What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-03-17 compared with 2020-03-06 · 543 added, 644 removed, 903 unchanged (57% of the section changed)

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Reports of Independent Registered Public Accounting Firms

Consolidated Balance Sheets as of December 27, 2019 and December 28, 2018

Consolidated Statements of Comprehensive Income for each of the fiscal years in the three‑year period ended December 27, 2019

Consolidated Statements of Stockholders’

Equity for each of the fiscal years in the three‑year period ended December 27, 2019

Consolidated Statements of Cash Flows for each of the fiscal years in the three‑year period ended December 27, 2019

Consolidated Balance Sheets as of January 1, 2021 and December 27, 2019

Consolidated Statements of Comprehensive Income for each of the fiscal years in the three-year period ended January 1, 2021

Consolidated Statements of Stockholders’ Equity for each of the fiscal years in the three-year period ended January 1, 2021

Consolidated Statements of Cash Flows for each of the fiscal years in the three-year period ended January 1, 2021

Notes to Consolidated Financial Statements

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We have audited the accompanying consolidated balance sheets of Willdan Group, Inc.

(the "Company") as of December 27, 2019 and December 28, 2018, the related consolidated statements of comprehensive income, stockholders’

equity, and cash flows for the years ended December 27, 2019 and December 28, 2018, and the related notes (collectively referred to as the "financial statements").

We also have audited the Company’s internal control over financial reporting as of December 27, 2019, based on criteria established in Internal Control –

Integrated Framework:

(the "Company") as of January 1, 2021 and December 27, 2019, the related consolidated statements of comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended January 1, 2021, and the related notes (collectively referred to as the "financial statements").

We also have audited the Company’s internal control over financial reporting as of January 1, 2021, based on criteria established in Internal Control – Integrated Framework:

(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 27, 2019 and December 28, 2018, and the results of its operations and its cash flows for the years ended December 27, 2019 and December 28, 2018 in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 27, 2019, based on criteria established in Internal Control –

Integrated Framework:

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of January 1, 2021 and December 27, 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended January 1, 2021 in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 1, 2021, based on criteria established in Internal Control – Integrated Framework:

(2013) issued by COSO.

Basis for Opinions

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Controls Over Financial Reporting.

Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting 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.

Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

As permitted, the Company has excluded the operations of The Weidt Group, Onsite Energy, and E3, Inc.

acquired during 2019, which is described in Note 13 of the consolidated financial statements, from the scope of management’s report on internal control over financial reporting.

As such, it has also been excluded from the scope of our audit of internal control over financial reporting.

Our audits also included performing such other procedures as we considered necessary in the circumstances.

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Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies

and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles,

and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Estimated costs to complete on fixed price contracts

As discussed in Note 1 to the consolidated financial statements, revenues from fixed price contracts are recognized over time since control of the services is transferred continuously to the client.

Generally, revenue is recognized using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying the Company’s performance obligations, which typically occurs over time periods ranging from six months to one year.

We identified auditing management’s estimates of costs to complete on select fixed price contracts to be a critical audit matter.

The critical audit matter relates to select long-term fixed price construction contracts, based on magnitude of estimated costs to complete and the stage of completion of the contract.

These estimates require management to make assumptions about future events and, as a result, a high degree of auditor judgment is involved in auditing these estimates.

Due to the factors above, auditing management’s estimates of costs to complete required extensive audit procedures.

Our audit procedures related to the evaluation of estimated costs at completion for fixed price construction contracts included the following, among others:

● Tested the design, implementation, and operating effectiveness of controls that are designed to address the reasonableness of estimates of costs to complete fixed price contracts;

● Evaluated the reasonableness of management’s estimates related to the cost to complete for fixed price contracts through testing of the key components of the estimated costs to complete, including, labor, materials, and subcontractor costs;

● Agreed a sample of contract costs incurred to supporting documentation;

● Performed inquiries of management and project personnel regarding facts and circumstances relevant to the accounting for a sample of such contracts;

● Recalculated revenue recognition based on the percentage of completion;

● Performed a retrospective review procedures to assess management’s historical ability to accurately estimate the transaction price and cost to complete of construction contracts.

Estimated realization of deferred income tax assets for net operating losses

As described in Notes 1 and 11 to the consolidated financial statements, the Company’s consolidated net deferred tax assets includes the value of net operating losses that management expects to realize before the net operating losses expire.

In assessing the need for a valuation allowance, management estimates future taxable income by jurisdiction.

Significant estimates are required in estimating future taxable income, the reversal of income tax liabilities, leading to significant judgment from management.

The principal considerations for our determination that performing procedures relating to the income tax valuation allowances on deferred tax assets is a critical audit matter are there was significant judgment by management when estimating future taxable income and reversal of income tax liabilities.

This in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and in evaluating audit evidence relating to the realization of deferred income tax assets.

In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained.

Our audit procedures related to the evaluation of management's estimates over the realization of deferred income tax assets included the following, among others:

● Testing the design, implementation, and operating effectiveness of controls relating to the valuation allowances on deferred tax assets,

● Testing underlying historical data used in calculating the cumulative book income (loss) subject to tax,

● Assessing the reasonableness of management’s estimate of future book income, as adjusted for permanent income tax items, which included evaluating historical book income (loss) subject to tax, adjusted for the Company's increase in existing backlog.

● Professionals with specialized skill and knowledge were used to assist in evaluating management’s analysis, including cumulative book income (loss) subject to tax.

We have served as the Company's auditor since 2018.

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March 16, 2021

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

WILLDAN GROUP, INC.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated statements of comprehensive income, stockholders’

equity, and cash flows of Willdan Group, Inc.

(the Company) for the year ended December 29, 2017 and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the results of the Company’s operations and its cash flows for the year ended December 29, 2017, in conformity with U.S.

generally accepted accounting principles.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

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 audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated 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 consolidated financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audit provides a reasonable basis for our opinion.

We served as the Company’s auditor from 2015 to 2018.

Irvine, California

March 9, 2018, except for note 2 (Segment Information and Contract Accounting), note 4, and note 13, as to which the date is October 3, 2018

WILLDAN GROUP, INC.

AND SUBSIDIARIES

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Cash and cash equivalents

Accounts receivable, net of allowance for doubtful accounts of $1,147 and $442 at December 27, 2019 and December 28, 2018, respectively

Accounts receivable, net of allowance for doubtful accounts of $ 2,127 and $ 1,147 at January 1, 2021 and December 27, 2019, respectively

Contract assets

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Deferred income taxes, net

Liabilities and Stockholders’

Liabilities and Stockholders’ Equity

Current liabilities:

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Lease liability, less current portion

Deferred lease obligations

Other noncurrent liabilities

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Commitments and contingencies

Stockholders’

Stockholders’ equity:

Preferred stock, $ 0.01 par value, 10,000 shares authorized, no shares issued and outstanding

Common stock, $ 0.01 par value, 40,000 shares authorized;

11,497 and 10,968 shares issued and outstanding at December 27, 2019 and December 28, 2018, respectively

12,160 and 11,497 shares issued and outstanding at January 1, 2021 and December 27, 2019, respectively

Additional paid-in capital

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Retained earnings

Total stockholders’

Total liabilities and stockholders’

Total stockholders’ equity

Total liabilities and stockholders’ equity

See accompanying notes to consolidated financial statements.

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Total general and administrative expenses

Income from operations

Income (loss) from operations

Other income (expense):

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Total other expense, net

Income before income taxes

Income (loss) before income taxes

Income tax (benefit) expense

Other comprehensive income:

Net income (loss)

Other comprehensive income (loss):

Net unrealized loss on derivative contracts

Comprehensive income

Earnings per share:

Comprehensive income (loss)

Earnings (loss) per share:

Weighted-average shares outstanding:

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AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUIT Y

(in thousands)

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Shares of common stock issued in connection with incentive stock plan

Stock issued to acquire business

Stock-based compensation

Balances at December 29, 2017

Shares of common stock issued in connection with employee stock purchase plan

Shares of common stock issued in connection with incentive stock plan

Shares used to pay taxes on stock grants

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Balance at December 27, 2019

Shares of common stock issued in connection with employee stock purchase plan

Shares of common stock issued in connection with incentive stock plan

Shares used to pay taxes on stock grants

Issuance of restricted stock award and units

Stock-based compensation expense

Net unrealized gain on derivative contracts

Balance at January 1, 2021

See accompanying notes to consolidated financial statements.

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Cash flows from operating activities:

Net income (loss)

Adjustments to reconcile net income to net cash provided by operating activities:

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Shares used to pay taxes on stock grants

Restricted Stock Award and Units

Proceeds from unregistered sales of equity

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Supplemental disclosures of noncash investing and financing activities:

Issuance of common stock related to business acquisitions

Loss on cash flow hedge valuations, net of tax

Contingent consideration related to business acquisitions

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Willdan Group, Inc.

(“Willdan”) is a provider of professional, technical and consulting services to utilities, private industry, and public agencies at all levels of government.

As resources and infrastructures undergo continuous change, the Company helps organizations and their communities evolve and thrive by providing a wide range of technical services for energy solutions and government infrastructure.

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Basis of Presentation

The Company has prepared its Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States (“U.S.

GAAP”).

The Company has prepared its Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States (“U.S.

The consolidated statement of stockholders' equity includes repurchases of shares of our common stock from employees to satisfy tax withholding obligations incurred in connection with the vesting of restricted stock or performance stock units, which amount is presented as a reduction of additional paid-in capital and common stock.

The Company operates and reports its annual financial results based on 52 or 53 -week periods ending on the Friday closest to December 31.

The Company operates and reports its quarterly financial results based on the 13-week period ending on the Friday closest to March 31, June 30 and September 30 and the 13 or 14-week period ending on the Friday closest to December 31, as applicable.

Fiscal years 2019, 2018 and 2017 contained 52 weeks.

The Company operates and reports its quarterly financial results based on the 13 -week period ending on the Friday closest to June 30, September 30, and December 31 and the 13 or 14 -week period ending on the Friday closest to March 31, as applicable.

Fiscal year 2020, which ended on January 1, 2021, was comprised of 53 weeks, with the first quarter consisting of 14 weeks and the remaining quarters consisting of 13 weeks each.

Fiscal year 2019, which ended on December 27, 2019, and fiscal year 2018, which ended on December 28, 2018, was comprised of 52 weeks, with all quarters presented consisting of 13 weeks.

All references to years in the notes to consolidated financial statements represent fiscal years.

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Reclassifications

Amounts classified as “Costs and estimated earnings in excess of billings on uncompleted contracts”

and “Billings in excess of costs and estimated earnings on uncompleted contracts”

on the consolidated of cash flows of the Company’s Annual Report on Form 10-K for the year ended December 29, 2017 have been reclassified as “Contract assets”

and “Contract liabilities”, respectively, to conform to current year presentation.

Certain prior year amounts have been reclassified in the condensed consolidated balance sheets to conform to the current year presentation.

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Actual results could differ from those estimates.

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

Cash and Cash Equivalents

All highly liquid investments purchased with a remaining maturity of three months or less are considered to be cash equivalents.

The Company from time to time may be exposed to credit risk with its bank deposits in excess of the FDIC insurance limits and with uninsured money market investments.

The Company from time to time may be exposed to credit risk with its bank deposits in excess of the

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

FDIC insurance limits and with uninsured money market investments.

The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.

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and Level 3 (the lowest priority), defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The Company’s financial instruments consist primarily of cash, cash equivalents, accounts receivable, contract assets, other receivables, prepaid expenses and other current assets, accounts payable, accrued liabilities and contract liabilities.

The carrying amounts of certain other assets and contingent consideration are discounted to their present value because the time between the origination of these instruments and their expected realization or payment is greater than one year.

As of December 27, 2019 and December 28, 2018, the carrying amounts of the Company's cash and cash equivalents, accounts receivable, contract assets, other receivables, prepaid expenses and other current assets, accounts payable, accrued liabilities and contract liabilities, approximate their fair values because of the relatively short period of time between the origination of these instruments and their expected realization or payment.

As of January 1, 2021 and December 27, 2019, the carrying amounts of the Company's cash and cash equivalents, accounts receivable, contract assets, other receivables, prepaid expenses and other current assets, accounts payable, accrued liabilities and contract liabilities, approximate their fair values because of the relatively short period of time between the origination of these instruments and their expected realization or payment.

The carrying amounts of debt obligations approximate their fair values since the terms are comparable to terms currently offered by local lending institutions for loans of similar terms to companies with comparable credit risk.

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Variable Interest Entities

The Company accounts for variable interest entities in accordance with Accounting Standards Codification (“ASC”) 810, Consolidation.

Under ASC 810, a variable interest entity (“VIE”) is created when any of the following criteria are present:

The Company accounts for variable interest entities in accordance with Accounting Standards Codification (“ASC”) 810, Consolidation.

Under ASC 810, a variable interest entity (“VIE”) is created when any of the following criteria are present:

(a) the equity investment at risk in the entity is not sufficient to permit the entity to finance its activities without additional subordinated financial support provided by other parties, including the equity holders;

(b) the entity’s equity holders as a group either (i) lack the direct or indirect ability to make decisions about the entity, (ii) are not obligated to absorb expected losses of the entity or (iii) do not have the right to receive expected residual returns of the entity;

or (c) the entity’s equity holders have voting rights that are not proportionate to their economic interests, and the activities of the entity involve or are conducted on behalf of the equity holder with disproportionately few voting rights.

If an entity is deemed to be a VIE pursuant to ASC 810, the enterprise that has both (i) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (ii) the obligation to absorb the expected losses of the entity or right to receive benefits from the entity that could be potentially significant to the VIE is considered the primary beneficiary and must consolidate the VIE.

In accordance with ASC 810, the Company performs ongoing reassessments of whether an enterprise is the primary beneficiary of a VIE.

As of December 27, 2019, the Company had one VIE —

Genesys Engineering, P.C.

(“Genesys”).

Pursuant to New York law, the Company does not own capital stock of Genesys and does not have control over the professional decision making of Genesys’s engineering services.

The Company, however, has entered into an administrative services agreement with Genesys pursuant to which WES, the Company’s wholly-owned subsidiary, will provide Genesys with ongoing administrative, operational and other non-professional support services.

The Company manages Genesys and has the power to direct the activities that most significantly impact Genesys’s performance, in addition to being

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

obligated to absorb expected losses from Genesys.

As of January 1, 2021, the Company had one VIE — Genesys Engineering, P.C.

Pursuant to New York law, the Company does not own capital stock of Genesys and does not have control over the professional decision making of Genesys’s engineering services.

The Company manages Genesys and has the power to direct the activities that most significantly impact Genesys’s performance, in addition to being obligated to absorb expected losses from Genesys.

Accordingly, the Company is the primary beneficiary of Genesys and consolidates Genesys as a VIE.

Management also concluded there is no noncontrolling interest related to the consolidation of Genesys because management determined that (i) the shareholder of Genesys does not have more than a nominal amount of equity investment at risk, (ii) WES absorbs the expected losses of Genesys through its deferral of Genesys’s service fees owed to WES and the Company has, since entering into the administrative services agreement, had to continuously defer service fees for Genesys, and (iii) the Company believes Genesys will continue to have a shortfall on payment of its service fees for the foreseeable future, leaving no expected residual returns for the shareholder.

For more information regarding Genesys, see Note 8 “Commitments and Variable Interest Entities.”

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

investment at risk, (ii) WES absorbs the expected losses of Genesys through its deferral of Genesys’s service fees owed to WES and the Company has, since entering into the administrative services agreement, had to continuously defer service fees for Genesys, and (iii) the Company believes Genesys will continue to have a shortfall on payment of its service fees for the foreseeable future, leaving no expected residual returns for the shareholder.

For more information regarding Genesys, see Note 8 “Commitments and Variable Interest Entities.”

Segment Information

The Company presents segment information externally consistent with the manner in which the Company’s chief operating decision maker reviews information to assess performance and allocate resources.

The Company’s two segments are (i) Energy, and (ii) Engineering and Consulting.

Willdan Group, Inc.

(“WGI”) is a holding company and performs administrative functions on behalf of its subsidiaries, such as treasury, legal, accounting, information systems, human resources and certain business development activities, and earns revenue that is only incidental to the activities of the enterprise.

As a result, WGI does not meet the definition of an operating segment.

During the first quarter of fiscal 2018, the Company revised its segment reporting to conform to changes in its internal management reporting.

As a result, beginning with the first quarter of fiscal 2018, the Company’s two segments are (i) Energy, and (ii) Engineering and Consulting, and the Company’s chief operating decision maker, which continues to be its chief executive officer, receives and reviews financial information in this format.

Accordingly, segment information has been revised for comparison purposes for all periods presented in the accompanying Consolidated Financial Statements and Notes to Consolidated Financial Statements.

See Note 9 “

Segment Information ”

more information.

Contract Assets and Liabilities

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Contract assets include unbilled amounts typically resulting from revenue under contracts where the percentage-of-completion method of revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer.

In addition, contract assets include retainage amounts withheld from billings to the Company’s clients pursuant to provisions in our contracts.

Contract liabilities consist of advance payments and billings in excess of revenue recognized and deferred revenue.

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The Company recognizes engineering and consulting contract revenue over time using the percentage-of-completion method, based primarily on contract cost incurred to date compared to total estimated contract cost.

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

on the vast majority of its contracts will continue to be recognized over time because of the continuous transfer of control to the customer.

Revenue on the vast majority of its contracts will continue to be recognized over time because of the continuous transfer of control to the customer.

Revenue recognition for software licenses issued by the Energy segment is recognized at a point in time, upon acceptance of the software by the customer and in recognition of the fulfillment of the performance obligation.

Certain additional performance obligations beyond the base software license may be separated from the gross license fee and recognized on a straight-line basis over time.

Contract Balances

Results for operating periods beginning after December 30, 2017 are presented under ASC 606, while comparative information has not been restated and continues to be reported in accordance with the accounting standards in effect for those periods.

The Company recognized the cumulative effect of initially applying ASC 606 as an adjustment to retained earnings in the balance sheet as of December 30, 2017 as follows:

(in thousands)

Accounts receivable, net of allowance for doubtful accounts

Contract assets

Deferred income taxes, net

Retained earnings

The impact of adoption on its condensed consolidated balance sheet and cash flows for the fiscal year ended December 28, 2018 was as follows:

For the year ended December 28, 2018

Balances Without

Effect of Change

Adoption of ASC 606

Higher/(Lower)

(in thousands)

Accounts receivable, net of allowance for doubtful accounts

Contract assets

Deferred income taxes, net

Retained earnings

For the year ended December 28, 2018

Balances Without

Effect of Change

Adoption of ASC 606

Higher/(Lower)

(in thousands)

Cash flows from operating activities

Accounts receivable, net of allowance for doubtful accounts

Contract assets

Total cash flows used in operating activities

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

The impact of adoption on the Company’s opening balance sheet for fiscal year 2018 was primarily related to deferred revenues and unrecognized license renewals associated with software license agreements currently in force reclassified to retained earnings, net of the deferred income tax impact and reclassification of amounts between accounts receivable net of allowance for doubtful accounts and contract assets based on whether an unconditional right to consideration has been established or not.

The impact of adoption on the Company’s balance sheet at December 28, 2018 was primarily related to conforming the accounting treatment of most of our non-cancellable software license contracts, which were previously recorded over time based on prior acceptable accounting methods, and now recognize the full amount of such licenses upon acceptance of the software by the customer.

The impact of adoption on its statement of operations was not material for the fiscal year ended December 28, 2018.

Contract Accounting

The Company enters into contracts with its clients that contain various types of pricing provisions, including fixed price, time-and-materials, and unit-based provisions.

The Company recognizes revenues in accordance with ASU 2014-09, Revenue from Contracts with Customer, codified as ASC Topic 606 and the related amendments (collectively “ASC 606”).

As such, the Company identifies a contract with a customer, identifies the performance obligations in the contract, determines the transaction price, allocates the transaction price to each performance obligation in the contract and recognizes revenues when (or as) the Company satisfies a performance obligation.

The following table reflects the Company’s two reportable segments and the types of contracts that each most commonly enters into for revenue generating activities.

The Company recognizes revenues in accordance with ASU 2014-09, Revenue from Contracts with Customer, codified as ASC Topic 606 and the related amendments (collectively “ASC 606”).

As such, the Company identifies a contract with a customer, identifies the performance obligations in the

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

contract, determines the transaction price, allocates the transaction price to each performance obligation in the contract and recognizes revenues when (or as) the Company satisfies a performance obligation.

The following table reflects the Company’s two reportable segments and the types of contracts that each most commonly enters into for revenue generating activities.

Contract Type

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Percentage-of-completion

Revenue on the vast majority of the Company’s contracts will continue to be recognized over time because of the continuous transfer of control to the customer.

Revenue on fixed price contracts is recognized on the percentage-of-completion method based generally on the ratio of direct costs incurred-to-date to estimated total direct costs at completion.

The Company uses the percentage-of-completion method to better match the level of work performed at a certain point in time in relation to the effort that will be required to complete a project.

In addition, the percentage-of-completion method is a common method of revenue recognition in the Company’s industry.

Many of the Company’s fixed price contracts involve a high degree of subcontracted fixed price effort and are relatively short in duration, thereby lowering the risks of not properly estimating the percent complete.

In addition, the percentage-of-completion method is a common method of revenue recognition in the Company’s industry.

Revenue on time-and-materials and unit-based contracts is recognized as the work is performed in accordance with the specific rates and terms of the contract.

The Company recognizes revenues for time-and-materials contracts based upon the actual hours incurred during a reporting period at contractually agreed upon rates per hour and also includes in revenue all reimbursable costs incurred during a reporting period.

Certain of the Company’s time-and-materials contracts are subject to maximum contract values and, accordingly, when revenue is expected to exceed the maximum contract value, these contracts are generally recognized under the percentage-of-completion method, consistent with fixed price contracts.

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

unit-based contracts, the Company recognizes the contract price of units of a basic production product as revenue when the production product is delivered during a period.

For unit-based contracts, the Company recognizes the contract price of units of a basic production product as revenue when the production product is delivered during a period.

Revenue recognition for software licenses issued by the Energy segment is generally recognized at a point in time, utilizing the unit-based revenue recognition method, upon acceptance of the software by the customer and in recognition of the fulfillment of the performance obligation.

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To determine the proper revenue recognition method for contracts, the Company evaluates whether two or more contracts should be combined and accounted for as one single contract and whether the combined contract should be accounted for as one performance obligation.

With respect to the Company’s contracts, it is rare that multiple contracts should be combined into a single performance obligation.

This evaluation requires significant judgment and the decision to combine a group of contracts or separate a single contract into multiple performance obligations could change the amount of revenue and profit recorded in a given period.

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If each phase or element is negotiated separately based on the technical resources required and/or the supply and demand for the services being provided, the Company evaluates if the contracts should be segmented.

If certain criteria are met, the contracts would be segmented which could result in revenues being assigned to the different elements or phases with different rates of profitability based on the relative value of each element or phase to the estimated total contract revenue.

Segmented contracts may comprise up to approximately 2.0% to 3.0% of the Company’s consolidated contract revenue.

If certain criteria are met, the contracts would be segmented which could result in revenues being assigned to the different elements or phases with different rates of

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

profitability based on the relative value of each element or phase to the estimated total contract revenue.

Segmented contracts may comprise up to approximately 2.0 % to 3.0 % of the Company’s consolidated contract revenue.

Contracts that cover multiple phases or elements of the project or service lifecycle (development, construction and maintenance and support) may be considered to have multiple performance obligations even when they are part of a single contract.

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For the periods presented, the value of the separate performance obligations under contracts with multiple performance obligations (generally measurement and verification tasks under certain energy performance contracts) were not material.

In cases where the Company does not provide the distinct good or service on a standalone basis, the primary method used to estimate standalone selling price is the expected cost plus a margin approach, under which the Company forecasts the Company’s expected costs of satisfying a performance obligation and then adds an appropriate margin for the distinct good or service.

The Company provides quality of workmanship warranties to customers that are included in the sale and are not priced or sold separately or do not provide customers with a service in addition to assurance of compliance with agreed-upon specifications and industry standards.

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Under ASC 606, variable consideration should be considered when determining the transaction price and estimates should be made for the variable consideration component of the transaction price, as well as assessing whether an estimate of variable consideration is constrained.

For certain of the Company’s contracts, variable consideration can arise from modifications to the scope of services resulting from unapproved change orders or customer claims.

Variable consideration is included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved.

The Company estimates of variable consideration and determination of whether to include estimated amounts in the

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transaction price are based largely on assessments of legal enforceability, the Company’s performance, and all information (historical, current and forecasted) that is reasonably available to the Company.

Due to the nature of the work required to be performed on many of the Company’s performance obligations, the estimation of total revenue and cost at completion is complex, subject to many variables and requires significant judgment.

As a significant change in one or more of these estimates could affect the profitability of the Company’s contracts, the Company reviews and updates the Company’s contract-related estimates regularly through a company-wide disciplined project review process in which management reviews the progress and execution of the Company’s performance obligations and the estimate at completion (EAC).

The Company estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on assessments of legal enforceability, the Company’s performance, and all information (historical, current and forecasted) that is reasonably available to the Company.

As part of this process, management reviews information including, but not limited to, any outstanding key contract matters, progress towards completion and the related program schedule and the related changes in estimates of revenues and costs.

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If at any time the estimate of contract profitability indicates an anticipated loss on the contract, the Company recognizes the full amount of estimated loss in the period it is identified.

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Contracts are often modified to account for changes in contract specifications and requirements.

The Company considers contract modifications to exist when the modification either creates new rights or obligations or changes the existing enforceable rights or obligations.

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 that is not distinct from the existing contract on the transaction price and the Company’s measure of progress for the performance obligation to which it relates is recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis.

For contract modifications that result in the promise to deliver goods or services that are distinct from the existing contract and the increase in price of the contract is for the same amount as the standalone selling price of the additional goods or services included in the modification, the Company accounts for such contract modifications as a separate contract.

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Such costs are included in general and administrative expenses.

Additionally, payroll taxes, bonuses and employee benefit

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costs for all Company personnel are included in general and administrative expenses in the accompanying consolidated statements of comprehensive income since no allocation of these costs is made to direct costs of contract revenue.

Additionally, payroll taxes, bonuses and employee benefit costs for all Company personnel are included in general and administrative expenses in the accompanying consolidated statements of comprehensive income since no allocation of these costs is made to direct costs of contract revenue.

No allocation of facilities costs is made to direct costs of contract revenue.

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Management determines allowances for doubtful accounts 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 based on current and past experience.

The Company’s historical credit losses have been minimal with governmental entities and large public utilities, but disputes may arise related to these receivable amounts.

Accounts receivable are written off when deemed uncollectible.

Recoveries of accounts receivable previously written off are recorded when received.

Retainage, included in contract assets, represents amounts withheld from billings to the Company’s clients pursuant to provisions in the contracts and may not be paid to the Company until specific tasks are completed or the project is completed and, in some instances, for even longer periods.

At December 27, 2019 and December 28, 2018, contract assets included retainage of approximately $5.4 million and $6.7 million, respectively.

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project is completed and, in some instances, for even longer periods.

At January 1, 2021 and December 27, 2019, contract assets included retainage of approximately $ 6.2 million and $ 5.4 million, respectively.

In addition to the above, the Company derives revenue from software licenses and professional services and maintenance fees.

5 unchanged sentences

General and Administrative Expenses

General and administrative expenses include the costs of the marketing and support staff, other marketing expenses, management and administrative personnel costs, payroll taxes, bonuses and employee benefits for all of the Company’s employees and the portion of salaries and wages not allocated to direct costs of contract revenue for those employees who provide the Company’s services.

General and administrative expenses also include facility costs, depreciation and amortization, professional services, legal and accounting fees and administrative operating costs.

Within general and administrative expenses, “Other”

includes expenses such as provision for billed or unbilled receivables, professional services, legal and accounting, computer costs, travel and entertainment, marketing costs and acquisition costs.

Within general and administrative expenses, “Other” includes expenses such as provision for billed or unbilled receivables, professional services, legal and accounting, computer costs, travel and entertainment, marketing costs and acquisition costs.

The Company expenses general and administrative costs when incurred.

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2016-02, Leases (Topic 842) (“ASU 2016-02”).

ASU 2016-02 require, among other things, that lessees

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recognize the following for all leases (unless a policy election is made by class of underlying asset to exclude short-term leases) at the commencement date:

(1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis;

and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or the direct use of, a specified asset for the lease term.

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2016-02, Leases (Topic 842) (“ASU 2016-02”).

ASU 2016-02 require, among other things, that lessees recognize the following for all leases (unless a policy election is made by class of underlying asset to exclude short-term leases) at the commencement date:

(1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis;

and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or the direct use of, a specified asset for the lease term.

The FASB issued ASU 2018-11 on July 30, 2018, which allows entities to apply the provisions of ASC 842 at the effective date without adjusting comparative periods.

1 unchanged sentence

Under this guidance, the net present value of future lease payments is recorded as right-of-use assets and lease liabilities.

In addition, the Company elected the ‘package of practical expedients’

permitted under the transition guidance within the new standard, which among other things, allowed the Company to carry forward the historical lease classification.

In addition, the Company elected the ‘package of practical expedients’ permitted under the transition guidance within the new standard, which among other things, allowed the Company to carry forward the historical lease classification.

In addition, the Company elected not to utilize the hindsight practical expedient to determine the lease term for existing leases.

The Company also elected the practical expedient to not separate lease and non-lease components for its facilities leases.

Previously, all of the Company’s office leases were classified as operating leases and rent expense was included in facilities expense in the consolidated statements of comprehensive income.

In addition, the Company leases certain equipment under financing leases.

1 unchanged sentence

Accordingly, the right-of-use assets for these leases are included in the balance sheets in equipment and leasehold improvements, net of accumulated depreciation, with a corresponding amount recorded in current portion of financing lease obligations or noncurrent portion of financing lease obligations, as appropriate.

The financing lease assets are amortized over the life of the lease or, if shorter, the life of the leased asset, on a straight-line basis and included in depreciation expense in the statements of comprehensive income.

The financing lease assets are amortized over the life of the lease or, if shorter, the life of the leased asset, on a straight-line basis and included in depreciation expense in the statements of

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

comprehensive income.

The interest associated with financing lease obligations is included in interest expense in the statements of comprehensive income.

For more information, see Note 2, “

Recent Accounting Pronouncements ”, and Note 7, “

Leases ”.

For more information, see Note 2, “ Recent Accounting Pronouncements ”, and Note 7, “ Leases ”.

Equipment and Leasehold Improvements

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Field equipment

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Goodwill represents the excess of costs over fair value of the assets acquired.

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Goodwill, which has an indefinite useful life, is not amortized, but instead tested for impairment at least annually or more frequently if events and circumstances indicate that the asset might be impaired.

Impairment losses for reporting units are recognized to the extent that a reporting unit’s carrying amount exceeds its fair value.

Long-lived assets

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Determining probability and estimating claim amounts is highly judgmental.

Initial accruals and any subsequent changes in the Company’s estimates could have a material effect on its consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Stock-based Compensation

The Company accounts for all stock-based compensation under the fair value recognition provisions of the accounting standard entitled “

Compensation—Stock Compensation.

The Company accounts for all stock-based compensation under the fair value recognition provisions of the accounting standard entitled “ Compensation—Stock Compensation.

” Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite vesting period.

The fair values of all stock options granted and the fair values of all Employee Stock Purchase Plan (“ESPP”) purchase rights are estimated using the Black-Scholes option-valuation model.

The Black-Scholes option-valuation model requires the input of highly subjective assumptions.

Performance-based restricted stock unit awards (“PBRSUs”) are granted to certain employees and vest only after the achievement of pre-determined performance metrics.

Once the performance metrics are met, vesting of PBRSUs is subject to continued service by the employee.

At the end of each reporting period, the Company evaluates the probability that PBRSUs will be earned.

The Company records stock-based compensation expense based on the probability that the performance metrics will be achieved over the vesting perio d.

The Company records stock-based compensation expense based on the probability that the performance metrics will be achieved over the vesting period.

Business Combinations

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Under the acquisition method of accounting, the Company recognizes separately from goodwill the identifiable assets acquired, the liabilities assumed, and any non-controlling interests in an acquiree, at the acquisition date fair value.

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The Company measures goodwill as of the acquisition date as the excess of consideration transferred over the net of the acquisition date amounts of the identifiable assets acquired and liabilities assumed.

2 unchanged sentences

On October 28, 2019, the Company acquired all of the capital stock of Energy and Environmental Economics, Inc.

On July 2, 2019, the Company acquired substantially all of the assets and liabilities of Onsite Energy Corporation.

(“E3, Inc.”).

On July 2, 2019, the Company acquired substantially all of the assets and liabilities of Onsite Energy Corporation (“Onsite Energy”).

On March 8, 2019, the Company acquired substantially all of the assets of the energy practice division of The Weidt Group Inc.

On November 9, 2018, the Company completed the acquisition of Lime Energy, Co.

On April 30, 2018, the Company acquired all of the outstanding equity interests of Newcomb Anderson McCormick, Inc.

For further discussion of these acquisitions, see Note 13 “

Business Combinations ”.

(“The Weidt Group”).

For further discussion of these acquisitions, see Note 13 “ Business Combinations ”.

Income taxes are accounted for under the asset and liability method.

Deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between the financial reporting basis and tax basis of the Company’s assets and liabilities, subject to a judgmental assessment of the recoverability of deferred tax assets.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

2 unchanged sentences

Significant judgment is applied when assessing the need for valuation allowances.

Areas of estimation include the Company’s consideration of future taxable income and ongoing prudent and feasible tax planning strategies.

Should a change in circumstances lead to a change in judgment about the utilization of deferred tax assets in future years, the Company would adjust the related valuation allowances in the period that the change in circumstances occurs, along with a corresponding increase or charge to income.

On December 22, 2017, the Tax Act was enacted into law, which among other items, lowered the U.S.

corporate tax rate from 35% to 21%, effective January 1, 2018.

As a result of the Tax Act, the Company recorded a one-time decrease in deferred tax expense of $1.3 million for the fiscal quarter ended December 29, 2017 to account for the remeasurement of the Company’s deferred tax assets and liabilities on the enactment date.

As of December 28, 2018, the Company’s accounting for the Tax Act was complete.

An adjustment of $0.2 million additional deferred tax expense was recorded due to the corporate tax rate change impact on adjustments to temporary differences that were estimated at the time of the tax provision and finalized for the tax return.

During each fiscal year, management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize existing deferred tax assets.

For fiscal years 2019 and 2018, the Company ultimately determined that it was more-likely-than-not that the entire California net operating loss will not be utilized prior to expiration.

Significant pieces of objective evidence evaluated included the Company’s history of utilization of California net operating losses in prior years for each of the Company’s subsidiaries, as well as the Company’s forecasted amount of net operating loss utilization for certain members of the combined group.

For fiscal years 2020 and 2019,

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the Company ultimately determined that it was more-likely-than-not that the entire California net operating loss will not be utilized prior to expiration.

As a result, at the end of fiscal years 2020 and 2019, the Company recorded a valuation allowance in the amount of $ 86,000 , for each year, related to California net operating losses.

2 unchanged sentences

The Company recognizes the tax benefit from uncertain tax positions if it is more likely than not that the tax positions will be sustained on examination by the tax authorities, based on the technical merits of the position.

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benefit is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.

The tax benefit is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.

The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense.

2 unchanged sentences

Diluted income per common share is computed using net income and the weighted average number of common shares and potentially dilutive common shares outstanding during the period.

Potentially dilutive common shares include dilutive outstanding employee stock options, RSAs, PBRSUs, and rights to purchase shares of common stock under the Company’s ESPP.

Other Comprehensive Income (loss), Net of Tax

Other comprehensive income (loss), net of tax refers to revenue, expenses, gains and losses that are recorded as an element of shareholders’

equity but are excluded from net income.

The Company’s other comprehensive income (loss), net of tax is comprised of unrealized gains or losses on its interest rate swap agreement designated as cash flow hedges.

Other comprehensive income (loss), net of tax refers to revenue, expenses, gains and losses that are recorded as an element of shareholders’ equity but are excluded from net income.

The Company’s other comprehensive income (loss), net of tax is comprised of unrealized gains or losses on its interest rate swap agreement designated as cash flow hedges.

The Company accounts for its interest rate swap as designated cash flow hedges to mitigate variations in interest payments under a portion of its LIBOR-based term loans due to variations in the LIBOR index.

2 unchanged sentences

In accordance with industry practice, amounts realizable and payable under contracts that extend beyond one year are included in current assets (included in contract assets) and current liabilities.

Management’s Plans in Response to Covid-19

On January 30, 2020, the spread of a novel strain of coronavirus (“Covid-19”) was declared a Public Health Emergency of International Concern by the World Health Organization (“WHO”).

On March 11, 2020, WHO characterized the Covid-19 outbreak as a pandemic.

The Covid-19 pandemic has resulted in governmental authorities around the world implementing numerous measures to try to contain the virus, such as travel bans and restrictions,

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

quarantines, shelter-in-place or total lock-down orders and business limitations and shutdowns (subject to exceptions for certain essential operations and businesses).

Although some of these measures have since been lifted or scaled back, ongoing resurgences of Covid-19 in the United States has resulted in the reimposition of certain restrictions and may lead to other restrictions being reimplemented in response to efforts to reduce the spread of Covid-19.

The Covid-19 outbreak and restrictions intended to slow the spread of Covid-19 have caused economic and social disruption on an unprecedented scale.

It is unclear how long these restrictions will remain in place and they may remain in place in some form for an extended period of time.

Given the uncertainties associated with the duration of the pandemic, the Company cannot reasonably estimate the ultimate impacts of Covid-19 and efforts to limit its spread on its business, financial condition, results of operations or cash flows for the foreseeable future or whether the Company’s assumptions used to estimate its future liquidity requirements will be correct .

Health and Safety

In response to the Covid-19 pandemic, the Company has taken, and will continue to take, temporary precautionary measures intended to help minimize the risk of Covid-19 to its employees, including requiring the majority of its employees to work remotely, suspending non-essential travel and restricting in-person work-related meetings.

The Company expects to continue to implement these measures until it determines that the Covid-19 pandemic is adequately contained for purposes of its business, and may take further actions as government authorities require or recommend or as it determines to be in the best interests of its employees, customers, business partners and third-party service providers.

Financial Position and Results of Operations

The Covid-19 pandemic and efforts to limit its spread negatively impacted the Company’s business during its fiscal year 2020.

In California and New York, the states in which the Company has historically derived a majority of its revenue, mandatory shutdown orders were issued in March 2020.

In New York, phased re-openings began in June 2020 and the Company’s business in New York has been improving since and all of its New York utility programs have restarted.

In California, phased re-openings began in May 2020, followed by periods of curtailments as a result of resurgences of Covid-19 cases, and subsequent re-openings.

As a result, the most significant pandemic related impacts to the Company’s business are now occurring in California to its direct install business.

In the Energy segment, the Company has experienced, and expects to continue to experience, a negative impact on its direct install programs that serve small businesses as a result of restrictions put in place by governmental authorities that have required temporary shutdowns of all “non-essential” businesses.

In fiscal year 2019, the Company derived approximately 40 % of its gross revenue from its direct install programs that serve small businesses, and a significant portion of the Company’s direct install work on these programs was suspended for varying periods of time during fiscal year 2020.

With the exception of the direct install programs in California, phased re-openings have continued to progress since the second quarter of 2020.

The Company’s other programs, which generated approximately 60 % of our revenue in fiscal 2019, are either businesses that have been determined to be “essential” by government authorities or have continued to progress during the pandemic.

In the Engineering and Consulting segment, the Company’s revenues have been less affected by Covid-19 than the revenues in the Energy Segment.

The services in this segment have generally been deemed “essential” by the government and have continued to operate while abiding social distancing measures.

As of March 15, 2021, though some of the Company’s work has been suspended as a result of the Covid-19 pandemic and efforts to limit its spread, none of its contracts have been cancelled and proposal activities for new programs have continued to advance.

The Company estimates that pandemic related slowdowns and work suspensions reduced the fiscal 2020 revenue by approximately 20% from its planned pre-pandemic levels for 2020.

In response to the Covid-19 pandemic and efforts to prevent its spread, the Company began taking a number of steps during the first quarter of fiscal 2020 aimed at preserving liquidity and positioning itself to resume its growth trajectory after work restrictions are lifted.

These steps include:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

● Executing a reduction in workforce, primarily through an unpaid furlough, impacting approximately 300 members of the Company’s staff.

The largest reductions were a result of government-mandated work restrictions impacting the Company’s direct install programs in California and New York.

During the Company’s second fiscal quarter, furloughed employees began to return to work as government authorities began lifting restrictions through phased re-openings and, by the end of the third fiscal quarter, the majority of the Company’s furloughed employees had returned to work ;

● A temporary freeze on all non-critical spending for travel, capital expenditures, and other discretionary expenses;

● A temporary cash wage reduction for salaried employees, ranging from 0 % for lower salary bands up to 75 % for senior management, all of which had been restored by the end of July 2020;

● Suspension of cash fees for the Company’s Board of Directors, which was lifted during the third fiscal quarter;

● Implementing a temporary hiring freeze;

● Amending the Company’s credit facility for increased flexibility.

The Company believes that its financial position is sufficiently flexible to enable it to maneuver in the current economic environment.

Throughout the fiscal year 2020, the Company enhanced liquidity by minimizing working capital and significantly improving cash collections.

In addition, in May 2020, the Company amended its credit facility to temporarily modify, among other things, certain covenants to increase its financial flexibility.

Combined with availability under its credit facilities, the Company believes its enhanced liquidity position provides a cushion against liquidity disruptions.

Asset and liability valuation and other estimates used in preparation of financial statements

As of January 1, 2021, the Company did not have any impairment with respect to its goodwill or long-lived assets, including intangible assets.

Because the full extent and duration of the impact of the Covid-19 outbreak and efforts to slow its spread are unknown at this time, they could, under certain circumstances, cause impairment and result in a non-cash impairment charge being recorded in future periods.

Changes to the estimated future profitability of the business may require that the Company establish an additional valuation allowance against all or some portion of its net deferred tax assets.

Impact on Clients and Subcontractors and Other Risks

The Company primarily work for utilities, municipalities and other public agencies.

The Company expects many governmental and other public agencies could have significant budget shortfalls for 2020 and potentially beyond as a result of the economic slowdown from the measures taken to mitigate the Covid-19 pandemic.

Although none of the Company’s contracts with governmental or other public agencies were materially modified during fiscal year 2020, these potential budget deficits could result in delayed funding for existing contracts with the Company, postponements of new contracts or price concessions.

Further, most of the Company’s clients are not committed to purchase any minimum amount of the Company’s services, as the Company’s agreements with them are based on a “purchase order” model.

As a result, they may discontinue utilizing some or all of the Company’s services with little or no notice.

In addition, the Company relies on subcontractors and material suppliers to complete a substantial portion of the work, especially in the Company’s Energy segment.

If the Company’s significant subcontractors and material suppliers suffer significant economic harm and must limit or cease operations or file for bankruptcy as a result of the current economic slowdown, the Company’s subcontractors and material suppliers may not be able to fulfill their contractual

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

obligations satisfactorily and the Company may not have the ability to select its subcontractors and material suppliers of choice for new contracts.

If the Company’s subcontractors and material suppliers are not able to fulfill their contractual obligations, it could result in a significant increase in costs for the Company to complete the projects or cause significant delays to the realization of revenues under those projects.

The ultimate impact of Covid-19 on the Company’s financial condition and results of operations will depend on all of the factors noted above, including other factors that the Company may not be able to forecast at this time.

See the risk factor “ The Covid-19 pandemic and health and safety measures intended to slow its spread have adversely affected, and may continue to adversely affect, our business, results of operations and financial condition.” under Part I, Item 1A, “ Risk Factors ” of this Annual Report on Form 10-K.

While Covid-19 has had, and the Company expects it to continue to have, an adverse effect on the Company’s business, financial condition and results of operations, the Company is unable to predict the extent or duration of these impacts at this time.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Pronouncements Recently Adopted

In February 2016, the FASB issued ASU 2016-02.

ASU 2016-02 supersedes ASC 840 “Leases”.

The amendments in this update require, among other things, that lessees recognize the following for all leases (unless a policy election is made by class of underlying asset to exclude short-term leases) at the commencement date:

(1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis;

and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or the direct use of, a specified asset for the lease term.

The FASB issued ASU 2018-11 on July 30, 2018, which allows entities to apply the provisions of ASC 842 at the effective date without adjusting comparative periods.

The Company adopted this standard effective December 29, 2018, the first day of the fiscal year ending December 27, 2019, using the modified retrospective method and elected the ‘package of practical expedients’

permitted under the transition guidance within the new standard, which among other things, allowed the Company to carry forward the historical lease classification.

In addition, the Company elected not to utilize the hindsight practical expedient to determine the lease term for existing leases.

The Company also elected the short-term lease recognition exemption for all leases that qualify and elected the practical expedient to not separate lease and non-lease components for our facilities leases.

Adoption of Topic 842 resulted in an increase of right-of-use assets and operating lease liabilities of $10.9 million and $11.9 million, respectively, as of December 29, 2018.

The adoption of Topic 842 did not have material impact on the Company’s retained earnings, consolidated net earnings or cash flows.

In January 2017, the FASB issued ASU No.

2017- 04, “Intangibles - Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment”

(“ASU 2017-04”).

ASU 2017- 04 simplifies the test for goodwill impairment by removing Step 2 from the goodwill impairment test.

Companies will now perform the goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value not to exceed the total amount of goodwill allocated to that reporting unit.

An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary.

The Company adopted this standard for its fiscal 2019 goodwill impairment test, which was performed as of the first day of the Company’s fourth quarter, September 28, 2019.

The adoption of this standard did not have a material impact on the Company’s Consolidated Financial Statements.

In June 2018, the FASB issued ASU 2018-07, “Compensation –

Stock Compensation (Topic 718):

Improvements to Nonemployee Share-Based Payment Accounting”

(“ASU 2018-07”), which expands the scope of current stock compensation recognition standards to include share-based payment transactions for acquiring goods and services from nonemployees.

The Company adopted this standard effective December 29, 2018.

The adoption of this standard did not have a material impact on the Company’s Consolidated Financial Statements.

In October 2018, the FASB issued ASU No.

2018-16, “Derivatives and Hedging (Topic 815):

Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes”

(“ASU 2018-16”).

ASU 2018-16 allows for the use of the OIS rate based on the SOFR as a U.S.

benchmark interest rate for hedge accounting purposes under Topic 815, Derivatives and Hedging.

The Company adopted this standard in the first quarter of fiscal 2019.

The Company’s adoption of ASU 2018-16 did not have a material impact on its Condensed Consolidated Financial Statements.

Accounting Pronouncements Recently Issued

In June 2016, the FASB issued ASU No.

2016-13, “Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”).

ASU 2016-13 requires entities to report “expected”

credit losses on financial instruments and other commitments to extend credit rather than the current “incurred loss”

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2016-13, “Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”).

ASU 2016-13 requires entities to report “expected” credit losses on financial instruments and other commitments to extend credit rather than the current “incurred loss” model.

These expected credit losses for financial assets held at the reporting date are to be based on historical experience, current conditions, and reasonable and supportable forecasts.

ASU 2016-13 will also require enhanced disclosures relating to significant estimates and judgments used in estimating credit losses, as well as the credit quality.

The amendments are effective for fiscal years beginning after December 15, 2019, including interim periods

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

within those fiscal years, which for the Company is first quarter 2020.

The Company is currently evaluating the impact this update will have on its Condensed Consolidated Financial Statements.

The Company adopted this standard effective December 28, 2019.

The adoption of this standard did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

Accounting Pronouncements Recently Issued

In March 2020, the FASB issued ASU No.

2020-04, “Reference Rate Reform (Topic 848):

facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”).

ASU 2020-04 provides optional expedients and exceptions for applying U.S.

GAAP to contract modifications and hedging relationships that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.

ASU 2020-04 provides, among other things, guidance that modifications of contracts within the scope of Topic 470, Debt, should be accounted for by prospectively adjusting the effective interest rate;

modifications of contracts within the scope of Topic 840, Leases, should be accounted for as a continuation of the existing contract;

and, changes in the critical terms of hedging relationships, caused by reference rate reform, should not result in the de-designation of the instrument, provided certain criteria are met.

In January 2021, the FASB issued ASU No.

2021-01, “Reference Rate Reform (Topic 848) - Scope” (“ASU 2021-01”).

ASU 2021-01 clarifies the scope and application of ASU 2020-04 and permits entities, among other things, to elect certain optional expedients and exceptions when accounting for derivative contracts and certain hedging relationships affected by changes in the interest rates used for discounting cash flows.

The Company’s exposure to LIBOR rates includes its credit facilities and swap agreement.

The amendments are effective as of March 12, 2020 through December 31, 2022.

Adoption is permitted at any time.

The Company is currently evaluating the impact this update will have on its Consolidated Financial Statements.

In December 2019, the FASB issued ASU No.

2019-12, “Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes”

(“ASU 2019-12”).

2019-12, “Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes” (“ASU 2019-12”).

ASU 2019-12 amends the accounting for income taxes by, among other things, removing:

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The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, which for the Company is the first quarter of fiscal 2021.

The Company is currently evaluating the impact this update will have on its Condensed Consolidated Financial Statements.

The Company is currently evaluating the impact this update will have on its Consolidated Financial Statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

SUPPLEMENTAL FINANCIAL STATEMENT DATA

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Write-offs of uncollectible accounts

Fair value adjustment

Balance as of the end of the year

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Unbilled accounts receivable represent revenue recognized, but not yet billed, pursuant to contract terms or accounts billed after the period end.

Substantially all unbilled receivables as of December 27, 2019 and December 28, 2018 are, or were expected to be, billed and collected within twelve months of such date.

Substantially all unbilled receivables as of January 1, 2021 and December 27, 2019 are, or were expected to be, billed and collected within twelve months of such date.

Contract retentions represent amounts invoiced to clients where payments have been withheld pending the completion of certain milestones, other contractual conditions or upon the completion of the project.

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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 based on current and past experience.

The Los Angeles Department of Water and Power (“LADWP”) accounted for 16% of the Company’s outstanding receivables as of December 27, 2019.

The Dormitory Authority-State of New York (“DASNY”) accounted for 21% of the Company’s outstanding receivables as of December 28, 2018.

Consolidated Edison of New York accounted for 31 % of the Company’s outstanding receivables as of January 1, 2021.

The Los Angeles Department of Water and Power (“LADWP”) accounted for 16 % of the Company’s outstanding receivables as of December 27, 2019.

From time to time, in connection with factoring agreements, the Company sells trade accounts receivable without recourse to third party purchasers in exchange for cash.

During 2019, the Company sold trade accounts receivable and received cash proceeds of $4.9 million.

The discounts on the trade accounts receivable sold during 2019 were $0.2 million and were recorded within “Other”

general and administrative expenses in the consolidated financial statements.

During 2018, the Company did not sell any trade accounts receivable.

During 2020 and 2019, the Company sold trade accounts receivable and received cash proceeds of $ 10.6 million and $ 4.9 million, respectively.

The discounts on the trade accounts receivable sold during 2020 were $ 1.7 million and the discounts on the trade accounts receivable sold during

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

2019 were not material.

Discounts on the trade accounts receivable were recorded within “Other, net” in other income (expense) in the consolidated financial statements.

Equipment and Leasehold Improvements

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Depreciation expense of equipment and leasehold improvements totaled $ 5.0 million, $ 3.4 million, and $ 1.6 million in fiscal years 2020, 2019, and 2018, respectively.

Included in accumulated depreciation and amortization is $509,000, $374,000 and $380,000 of amortization expense related to equipment held under finance leases in fiscal years 2019, 2018, and 2017, respectively.

Included in accumulated depreciation and amortization is $ 0.6 million, $ 0.5 million and $ 0.4 million of amortization expense related to equipment held under finance leases in fiscal years 2020, 2019, and 2018, respectively.

Accrued Liabilities

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Accrued bonuses

Compensation and payroll taxes

Employee withholdings

Compensation and payroll taxes

Paid leave bank

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DERIVATIVE FINANCIAL INSTRUMENTS

The Company uses certain interest rate derivative contracts to hedge interest rate exposures on its variable rate debt.

The Company’s hedging program is not designated for trading or speculative purposes.

The Company recognizes derivative instruments as either assets or liabilities on the accompanying consolidated balance sheets at fair value.

The Company records changes in the fair value (i.e., gains or losses) of the derivatives that have been designated as cash flow hedges in its consolidated balance sheets as accumulated other comprehensive income (loss) and in its condensed consolidated statements of comprehensive (loss) income as a loss or gain on cash flow hedge valuation.

On January 31, 2019, the Company entered into an interest rate swap agreement that the Company designated as cash flow hedge to fix the variable interest rate on a portion of the Company’s 2018 Term Loan Facility.

The interest rate swap agreement total notional amount of $ 35.0 million, has a fixed annual interest rate of 2.47 % and expires on January 31, 2022.

As of December 27, 2019, the effective portion of the Company’s interest rate swap agreement designated as a cash flow hedge before tax effects was $0.5 million, of which no amounts were reclassified from accumulated other comprehensive income to interest expense in 2019.

As of January 1, 2021, the effective portion of the Company’s interest rate swap agreement designated as a cash flow hedge before tax effects was $ 0.7 million, of which no amounts were reclassified from accumulated other comprehensive income to interest expense in fiscal 2020.

The Company expects to reclassify $ 0.5 million from accumulated other comprehensive income to interest expense within the next twelve months.

The fair values of the Company’s outstanding derivatives designated as hedging instruments were as follows:

Fair Value of Derivative

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Balance Sheet Location

December 27, 2019

January 1, 2021

December 27, 2019

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Other noncurrent (liabilities) assets

The impact of the effective portions of derivative instruments in cash flow hedging relationships and fair value relationships on other comprehensive income was $0.5 million for the year ended December 27, 2019.

The accumulated balances and reporting period activities for the year ended December 27, 2019 related to reclassifications out of accumulated other comprehensive income (loss) are summarized as follows:

The impact of the effective portions of derivative instruments in cash flow hedging relationships and fair value relationships on other comprehensive income was $ 0.7 million for the year ended January 1, 2021.

The accumulated balances and reporting period activities for the year ended January 1, 2021 related to reclassifications out of accumulated other comprehensive income (loss) are summarized as follows:

Gain (Loss) on

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Balances at December 27, 2019

Other comprehensive loss before reclassifications

Amounts reclassified from accumulated other comprehensive income:

Income tax benefit (expense) related to derivative instruments

Net current-period other comprehensive loss

Balances at January 1, 2021

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DEBT OBLIGATIONS

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Outstanding borrowings on Revolving Credit Facility

Outstanding borrowings on Delayed Draw

Outstanding borrowings on Delayed Draw Term Loan

Other debt agreements

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Long-term debt portion

New Credit Facilities

On June 26, 2019, the Company and certain of its subsidiaries entered into an Amended and Restated Credit Agreement (as amended by the First Amendment, dated as of August 15, 2019, and the Second Amendment, dated as of November 6, 2019, the “Credit Agreement”) with a syndicate of financial institutions as lenders and BMO Harris Bank, N.A.

(“BMO”), as administrative agent.

The Credit Agreement amended and restated the Company’s prior credit agreement, which was entered into on October 1, 2018 with a syndicate of financial institutions as lenders and BMO and was scheduled to mature on October 1, 2023.

The Credit Agreement provides for (i) a $100.0 million term loan (the “Term A Loan”), (ii) up to $50.0 million in delayed draw term loans (the “Delayed Draw Term Loan”), and (iii) a $50.0 million revolving credit facility (the “Revolving Credit Facility”

and, collectively with the Term A Loan and the Delayed Draw Term Loan, the “Credit Facilities”), each maturing on June 26, 2024.

The Company may borrow under the Delayed Draw Term Loan any time and from time to time until June 26, 2022;

provided that each borrowing under the Delayed Draw Term Loan must be a minimum of $10.0 million, the Company may not make more than five borrowings under the Delayed Draw Term Loan and any borrowings made under the Delayed Draw Term Loan will permanently reduce future borrowing capacity under the Delayed Draw Term Loan.

In addition, the Company must satisfy certain conditions prior to borrowing under the Delayed Draw Term Loan, including, but not limited to, that upon giving effect to such borrowing under the Delayed Draw Term Loan and any Credit Event (as defined in the Credit Agreement) in connection therewith, the Company will be in compliance with all financial covenants on a pro forma basis and the Company’s consolidated total leverage ratio will be no greater than 0.25x less than the consolidated total leverage ratio covenant compliance level in effect at the time of such borrowing.

The Company may also request lenders to add incremental term loans or increase the aggregate commitment under the Revolving Credit Facility by an aggregate amount of up to $100.0 million, subject to meeting certain conditions, and only if the existing or new lenders agree to provide the additional term or revolving commitments.

Borrowings under the Credit Facilities bear interest at a rate equal to either, at the Company’s option, (i) the highest of the prime rate, the Federal Funds Rate plus 0.50% or one-month LIBOR plus 1.00% (the “Base Rate”) or (ii) LIBOR, in each case plus an applicable margin ranging from 0.125% to 1.00% with respect to Base Rate borrowings and 1.125% to 2.00% with respect to LIBOR borrowings.

The applicable margin varies based upon the Company’s consolidated total leverage ratio.

The Company will also pay commitment fees for the unused portion of the Revolving Credit Facility and the Delayed Draw Term Loan, which ranges from 0.15% to 0.35% per annum depending on the Company’s consolidated total leverage ratio, and fees on the face amount of any letters of credit outstanding under the Revolving Credit Facility, which range from 0.84% to 2.00% per annum, in each case, depending on whether such letter

Credit Facilities

(“BMO”), as administrative agent.

The Credit Agreement provides for (i) a $ 100.0 million secured term loan (the “Term A Loan”), (ii) up to $ 50.0 million in delayed draw secured term loans (the “Delayed Draw Term Loan”), and (iii) a $ 50.0 million secured revolving credit facility (the “Revolving Credit Facility” and, collectively with the Term A Loan and the Delayed Draw Term Loan, the “Credit Facilities”), each maturing on June 26, 2024.

The Company’s obligations under the Credit Agreement are guaranteed by its present and future domestic subsidiaries, with limited exceptions.

Prior to the Third Amendment (as defined below), the Credit Agreement required the Company to comply with certain financial covenants, including requiring that the Company maintain a (i) total leverage ratio (the “Leverage Ratio”), defined as the ratio of total funded debt to Adjusted EBITDA (as defined in the Credit Agreement), of at least 3.50 to 1.00 through December 31, 2020, and 3.25 to 1.00 thereafter and (ii) fixed charge coverage ratio (“FCCR Ratio”), defined as the ratio of Adjusted EBITDA less Unfinanced Capital Expenditures (as defined in the Credit Agreement) to Fixed Charges (as defined in the Credit Agreement), of not less than 1.20 to 1.00, in each case tested quarterly.

The Credit Agreement also contains other customary restrictive covenants including (i) restrictions on the incurrence of additional indebtedness and additional liens on property, (ii) restrictions on permitted acquisitions and other investments and (iii) limitations on asset sales, mergers and acquisitions.

Further, the Credit Agreement limits the Company’s payment of future dividends and distributions and share repurchases by the Company.

Subject to certain exceptions, borrowings under the Credit Agreement are also subject to mandatory prepayment from (a) any issuances of debt or equity securities, (b) any sale or disposition of assets, (c) insurance and condemnation proceeds (d) representation and warranty insurance proceeds related to insurance policies issued in connection with acquisitions and (e) excess cash flow.

The Credit Agreement includes customary events of default.

Third Amendment to the Credit Agreement

On May 6, 2020, the Company entered into the Third Amendment to the Amended and Restated Credit Agreement (the “Third Amendment”) which, among other things, amends or suspends certain covenants contained in the Credit Agreement from March 5, 2020 until the earlier of (i) July 2, 2021 and (ii) the last day of the fiscal quarter in

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

of credit is a performance or financial letter of credit and the Company’s consolidated total leverage ratio.

The Term A Loan issuance costs are amortized to interest expense over the term of the loan, and as of December 27, 2019, issuance costs of $0.7 million remained unamortized.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

which the Company delivers an irrevocable election to terminate the covenant relief granted by the Third Amendment (the “Covenant Relief Period”).

The Third Amendment increases the maximum Leverage Ratio the Company is permitted to maintain during the Covenant Relief Period and replaces the covenant to maintain a minimum FCCR Ratio during the Covenant Relief Period with a requirement to maintain a minimum Adjusted EBITDA (as defined in the Third Amendment).

During the Covenant Relief Period, no further delayed draw term loans may be borrowed under the Credit Facilities and the Company is prohibited from engaging in share repurchases or making any Permitted Acquisitions (as defined in the Credit Agreement).

Additionally, during the Covenant Relief Period, the aggregate amount of all capital expenditures made by the Company may not exceed $ 7.0 million, and the Company is prohibited from making any earn-out payments if, after giving effect to such earn-out payment, the Company’s liquidity would be less than $ 5.0 million or the aggregate amount of all earn-out payments made by the Company during the Covenant Relief Period would exceed $ 7.0 million.

During the Covenant Relief Period, borrowings under the Credit Agreement bear interest (A) from March 5, 2020 until the date of the Third Amendment, at a rate equal to one-month LIBOR plus 2.0 %, (B) from the date of the Third Amendment until the date the administrative agent received the Company’s financial statements for the quarter ended July 3, 2020, at a rate equal to one-month LIBOR, plus an applicable margin of 1.50 % with respect to Base Rate borrowings and 2.50 % with respect to LIBOR borrowings and (C) at all other times during the Covenant Relief Period, at a rate equal to either, at the Company’s option, (i) the highest of the prime rate, the Federal Funds Rate plus 0.5 % or one-month LIBOR plus 1.00 % or (ii) one-month LIBOR, in each case plus an applicable margin ranging from 0.125 % to 1.50 % with respect to Base Rate borrowings and 1.125 % to 2.50 % with respect to LIBOR borrowings, depending on the Leverage Ratio;

provided, that one-month LIBOR shall not be less than 0.75 % during the Covenant Relief Period.

During the Covenant Relief Period, the Company will pay a commitment fee for the unused portion of the Revolving Credit Facility and the delayed draw term loan facility, which ranges from 0.15 % to 0.45 % per annum depending on the Leverage Ratio, and fees on the face amount of any letters of credit outstanding under the Revolving Credit Facility, which range from 0.84 % to 2.50 % per annum, in each case, depending on whether such letter of credit is a performance or financial letter of credit and the Leverage Ratio.

After the Covenant Relief Period, borrowings under the Credit Agreement will bear interest at a rate equal to either, at the Company’s option, (i) the Base Rate or (ii) one-month LIBOR, in each case plus an applicable margin ranging from 0.125 % to 1.00 % with respect to Base Rate borrowings and 1.125 % to 2.00 % with respect to LIBOR borrowings, depending on the Leverage Ratio;

provided, that one-month LIBOR shall not be less than 0.00 %.

After the Covenant Relief Period, the Company will pay a commitment fee for the unused portion of the Revolving Credit Facility and the delayed draft term loan facility, which will range from 0.15 % to 0.35 % per annum depending on the Leverage Ratio, and fees on the face amount of any letters of credit outstanding under the Revolving Credit Facility, which will range from 0.84 % to 2.00 % per annum, in each case, depending on whether such letter of credit is a performance or financial letter of credit and the Leverage Ratio.

The Term A Loan issuance costs are amortized to interest expense over the term of the loan, and as of January 1, 2021, issuance costs of $ 0.8 million remained unamortized.

The Delayed Draw Term Loan and Revolving Credit Facility issuance cost of $ 0.6 million are included in assets in the accompanying condensed consolidated balance sheets.

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In addition, subject to certain exceptions, all such obligations are secured by substantially all of the assets of Willdan and the subsidiary guarantors.

The Credit Agreement requires compliance with financial covenants, including a maximum total consolidated leverage ratio and a minimum fixed charge coverage ratio.

The Credit Agreement also contains customary restrictive covenants including (i) restrictions on the incurrence of additional indebtedness and additional liens on property, (ii) restrictions on permitted acquisitions and other investments and (iii) limitations on asset sales, mergers and acquisitions.

Further, the Credit Agreement limits the Company’s payment of future dividends and distributions and share repurchases by the Company.

Subject to certain exceptions, the borrowings under the Credit Agreement are also subject to mandatory prepayment from (a) any issuances of debt or equity securities, (b) any sale or disposition of assets, (c) insurance and condemnation proceeds (d) representation and warranty insurance proceeds related to insurance policies issued in connection with acquisitions and (e) excess cash flow.

The Credit Agreement includes customary events of default.

The Company believes that, as of December 27, 2019, it was in compliance with all covenants contained in the Credit Agreement.

As of December 27, 2019, the Company’s composite interest rate, exclusive of the effects of upfront fees, undrawn fees and issuance cost amortization, was 3.7% and $2.7 million in letters of credit were issued.

Prior Credit Facilities

2018 Credit Facility

On October 1, 2018, in connection with the acquisition of Lime Energy, the Company entered into a credit agreement (the “2018 Credit Agreement”) with a syndicate of financial institutions as lenders, and BMO Harris Bank, N.A., as administrative agent.

The 2018 Credit Agreement initially provided for up to a $90.0 million delayed draw term loan facility (the “2018 Term Loan Facility”) and a $30.0 million revolving credit facility (collectively, the “2018 Credit Facilities”), each maturing on October 1, 2023.

On October 10, 2018, as a result of the Company’s completed equity offering, the amount available for borrowing under the 2018 Term Loan Facility was reduced to $70.0 million.

On November 9, 2018, in connection with the closing of the acquisition of Lime Energy, the Company borrowed $70.0 million (the “2018 Term Loan”) under the 2018 Term Loan Facility.

The proceeds of such borrowing were used to pay part of the consideration owed in connection with the acquisition along with related fees and expenses.

On June 26, 2019, in connection with the Company entering into the Credit Agreement, the 2018 Credit Agreement was amended and restated.

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

The 2018 Credit Facilities bore interest at a rate equal to either, at the Company’s option, (i) the highest of the prime rate, the Federal Funds Rate plus 0.50% or one-month LIBOR plus 1.00% (“Base Rate”) or (ii) LIBOR, in each case plus an applicable margin ranging from 0.25% to 3.00% with respect to Base Rate borrowings and 1.25% to 4.00% with respect to LIBOR borrowings.

The applicable margin was based upon the Company’s consolidated total leverage ratio.

The Company was also required to pay a commitment fee for the unused portion of the revolving credit facility, which ranged from 0.20% to 0.40% per annum depending on the Company’s consolidated total leverage ratio, and fees on the face amount of any letters of credit outstanding under the revolving credit facility, which ranged from 0.94% to 4.00% per annum, in each case, depending on whether such letter of credit was a performance or financial letter of credit and the Company’s consolidated total leverage ratio.

Borrowings under the 2018 Credit Agreement were guaranteed by all of the Company’s direct and indirect domestic subsidiaries (other than inactive subsidiaries).

In addition, subject to certain exceptions, all such obligations were secured by substantially all of the assets of Willdan Group, Inc.

and the subsidiary guarantors.

2017 Credit Facility

On January 20, 2017, the Company and each of its subsidiaries, as guarantors, entered into an Amended and Restated Credit Agreement (the “2017 Credit Agreement”) with BMO, as lender.

The 2017 Credit Agreement amended and extended the Company’s prior credit agreement.

The 2017 Credit Agreement provided for a $35.0 million revolving line of credit, including a $10.0 million standby letter of credit sub-facility, and was scheduled to mature on January 20, 2020.

Borrowings under the 2017 Credit Agreement bore interest at a rate equal to either, at the Company’s option, (i) the highest of the prime rate, the Federal Funds Rate plus 0.5% or one-month London Interbank Offered Rate (“LIBOR”) plus 1% (the “Base Rate”) or (ii) LIBOR, in each case plus an applicable margin ranging from 0.25% to 1.00% with respect to Base Rate borrowings and 1.25% to 2.00% with respect to LIBOR borrowings.

The applicable margin was based upon the consolidated leverage ratio of the Company.

The Company was also required to pay a commitment fee for the unused portion of the revolving line of credit, which ranged from 0.20% to 0.35% per annum, and fees on any letters of credit drawn under the facility, which ranged from 0.94% to 1.50%, in each case, depending on the Company’s consolidated leverage ratio.

Borrowings under the 2017 Credit Agreement were guaranteed by all of the Company’s direct and indirect subsidiaries and secured by substantially all of the Company’s and the Guarantors’

On October 1, 2018, in connection with the Company entering into the 2018 Credit Agreement, the 2017 Credit Agreement was terminated.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The Company believes that, as of January 1, 2021, it was in compliance with all covenants contained in the Credit Agreement, as amended by the Third Amendment.

As of January 1, 2021, the Company’s composite interest rate, exclusive of the effects of upfront fees, undrawn fees and issuance cost amortization, was 2.8 % and $ 2.7 million in letters of credit were issued.

Other Debt Agreements

Insurance Premiums

The Company’s annual commercial insurance policy protection package renews in the fourth quarter of every year.

From time to time, the Company will finance insurance premiums by entering into unsecured notes payable with insurance companies.

During the Company’s annual insurance renewals in the fourth quarter of its year ended December 27, 2019, the Company did not finance any of its insurance premiums for the 2020 fiscal year.

During the Company’s annual insurance renewals in the fourth quarter of its fiscal year ended December 28, 2018, the Company elected to finance its insurance premiums for the 2019 fiscal year with a note payable bearing interest at an annual rate of 4.3%, payable in monthly principal and interest installments of $149,881 through October 2019.

As of December 28, 2018, the unpaid balance of the financed premiums totaled $1.5 million.

During the Company’s annual insurance renewals in the fourth quarter of its fiscal year ended January 1, 2021, the Company elected to finance its insurance premiums for the 2021 fiscal year with a note payable bearing interest at an annual rate of 2.75 %, payable in monthly principal and interest installments of $ 0.2 million through August 2021.

As of January 1, 2021, the unpaid balance of the financed premiums totaled $ 1.1 million.

During the Company’s annual insurance renewals in the fourth quarter of its year ended December 27, 2019, the Company did not finance any of its insurance premiums for the 2020 fiscal year.

Software Agreements

The Company has also financed, from time to time, software costs by entering into unsecured notes payable with software providers.

During the fiscal year ended December 28, 2018, the Company elected to finance its IBM software costs of $0.2 million with a note payable bearing interest at an annual rate of 4.656%, payable in monthly

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

principal and interest installments of $6,315 through November 2021.

As of December 27, 2019, and December 28, 2018, the unpaid balance related to the IBM software agreement totaled $133,000 and $211,000, respectively.

During the fiscal year ended December 28, 2018, the Company elected to finance its IBM software costs of $ 0.2 million with a note payable bearing interest at an annual rate of 4.656 %, payable in monthly principal and interest installments of $ 6,315 through November 2021.

As of January 1, 2021, and December 27, 2019, the unpaid balance related to the IBM software agreement totaled $ 57,000 and $ 133,000 , respectively.

Utility Customer Agreement

In connection with the acquisition of substantially all of the assets of Onsite Energy, the Company assumed a contract dispute settlement agreement between Onsite Energy and one of its utility customers dated December 20, 2018 (the “Utility Customer Agreement”) where Onsite Energy agreed to pay $1.7 million, bearing interest at an imputed annual rate of 4.332%, payable in quarterly principal and interest installments through June 2021.

The unpaid balance of the Utility Customer Agreement totaled $0.9 million as of December 27, 2019.

In connection with the acquisition of substantially all of the assets of Onsite Energy, the Company assumed a contract dispute settlement agreement between Onsite Energy and one of its utility customers dated December 20, 2018 (the “Utility Customer Agreement”) where Onsite Energy agreed to pay $ 1.7 million, bearing interest at an imputed annual rate of 4.332 %, payable in quarterly principal and interest installments through June 2021.

As of January 1, 2021 and December 27, 2019, the unpaid balance of the Utility Customer Agreement totaled $ 0.8 million and $ 0.9 million, respectively.

Future Debt Payments

The following table summarizes the combined principal installments for the Company’s debt obligations, excluding capital leases, over the next five years and beyond, as of December 27, 2019:

The following table summarizes the combined principal installments for the Company’s debt obligations, excluding capital leases, over the next five years and beyond, as of January 1, 2021:

Total debt maturities

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

GOODWILL AND OTHER INTANGIBLE ASSETS

As of December 27, 2019, the Company had $127.6 million of goodwill, which primarily relates to the Energy segment and the acquisitions within this segment of E3, Inc., Lime Energy, NAM, Integral Analytics and Abacus Resource Management Company (“Abacus”) and substantially all of the assets of Onsite Energy, The Weidt Group, Genesys and 360 Energy Engineers, LLC (“360 Energy”).

As of January 1, 2021, the Company had $ 130.1 million of goodwill, which primarily relates to the Energy segment and the acquisitions within this segment of E3, Inc., Lime Energy, NAM, Integral Analytics and Abacus Resource Management Company (“Abacus”) and substantially all of the assets of Onsite Energy, The Weidt Group, Genesys and 360 Energy Engineers, LLC (“360 Energy”).

The remaining goodwill relates to the Engineering and Consulting reporting segment and the acquisition within this segment of Economists LLC.

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The Company completes its annual testing of goodwill as of the last day of the first month of its fourth fiscal quarter each year to determine whether there is impairment.

In addition to the Company’s annual test, it regularly evaluates whether events and circumstances have occurred that may indicate a potential impairment of goodwill.

No impairment was recorded in any year during the three-year period ended December 27, 2019.

The gross amounts and accumulated amortization of the Company’s acquired identifiable intangible assets with finite useful lives, included in other intangible assets, net in the accompanying consolidated balance sheets, were as follows:

December 27, 2019

In addition to the Company’s annual test, it regularly evaluates whether events and circumstances have occurred that may indicate a potential impairment of goodwill, including the current economic impact caused by the Covid-19 pandemic.

No impairment was recorded in any year during the three-year period ended January 1, 2021.

January 1, 2021

December 27, 2019

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(1) In-process research and technology is not amortized until put into use.

At the time of acquisition, the Company estimates the fair value of the acquired identifiable intangible assets based upon the facts and circumstances related to the particular intangible asset.

Inherent in such estimates are

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

judgments and estimates of future revenue, profitability, cash flows and appropriate discount rates for any present value calculations.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

At the time of acquisition, the Company estimates the fair value of the acquired identifiable intangible assets based upon the facts and circumstances related to the particular intangible asset.

Inherent in such estimates are judgments and estimates of future revenue, profitability, cash flows and appropriate discount rates for any present value calculations.

The Company preliminarily estimates the value of the acquired identifiable intangible assets and then finalizes the estimated fair values during the purchase allocation period, which does not extend beyond 12 months from the date of acquisition.

The C ompany’s amortization expense for acquired identifiable intangible assets with finite useful lives was $11.6 million, $4.5 million and $2.4 million for the fiscal years 2019, 2018 and 2017, respectively.

The Company’s amortization expense for acquired identifiable intangible assets with finite useful lives was $ 13.7 million, $ 11.6 million and $ 4.5 million for the fiscal years 2020, 2019 and 2018, respectively.

Estimated amortization expense for acquired identifiable intangible assets for fiscal year 2021 and the succeeding years is as follows:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The Company leases certain office facilities under long-term, non-cancellable operating leases that expire at various dates through the year 2027.

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Under this guidance, the net present value of future lease payments is recorded as right-of-use assets and lease liabilities.

In addition, the Company elected the ‘package of practical expedients’

permitted under the transition guidance within the new standard, which among other things, allowed the Company to carry forward the historical lease classification.

In addition, the Company elected the ‘package of practical expedients ’ permitted under the transition guidance within the new standard, which among other things, allowed the Company to carry forward the historical lease classification.

In addition, the Company elected not to utilize the hindsight practical expedient to determine the lease term for existing leases.

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These leases allow the Company to conserve cash by paying a monthly lease rental fee for the use of facilities and equipment rather than purchasing them.

The Company’s leases have remaining terms ranging from one to eight years, some of which may include options to extend the leases for up to five years, and some of which may include options to terminate the leases within one year.

Currently, all of the Company’s leases contain fixed payment terms.

The Company’s leases have remaining terms ranging from one to eight years , some of which may include options to extend the leases for up to five years , and some of which may include options to terminate the leases within one year .

Currently, all of the Company’s leases contain fixed payment terms.

The Company may decide to cancel or terminate a lease before the end of its term, in which case we are typically liable to the lessor for the remaining lease payments under the term of the lease.

Additionally, all of our month-to-month leases are cancelable by the Company or the lessor, at any time, and are not included in our right-of-use asset or lease liability.

As of December 27, 2019, the Company had no leases with residual value guarantees.

As of January 1, 2021, the Company had no leases with residual value guarantees.

Typically, the Company has purchase options on the equipment underlying its long-term leases.

The Company may exercise some of these purchase options when the need for equipment is on-going and the purchase option price is attractive.

Nonperformance-related default covenants, cross-default provisions, subjective default provisions and material adverse change clauses contained in material lease agreements, if any, are also evaluated to determine whether those clauses affect lease classification in accordance with “ASC”

Topic 842-10-25.

Leases are accounted for as operating or financing leases, depending on the terms of the lease.

8 unchanged sentences

Right-of-use assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date.

As most of the Company’s leases do not provide an implicit rate to calculate present value, the Company determines this rate by estimating the Company’s incremental borrowing rate at the lease commencement date.

The right-of-use asset also includes any lease payments made and initial direct costs incurred at lease commencement and excludes lease incentives.

Our lease terms may

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.

Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.

Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following is a summary of the lease expense:

5 unchanged sentences

Total net lease cost

The following is a summary of lease information presented on the Company’s consolidated balance sheet as of December 27, 2019:

The following is a summary of lease information presented on the Company’s consolidated balance sheet:

(in thousands)

17 unchanged sentences

Finance Leases

Rent expense and related charges for common area maintenance for all facility operating leases for fiscal years 2019, 2018 and 2017 was approximately $6,190,000 $4,486,000, and $3,624,000, respectively.

Rent expense for fiscal years 2020, 2019, and 2018 was $ 7.6 million, and $ 6.2 million, and $ 4.5 million, respectively.

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

The following is a summary of other information and supplemental cash flow information related to finance and operating leases for 2019:

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following is a summary of other information and supplemental cash flow information related to finance and operating leases:

(in thousands)

5 unchanged sentences

Operating leases

The following is a summary of the maturities of lease liabilities as of December 27, 2019:

The following is a summary of the maturities of lease liabilities as of January 1, 2021:

(in thousands)

7 unchanged sentences

The financing component for operating lease obligations represents the effect of discounting the operating lease payments to their present value.

Capital Leases

Prior to the adoption of ASU No.

2016-02, Leases (Topic 842), the Company leased certain equipment under capital leases.

The economic substance of these leases was a financing transaction for purchase of the equipment and leasehold improvements, accordingly, the leases were included in the balance sheets in equipment and leasehold improvement, net of accumulated depreciation, with a corresponding amount recorded in current portion of lease obligations or noncurrent portion of lease obligations, as appropriate.

The capital lease assets were amortized on a straight-line basis over the life of the lease or, if shorter, the life of the leased asset, and were included in depreciation expense in the statements of comprehensive income.

The interest associated with capital leases was included in interest expense in the statements of comprehensive income.

As of December 28, 2018, the Company had $0.5 million of capital lease obligations outstanding, $0.3 million of which was classified as a current liability.

As of December 28, 2018, $0.5 million of leased assets were capitalized in equipment and leasehold improvements, net of accumulated depreciation.

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

The following is a summary of the future minimum payments under finance and non-cancelable operating leases as of December 28, 2018:

(in thousands)

2024 and thereafter

Total future minimum lease payments

Amount representing interest (at rates ranging from 3.25% to 3.75%)

Present value of net minimum lease payments under capital leases

Less current portion

Noncurrent lease obligations

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

COMMITMENTS AND VARIABLE INTEREST ENTITIES

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Employees may elect to contribute up to 50 % of their compensation limited to the amount allowed by tax laws.

Company contributions are made solely at the discretion of the Company’s board of directors.

The Company also had a defined contribution plan (the “Plan”) covering employees who have completed three months of service and who have attained 21 years of age.

The Company elected to make matching contributions equal to 50% of the participants’

contributions to the Plan up to 6% of the individual participant’s compensation.

Company contributions are made solely at the discretion of the Company’s board of directors.

The Company also had a defined contribution plan (the “Plan”) covering employees who have completed three months of service and who have attained 21 years of age.

The Company elected to make matching contributions equal to 50 % of the participants’ contributions to the Plan up to 6 % of the individual participant’s compensation.

Under the defined contribution plan, the Company may make discretionary matching contributions to employee accounts.

The Company made matching contributions of approximately $1,996,000, $1,120,000 and $1,021,000 during fiscal years 2019, 2018 and 2017, respectively.

Post-Employment Health Benefits

In May 2006, the Company’s board of directors approved providing lifetime health insurance coverage for Win Westfall, the Company’s former chief executive officer and current director, and his spouse and for Linda Heil, the widow of the Company’s former chief executive officer, Dan Heil.

These benefits relate to past services provided to the Company.

Accordingly, there is no unamortized compensation cost for the benefits.

Included in accrued liabilities in the accompanying consolidated balance sheets related to this obligation is the present value of expected payments for health insurance coverage, $102,000 as of December 27, 2019 and $122,000 as of December 28, 2018.

The Company made matching contributions of $ 1.5 million, $ 2.0 million, and $ 1.1 million during fiscal years 2020, 2019 and 2018, respectively.

Variable Interest Entities

On March 4, 2016, the Company and the Company’s wholly-owned subsidiary, WES acquired substantially all of the assets of Genesys and assumed certain specified liabilities of Genesys (collectively, the “Purchase”) pursuant to an Asset Purchase and Merger Agreement, dated as of February 26, 2016 (the “Agreement”), by and among Willdan Group, Inc., WES, WESGEN (as defined below), Genesys and Ronald W.

Mineo (“Mineo”) and Robert J.

Braun (“Braun”

and, together with Mineo, the “Genesys Shareholders”).

On March 5, 2016, pursuant to the terms of the Agreement, WESGEN, Inc., a non-affiliated corporation (“WESGEN”), merged (the “Merger”

and, together with the Purchase, the “Acquisition”) with Genesys, with Genesys remaining as the surviving corporation.

Genesys was acquired to strengthen the Company’s power engineering capability in the northeastern U.S., and also to increase client exposure and experience with universities.

Mineo (“Mineo”) and Robert J.

Braun (“Braun” and, together with Mineo, the “Genesys Shareholders”).

On March 5, 2016, pursuant to the terms of the Agreement, WESGEN, Inc., a non-affiliated corporation (“WESGEN”), merged (the “Merger” and, together with the Purchase, the “Acquisition”) with Genesys, with Genesys remaining as the surviving corporation.

Genesys was acquired to strengthen the Company’s power engineering capability in the northeastern U.S., and also to increase client exposure and experience with universities.

Genesys continues to be a professional corporation organized under the laws of the State of New York, wholly-owned by one or more licensed engineers.

Pursuant to New York law, the Company does not own capital stock of Genesys.

The Company has entered into an agreement with the Shareholder of Genesys pursuant to which the Shareholder will be prohibited from selling, transferring or encumbering the Shareholder’s ownership interest in Genesys without the Company’s consent.

Notwithstanding the Company’s rights regarding the transfer of Genesys’s stock, the Company does not have control over the professional decision making of Genesys’s engineering services.

The Company has entered into an administrative services agreement with Genesys pursuant to which WES will provide Genesys with ongoing administrative, operational and other non-professional support services.

Genesys pays WES a service fee, which consists of all of the costs incurred by WES to provide the administrative services to Genesys plus ten percent of such costs, as well as any other costs that relate to professional service supplies and personnel costs.

As a result of the administrative services agreement, the Company absorbs the expected losses of Genesys through its deferral of Genesys’s service fees owed to WES.

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

The Company manages Genesys and has the power to direct the activities that most significantly impact Genesys’s performance, in addition to being obligated to absorb expected losses from Genesys.

As a result of the administrative services agreement, the Company absorbs the expected losses of Genesys through its deferral of Genesys’s service fees owed to WES.

The Company manages Genesys and has the power to direct the activities that most significantly impact Genesys’s performance, in addition to being obligated to absorb expected losses from Genesys.

Accordingly, the Company is the primary beneficiary of Genesys and consolidates Genesys as a VIE.

In addition, the Company concluded there is no noncontrolling interest related to the consolidation of Genesys because the Company determined that (i) the shareholder of Genesys does not have more than a nominal amount of equity investment at risk, (ii) WES absorbs the expected losses of Genesys through its deferral of Genesys’s service fees owed to WES and the Company has, since entering into the administrative services agreement, had to continuously defer service fees for Genesys, and (iii) the Company believes Genesys will continue to have a shortfall on payment of its service fees for the foreseeable future, leaving no expected residual returns for the shareholder.

As of December 27, 2019, the Company had one VIE —

As of January 1, 2021, the Company had one VIE — Genesys.

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

SEGMENT AND GEOGRAPHICAL INFORMATION

Segment Information

During the three months ended March 30, 2018, the Company revised its segment reporting to conform to changes in its internal management reporting.

As a result, beginning with the three months ended March 30, 2018, the Company’s two segments are Energy and Engineering and Consulting, and the Company’s chief operating decision maker, which continues to be its chief executive officer, receives and reviews financial information in this format.

Accordingly, segment information has been revised for comparison purposes for all periods presented in the accompanying consolidated financial statements.

There were no intersegment sales in any of the three fiscal years ended December 27, 2019.

The Company’s chief operating decision maker evaluates the performance of each segment based upon income or loss from operations before income taxes.

The Company’s two segments are Energy and Engineering and Consulting, and the Company’s chief operating decision maker, which continues to be its chief executive officer, receives and reviews financial information in this format.

There were no intersegment sales in any of the three fiscal years ended January 1, 2021.

The Company’s chief operating decision maker evaluates the performance of each segment based upon income or loss from operations before income taxes.

Certain segment asset information including expenditures for long-lived assets has not been presented as it is not reported to or reviewed by the chief operating decision maker.

In addition, enterprise-wide service line contract revenue is not included as it is impracticable to report this information for each group of similar services.

Financial information with respect to the reportable segments and reconciliation to the amounts reported in the Company’s consolidated financial statements follows:

(in thousands)

21 unchanged sentences

Income tax expense (benefit)

Net income (loss)

Segment assets (1)

1 unchanged sentence

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following tables provides information about disaggregated revenue by contract type, client type and geographical region:

9 unchanged sentences

Geography (1)

Revenue from our foreign operations were immaterial for fiscal year 2019.

For prior fiscal years presented, we did not have any foreign revenues.

In accordance with ASU 2016-10, the Company adopted ASC 606 utilizing a modified retrospective approach.

As such, fiscal year 2017 comparative information is not presented.

Engineering and

(in thousands)

Contract Type

Time-and-materials

Geography (1)

(1) Revenue from our foreign operations were immaterial for fiscal years 2020 and 2019.

For fiscal year 2018, we did not have any foreign revenues.

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

The following sets forth the assets that are included in Unallocated Corporate as of December 27, 2019 and December 28, 2018.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following sets forth the assets that are included in Unallocated Corporate as of January 1, 2021 and December 27, 2019.

(in thousands)

8 unchanged sentences

Geographical Information

Substantially all of the Company’s consolidated revenue was derived from its operations in the U.S.

The Company operates through a nationwide network of offices spread across 24 states and the District of Columbia.

In connection with the Company’s acquisition of E3, Inc.

Substantially all of the Company’s consolidated revenue was derived from its operations in the U.S.

In connection with the Company’s acquisition of E3, Inc.

in October 28, 2019, the Company expanded its operations into Canada.

Revenues from the Company’s Canadian operations were not material for fiscal year 2019.

Revenues from the Company’s Canadian operations were not material for fiscal years 2020 and 2019.

Customer Concentration

For fiscal years 2019, 2018, and 2017, the Company’s top 10 customers accounted for 50.6%, 56.9%, and 64.4%, respectively, of the Company’s consolidated contract revenue.

For fiscal years 2020, 2019, and 2018, the Company’s top 10 customers accounted for 48.0 %, 50.6 %, and 56.9 %, respectively, of the Company’s consolidated contract revenue.

During fiscal years 2020, 2019, and 2018, the Company had individual customers that accounted for more than 10% of its consolidated contract revenues.

For fiscal year 2020, the Company derived 10.2 % of its consolidated contract revenue from one customer, Los Angeles Department of Water and Power.

For fiscal year 2019, the Company derived 29.1 % of its consolidated contract revenue from two customers, Consolidated Edison of New York and the Los Angeles Department of Water and Power.

For fiscal year 2018, the Company derived 19.0 % of its consolidated contract revenue from one customer, Consolidated Edison of New York.

For fiscal year 2017, the Company derived 38.0% of its consolidated contract revenue from two customers, Consolidated Edison of New York and the Dormitory Authority-State New York.

On a segment basis, the Company also had individual customers that accounted for more than 10% of its segment contract revenues.

For fiscal year 2020, the Company derived 22.5 % of its Energy segment revenues from two customers, Los Angeles Department of Water and Power and The Dormitory Authority State of New York (“DASNY”), and it derived 18.2 % of its Engineering and Consulting segment revenues from one customer, the City of Elk Grove.

For fiscal year 2019, the Company derived 34.7 % of its Energy segment revenues from two customers, Consolidated Edison of New York and the Los Angeles Department of Water and Power, and it derived 25.0 % of its Engineering and Consulting segment revenues from one customer, the City of Elk Grove.

For 2018, the Company derived 18.5 % of its Energy segment revenues from one customer, Consolidated Edison of New York, and it derived 10 % of its Engineering and Consulting segment revenues from three customers, the City of Elk Grove, City of Long Beach and Ygrene.

For 2017, Company derived 22.3% of its Energy segment revenues from one customer, Dormitory Authority-State of New York (“DASNY”) and it derived 10% of its Engineering and Consulting segment revenues from seven customers, the City of Elk Grove, City of Rialto, City of El Monte, City of Long Beach, City of San Bernardino, City of Westlake Village and City of Lakewood.

The Company’s largest clients are based in California and New York.

In fiscal year 2019, 2018, and 2017, services provided to clients in California accounted for 41.1%, 35.0%, and 30.0%, respectively, of the Company’s contract revenue and services provided to clients in New York accounted for 27.2%, 29.0%, 46.0%, respectively, of the Company’s contract revenue.

The Company’s largest clients are based in California and New York.

In fiscal year 2020, 2019, and 2018, services provided to clients in California accounted for 37.0 %, 41.1 %, and 35.0 %, respectively, of the Company’s contract revenue and services provided to clients in New York accounted for 19.2 %, 27.2 %, and 29.0 %, respectively, of the Company’s contract revenue.

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

SHAREHOLDERS’

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

SHAREHOLDERS’ EQUITY

Stock Incentive Plans

As of December 27, 2019, the Company had two share‑based compensation plans, which are described below.

As of January 1, 2021, the Company had two share-based compensation plans, which are described below.

The Company may no longer grant awards under the 2006 Stock Incentive Plan.

2006 Stock Incentive Plan

In June 2006, the Company’s board of directors adopted the 2006 Stock Incentive Plan (“2006 Plan”) and it received stockholder approval.

The Company re-submitted the 2006 Plan to its stockholders for post-IPO approval at the 2007 annual meeting of the stockholders and it was approved.

The 2006 Plan terminated in June 2016 and no additional awards were granted under the 2006 Plan after the Company’s shareholders approved the 2008 Plan (as defined below) in June 2008.

The 2006 Plan had 300,000 shares of common stock reserved for issuance to the Company’s directors, executives, officers, employees, consultants and advisors.

The 2006 Plan terminated in June 2016 and no additional awards were granted under the 2006 Plan after the Company’s shareholders approved the 2008 Plan (as defined below) in June 2008.

The 2006 Plan had 300,000 shares of common stock reserved for issuance to the Company’s directors, executives, officers, employees, consultants and advisors.

Approximately 70,333 shares that were available for award grant purposes under the 2006 Plan have become available for grant under the 2008 Plan following shareholder approval of the 2008 Plan.

Options granted under the 2006 Plan could be “non‑statutory stock options”

which expire no more than 10 years from the date of grant or “incentive stock options”

as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”).

Options granted under the 2006 Plan could be “non-statutory stock options” which expire no more than 10 years from the date of grant or “incentive stock options” as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”).

Upon exercise of non-statutory stock options, the Company is generally entitled to a tax deduction on the exercise of the option for an amount equal to the excess over the exercise price of the fair market value of the shares at the date of exercise.

The Company is generally not entitled to any tax deduction on the exercise of an incentive stock option.

As of December 27, 2019, there were no outstanding stock options under the 2006 Plan.

As of January 1, 2021, there were no outstanding stock options under the 2006 Plan.

Amended and Restated 2008 Performance Incentive Plan

In March 2008, the Company’s board of directors adopted the 2008 Performance Incentive Plan (“2008 Plan”), and it received stockholder approval at the 2008 annual meeting of the stockholders in June 2008.

The 2008 Plan was originally set to terminate on April 17, 2027 but received a ten-year extension at the 2019 annual meeting of the stockholders.

The 2008 Plan is currently scheduled to expire on April 18, 2029.

The 2008 Plan initially had 450,000 shares of common stock reserved for issuance (not counting any shares originally available under the 2006 Plan that “poured over.”) At the 2010, 2012, 2016, 2017, 2019 annual meetings of the stockholders, the stockholders approved 350,000, 500,000, 500,000, 875,000 and 955,000 share increases, respectively, to the 2008 Plan.

The maximum number of shares of the Company’s common stock that may be issued or transferred pursuant to awards under the 2008 Plan can also be increased by any shares subject to stock options granted under the 2006 Plan and outstanding as of June 9, 2008 which expire, or for any reason are cancelled or terminated, after June 9, 2008 without being exercised.

The 2008 Plan initially had 450,000 shares of common stock reserved for issuance (not counting any shares originally available under the 2006 Plan that “poured over.”) At the 2010, 2012, 2016, 2017, 2019 annual meetings of the stockholders, the stockholders approved 350,000 , 500,000 , 500,000 , 875,000 and 955,000 share increases, respectively, to the 2008 Plan.

The 2008 Plan currently has 161,000 shares of common stock reserved for issuance.

2 unchanged sentences

Options generally may not be granted with exercise prices less than fair market value at the date of grant, with vesting provisions and contractual terms determined by the compensation committee of the board of directors on a grant-by-grant basis, subject to the minimum vesting provisions contained in the 2008 Plan.

Options granted under the 2008 Plan may be “nonqualified stock options”

or “incentive stock options”

as defined in Section 422 of the Internal Revenue Code.

Options granted under the 2008 Plan may be “nonqualified stock options” or “incentive stock options” as defined in Section 422 of the Internal Revenue Code.

The maximum term of each option shall be 10 years .

4 unchanged sentences

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

Through December 27, 2019, outstanding awards granted, net of forfeitures and exercises, under the 2008 Plan consisted of 509,000 shares of incentive stock options, 598,000 shares of non-statutory stock options, 101,000 shares of restricted stock awards and 326,000 shares of performance-based restricted stock units.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Through January 1, 2021, outstanding awards granted, net of forfeitures and exercises, under the 2008 Plan consisted of 65,000 shares of incentive stock options, 938,000 shares of non-statutory stock options, 128,000 shares of restricted stock awards and 380,000 shares of performance-based restricted stock units.

Employee Stock Purchase Plan

Amended and Restated 2006 Employee Stock Purchase Plan

The Company adopted its Amended and Restated 2006 Employee Stock Purchase Plan (“ESPP”) to allow eligible employees the right to purchase shares of common stock, at semi‑annual intervals, with their accumulated payroll deductions.

The Company adopted its Amended and Restated 2006 Employee Stock Purchase Plan (“ESPP”) to allow eligible employees the right to purchase shares of common stock, at semi-annual intervals, with their accumulated payroll deductions.

The plan received stockholder approval in June 2006.

The Company re‑submitted the plan to its stockholders for post‑IPO approval at the 2007 annual stockholders’

meeting where approval was obtained.

The Company re-submitted the plan to its stockholders for post-IPO approval at the 2007 annual stockholders’ meeting where approval was obtained.

The ESPP initially had 300,000 shares of common stock reserved for issuance.

At the 2017 annual meeting of the stockholders, the stockholders approved an 825,000 share increase to the ESPP.

A total of 1,125,000 shares of the Company’s common stock have been reserved for issuance under the plan.

The plan has semi-annual periods beginning on each January 1 and ending on each June 30 and beginning on each July 1 and ending on each December 31.

1 unchanged sentence

Participants make contributions under the plan only by means of payroll deductions each payroll period.

The rate of payroll contributions elected by a Participant may not be less than one percent (1%) nor more than ten percent (10%) of the Participant’s Earnings for each payroll period, and only whole percentages may be elected.

The rate of payroll contributions elected by a Participant may not be less than one percent ( 1 %) nor more than ten percent ( 10 %) of the Participant’s Earnings for each payroll period, and only whole percentages may be elected.

The accumulated contributions are applied to the purchase of shares.

1 unchanged sentence

The purchase price per share equals 85 % of the fair market value of a share on the lesser price of the share on the first day or last day of the offering period.

The Company’s Amended and Restated 2006 Employee Stock Purchase Plan is a compensatory plan.

As of December 27, 2019, there were 679,000 shares available for issuance under the plan.

The Company’s Amended and Restated 2006 Employee Stock Purchase Plan is a compensatory plan.

As of January 1, 2021, there were 519,000 shares available for issuance under the plan.

Stock-based Compensation Expense

The compensation expense that has been recognized for stock options, restricted stock awards (“RSA”), performance-based restricted stock units (“PBRSU”), and ESPP issued under these plans was $12,112,000, $6,262,000 and $2,774,000 for fiscal years 2019, 2018 and 2017, respectively.

The total unrecognized compensation expense related to nonvested stock options was $1,489,000, $3,598,000 and $3,514,000 for fiscal years 2019, 2018 and 2017, respectively.

The total unrecognized compensation expense related to RSAs was $1,502,000, $1,012,000, and $1,162,000 for fiscal years 2019, 2018 and 2017, respectively.

The total unrecognized compensation expense related to PBRSUs was $21,515,000 and $12,254,000 for the fiscal year 2019, and 2018.

The compensation expense that has been recognized for stock options, restricted stock awards (“RSA”), performance-based restricted stock units (“PBRSU”), and ESPP issued under these plans was $ 16.7 million, $ 12.1 million, and $ 6.3 million for fiscal years 2020, 2019, and 2018, respectively.

The total unrecognized compensation expense related to nonvested stock options was $ 0.4 million, $ 1.5 million, and $ 3.6 million for fiscal years 2020, 2019, and 2018, respectively.

The total unrecognized compensation expense related to RSAs was $ 3.6 million, $ 1.5 million, and $ 1.0 million for fiscal years 2020, 2019, and 2018, respectively.

The total unrecognized compensation expense related to PBRSUs was $ 13.2 million, $ 21.5 million, and $ 12.3 million for the fiscal years 2020, 2019, and 2018, respectively.

That expense is expected to be recognized over a weighted-average period of 0.61 years.

There was no unrecognized compensation expense related to PBRSUs for fiscal year 2017.

There were no options granted that were immediately vested during the fiscal years 2019, 2018 and 2017.

There were no options granted that were immediately vested during the fiscal years 2020, 2019, or 2018.

Summary of Stock Option Activity

A summary of option activity under the 2006 Plan and 2008 Plan as of December 27, 2019 and changes during the fiscal years ended December 27, 2019, December 28, 2018 and December 29, 2017 is presented below.

The intrinsic

A summary of option activity under the 2006 Plan and 2008 Plan as of January 1, 2021 and changes during the fiscal years ended January 1, 2021, December 27, 2019 and December 28, 2018 is presented below.

The intrinsic value

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

value of the fully‑vested options is $15,169,000 based on the Company’s closing stock price of $31.21 and the average exercise price of outstanding options on December 27, 2019.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

of the fully-vested options is $ 22.9 million based on the Company’s closing stock price of $ 41.70 and the average exercise price of outstanding options on January 1, 2021.

(in thousands)

1 unchanged sentence

Forfeited or expired

Outstanding at December 27, 2019

Vested and expected to vest at December 27, 2019

Exercisable at December 27, 2019

Outstanding at January 1, 2021

Vested and expected to vest at January 1, 2021

Exercisable at January 1, 2021

(in thousands)

11 unchanged sentences

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

A summary of the status of the Company’s nonvested options and changes in nonvested options is presented below:

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

A summary of the status of the Company’s nonvested options and changes in nonvested options is presented below:

(in thousands)

Nonvested at December 27, 2019

Nonvested at January 1, 2021

(in thousands)

5 unchanged sentences

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Summary of Restricted Stock Activity

A summary of restricted stock activity under the 2008 Plan as of December 27, 2019 is presented below:

A summary of restricted stock activity under the 2008 Plan as of January 1, 2021 is presented below:

Restricted Stock

1 unchanged sentence

Outstanding at December 27, 2019

Outstanding at January 1, 2021

Outstanding at December 28, 2018

2 unchanged sentences

Outstanding at December 28, 2018

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Summary of Performance-Based Restricted Stock Unit Activity

A summary of performance-based restricted stock unit activity under the 2008 Plan as of December 27, 2019 is presented below:

A summary of performance-based restricted stock unit activity under the 2008 Plan as of January 1, 2021 is presented below:

Performance-Based

4 unchanged sentences

Outstanding at December 27, 2019

Outstanding at January 1, 2021

Outstanding at December 28, 2018

1 unchanged sentence

Outstanding at December 28, 2018

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

Outstanding at December 27, 2019

Fair Value Valuation Assumptions

1 unchanged sentence

The fair value of each option is calculated using the Black-Scholes option valuation model that uses the assumptions noted in the following table.

Expected volatility is based upon historical volatility of “guideline companies”

since the length of time the Company’s shares have been publicly traded is equal to the contractual term of the options.

The expected term of the option, taking into account both the contractual term of the option and the effects of employees’

expected exercise and expected post‑vesting termination behavior is estimated based upon the simplified method.

Expected volatility is based upon historical volatility of “guideline companies” since the length of time the Company’s shares have been publicly traded is equal to the contractual term of the options.

The expected term of the option, taking into account both the contractual term of the option and the effects of employees’ expected exercise and expected post-vesting termination behavior is estimated based upon the simplified method.

Under this approach, the expected term is presumed to be the mid-point between the vesting date and the end of the contractual term.

1 unchanged sentence

Treasury yield curve in effect at the time of grant.

The assumptions are as follows:

No options were granted during fiscal year 2020.

The fair value of stock options granted in fiscal years 2019 and 2018 was estimated using the following assumptions:

Expected volatility

3 unchanged sentences

RSA and PBRSU Grants

The Company’s restricted stock awards are valued on the closing price of the Company’s common stock on the date of grant and typically vest over a three-year period.

The Company’s performance-based restricted stock unit awards are valued on the closing price of the Company’s common stock on the date of grant and vest over performance period.

Under the Company’s new performance-based restricted stock unit (“PBRSU”) design, 50% of each award will vest based upon the Company’s EBITDA performance over a two-year and four-year performance periods (“EBITDA Units”), and the remaining 50% of each award will vest based upon the Company’s earnings per share performance over a two-year and four-years-performance periods (“EPS Units”) for awards granted for 2019 and 2018, respectively.

The Company’s restricted stock awards are valued on the closing price of the Company’s common stock on the date of grant and typically vest over a three-year period.

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The Company’s performance-based restricted stock unit awards are valued on the closing price of the Company’s common stock on the date of grant and vest over performance period.

Under the Company’s new performance-based restricted stock unit (“PBRSU”) design, 50 % of each award will vest based upon the Company’s EBITDA performance over a two-year and four-year performance periods (“EBITDA Units”), and the remaining 50 % of each award will vest based upon the Company’s earnings per share performance over a two-year and four-years -performance periods (“EPS Units”) for awards granted for 2019 and 2018, respectively.

The Company must achieve a 10 % growth rate for the threshold number of EBITDA Units and EPS Units to vest for any performance year, and the target number of EBITDA Units and EPS Units will only vest in any performance year if the Company is able to achieve a 20 % growth rate.

The Compensation Committee determined to move away from its historical practice of granting only time-based equity awards and introduced the PBRSUs in order to further align the interests of the Company’s executives with those of shareholders by strengthening the relationship between executive pay and the Company’s performance against two critical performance metrics that the Company believes will drive value creation for its shareholders.

The fair value of ESPP purchase rights issued is calculated using the Black-Scholes valuation model that uses the assumptions noted in the following table.

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WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The provision for income taxes is comprised of (1) :

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Current state taxes

Current foreign taxes

Deferred federal taxes

Deferred state taxes

The provision for income taxes reconciles to the amounts computed by applying the statutory federal tax rate of 21% for fiscal years 2019 and 2018, and 34% for fiscal year 2017, to the Company’s income before income taxes.

(1) Revenue from the Company’s foreign operations were immaterial for fiscal years 2020 and 2019.

For fiscal year 2018, the Company did not have any foreign revenues

The provision for income taxes reconciles to the amounts computed by applying the statutory federal tax rate of 21 % for fiscal years 2020, 2019 and 2018 to the Company’s income before income taxes.

The sources and tax effects of the differences for fiscal years 2020, 2019, and 2018 are as follows:

(in thousands)

Computed “expected”

federal income tax expense

Computed “expected” federal income tax expense

Permanent differences

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Stock options and disqualifying dispositions

Tax Act - federal rate change

Energy efficient building deduction

Current and deferred state income tax expense, net of federal benefit

Change in valuation allowances on deferred tax assets

Federal deferred tax adjustments

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True up income tax accounts

Differences between the Company’s effective income tax rate and what would be expected if the federal statutory rate was applied to income before income tax from continuing operations are primarily due to state income tax expense, research and development tax credits, energy efficient building deductions, stock options and disqualifying dispositions.

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted into law, which, among other items, lowered the U.S.

corporate tax rate from 35% to 21%, effective January 1, 2018.

Shortly after the Tax Act was enacted, the Securities and Exchange Commission issued guidance under Staff Accounting Bulletin No.

118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”) to address the application of generally accepted accounting principles in the United States of America, or GAAP, and directing taxpayers to consider the impact of the Tax Act as “provisional”

when a registrant does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete the accounting for the change in tax law.

In accordance with SAB 118, the Company recognized the provisional tax impacts during fiscal year 2017.

As of December 28, 2018, the Company’s accounting for the Tax Act was complete.

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

The tax effects of temporary differences that give rise to significant portions of the net deferred tax assets and liabilities are as follows:

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(in thousands)

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Adjustments to fair value of assets

Credit Carryforwards

Valuation allowance

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Net deferred tax asset

At December 27, 2019, the Company had federal and state operating loss carryovers of $72.7 million and $58.0 million, respectively.

At January 1, 2021, the Company had federal and state operating loss carryovers of $ 72.2 million and $ 59.2 million, respectively.

The carryovers expire through 2040.

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For fiscal years 2020 and 2019, the Company ultimately determined that it was more-likely-than-not that the entire California net operating loss will not be utilized prior to expiration.

As of December 27, 2019 and December 28, 2018, the Company had a valuation allowance in the amount of $86,000, respectively, related to California net operating losses.

During the fiscal year ending December 27, 2019, the Company decreased its recorded liability for uncertain tax positions to $142,000.

As of January 1, 2021 and December 27, 2019, the Company had a valuation allowance in the amount of $ 86,000 , respectively, related to California net operating losses.

During the fiscal year 2020, the Company removed its recorded liability for uncertain tax positions due to the expiration of federal and state statute of limitations during fiscal year 2020.

This decrease resulted from the expiration of federal uncertain tax positions during fiscal year 2019.

The Company may be subject to examination by the Internal Revenue Service (“IRS”) for calendar years 2016 through 2019.

The Company may be subject to examination by the Internal Revenue Service (“IRS”) for calendar years 2017 through 2020.

The Company may also be subject to examination on certain state and local jurisdictions for the years 2016 through 2020.

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The Company's policy is to recognize interest and penalties related to unrecognized tax benefits in income tax expense.

Following is reconciliation of beginning and ending amounts of unrecognized tax benefits:

The following is a reconciliation of beginning and ending amounts of unrecognized tax benefits:

(in thousands)

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Reductions for tax positions of prior years

Balance as of December 27, 2019

During the year ended December 27, 2019, the Internal Revenue Service continued its audit of the Company’s tax return for the fiscal year ended December 30, 2016.

The Company has not determined the impact of this examination due to the audit process having not been completed.

Balance as of January 1, 2021

During the year ended January 1, 2021, the Internal Revenue Service finalized its audit of the Company’s tax return for the fiscal year ended December 30, 2016.

There were no changes made by the Internal Revenue Service to the tax return filed.

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act (H.R.

748) which includes a number of provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property.

Under ASC 740, the effects of new legislation are recognized upon enactment.

Accordingly, the effects of the CARES Act have been incorporated into the income tax provision computation for the fiscal year ended January 1, 2021.

These provisions did not have a material impact on the income tax provision.

On December 27, 2020, President Trump signed into law the Consolidated Appropriations Act, 2021 (CAA 2021) which included a number of provisions including, but not limited to the extension of numerous employment tax credits, the extension of the Section 179D deduction, enhanced business meals deductions, and the deductibility of expenses paid for with Paycheck Protection Program (PPP) loan funds that are forgiven.

Accordingly, the effects of the CCA have been incorporated into the income tax provision computation for the fiscal year ended January 1, 2021.

The extension of the energy efficiency building deduction under Section 179D resulted in the continuation of this additional benefit for the Company.

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

EARNINGS PER SHARE (“EPS”)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

EARNINGS PER SHARE (“EPS”)

Basic EPS is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding.

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(in thousands, except per share amounts)

Net income (loss)

Weighted-average common shares outstanding

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Weighted-average common shares outstanding-diluted

Earnings per share:

For the fiscal year ended December 27, 2019, 155,300 options were excluded from the calculation of dilutive potential common shares, compared to 247,800 and 114,600 options, for 2018 and 2017, respectively.

Earnings (Loss) per share:

For the fiscal year 2020, the Company reported a net loss, and accordingly, all outstanding equity awards have been excluded because including them would have been anti-dilutive.

For the fiscal year ended December 27, 2019, 155,300 options were excluded from the calculation of dilutive potential common shares, compared to 247,800 options, for 2018.

These options were not included in the computation of dilutive potential common shares because the assumed proceeds per share exceeded the average market price per share for the respective periods.

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WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

BUSINESS COMBINATIONS

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On October 28, 2019, the Company, through its wholly-owned subsidiary WES, acquired all of the capital stock of Energy and Environmental Economics, Inc.

(“E3, Inc.”), pursuant to the terms of a stock purchase agreement (the “Stock Purchase Agreement”) by and among the Company, WES, E3, Inc., each of the stockholders of E3, Inc.

(the “E3, Inc.

Stockholders”) and Ren Orans, as seller representative of the E3, Inc.

(“E3, Inc.”), pursuant to the terms of a stock purchase agreement (the “Stock Purchase Agreement”) by and among the Company, WES, E3, Inc., each of the stockholders of E3, Inc.

(the “E3, Inc.

Stockholders”) and Ren Orans, as seller representative of the E3, Inc.

Stockholders.

is an energy consulting firm that helps utilities, regulators, policy makers, developers, and investors make strategic decisions as they implement new public policies, respond to technological advances, and address customers’

shifting expectations in clean energy.

The Company believes that E3 will provide Willdan and our clients visibility into future market trends and position us to advise clients on upcoming policy, electrification, and decarbonization.

E3, Inc.’s financial information is included within the Energy segment beginning in the fourth quarter of fiscal year 2019.

The Company expects to finalize the purchase price allocation with respect to this transaction during the fourth quarter of fiscal 2020.

E3, Inc.’s financial information is included within the Energy segment beginning in the fourth quarter of fiscal year 2019.

The Company finalized the purchase price allocation with respect to this transaction during the fourth quarter of fiscal 2020.

The Company agreed to pay up to $ 44.0 million for the purchase of all of the capital stock of E3, Inc., which purchase price consists of (i) $ 27.0 million in cash paid on the E3, Inc.

Closing Date (subject to holdbacks and adjustments), (ii) $5.0 million in shares of the Company’s common stock, based on the volume-weighted average price per share of the Company’s common stock for the ten trading days immediately following, but not including, the E3, Inc.

Closing Date (subject to holdbacks and adjustments), (ii) $ 5.0 million in shares of the Company’s common stock, based on the volume-weighted average price per share of the Company’s common stock for the ten trading days immediately following, but not including, the E3, Inc.

Closing Date and (iii) up to $ 12.0 million in cash if E3, Inc.

exceeds certain financial targets during the three years after the E3, Inc.

Closing Date, as more fully described below (such potential payments of up to $12.0 million, being referred to as “Earn-Out Payments”

and $12.0 million in respect thereof, being referred to as the “Maximum Payout”).

The amount of the Earn-Out Payments to be paid will be determined based on E3, Inc.’s earnings before interest, taxes, depreciation and amortization (“EBITDA”).

Closing Date, as more fully described below (such potential payments of up to $ 12.0 million, being referred to as “Earn-Out Payments” and $ 12.0 million in respect thereof, being referred to as the “Maximum Payout”).

The amount of the Earn-Out Payments to be paid will be determined based on E3, Inc.’s earnings before interest, taxes, depreciation and amortization (“EBITDA”).

Stockholders will receive Earn-Out Payments in each of the three years after the E3, Inc.

Closing Date (the “Earn-Out Period”) based on the amount by which E3, Inc.’s EBITDA exceeds certain targets.

Closing Date (the “Earn-Out Period”) based on the amount by which E3, Inc.’s EBITDA exceeds certain targets .

The amounts due to the E3, Inc.

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Earn-Out Payments will be made in annual installments for each of the three years of the Earn-Out Period.

In addition, the Earn-Out Payments will be subject to certain subordination provisions in favor of the lenders under the Company’s Credit Agreement.

The Purchase Agreement also contains customary representations and warranties regarding WES, the Company, E3, Inc.

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Under ASC 805, the Company recorded the acquired assets and assumed liabilities at their estimated fair value with the excess allocated to goodwill.

Goodwill represents the value the Company expects to achieve through the operational synergies, the expansion into new markets and the acquired company’s assembled work force.

The Company estimates that the entire $ 21.8 million of goodwill resulting from the acquisition will be tax deductible.

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

Preliminary consideration for the acquisition includes the following:

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Consideration for the acquisition includes the following:

(in thousands)

3 unchanged sentences

Total consideration

The following table summarizes the preliminary amounts for the acquired assets recorded at their estimated fair value as of the acquisition date:

The following table summarizes the amounts for the acquired assets recorded at their estimated fair value as of the acquisition date:

(in thousands)

6 unchanged sentences

Customer relationships

Developed technology

In-progress research & development

Net assets acquired

(1) Excluded from non-current assets are equipment and leasehold improvements, net, right-of-use assets, customer relationships, tradename, backlog and goodwill.

There were $0.1 million in acquisition related costs associated with E3, Inc.

included in other general and administrative expenses in the consolidated statements of comprehensive income for the fiscal year ended December 27, 2019.

During the fiscal 2019, the acquisition of E3, Inc.

During the fiscal year 2020, the Company made adjustments, primarily related to other working capital and contingent consideration, to the consideration paid for E3, Inc.

which resulted in an adjustment to the purchase price allocation of E3, Inc.

The adjustments resulted in an aggregate increase of $ 5.1 million in the net carrying value of right of use assets, non-current lease liability, backlog, tradename, developed technology, and in-progress research and development, and an aggregate decrease of $ 4.5 million in the net carrying value of current assets, current lease liability, liabilities, customer relationships, non-compete, and goodwill.

The change in the fair value of intangible assets resulted in a decrease in the amortization expense of $ 0.1 million for the fiscal year ended January 1, 2021.

The acquisition related costs associated with E3, Inc.

included in other general and administrative expenses in the consolidated statements of comprehensive income were not material for the year ended January 1, 2021.

During fiscal year 2020, the acquisition of E3, Inc.

contributed $ 23.2 million in revenue and $ 4.3 million of income from operations.

Acquisition of Onsite Energy Corporation

On July 2, 2019, the Company acquired substantially all of the assets and liabilities of Onsite Energy Corporation (“Onsite Energy”), an energy efficiency services and project implementation firm that specializes in energy upgrades and commissioning for industrial facilities.

The Company believes the acquisition will expand its presence in the California-based industrial energy management services.

Pursuant to the terms of the Asset Purchase Agreement, dated July 2, 2019, by and between WES and Onsite Energy, WES will pay a maximum aggregate purchase price of $26.4 million, subject to certain holdback and working capital adjustments, to be paid in cash.

Onsite Energy’s financial information is included within the Energy segment.

The Company expects to finalize the purchase price allocation with respect to this transaction during the second quarter of fiscal year 2020.

Pursuant to the terms of the Asset Purchase Agreement,

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

dated July 2, 2019, by and between WES and Onsite Energy, WES will pay a maximum aggregate purchase price of $ 26.4 million, subject to certain holdback and working capital adjustments, to be paid in cash.

Onsite Energy’s financial information is included within the Energy segment.

The Company finalized the purchase price allocation with respect to this transaction during the second quarter of fiscal year 2020.

The acquisition was accounted for as a business combination in accordance with ASC 805.

Under ASC 805, the Company recorded the acquired assets and assumed liabilities at their estimated fair value with the excess allocated to goodwill.

Goodwill represents the value the Company expects to achieve through the operational synergies, the

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

expansion into new markets and the acquired company’s assembled work force.

Goodwill represents the value the Company expects to achieve through the operational synergies, the expansion into new markets and the acquired company’s assembled work force.

The Company estimates that the entire $ 8.6 million of goodwill resulting from the acquisition will be tax deductible.

Preliminary consideration for the acquisition includes the following:

Consideration for the acquisition includes the following:

Onsite Energy

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Total consideration

The following table summarizes the preliminary amounts for the acquired assets recorded at their estimated fair value as of the acquisition date:

The following table summarizes the amounts for the acquired assets recorded at their estimated fair value as of the acquisition date:

Onsite Energy

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(1) Excluded from non-current assets are equipment and leasehold improvements, net, right-of-use assets, customer relationships, tradename, backlog and goodwill.

During fiscal year 2019, the Company made adjustments, primarily related to other working capital, to the consideration paid for Onsite Energy which resulted in an adjustment to the preliminary purchase price allocation of Onsite Energy.

The adjustments resulted in a decrease in current assets of $0.2 million and an increase of $0.9 million in the carrying value of goodwill.

There were $0.3 million in acquisition related costs associated with Onsite Energy included in other general and administrative expenses in the consolidated statements of comprehensive income for the fiscal year ended December 27, 2019.

During fiscal year 2020, the Company made adjustments, primarily related to other working capital, to the consideration paid for Onsite Energy which resulted in an adjustment to the purchase price allocation of Onsite Energy.

The adjustments resulted in an aggregate increase of $ 3.5 million in the net carrying value of backlog, tradename and goodwill and an aggregate decrease of $ 3.5 million in the net carrying value of current assets and goodwill.

The adjustment in the fair value of intangible assets resulted in a $ 0.7 million change of the amortization expense for the year ended January 1, 2021.

The acquisition related costs associated with Onsite Energy included in other general and administrative expenses in the consolidated statements of comprehensive income were not material for the year ended January 1, 2021.

During the fiscal 2020, the acquisition of Onsite Energy contributed $ 10.4 million in revenue and $ 0.3 million of income from operations.

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Acquisition of The Weidt Group

On March 8, 2019, the Company acquired substantially all of the assets of the energy practice division of The Weidt Group Inc.

(“The Weidt Group”).

The Company believes the acquisition will expand its presence in the upper Midwest and better position the Company to help utilities make their grids more resilient.

Pursuant to the terms of the Asset Purchase Agreement, dated March 8, 2019, by and among the Company, WES and The Weidt Group, WES paid a cash purchase price of $ 22.1 million, inclusive of working capital adjustments.

The Weidt Group’s financial information is included within the Energy segment.

The Company expects to finalize the purchase price allocation with respect to this transaction during the first quarter of 2020.

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

The Weidt Group’s financial information is included within the Energy segment.

The Company finalized the purchase price allocation with respect to this transaction during the first quarter of 2020.

The acquisition was accounted for as a business combination in accordance with ASC 805.

Under ASC 805, the Company recorded the acquired assets and assumed liabilities at their estimated fair value with the excess allocated to goodwill.

Goodwill represents the value the Company expects to achieve through the operational synergies, the expansion into new markets and the acquired company’s assembled work force.

The Company estimates that the entire $ 11.5 million of goodwill resulting from the acquisition will be tax deductible.

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Total consideration

The following table summarizes the preliminary amounts for the acquired assets recorded at their estimated fair value as of the acquisition date:

The following table summarizes the amounts for the acquired assets recorded at their estimated fair value as of the acquisition date:

The Weidt Group

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(1) Excluded from non-current assets are equipment and leasehold improvements, net, right-of-use assets, customer relationships, tradename, developed technology, backlog and goodwill.

During fiscal year 2019, the Company made adjustments, primarily related to other working capital, to the consideration paid for The Weidt Group which resulted in an adjustment to the preliminary purchase price allocation of The Weidt Group.

The adjustments resulted in an aggregate increase of $0.9 million in the carrying value of backlog, customer relationships, tradename, developed technology and an aggregate decrease of $1.2 million in the carrying value of liabilities and goodwill.

The decrease in the fair value of intangible assets resulted in a reduction of amortization expense of $0.1 million the fiscal year ended December 27, 2019.

There were $0.4 million in acquisition related costs associated with The Weidt Group included in other general and administrative expenses in the condensed consolidated statements of comprehensive income for the fiscal year ended December 27, 2019.

The acquisition related costs associated with The Weidt Group included in other general and administrative expenses in the consolidated statements of comprehensive income were not material for the year ended January 1, 2021.

During the fiscal 2020, the acquisition of The Weidt Group contributed $ 14.9 million in revenue and $ 1.9 million of income from operations.

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

Acquisition of Lime Energy

On October 1, 2018, the Company, through two of its wholly-owned subsidiaries, Willdan Energy Solutions (“WES”) and Luna Fruit, Inc., a Delaware corporation and wholly-owned subsidiary of WES (“Merger Sub”), entered into an agreement to acquire all of the outstanding shares of capital stock of Lime Energy Co.

(“Lime Energy”), pursuant to an agreement and plan of merger dated October 1, 2018 (the “Merger Agreement”), by and among WES, Merger Sub, Lime Energy, and Luna Stockholder Representative, LLC, as representative of the participating securityholders of Lime Energy.

The Company believes the addition of Lime Energy’s capabilities will significantly expand and diversify its client base within the energy efficiency services market and geographic presence across the United States.

On November 9, 2018, the Company completed the acquisition and, pursuant to the Merger Agreement, Merger Sub was merged with and into Lime Energy, with Lime Energy surviving as a wholly-owned indirect subsidiary of the Company.

The aggregate purchase price paid in the acquisition was $120.0 million, exclusive of closing holdbacks and adjustments.

A portion of the purchase price was deposited into escrow accounts to secure certain potential post-closing obligations of the participating securityholders.

The Company paid the purchase price for the acquisition using a combination of cash on hand (including $50.0 million of the $56.4 million in net proceeds received from the Company’s equity offering in October 2018) and proceeds from the Company’s borrowings under its Delayed Draw Term Loan Facility.

The acquisition was accounted for as a business combination in accordance with ASC 805.

Under ASC 805, the Company recorded the acquired assets and assumed liabilities at their estimated fair value with the excess allocated to goodwill.

Goodwill represents the value the Company expects to achieve through the operational synergies and the expansion into new markets.

The Company estimates that the entire $47.7 million of goodwill resulting from the acquisition will not be tax deductible.

Consideration for the acquisition includes the following information:

(in thousands)

Other working capital adjustment

Total consideration

The following table summarizes the amounts for the acquired assets recorded at their estimated fair value as of the acquisition date:

(in thousands)

Current assets (1)

Non-current assets (2)

Equipment and leasehold improvements, net

Customer relationships

Developed technology

Net assets acquired

Excluded from current assets is cash

Excluded from non-current assets are equipment and leasehold improvements, net, customer relationships, tradename, developed technology, backlog and goodwill.

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

During fiscal year 2019, the Company made adjustments, primarily related to other working capital, to the consideration paid for Lime Energy which resulted in an adjustment to the preliminary purchase price allocation of Lime Energy.

The adjustments resulted in an aggregate increase of $16.2 million in the carrying value of customer relationships and backlog, and an aggregate decrease of $16.2 million in the carrying value of non-current assets, goodwill and developed technology.

The increase in the fair value of intangible assets resulted in an additional amortization expense charge of $1.2 million for fiscal 2019.

During the fiscal 2019, the acquisition of Lime Energy contributed $158.7 million in revenue and $3.5 million of income from operations.

There were $0.2 million in acquisition related costs associated with Lime Energy included in other general and administrative expenses in the condensed consolidated statements of comprehensive income for the fiscal year ended December 27, 2019.

The following unaudited pro forma financial information for the fiscal years ended December 27, 2019 and December 28, 2018 assumes that the acquisitions of substantially all of the assets and liabilities of E3, Inc., Onsite Energy and The Weidt Group and that the acquisition of all the outstanding shares of Lime Energy each occurred on the first day of the year prior to the year of acquisition:

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following unaudited pro forma financial information for the fiscal years ended January 1, 2021 and December 27, 2019 assumes that the acquisition of all of the capital stock of E3, Inc.

and the acquisitions of substantially all of the assets and liabilities of Onsite Energy and The Weidt Group each occurred on the first day of the year prior to the year of acquisition:

(in thousands, except per share data)

Pro forma revenue

Pro forma income from operations

Pro forma net income (1)

Earnings per share:

Pro forma income (loss) from operations

Pro forma net loss (1)

Loss per share:

Weighted average shares outstanding:

(1) Adjustments to pro forma net income include income from operations, amortization and interest expenses.

This pro forma supplemental information does not purport to be indicative of what the Company’s operating results would have been had this transaction occurred on December 30, 2017 and may not be indicative of future operating results.

During the fiscal year ended December 27, 2019, the acquisition of E3, Inc., Onsite Energy, The Weidt Group and Lime Energy contributed $181.5 million in revenue and $8.4 million of income from operations.

Acquisition of Newcomb Anderson McCormick

On April 30, 2018, the Company, through its wholly-owned subsidiary, WES, acquired all of the outstanding equity interests of Newcomb Anderson McCormick, Inc.

(“NAM”).

NAM is an energy engineering and consulting company with offices in San Francisco and Los Angeles that provides clients with mechanical engineering expertise and comprehensive energy efficiency programs and services.

Pursuant to the terms of the Stock Purchase Agreement, dated April 30, 2018, by and among the Company, WES and NAM, WES will pay NAM shareholders a maximum purchase price of $4.0 million, subject to potential earn-out payments plus working capital adjustments, to be paid in cash.

In connection with the Company’s New Credit Facilities (as defined herein), as of October 8, 2018, the earn-out payments to NAM shareholders became subject to certain subordination provisions in favor of BMO, as the Company’s senior secured lender, under the New Credit Facilities.

The Company finalized the purchase price allocation with respect to this transaction during the second quarter of 2019.

NAM’s financial information is included within the Energy segment.

This pro forma supplemental information does not purport to be indicative of what the Company’s operating results would have been had the acquisition of all the capital stock of E3, Inc., and the acquisitions of substantially all of the assets and liabilities of Onsite Energy and The Weidt Group, each occurred on the first day of the year prior to the year of acquisition and may not be indicative of future operating results.

During the fiscal year 2020, the acquisition of E3, Inc., Onsite Energy, and The Weidt Group contributed $ 48.4 million in revenue and $ 6.5 million of income from operations.

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

CONTINGENCIES

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The Company carries professional liability insurance, subject to certain deductibles and policy limits, for such claims as they arise and may from time to time establish reserves for litigation that is considered probable of a loss.

In accordance with accounting standards regarding loss contingencies, the Company accrues an undiscounted liability for those contingencies where the incurrence of a loss is probable and the amount can be reasonably estimated, and discloses the amount accrued and an estimate of any reasonably possible loss in excess of the amount accrued, if such disclosure is necessary for the Company’s financial statements not to be misleading.

The Company does not accrue liabilities when the likelihood that the liability has been incurred is probable but the amount cannot be reasonably estimated, or when the liability is believed to be only reasonably possible or remote.

Because litigation outcomes are inherently unpredictable, the Company’s evaluation of legal proceedings often involves a series of complex assessments by management about future events and can rely heavily on estimates and assumptions.

If the assessments indicate that loss contingencies that could be material to any one of the Company’s financial statements are not probable, but are reasonably possible, or are probable, but cannot be estimated, then the Company will disclose the nature of the loss contingencies, together with an estimate of the possible loss or a statement that such loss is not reasonably estimable.

While the consequences of certain unresolved proceedings are not presently determinable, and a reasonable estimate of the probable and reasonably possible loss or range of loss in excess of amounts accrued for such proceedings cannot be made, an adverse outcome from such proceedings could have a material adverse effect on the Company’s earnings in any given reporting period.

However, in the opinion of the Company’s management, after consulting with legal counsel, and taking into account insurance coverage, the ultimate liability related to current outstanding claims and lawsuits is not expected to have a material adverse effect on the Company’s financial statements.

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

The tables below reflect selected quarterly information for the fiscal years ended December 27, 2019 and December 28, 2018.

The tables below reflect selected quarterly information for the fiscal years ended January 1, 2021 and December 27, 2019.

Fiscal Three Months Ended

September 27,

(in thousands except per share amounts)

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Income (loss) from operations

Income tax (benefit) expense

Income tax benefit

Net income (loss)

Earnings per share:

Earnings (loss) per share:

Weighted-average shares outstanding:

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Contract revenue

Income from operations

Income (loss) from operations

Income tax expense (benefit)

Earnings per share:

Net income (loss)

Earnings (loss) per share:

Weighted-average shares outstanding:

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

SUBSEQUENT EVENTS

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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

There were no changes in and/or disagreements with accountants on accounting and financial disclosure during the fiscal year ended December 27, 2019.

There were no changes in and/or disagreements with accountants on accounting and financial disclosure during the fiscal year ended January 1, 2021.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data