the fee represents billings from the Company to the joint venture. The Company assesses its joint ventures at inception to determine if they meet the qualifications of a variable interest entity ("VIE"). The Company considers a partnership or joint venture a VIE if it has any of the following characteristics: • the total equity investment is not sufficient to permit the entity to finance its activities without additional subordinated financial support; • characteristics of a controlling financial interest are missing (either the ability to make decisions through voting or other rights, the obligation to absorb the expected losses of the entity or the right to receive the expected residual returns of the entity); or • the voting rights of the equity holders are not proportional to their obligations to absorb the expected losses of the entity and/or their rights to receive the expected residual returns of the entity, and substantially all of the entity’s activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights. The Company analyzes its joint ventures and classifies them as either: • a VIE that must be consolidated because the Company is the primary beneficiary or the joint venture is not a VIE and the Company holds the majority voting interest with no significant participative rights available to the other partners; or • a VIE that does not require consolidation and is treated as an equity method investment because the Company is not the primary beneficiary or the joint venture is not a VIE and the Company does not hold the majority voting interest. Cash, Cash Equivalents and Restricted Cash The Company from time to time may have bank deposits in excess of insurance limits of the Federal Deposit Insurance Corporation. The Company has not experienced any credit losses in such accounts and believes it is not exposed to any significant credit risk related to its cash and cash equivalents. The Company’s cash equivalents include highly liquid investments which have an initial maturity of three months or less. Cash and cash equivalents as of December 29, 2023 and December 30, 2022, include $ 1 million and $ 4 million, respectively, held by consolidated joint ventures that may not be distributed or used for certain other payments prescribed in the joint venture agreement without consent of the joint venture partners. These balances are presented as restricted cash within the consolidated balance sheets. Accounts Receivable and Allowance for Doubtful Accounts 71 The Company records its accounts receivable net of an allowance for doubtful accounts. This allowance for doubtful accounts is estimated based on management’s evaluation of the contracts involved and the client’s ability and willingness to pay. Allowances for doubtful accounts have been determined through specific identification of amounts considered to be uncollectible and potential write-offs, plus a non-specific allowance for other amounts for which some potential loss has been determined to be probable as of the consolidated balance sheet date based on current and past experience. Property, Plant and Equipment Property, plant and equipment are recorded at cost and are depreciated over their estimated useful lives using the straight-line method. Expenditures for maintenance and repairs are expensed as incurred. Estimated useful lives range as follows: • Buildings — 10 to 45 years; • Machinery, equipment, and vehicles — 3 to 12 years; • Office furniture and equipment — 3 to 10 years; • Leasehold improvements — the shorter of their estimated useful lives or the remaining terms of the underlying lease agreement. Property, plant and equipment to be held and used are reviewed for impairment whenever events or circumstances indicate that the carrying amount of assets may not be recoverable. The carrying amount of an asset to be held and used is not recoverable if it exceeds the sum of the undiscounted cash flows expected from the use and eventual disposition of the asset. For assets to be held and used, impairment losses are recognized based upon the excess of the asset’s carrying amount over the fair value of the asset. For property, plant and equipment assets to be disposed, impairment losses are recognized at the lower of the carrying amount or fair value less cost to sell. There was no impairment to property, plant and equipment for the fiscal years ended December 29, 2023 and December 30, 2022. Intangible Assets The estimated useful lives for intangible assets were determined based upon the remaining useful economic lives of the intangible assets that are expected to contribute directly or indirectly to future cash flows. The estimated useful lives for trademarks and customer contracts are seven years and six years, respectively. Intangible assets are amortized over the shorter of their contractual term or estimated useful life. The Company considers events or circumstances that may warrant revised estimates of useful lives or that may indicate impairment. There was no impairment to intangible assets for the fiscal years ended December 29, 2023 or December 30, 2022. Insurance Reserves The Company maintains insurance for certain insurable business risks. Insurance coverage contains various retention and deductible amounts for which the Company accrues a liability based upon reported claims and an actuarially determined estimated liability for certain claims incurred but not reported. It is generally the Company’s policy not to accrue for any potential legal expense to be incurred in defending the Company’s position. Leases The Company enters into lease arrangements for real estate, construction equipment and information technology equipment in the normal course of business. The Company determines if an arrangement is or contains a lease at inception of the arrangement. An arrangement is determined to be a lease if it conveys the right to control the use of identified property and equipment for a period of time in exchange for consideration. Operating lease right-of-use assets are recognized as the present value of future lease payments over the lease term as of the commencement date, plus any lease payments made prior to commencement, and less any lease incentives received. Operating lease liabilities are recognized as the present value of the future lease payments over the lease term as of the commencement date. Operating lease expense is recognized based on the undiscounted future lease payments over 72 the remaining lease term on a straight-line basis. Lease expense related to short-term leases is recognized on a straight-line basis over the lease term. Determinations with respect to lease term (including any renewals and terminations), incremental borrowing rate used to discount lease payments, variable lease expense and future lease payments require the use of judgment based on the facts and circumstances related to each lease. The Company considers various factors, including economic incentives, intent, past history and business need, to determine the likelihood that a renewal option will be exercised. Right-of-use assets are evaluated for impairment in accordance with the Company’s policy for impairment of long-lived assets. Non-controlling Interests Non-controlling interests represent the equity investments of the minority owners in the Company’s joint ventures and other subsidiary entities that are consolidated in its financial statements. Fair Value Accounting The Company categorizes its financial instruments using a valuation hierarchy for disclosure of the inputs used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument; Level 3 inputs are unobservable inputs based on the Company’s assumptions used to measure assets and liabilities at fair value. The classification of a financial asset or liability within the hierarchy is determined based on the lowest level (least observable) input that is significant to the fair value measurement. Other than the contingent consideration, there were no assets and liabilities measured at fair value on a recurring basis as of December 29, 2023 or December 30, 2022. Income Taxes The Company accounts for income taxes using the asset and liability method. This method requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. The Company recognizes deferred tax assets to the extent that its management believes these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If the Company determines that it would be able to realize its deferred tax assets in the future in excess of their net recorded amount, it will make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth. The Company records uncertain tax positions using a two-step process in which (1) it determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. Segment 73 The accounting guidance on Segment Reporting establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information of those segments to be presented in financial statements. Operating segments are identified as components of an enterprise for which separate discrete financial information is available for evaluation by the chief operating decision maker (“CODM”) in making decisions on how to allocate resources and assess performance. Based on how the Company’s Chief Executive Officer as the CODM reviews financial performance and allocates resources on a recurring basis, the Company has one operating segment and one reportable segment. Stock-Based Compensation All stock-based payments (to the extent that they are compensatory) are recognized as an expense in the Company’s consolidated statements of operations based on their fair values on the grant date. The Company accounts for forfeitures when they occur. The Company recognizes stock-based compensation expense on a straight-line basis over the service period of the award, which is no greater than four years. See Note 8 - Stock Compensation, for discussion of stock-based compensation and incentive plans. Accounting Standards Not Yet Adopted Accounting pronouncements not listed below were assessed and determined to be not applicable or are expected to have minimal impact on the consolidated financial statements. In November 2023, the FASB issued ASU 2023-07 to enhance disclosures of significant expense and segment profitability categories and amounts for reportable business segments. The amendment is effective in annual periods beginning after December 15, 2023 and subsequent interim periods, with early adoption permitted. The Company is currently evaluating the provisions of the amendments and the impact on its future consolidated financial statements. In December 2023, the FASB issued ASU 2023-09 to improve disclosures and presentation requirements to the transparency of the income tax disclosures by requiring consistent categories and greater disaggregation of information in the rate reconciliation and income taxes paid disaggregated by jurisdiction. The amendment is effective in annual periods beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the provisions of the amendments and the impact on it future consolidated financial statements. Note 3. Revenue, Receivables and Contract Assets and Liabilities The following table presents the Company’s revenue disaggregated by contract types: Fiscal Year Ended December 29, December 30, (In thousands) 2023 2022 Fixed-price $ 567,224 $ 601,903 Cost reimbursable 57,063 54,835 Equipment and labor 8,519 7,420 Total revenue $ 632,806 $ 664,158 Projects started after the AECOM Sale Transactions ("Shimmick Projects") have focused on water infrastructure and other critical infrastructure. Projects that started prior to consummation of the AECOM Sale Transactions are referred to as "Legacy Projects". The following table presents the Company’s revenue disaggregated by Shimmick Projects and Legacy Projects: Fiscal Year Ended December 29, December 30, (In thousands) 2023 2022 Shimmick Projects $ 434,297 $ 350,667 Legacy Projects 198,509 313,491 Total revenue $ 632,806 $ 664,158 74 Remaining performance obligations The Company had $ 1.1 billion of remaining performance obligations yet to be satisfied as of December 29, 2023. Our remaining performance obligations have a weighted average life of 2.0 years as of December 29, 2023. Contract Balances The following table provides information about contract assets (also referred to as costs and estimated earnings in excess of billings on uncompleted contracts and retainage receivable) and contract liabilities (also referred to as billings on uncompleted contracts in excess of costs and estimated earnings and forward loss reserve), which include assets and liabilities that are dependent upon future activity: December 29, December 30, 2023 2022 Change (In thousands) Contract assets, current and non-current: Costs and estimated earnings in excess of billings on uncompleted contracts $ 125,943 $ 116,120 $ 9,823 Retainage receivable 48,316 48,805 ( 489 ) Total contract assets 174,259 164,925 9,334 Contract liabilities, current and non-current: Billings on uncompleted contracts in excess of costs and estimated earnings ( 48,841 ) ( 56,963 ) 8,122 Forward loss reserve ( 70,159 ) ( 108,608 ) 38,449 Total contract liabilities ( 119,000 ) ( 165,571 ) 46,571 Net $ 55,259 $ ( 646 ) $ 55,905 Contract terms with customers include the timing of billing and payment, which usually differs from the timing of revenue recognition. As a result, the Company carries contract assets and liabilities within the consolidated balance sheets. These contract assets and liabilities are calculated on a contract-by-contract basis and reported on a net basis at the end of each period and are classified as current or non-current. Many of the contracts under which the Company performs work also contain retainage provisions. Retainage refers to that portion of our billings held for payment by the customer pending satisfactory completion of the project. Unless reserved, the Company assumes that all amounts retained by customers under such provisions are fully collectible. These assets and liabilities are reported in the consolidated balance sheets within “Contract assets, current,” “Contract assets, non-current,” “Contract liabilities, current" and “Contract liabilities, non-current." Costs and estimated earnings in excess of billings on uncompleted contracts consists of revenue recognized in excess of billings. Billings on uncompleted contracts in excess of costs and estimated earnings consists of billings in excess of revenue recognized. The Company recognized revenue of $ 73 million during the fiscal year ended December 29, 2023 that was included in contract liabilities as of December 30, 2022. The Company’s timing of revenue recognition may not be consistent with its rights to bill and collect cash from its clients. Those rights are generally dependent upon advance billing terms, milestone billings based on the completion of certain phases of work or when services are performed. The Company’s accounts receivable represents amounts billed to clients that have yet to be collected and represent an unconditional right to cash from its clients as presented below. 75 December 29, December 30, 2023 2022 (In thousands) Total accounts receivable, gross $ 55,202 $ 57,395 Allowance for doubtful accounts ( 1,024 ) ( 965 ) Accounts receivable, net $ 54,178 $ 56,430 Substantially all contract assets as of December 29, 2023 and December 30, 2022 are expected to be collected within the Company’s estimated operating cycle, except for retainage and claims pertaining to certain contracts. The Company’s operating cycle may extend beyond one year. The Company is in the process of negotiating or awaiting approval of unapproved change orders and claims with its customers. The Company is proceeding with its contractual rights to recoup additional costs incurred from its customers based on completing work associated with change orders, including change orders with pending change order pricing, or claims related to significant changes in scope which resulted in substantial delays and additional costs in completing the work. The Company may take legal action if it and the customer cannot reach a mutually acceptable resolution. Information about significant customers Significant Customers as a Percentage of Accounts Receivable, Net As of December 29, 2023 Customer one 32.5 % Customer two 21.7 % As of December 30, 2022 Customer one 31.4 % Customer two 21.4 % Customer three 14.4 % Significant Customers as a Percentage of Revenue Fiscal Year Ended December 29, 2023 Customer one 16.7 % Customer two 14.5 % Customer three 12.9 % Fiscal Year Ended December 30, 2022 Customer one 12.1 % Customer two 10.9 % Customer three 10.8 % Customer four 10.1 % Revisions in Estimates Changes in contract estimates resulted in net decreases in gross margin of $ 10 million for the fiscal year ended December 29, 2023, primarily due to increased forecasted costs to complete and an agreed upon contract settlement lower than previously estimated, partially offset by increases in gross margin on an outstanding claim. The Company’s results of operations were materially impacted by an increase in the forecasted costs to complete on projects associated with a canal lock chamber, waterway canal and water desalination which reduced gross margin by a total of $ 18 million in fiscal year 2022. The increases in forecasted costs were primarily due to significantly reduced productivity and schedule delays as a result of the COVID-19 pandemic, unexpected underwater soil conditions, project design modifications and associated scheduling delays. 76 Note 4. Joint Ventures and Variable Interest Entities A summary of financial information of the consolidated joint ventures is as follows: December 29, December 30, 2023 2022 (In thousands) Current assets $ 34,071 $ 29,485 Non-current assets 8,971 8,235 Total assets 43,042 37,720 Current liabilities 59,602 22,603 Non-current liabilities 2,013 56,595 Total liabilities $ 61,615 $ 79,198 Fiscal Year Ended December 29, December 30, 2023 2022 (In thousands) Revenue $ 23,599 $ 27,190 The assets of the Company’s consolidated joint ventures are restricted for use only by the particular joint venture and are not available for the general operations of the Company. A summary of financial information of the unconsolidated joint ventures, as derived from their financial statements, is as follows: December 29, December 30, 2023 2022 (In thousands) Current assets $ 74,498 $ 78,228 Non-current assets 14,333 25,026 Total assets 88,831 103,254 Current liabilities 42,817 63,240 Total liabilities $ 42,817 $ 63,240 Fiscal Year Ended December 29, December 30, 2023 2022 (In thousands) Revenue $ 80,727 $ 430,634 Cost of revenue 64,793 332,528 Gross margin 15,934 98,106 Net income $ 15,934 $ 98,106 Contractually required support provided to the Company’s joint ventures is discussed in Note 12 - Commitments and Contingencies. 77 Related Party Transactions We often provide construction management and other subcontractor services to the Company’s joint ventures and revenue includes amounts related to these services which is eliminated to the extent of our ownership. Revenue included related to services provided to unconsolidated joint venture related parties is as follows: Fiscal Year Ended December 29, December 30, 2023 2022 (In thousands) Revenue $ 3,415 $ 7,420 Amounts included in the consolidated balance sheets related to services provided to unconsolidated joint ventures for the periods ended December 29, 2023 and December 30, 2022 are as follows: December 29, December 30, 2023 2022 (In thousands) Accounts receivable, net $ 2,092 $ 5,045 Note 5. Property, Plant and Equipment and Intangible Assets The following table summarizes the components of property, plant and equipment as of December 29, 2023 and December 30, 2022. December 29, 2023 December 30, 2022 (In thousands) Building and land $ 4,002 $ 3,887 Machinery, equipment, and vehicles 70,250 67,698 Office furniture and equipment 9,324 7,891 Property, plant and equipment, gross 83,576 79,476 Accumulated depreciation ( 37,203 ) ( 24,268 ) Property, plant and equipment, net $ 46,373 $ 55,208 Fiscal Year Ended December 29, December 30, 2023 2022 (In thousands) Depreciation expense $ 14,338 $ 13,047 Depreciation is recorded within cost of revenue and selling, general and administrative expenses and is calculated using the straight-line method over the estimated useful lives of the assets, or in the case of leasehold improvements and capitalized leases, the lesser of the remaining term of the lease or its estimated useful life. The following table presents the Company’s finite-lived intangible assets, including the weighted- average useful lives for each major intangible asset category and in total: 78 December 29, 2023 Weighted Average Remaining Useful Life Intangible Assets, Gross Accumulated Amortization Intangible Assets, Net (In thousands) Trademark 4 $ 10,600 $ ( 4,543 ) $ 6,057 Customer contracts 3 6,527 ( 3,340 ) 3,187 Total $ 17,127 $ ( 7,883 ) $ 9,244 December 30, 2022 Weighted Average Remaining Useful Life Intangible Assets, Gross Accumulated Amortization Intangible Assets, Net (In thousands) Trademark 5 $ 10,600 $ ( 3,029 ) $ 7,571 Customer contracts 4 6,709 ( 2,236 ) 4,473 Total $ 17,309 $ ( 5,265 ) $ 12,044 Amortization of intangibles was $ 3 million for each of the fiscal years ended December 29, 2023 and December 30, 2022 and is recorded as amortization of intangibles within the consolidated statements of operations. The Company’s estimated aggregate remaining amortization is as follows: Amortization Expense (In thousands) 2024 $ 2,577 2025 2,577 2026 2,577 2027 1,513 Total $ 9,244 Significant Transaction The Company executed a $ 35 million Membership Interest Purchase Agreement on June 30, 2023 for the sale of non-core business contracts. A gain on the sale of non-core business contracts of $ 30 million was recorded within gain on sale of assets after consummation of the transaction during the third quarter of 2023 after a $ 5 million adjustment to the purchase price. The company received $ 30 million in cash during the third quarter of 2023. Note 6. Debt Total debt outstanding is presented on the consolidated balance sheets as follows: (In thousands) December 29, 2023 December 30, 2022 Revolving Credit Facility $ 29,914 $ — Total debt 29,914 — Unamortized debt issuance costs ( 287 ) — Long-term debt, net $ 29,627 $ — 79 Revolving Credit Facility On March 27, 2023, we entered into a Revolving Credit Facility Agreement (“Revolving Credit Facility”) with MidCap Financial Services, LLC, which originally provided a total commitment of $ 30 million. The Revolving Credit Facility was subsequently amended on June 30, 2023 and September 22, 2023. As amended, the Revolving Credit Facility provides for a total commitment of $ 35 million and bears interest at an annual rate of adjusted term SOFR, subject to a 1.0 % floor, plus 4.50 %. Further, the Revolving Credit Facility is subject to an annual collateral management fee of 0.50 % and an annual unused line fee of 0.50 %. The Revolving Credit Facility Agreement matures on March 27, 2028 and requires the Company to maintain a leverage ratio that does not exceed 1.75 to 1.0. The Company is not aware of any instances of noncompliance with financial covenants as of December 29, 2023. Following the IPO, we used the net proceeds we received from our IPO, together with cash on hand, to repay all outstanding borrowing under our Revolving Credit Facility. Subsequent to the repayment, we drew $ 30 million on our Revolving Credit Facility to fund working capital requirements. Project Financing Agreement On March 26, 2024, we entered into a Project Financing Agreement with Berkshire Hathaway Specialty Insurance Company, National Liability & Fire Insurance Company and National Indemnity Company (collectively "Berkshire") which provides an advance of up to $ 25 million in exchange for security interest in the assigned and secured collateral specified in the Project Financing Agreement. If drawn, the advance will be used to satisfy bond and bonded contract obligations and bears interest at an annual rate of adjusted term SOFR, subject to a 1.0 % floor, plus 4.50 %. All funds provided by Berkshire under the Project Financing Agreement as well as all accrued interest are due and payable in full on March 28, 2028. Note 7. Income Taxes The components of the provision for income taxes are as follows: Fiscal Year Ended December 29, 2023 December 30, 2022 (In thousands) Current taxes: Federal $ — $ 1,030 State — 244 Total current taxes — 1,274 Deferred taxes: Federal — — State — — Total deferred taxes — — Provision for income taxes $ — $ 1,274 The differences between income taxes expected at the U.S. federal statutory income tax rate of 21 % and the reported income tax (benefit) expense are summarized as follows: 80 Fiscal Year Ended December 29, 2023 December 30, 2022 (In thousands) Expected income tax (benefit) expense at federal statutory rate $ ( 480 ) $ 1,070 State income taxes, net of federal income tax benefit 27 790 Return to provision true-up 1,774 — Permanent items 562 72 Contingent consideration — 1,987 Change in valuation allowance 5,248 ( 2,645 ) State rate change ( 7,131 ) — Reported provision for income taxes $ — $ 1,274 Effective tax rate 0 % 25 % Deferred income taxes represent the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The components of deferred tax liabilities and assets are as follows: December 29, 2023 December 30, 2022 (In thousands) Deferred tax liabilities: Depreciation and amortization $ ( 10,598 ) $ ( 12,682 ) Right-of-use asset ( 6,654 ) ( 6,169 ) Total deferred tax liabilities $ ( 17,252 ) $ ( 18,851 ) Deferred tax assets: Intangible assets $ 34,457 $ 35,818 Contract loss reserve 11,143 17,687 Investment in partnerships 16,453 25,645 Lease liability 6,586 6,132 Stock compensation 1,428 804 Accrued expenses and reserves 5,895 9,409 Section 382 limitation 39,622 30,070 Net operating loss carryforwards 24,629 11,003 Other deferred tax assets 715 711 Total deferred tax assets $ 140,928 $ 137,279 Net deferred tax assets before valuation allowance 123,676 118,428 Less: Valuation allowance ( 123,676 ) ( 118,428 ) Net deferred tax assets $ — $ — As of December 29, 2023 and December 30, 2022, gross deferred tax assets were $ 141 million and $ 137 million, respectively. The Company has recorded a valuation allowance of $ 124 million and $ 118 million as of December 29, 2023 and December 30, 2022, respectively. The Company has performed an assessment of positive and negative evidence, including the nature, frequency, and severity of cumulative financial reporting losses in recent years, the future reversal of existing temporary differences, predictability of future taxable income exclusive of reversing temporary differences of the character necessary to realize the asset, relevant carryforward periods, taxable income in carry-back years if carry- back is permitted under tax law, and prudent and feasible tax planning strategies that would be implemented, if necessary, to protect against the loss of the deferred tax asset that would otherwise expire. The $ 6 million increase in the valuation allowance is attributed to the full valuation allowance being recorded on all increases in deferred tax assets in the current period. The Company recognizes interest and penalties related to tax matters as a component of “Selling, general and administrative expenses” in the accompanying consolidated statements of operations. 81 At December 29, 2023, the Company had U.S. federal and state net operating loss (“NOL”) carryforwards of $ 89 million and $ 87 million, respectively. The U.S. federal NOL carryforward does not expire and can be carried forward indefinitely, but can only offset up to 80% of taxable income in future years. The state NOL carryforwards have both indefinite and limited carryforward periods, depending on state jurisdictions, and expire beginning in 2036 through 2042 . At December 29, 2023, the Company had a full valuation allowance related to the tax-effected amount of these net operating losses. The Company had no unrecognized tax benefits recorded at December 29, 2023. The Company files income tax returns in numerous tax jurisdictions, including the U.S. and multiple U.S. states. The statute of limitations generally ranges from three to five years for major jurisdictions in which the Company operates. Prior to the acquisition, Shimmick filed as a subsidiary of their parent company, AECOM. In connection with the separation, the Company entered into a tax matters agreement. Under the tax matters agreement, AECOM is generally responsible for all taxes associated with consolidated federal and state filings imposed on AECOM and its subsidiaries (including Shimmick) with respect to taxable periods ended on or prior to January 1, 2021. Also, pursuant to this agreement, AECOM is generally responsible for all taxes associated with separately filed state and local tax filings imposed on Shimmick and its subsidiaries with respect to taxable periods ended on or prior to January 1, 2021. Under these circumstances, Shimmick is only liable for tax periods filed on a standalone basis following the acquisition date. Note 8. Stock-Based Compensation On April 12, 2021, the Company’s Board approved the Company’s 2021 Stock Plan (the “2021 Stock Plan”). The 2021 Stock Plan reserves 5,477,200 of the Company’s shares for issuance of incentive instruments, including Incentive Stock Options (“ISOs”), Non-statutory Stock Options, Stock Appreciation Rights, Restricted Stock Awards, and Restricted Stock Unit Awards. ISOs granted under the Plan have a term of 10 years and vest over four years of service. On November 13, 2023, the Company’s Board approved the Shimmick Corporation 2023 Equity Incentive Plan (the “2023 Omnibus Incentive Plan”). The maximum aggregate number of shares of Common Stock available is 3,729,149 under the 2023 Omnibus Incentive Plan (equal to ten percent (10%) of the Company’s Common Stock outstanding immediately following the completion of the Company’s IPO on November 16, 2023 plus (ii) the reserved and authorized shares for awards under the Company’s 2021 Stock Plan that were not granted as of November 13, 2023). The maximum aggregate number of shares of Common Stock that may be issued under the 2023 Omnibus Incentive Plan will automatically increase annually on the first day of each fiscal year, beginning with the 2024 fiscal year in an amount equal to five percent (5%) of Common Stock outstanding on the last day of the immediately preceding fiscal year unless the plan administration determines that a lesser amount should instead be issued. The shares reserved under the 2023 Omnibus Incentive Plan are for issuance of incentive instruments, including stock options, restricted stock awards, restricted stock units, stock appreciation rights, performance units and other share-based awards. Total compensation expense related to stock-based grants was $ 2 million for each of the fiscal years ended December 29, 2023 and December 30, 2022. Unrecognized compensation expense related to stock-based grants to employees of Shimmick outstanding as of December 29, 2023 and December 30, 2022 was $ 3 million and $ 5 million, respectively, to be recognized on a straight-line basis over the awards’ weighted average remaining vesting period of 1.3 years and 2.3 years, respectively. For the fiscal year ended December 29, 2023, stock option activity was as follows: 82 Stock Options Number of shares Weighted average exercise price per share Weighted average grant date fair value Weighted average years of remaining contractual term Outstanding as of December 30, 2022 4,489,094 $ 1.26 $ — 8.33 Exercised ( 10,077 ) 1.26 — — Forfeited ( 184,888 ) 1.26 0.28 — Vested ( 156,946 ) 1.26 — — Outstanding as of December 29, 2023 4,137,183 1.26 — 7.60 Exercisable as of December 29, 2023 2,701,306 $ 1.26 $ — 7.60 Note 9. Earnings Per Share Basic earnings per share (“EPS”) is calculated based on the weighted average shares outstanding during the period. Diluted earnings per share includes the dilutive effect of employee and director stock options. Stock options are considered dilutive whenever the exercise price is less than the average market price of the stock during the period and antidilutive whenever the exercise price exceeds the average market price of the common stock during the period. All 4.1 and 4.5 million employee stock options were excluded from the calculation of diluted earnings per share for the fiscal years ended December 29, 2023 and December 30, 2022, respectively, as they are antidilutive to the EPS calculation. The computation of basic and diluted EPS is as follows: Fiscal Year Ended (In thousands, except per share data) December 29, 2023 December 30, 2022 Numerator: Net (loss) income attributable to Shimmick Corporation $ ( 2,546 ) $ 3,760 Numerator for basic and diluted EPS $ ( 2,546 ) $ 3,760 Denominator: Denominator for basic EPS - weighted average shares 22,356 21,909 Effect of dilutive securities: Employee stock options — — Dilutive potential common shares — — Denominator for diluted EPS - adjusted weighted average shares and assumed conversions 22,356 21,909 Basic EPS $ ( 0.11 ) $ 0.17 Diluted EPS $ ( 0.11 ) $ 0.17 83 Note 10. Leases Lease expenses recorded within the consolidated statements of operations are comprised as follows: Fiscal Year Ended (In thousands) December 29, 2023 December 30, 2022 Operating lease cost Cost of revenue $ 11,351 $ 10,267 Selling, general and administrative expenses 1,210 1,539 Finance lease cost (all in cost of revenue): Amortization of right-of-use assets 282 300 Interest on lease liabilities 50 34 Short-term lease cost 594 382 Total lease cost $ 13,487 $ 12,522 Additional consolidated balance sheets information related to leases is as follows: Balance Sheet December 29, December 30, (In thousands) Classification 2023 2022 Assets: Operating lease assets Lease right-of-use assets $ 23,568 $ 21,811 Finance lease assets Lease right-of-use assets 287 879 Total lease assets $ 23,855 $ 22,690 Liabilities:    Current:    Operating lease liabilities Other current liabilities $ 8,247 $ 7,767 Finance lease liabilities Other current liabilities 317 313 Total current lease liabilities    $ 8,564 $ 8,080 Non-current:    Operating lease liabilities Lease liabilities, non-current $ 15,017 $ 13,861 Finance lease liabilities Lease liabilities, non-current 28 581 Total non-current lease liabilities $ 15,045 $ 14,442 Weighted average remaining lease term information related to leases is as follows: December 29, December 30, 2023 2022 Weighted average remaining lease term (in years): Operating leases 3.4 4.1 Finance leases 1.1 2.1 Weighted average discount rate: Operating leases 6.3 % 5.3 % Finance leases 9.9 % 3.2 % 84 Supplemental cash flow information related to leases is as follows: Fiscal Year Ended December 29, December 30, (In thousands) 2023 2022 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 11,070 $ 11,852 Financing cash flows from finance leases $ 303 $ 303 Right-of-use assets obtained in exchange for new operating leases $ 13,215 $ 11,300 Total remaining lease payments under both the Company’s operating and finance leases are as follows: Operating Financing Year Leases Leases (In thousands) 2024 $ 9,421 $ 337 2025 8,363 28 2026 3,532 — 2027 1,912 — 2028 1,718 — Thereafter 808 — Total lease payments 25,754 365 Amounts representing interest ( 2,490 ) ( 20 ) Total lease liabilities $ 23,264 $ 345 Note 11. Employee Retirement Plans Defined Contribution Profit Sharing Plan The Company sponsors a defined contribution profit sharing plan covering substantially all non-union persons employed by the Company, whereby employees may contribute a percentage of compensation, limited to maximum allowed amounts under the Internal Revenue Code. The Company made matching contributions of $ 2 million for each of the fiscal years ended December 29, 2023 and December 30, 2022. Multiemployer Pension Plans The Company participates in construction-industry multiemployer pension plans. Generally, the plans provide defined benefits to substantially all employees covered by collective bargaining agreements. Under the Employee Retirement Income Security Act, a contributor to a multiemployer plan is liable, upon termination or withdrawal from a plan, for its proportionate share of a plan’s unfunded vested liability. The Company’s aggregate contributions to these multiemployer plans were $ 15 million and $ 17 million for the fiscal years ended December 29, 2023 and December 30, 2022, respectively. 85 Our participation in significant plans for the fiscal years ended December 29, 2023 and December 30, 2022 is outlined in the table below. The “EIN/Pension Plan Number” column provides the Employer Identification Number (“EIN”) and the three digit plan number. The zone status is based on the latest information that the Company received from the plan and is certified by the plan’s actuary. Plans in the red zone are generally less than 65 % funded, plans in the yellow zone are generally less than 80 % funded, and plans in the green zone are generally at least 80 % funded. The “FIP/RP Status Pending/Implemented” column indicates plans for which a financial improvement plan (“FIP”) or a rehabilitation plan (“RP”) is either pending or has been implemented. The “Surcharge Imposed” column includes plans in a red zone status that require a payment of a surcharge in excess of regular contributions. Pension Protection Act Zone Status Company Contributions Fiscal Year Ended (in thousands) Pension Fund EIN/Pension Plan Number 2023 2022 FIP/RP Status Pending or Implemented December 29, 2023 December 30, 2022 Surcharge Imposed Pension Trust Fund for the Operating Engineers 94-6090764 Green Yellow NA $ 1,852 $ 1,857 No Tri-State Carpenters & Joiners Pension Trust Fund 62-0976048 Described below (1) Yellow NA 1,722 1,818 No Carpenters Pension Trust Fund for Northern California 94-6050970 Red Red Implemented 1,454 1,613 No California Ironworkers Field Pension Fund 95-6042866 Green Green NA 1,112 1,931 No Laborers Pension Trust Fund for Northern California 94-6277608 Green Green NA 1,366 1,389 No Central Pension Fund of the IUOE & Participating Employers 36-6052390 Described below (1) Green NA 1,006 949 No Ironworkers District Council of TN Valley & Vicinity Welfare Pension Plans 62-6098036 Described below (1) Green NA 882 839 No Operating Engineers Trust Fund 95-6032478 Described below (1) Green NA 823 986 No Southwest Carpenters Pension Fund 95-6042875 Green Green NA 619 651 No San Diego County Construction Laborers Pension Trust Fund 95-6090541 Green Green NA 580 343 No Construction Laborers Pension Trust for Southern California 43-6159056 Described below (1) Green NA 566 1,060 No Southern California IBEW-NECA Pension Trust Fund 95-6392774 Described below (1) Yellow NA 497 703 No IBEW Local 595 Pension Plan 94-6279541 Described below (1) Green NA 297 503 No San Diego Electrical Pension Plan 95-6101801 Described below (1) Green NA 268 148 No San Diego County Cement Masons Pension Plan 95-6267660 Described below (1) Yellow NA 209 92 No Northern California Pipe Trades Pension Plan 94-3190386 Described below (1) Green NA 77 441 No Contributions to other multiemployer plans 1,324 1,355 Total contributions made $ 14,654 $ 16,678 (1) For the plans noted above, we have not received a funding notification that covers the fiscal year presented during the preparation of the financial statements. Under Federal pension law, if a multiemployer pension plan is determined to be in critical or endangered status, the plan must provide notice of this status to participants, beneficiaries, the bargaining parties, the Pension Benefit Guaranty Corporation, and the Department of Labor. The Company has also observed that these plans have not submitted any Critical or Endangered Status Notices to the Department of Labor for calendar years that the Company has not received notification. The Critical or Endangered Status Notices can be accessed at https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/public-disclosure/critical-status-notices The Company is not aware of any significant future obligations or funding requirements related to these plans other than the ongoing contributions that are paid as hours are worked by plan participants. Note 12. Commitments and Contingencies In the Company’s joint venture arrangements, the liability of each partner is usually joint and several. This means as each joint venture partner may become liable for the entire risk of performance guarantees provided by each partner to the customer. Typically, each joint venture partner indemnifies the other partners for any liabilities incurred in excess of the liabilities the other party is obligated to bear under the respective joint venture agreement. In addition, the Company may be required to guarantee performance directly to the customer. The Company is unable to estimate the maximum potential amount of future payments that the Company could be required to make under outstanding performance guarantees related to joint venture projects due to a number of factors, including but not limited to, the nature and extent of any contractual defaults by the other joint venture partners, resource availability, potential performance delays caused by the defaults, the location of the projects, and the terms of the related contracts. 86 In the ordinary course of business, the Company is subject to other claims, lawsuits, investigations and disputes arising out of the conduct of its business, including matters relating to commercial transactions, government contracts, and employment matters. The Company recognizes a liability for contingencies that are probable of occurrence and reasonably estimable. To date, no such matters are material to the consolidated statements of operations. In certain contracts, there are provisions that require the Company to pay liquidated damages if the Company is responsible for the failure to meet specified contractual milestone dates and the applicable customer asserts a conforming claim under these provisions. These contracts define the conditions under which customers may make claims against the Company for liquidated damages. Based upon the evaluation of performance and other commercial and legal analysis, management has recognized relevant probable liquidated damages as of December 29, 2023 and December 30, 2022, and believes that the ultimate resolution of such matters will not materially affect the Company's consolidated financial position, results of operations, or cash flows. The Company has recorded contingent consideration as of December 29, 2023 and December 30, 2022 at its estimated fair value. The Company is unable to reasonably determine an estimated range of amounts of the payments that could be made due to the uncertainty of future events. Guarantees The Company obtains bonding on construction contracts through third-party bonding companies. As is customary in the construction industry, the Company indemnifies the third-party bonding companies for any losses incurred by it in connection with bonds that are issued. The Company has granted the third-party bonding companies a security interest in accounts receivable, contract assets and contract rights for that obligation. The Company typically indemnifies contract owners for claims arising during the construction process and carries insurance coverage for such claims. Letters of Credit In the ordinary course of business and under certain contracts, the Company is required to post standby letters of credit for its insurance carriers. At December 29, 2023 and December 30, 2022, the total amount of standby letters of credit outstanding were $ 0 and $ 8 million, respectively. 87 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.