What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-03-10 compared with 2022-03-11 · 212 added, 311 removed, 953 unchanged (35% of the section changed)

2 unchanged sentences

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

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

Consolidated Balance Sheets as of December 30, 2022 and December 31, 2021

Consolidated Statements of Comprehensive Income for each of the fiscal years in the three-year period ended December 30, 2022

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Report of Independent Registered Public Accounting Firm

Shareholders and the Board of Directors of Willdan Group, Inc.

Stockholders and the Board of Directors of Willdan Group, Inc.

Anaheim, California

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

(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").

(the "Company") as of December 30, 2022 and December 31, 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 30, 2022, 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 30, 2022, based on criteria established in Internal Control – Integrated Framework:

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 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.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 30, 2022 and December 31, 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 30, 2022 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 30, 2022, based on criteria established in Internal Control – Integrated Framework:

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

Sherman Oaks, California

Los Angeles, California

March 9, 2023

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Cash and cash equivalents

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

Restricted cash

Accounts receivable, net of allowance for doubtful accounts of $ 640 and $ 1,115 at December 30, 2022 and December 31, 2021, respectively

Contract assets

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

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

13,296 and 12,804 shares issued and outstanding at December 30, 2022 and December 31, 2021, respectively

Additional paid-in capital

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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

Net income (loss)

Net unrealized gain (loss) on derivative contracts

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 unrealized loss on derivative contracts

Balance at January 1, 2021

Net income (loss)

Net unrealized gain (loss) on derivative contracts

Balance at December 31, 2021

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

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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 income (loss)

Net unrealized gain on derivative contracts

Net unrealized gain (loss) on derivative contracts

Balance at December 30, 2022

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Net income (loss)

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

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation and amortization

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Proceeds from sale of equipment

Cash paid for acquisitions, net of cash acquired

Net cash used in investing activities

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Payments on contingent consideration

Receipt of restricted cash

Payments on notes payable

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Restricted Stock Award and Units

Proceeds from unregistered sales of equity

Net cash provided by (used in) financing activities

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

Net increase (decrease) in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at beginning of period

Cash, cash equivalents and restricted cash at end of period

Supplemental disclosures of cash flow information:

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Willdan Group, Inc.

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

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

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

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

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

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

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

The Company operates and reports its quarterly financial results based on the 13 -week period ending on the Friday closest to 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 2022 and fiscal year 2021, which ended on December 30, 2022, and December 31, 2021, respectively, were both 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, 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.

Principles of Consolidation

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Reclassifications

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

Certain prior year amounts have been reclassified in the consolidated financial statements to conform to the current year presentation.

Use of Estimates

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

Restricted Cash

The Company, from time to time, has restricted cash that represents amounts not readily available for current operations due to contractual restrictions which designate these restricted cash balances for specific purposes.

Fair Value of Financial Instruments

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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 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.

As of December 30, 2022 and December 31, 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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The Company, however, has entered into an administrative services agreement with Genesys pursuant to which WES, the Company’s wholly-owned subsidiary, will provide Genesys with ongoing administrative, operational and other non-professional support services.

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

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

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

obligated to absorb expected losses from Genesys.

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

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

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

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

Adoption of ASC 606

On December 30, 2017, the Company adopted ASC 606, using the modified retrospective method applied to those contracts which were not completed as of December 29, 2017.

Prior to adopting ASC 606, the Company established an implementation team, which included senior managers from its finance and accounting group.

The implementation team evaluated the impact of adopting ASC 606 on its contracts expected to be uncompleted as of December 30, 2017 (the date of adoption).

The evaluation included reviewing its accounting policies and practices to identify differences that would result from applying the requirements of the new standard.

The Company identified and made changes to its processes, systems and controls to support recognition and disclosure under the new standard.

The implementation team worked closely with various professional consultants and attended several formal conferences and seminars to conclude on certain interpretative issues.

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

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

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

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

Contract Accounting

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

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

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

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

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Percentage-of-completion

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

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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 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.

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 consolidated balance sheets.

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

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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

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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.

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.

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For contracts with multiple performance obligations, the Company allocates the transaction price to each performance obligation using the best estimate of the standalone selling price of each distinct good or service in the contract.

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

For the periods presented, the value of the separate performance obligations under contracts with multiple

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performance obligations (generally measurement and verification tasks under certain energy performance contracts) were not material.

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

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

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

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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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

utilities, but disputes may arise related to these receivable amounts.

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.

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

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

As of December 30, 2022 and December 31, 2021, , contract assets included retainage of $ 8.5 million and $ 4.5 million, respectively.

General and Administrative Expenses

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

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

On December 29, 2018, the Company adopted ASU 2016-02 using the modified retrospective method.

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

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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

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two to five years .

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

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

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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

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Company evaluates the probability that PBRSUs will be earned.

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

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

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

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

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During fiscal years 2022, 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.

(“E3, Inc.”).

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

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

(“The Weidt Group”).

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.

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.

During fiscal year 2022, the Company had no change in its valuation allowance on its deferred tax assets.

During fiscal year 2021, the Company determined that it was more-likely-than-not that a portion of the New Jersey net operating losses will not be utilized prior to expiration and, accordingly, recorded an additional 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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During fiscal year 2020, the Company had a valuation allowance of $ 86,000 which was related to the California net operating losses that was recorded in previous years and remained unchanged as the available positive and negative evidence did not warrant a revision.

As of December 30, 2022, the Company had a total valuation allowance of $ 1.2 million.

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

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

Earnings per Share

The Company computes basic income per common share using net income and the weighted average number of common shares outstanding during the period.

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

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

Diluted income per common share is computed using net income and the

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weighted average number of common shares and potentially dilutive common shares outstanding during the period.

Potentially dilutive common shares include dilutive outstanding employee stock options, restricted stock awards (“RSA”), PBRSUs, and rights to purchase shares of common stock under the Company’s ESPP.

Other Comprehensive Income (loss), Net of Tax

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

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

The Company pays interest monthly at a fixed rate and receives interest monthly at the LIBOR rate on the notional amount of the contract with realized gains or losses recognized in interest expense.

From time to time, the Company uses certain interest rate derivatives contracts to hedge interest rate exposures on its variable rate debt.

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

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

Operating Cycle

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.

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 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 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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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 December 30, 2022, 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 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 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.

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

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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.

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RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Pronouncements Recently Adopted

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

In March 2020, the FASB issued ASU No.

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

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

GAAP to contract modifications and hedging relationships that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform.

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

4 unchanged sentences

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

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

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

Adoption is permitted at any time.

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

The Company adopted this standard effective March 8, 2022 .

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

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

WILLDAN GROUP, INC.

1 unchanged sentence

SUPPLEMENTAL FINANCIAL STATEMENT DATA

Restricted Cash

The following table provides a reconciliation of cash and cash equivalents, and restricted cash reported within the consolidated balance sheets for fiscal years 2022, 2021 and 2020 to the total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows for fiscal years 2022, 2021 and 2020:

(in thousands)

Cash and cash equivalents

Restricted cash

Total cash, cash equivalents, and restricted cash shown in the consolidated statement of cash flows

Under certain utility contracts, the Company periodically receives cash deposits to be held in trust for the payment of energy incentive rebates to be sent directly to the utility’s end-customer on behalf of the utility.

The Company acts solely as the utility’s agent to distribute these funds to the end-customer and, accordingly, the Company classifies these contractually restricted funds as restricted cash.

Because these funds are held in trust for pass through to the utility’s customers and have no impact on the Company’s working capital or operating cash flows, these cash receipts are presented in the consolidated statement of cash flows as financing cash inflows, “Receipt of restricted cash”, with the subsequent payments classified as financing cash outflows, “Payment of restricted cash.”

Accounts Receivable

13 unchanged sentences

Balance as of the end of the year

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Billed accounts receivable represent amounts billed to clients that have yet to be collected.

4 unchanged sentences

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 44.4 % and 31.0 % of the Company’s outstanding receivables as of December 31, 2021 and January 1, 2021, respectively.

Consolidated Edison of New York accounted for 10.3 % and 19.8 % of the Company’s billed outstanding receivables as of December 30, 2022 and December 31, 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 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)

During 2022, the Company did not sell any trade accounts receivable.

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

The discounts on the trade accounts receivable sold during 2021 were $ 0.8 million and were recorded within “Other, net” in other income (expense) in the consolidated financial statements.

Equipment and Leasehold Improvements

10 unchanged sentences

Included in accumulated depreciation and amortization is $ 1.1 million, $ 0.6 million, and $ 0.6 million of amortization expense related to equipment held under finance leases in fiscal years 2022, 2021, and 2020, respectively.

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Accrued Liabilities

2 unchanged sentences

Accrued subcontractor costs

Rebate and other

Accrued bonuses

Accrued accounting and taxes

Employee withholdings

Compensation and payroll taxes

Accrued workers’ compensation insurance

Total accrued liabilities

2 unchanged sentences

DERIVATIVE FINANCIAL INSTRUMENTS

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

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

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

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

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

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

As of December 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:

Fair Value of Derivative

Instruments as of

Balance Sheet Location

December 31, 2021

January 1, 2021

(in thousands)

Interest rate swap agreement

Accrued liabilities

Interest rate swap agreement

Other noncurrent (liabilities) assets

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

Accumulated Other

Derivative Instruments

Comprehensive Loss

(in thousands)

Balances at December 28, 2018

Other comprehensive loss before reclassifications

Amounts reclassified from accumulated other comprehensive income:

Income tax benefit (expense) related to derivative instruments

Net current-period other comprehensive loss

Balances at December 27, 2019

Other comprehensive loss before reclassifications

Amounts reclassified from accumulated other comprehensive income:

Income tax benefit (expense) related to derivative instruments

Net current-period other comprehensive loss

Balances at January 1, 2021

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

“Debt Obligations” ).

The interest rate swap agreement had a total notional amount of $ 35.0 million and had a fixed annual interest rate of 2.47 %.

The interest rate swap expired on January 31, 2022.

At its expiration, fiscal year 2022 changes in the fair value of the Company’s interest rate swap agreement were immaterial to the Company’s consolidated financial statements and were included in accrued liabilities in the Company’s consolidated balance sheet.

At its expiration, the effective portion of the Company’s interest rate swap agreement designated as a cash flow hedge for fiscal year 2022 was immaterial to the Company’s consolidated financial statements, and all amounts were reclassified from accumulated other comprehensive income to interest expense.

As of December 30, 2022, the Company had no derivative financial instruments in place.

WILLDAN GROUP, INC.

11 unchanged sentences

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, 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.

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, the Fourth Amendment, dated April 30, 2021, the Fifth Amendment, dated March 8, 2022, the Sixth Amendment, dated August 2, 2022, and the Seventh Amendment, dated November 1, 2022, the “Credit Agreement”) with a syndicate of financial institutions as lenders and BMO Harris Bank, N.A.

(“BMO”), as administrative agent.

1 unchanged sentence

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

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).

Prior to the Fourth Amendment to the 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).

3 unchanged sentences

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 Fourth Amendment also (A) increased 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) established the minimum Adjusted EBITDA thresholds (as defined in the Third Amendment) for the remainder of the Amended Covenant Relief Period, (C) removed the previous prohibition during the Initial Covenant Relief Period on the Company’s ability to make Delayed Draw Term Loan borrowings, (D) removed 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) increased the maximum amount of earn-out payments the Company was 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 could not exceed $ 15.0 million.

Fifth Amendment to the Credit Agreement

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

The Fifth Amendment extended 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) amended the minimum Adjusted EBITDA (as defined in the Fifth Amendment) thresholds for the remainder of the Extended Covenant Relief Period, (B) increased the maximum Total Leverage Ratio (as defined in the Credit Agreement) the Company is permitted to maintain through the fiscal quarter ending on December 30, 2022, (C) funded to the Company, on the date of closing, the remaining $ 20.0 million in available funds from the Delayed Draw Term Loan, and (D) amended the pricing structure of borrowings under the Credit Agreement from utilizing as a reference rate the LIBOR to utilizing the Secured Overnight Financing Rate (“SOFR”).

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

Pursuant to the Fifth Amendment, during the Extended Covenant Relief Period, borrowings under the Credit Agreement bore 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 ranged 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 Total Leverage Ratio;

provided, that SOFR could not be less than 0.00 %.

The Company was also required to pay a commitment fee for the unused portion of the Revolving Credit Facility and the Delayed Draw Term Loan, which ranged from 0.15 % to 0.45 % per annum depending on the Total Leverage Ratio, and fees on the face amount of any letters of credit outstanding under the Revolving Credit Facility, which ranged from 0.84 % to 1.875 % per annum, in each case, depending on whether such letter of credit was a performance or financial letter of credit and the Total Leverage Ratio.

Sixth Amendment to the Credit Agreement

On August 2, 2022, the Company entered into the Sixth Amendment to the Credit Agreement (the “Sixth Amendment”).

The Sixth Amendment increased the purchase money indebtedness and Capitalized Lease Obligations (as defined in the Credit Agreement) permissible limit from $ 1.5 million to $ 4.0 million, with no other changes to the Credit Agreement.

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Seventh Amendment to the Credit Agreement

On November 1, 2022 , the Company entered into the Seventh Amendment to the Credit Agreement (the “Seventh Amendment”).

The Seventh Amendment, (A) waived the minimum Adjusted EBITDA (as defined in the Fifth Amendment) threshold and any related Default or Event of Default (each as defined in the Fifth Amendment) for the fiscal quarter ending September 30, 2022, (B) amended the maximum Total Leverage Ratio (as defined in the Fifth Amendment) thresholds and the minimum Adjusted EBITDA thresholds, (C) amended the pricing structure of borrowings under the Credit Agreement for periods after November 1, 2022, (D) restricted aggregate borrowings under the Revolving Credit Facility to no more than $ 10.0 million at any time during the period from November 1, 2022 through the date on which financial statements and compliance documents have been received by the Administrative Agent (as defined in the Credit Agreement) for the fiscal quarter ending March 31, 2023, (E) conditioned access to the accordion feature of the Credit Agreement to periods when the Company’s Total Leverage ratio is less than 3.0 , (F) amended the Total Leverage Ratio requirement contained in the conditions precedent required upon any Credit Event (as defined in the Credit Agreement) occurring prior to the delivery to the Administrative Agent of the financial statements and compliance documents required for the fiscal quarter ending March 31, 2023, (G) included a general release of all Claims (as defined in the Seventh Amendment) against the Administrative Agent, the L/C Issuer and the Lenders (each as defined in the Credit Agreement) and (H) amended the timing requirement of certain financial reports.

Additionally, during the remainder of the Extended Covenant Relief Period, the Company could not make Share Repurchases (as defined in the Seventh Amendment).

Pursuant to the Seventh Amendment, during the period from November 1, 2022 until the date on which the Administrative Agent receives the required financial statements under the Credit Agreement for the fiscal quarter ended March 31, 2023 (the “First Pricing Date”), (A) borrowings under the Credit Agreement will bear interest at SOFR plus 4.00 %;

provided, that SOFR cannot be less than 0.00 %, and (B) the Company will pay a commitment fee of 0.50 % per annum for the unused portion of the revolving credit facility under the Credit Agreement.

After the First Pricing Date, borrowings under the Credit Agreement will bear interest at either a Base Rate (as defined in the Credit Agreement) or SOFR, 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 Total Leverage Ratio;

provided, that SOFR cannot be less than 0.00 %, with the specific pricing reset on each date on which the Administrative Agent receives the required financial statements under the Credit Agreement for the fiscal quarter then ended.

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 Total 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 Total 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.

3 unchanged sentences

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.

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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.

3 unchanged sentences

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

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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.

The Company believes that, as of December 30, 2022, it was in compliance with all covenants contained in the Credit Agreement.

As of December 30, 2022, the Company’s composite interest rate, exclusive of the effects of upfront fees, undrawn fees and issuance cost amortization, was 8.3 % and $ 4.1 million in letters of credit were issued.

4 unchanged sentences

Total debt maturities

Issuance costs and debt discounts

Net carrying value

WILLDAN GROUP, INC.

1 unchanged sentence

GOODWILL AND OTHER INTANGIBLE ASSETS

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 Company’s goodwill 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.

10 unchanged sentences

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

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

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

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.

During a brief period in the fiscal quarter ended December 30, 2022, the Company’s market capitalization based upon its stock price temporarily fluctuated below book value.

The fair value of the Company using a market capitalization approach based on the Company’s share price would also include a control premium not reflected in the share price based on recent transactions that have occurred in the Company’s industry.

This indicative fair value exceeded the Company’s book value;

therefore, the Company does not believe it is more likely than not that goodwill was impaired.

No impairment was recorded in any year during the three-year period ended December 30, 2022.

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

December 30, 2022

January 1, 2021

December 31, 2021

(in thousands)

Non-compete agreements

7 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

During the twelve months ended December 30, 2022, the Company reclassified $ 0.3 million of in-process research and technology to developed technology and commenced amortization over its estimated useful life.

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

18 unchanged sentences

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

From time to time, the Company enters into non-cancelable leases for some of our facility and equipment needs.

From time to time, the Company enters into non-cancelable leases for some of its facility and equipment needs.

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

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

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

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

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

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

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

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

As of December 30, 2022, the Company had no leases with residual value guarantees.

14 unchanged sentences

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

The Company’s lease terms

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.

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

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

26 unchanged sentences

Finance Leases

Rent expense for fiscal years 2021, 2020 and 2019 was $ 6.8 million, and $ 7.6 million, and $ 6.2 million, respectively.

Rent expense for fiscal years 2022, 2021 and 2020 was $ 6.5 million, $ 6.8 million, and $ 7.6 million, respectively.

WILLDAN GROUP, INC.

26 unchanged sentences

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

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

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

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

22 unchanged sentences

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 December 31, 2021.

There were no intersegment sales during the fiscal years 2022, 2021, or 2020.

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

23 unchanged sentences

Interest expense

Segment profit before income tax expense

Income tax expense (benefit)

Segment profit (loss) before income tax expense

Income tax (benefit) expense

Net income (loss)

3 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

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

Engineering and

2 unchanged sentences

Time-and-materials

Utilities (2)

Geography (1)

3 unchanged sentences

Time-and-materials

Utilities (2)

Geography (1)

7 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

The following sets forth the assets that are included in Unallocated Corporate as of December 30, 2022 and December 31, 2021.

(in thousands)

Cash and cash equivalents

Restricted cash

Accounts Receivable, net

12 unchanged sentences

For fiscal years 2022, 2021, and 2020, the Company’s top 10 customers accounted for 54.6 %, 49.2 %, and 48.0 %, respectively, of the Company’s consolidated contract revenue.

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

During fiscal years 2022, 2021, and 2020, the Company had individual customers that accounted for more than 10% of its consolidated contract revenues.

For fiscal year 2022, the Company derived 12.0 % of its consolidated contract revenue from one customer, Los Angeles Department of Water and Power (“LADWP”).

For fiscal year 2021, the Company derived 10.8 % 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.

For fiscal year 2020, the Company derived 10.2 % of its consolidated contract revenue from one customer, 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 2022, the Company derived 14.4 % of its Energy segment revenues from one customer, LADWP, and had no individual customers that accounted for more than 10% of its Engineering and Consulting segment revenues.

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.

In fiscal year 2021, 2020, and 2019, services provided to clients in California accounted for 36.8 %, 37.0 %, and 41.1 %, respectively, of the Company’s contract revenue and services provided to clients in New York accounted for 21.0 %, 19.2 %, and 27.2 %, respectively, of the Company’s contract revenue.

In fiscal years 2022, 2021, and 2020, services provided to clients in California accounted for 41.7 %, 36.8 %, and 37.0 %, respectively, of the Company’s contract revenue, and services provided to clients in New York accounted for 22.8 %, 21.0 %, and 19.2 %, respectively, of the Company’s contract revenue.

WILLDAN GROUP, INC.

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Stock Incentive Plans

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.

2006 Stock Incentive Plan

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

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

After the Company’s shareholders approved the 2008 Plan (as defined below) in June 2008, no additional awards were granted under the 2006 Plan.

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

Approximately 182,735 shares that were available for award grant purposes under the 2006 Plan have become available for grant under the 2008 Plan following shareholder approval of the 2008 Plan.

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

Approximately 182,735 shares that were available for award grant purposes under the 2006 Plan became available for grant under the 2008 Plan following shareholder approval of the 2008 Plan.

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

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

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

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

The 2006 Plan terminated in June 2016 and, as of December 30, 2022, there were no outstanding stock options under the 2006 Plan.

Amended and Restated 2008 Performance Incentive Plan

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

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

The 2008 Plan was originally set to terminate on April 17, 2027 but received a ten-year extension at the 2019 annual meeting of the stockholders and a three-year extension at the 2022 annual meeting of the stockholders.

The 2008 Plan is currently scheduled to expire on April 18, 2032.

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

The 2008 Plan initially had 450,000 shares of common stock reserved for issuance (not counting any shares originally available under the 2006 Plan that “poured over.”) At the 2010, 2012, 2016, 2017, 2019, and 2022 annual meetings of the stockholders, the stockholders approved 350,000 , 500,000 , 500,000 , 875,000 , 955,000 , and 478,000 share increases, respectively, to the 2008 Plan.

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

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Options and other awards provide for accelerated vesting if there is a change in control (as defined in the 2008 Plan) and the outstanding awards are not substituted or assumed in connection with the transaction.

Through December 30, 2022, outstanding awards granted, net of forfeitures and exercises, under the 2008 Plan consisted of 40,000 shares of incentive stock options, 776,000 shares of nonqualified stock options, 135,000 shares of restricted stock awards and 66,000 shares of performance-based restricted stock units.

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

The plan received stockholder approval in June 2006.

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

The ESPP received stockholder approval in June 2006.

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

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

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

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

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

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

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

The first offering period commenced on February 10, 2007 and ended on June 30, 2007.

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

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

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

The accumulated contributions are applied to the purchase of shares.

Shares are purchased under the plan on or as soon as practicable after, the last day of the offering period.

Shares are purchased under the ESPP on or as soon as practicable after, the last day of the offering period.

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

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

As of December 31, 2021, there were 479,000 shares available for issuance under the plan.

As of December 30, 2022, there were 364,000 shares available for issuance under the ESPP.

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 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 compensation expense that has been recognized for stock options, RSAs, performance-based restricted stock units (“PBRSU”), and ESPP issued under these plans was $ 8.4 million, $ 16.6 million, and $ 16.1 million for fiscal years 2022, 2021, and 2020, respectively.

The Company did no t have any unrecognized compensation expense related to nonvested stock options for fiscal years 2022 and 2021.

The total unrecognized compensation expense related to nonvested stock options was $ 0.4 million for fiscal year 2020.

The total unrecognized compensation expense related to RSAs was $ 1.7 million, $ 3.3 million, and $ 3.6 million, for fiscal years 2022, 2021, and 2020, respectively.

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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.

A summary of option activity under the 2006 Plan and 2008 Plan as of December 30, 2022 and changes during the fiscal years ended December 30, 2022, December 31, 2021 and January 1, 2021 is presented below.

The intrinsic value of the fully-vested options is $ 2.1 million based on the Company’s closing stock price of $ 17.85 and the average exercise price of outstanding options on December 30, 2022.

(in thousands)

Outstanding at December 31, 2021

Forfeited or expired

Outstanding at December 30, 2022

Vested and expected to vest at December 30, 2022

Exercisable at December 30, 2022

(in thousands)

Outstanding at January 1, 2021

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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

Exercisable at December 27, 2019

WILLDAN GROUP, INC.

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(in thousands)

Nonvested at January 1, 2021

Nonvested at December 31, 2021

(in thousands)

Nonvested at December 30, 2022

Nonvested at January 1, 2021

(in thousands)

Nonvested at January 1, 2021

Nonvested at December 31, 2021

(in thousands)

Nonvested at December 27, 2019

Nonvested at January 1, 2021

WILLDAN GROUP, INC.

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(in thousands)

Outstanding at January 1, 2021

Outstanding at December 31, 2021

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Outstanding at December 27, 2019

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Outstanding at January 1, 2021

Summary of Performance-Based Restricted Stock Unit Activity

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(in thousands)

Outstanding at January 1, 2021

Outstanding at December 31, 2021

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Outstanding at December 27, 2019

Outstanding at January 1, 2021

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Fair Value Valuation Assumptions

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No options were granted during fiscal years 2022, 2021 or 2020.

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

Expected volatility

Expected dividends

Expected term (in years)

Risk-free rate

RSA and PBRSU Grants

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

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

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

Under the Company’s PBRSU design, awards vest based on two performance metrics.

For the PBRSU awards granted in fiscal year 2022, 50 % of each award will vest based upon the Company’s Adjusted EBITDA performance over a three-year performance period, and the remaining 50 % of each award will vest based upon the Company’s adjusted diluted earnings per share performance over a three-year performance period, respectively.

For the PBRSU awards granted in fiscal year 2021, 50 % of the award will vest based upon the Company’s Adjusted 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 year 2020, 50 % of each award will vest based upon the Company’s Adjusted EBITDA performance over a two-year performance period, and the remaining 50 % of each award will vest based upon the Company’s adjusted diluted earnings per share performance over a two-year performance period, respectively.

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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Deferred state taxes

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

(1) Revenue from the Company’s foreign operations was immaterial for fiscal years 2022, 2021, and 2020.

The provision for income taxes reconciles to the amounts computed by applying the statutory federal tax rate of 21 % for fiscal years 2022, 2021 and 2020 to the Company’s income before income taxes.

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

Federal deferred tax adjustments

Adjustment for uncertain tax positions

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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 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.

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Deferred tax assets:

Accounts receivable allowance

Other accrued liabilities

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Stock compensation

Adjustments to fair value of assets

Capitalized research and development

Credit carryforwards

Excess business interest limitation

Total deferred tax assets

Valuation allowance

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Lease right-of-use assets

Deferred Labor Costs

Total deferred tax liabilities

Net deferred tax asset

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.

As of December 30, 2022, the Company had federal and state operating loss carryovers of $ 82.8 million and $ 91.6 million, respectively, and federal and state tax credit carryforwards of $ 1.6 million and $ 0.3 million, respectively.

Out of the federal operating loss, $ 13.2 million will carryforward indefinitely.

The remaining carryovers will begin to expire in 2023 through 2042.

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.

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.

During fiscal year 2022, no changes were made to tax valuation allowance as the available positive and negative evidence did not warrant a revision.

During fiscal year 2021, the Company determined that it was more-likely-than-not that a portion of the New Jersey net operating losses would 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 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.

As of December 30, 2022, the Company’s liabilities related to uncertain tax positions were immaterial to the consolidated financial statements.

As of December 31, 2021, the Company did not have any liabilities related to uncertain tax positions.

The Company may be subject to examination by the Internal Revenue Service (“IRS”) for calendar years 2019 through 2022 .

The Company may also be subject to examination on certain state and local jurisdictions for the years 2018 through 2022 .

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

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

As of December 30, 2022 and December 31, 2021, the Company did not have any unrecognized tax benefits.

In addition, during the fiscal year 2022, 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.

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

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

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

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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 were under examination.

The examination was finalized during the Company’s first quarter of fiscal year 2022 and there were no changes made by the State of New York to the state tax returns filed.

WILLDAN GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

EARNINGS PER SHARE (“EPS”)

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For the fiscal years 2022, 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.

Accordingly, the inclusion of these options would have been anti-dilutive.

WILLDAN GROUP, INC.

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QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

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

The tables below reflect selected quarterly information for the fiscal years ended December 30, 2022 and December 31, 2021.

Fiscal Three Months Ended

September 30,

(in thousands except per share amounts)

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Income (loss) from operations

Income tax benefit

Income tax expense (benefit)

Net income (loss)

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SUBSEQUENT EVENTS

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.

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 9, 2023, there were no subsequent events required to be reported.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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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