What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-03-11 compared with 2021-03-17 · 236 added, 418 removed, 1028 unchanged (39% of the section changed)

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Index to Consolidated Financial Statements

Reports of Independent Registered Public Accounting Firms

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

Report of Independent Registered Public Accounting Firm (PCAOB ID 173 )

Consolidated Balance Sheets as of December 31, 2021 and January 1, 2021

Consolidated Statements of Comprehensive Income for each of the fiscal years in the three-year period ended December 31, 2021

Consolidated Statements of Stockholders’ Equity for each of the fiscal years in the three-year period ended December 31, 2021

Consolidated Statements of Cash Flows for each of the fiscal years in the three-year period ended December 31, 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 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:

(the "Company") as of December 31, 2021 and January 1, 2021, the related consolidated statements of comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 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 December 31, 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 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:

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and January 1, 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 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 December 31, 2021, based on criteria established in Internal Control – Integrated Framework:

(2013) issued by COSO.

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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:

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

● 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.

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● 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.

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

Estimated realization of deferred income tax assets for net operating losses

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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.

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

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

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

● Assessed 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, and the Company's sources of future taxable income, including verifiable signed contracts.

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

/s/ Crowe LLP

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

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Cash and cash equivalents

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

Accounts receivable, net of allowance for doubtful accounts of $ 1,115 and $ 2,127 at December 31, 2021 and January 1, 2021, respectively

Contract assets

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

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

12,804 and 12,160 shares issued and outstanding at December 31, 2021 and January 1, 2021, respectively

Additional paid-in capital

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Other comprehensive income (loss):

Net unrealized loss on derivative contracts

Net unrealized income (loss) on derivative contracts

Comprehensive income (loss)

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Comprehensive

Balances at December 29, 2017

Income (Loss)

Balance at December 28, 2018

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

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Shares used to pay taxes on stock grants

Unregistered sales of equity securities and use of proceeds

Restricted Stock Awards

Issuance of restricted stock award and units

Unregistered sales of stock

Stock issued to acquire businesses

Stock-based compensation expense

Cumulative effect from adoption of ASC 606

Net unrealized loss on derivative contracts

Balance at December 27, 2019

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Issuance of restricted stock award and units

Unregistered sales of stock

Stock issued to acquire businesses

Stock-based compensation expense

Net unrealized loss on derivative contracts

Balance at December 27, 2019

Balance at January 1, 2021

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

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Stock-based compensation expense

Net income (loss)

Net unrealized gain on derivative contracts

Balance at January 1, 2021

Balance at December 31, 2021

See accompanying notes to consolidated financial statements.

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Proceeds from sales of common stock under employee stock purchase plan

Proceeds from equity raise

Shares used to pay taxes on stock grants

Cash used to pay taxes on stock grants

Restricted Stock Award and Units

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Supplemental disclosures of cash flow information:

Cash paid during the period for:

Cash paid (received) during the period for:

Supplemental disclosures of noncash investing and financing activities:

Loss on cash flow hedge valuations, net of tax

Contingent consideration related to business acquisitions

Other working capital adjustment

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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 2021, which ended on December 31, 2021, was comprised of 52 weeks, with all quarters presented consisting of 13 weeks.

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.

Fiscal year 2019, which ended on December 27, 2019, 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

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

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

Use of Estimates

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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 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.

As of December 31, 2021 and January 1, 2021 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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In accordance with ASC 810, the Company performs ongoing reassessments of whether an enterprise is the primary beneficiary of a VIE.

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

As of December 31, 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.

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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 the vast majority of the Company’s contracts is 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.

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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.

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.

Revenue for amounts that have been billed but not earned is deferred, and such deferred revenue is referred to as contract liabilities in the accompanying condensed consolidated balance sheets.

The Company also derives revenue from software licenses and professional services and maintenance fees.

In accordance with ASC 606, the Company performs an assessment of each contract to identify the performance obligations, determine the overall transaction price for the contract, allocate the transaction price to the performance obligations, and recognize the revenue when the performance obligations are satisfied.

The Company utilizes the residual approach by which it estimates the standalone selling price by reference to the total transaction price less the sum of the observable standalone selling prices of other goods or services promised in the contract.

The software license revenue is typically recognized at a point in time when control is transferred to the client, which is defined as the point in time when the client can use and benefit from the license.

The software license is delivered before related services are provided and is functional without services, updates, or technical support.

Related professional services include training and support services in which the standalone selling price is determined based on an input measure of hours incurred to total estimated hours and is recognized over time, usually which is the life of the contract.

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.

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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.

Contracts are considered to have a single performance obligation if the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts, which is mainly because the Company provides a significant service of integrating a complex set of tasks and components into a single project or capability.

The Company may enter into contracts that include separate phases or elements.

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

Contracts are considered to have a single performance obligation if the promise to transfer the individual goods or services is not separately identifiable from other promises in

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

the contracts, which is mainly because the Company provides a significant service of integrating a complex set of tasks and components into a single project or capability.

The Company may enter into contracts that include separate phases or elements.

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.

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Management must make assumptions and estimates regarding labor productivity and availability, the complexity of the work to be performed, the cost and availability of materials, the performance of subcontractors, and the availability and timing of funding from the customer, among other variables.

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The Company recognizes adjustments in estimated profit on contracts under the cumulative catch-up method.

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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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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

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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

The Company’s historical credit losses have been minimal with governmental entities and large public

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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.

The software license is delivered before related services are provided and is functional without services, updates, or technical support.

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.

As of December 31, 2021 and January 1, 2021, contract assets included retainage of $ 4.5 million and $ 6.2 million, respectively.

General and Administrative Expenses

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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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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 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 7, “ Leases ”.

Equipment and Leasehold Improvements

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Equipment under capital leases is stated at the present value of the minimum lease payments as of the acquisition date.

Depreciation and amortization on equipment are calculated using the straight-line method over estimated useful lives of two to five years .

Depreciation and amortization on equipment are calculated using the straight-line method over estimated useful lives of

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

two to five years .

Leasehold improvements and assets under capital leases are amortized using the straight-line method over the shorter of estimated useful lives or the term of the related lease.

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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

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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.

At the end of each reporting period, the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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 period.

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The Company charges these acquisition costs to general and administrative expense as they are incurred.

During fiscal years 2021 and 2020, the Company did not have any acquisitions.

During fiscal year 2019, the Company completed three acquisitions;

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

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(“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.

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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 2020 and 2019,

During fiscal year 2021, the Company determined that it was more-likely-than-not that the entire New Jersey net operating losses will not be utilized prior to expiration and, accordingly, recorded a valuation allowance of $ 1.1 million.

Significant pieces of objective evidence evaluated included the Company’s proportional increase of revenue in other states, which resulted in a dilution of New Jersey sourced income, as well as the Company’s forecasted amount of net operating loss utilization in New Jersey for certain members of the combined group.

At the end of fiscal year 2021, the total valuation allowance was $ 1.2 million, compared to a valuation allowance of $ 86,000 for fiscal years 2020 and 2019, respectively.

The $ 86,000 valuation allowance related to the California net operating losses that was recorded in previous years remained unchanged as the available positive and negative evidence did not warrant a revision.

For further information, see Note 11, “Income Taxes”, of the Notes to consolidated financial statements included in this Annual Report on Form 10-K.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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.

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.

For acquired business entities, if the Company identifies changes to acquired deferred tax asset valuation allowances or liabilities related to uncertain tax positions during the measurement period and they relate to new information obtained about facts and circumstances that existed as of the acquisition date, those changes are considered a measurement period adjustment and the Company records the offset to goodwill.

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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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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.

Impact of Covid-19

The coronavirus (“Covid-19”) pandemic and efforts to limit its spread negatively impacted the Company’s operations during its fiscal year 2020 and continued to impact the Company, albeit to a lesser extent, during its fiscal year 2021.

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 New York, phased re-openings began in June 2020, and all of the Company’s 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:

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

During the last week of June 2021, the Company’s largest program for the Los Angeles Department of Water and Power (“LADWP”) resumed, which was the Company’s last program suspended due to Covid-19.

As of March 9, 2022, none of the Company’s contracts have been cancelled due to Covid-19.

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● 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.

In the Energy segment, the Company has experienced a negative impact on its direct install programs that serve small businesses as a result of restrictions put in place by governmental authorities that required temporary shutdowns of all “non-essential” businesses which resulted in a significant portion of the Company’s direct install work on these programs being suspended for varying periods of time during fiscal year 2020 and continuing in California through the Company’s first half of fiscal 2021.

During non-Covid-19 impacted years, such as fiscal year 2019, the Company derived approximately 40 % of its gross revenue from its direct install programs that serve small businesses and 60 % from the Company’s other programs.

The Company’s other programs are either services that have been determined to be “essential” by government authorities, can be performed remotely or outside of any Covid-related restrictions, 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.

The Company has continuously monitored its liquidity position during the Covid-19 pandemic in order to be flexible during these uncertain times and to position itself to resume its growth trajectory as work restrictions are lifted.

As part of this effort , in April 2021, the Company amended its credit facility for increased covenant flexibility as a result of additional working capital requirements related to $ 781 million in new California Investor Owned Utility contracts signed in December 2020.

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.

As of December 31, 2021, the Company did not have any impairment with respect to goodwill or long-lived assets, including intangible assets.

Because the full extent 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.

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

Some of these customers could experience significant budget shortfalls for the current year and beyond as a result of the measures taken to mitigate the Covid-19 pandemic and/or revenue shortfalls as a result of reduced economic activity.

Although none of the Company’s material contracts with governmental or public agencies were materially modified during its fiscal year 2020 or 2021, 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 services, as the Company agreements with them are based on a “purchase order” or “master service agreement” 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.

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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.

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

” under Part I.

“Risk Factors” included in this Annual Report on Form 10-K.

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

19 has had 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 future impacts at this time.

Health and Safety

In response to the Covid-19 pandemic, the Company has taken and will continue to take 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 has determined 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.

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Pronouncements Recently Adopted

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 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.

In December 2019, the FASB issued ASU No.

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:

(i) The exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items (for example, discontinued operations or other comprehensive income);

(ii) The exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment;

(iii) The exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary;

and (iv) The exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year.

The Company adopted this standard effective January 2, 2021.

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

Accounting Pronouncements Recently Issued

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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”).

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

(ii) The exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment;

(iii) The exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary;

and (iv) The exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year.

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 Consolidated Financial Statements.

WILLDAN GROUP, INC.

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

Substantially all unbilled receivables as of December 31, 2021 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.

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.

Consolidated Edison of New York accounted for 44.4 % and 31.0 % of the Company’s outstanding receivables as of December 31, 2021 and January 1, 2021, respectively.

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 2021 and 2020, the Company sold trade accounts receivable and received cash proceeds of $ 8.0 million and $ 10.6 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

The discounts on the trade accounts receivable sold during 2021 and 2020 were $ 0.8 million and $ 1.7 million, respectively.

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

WILLDAN GROUP, INC.

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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Compensation and payroll taxes

Paid leave bank

Accrued workers’ compensation insurance

Total accrued liabilities

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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 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.

As of December 31, 2021, the effective portion of the Company’s interest rate swap agreement designated as a cash flow hedge before tax effects was $ 0.6 million, of which no amounts were reclassified from accumulated other comprehensive income to interest expense in fiscal 2021.

The Company expects to reclassify $ 50,000 from accumulated other comprehensive income to interest expense by January 31, 2022.

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

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Balance Sheet Location

January 1, 2021

December 31, 2021

January 1, 2021

(in thousands)

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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 $ 0.7 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:

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 31, 2021.

The accumulated balances and reporting period activities for the year ended December 31, 2021 related to reclassifications out of accumulated other comprehensive income (loss) are summarized as follows:

Gain (Loss) on

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Balances at January 1, 2021

Other comprehensive income 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 December 31, 2021

WILLDAN GROUP, INC.

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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.

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, the Second Amendment, dated as of November 6, 2019, the Third Amendment, dated as of May 6, 2020, and the Fourth Amendment, dated April 30, 2021, the “Credit Agreement”) with a syndicate of financial institutions as lenders and BMO Harris Bank, N.A.

(“BMO”), as administrative agent.

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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

Prior to the Fourth Amendment to the Amended and Restated Credit Agreement, dated as of April 30, 2021 (the “Fourth Amendment”), 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 6.00 to 1.00 through June 26, 2020, 7.75 to 1.00 through September 25, 2020, 7.50 to 1.00 through January 1, 2021, 6.25 to 1.00 through April 2, 2021, 4.00 to 1.00 through July 2, 2021, and 3.25 to 1.00 through October 1, 2021 and 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, except during the period from May 6, 2020 until July 2, 2021 (the “Initial Covenant Relief Period”), when the maximum Leverage Ratio was increased and the covenant to maintain a minimum FCCR Ratio was replaced with a covenant to maintain a minimum Adjusted EBITDA (as defined in the Third Amendment).

In addition, during the Initial Covenant Relief Period, no delayed draw term loans could be borrowed under the Credit Facilities and the Company was prohibited from engaging in share repurchases or making any Permitted Acquisitions (as defined in the Credit Agreement).

Additionally, during the Initial Covenant Relief Period, the aggregate amount of all capital expenditures made by the Company could not exceed $ 7.0 million, and the Company was 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 Initial Covenant Relief Period would exceed $ 7.0 million.

WILLDAN GROUP, INC.

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.

Pursuant to the Fourth Amendment, the Initial Covenant Relief Period was extended from July 2, 2021 to and including the earlier of (i) April 1, 2022 and (ii) the last day of the fiscal quarter in which the Company delivers an irrevocable election to terminate the covenant relief granted by the Fourth Amendment (the “Second Covenant Relief Period,” and together with the Initial Covenant Relief Period, the “Amended Covenant Relief Period”).

The Fourth Amendment also (A) increases the maximum Leverage Ratio the Company is permitted to maintain to 4.50 to 1.00 through June 30, 2021, 5.25 to 1.00 through September 30, 2021, 4.50 to 1.00 through December 31, 2021, 4.25 to 1.00 through March 31, 2022, and 3.25 to 1.00 through June 30, 2022 and thereafter, (B) establishes the minimum Adjusted EBITDA thresholds (as defined in the Third Amendment) for the remainder of the Amended Covenant Relief Period, (C) removes the previous prohibition during the Initial Covenant Relief Period on the Company’s ability to make delayed draw term loan borrowings, (D) removes the previous prohibition during the Initial Covenant Relief Period on the Company’s ability to make Permitted Acquisitions (as defined in the Credit Agreement) and to purchase, redeem or otherwise acquire the Company’s common stock, in each case, subject to certain conditions, and (E) increases the maximum amount of earn-out payments the Company is permitted to make during the Amended Covenant Relief Period from $ 7.0 million to $ 17.0 million, provided that the Company’s liquidity would not be less than $ 10.0 million after giving effect to such earn-out payment.

Additionally, during the remainder of the Amended Covenant Relief Period, the aggregate amount of all capital expenditures made by the Company may not exceed $ 15.0 million.

In accordance with the Fourth Amendment, borrowings under the Credit Agreement will bear interest at all times other than during the Initial Covenant Relief Period, at either a Base Rate or LIBOR, each as defined in the Credit Agreement, at the Company’s option, and in each case plus an applicable margin, which applicable margin will range from 0.125 % to 1.25 % with respect to Base Rate borrowings and 1.125 % to 2.25 % with respect to LIBOR borrowings, depending on the Leverage Ratio;

provided, that LIBOR cannot be less than 0.00 %.

The Company will also 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 0.40 % 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 1.688 % 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 Credit Agreement includes customary events of default and 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.

The Term A Loan issuance costs are amortized to interest expense over the term of the loan, and as of December 31, 2021, issuance costs of $ 0.6 million remained unamortized.

The Delayed Draw Term Loan and Revolving Credit Facility issuance cost of $ 0.3 million are included in assets in the accompanying consolidated balance sheets.

The Term A Loan amortizes quarterly in installments of $ 2.5 million beginning with the fiscal quarter ending September 27, 2019, with a final payment of all then remaining principal and interest due on the maturity date of June 26, 2024.

5 unchanged sentences

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.

The Company believes that, as of December 31, 2021, it was in compliance with all covenants contained in the Credit Agreement, as amended by the Fourth Amendment.

As of December 31, 2021, the Company’s composite interest rate, exclusive of the effects of upfront fees, undrawn fees and issuance cost amortization, was 3.0 % and $ 4.1 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 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 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.

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.

The Company’s other debt agreements are related to financed insurance premiums, a financed software agreement, and a utility customer agreement and are immaterial to the Company’s Consolidated Financial Statements.

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 January 1, 2021:

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 31, 2021:

Total debt maturities

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GOODWILL AND OTHER INTANGIBLE ASSETS

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”).

As of December 31, 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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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.

No impairment was recorded in any year during the three-year period end December 31, 2021.

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:

January 1, 2021

December 31, 2021

January 1, 2021

Non-compete agreements

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

As of December 31, 2021, the Company had no leases with residual value guarantees.

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

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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 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.

Our lease terms may

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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.

The following is a summary of the lease expense:

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Operating leases

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

The following is a summary of the maturities of lease liabilities as of December 31, 2021:

(in thousands)

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

As of December 31, 2021, the Company had one VIE — Genesys.

WILLDAN GROUP, INC.

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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.

There were no intersegment sales in any of the three fiscal years ended December 31, 2021.

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

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Engineering and

(in thousands)

(in thousands, except percentage)

Contract Type

Time-and-materials

Utilities (2)

Geography (3)

Engineering and

(in thousands)

(in thousands, except percentage)

Contract Type

Time-and-materials

Utilities (2)

Geography (3)

Engineering and

(in thousands)

(in thousands, except percentage)

Contract Type

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(1) Revenue from our foreign operations were immaterial for fiscal years 2021, 2020 and 2019.

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

WILLDAN GROUP, INC.

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.

The following sets forth the assets that are included in Unallocated Corporate as of December 31, 2021 and January 1, 2021.

(in thousands)

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For fiscal years 2021, 2020, and 2019, the Company’s top 10 customers accounted for 49.2 %, 48.0 %, and 50.6 %, 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.

During fiscal years 2021, 2020, 2019, the Company had individual customers that accounted for more than 10% of its consolidated contract revenues.

For fiscal year 2021, the Company derived 10.8 % of its consolidated contract revenue from one customer, Los Angeles Department of Water and Power (“LADWP”).

For fiscal year 2020, the Company derived 10.2 % of its consolidated contract revenue from one customer, LADWP.

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

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 fiscal year 2021, the Company derived 34.5 % of its Energy segment revenues from three customers, LADWP, Duke Energy and Consolidated Edison of New York, and it derived 10.3 % of its Engineering and Consulting segment revenues from one customer, the City of Elk Grove.

For fiscal year 2020, the Company derived 22.5 % of its Energy segment revenues from two customers, LADWP 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 LADWP, and it derived 25.0 % of its Engineering and Consulting segment revenues from one customer, the City of Elk Grove.

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

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Stock Incentive Plans

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

As of December 31, 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.

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

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

As of December 31, 2021, there were no outstanding stock options under the 2006 Plan.

Amended and Restated 2008 Performance Incentive Plan

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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.

Through December 31, 2021, outstanding awards granted, net of forfeitures and exercises, under the 2008 Plan consisted of 46,000 shares of incentive stock options, 803,000 shares of non-statutory stock options, 110,000 shares of restricted stock awards and 212,000 shares of performance-based restricted stock units.

Employee Stock Purchase Plan

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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.

As of December 31, 2021, there were 479,000 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 $ 16.6 million, $ 16.1 million, and $ 12.1 million for fiscal years 2021, 2020, and 2019, 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 Company did no t have any unrecognized compensation expense related to nonvested stock options for fiscal year 2021.

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

The total unrecognized compensation expense related to RSAs was $ 3.3 million, $ 3.6 million, and $ 1.5 million, for fiscal years 2021, 2020, and 2019, respectively.

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There were no options granted that were immediately vested during the fiscal years 2021, 2020, or 2019.

Summary of Stock Option Activity

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 – (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.

Summary of Stock Option Activity

A summary of option activity under the 2006 Plan and 2008 Plan as of December 31, 2021 and changes during the fiscal years ended December 31, 2021, January 1, 2021 and December 27, 2019 is presented below.

The intrinsic value of the fully-vested options is $ 13.0 million based on the Company’s closing stock price of $ 35.20 and the average exercise price of outstanding options on December 31, 2021.

(in thousands)

Outstanding at December 27, 2019

Forfeited or expired

Outstanding at January 1, 2021

Vested and expected to vest at January 1, 2021

Exercisable at January 1, 2021

(in thousands)

Outstanding at December 28, 2018

Forfeited or expired

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Forfeited or expired

Outstanding at January 1, 2021

Vested and expected to vest at January 1, 2021

Exercisable at January 1, 2021

(in thousands)

Outstanding at December 28, 2018

Forfeited or expired

Outstanding at December 27, 2019

Vested and expected to vest at December 27, 2019

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(in thousands)

Nonvested at December 27, 2019

Nonvested at January 1, 2021

(in thousands)

Nonvested at December 31, 2021

(in thousands)

Nonvested at December 27, 2019

Nonvested at January 1, 2021

(in thousands)

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Summary of Restricted Stock Activity

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

A summary of restricted stock activity under the 2008 Plan as of December 31, 2021 is presented below:

Restricted Stock

(in thousands)

Outstanding at December 27, 2019

Outstanding at January 1, 2021

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Outstanding at December 27, 2019

Outstanding at January 1, 2021

Outstanding at December 28, 2018

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Summary of Performance-Based Restricted Stock Unit Activity

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

A summary of performance-based restricted stock unit activity under the 2008 Plan as of December 31, 2021 is presented below:

Performance-Based

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(in thousands)

Outstanding at December 27, 2019

Outstanding at January 1, 2021

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Outstanding at December 27, 2019

Outstanding at January 1, 2021

Outstanding at December 28, 2018

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Treasury yield curve in effect at the time of grant.

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:

No options were granted during fiscal years 2021 or 2020.

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

Expected volatility

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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 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 a performance period.

Under the Company’s performance-based restricted stock unit (“PBRSU”) design, awards vests based on two performance metrics.

For the PBRSU award granted in fiscal year 2021, 50 % of the award will vest based upon the Company’s EBITDA performance over a one-year performance period, and the remaining 50 % of the award will vest based upon the Company’s Net Revenue performance over a one-year performance period.

For the PBRSU awards granted in fiscal years 2020 and 2019, 50 % of each award will vest based upon the Company’s EBITDA performance over a two-year performance period, and the remaining 50 % of each award will vest based upon the Company’s earnings per share performance over a two-year performance period, respectively.

For the PBRSU award granted in fiscal years 2018, 50 % of the award will vest based upon the Company’s EBITDA performance over a four-year performance period, and the remaining 50 % of award will vest based upon the Company’s earnings per share performance over a four-year performance period.

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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(1) Revenue from the Company’s foreign operations were immaterial for fiscal years 2021, 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 2021, 2020, and 2019 to the Company’s income before income taxes.

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Research and development tax credit

Adjustment to prior earn-out liability

Non-deductible transaction expenses

Federal Rate Differential on NOL Carryback

Change in Valuation Allowance

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.

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

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 changes in valuation allowance, state income tax expense, research and development tax credits, energy efficient building deductions, stock options and benefits provided by the CARES Act.

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

(in thousands)

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Lease right-of-use assets

Deferred Labor Costs

Net deferred tax asset

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.

As of December 31, 2021, the Company had federal and state operating loss carryovers of $ 85.3 million and $ 79.5 million, respectively.

Out of the federal operating loss, $ 12.5 million will carryforward indefinitely and the remaining carryovers will expire through 2041.

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 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 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.

During fiscal year 2021, the Company has determined that it was more-likely-than-not that the New Jersey net operating losses will not be utilized prior to expiration and, accordingly, has recorded a valuation allowance of $ 1.1 million.

Significant pieces of objective evidence evaluated included the Company’s proportional increase of revenue to other states resulting in a dilution of New Jersey sourced income as well as the Company’s forecasted amount of net operating loss utilization in New Jersey for certain members of the combined group.

At the end of fiscal year 2021, the total valuation allowance was $ 1.2 million, compared to a balance of $ 86,000 for years 2020 and 2019.

The $ 86,000 valuation allowance recorded in prior years against the California net operating losses remained unchanged as the available positive and negative evidence did not warrant a revision.

During the fiscal year 2021, the Company had no change to its recorded liability for uncertain tax positions.

The Company may be subject to examination by the Internal Revenue Service (“IRS”) for calendar years 2018 through 2021.

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

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

(in thousands)

Balance as of December 27, 2019

Additions based on tax positions related to the current year

Additions for tax positions of prior years

Reductions for tax positions related to the current year

Reductions for tax positions of prior years

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.

As of December 31, 2021 and January 1, 2021, the company did not have any unrecognized tax benefits.

In addition, during the fiscal year 2021, the Company did not have any additions or reductions of unrecognized tax benefits.

On June 10, 2021, the Company received notice from the State of New York indicating that the Company’s 2017, 2018, and 2019 state tax returns are under examination.

As of December 31, 2021, the Company is unable to determine the impact of the examination as the audit is in progress.

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

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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.

Accordingly, the effects of the CARES Act have been incorporated into the income tax provision computation for the fiscal year ended December 31, 2021.

These provisions resulted in the recognition of a $ 579,000 tax benefit and $ 1.5 million income tax receivable related to the net operating loss provisions.

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.

Accordingly, the effects of the CCA have been incorporated into the income tax provision computation for the fiscal year ended December 31, 2021.

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

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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.

For the fiscal years 2021 and 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 2019, 155,300 options were excluded from the calculation of dilutive potential common shares.

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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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

BUSINESS COMBINATIONS

Acquisition of E3, Inc.

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.

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 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 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”).

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 .

The amounts due to the E3, Inc.

Stockholders as Earn-Out Payments will in no event, individually or in the aggregate, exceed the Maximum Payout.

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.

and the E3, Inc.

Stockholders, indemnification provisions and other provisions customary for transactions of this nature.

The Company borrowed $ 30.0 million under its Delayed Draw Term Loan on October 28, 2019 to fund the $ 27.0 million cash payment paid on the E3, Inc.

Closing Date.

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 $ 21.8 million of goodwill resulting from the acquisition will be tax deductible.

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Consideration for the acquisition includes the following:

(in thousands)

Other working capital adjustment

Issuance of common stock

Contingent Consideration

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

Non-current assets (1)

Equipment and leasehold improvements, net

Right-of-use assets

Current lease liability

Non-current lease liability

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.

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,

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 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.

Consideration for the acquisition includes the following:

Onsite Energy

(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:

Onsite Energy

(in thousands)

Current assets

Non-current assets (1)

Equipment and leasehold improvements, net

Right-of-use assets

Current lease liability

Non-current lease liability

Customer relationships

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.

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 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.

Consideration for the acquisition includes the following:

The Weidt Group

(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:

The Weidt Group

(in thousands)

Current assets

Non-current assets (1)

Equipment and leasehold improvements, net

Right-of-use assets

Current lease liability

Non-current lease liability

Customer relationships

Developed technology

Net assets acquired

(1) Excluded from non-current assets are equipment and leasehold improvements, net, right-of-use assets, customer relationships, tradename, developed technology, backlog and goodwill.

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 – (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 (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 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 – (Continued)

CONTINGENCIES

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QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

The tables below reflect selected quarterly information for the fiscal years ended January 1, 2021 and December 27, 2019.

The tables below reflect selected quarterly information for the fiscal years ended December 31, 2021 and January 1, 2021.

Fiscal Three Months Ended

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Income (loss) from operations

Income tax benefit

Income tax expense (benefit)

Net income (loss)

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Fiscal Three Months Ended

September 27,

(in thousands except per share amounts )

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Income (loss) from operations

Income tax expense (benefit)

Income tax benefit

Net income (loss)

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SUBSEQUENT EVENTS

The Company evaluates subsequent events in accordance with ASC Topic 855, Subsequent Events.

The Company evaluates subsequent events up until the date the consolidated financial statements are issued.

As of March 16, 2021, there were no subsequent events required to be reported.

Borrowing/repayment under Revolving Credit Facility

Subsequent to December 31, 2021, the Company borrowed and repaid $ 5.0 million under the Revolving Credit Facility.

As of March 10, 2022, the borrowing capacity under the Revolving Credit Facility was $ 50.0 million.

Fifth Amendment to the Credit Agreement

On March 8, 2022, the Company entered into the Fifth Amendment to the Amended and Restated Credit Agreement (the “Fifth Amendment”).

The Fifth Amendment extends the Amended Covenant Relief Period from March 31, 2022 to and including the earlier of (i) December 30, 2022 and (ii) the last day of the fiscal quarter in which the Company delivers an irrevocable election to terminate the covenant relief granted by the Fifth Amendment (the “Third Covenant Relief Period,” and together with the Amended Covenant Relief Period, the “Extended Covenant Relief Period”).

The Fifth Amendment also (A) amends the minimum Adjusted EBITDA (as defined in the Fifth Amendment) thresholds for the remainder of the Extended Covenant Relief Period, (B) increases the maximum Leverage Ratio (as defined in the Credit Agreement) the Company is permitted to maintain through the fiscal quarter ending on December 31, 2022, (C) funds to the Company, on the date of closing, the remaining $ 20.0 million in available funds from the Delayed Draw Term Loan, and (D) amends the pricing structure of borrowings under the Credit Agreement from utilizing as a reference rate the London Inter-Bank Offered Rate (“LIBOR”) to utilizing the Secured Overnight Financing Rate.

Additionally, during the remainder of the Covenant Relief Period, the aggregate amount of all capital expenditures made by the Company may not exceed $ 20.0 million.

Pursuant to the Fifth Amendment, during the Extended Covenant Relief Period, borrowings under the Credit Agreement will bear interest at either a Base Rate or SOFR (plus 0.10 % or 0.15 % depending on the interest period), each as defined in the Credit Agreement, at the Company’s option, and in each case, plus an applicable margin, which applicable margin will range from 0.125 % to 1.50 % with respect to Base Rate borrowings and 1.125 % to 2.50 % with respect to SOFR borrowings, depending on the Leverage Ratio;

provided, that SOFR cannot be less than 0.00 %.

The Company will also pay a commitment fee for the unused portion of the revolving credit facility and the delayed draft term loan facility under the Credit Agreement, which will range 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 will range from 0.84 % to 1.875 % 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 Extended Covenant Relief Period, borrowings under the Credit Agreement will bear interest at either a Base Rate or SOFR (plus 0.10 % or 0.15 % depending on the interest period), each as defined in the Credit Agreement, at the Company’s option, and in each case, plus an applicable margin, which applicable margin will range from 0.125 % to 1.25 % with respect to Base Rate borrowings and 1.125 % to 2.25 % with respect to SOFR borrowings, depending on the Leverage Ratio;

provided, that SOFR cannot be less than 0.00 %.

The Company will also pay a commitment fee for the unused portion of the revolving credit facility and the delayed draft term loan facility under the Credit Agreement, which will range from 0.15 % to 0.40 % 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 1.688 % per annum, in each case, depending on whether such letter of credit is a performance or financial letter of credit and the Leverage Ratio.

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 January 1, 2021.

There were no changes in and/or disagreements with accountants on accounting and financial disclosure during the fiscal year ended December 31, 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