UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-KCommission file number 001-33076WILLDAN GROUP, INC.(Exact name of registrant as specified in its charter)Delaware(State or other jurisdiction ofincorporation or organization) 14-1951112(IRS EmployerIdentification No.)2401 East Katella Avenue, Suite 300, Anaheim,California(Address of principal executive offices) 92806(Zip Code)(800) 424-9144(Registrant's telephone number, including area code)Common Stock, $0.01 parvalue NASDAQ Global Market(Title of class) (Name of exchange)Securities registered pursuant to section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No ý Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of1934. Yes o No ý Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes ý No o Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data Filerequired to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorterperiod that the registrant was required to submit and post such files). Yes ý No o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, tothe best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment tothis Form 10-K. o Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. Seedefinitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which thecommon equity was last sold, as reported on the NASDAQ Global Market, as of the last business day of the registrant's most recently completed second fiscalquarter was $9.3 million.(Mark One) ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934For the Fiscal Year Ended December 28, 2012oro TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934For the transition period from to Large accelerated filer o Accelerated filer o Non-accelerated filer o(Do not check if asmaller reporting company) Smaller reporting company ý Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý On March 22, 2013, 7,335,365 shares of the registrant's common stock were issued and outstanding.DOCUMENTS INCORPORATED BY REFERENCE Part III of this Form 10-K incorporates information by reference from the registrant's definitive proxy statement for the 2013 Annual Meeting to be filedon or prior to 120 days after the end of our fiscal year. Table of ContentsTABLE OF CONTENTSii PagePART IITEM 1. BUSINESS 1ITEM 1A. RISK FACTORS 19ITEM 1B. UNRESOLVED STAFF COMMENTS 26ITEM 2. PROPERTIES 27ITEM 3. LEGAL PROCEEDINGS 27ITEM 4. MINE SAFETY DISCLOSURES 27PART IIITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK, RELATED STOCKHOLDER MATTERSAND ISSUER PURCHASES OF EQUITY SECURITIES 28ITEM 6. SELECTED FINANCIAL DATA 29ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS 31ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 44ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 45ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIALDISCLOSURE 45ITEM 9A. CONTROLS AND PROCEDURES 45ITEM 9B. OTHER INFORMATION 46PART IIIITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 47ITEM 11. EXECUTIVE COMPENSATION 47ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ANDRELATED SHAREHOLDER MATTERS 47ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 47ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 47PART IVITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 48 Table of Contents PART I ITEM 1. BUSINESS Overview We are a provider of professional technical and consulting services to public agencies at all levels of government, public and private utilities, andcommercial and industrial firms. We enable these entities to provide a wide range of specialized services, without having to incur and maintain the overheadnecessary to develop staffing in-house. We assist our clients with a broad range of complementary services relating to:•Engineering and Planning; •Energy Efficiency and Sustainability; •Economic and Financial Consulting; and •National Preparedness and Interoperability. We operate our business through a network of offices located primarily in California and New York. We also have operations in Arizona, Florida, Texas,Washington and Washington, DC. As of December 28, 2012, we had a staff of 534 which includes licensed engineers and other professionals. Based on our2011 revenue, we ranked 109 out of 500 top design firms in Engineering News-Record's 2012 Design Survey. Historically, our clients have been publicagencies in communities with populations ranging from 10,000 to 300,000 people. We believe communities of this size are underserved by large outsourcingcompanies that tend to focus on securing large federal and state projects, as well as projects for the private sector. We also provide services to public andprivate utilities that service major metropolitan communities and commercial and industrial firms, particularly in connection with our energy efficiency andsustainability services. We seek to establish close working relationships with our clients and expand the breadth and depth of the services we provide to themover time. While we currently serve communities throughout the country, our business with public agencies is concentrated in California and Arizona. We provideservices to approximately 57% of the 482 cities and approximately 52% of the 58 counties in California. We also serve special districts, school districts, arange of public agencies and private industry. Our business with public and private utilities is concentrated in California and New York. In fiscal 2008 and 2009, general economic conditions declined due to a number of factors including slower economic activity, a lack of available credit,decreased consumer confidence and reduced corporate profits and capital spending, leading to a slowdown in construction, particularly residential housingconstruction, in the western United States. As a result of this slowdown, both our Engineering Services segment and Public Finance Services segment suffereddeclines in revenue and operating margin compression. While economic conditions improved from fiscal 2010 through 2012, the recovery has been slow,particularly with regard to our traditional engineering services and public finance services. While our profitability increased in fiscal 2010 and 2011 as aresult of increased revenue from our Energy Efficiency Services segment, our profitability in fiscal 2012 was severely impacted by a goodwill impairmentcharge related to that segment. See "Management's Discussion and Analysis of Financial Condition and Results of Operation." We were founded in 1964 and Willdan Group, Inc., a Delaware corporation, was formed in 2006 to serve as our holding company. We consist of a familyof wholly owned companies that operate within the following segments for financial reporting purposes: Engineering Services. Our Engineering Services segment includes the operations of our subsidiaries, Willdan Engineering and Public AgencyResources ("PARs"). Willdan Engineering provides civil engineering-related and city planning services, geotechnical and other engineering1 Table of Contentsconsulting services to our clients. PARs primarily provides staffing to Willdan Engineering. Contract revenue for the Engineering Services segmentrepresented approximately 36% and 32% of our overall consolidated contract revenue for fiscal years 2012 and 2011, respectively. Energy Efficiency Services. Our Energy Efficiency Services segment consists of the business of our subsidiary, Willdan Energy Solutions, which offersenergy efficiency and sustainability consulting services to utilities, public agencies and private industry. This segment is currently our largest segment basedon contract revenue, representing approximately 49% and 54% of our consolidated contract revenue for fiscal years 2012 and 2011, respectively. Public Finance Services. Our Public Finance Services segment consists of the business of our subsidiary, Willdan Financial Services, which offerseconomic and financial consulting services to public agencies. Contract revenue for the Public Finance Services segment represented approximately 11%and 9% of our consolidated contract revenue for fiscal years 2012 and 2011, respectively. Homeland Security Services. Our Homeland Security Services segment consists of the business of our subsidiary, Willdan Homeland Solutions, whichoffers national preparedness and interoperability services and communications and technology solutions. Contract revenue for our Homeland SecurityServices segment represented approximately 4% and 5% of our consolidated contract revenue for fiscal years 2012 and 2011, respectively.Our Markets We provide engineering and planning, energy efficiency, economic and financial consulting and national preparedness and interoperability servicesprimarily to public agencies and utilities, as well as private utilities and firms. We believe the market for these privatized governmental services is, and willbe, driven by a number of factors, including:•Population growth, which leads to a need for increased capacity in government services and infrastructure; •Demand by constituents for a wider variety of services; •Increased demand for services and solutions that provide energy efficiency, sustainability, water conservation and renewable energy in boththe public and private sectors; •The creation of new municipalities and the growth of smaller communities, which creates the need to obtain highly specialized serviceswithout incurring the costs of hiring permanent staffing and the associated support structure; •The deterioration of local infrastructures, especially in aging areas; and •Government funding programs, such as federal homeland security grants and various state legislation, that provide funds for localcommunities to provide services to their constituents.Engineering and Planning Services Engineering and planning services encompass a variety of disciplines associated with the design and construction of public infrastructure improvements.We expect continued population growth in California and other western states to place a significant strain on the infrastructure in those areas, driving theneed for both new infrastructure and the rehabilitation of aging structures. Federal, state and local governments have responded to this need by proposing anincrease in their funding of infrastructure related activities, and voters in California and Arizona have, in recent years, passed sales tax increases to fundtransportation improvements.2 Table of ContentsEnergy Efficiency and Sustainability Services In response to an increased awareness of global warming and climate change issues, private industry and public agencies are increasingly seeking outcost-effective, turn-key solutions that provide innovative energy efficiency, renewable, water conservation and sustainability services. State and localgovernments are frequently turning to specialized resource conservation firms to strike the balance between environmental responsibility and economiccompetitiveness. Consultants have the expertise to develop efficient and cost effective solutions. The use of energy efficiency services, including audits,program design, benchmark analysis, metering and partnerships provides government agencies, utilities and private firms with the ability to realize long-termsavings.Economic and Financial Consulting Public agencies must raise the necessary funding to build, improve and maintain infrastructure and to provide services to their local communities. Whiletax revenues are a primary source of funding, in California there are property tax and spending limits that curtail the generation of these funds. Alternativesinclude the issuance of tax-exempt securities; the formation of special financing districts to assess property owners on a parcel basis for infrastructure andpublic improvements, such as assessment districts and community facilities districts (known as Mello-Roos districts in California); the implementation ofdevelopment impact fee programs that require developers to bear the cost of the impact of development on local infrastructure; user fee programs that passcosts along to the actual users of services; optimization of utility rates; and special taxes enacted by voters for specific purposes. Public agencies frequently contract with private consultants to provide the advance studies, manage the processes and provide the administrationnecessary to support these methods. Consultants have the expertise necessary to form the special financing districts and produce an impact fee study used todevelop a schedule of developer fees. Privatized services are also utilized to implement the programs or revised rate schedules, and in the case of specialfinancing districts, administer the districts through the life of the bonds. Consultants also frequently provide the services necessary to comply with federalrequirements for tax-exempt debt, such as arbitrage rebate calculations and continuing disclosure reports. Use of such services allows public agencies tocapitalize on innovative public finance techniques without incurring the cost of developing in-house expertise.Homeland Security, National Preparedness and Interoperability Services After September 11, 2001, the need to protect civil infrastructure and implement additional security measures became a priority at all levels ofgovernment. In addition to the threat of terrorism, Hurricanes Katrina and Rita and Superstorm Sandy highlighted the vulnerability of our country'sinfrastructure to natural disasters, while the Deepwater Horizon oil spill along the Louisiana Gulf Coast emphasized the need for disaster preparedness. Theseevents placed an increased burden on local and regional public agencies to be prepared to respond. In addition to fire and safety personnel, agenciesresponsible for the physical safety of infrastructure elements, such as water and wastewater systems, ports and airports, roads and highways, bridges and dams,are under increased pressure to prepare for natural and man-made disasters. Accordingly, the federal government now considers public works staff members tobe "first responders" to such incidents and we believe that agencies are allocating resources accordingly. For fiscal year 2012, under the Department of Homeland Security Grant Program ("HSGP"), the federal government provided approximately $831 millionto the states, which in turn disbursed these funds to local law enforcement and other agencies. The federal Department of Homeland Security ("DHS"),designated 31 metropolitan areas throughout the country to receive almost half of the HSGP funds through a program called the DHS Urban Areas SecurityInitiative, or UASI. Designated UASI3 Table of Contentsmetropolitan areas include eight metropolitan areas in California and the Phoenix, Arizona; Tucson, Arizona; Denver, Colorado; and Las Vegas, Nevadametropolitan areas.Our Services We specialize in providing professional technical and consulting services to public agencies, utilities and private industry. Our core client base iscomposed of cities, counties, special districts, other local and state agencies, tribal governments, public and private utilities and commercial and industrialfirms. We are organized to profitably manage numerous small to mid-size contracts at the same time. Our contracts can range from $1,000 to over $5,000,000 incontract revenue. Our project contracts typically have a duration of less than 12 months, although we have city services contracts that have been in effect forover 30 years. At December 28, 2012, we had approximately 1,350 open projects. We offer services in four segments: Engineering Services, Energy Efficiency Services, Public Finance Services, and Homeland Security Services. Theinterfaces and synergies among these segments are key elements of our strategy. Management established these segments based upon the services provided,the different marketing strategies associated with these services and the specialized needs of their respective clients. The following table presents, for theyears indicated, the approximate percentage of our consolidated contract revenue attributable to each segment: See Note 13—"Segment Information" for additional segment information.Engineering Services We provide a broad range of engineering-related services to the public sector and limited services to the private sector. In general, contracts forengineering services (as opposed to construction contracts) are awarded by public agencies based primarily upon the qualifications of the engineeringprofessional, rather than the proposed fees. We have longstanding relationships with many of these agencies and are recognized as an engineering consultantwith relevant expertise and customer focused services. A substantial percentage of our engineering-related work is for existing clients that we have served formany years. Our engineering-related services are described individually below: Building and Safety. Our building and safety services range from managing and staffing an entire municipal building department to providing specificoutsourced services, such as plan review and field inspections. Other aspects of this discipline include performing accessibility compliance and providingdisaster recovery teams, energy compliance evaluations, permit processing and issuance, seismic retrofitting programs, and structural plan review. Many ofour building and safety services engagements are with municipalities and counties where we supplement the capacity of in-house staff. City Engineering. We specialize in providing engineering services tailored to the unique needs of municipalities. City engineering can range fromstaffing an entire engineering department to carrying out specific projects within a municipality, such as developing a pavement management program orreviewing engineering plans on behalf of a city. This service is the core of our original business and was the first service offered when we were founded.4 Fiscal Year 2012 2011 2010 Engineering Services 36% 32% 42%Energy Efficiency Services 49% 54% 38%Public Finance Services 11% 9% 13%Homeland Security Services 4% 5% 7% Table of Contents Code Enforcement. We assist municipalities with the development and implementation of neighborhood preservation programs and the staffing ofcode enforcement personnel. Our code enforcement and neighborhood preservation services include reviewing, studying and analyzing existing programs,developing and implementing community educational programs, developing ordinances and writing grant proposals, and providing project managers and/orsupervisors. Development Review. We offer development plan review and inspection service to clients throughout California and the Southwest. Our experience inplan review and inspection includes ADA compliance, preliminary and final plats (maps), grading and drainage, complete infrastructure improvements forresidential site plans, commercial site plans, industrial developments, subdivision, and major master planned developments. Our development review servicesinclude grading plans, street lighting and traffic signal plans, erosion control plans, storm drain plans, street improvement plans, sewer water and utility plans. Disaster Recovery. We provide disaster recovery services to cities, counties and local government. Our experience in disaster recovery includesassisting communities in the disaster recovery process following earthquakes, firestorms, mudslides and other natural disasters. We typically organize andstaff several disaster recovery centers which function as "one-stop permit centers" which guarantee turn-around performance for fast-track plan checking andinspection services. In addition, we have experience in dealing with street and storm drain clean-up, replacement or repair of damaged storm drains, streets,and bridges, debris management and preparation and implementation of a near-term erosion and sediment control program. Environmental Engineering. We provide environmental consulting and remediation services to cities, counties, and local governments. Ourenvironmental services encompass many technical disciplines and programs, including environmental assessments and audits, environmentalcharacterization and assessment, soil and groundwater investigations and information technology services. Geotechnical. Our geotechnical and earthquake engineering services include soils engineering, earthquake and seismic hazard studies, geology andhydrogeology engineering, and construction inspection. We operate a licensed, full-service geotechnical laboratory at our headquarters in Anaheim,California, which offers an array of testing services, including construction materials testing and inspection. Landscape Architecture. We assist public agencies in the design and planning of parks and recreation developments, as well as redevelopment andcommunity-wide beautification plans. Our services in the area of landscape architecture include design, landscape management, urban forestry and planning.Specific projects include park design and master planning, bidding and construction documents, water conservation plans, urban beautification programs,landscape maintenance management, site planning, and assessment district management. Planning. We assist communities with a full range of planning services, from the preparation of long-range policy plans to assistance with the day today operations of a planning department. For several cities, we provide contract staff support. We provide environmental documentation services (includingNational Environmental Policy Act (NEPA), California Environmental Quality Act (CEQA) and Environmental Impact Report (EIR) compliance anddocument preparation), mitigation monitoring programs and third party environmental review. We also provide urban planning and design services focusedon investigation of specific planning and design issues and the formulation of plans, policies, and strategies for communities as a whole or for specific studyareas. Typical assignments include land use studies, development of specific plans or general plan elements, design guidelines, and zoning ordinances. Oururban planning services include assisting communities with the implementation of general plans, land use enforcement, capital improvement planning,community development and5 Table of Contentsredevelopment programs, and economic development strategies. We typically perform the development services function for emerging and newlyincorporated cities. Program and Construction Management. We provide comprehensive program and construction management services to our public-sector clients.These services include construction administration, inspection, observation, labor compliance, and community relations, depending on the client's needs andthe scope of the specific project. Our construction management experience encompasses projects such as streets, bridges, sewers and storm drains, watersystems, parks, pools, public buildings, and utilities. Contract Staff Support Services. We provide cities and counties with both interim and long-term contract staff support services, including capitalimprovement planning, contract administration and code enforcement management. Public agencies have contracted with us when it is not cost-effective tohave a full-time engineer on staff; to relieve peak workload situations; or to fill vacant positions during a job search. We have also provided small or newlyincorporated cities with the functions of entire departments, such as building and safety, engineering, planning, or public works. In other instances, publicagencies have retained our personnel to serve as city engineers, building officials, case planners, public works directors, or project managers for large orunusually complex projects. Structures. Our structural engineering services include bridge design, bridge evaluation and inspection, highway and railroad bridge planning anddesign, highway interchange design, railroad grade separation design, bridge seismic retrofitting, building design and retrofit, sound wall and retaining walldesign, and planning and design for bridge rehabilitation and replacement. Survey. Our surveying and mapping services include major construction layout, design survey, topographic survey, aerial mapping, GeographicInformation Systems (GIS), and right-of-way engineering. Traffic. We specialize in providing traffic engineering and planning services to governmental agencies. Our services range from responding to citizencomplaints to designing and managing multimillion dollar capital improvement projects. Traffic engineering services include serving as the contract citytraffic engineer in communities, as well as performing design and traffic planning projects for our clients. These services and projects include parkingmanagement studies, intersection analyses and improvements, traffic impact reports, and traffic signal and control systems. We develop geometric design andchannelization, traffic signal and street lighting plans, parking lot designs, and traffic control plans for construction. Transportation. Our engineers design streets and highways, airport and transit facilities, freeway interchanges, high-occupancy vehicle lanes, pavementreconstruction, and other elements of city, county, and state infrastructure. Our transportation engineering services cover a full spectrum of support functions,including right of way, utility relocation, landscape, survey and mapping, geographic information systems, public outreach, and interagency coordination.These services are typically provided to local public works agencies, planning and redevelopment agencies, regional and state transportation agencies andcommissions, transit districts, ports, railroads, and airports. Water Resources. We assist clients in addressing the many facets of water development, treatment, distribution and conservation, including energysavings, technical, financial, legal, political, and regulatory requirements. Our core competencies include hydraulic modeling, master planning, rate studiesand design and construction services. Our design experience includes reservoirs, pressure reducing stations, pump and lift stations, and pipeline alignmentstudies, as well as water/wastewater collection, distribution, and treatment facilities. We also provide a complete analysis and projection of storm flows foruse in drainage master plans and for individual storm drain systems to reduce flooding6 Table of Contentsin streets and adjacent properties. We design open and closed storm drain systems and detention basin facilities, for cities, counties and the Army Corp ofEngineers. Representative Projects. The following are examples of typical projects we have in the Engineering Services segment:•City of Elk Grove. We partnered with the City of Elk Grove, a community of more than 140,000 located just south of Sacramento, California,to provide city engineering, municipal, and operational services, as well as public works management consulting services for the city's PublicWorks Department. Our involvement with Elk Grove dates back to before the city's incorporation in 2000. In 2010, the City Council opted forcontracting with a single vendor instead of multiple vendors to provide public works services and selected Willdan to assist them indeveloping a new model that offers a better balance of experienced and cost-effective labor, provides checks and balances to ensure theefficient delivery of quality services and positions the Public Works Department for successful service management and delivery as the citycontinues to grow in population and complexity. We are providing the city with the service commitment of a fully staffed public works/cityengineering department. At the city's request, we have expanded our role and now provide all public infrastructure maintenance services. Wehave procured and executed contracts with a select group of specialty firms to provide these services. We will manage this team to maintainroadway, storm drain and drainage facilities, traffic signal and street lighting outages, street signs and pavement markings, graffiti abatement,and other field services such as emergency hazard material spill response. •City of Long Beach. For over nine years, we have been providing the City of Long Beach with a range of on-call services includingconstruction management, public works observation, building and safety, and materials testing services relating to various public worksprojects throughout the city. We manage and inspect approximately $40 million worth of publicly funded projects per year including paving,street repairs, sewers, bridges, storm drains, slurry seals, airport runway repair at the Long Beach Airport, alley improvement projects, and tenetimprovements to city owned buildings and other appurtenant work. In addition to our construction management and inspection services, wehave provided public outreach services for many of the city's high profile public works projects such as the city's recent award winningDowntown Bike Lane Project, Long Beach Boulevard Reconstruction Project, and Atlantic Boulevard through Bixby knolls. •Los Angeles County Metropolitan Transportation Authority (MTA). We teamed with another engineering firm to execute an engineering anddesign services project for the Los Angeles MTA. The project included the construction of a Bus Rapid Transit (BRT) line that extends fourmiles north from Metro Orange Line Canoga Station to the Metrolink Chatsworth Station and the construction of four new stations at ShermanWay, Roscoe Boulevard, Nordhoff Street and Chatsworth Train Depot. This dedicated busway offers improvements to north-south mobility inthe western San Fernando Valley by connecting activity centers along the corridor and extending the Metro Orange Line to connect withMetrolink. Other benefits include faster travel times, improved bus connections, and better access to destinations throughout Los AngelesCounty. •City of Los Angeles. We are providing construction management support services to the City of Los Angeles Bridge Program under a mastertask order contract for five bridges. Our construction support services on each of the five projects includes providing daily on-site residentengineering service, visiting the project sites and providing technical support when requested, and providing remote technical support fromthe office. Technical support services include bridge engineering, geotechnical engineering, cost estimating, and project scheduling services.The project is expected to be completed in December 2013. •L.A. County Department of Public Works (LACDPW). We have been providing a variety of on-call services to LACDPW for over 10 years.Most recently, we prepared a flood risk7 Table of Contentsmitigation alternatives study to begin the process of mitigating increased flood risks identified by the Los Angeles County Flood ControlDistrict (LACFCD) along Compton Creek and Dominguez Channel. The study identified, analyzed, and ranked alternative solutions toaddress hydraulic deficiencies discovered by the LACFCD. In addition, the study analyzed combinations of alternative solutions that addressthe flood control issues and incorporate multi-use benefit components that improve water conservation with input from the LACFCD andwatershed stakeholders. We were also contracted to provide engineering services related to a Sediment Placement Site (SPS) for La TunaCanyon. The purpose of the proposed project is to ultimately provide storage for approximately nine million cubic yards of fill material as anSPS. The conceptual grading phase, will determine the feasibility of implementing an SPS at this site and identify any major constraints tocompleting the ultimate grading and staged grading for the project.•Town of Florence. We have been providing a range of services to the town of Florence. We were hired to perform the building safety, civilplan review and inspection for the 100,000 square foot $24 million hospital facility, a single-story medical complex providing a 22-bedemergency department, a 20-bed multi-organized service unit and an 18-bed correctional unit. Drainage improvements include the completeremoval and replacement of roadways in Phase I of Florence Gardens, including curbs, sidewalks, driveways, valley gutters and asphalt. AsDistrict engineer, we prepare the modification of mapping and assessment diagrams and reviews of legal descriptions, title reports, costestimates, and boundary maps associated with parcel modification within the district. As District Administrator, we oversee the administrationof the semi-annual billings for the special assessment districts, which includes delinquency management and pay-off computations. AsSuperintendent of Streets, we prepare the warrants and accepts the District Treasurers return, modifying assessments and releasing theassessment roles. •City of La Cañada Flintridge. We are providing a range of services, including civil and structural design services, funding coordination,environmental services, regulatory permitting and construction support. We have served as City Traffic Engineer for the City of La CañadaFlintridge since 2000. The project includes handling all general traffic engineering concerns within the city, such as reviewing traffic impactstudies, preparing and reviewing traffic signal and striping plans, performing stop sign and safety analyses, preparing and presentingCommission and Council reports, conducting field investigations, investigating citizen requests and supervising city staff in the performanceof these duties. We are also providing professional traffic engineering design services for the West Foothill Bikeway Project. The project willaccommodate a Type II bike lane along Foothill Boulevard from West City Limit to Alta Canyada Road and Alta Canyada Road from FoothillBoulevard to Descanso Drive. We provided professional engineering services to design two new raised crosswalks on Cornishon Avenue andfour electronic speed awareness signs as part of a state Safe Routes to School grant. The project included field survey, civil design and relatedproject management for the preparation of plans, specifications and cost estimate. •City of Ridgecrest. We provided resident engineer, Caltrans local assistance liaison, and quality assurance testing services for a federallyfunded project to reconstruct the AC pavement roadway on College Heights Boulevard between Franklin Avenue and Javis Avenue. We alsoprovided bid support, construction management, and full time inspection services. In addition, we handled all aspects of the federal aidassistance process. Additionally, we provided resident engineer, inspection, and quality assurance testing services for a Proposition 1B fundedproject to rehabilitate the existing asphalt concrete pavement on Drummond Avenue between Norma Street and China Lake Boulevard. We arealso providing resident engineer, inspection, and quality assurance testing services for a state-legislated Safe Routes to school improvementproject near James Monroe Middle School.8 Table of ContentsEnergy Efficiency Services In fiscal 2008, we acquired our subsidiary, Willdan Energy Solutions ("WES"), formerly known as Intergy. WES is an energy efficiency and sustainabilityconsulting firm that provides specialized, innovative services in energy, water, and resource management to businesses, utilities, state agencies,municipalities, and non-profit organizations. Our experienced engineers and staff develop efficient and cost-effective approaches within all phases ofprojects. WES energy efficiency services include comprehensive surveys, program design, benchmarking analysis, and metering. Our range of energy efficiency services are described below: Energy Efficiency. We provide complete energy efficiency consulting and engineering services, including: program design, management andadministration; marketing, customer outreach, and project origination; energy audits and feasibility analyses; retro-commissioning; implementationcontractor recruitment, training and management; data management and reporting; retro-commissioning services; and measurement and verification services. Sustainability. We assist clients (including utilities, schools and private companies) in developing and managing facilities and infrastructures througha holistic, practical approach to sustainability. Our services in the area of sustainability cover renewable energy, master plans, Leadership in Energy andEnvironmental Design (LEED) certification for buildings, Green House Gas (GHG) reduction strategies, and the development of California Assembly BillNo. 811 (AB-811) projects. Climate Action Plans. We assist governmental clients with the development and implementation of climate action plans. These plans include energyefficiency, water conservation, land development, renewable, and GHG reduction strategies. Representative Projects. The following are examples of typical ongoing projects we have in the Energy Efficiency Services segment:•Consolidated Edison Company of New York. We serve as Consolidated Edison's program manager and implementer for its Small BusinessDirect Install (SBDI) Program in New York City. The Program helps small businesses achieve energy efficiency and financial savings, offeringboth free and cost-shared energy efficiency retrofits, including installation of high-efficiency lighting; heating, ventilation, and airconditioning; and refrigeration energy conservation measures. As the program implementer, we are responsible for: moving a high volume ofprojects from survey to retrofit; tracking, analyzing, and reporting on project status and program data; and completing installation through selfperformance and a small group of contractors. After completing the initial contract with Consolidated Edison of New York, WES was awardeda new contract in 2012 to continue the program in Bronx, Brooklyn, and Queens, with the goal of 146 million kWh in energy savings. •New York State Energy Research & Development Authority (NYSERDA). Under the State of New York's Industrial Process Efficiency (IPE)Program we serve as the exclusive energy efficiency contractor for data centers. We are tasked with managing NYSERDA's entire programprocess, from customer outreach to application to post-installation review, and stimulating energy efficiency investment in the data centersector, which is the fastest-growing energy consumer sector in New York. We have worked with 750 customers and 250 strategic partners toidentify and foster over 150 data center projects, with an estimated energy savings of approximately 195 million kWh in New York State. •Pacific Gas & Electric (PG&E), Southern California Edison (SCE), and San Diego Gas & Electric (SDG&E) Hospital Energy EfficiencyProgram (HEEP). We serve as program administrator for HEEP, which offers turn-key energy efficiency services for hospitals and medicaloffice buildings in the territories of PG&E, SCE, and SDG&E, including acute hospitals (ambulatory surgery9 Table of Contentscenters licensed under acute hospitals and acute hospital outpatient services); acute psychiatric hospitals; medical or healthcare-related officebuildings; chemical dependency recovery hospitals; skilled nursing facilities; free-standing trauma centers; community clinics; convalescenthospitals; and extended care facilities. The two programs are scheduled to deliver a total energy savings of 36.4 million kWh.•Pacific Gas & Electric (PG&E) Ozone Laundry Energy Efficiency Program (OLEEP). OLEEP captures cost-effective natural gas savings foron-premise laundry equipment in hotels and lodging facilities with over 200 rooms, hospitals and residential care facilities, commerciallaundry services, and correctional facilities. Our program administration services include facility audits, engineering and financial analysis,contractor bid and selection assistance, and water agency incentive assistance. •Southern California Edison (SCE) and San Diego Gas & Electric (SDG&E) Lodging Energy Efficiency Program (LEEP). LEEP providescustomized energy-saving solutions for lodging customers, including full-service development, management, and implementation of energy-savings projects. In the three year program cycle ended in 2012, the program delivered a total energy savings of approximately 31.2 millionkWh. •Puget Sound Energy (PSE) and Sacramento Municipal Utility District (SMUD) Direct Install Program. Since July 2011, we have administeredand managed PSE and SMUD's Direct Install Program, which offers incentives for small-sized businesses to make energy efficiency upgrades.Typical upgrades include lighting, refrigeration, electric water heating, occupancy sensors, and LED signs. To date, we have delivered savingof approximately 7.4 million kWh to 514 small businesses. •Orange & Rockland Utilities (O&R) Lighten Up Program. We serve as O&R's program manager and implementer for its Lighten Up energyefficiency program. The Program helps small businesses achieve energy efficiency and financial savings, offering both free and cost-sharedenergy efficiency retrofits, including installation of high-efficiency lighting; heating, ventilation, and air conditioning; and refrigerationenergy conservation measures. As the program implementer, we are responsible for moving a high volume of projects from survey to retrofit;tracking, analyzing, and reporting on project status and program data; and completing installation through self performance and a small groupof contractors. After completing the initial contract with O&R, we were awarded a new contract in September 2012 to continue the program. •Southern California Edison (SCE) Schools Program. We serviced 280 school facilities across 15 districts in Southern California Edison'sterritory in 2012, and are continuing to provide these services in 2013. The program encompasses all energy end uses found in an educationalenvironment—from lighting and controls to heating, ventilation, and air conditioning—with the purpose of promoting energy efficiency. Wedelivered savings of almost 16 million kWh and over 2,000 kW during the initial phase of the project. In light of our performance, includingan exemplary safety record in schools, SCE has increased the program budget from $1.5 million to the current budget amount of $8.6 million.Public Finance Services We acquired our subsidiary Willdan Financial Services (formerly known as MuniFinancial), a public finance consulting business, in 1999 to supplementthe engineering services we offer our clients. In general, we supply expertise and support for the various financing techniques employed by public agenciesto finance their operations and infrastructure. We also support the mandated reporting and other requirements associated with these financings. We do notprovide underwriting or financial advisory services for municipal securities.10 Table of Contents Unlike our Engineering Services business, we often compete for business, at least initially, through a competitive bid process. Agencies competitivelybid out services on a regular basis. The new contract terms are generally one, three or five years per contract. Our services in this segment include the following: District Administration. We administer special districts on behalf of public agencies. The types of special districts administered include communityfacilities districts (in California, Mello-Roos districts), assessment districts, landscape and lighting districts, school facilities improvement districts, waterdistricts, benefit assessment districts, fire suppression districts, and business improvement districts. Our administration services include calculating the annuallevy for each parcel in the district; billing charges directly or through a county tax roll; preparing the annual Engineer's Report, budget and resolutions;reporting on collections and payment status; calculating prepayment quotes; and providing financial analyses, modeling and budget forecasting. The key to our District Administration services is our proprietary software package, MuniMagic®: Municipal Administration & Government InformationCoordinator, which we developed internally to redefine the way we administer special districts. MuniMagic® is a database management program thatmaintains parcel data; calculates special taxes, assessments, fees and charges; manages payment tracking; maintains bond-related information in a single,central location; and provides reporting, financial modeling and analysis at multiple levels of detail. MuniMagic® offers a significant competitive advantagein an industry driven by the ability to accurately process extremely large quantities of data. MuniMagic® is also available for licensing by our existingclients. See "—Intellectual Property" for a discussion of the licensing terms. Financial Consulting. We perform economic analyses and financial projects for public agencies, including:•Fee and rate studies, such as cost allocation studies and user fee analysis; •Utility rate analysis for water, wastewater and stormwater; •Fiscal and economic impact analysis; •Real estate and market analysis associated with planning efforts, and development fee studies; •Special district formation, which involves the design, development and initiation of community facilities districts, school facilitiesimprovement districts, assessment districts, landscape and lighting districts, benefit assessment districts, business improvement districts, andfire suppression assessments; •Proposition 218 studies, assessment balloting, and re-engineering; •Other special projects, including facility financing plans, formation of new public entities, annexations and incorporations; reassessmentengineering and financial analysis for bond offerings or refundings; development and financial projections; and nexus studies between publicand private enterprises, including public-private partnerships and the benefits of economic development to municipalities and to state,provincial, regional and national governments. Federal Compliance. We offer federal compliance services to issuers of municipal securities, which can be cities, towns, school districts, housingauthorities and other entities that are eligible to issue tax-exempt securities. Specifically, we provide arbitrage rebate calculations and municipal disclosureservices that help issuers remain in compliance with federal regulations. We provide these reports, together with related compliance services such as bondelections, temporary period yield restriction, escrow fund monitoring, rebate payments and refund requests. In terms of continuing disclosure services, weboth produce the required annual reports and disseminate those reports on behalf of the11 Table of Contentsissuers. We provide federal compliance services to approximately 640 issuers in 38 states and the District of Columbia on more than 2,500 bond issuestotaling over $60 billion in municipal debt. Representative Projects. Examples of typical projects we have in the Public Finance Services segment include:•Metropolitan Washington Airport Authority (MWAA), District of Columbia. We were selected to provide an Economic Impact Study toquantify the economic impacts generated by passenger, freight and capital development activity at Washington Dulles International Airport,Ronald Reagan Washington National Airport, and MWAA's toll operations and rail construction activity. The measures to be evaluatedinclude the number of jobs, associated labor income, and the personal income, corporate income, and state sales tax revenue effects of the totaleconomic activity attributable to MWAA facility and related expenditures. This study will provide an analytical framework for measuringMWAA's importance in the region's economy and the effect of its investment program. •California Statewide Communities Development Authority (CSCDA). We were hired by CSCDA to provide Property Assessed Clean Energy("PACE") assessment administration services. These services include maintaining a database of the parcels within each program, establishingand maintaining amortization schedules for each parcel through the term of the lien/loan, submitting the annual assessment levy, reviewingcounty records to determine which parcels are delinquent, preparing delinquency reports and sending reminder letters to property owners, andproviding a toll-free number to field inquiries regarding assessment proceedings and annual installments. Additional services such aspreparation of prepayment calculations, preparation of required program documents, review of assessment documentation for each parcel, andthe recording of the assessment agreements may be provided as well. •City of Kalispell, Montana. We are engaged by the City of Kalispell, a regional center in Montana, to assist with a market and feasibilitystudy for the Core Area Revitalization Plan. The study will assist in the creation of new development and employment opportunities in centralKalispell. We will develop a comprehensive feasibility study that incorporates an evaluation of current strengths, weaknesses andopportunities for development, as well as guiding parameters for the attraction of development within the project area while addressing theneeds of the existing businesses and property owners. •City of Lee's Summit, Missouri. We were selected to develop a comprehensive water and sewer rate study and tap fee analysis for the City ofLee's Summit. The effort was the result of a strategic planning exercise, whereby the City identified the need to address utility system ratestructures and levels, and develop rate/financial policies serving as a framework for the cultivation of these new rates. In addition to water andsewer utility user rates, the effort includes reviewing utility system tap fees, and revising them to reflect the City's updated master plan. We willdevelop a multi-year financial plan allowing the City to meet the goals and objectives established during the strategic planning process. •County of Miami Dade County, Florida. We are serving as the lead financial consultant in the development of a Solid Waste Master Plan forthe Department of Solid Waste Management (DSWM) in Miami-Dade County. This engagement will include the development of acomprehensive multi-year financial analysis fully integrating all aspects of the County's proposed Solid Waste Master Plan, including thecapital improvement plan. The financial model will provide County decision makers with a decision making tool that will identify feasibleoptions based on broad strategic goals and specific established criteria. The approach includes estimating the financial implications of planalternatives and their collective impact on DSWM and formulating alternative financial plans necessary for funding proposed developmentsand programs. This process will allow the County to develop workable solid waste programs and12 Table of Contentsinitiatives as well as efficient facility designs while taking into consideration the anticipated impact to the system's financial health.•City of Grand Terrace, California. We were hired by the City of Grand Terrace to provide interim professional financial and administrativeservices. In this capacity, we are responsible for the entire financing department. Our duties include: accounts payable; accounts receivable;payroll; investments and banking; budget and accounting; purchasing; business licensing; cashier functions; and fixed assets.Homeland Security Services In fiscal 2004, we formed our subsidiary Willdan Homeland Solutions (WHS), formerly known as American Homeland Solutions. WHS providesemergency preparedness planning, emergency preparedness training, emergency preparedness exercises, communications and technology, and water securityservices that focus on integrating local resources and assets within state and federal systems to cities, counties and related municipal service agencies, such asutility and water companies, as well as school districts, port and transportation authorities, tribal governments and large business enterprises with a need forhomeland security related services. We staff our projects in this area with former high-level local and regional public safety officers and focus on solutionstailored for local agencies and their personnel. Our services include the following: Emergency Preparedness Planning. We design, develop, implement, review, and evaluate public and private agencies' emergency operations andhazard mitigation plans, including compliance and consistency with federal, state and local laws and policies. Plans are tailored to respond to terrorism,intentional acts of sabotage, and natural disasters. We also provide command and control and emergency response training for all types of unusualoccurrences. We have developed emergency operations, hazard mitigation, continuity of operations and business continuity and recovery plans formunicipal governments, special districts, school districts, and private-industry clients. Emergency Preparedness Training. We design customized training courses for all aspects of disaster, unusual occurrence and emergency responses. Inthis regard, we have developed and own several training courses that meet or exceed the requirements for the federal National Incident Management System(NIMS) training. These courses assist clients in meeting their obligations to prepare their staff to utilize the NIMS. Our courses have been approved byCalifornia's Commission on Peace Officers Standards and Training, the California Emergency Management Agency, and the Federal National IntegrationCenter, Training and Education Division, formerly the Department of Homeland Security's "Office of Grants and Training." Emergency Preparedness Exercises. We conduct planning sessions and exercises, including those relating to weapons of mass destruction, large events,mass casualty transportation disasters, terrorism incident response, natural disaster response and recovery, and civil disorder events. We design these exercisesfor multi-agency involvement so they are fully compliant with the federal government's Homeland Security Exercise and Evaluation Program (HSEEP), theState Emergency Management System (SEMS) for California, and the National Response Framework. Exercises are designed to evaluate and test "firstresponders" and support personnel, as well as elected officials and agency management. Communications and Technology. We provide homeland security, public safety, and emergency response capabilities for government and corporateclients that focus on integrating local resources and assets within federal, state, and local systems. Core competencies include requirements development,integration, life cycle analysis, system design, procurement and selection, deployment, interoperability, project management, quality management,assessments, conceptual and final design and gap analysis in the public safety radio land mobile communications and corporate market including broadband13 Table of Contentsnetworks, commercial cellular test plans, data networks, microwave network planning and related engineering design. Water Security. We offer National Incident Management System (NIMS) and Incident Command System (ICS) courses specific to water and wastewateragencies. Our instructors and course facilitators have significant experience in water and wastewater security, emergency preparedness, and businesscontinuity. All courses are DHS-certified. Eligible agencies may use DHS-TSGP funds for this approved training. Representative Projects. Examples of typical Homeland Security Services projects include:•New York Mass Transit Authority Training Program (NY MTA). We were contracted to develop and deliver advanced security and emergencyresponse courses and workshops for NY MTA employees. The NY MTA is the largest public transportation provider in the western hemisphere,serving approximately 14.4 million people. The program covers several NY MTA agencies and course development will include courses likeBehavioral Recognition, Counter Terrorism, Evacuation, Emergency Command and Control, Critical Incident Management, CrisisCommunications and Leadership. Course delivery is anticipated to include 36,000 MTA students and will continue through 2014. •Anaheim/Santa Ana Urban Area Training Services. Since 2008, Willdan Homeland Solutions has been an integral part of the Anaheim/SantaAna Urban Area (ASAUA) Regional Homeland Security Training and Exercise Program under three separate contracts (2008-10, 2010-12, and2012-15). In support of the 2008-2010 exercise program, Willdan delivered 19 training and exercise events that included the revision of theASAUA Homeland Security Strategy in 2009 and the design and delivery of the 2008 Golden Guardian Functional Exercise—OperationShakeOut, which collectively was the largest preparedness exercise conducted in U.S. history. The 2010-2012 exercise program included over17 training and exercise events that included a three-week terrorism prevention exercise for the Orange County Intelligence Analysis Center(OCIAC), which was the first prevention exercise designed and delivered specifically for the OCIAC. The most recent exercise program for2012-2015 incorporates multi-year training and exercise events focused on three urban area priorities: Emergency Operations CenterManagement, Mass Casualty Incident Response, and On-Scene Incident Management Operations. •Alameda County-Bay Area UASI Training Services. We were contracted to provide the Alameda County Bay Area Urban Area SecurityInitiative (UASI) with a wide range of training courses taught by subject matter experts and/or recognized professionals in the field of lawenforcement/tactical, fire/emergency medical services, emergency management, and public health. The Bay Area UASI consists of 12 counties,including three major cities, with a total population of 7.5 million residents This project requires the development of training courses thatenhance the Bay Area UASI's ability to prevent, protect against, respond to, and recover from acts of terrorism.Competitive Strengths We provide a wide range of privatized services to the public sector, private firms and utilities. We have developed the experience base, professional staffand support technology and software necessary to quickly and effectively respond to the needs of our clients. We believe we have developed a reputationwithin our industry as problem solvers across a broad range of client issues. Some of our competitive strengths include: Quality of service. We pride ourselves on the quality of service that we provide to our clients. The work for which we compete is awarded primarilybased on the company's qualifications, rather than the14 Table of Contentsfees proposed. We believe that our service levels, experience and expertise satisfy even the most rigorous qualification standards. We have developed astrong reputation for quality, based upon our depth of experience, ability to attract quality professionals, customized technology and software that supportour services, local knowledge and the expertise we possess across multiple disciplines. We believe we are well-positioned to serve public sector clients due toour knowledge of the unique reporting processes and operating procedures of public agencies, which differ substantially from the private sector. We believeour high quality of service is a significant reason we currently provide services to approximately 57% of the cities and approximately 52% of the counties inCalifornia. Broad range of services. Our focus on customer service has led us to continually broaden the scope of the services we provide. At different stages in ourhistory, as the needs of our clients have evolved, we have developed service capabilities complementary to our core engineering business, including buildingand safety services, financial and economic services, planning services, geotechnical services, code enforcement services, disaster planning and homelandsecurity services, and most recently, energy efficiency and sustainability. Further, because we recognize that local public sector projects and issues oftencross departmental lines, we have developed the ability to deliver multiple services in a cohesive manner to better serve our client communities as a whole. Strategic locations in key markets. Local agencies want professionals who understand their local needs. Therefore, we deliver our services through anetwork of offices dispersed throughout the western United States and New York. Each of our offices is staffed with quality professionals, including formermanagement level public sector employees, such as planners, engineers, inspectors, and police and fire department personnel. These professionals understandthe local and regional markets in which they work. Strong, long-term client relationships. We have developed strong relationships with our public agency clients, some of whom we have worked with forover 30 years. The value of these long-term relationships is reflected in the recurring award of new projects, ongoing staffing assignments, and long-termprojects that require high-level supervision. We also seek to maintain close personal relationships with public agency decision-makers to strengthen ourrelationships with them and the agencies with which they work. We frequently develop new client relationships as our public agency contacts are promotedor move to other agencies. Our strong culture of community involvement and leadership in key public agency organizations underscores our customer focusand helps us cultivate and expand our client base. Experienced, talented and motivated employees. Our staff consists of seasoned professionals with a broad array of specialties, and a strong customerservice orientation. Our corporate culture places a high priority on investing in our people, including providing opportunities for stock ownership to attract,motivate and retain top professionals. Our executive officers have an average of more than 35 years of experience in the engineering and consulting industry,and an average of 6 years with our company.Clients Our clients primarily consist of public and governmental agencies including cities, counties, redevelopment agencies, water districts, school districts anduniversities, state agencies, federal agencies, a variety of other special districts and agencies, tribal governments and public utilities. We also provide servicesto private utilities and private industry. Our primary clients are public agencies serving communities of 10,000 to 300,000 people and public and privateutilities. In fiscal 2012, we served over 750 distinct clients. For fiscal 2012, we had two clients, the Consolidated Edison Company of New York and the Cityof Elk Grove that accounted for 21% and 10%, respectively, of our consolidated contract revenue. None of our other clients accounted for over 10% of ourconsolidated contract revenue. Our clients are primarily based in California and New York, as well as Arizona, Florida, Texas, Washington15 Table of Contentsand Washington, DC. In fiscal 2012, services provided to clients in California accounted for approximately 68% of our contract revenue and servicesprovided to clients in New York accounted for approximately 26% of our contract revenue. Consolidated Edison SBDI Program. In July 2012, Willdan Energy Solutions entered into an Agreement for a Small Business Direct Install Programwith Consolidated Edison Company of New York. The agreement continues our partnership with Consolidated Edison to develop Consolidated Edison'sSmall Business Direct Install Program, which began in 2009. The initial term of this agreement extends through June 2014. The maximum amount we canreceive under the agreement is approximately $39 million through 2015 and we are not guaranteed to receive any minimum amount of revenue.Contract Structure We provide our services under contracts, purchase orders or retainer letters. The contracts we enter into with our clients contain three principal types ofpricing provisions:•Time and materials provisions provide for reimbursement of costs and overhead plus a fee for labor based on the time expended on a projectmultiplied by a negotiated hourly billing rate. The profitability achievable on a time and materials basis is driven by billable headcount andcost control. •Unit based provisions require the delivery of specific units of work, such as arbitrage rebate calculations, dissemination of municipal securitiescontinuing disclosure reports, or building plan checks, at an agreed price per unit, with the total payment under the contract determined by theactual number of units performed. •Fixed price provisions require all work under a contract to be performed for a specified lump sum, which may be subject to adjustment if thescope of the project changes. Contracts with fixed price provisions carry certain inherent risks, including risks of losses from underestimatingcosts, delays in project completion, problems with new technologies, price increases for materials, and economic and other changes that mayoccur over the contract period. Consequently, the profitability, if any, of fixed price contracts can vary substantially. We also receive monthly retainers from a limited number of our clients. The following table presents, for the periods indicated, the approximatepercentage of our contract revenue subject to each type of pricing provision: For time and materials and fixed price contracts, we bill our clients periodically in accordance with the contract terms based on costs incurred, on eitheran hourly fee basis or on a percentage of completion basis, as the project progresses. For unit based and retainer based contracts, we bill our clients upondelivery of the contracted item or service, and in some cases, in advance of delivery. Our contracts come up for renewal periodically and at the time of renewal may be subject to renegotiation, which could impact the profitability on thatcontract. In addition, during the term of a contract, public agencies may request additional or revised services which may impact the economics of16 Fiscal Year 2012 2011 Time and materials 33% 33%Unit based 48% 52%Fixed price 17% 14%Monthly retainer 1% 1% Total 100% 100% Table of Contentsthe transaction. Most of our contracts permit our clients, with prior notice, to terminate the contracts at any time without cause. While we have a large volumeof transactions and generally low customer concentration, the renewal, termination or modification of a contract may have a material adverse effect on ourconsolidated operations.Competition The market for our services is highly fragmented. We often compete with many other firms ranging from small local firms to large national firms. Contractawards are based primarily on qualifications, relevant experience, staffing capabilities, geographic presence, stability and price. Doing business with governmental agencies is complex and requires the ability to comply with intricate regulations and satisfy periodic audits. We havebeen serving cities, counties, special districts and other public agencies for over 47 years. We believe that the ability to understand these requirements and tosuccessfully conduct business with governmental entities and agencies is a barrier to entry for potential competitors. Our competition varies by type of client, type of service and geography. The range of competitors for any one project can vary depending upon technicalspecialties, the relative value of the project, geographic location, financial terms, risks associated with the work, and any client imposed restrictions. Unlikemost of our competitors, we focus our services on public sector clients. Public sector clients generally choose among competing firms by weighing thequality, experience, innovation and timeliness of the firm's services. When selecting consultants for engineering projects, many government agencies arerequired to, and others choose to, employ Qualifications Based Selection, or QBS. QBS requires the selection of the most technically qualified firms for aproject, while the financial and legal terms of the engagement are generally secondary. QBS applies primarily to work done by our Engineering Servicessegment. Contracts in our Energy Efficiency Services, the Public Finance Services and Homeland Security Services areas typically are not subject tomandatory QBS standards, and often are awarded through a competitive bid process. Our competition varies geographically. Although we provide services in several states, we may be stronger in certain service lines in some geographicalareas than in other regions. Similarly, some of our larger competitors are stronger in some service lines in certain localities but are not as competitive inothers. Our smaller competitors generally are limited both geographically as well as in the services they are able to provide. We believe that the primary competitors for our Engineering Services segment include Charles Abbott & Associates, Inc., Bureau Veritas, Harris &Associates, Psomas, RBF Consulting, Tetra Tech, Inc., Stantec, Inc., Michael Baker Corporation, TRC Companies, Inc., AECOM Technology Corporation,CH2M Hill and Jacobs Engineering Group, Inc. We believe the Energy Efficiency Services segment competes primarily with ICF International, Lime Energy,KEMA (a division of the DNV Group) and Nexant, Inc. Our chief competitors in our Public Finance Services segment include David Taussig & Associates,Harris & Associates and NBS Government Finance Group. We believe the Homeland Security Services segment competes primarily with EG&G (a division ofURS Corporation) and SRA International, Inc.Insurance We currently maintain general liability insurance, with coverage in the amount of $1.0 million per occurrence, subject to a $2.0 million generalaggregate limit; and professional liability insurance, with $5.0 million in coverage per claim, and a $10.0 million annual aggregate limit. Our professionalliability policy is a "claims made" policy. We also carry excess coverage of an additional $10.0 million for general, automobile and employer's liabilityclaims. We are liable to pay these claims from our assets if and when the aggregate settlement or judgment amount exceeds our policy limits.17 Table of ContentsEmployees At December 28, 2012, we had approximately 382 full-time employees and 152 part-time employees. All Public Agency Resources' employees areclassified as part-time. Our employees include, among others, licensed civil, traffic and structural engineers, land surveyors, certified building officials,licensed geotechnical engineers and engineering geologists, certified inspectors and plans examiners, licensed architects and landscape architects, certifiedplanners, and information technology specialists. We believe that we attract and retain highly skilled personnel with significant industry experience andstrong client relationships by offering them challenging assignments in a stable work environment. We believe that our employee relations are good. The following table sets forth the number of our employees in each of our business segments and our holding company: At December 28, 2012, we contracted with approximately 150 former and current public safety officers to conduct homeland security services trainingcourses. These instructors are classified as subconsultants and not employees.Intellectual Property The Willdan, Willdan Group, Inc., Willdan Engineering, Willdan Financial Services, Willdan Energy Solutions and Willdan Homeland Services namesare service marks of ours, and we have obtained a service mark for the Willdan logo. We have also obtained federal trademark registration with the UnitedStates Patent and Trademark Office for the "Willdan" name and the "extending your reach" tagline. We believe we have strong name recognition in thewestern United States and New York, and that this provides us a competitive advantage in obtaining new business. Consequently, we believe it is importantto protect our brand identity through trademark registrations. The name and logo of our proprietary software, MuniMagic®, are registered trademarks ofWilldan Financial Services, and we have registered a federal copyright for the source code for the MuniMagic® software. We license the MuniMagic®software to existing clients pursuant to licensing agreements that allow varying levels of access to data. This technology allows clients to view their own dataand is a form of deliverable to our clients. The use of licensing provides us protection for this proprietary technology. MuniMagic® is not a commercialproduct offered for sale.Available Information Our website is www.willdan.com and our investor relations page is under the caption "Investors" on our website. We make available on this websiteunder "SEC Filings," free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to thosereports as soon as reasonably practicable after we electronically file or furnish such materials to the U.S. Securities and Exchange Commission, or SEC. Wealso make available on this website our prior earnings calls under the heading "Investors—Investor Relations" and our Code of Ethical Conduct under theheading "Investors—Corporate Governance." The information on our website is not18 As of Fiscal Year End 2012 2011 2010 Engineering Services 282 292 286 Energy Efficiency Services 135 132 97 Public Finance Services 51 51 64 Homeland Security Services 10 19 29 Holding Company Employees (Willdan Group, Inc.) 56 68 64 Total 534 562 540 Table of Contentsa part of or incorporated by reference into this filing. Further, a copy of this annual report on Form 10-K is located at the SEC's Public Reference Room at100 F Street, NE, Room 1580, Washington, D.C. 20549. Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding our filings athttp://www.sec.gov. ITEM 1A. RISK FACTORS Risks Relating to Our Business and Industry A further downturn in public and private sector construction activity in the regions we serve, or other conditions that impact the construction industry, mayhave a material adverse effect on our business, financial condition and results of operations. A further downturn in construction activity in our geographic service areas may affect demand for our services, which could have a material adverseeffect on our results of operations and our financial condition. During fiscal year 2012, a portion of our contract revenue was generated by services renderedto public agencies in connection with private and public sector construction projects. Since 2008, general economic conditions declined due to a number of factors including slower economic activity, a lack of available credit, decreasedconsumer confidence and reduced corporate profits and capital spending, leading to a slowdown in construction, particularly residential housingconstruction, in the western United States. As a result of this slowdown, both our engineering services segment and public finance services segment suffereddeclines in revenue and operating margin compression and we made several reductions in workforce and facility leases. While economic conditions began toimprove from fiscal 2010 through fiscal 2012, the recovery has been slow with regard to our traditional engineering and public finance services segments. Ifthe economy declines again, we will need to evaluate whether further reductions in headcount and facilities in geographic areas that are underperforming areagain needed. Our business, financial condition and results of operations may also be adversely affected by conditions that impact the construction sector in general,including, among other things:•Changes in national and local market conditions due to changes in general or local economic conditions and neighborhood characteristics; •Slow-growth or no-growth initiatives or legislation; •Adverse changes in local and regional governmental policies on investment in infrastructure; •Adverse changes in federal and state policies regarding the allocation of funds to local and regional agencies; •The impact of present or future environmental legislation and compliance with environmental laws and other regulatory requirements; •Changes in real estate tax rates and assessments; •Increases in interest rates and changes in the availability, cost and terms of financing; •Adverse changes in other governmental rules and fiscal policies; and •Earthquakes and other natural disasters, which can cause uninsured losses, and other factors which are beyond our control.19 Table of Contents Any of these factors could adversely affect the demand for our services, which could have a material adverse effect on our business, results of operationsand financial condition.Changes in the local and regional economies of California could have a material adverse effect on our business, financial condition and results ofoperations. Adverse economic and other conditions affecting the local and regional economies of California may reduce the demand for our services, which couldhave a material adverse effect on our business, financial condition and results of operations. During fiscal year 2012, approximately 68% of our contractrevenue was derived from services rendered to public agencies, utilities, and private industry in California. California experienced an economic downturn infiscal 2009, which negatively impacted our revenue and profitability and continues to negatively impact revenues in our Engineering Services and PublicFinance Services segments. Any future downturns could have similar significant adverse impacts on our results of operations.Our revolving credit agreement with Wells Fargo Bank, National Association ("Wells Fargo") is scheduled to expire on April 1, 2013 and we arecurrently in breach of some of the covenants under our credit facility. We may not be able to renew our credit facility and have access to funds under it. Itmay be difficult and we may not be able to obtain other capital when desired on favorable terms, if at all, or without dilution to our stockholders, whichmay impact our ability to execute on our current or future business strategies. As of December 28, 2012, we had borrowed $3.0 million of the $5.0 million available under our revolving credit facility with Wells Fargo, but ourability to borrow additional funds under our revolving credit facility is currently subject to Wells Fargo's discretion because we were in breach of certaincovenants at December 28, 2012. In addition, the revolving credit facility is scheduled to expire on April 1, 2013. Wells Fargo may also refuse to renew thefacility when it expires on April 1, 2013 and if they do so, we will have to repay the outstanding balance of $3.0 million. As of December 28, 2012, webreached the net income covenant in our revolving credit facility because we did not have net income of at least $250,000 measured on a rolling four quarterbasis and we had sustained net losses during two consecutive quarters within the last year. Additionally, our ratio of total funded debt to EBITDA exceeds thelimits permitted under the credit agreement. Because of these covenant breaches, Wells Fargo also could choose to increase the interest rate by 4.0%, makethe loans outstanding under the credit agreement immediately due and payable, and/or terminate its commitments to us under the credit agreement. Althoughwe are seeking a waiver for these covenant breaches and are seeking to extend the maturity of the line of credit, Wells Fargo is not obligated to provide anywaiver for current or future covenant breaches or modify the terms of the credit agreement. In the course of obtaining such waivers or modifications or anextension to our credit facility, Wells Fargo may require modifications to the facility on terms that are not favorable to us. See "Management's Discussion andAnalysis of Financial Condition and Results of Operation—Outstanding Indebtedness." While we anticipate that our current cash, cash equivalents and cash provided by operating activities will be sufficient to meet our current andanticipated needs for general corporate purposes during the next 12 months without borrowings from our revolving credit facility, it is possible that we maynot generate sufficient cash flow from operations or otherwise have the capital resources to meet our future capital needs. If we do not generate sufficient cashflow from operations or otherwise, we may need additional financing to execute on our current or future business strategies, including hiring additionalpersonnel, developing new or enhancing existing service lines, expanding our business geographically, enhancing our operating infrastructure, acquiringcomplementary businesses, or otherwise responding to competitive pressures. We cannot assure you that additional financing will be available to us onfavorable terms, or at all. The financial covenants in our revolving credit agreement also restrict our ability to incur additional indebtedness, which mayimpair our ability to pursue acquisitions or otherwise execute on our business strategies. Furthermore, if we raise additional funds through the issuance ofconvertible debt or equity securities, the percentage ownership of our20 Table of Contentsstockholders could be significantly diluted, and these newly issued securities may have rights, preferences or privileges senior to those of existingstockholders. If adequate funds are not available or are not available on acceptable terms, if and when needed, our ability to fund our operations, meetobligations in the normal course of business, take advantage of strategic opportunities, or otherwise respond to competitive pressures would be significantlylimited.Reductions in state and local government budgets could negatively impact their capital spending and adversely affect our business, financial conditionand results of operations. Several of our state and local government clients are currently facing budget deficits, resulting in smaller budgets and reduced capital spending, whichhas negatively impacted our revenue and profitability. Our state and local government clients may continue to face budget deficits that prohibit them fromfunding new or existing projects. In addition, existing and potential clients may either postpone entering into new contracts or request price concessions. Ifwe are not able to reduce our costs quickly enough to respond to the revenue decline from these clients that may occur, our operating results would beadversely affected. Accordingly, these factors affect our ability to accurately forecast our future revenue and earnings from business areas that may beadversely impacted by market conditions.We depend on a limited number of clients for a significant portion of our business. Our largest client, Consolidated Edison Company of New York, accounted for approximately 21% of our consolidated contract revenue in fiscal 2012and 28% in fiscal 2011. Prior to July 2012, this revenue primarily related to a contract we entered into in fiscal 2009 with Consolidated Edison, which hasterminated. We entered into a new contract with Consolidated Edison in July 2012, but this contract is for fewer services than the 2009 contract withConsolidated Edison. Our top five customers collectively accounted for approximately 45% of our revenue in fiscal 2012. The loss of, or reduction in ordersfrom, these clients could have a material adverse effect on our business, financial condition and results of operations.Legislation may be enacted that limits the ability of state, regional or local agencies to contract for our privatized services. Such legislation would affectour ability to obtain new contracts and may decrease the demand for our services. Legislation is proposed periodically, particularly in the state of California, that attempts to limit the ability of governmental agencies to contract withprivate consultants to provide services. Should such legislation pass and be upheld, demand for our services may be materially adversely affected. Duringfiscal year 2012, approximately 54% of our contract revenue was derived from services rendered to public agencies, including public utilities, in California.While attempts at such legislation have failed in the past, such measures could be adopted in the future.State and other public employee unions may bring litigation that seeks to limit the ability of public agencies to contract with private firms to performgovernment employee functions in the area of public improvements. Judicial determinations in favor of these unions could affect our ability to compete forcontracts and may have an adverse effect on our revenue and profitability. For more than 20 years, state and other public employee unions have challenged the validity of propositions, legislation, charters and other governmentregulations that allow public agencies to contract with private firms to provide services in the fields of engineering, design and construction of publicimprovements that might otherwise be provided by public employees. These challenges could have the effect of eliminating, or severely restricting, theability of municipalities to hire private firms for the purpose of designing and constructing public improvements, and otherwise require them to use unionemployees to perform the services.21 Table of Contents For example, the Professional Engineers in California Government, or PECG, a union representing state civil service employees, began challengingCaltrans' hiring of private firms in 1986, and in 2002 began a judicial challenge of Caltrans' hiring practices based on Caltrans' interpretation of the effect ofProposition 35 (Professional Engineers in California Government, et al. v. Jeff Morales, et al.). The California Supreme Court ruled in favor of Caltrans,concluding that Caltrans may hire private contractors to perform architectural and engineering services on public works. Although Caltrans was successful inthis litigation, similar claims may be brought in the future and we cannot predict their outcome. If a state or other public employee union is successful in itschallenge and as a result the ability of state agencies to hire private firms is severely limited, such a decision would likely lead to additional litigationchallenging the ability of the state, counties, municipalities and other public agencies to hire private engineering, architectural and other firms, the outcomeof which could affect our ability to compete for contracts and may have an adverse effect on our revenue and profitability.Changes in elected or appointed officials could have a material adverse effect on our ability to retain an existing contract with or obtain additionalcontracts from a public agency. Since the decision to retain our services is made by individuals, such as city managers, city councils and other elected or appointed officials, ourbusiness and financial results or condition could be adversely affected by the results of local and regional elections. A change in the individuals responsiblefor selecting consultants for and awarding contracts on behalf of a public agency due to an election could adversely affect our ability to retain an existingcontract with or obtain additional contracts from such public agency.Fixed price contracts under which we perform some of our services impose risks to our ability to maintain or grow our profitability. In fiscal year 2012, approximately 17% of our contract revenue was derived from fixed price contracts. Under fixed price contracts, we perform servicesunder a contract at a stipulated price which protects clients but exposes us to a greater number of risks than time-and-materials and unit-based contracts.These risks include:•Underestimation of costs; •Ambiguities in specifications; •Problems with new technologies; •Unforeseen costs or difficulties; •Failures of subcontractors; •Delays beyond our control; and •Economic and other changes that may occur during the contract period. The occurrence of any such risk could have a material adverse effect on our results of operations or financial condition.Because we primarily provide services to municipalities, public utilities and other public agencies, we are more susceptible to the unique risks associatedwith government contracts. We primarily work for municipalities, public utilities and other public agencies. Consequently, we are exposed to certain risks associated withgovernment contracting, any one of which can have a material adverse effect on our business, financial condition or results of operations. These risks include:•The ability of the public agency to terminate the contract with 30 days' prior notice or less;22 Table of Contents•Changes in government spending and fiscal policies which can have an adverse effect on demand for our services; •Contracts that are subject to government budget cycles, and often are subject to renewal on an annual basis; •The often wide variation of the types and pricing terms of contracts from agency to agency; •The difficulty of obtaining change orders and additions to contracts; and •The requirement to perform periodic audits as a condition of certain contract arrangements.Changes in the perceived risk of acts of terrorism or natural disasters could have a material adverse effect on our ability to grow our Homeland SecurityServices business. If there is a significant decrease in the perceived risk of the likelihood that one or more acts of terrorism will be conducted in the United States, or asignificant decrease in the perceived risk of the occurrence of natural disasters, our ability to grow and generate revenue through our Homeland SecurityServices segment, could be negatively affected. Our Homeland Security Services segment provides training and consulting services to local and regionalagencies related to preparing for and responding to incidents of terrorism and natural disaster. Should the perceived risk of such incidence decline, federaland state funding for homeland security and emergency preparedness could be reduced, which might decrease demand for our services and have a materialadverse effect on our business, financial condition and results of operations.The loss of certain of our key executives could adversely affect our business, including our ability to secure and complete engagements and attract andretain employees. Our success is highly dependent upon the efforts, talents, abilities, marketing skills and operational execution of our key executives and managers.Between 2006 and 2008 we experienced significant turnover in our management team. Any future losses of our management team or key employees couldhave a material adverse effect on our business, including the ability to secure or complete contracts and to attract and retain additional employees.Our ability to grow and compete in our industry will be hampered if we are unable to retain the continued service of our key employees or to identify, hireand retain additional qualified employees. A critical factor to our business is our ability to attract and retain qualified employees. We are continually at risk of losing current employees or beingunable to hire additional employees as needed. If we are unable to attract new qualified employees, our ability to grow will be adversely affected. If we areunable to retain current employees, our financial condition and results of operations may be adversely affected, including as a result of our former employeescompeting against us for contracts.We operate in a highly fragmented industry, and we may not be able to compete effectively with our larger competitors. The market for engineering and planning, energy efficiency, economic and financial consulting and national preparedness and interoperability servicesis competitive and highly fragmented. Contract awards are based primarily on quality of service, relevant experience, staffing capabilities, reputation,geographic presence, stability and price. Some of our competitors in certain service areas have more personnel and greater financial, technical and marketingresources than us. In particular, our competitors for engineering related services, which represented approximately 36% and 32% of our contract revenue forfiscal years 2012 and 2011, respectively, include many larger consulting firms such as AECOM Technology Corporation, CH2M Hill, Jacobs EngineeringGroup Inc. and Tetra Tech, Inc. Our energy efficiency and sustainability consulting services, which represented approximately 49% and23 Table of Contents54% of our contract revenue for fiscal years 2012 and 2011, respectively, competes with larger energy efficiency consulting firms such as ICF International,KEMA (A Division of the DNV Group), and Nexant, Inc. In certain public finance consulting services, we may compete with large accounting firms. We canoffer no assurance that we will be able to compete successfully in the future with these or other competitors.Our services may expose us to liability in excess of our current insurance coverage, which may have a material adverse effect on our liquidity. Our services involve significant risks of professional and other liabilities, which may substantially exceed the fees we derive from our services. Inaddition, from time to time, we assume liabilities as a result of indemnification provisions contained in our service contracts. We cannot predict themagnitude of these potential liabilities. We currently maintain general liability insurance, with coverage in the amount of $1.0 million per occurrence, subject to a $2.0 million generalaggregate limit; and professional liability insurance, with $5.0 million in coverage per claim, and a $10.0 million annual aggregate limit. We also carryexcess coverage of an additional $10.0 million for general, automobile and employer's liability claims. Claims may be made against us that exceed theselimits. We are liable to pay claims from our assets if and when the aggregate settlement or judgment amount exceeds our policy limits. Our professionalliability policy is a "claims made" policy. Thus, only claims made during the term of the policy are covered. If we terminate our professional liability policyand do not obtain retroactive coverage, we would be uninsured for claims made after termination even if these claims are based on events or acts that occurredduring the term of the policy. Further, our insurance may not protect us against liability because our policies typically have various exceptions to the claimscovered and also require us to assume some costs of the claim even though a portion of the claim may be covered. In addition, if we expand into new markets,we may not be able to obtain insurance coverage for these new activities or, if insurance is obtained, the dollar amount of any liabilities incurred couldexceed our insurance coverage. A partially or completely uninsured claim, if successful and of significant magnitude, could have a material adverse effect onour liquidity.We have increasingly relied on subconsultants. The quality of our service and our ability to perform under some of our contracts would be adverselyaffected if qualified subconsultants are unavailable for us to engage. Under some of our contracts, we rely on the efforts and skills of subconsultants for the performance of some of the tasks. Subconsultant costs comprisedapproximately 38% of our contract revenue in fiscal 2012. Our use of subconsultants has increased in recent years primarily because our subsidiary WilldanEnergy Solutions generally utilizes a higher percentage of subconsultants than our other subsidiaries. The absence of qualified subconsultants with whom wehave a satisfactory relationship could adversely affect the quality of our service offerings and therefore our financial results. Additionally, we may havedisputes with our subconsultants arising from, among other things, the quality and timeliness of work performed by the subconsultant or client concernsabout the subconsultant.Potential future acquisitions could be difficult to integrate, divert the attention of key personnel, disrupt our business, dilute stockholder value and impairour financial results. As part of our business strategy, we intend to consider acquisitions of companies that are complementary to our business. Appropriate acquisitions couldallow us to expand into new geographical locations, offer new services, or acquire additional talent. Accordingly, our future performance will be impacted byour ability to identify appropriate businesses to acquire, negotiate favorable terms for such acquisitions and then effectively and efficiently integrate suchacquisitions into our existing businesses. There is no certainty that we will succeed in such endeavors.24 Table of Contents Acquisitions involve numerous risks, any of which could harm our business, including:•Difficulties in integrating the operations, technologies, products, existing contracts, accounting and personnel of the target company andrealizing the anticipated synergies of the combined businesses; •Difficulties in supporting and transitioning customers, if any, of the target company; •Diversion of our financial and management resources from existing operations; •The price we pay or other resources that we devote may exceed the value we realize, or the value we could have realized if we had allocatedthe purchase price or other resources to another opportunity; •Risks of entering new markets in which we have limited or no experience; •Potential loss of key employees, customers and strategic alliances from either our current business or the target company's business; •Assumption of unanticipated problems or latent liabilities, such as problems with the quality of the target company's services; and •Inability to generate sufficient net income to justify the acquisition costs. Acquisitions also frequently result in the recording of goodwill and other intangible assets which are subject to potential impairment in the future thatcould harm our financial results. For example, during fiscal 2012, we recorded an impairment charge of $15.2 million related to goodwill associated with ouracquisition of Intergy Corp in 2008. In addition, if we finance acquisitions by issuing convertible debt or equity securities, our existing stockholders may bediluted, which could lower the market price of our common stock. As a result, if we fail to properly evaluate acquisitions or investments, we may not achievethe anticipated benefits of any such acquisitions, and we may incur costs in excess of amounts that we anticipate.We have incurred, and will continue to incur, significant costs as a public company. As a public company, we incur significant legal, accounting and other expenses that we would not incur as a private company such as more costlydirector and officer liability insurance and legal and financial compliance costs. If new rules and regulations for public companies are put in place, ourcompliance costs may increase further and make some activities more time-consuming and costly.The price of our common stock has fluctuated significantly in the past year and may continue to be volatile, which may make it difficult for you to resellyour common stock when you want or at prices you find attractive. The price of our common stock is volatile and may fluctuate significantly. For example, during our fiscal year ended December 28, 2012, the price of ourstock ranged from a high of $4.10 per share to a low of $1.16 per share. We cannot assure you as to the prices at which our common stock will trade or that anactive trading market in our common stock will be sustained in the future. In addition to the matters discussed in other risk factors included herein, some ofthe reasons for fluctuations in our stock price could include:•our operating and financial performance and prospects; •the depth and liquidity of the market for our common stock; •investor perception of us and the industry in which we operate; •the level, or lack thereof, of research coverage of our common stock;25 Table of Contents•general financial, domestic, international, economic and other market conditions; •proposed acquisitions by us or our competitors; •the hiring or departure of key personnel; and •adverse judgments or settlements obligating us to pay damages. In addition, public stock markets have experienced, and may in the future experience, extreme price and trading volume volatility. This volatility hassignificantly affected the market prices of securities of many companies, including our peer companies. These broad market fluctuations may adversely affectthe market price of our common stock.The concentration of ownership of our stock may delay or prevent a change of control of our company or changes in our management, and as a result mayhinder the ability of our stockholders to take advantage of a premium offer. The concentration of ownership of our stock may have the effect of delaying or preventing a change in control of the company or a change in ourmanagement and may adversely affect the voting or other rights of other holders of our common stock. As of March 18, 2013, our directors and executiveofficers beneficially own 852,158 shares of common stock, or approximately 10.9% of our outstanding common stock Wedbush, Inc. beneficially owns800,189 shares, or approximately 10.9% of our outstanding common stock, and Perlus Microcap Funds, L.P. beneficially owns 729,600 shares, orapproximately 10.0% of our outstanding common stock.Cautionary Statement Regarding Forward-Looking Information In addition to current and historical information, this report contains forward-looking statements within the meaning of the Private Securities LitigationReform Act of 1995. These statements relate to our future operations, prospects, potential products, services, developments and business strategies. Thesestatements can, in some cases, be identified by the use of words like "may," "will," "should," "could," "would," "intend," "expect," "plan," "anticipate,""believe," "estimate," "predict," "project," "potential," or "continue" or the negative of such terms or other comparable terminology. This report includes,among others, forward-looking statements regarding our:•Expectations about future customers; •Expectations about expanded service offerings; •Expectations about our ability to cross-sell additional services to existing clients; •Expectations about our intended geographical expansion; •Expectations about our ability to attract executive officers and key employees; •Evaluation of the materiality of our current legal proceedings; and •Expectations about positive cash flow generation and existing cash and cash equivalents being sufficient to meet normal operatingrequirements. These statements involve certain known and unknown risks and uncertainties that could cause our actual results to differ materially from those expressedor implied in our forward-looking statements. Such risks and uncertainties include, among others, those listed in this section. We do not intend, andundertake no obligation, to update any of our forward-looking statements after the date of this report to reflect actual results or future events or circumstances. ITEM 1B. UNRESOLVED STAFF COMMENTS None.26 Table of Contents ITEM 2. PROPERTIES Our corporate headquarters are located in approximately 38,000 square feet of office space that we lease at 2401 East Katella Avenue, Anaheim,California. In addition, we lease office space in 26 other locations principally in California, New York and Arizona. In total, our facilities containapproximately 147,000 square feet of office space and are subject to leases that expire through January 2016. We rent a small portion of this space on amonth-to-month basis. We believe that our existing facilities are adequate to meet current requirements and that suitable additional or substitute space willbe available as needed to accommodate any expansion of operations and for additional offices. ITEM 3. LEGAL PROCEEDINGS We are subject to claims and lawsuits from time to time, including those alleging professional errors or omissions that arise in the ordinary course ofbusiness against firms, like ours, that operate in the engineering and consulting professions. We carry professional liability insurance, subject to certaindeductibles and policy limits, for such claims as they arise and may from time to time establish reserves for litigation that is considered probable of a loss. In accordance with accounting standards regarding loss contingencies, we accrue an undiscounted liability for those contingencies where the incurrenceof a loss is probable and the amount can be reasonably estimated, and we disclose the amount accrued and an estimate of any reasonably possible loss inexcess of the amount accrued, if such disclosure is necessary for our financial statements not to be misleading. We do not accrue liabilities when thelikelihood that the liability has been incurred is probable but the amount cannot be reasonably estimated, or when the liability is believed to be onlyreasonably possible or remote. Because litigation outcomes are inherently unpredictable, our evaluation of legal proceedings often involves a series of complex assessments bymanagement about future events and can rely heavily on estimates and assumptions. If the assessments indicate that loss contingencies that could be materialto any one of our financial statements are not probable, but are reasonably possible, or are probable, but cannot be estimated, then we disclose the nature ofthe loss contingencies, together with an estimate of the possible loss or a statement that such loss is not reasonably estimable. While the consequences ofcertain unresolved proceedings are not presently determinable, and a reasonable estimate of the probable and reasonably possible loss or range of loss inexcess of amounts accrued for such proceedings cannot be made, an adverse outcome from such proceedings could have a material adverse effect on ourearnings in any given reporting period. However, in the opinion of our management, after consulting with legal counsel, and taking into account insurancecoverage, the ultimate liability related to current outstanding claims and lawsuits is not expected to have a material adverse effect on our financialstatements. ITEM 4. MINE SAFETY DISCLOSURES Not applicable.27 Table of Contents PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OFEQUITY SECURITIES Market Information for Common Stock Since November 21, 2006, the common stock of Willdan Group, Inc. has been listed and traded on the Nasdaq Global Market under the symbol "WLDN".The following table sets out the high and low daily closing sale prices as reported on the NASDAQ Global Market for fiscal years 2012 and 2011. Thesereported prices reflect inter-dealer prices without adjustments for retail markups, markdowns, or commissions. On March 18, 2013, the closing sales price per share of our common stock, as reported on the Nasdaq Global Market, was $2.12.Stockholders As of March 18, 2013, there were 132 stockholders of record of our common stock.Dividends We did not declare or pay cash dividends on our common stock in fiscal years 2012 and 2011. Our revolving credit agreement prohibits the payment ofany dividend or distribution on our common stock either in cash, stock or any other property without the lender's consent.Recent Sales of Unregistered Securities In the three years preceding the filing of this report, we have not issued any securities in transactions that were not registered under the Securities Act.Issuer Purchases of Equity Securities None.28 2012 2011 High Low High Low 1st Quarter $4.10 $3.51 $4.89 $3.86 2nd Quarter $3.70 $1.42 $4.40 $3.83 3rd Quarter $1.79 $1.16 $4.10 $3.72 4th Quarter $2.25 $1.49 $4.13 $3.76 Table of Contents ITEM 6. SELECTED FINANCIAL DATA The financial data set forth below should be read in conjunction with our corresponding consolidated financial statements and notes thereto andManagement's Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this annual report.29 Fiscal Year 2012 2011 2010 2009 2008 (in thousands except per share amounts) Consolidated Statement of Operations Data: Contract revenue $93,443 $107,165 $77,896 61,605 $73,190 Direct costs of contract revenue (exclusive of depreciation andamortization shown separately below): Salaries and wages 23,218 25,714 21,607 18,130 21,991 Subconsultant services and other direct costs 35,741 39,013 20,415 10,712 10,723 Total direct costs of contract revenue 58,959 64,727 42,022 28,842 32,714 General and administrative expenses: Salaries and wages, payroll taxes, employee benefits 22,421 22,594 17,582 20,325 24,439 Facilities and facility related 4,871 4,875 4,290 4,430 4,803 Stock-based compensation 227 201 235 272 214 Depreciation and amortization 671 877 1,042 1,814 1,978 Lease abandonment (recovery), net 26 2 (68) 707 742 Impairment of goodwill 15,208 — — 2,763 148 Litigation accrual (reversal) — — — (1,125) — Other 10,315 10,488 9,719 11,070 10,952 Total general and administrative expenses 53,739 39,037 32,800 40,256 43,276 (Loss) income from operations (19,255) 3,401 3,074 (7,493) (2,800) Other (expense) income: Interest income 6 5 12 30 313 Interest expense (106) (77) (54) (38) (33)Other, net (28) 1 32 (5) (15) Total other (expense) income, net (128) (71) (10) (13) 265 (Loss) income before income tax expense (19,383) 3,330 3,064 (7,506) (2,535)Income tax (benefit) expense (2,083) 1,500 344 (1,931) (930) Net (loss) income $(17,300)$1,830 $2,720 $(5,575)$(1,605) (Loss) earnings per common share: Basic $(2.37)$0.25 $0.38 $(0.78)$(0.22) Diluted $(2.37)$0.24 $0.37 $(0.78)$(0.22) Weighted average common shares outstanding: Basic 7,310 7,262 7,233 7,192 7,159 Diluted 7,310 7,485 7,311 7,192 7,159 Other Operating Data (unaudited): Adjusted EBITDA(1) $(3,294)$4,350 $4,074 $(3,333)$68 Employee headcount at period end(2) 534 562 540 466 550 Table of Contents30 Fiscal Year Ended December 28,2012 December 30,2011 December 31,2010 January 1,2010 January 2,2009 Consolidated Balance Sheet Data: Cash and cash equivalents $10,006 $3,001 $6,642 $8,445 $8,144 Working capital 13,099 13,083 18,060 16,704 19,820 Total assets 41,977 64,311 49,454 40,332 47,570 Total indebtedness 3,904 1,232 1,490 1,230 394 Total stockholders' equity 17,351 34,293 32,162 29,117 34,336 (1)Adjusted EBITDA is a supplemental measure used by our management to measure our operating performance. We define AdjustedEBITDA as net (loss) income plus net interest expense, income tax (benefit) expense, depreciation and amortization, goodwillimpairment and other non-recurring income and expense items occurring in such period. Our definition of Adjusted EBITDA maydiffer from those of many companies reporting similarly named measures. This measure should be considered in addition to, and not asa substitute for or superior to, other measures of financial performance prepared in accordance with U.S. generally accepted accountingprinciples, or GAAP, such as operating income and net income. We believe Adjusted EBITDA enables management to separate non-recurring income and expense items from our results of operations to provide a more normalized and consistent view of operatingperformance on a period-to-period basis. We use Adjusted EBITDA to evaluate our performance for, among other things, budgeting,forecasting and incentive compensation purposes. We also believe Adjusted EBITDA is useful to investors, research analysts,investment bankers and lenders because it removes the impact of certain non-recurring income and expense items from our operationalresults, which may facilitate comparison of our results from period to period. Adjusted EBITDA is not a recognized term under GAAP and does not purport to be an alternative to operating income or net incomeas an indicator of operating performance or any other GAAP measure The following is a reconciliation of net (loss) income to Adjusted EBITDA (in thousands): Fiscal Year 2012 2011 2010 2009 2008 Net (loss) income $(17,300)$1,830 $2,720 $(5,575)$(1,605)Interest income (6) (5) (12) (30) (313)Interest expense 106 77 54 38 33 Income tax (benefit) expense (2,083) 1,500 344 (1,931) (930)Lease abandonment expense (recovery) 26 2 (68) 707 742 Impairment of goodwill 15,208 — — 2,763 148 Depreciation and amortization 737 944 1,053 1,814 1,978 Loss (gain) on sale of assets 18 2 (17) 6 15 Litigation reversal — — — (1,125) — Adjusted EBITDA $(3,294)$4,350 $4,074 $(3,333)$68 (2)Includes full-time and part-time employees. Table of Contents ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview We are a provider of professional technical and consulting services to public agencies at all levels of government, public and private utilities, andcommercial and industrial firms. We enable these entities to provide a wide range of specialized services without having to incur and maintain the overheadnecessary to develop staffing in-house. We assist our clients with a broad range of complementary services relating to:•Engineering and Planning; •Energy Efficiency and Sustainability; •Economic and Financial Consulting; and •National Preparedness and Interoperability. We operate our business through a network of offices located primarily in California and New York. We also have operations in Arizona, Florida, Texas,Washington and Washington, DC. As of December 28, 2012, we had a staff of 534 which includes licensed engineers and other professionals. Historically,our clients have primarily been public agencies in communities with populations ranging from 10,000 to 300,000 people. We believe communities of thissize are underserved by large outsourcing companies that tend to focus on securing large federal and state projects, as well as projects for the private sector.Recently, we have begun to provide increased services to public and private utilities that service major metropolitan communities and commercial andindustrial firms, particularly in connection with the growth of our energy efficiency and sustainability services. We seek to establish close workingrelationships with our clients and expand the breadth and depth of the services we provide to them over time. While we currently serve communities throughout the country, our business with public agencies is concentrated in California and Arizona. We provideservices to approximately 57% of the 482 cities and approximately 52% of the 58 counties in California. We also serve special districts, school districts, arange of public agencies and private industry. Our business with public and private utilities is concentrated in California and New York. We were founded in 1964 and Willdan Group, Inc., a Delaware corporation, was formed in 2006 to serve as our holding company. We consist of a familyof wholly owned companies that operate within the following segments for financial reporting purposes:•Engineering Services. Our Engineering Services segment includes the operations of our subsidiaries, Willdan Engineering and Public AgencyResources ("PARs"). Willdan Engineering provides civil engineering-related and city planning services to our clients. PARs primarilyprovides staffing to Willdan Engineering. Contract revenue for the Engineering Services segment represented approximately 36% and 32% ofour overall consolidated contract revenue for fiscal years 2012 and 2011, respectively. •Energy Efficiency Services. Our Energy Efficiency Services segment consists of the business of our subsidiary, Willdan Energy Solutions,which offers energy efficiency and sustainability consulting services to utilities, public agencies and private industry. This segment iscurrently our largest segment based on contract revenue, representing approximately 49% and 54% of our consolidated contract revenue forfiscal years 2012 and 2011, respectively. •Public Finance Services. Our Public Finance Services segment consists of the business of our subsidiary, Willdan Financial Services, whichoffers economic and financial consulting services to public agencies. Contract revenue for the Public Finance Services segment represented31 Table of Contentsapproximately 11% and 9% of our consolidated contract revenue for fiscal years 2012 and 2011, respectively.•Homeland Security Services. Our Homeland Security Services segment consists of the business of our subsidiary, Willdan HomelandSolutions, which offers national preparedness and interoperability services and communications and technology solutions. Contract revenuefor our Homeland Security Services segment represented approximately 4% and 5% of our consolidated contract revenue for fiscal years 2012and 2011, respectively. In fiscal 2008 and 2009, general economic conditions declined due to a number of factors including slower economic activity, a lack of available credit,decreased consumer confidence and reduced corporate profits and capital spending, leading to a slowdown in construction, particularly residential housingconstruction, in the western United States. As a result of this slowdown, both our Engineering Services segment and Public Finance services segment suffereddeclines in revenue and operating margin compression. While economic conditions improved from fiscal 2010 through 2012, the recovery has been slow,particularly with regard to our traditional engineering services and public finance services. While our profitability increased in fiscal 2010 and 2011 as aresult of increased revenue from our Energy Efficiency Services segment, our profitability in fiscal 2012 was severely impacted by a goodwill impairmentcharge related to that segment. Revolving Credit Facility. As of December 28, 2012, we breached the net income covenant under our credit agreement with Wells Fargo because wedid not have net income of at least $250,000 measured on a rolling four quarter basis and we sustained net losses during two consecutive quarters in the pastyear. Additionally, our ratio of total funded debt to EBITDA exceeds the limit permitted under the credit agreement. Because of these covenant breaches, ourability to borrow additional funds under the credit agreement is subject to Wells Fargo's discretion and Wells Fargo could choose to increase the interest rateby 4.0%, make the loans outstanding under the credit agreement immediately due and payable, and/or terminate its commitments to us under the creditagreement. Although we are seeking a waiver for these covenant breaches and extend the maturity of the facility, Wells Fargo is not obligated to provide anywaiver for current or future covenant breaches or modify the terms of the credit agreement. In addition, the revolving credit agreement is scheduled to expireon April 1, 2013. Wells Fargo may also refuse to renew the facility when it expires on April 1, 2013, and if they do so, we will have to repay the outstandingbalance of $3.0 million. See "Management's Discussion and Analysis of Financial Condition and Results of Operation—Outstanding Indebtedness." Impairment Charges. In fiscal 2012, we determined that a quantitative assessment of our goodwill was warranted for the Energy Solutions reportingunit. This assessment indicated that the estimated fair value of such reporting unit was less than its carrying value. For this testing, we weighted the incomeapproach and the market approach at 80% and 20%, respectively. We further determined that all of the remaining goodwill for the Energy Solutions reportingunit was impaired and recognized an impairment charge of $15.2 million.Components of Income and ExpenseContract Revenue We provide our services under contracts, purchase orders or retainer letters. The contracts we enter into with our clients contain three principal types ofpricing provisions: time and materials, unit based, and fixed price. Revenue on our time and materials and unit based contracts are recognized as the work isperformed in accordance with specific terms of the contract. Approximately 33% of our contracts are based on contractual rates per hour plus costs incurred.Some of these contracts include maximum contract prices, but the majority of these contracts are not expected to exceed the maximum. Contract revenue onour fixed price contracts is determined on the percentage of completion method based generally on the ratio of direct costs incurred to date to estimated totaldirect costs at32 Table of Contentscompletion. Many of our fixed price contracts are relatively short in duration, thereby lowering the risks of not properly estimating the percent complete. Adjustments to contract cost estimates are made in the periods in which the facts requiring such revisions become known. When the revised estimateindicates a loss, such loss is recognized currently in its entirety. Claims revenue is recognized only upon resolution of the claim. Change orders in dispute areevaluated as claims. Costs related to un-priced change orders are expensed when incurred and recognition of the related contract revenue is based on anevaluation of the probability of recovery of the costs. Estimated profit is recognized for un-priced change orders if realization of the expected price of thechange order is probable. Our contracts come up for renewal periodically and at the time of renewal may be subject to renegotiation, which could impact the profitability on thatcontract. In addition, during the term of a contract, public agencies may request additional or revised services which may impact the economics of thetransaction. Most of our contracts permit our clients, with prior notice, to terminate the contracts at any time without cause. While we have a large volume oftransactions, the renewal, termination or modification of a contract, in particular our contract with Consolidated Edison, may have a material adverse effecton our consolidated operations.Direct Costs of Contract Revenue Direct costs of contract revenue consist primarily of subconsultant services and that portion of technical and nontechnical salaries and wages that havebeen incurred in connection with revenue producing projects. Direct costs of contract revenue also include production expenses and other expenses that areincurred in connection with revenue producing projects. Direct costs of contract revenue generally exclude depreciation and amortization, that portion oftechnical and nontechnical salaries and wages related to marketing efforts, vacations, holidays and other time not spent directly generating revenue underexisting contracts. Such costs are included in general and administrative expenses. Additionally, payroll taxes, bonuses and employee benefit costs for all ofour personnel are included in general and administrative expenses since no allocation of these costs is made to direct costs of contract revenue. No allocationof facilities costs is made to direct costs of contract revenue nor is depreciation and amortization allocated to direct costs. We expense direct costs of contractrevenue when incurred. As a firm that provides multiple and diverse services, we do not believe gross margin is a consistent or appropriate indicator of our performance andtherefore we do not use this measure as construction contractors and other types of consulting firms may. Other companies may classify as direct costs ofcontract revenue some of the costs that we classify as general and administrative expenses. As a result, our direct costs of contract revenue may not becomparable to direct costs for other companies, either as a line item expense or as a percentage of contract revenue.General and Administrative Expenses General and administrative expenses include the costs of the marketing and support staffs, other marketing expenses, management and administrativepersonnel costs, payroll taxes, bonuses and employee benefits for all of our employees and the portion of salaries and wages not allocated to direct costs ofcontract revenue for those employees who provide our services. General and administrative expenses also include facility costs, depreciation andamortization, professional services, legal and accounting fees and administrative operating costs. Within general and administrative expenses, "Other"includes expenses such as provision for billed or unbilled receivables, professional services, legal and accounting, computer costs, travel and entertainmentand marketing costs. We expense general and administrative costs when incurred.33 Table of ContentsCritical Accounting Policies This discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have beenprepared in accordance with generally accepted accounting principles in the U.S., or GAAP. To prepare these financial statements in conformity with GAAP,we must make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reportedamount of revenue and expenses in the reporting period. Our actual results may differ from these estimates. We have provided a summary of our significantaccounting policies in Note 2 to our consolidated financial statements included elsewhere in this report. We describe below those accounting policies thatrequire material subjective or complex judgments and that have the most significant impact on our financial condition and results of operations. Ourmanagement evaluates these estimates on an ongoing basis, based upon information currently available and on various assumptions management believesare reasonable as of the date of this report.Contract Accounting Applying the percentage-of-completion method of recognizing revenue requires us to estimate the outcome of our long-term contracts. We forecast suchoutcomes to the best of our knowledge and belief of current and expected conditions and our expected course of action. Differences between our estimatesand actual results often occur resulting in changes to reported revenue and earnings. Such changes could have a material effect on our future consolidatedfinancial statements. Accounts receivable are carried at original invoice amount less an estimate made for doubtful accounts based upon our review of all outstandingamounts on a monthly basis. We determine the allowance for doubtful accounts by identifying troubled accounts and by using historical experience appliedto an aging of accounts. Our credit risk is minimal with governmental entities. Accounts receivable are written off when deemed uncollectible. Recoveries ofaccounts receivable previously written off are recorded when received. For further information on the types of contracts under which we perform our services,see "Business—Contract Structure" elsewhere in this report.Goodwill We test our goodwill at least annually for possible impairment. We complete our annual testing of goodwill as of the last day of the first month of ourfourth fiscal quarter each year to determine whether there is impairment. In addition to our annual test, we regularly evaluate whether events andcircumstances have occurred that may indicate a potential impairment of goodwill. We recognized a goodwill impairment charge of $15.2 million related toour Energy Solutions reporting unit during fiscal 2012. Following this impairment charge, none of our reporting units had any goodwill remaining. We didnot recognize any goodwill impairment charges in fiscal years 2011 or 2010. We test our goodwill for impairment at the level of our reporting units, which are components of our operating segments. In September 2011, theFinancial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2011-08 ("ASU 2011-08"), Intangibles—Goodwill and Other(Topic 350): Testing Goodwill for Impairment. This accounting guidance allows companies to perform a qualitative assessment on goodwill impairment todetermine whether a quantitative assessment is necessary. The guidance is for goodwill impairment tests performed in interim and annual periods for fiscalyears beginning after December 15, 2011. The process of testing goodwill for impairment, pursuant to ASU 2011-08, now involves an optional qualitativeassessment on goodwill impairment of our reporting units to determine whether a quantitative assessment is necessary. If a quantitative assessment iswarranted, we then determine the fair value of the applicable reporting units. To estimate the fair value of our reporting units, we use both an incomeapproach based on management's estimates of future cash flows and other market data and a market approach based upon multiples of34 Table of ContentsEBITDA earned by similar public companies. For our annual impairment testing in fiscal 2011, we weighted the income approach and the market approach at80% and 20%, respectively. The income approach was given a higher weight because it has a more direct correlation to the specific economics of thereporting units than the market approach, which is based on multiples of public companies that, although comparable, may not provide the same mix ofservices as our reporting units. Once the fair value is determined, we then compare the fair value of the reporting unit to its carrying value, including goodwill. If the fair value of thereporting unit is determined to be less than the carrying value, we perform an additional assessment to determine the extent of the impairment based on theimplied fair value of goodwill compared with the carrying amount of the goodwill. In the event that the current implied fair value of the goodwill is less thanthe carrying value, an impairment charge is recognized. Inherent in such fair value determinations are significant judgments and estimates, including but not limited to assumptions about our future revenue,profitability and cash flows, our operational plans and our interpretation of current economic indicators and market valuations. To the extent theseassumptions are incorrect or economic conditions that would impact the future operations of our reporting units change, any goodwill may be deemed to beimpaired, and an impairment charge could result in a material adverse effect on our financial position or results of operation. During the second quarter of2012, we determined that a quantitative assessment of our goodwill was warranted for the Energy Solutions reporting unit. This assessment indicated that theestimated fair value of such reporting unit was less than its carrying value. For this testing, we weighted the income approach and the market approach at 80%and 20%, respectively. We further determined that all of the remaining goodwill for the Energy Solutions reporting unit was impaired and recognized animpairment charge of $15.2 million.Accounting for Claims Against the Company We accrue an undiscounted liability related to claims against us for which the incurrence of a loss is probable and the amount can be reasonablyestimated. We disclose the amount accrued and an estimate of any reasonably possible loss in excess of the amount accrued, if such disclosure is necessary forour financial statements not to be misleading. We do not accrue liabilities related to claims when the likelihood that a loss has been incurred is probable butthe amount cannot be reasonably estimated, or when the liability is believed to be only reasonably possible or remote. Losses related to recorded claims areincluded in general and administrative expenses. Determining probability and estimating claim amounts is highly judgmental. Initial accruals and any subsequent changes in our estimates could have amaterial effect on our consolidated financial statements.Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences oftemporary differences between the financial reporting basis and tax basis of our assets and liabilities, subject to a judgmental assessment of recoverability ofdeferred tax assets. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which thosetemporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in incomein the period that includes the enactment date. A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets may notbe realized. We recognize the tax benefit from uncertain tax positions if it is more likely than not that the tax positions will be sustained on examination by the taxauthorities, based on the technical merits of the position. The tax benefit is measured based on the largest benefit that has a greater than 50%35 Table of Contentslikelihood of being realized upon ultimate settlement. We recognize interest and penalties related to unrecognized tax benefits in income tax expense.Results of Operations The following table sets forth, for the periods indicated, certain information derived from our consolidated statements of operations expressed as apercentage of contract revenue. Amounts may not add to the totals due to rounding.Fiscal Year 2012 Compared to Fiscal Year 2011 Contract revenue. Our contract revenue was $93.4 million for the fiscal year ended December 28, 2012, with $34.0 million attributable to theEngineering Services segment, $45.5 million attributable to the Energy Efficiency Services segment, $9.8 million attributable to the Public Finance Servicessegment, and $4.1 million attributable to the Homeland Security Services segment. Consolidated contract revenue decreased $13.7 million, or 12.8%, to$93.4 million for the fiscal year ended December 28, 2012 from $107.2 million in the fiscal year ended December 30, 2011. This decrease was due primarilyto a decrease of $12.2 million, or 21.1%, in contract revenue for the Energy Efficiency Services segment. Contract revenue for the Engineering Servicessegment increased by $0.2 million, or 0.5%, to $34.0 million for the fiscal year ended December 28, 2012 from $33.9 million for the fiscal36 Fiscal Year 2012 2011 2010 Statement of Operations Data: Contract revenue 100.0% 100.0% 100.0% Direct costs of contract revenue (exclusive of depreciation and amortization shown separatelybelow) Salaries and wages 24.8 24.0 27.7 Subconsultant services and other direct costs 38.2 36.4 26.2 Total direct costs of contract revenue 63.1 60.4 53.9 General and administrative expenses: Salaries and wages, payroll taxes, employee benefits 24.0 21.1 22.6 Facilities and facility related 5.2 4.5 5.5 Stock-based compensation 0.2 0.2 0.3 Depreciation and amortization 0.7 0.8 1.3 Lease abandonment (recovery), net — — (0.1)Impairment of goodwill 16.3 — — Other 11.0 9.8 12.5 Total general and administrative expenses 57.5 36.4 42.1 (Loss) income from operations (20.6) 3.2 3.9 Other (expense) income: Interest income — — — Interest expense (0.1) (0.1) (0.1)Other, net — — — Total other (expense) income, net (0.1) (0.1) — (Loss) income before income taxes (20.7) 3.1 3.9 Income tax (benefit) expense (2.2) 1.4 0.4 Net (loss) income (18.5)% 1.7% 3.5% Table of Contentsyear ended December 30, 2011. Contract revenue in the Homeland Security Services segment decreased by $1.8 million, or 30.7%, to $4.1 million for thefiscal year ended December 28, 2012 from $5.9 million for the fiscal year ended December 30, 2011. Contract revenue for our Public Finance Servicessegment increased by $0.1 million, or 1.0%, to $9.8 million for the fiscal year ended December 28, 2012 from $9.7 million for the fiscal year endedDecember 30, 2011. Contract revenue for the Energy Efficiency Services segment decreased primarily as a result of a decrease in the direct installation of energy efficiencymeasures from the energy efficiency audits in New York and California and delays in the renewal of contracts for such services in those states. Revenue in theHomeland Security Services segment decreased due to lower levels of activity in the traditional planning, training and exercise consulting services business.Contract revenue for the Engineering Services segment continues to be impacted by the decline in the California residential housing market and state andlocal government budget cuts. Direct costs of contract revenue. Direct costs of contract revenue were $59.0 million for the fiscal year ended December 28, 2012, with $18.8 millionattributable to the Engineering Services segment, $34.6 million attributable to the Energy Efficiency Services segment, $3.4 million attributable to thePublic Finance Services segment, and $2.2 million attributable to the Homeland Security Services segment. Overall, direct costs of contract revenuedecreased by $5.8 million, or 8.9%, to $59.0 million for the fiscal year ended December 28, 2012 from $64.7 million for the fiscal year ended December 30,2011. This decrease is primarily attributable to a decrease in direct costs within our Energy Efficiency Services segment of $6.4 million, or 15.7%, as a resultof delays in the renewal of contracts for the provision of these services. Direct costs of contract revenue also decreased by $0.8 million, or 26.3%, in ourHomeland Solutions Services segment. These decreases were partially offset by increases of $1.1 million, or 6.0%, and $0.4 million, or 12.8%, respectively, inour Engineering Services and Public Finance Services segments. Direct costs of contract revenue as a percentage of contract revenue for the fiscal year endedDecember 28, 2012 increased to 63.1% from 60.4% for the fiscal year ended December 30, 2011. Direct costs decreased primarily as a result of decreases in salaries and wages and subconsultant services and other direct costs of $2.5 million and$3.3 million, respectively. Salaries and wages categorized as direct costs of contract revenue decreased as a result of decreased chargeability of labor anddecreased headcount. Salaries and wages as a percentage of contract revenue remained relatively constant in the 2012 period as compared to the 2011 period.Subconsultant services and other direct costs increased to 38.2% of contract revenue for the fiscal year ended December 28, 2012 from 36.4% of contractrevenue for the fiscal year ended December 30, 2011. Subconsultant costs declined because of a reduction in activity within our Energy Efficiency Servicessegment as a result of delays in the renewal of contracts for the provision of energy efficiency related projects. General and administrative expenses. General and administrative expenses increased by $14.7 million, or 37.7%, to $53.7 million for the fiscal yearended December 28, 2012 from $39.0 million for the fiscal year ended December 30, 2011. This was due primarily to an increase of $16.8 million in thegeneral and administrative expenses of the Energy Efficiency Services segment, partially offset by decreases of $0.3 million, $0.1 million and $1.0 million inthe general and administrative expenses of the Engineering Services, Public Finance Services and Homeland Security Services segments, respectively.Unallocated corporate expenses decreased by $0.7 million. General and administrative expenses as a percentage of contract revenue increased to 57.5% forthe fiscal year ended December 28, 2012 from 36.4% for the fiscal year ended December 30, 2011. The increase in general and administrative expenses primarily resulted from a $15.2 million goodwill impairment charge we recognized relating to ourEnergy Efficiency Services segment. See "—Components of Income and Expense—Goodwill." General and administrative expenses for the fiscal year endedDecember 28, 2012 also included decreases of $0.2 million from salaries and wages, payroll37 Table of Contentstaxes and employee benefits, $0.2 million as a result of a decrease in depreciation and amortization charges, and $0.1 million from other general andadministrative expenses. (Loss) income from operations. As a result of the above factors, our operating loss was $19.3 million for the fiscal year ended December 28, 2012 ascompared to operating income of $3.4 million for the fiscal year ended December 30, 2011. Loss from operations, as a percentage of contract revenue, was20.6% for the fiscal year ended December 28, 2012, while income from operations, as a percentage of contract revenue, was 3.2% for the fiscal year endedDecember 30, 2011. Other (expense) income. Other expense was $128,000 for the fiscal year ended December 28, 2012 as compared to other expense of $71,000 for thefiscal year ended December 30, 2011. The increase is primarily the result of higher interest expense due to increased borrowings under our line of credit. Income tax (benefit) expense. We recorded an income tax benefit of $2.1 million for the fiscal year ended December 28, 2012, as compared to anincome tax expense of $1.5 million for the fiscal year ended December 30, 2011. The income tax benefit is attributable to the $15.2 million of goodwillimpairment included in our pretax loss for the fiscal year ended December 28, 2012, offset by a valuation allowance of $5.5 million due to the uncertainty ofrealization of net deferred tax assets after the reduction of deferred tax liabilities associated with the goodwill impairment. The effective tax rates for the fiscalyear ended December 28, 2012 differ from the U.S. tax statutory rate of 35% primarily due to state income tax rates, permanent items that are not deductiblefor U.S. tax purposes, and the establishment of the valuation allowance during the fiscal year ended December 28, 2012. For further discussion of our incometax provision, see Note 12 "—Income Taxes" of notes to our consolidated financial statements. Net (loss) income. As a result of the above factors, our net loss was $17.3 million for the fiscal year ended December 28, 2012, compared to net incomeof $1.8 million for the fiscal year ended December 30, 2011.Fiscal Year 2011 Compared to Fiscal Year 2010 Contract revenue. Our contract revenue was $107.2 million for the fiscal year ended December 30, 2011, with $33.9 million attributable to theEngineering Services segment, $57.7 million attributable to the Energy Efficiency Services segment, $9.7 million attributable to the Public Finance Servicessegment, and $5.9 million attributable to the Homeland Security Services segment. Consolidated contract revenue increased $29.3 million, or 37.6%, to$107.2 million for the fiscal year ended December 30, 2011 from $77.9 million in the fiscal year ended December 31, 2010. This increase was due primarilyto an increase of $28.6 million, or 97.6%, in contract revenue of the Energy Efficiency Services segment as a result of the increase in demand for the energyefficiency, sustainability and renewable energy services of our subsidiary, Willdan Energy Solutions. Contract revenue for the Engineering Services segmentincreased $0.8 million, or 2.5%, to $33.9 million for the fiscal year ended December 30, 2011 from $33.0 million for the fiscal year ended December 31,2010. Contract revenue in the Homeland Security Services segment increased $0.6 million, or 11.1%, to $5.9 million for the fiscal year ended December 30,2011 from $5.3 million for the fiscal year ended December 31, 2010. Contract revenue for our Public Finance Services segment decreased $0.7 million, or6.5%, to $9.7 million for the fiscal year ended December 30, 2011 from $10.4 million for the fiscal year ended December 31, 2010. Contract revenue for the Energy Efficiency Services segment increased primarily because of increased demand for energy efficiency services in the statesof California and New York. The increase in contract revenue for Willdan Energy Solutions includes a settlement of $0.9 million from a subcontractor.Contract revenue for the Engineering Services segment continues to be impacted by the decline in the California residential housing market and state andlocal government budget cuts. A38 Table of Contentssource of revenue in our Engineering Services segment is fees assessed for building permits. Since the second half of fiscal 2007, we have experiencedreductions in revenue from these fees because of the slowdown in residential construction in the western United States, and a decline in our other buildingand safety projects which is both directly and indirectly affected by the housing market. Revenue in the Homeland Security Services segment increased dueto an increase in demand for our traditional and expanded homeland security, management consulting and public safety consulting services. Our HomelandSecurity Services segment has expanded its service offerings beyond its traditional planning, training and exercise services to include public safety andinteroperability communications and management consulting. Revenue in the Public Finance Services segment decreased primarily due to lower levels ofactivity in the financial consulting business as a result of the general downturn in macro-economic conditions. Direct costs of contract revenue. Direct costs of contract revenue was $64.7 million for the fiscal year ended December 30, 2011, with $17.7 millionattributable to the Engineering Services segment, $41.0 million attributable to the Energy Efficiency Services segment, $3.0 million attributable to thePublic Finance Services segment, and $3.0 million attributable to the Homeland Security Services segment. Overall, direct costs of contract revenue increasedby $22.7 million, or 54.0%, to $64.7 million for the fiscal year ended December 30, 2011 from $42.0 million for the fiscal year ended December 31, 2010.This increase is primarily attributable to increases in direct costs within our Energy Efficiency Services segment of $21.4 million, or 108.9%, as a result ofincreased demand for these services. Direct costs of contract revenue increased by $0.5 million, or 2.9%, $0.6 million, or 24.4%, and $0.2 million, or 8.9%,respectively, in our Engineering Services, Homeland Security Services, and Public Finance Services segments. Direct costs of contract revenue as apercentage of contract revenue for the fiscal year ended December 30, 2011 increased to 60.4% from 53.9% for the fiscal year ended December 31, 2010. Direct costs increased as a result of increases in salaries and wages and subconsultant services and other direct costs of $4.1 million and $18.6 million,respectively. Within direct costs of contract revenue, salaries and wages decreased to 24.0% of contract revenue for the fiscal year ended December 30, 2011from 27.7% for the fiscal year ended December 31, 2010 and subconsultant services and other direct costs increased to 36.4% of contract revenue for thefiscal year ended December 30, 2011 from 26.2% of contract revenue for the fiscal year ended December 31, 2010. Subconsultant services and other directcosts increased primarily because of increased demand for the energy efficiency, sustainability and renewable energy services of our subsidiary WilldanEnergy Solutions, which generally utilizes a higher percentage of subconsultants than our other subsidiaries. Increased chargeability of labor also shiftedmore employee related costs to direct costs of contract revenue because we only allocate the portion of salaries and wages related to time spent directlygenerating revenues to direct costs of contract revenue. General and administrative expenses. General and administrative expenses increased by $6.3 million, or 19.0%, to $39.0 million for the fiscal yearended December 30, 2011 from $32.8 million for the fiscal year ended December 31, 2010. This was due primarily to increases of $0.4 million, $6.2 millionand $0.6 million, in the General and administrative expenses of the Engineering Services, Energy Efficiency Services and Homeland Security Servicessegments, respectively, partially offset by a decrease in General and administrative expenses for the Public Finance Services segment of $1.3 million.Unallocated corporate expenses increased by $0.4 million. General and administrative expenses as a percentage of contract revenue decreased to 36.4% forthe fiscal year ended December 30, 2011 from 42.1% for the fiscal year ended December 31, 2010. Of the $6.3 million increase in general and administrative expenses, approximately $5.0 million relates to increases in salaries and wages, payroll taxesand employee benefits. The increase in employee related costs primarily resulted from increased headcount due to the growth of our Energy EfficiencyServices segment. As discussed above under "—Components of Income and Expense-Direct39 Table of ContentsCosts of Contract Revenue," we do not allocate that portion of salaries and wages not related to time spent directly generating revenue to direct costs ofcontract revenue. General and administrative expenses for the fiscal year ended December 30, 2011 also included a decrease of $0.2 million as a result of adecrease in depreciation and amortization charges. Depreciation and amortization expense decreased primarily as a result of the decrease in the amortizationof acquired intangible assets. The increase in facilities and facilities related expenses of $0.6 million primarily resulted from expanded facilities inWashington, D.C. and other areas. Other general and administrative expenses increased by $0.8 million, primarily as a result of increases in professionalservices, marketing and other expenses. Income from operations. As a result of the above factors, our operating income was $3.4 million for the fiscal year ended December 30, 2011 ascompared to operating income of $3.1 million for the fiscal year ended December 31, 2010. Income from operations, as a percentage of contract revenue,decreased to 3.2% for the fiscal year ended December 30, 2011, from 3.9% for the fiscal year ended December 31, 2010. Other (expense) income. Other (expense) income, net, was $71,000 for the fiscal year ended December 30, 2011 as compared to other (expense) incomeof $10,000 the fiscal year ended December 31, 2010. Income tax expense. We recorded an income tax expense of $1.5 million for the fiscal year ended December 30, 2011, as compared to an income taxexpense of $0.3 million for the fiscal year ended December 31, 2010 due to a change in the income tax provision. For further discussion of our income taxprovision, see Note 12 "—Income Taxes." Net income. As a result of the above factors, our net income was $1.8 million for the fiscal year ended December 30, 2011, compared to net income of$2.7 million for the fiscal year ended December 31, 2010.Liquidity and Capital Resources As of December 28, 2012, we had $10.0 million of cash and cash equivalents. Our primary source of liquidity is cash generated from operations. We alsohave a revolving line of credit with Wells Fargo, which matures on April 1, 2013, but our ability to borrow funds under this line of credit is currently subjectto Wells Fargo's discretion. While we believe that our cash and cash equivalents on hand and cash generated by operating activities will be sufficient tofinance our operating activities for at least the next 12 months, without borrowings from our revolving credit facility, if we do experience a cash flowshortage, we may have difficulty obtaining additional funds on favorable terms, if at all, in order to meet obligations as they come due in the normal course ofbusiness.Cash Flows from Operating Activities Cash flows provided by operating activities were $5.3 million for fiscal year 2012 compared to cash flows used in operating activities of $0.7 million infiscal year 2011 and cash flows provided by operating activities of $0.1 million for fiscal year 2010. Our cash flows provided by operating activities in fiscalyear 2012 were higher than in fiscal 2011 despite lower contract revenue due primarily to decreases in costs and estimated earnings in excess of billings onuncompleted contracts and accounts receivable, and an increase in billings in excess of costs and estimated earnings on uncompleted contracts. These itemswere partially offset by decreases in accrued liabilities and accounts payable. Our cash flows used in operating activities in fiscal year 2011 primarily resultedfrom increases in accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts, partially offset by increases inaccounts payable and accrued liabilities. Our cash flows from operating activities were also reduced by non-cash revenue of $0.9 million from a subcontractorsettlement in fiscal year 2011. The cash flows provided by operating activities in fiscal 2010 were due primarily to increases in40 Table of Contentsaccounts receivable, costs and estimated earnings in excess of billings on uncompleted contracts and fewer adjustments for non-cash items partially offset byincreases in accounts payable and accrued liabilities.Cash Flows from Investing Activities Cash flows used in investing activities were $0.3 million for fiscal year 2012 compared to $3.1 million for fiscal year 2011 and $2.7 million for fiscalyear 2010. There were no payments related to business acquisitions in fiscal 2012, compared to $2.7 million in fiscal 2011 and $2.1 million in fiscal 2010.These payments were made in accordance with the provisions of the stock purchase agreement for the 2008 purchase of Willdan Energy Solutions. Asidefrom payments for business acquisitions, our cash used in investing activities primarily related to the purchase of equipment and leasehold improvements.Cash Flows from Financing Activities Cash flows provided by financing activities in fiscal 2012 were $2.1 million as compared to $0.2 million for fiscal year 2011 and $0.8 million for fiscalyear 2010. The net cash flows provided by financing activities in fiscal 2012 were primarily attributable to borrowings under our revolving line of credit,partially offset by repayments of our revolving line of credit and changes in the excess of outstanding checks over bank balance. The net cash flows providedby financing activities in fiscal 2011 were primarily attributable to changes in the excess of outstanding checks over bank balance and proceeds from notespayable, partially offset by repayments of our revolving line of credit. The net cash flows provided by financing activities in fiscal 2010 were primarilyattributable to changes in the excess of outstanding checks over bank balance.Outstanding Indebtedness We currently have a revolving credit agreement with Wells Fargo, which was entered into on December 23, 2011 and became effective as of January 1,2012. The credit agreement replaced our prior credit facility with Wells Fargo that expired on January 1, 2012. There were $3.0 million of outstandingborrowings under this agreement as of December 28, 2012. We have also financed, from time to time, insurance premiums by entering into unsecured notespayable with insurance companies. During our annual insurance renewals in the fourth quarter of our fiscal year ended December 28, 2012, we elected tofinance our insurance premiums for the upcoming fiscal year. Our credit agreement with Wells Fargo provides for a $5.0 million revolving line of credit, including a $5.0 million standby letter of credit sub-facility,and matures on April 1, 2013. Loans made under the revolving line of credit will accrue interest at either (i) a floating rate equal to the prime rate in effectfrom time to time or (ii) a fixed rate of 2.25% above LIBOR, with the interest rate to be selected by us. Borrowings under the revolving line of credit are guaranteed by all of our subsidiaries except Public Agency Resources (the "Guarantors") and securedby all of our and the Guarantors' accounts receivable and other rights to payment, general intangibles, inventory and equipment. Pursuant to the creditagreement, we also must pay a 0.25% fee on unused commitments and customary fees on any letters of credit drawn under the facility. The credit agreement contains customary representations and affirmative covenants, including financial covenants that require us to maintain (i) netincome after taxes of at least $250,000, measured on a rolling four quarter basis, without losses in two consecutive quarters; (ii) a maximum ratio of totalfunded debt (measured as the sum of all obligations for borrowed money, including subordinated debt, plus all capital lease obligations) to EBITDA of 1.75to 1.00, measured quarterly on a rolling four quarter basis; and (iii) a minimum asset coverage ratio of 2.50 to 1.00 as of each quarter end, measured asunrestricted cash plus net-billed accounts receivables divided by amounts outstanding and issued letters of credit under the revolving line of credit.41 Table of Contents The credit agreement also includes customary negative covenants, including (i) restrictions on the incurrence of additional indebtedness by us or theGuarantors other than purchase money indebtedness not to exceed $2.0 million and indebtedness existing on the date of the credit agreement, (ii) restrictionson the payment of dividends on our stock and redemptions, repurchases or other acquisitions of our stock, except that we can repurchase stock with anaggregate fair market value up to $5.0 million in any calendar year, and (iii) limitations on asset sales, mergers and acquisitions. In addition, the creditagreement includes customary events of default. As of December 28, 2012, we breached the net income covenant under the credit agreement because we did not have net income of at least $250,000measured on a rolling four quarter basis and we sustained net losses during two consecutive quarters in the past year. Additionally, our ratio of total fundeddebt to EBITDA exceeds the limit permitted under the credit agreement.(1) Because of these covenant breaches, our ability to borrow additional funds underthe credit agreement is currently subject to Wells Fargo's discretion and Wells Fargo could choose to increase the interest rate by 4.0%, make the loansoutstanding under the credit agreement immediately due and payable, and/or terminate its commitments to us under the credit agreement. Although we areseeking a waiver for these covenant breaches and to extend the maturity of the line of credit, Wells Fargo is not obligated to provide any waiver for current orfuture covenant breaches or modify the terms of the credit agreement. Wells Fargo may also refuse to renew the facility when it expires on April 1, 2013, andif they do so, we will have to repay the outstanding balance of $3.0 million. (1)If we do not maintain a ratio of total funded debt to EBITDA of 1.75 or lower, determined on a rolling four quarter basis, Wells Fargo may choose toincrease the interest rate of our outstanding indebtedness, make any loans outstanding under the credit agreement immediately due and payable andwill no longer be obligated to extend further credit to us. Management therefore believes that presentation of total funded debt to EBITDA is useful toinvestors because it helps them understand how our total funded debt to EBITDA compares to the financial covenant contained in our creditagreement and whether we have violated or are close to violating such covenant. Management also reviews the ratio of total funded debt to EBITDA,along with the other financial covenants contained in our credit agreement, to ensure it will continue to have access to its financing sources. Totalfunded debt is defined as "the sum of all obligations for borrowed money (including subordinated debt) plus all capital lease obligations," andEBITDA is defined as "net profit before tax plus interest expense (net of capitalized interest expense), depreciation expense and amortizationexpense." As a result of the definition of total funded debt in our credit agreement, total funded debt represents our total borrowings under our line ofcredit, letters of credit, notes payable and capital lease obligations as of December 28, 2012. These definitions may differ from those of othercompanies reporting similarly named measures. These measures should be considered in addition to, and not as a substitute for or superior to, othermeasures of financial performance prepared in accordance with U.S. generally accepted accounting principles, or GAAP. Total funded debt andEBITDA are not recognized terms under GAAP and do not purport to be alternatives to any GAAP measures.42 Table of ContentsContractual Obligations We have certain cash obligations and other commitments which will impact our short- and long-term liquidity. At December 28, 2012, such obligationsand commitments consisted of long-term debt, operating leases and capital leases. The following table sets forth our contractual obligations as ofDecember 28, 2012:Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition,changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.New Accounting Pronouncements As of December 28, 2012, the impact of recent accounting pronouncements applicable to us is not expected to be material.43Contractual Obligations Total Less than1 Year 1-3 Years 3-5 Years More than5 Years Long term debt(1) $3,633,000 $3,627,000 $6,000 $— $— Operating leases 6,900,000 3,388,000 3,504,000 8,000 — Capital leases 287,000 159,000 128,000 — — Total contractual cash obligations $10,820,000 $7,174,000 $3,638,000 $8,000 $— (1)Long-term debt includes principal and interest payments under our debt agreements assuming no additional borrowings orprincipal payments and includes borrowings under our line of credit of $3,000,000. Table of Contents ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The following is a calculation of our ratio of total funded debt to EBITDA: The following is a reconciliation of EBITDA to net income: Market risk is the risk of loss to future earnings, to fair values or to future cash flows that may result from changes in the price of a financial instrument.The value of a financial instrument may change as a result of changes in interest rates, exchange rates, commodity prices, equity prices and other marketchanges. Market risk is attributed to all market risk sensitive financial instruments, including long-term debt. We had cash and cash equivalents of $10.0 million as of December 28, 2012. This amount includes $8.5 million invested in the Wells Fargo Stage CoachSweep Investment account and $1.0 million invested in the Wells Fargo Money Market Mutual Fund. Although these investments are subject to variableinterest rates, we do not believe we are subject to significant market risk for these short-term investments. We do not engage in trading activities and do not participate in foreign currency transactions or utilize derivative financial instruments. As ofDecember 28, 2012, we had $3.0 million outstanding debt under our revolving credit facility that bears interest at variable rates.44 Four Quarters EndedDecember 28, 2012 Total funded debt $3,980,000 EBITDA (18,546,000)Ratio of total funded debt to EBITDA (0.21) Four Quarters EndedDecember 28, 2012 Net loss $(17,300,000)Income tax benefit (2,083,000)Interest expense 106,000 Interest income (6,000)Depreciation and amortization 737,000 EBITDA $(18,546,000) Table of Contents ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and related financial information, as listed under Item 15, appear in a separate section of this annual report beginning on page F-1. Index to Consolidated Financial Statements ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no changes in and/or disagreements with accountants on accounting and financial disclosure during the year ended December 28, 2012. ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures defined in Rule 13a-15(e) under the Exchange Act, as controls and other procedures that are designed toensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarizedand reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls andprocedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act is accumulatedand communicated to our management, including our President and Chief Executive Officer, Thomas Brisbin, and our Chief Financial Officer, KimberlyGant, as appropriate to allow timely decisions regarding required disclosure. In connection with the preparation of this Annual Report, an evaluation was performed under the supervision and with the participation of ourmanagement, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as ofDecember 28, 2012. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedureswere effective, at a reasonable assurance level, as of December 28, 2012. No change in our internal control over financial reporting occurred during the periodcovered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.Management's Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate control over financial reporting (as defined in Rule 13a-15(f) under theSecurities Exchange Act of 1934, as amended).45 PageReport of Independent Registered Public Accounting Firm F-1Consolidated Balance Sheets as of December 28, 2012 and December 30, 2011 F-2Consolidated Statements of Operations for each of the fiscal years in the three-year period ended December 28, 2012 F-3Consolidated Statements of Stockholders' Equity for each of the fiscal years in the three-year period endedDecember 28, 2012 F-4Consolidated Statements of Cash Flows for each of the fiscal years in the three-year period ended December 28, 2012 F-5Notes to Consolidated Financial Statements F-6 Table of ContentsInternal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposesin accordance with accounting principles generally accepted in the United States. Because of its inherent limitations, internal control over financial reportingis not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected. Our management, with theparticipation of our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as ofDecember 28, 2012. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the TreadwayCommission (COSO) in Internal Control—Integrated Framework. Our management has concluded that, as of December 28, 2012, our internal control overfinancial reporting was effective based on these criteria.Report of Independent Registered Public Accounting Firm This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financialreporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to the rules of the Securities andExchange Commission that permit the company to provide only management's report in this annual report.Changes in Internal Controls Based on our evaluation carried out in accordance with SEC Rule 15d-15(b) under the supervision and with the participation of our management,including our President and Chief Executive Officer and our Chief Financial Officer, we concluded that there were no changes during the fourth fiscal quarterof 2012 of our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal controls overfinancial reporting. ITEM 9B. OTHER INFORMATION None.46 Table of Contents PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item is incorporated by reference to Willdan Group, Inc.'s Proxy Statement for its 2013 Annual Meeting of Stockholdersto be filed with the SEC within 120 days after the end of the Company's 2012 fiscal year. We have posted our Code of Ethical Conduct on our website, www.willdan.com, under the heading "Investors—Corporate Governance." The Code ofEthical Conduct applies to our Chief Executive Officer and Chief Financial Officer. Upon request and free of charge, we will provide any person with a copyof the Code of Ethical Conduct. See "Item 1. Business—Available Information." ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated by reference to Willdan Group, Inc.'s Proxy Statement for its 2013 Annual Meeting of Stockholdersto be filed with the SEC within 120 days after the end of the Company's 2012 fiscal year. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS The information required by this item is incorporated by reference to Willdan Group, Inc.'s Proxy Statement for its 2013 Annual Meeting of Stockholdersto be filed with the SEC within 120 days after the end of the Company's 2012 fiscal year. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated by reference to Willdan Group, Inc.'s Proxy Statement for its 2013 Annual Meeting of Stockholdersto be filed with the SEC within 120 days after the end of the Company's 2012 fiscal year. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required by this item is incorporated by reference to Willdan Group, Inc.'s Proxy Statement for its 2013 Annual Meeting of Stockholdersto be filed with the SEC within 120 days after the end of the Company's 2012 fiscal year.47 Table of Contents PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a)The following documents are filed as part of this report: 1.Financial Statements The following financial statements of Willdan Group, Inc. and report of independent auditors are included in Item 8 of this annual report and submittedin a separate section beginning on page F-1:2.Financial Statements Schedules All required schedules are omitted because they are not applicable or the required information is shown in the financial statements or the accompanyingnotes.3.Exhibits The exhibits filed as part of this annual report are listed in Item 15(b).(b)Exhibits. The following exhibits are filed as a part of this report:48 PageReport of Independent Registered Public Accounting Firm F-1Consolidated Balance Sheets as of December 28, 2012 and December 30, 2011 F-2Consolidated Statements of Operations for each of the fiscal years in the three-year period ended December 28, 2012 F-3Consolidated Statements of Stockholders' Equity for each of the fiscal years in the three-year period endedDecember 28, 2012 F-4Consolidated Statements of Cash Flows for each of the fiscal years in the three-year period ended December 28, 2012 F-5Notes to Consolidated Financial Statements F-6ExhibitNumber Exhibit Description 3.1 Articles of Incorporation of Willdan Group, Inc., including amendments thereto(1) 3.2 Amended and Restated Bylaws of Willdan Group, Inc.(2) 4.1 Specimen Stock Certificate for shares of the Registrant's Common Stock(1) 4.2 The Company agrees to furnish to the Securities and Exchange Commission upon request a copy of eachinstrument with respect to issues of long-term debt of Willdan Group, Inc. and its subsidiaries, the authorizedprincipal amount of which does not exceed 10% of the consolidated assets of Willdan Group, Inc. and itssubsidiaries. 10.1 Credit Agreement, dated January 1, 2012, between Willdan Group, Inc. and Wells Fargo Bank, NationalAssociation, relating to the Revolving Line of Credit Note(3) 10.2 Revolving Line of Credit Note for $5,000,000, dated January 1, 2012, by Willdan Group, Inc. in favor of WellsFargo Bank, National Association(3) 10.3†Willdan Group, Inc. 2006 Stock Incentive Plan(1) 10.4†Form of Incentive Stock Option Agreement(1) 10.5†Form of Non-Qualified Stock Option Agreement(1) 10.6†Amended and Restated Willdan Group, Inc. 2006 Employee Stock Purchase Plan(4) Table of Contents49ExhibitNumber Exhibit Description 10.7†Form of Indemnification Agreement between Willdan Group, Inc. and its Directors and Officers(1) 10.8 Office Lease by and between Spectrum Waples Street, LLC, a California limited liability company, SpectrumLambert Plaza, LLC, a California limited liability company and The Willdan Group of Companies datedOctober 15, 2004 for the principal office located at 2401 East Katella Avenue, Anaheim, California(1) 10.9 First Amendment to Lease by and between 2401 Katella, LLC and The Willdan Group of Companies, datedFebruary 27, 2006 for the principal office located at 2401 Katella Avenue, Anaheim, California(1) 10.10 Second Amendment to Lease by and between 2401 Katella, LLC and The Willdan Group of Companies datedMarch 6, 2006 for the principal office located at 2401 Katella Avenue, Anaheim, California(1) 10.11 Employment Agreement, dated as of May 3, 2011 by and between Willdan Group, Inc. and Thomas D. Brisbin(5) 10.12 Employment Agreement, dated as of May 3, 2011 by and between Willdan Group, Inc. and Kimberly D. Gant(5) 10.13 Employment Agreement, dated as of May 3, 2011 by and between Willdan Group, Inc. and Marc Tipermas(5) 10.14†Willdan Group, Inc. 2008 Performance Incentive Plan(6) 10.15 Agreement for Small Business Direct Install Program, dated July 2, 2012, between Consolidated Edison Companyof New York, Inc. and Willdan Energy Solutions (portions of this exhibit have been omitted pursuant to a requestfor confidential treatment)(7) 14.1 Code of Ethical Conduct of Willdan Group, Inc.(4) 21.1 Subsidiaries of Willdan Group, Inc.* 23.1 Consent of Independent Registered Public Accounting Firm* 24.1 Power of Attorney (included on signature page hereto) 31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) under the Securities ExchangeAct of 1934, as adopted pursuant to § 302 of the Sarbanes-Oxley Act of 2002* 31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Actof 1934, as adopted pursuant to § 302 of the Sarbanes-Oxley Act of 2002* 32.1 Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adoptedpursuant to § 906 of the Sarbanes-Oxley Act of 2002* 101 Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets as ofDecember 28, 2012 and December 30, 2011; (ii) the Consolidated Statements of Operations for each of the fiscalyears in the three-year period ended December 28, 2012; (iii) the Consolidated Statements of Stockholders' Equityfor each of the fiscal years in the three-year period ended December 28, 2012; (iv) the Consolidated Statement ofCash Flows for each of the fiscal years in the three-year period ended December 28, 2012; and (v) the Notes to theConsolidated Financial Statements.*Filed herewith. Table of Contents50†Indicates a management contract or compensating plan or arrangement. (1)Incorporated by reference to Willdan Group, Inc.'s Registration Statement on Form S-1, filed with the Securities and ExchangeCommission on August 9, 2006, as amended (File No. 333-136444). (2)Incorporated by reference to Willdan Group, Inc.'s Quarterly Report on Form 10-Q, filed with the Securities and ExchangeCommission on August 13, 2009. (3)Incorporated by reference to Willdan Group, Inc.'s Current Report on Form 8-K, filed with the Securities and Exchange Commissionon December 27, 2011. (4)Incorporated by reference to Willdan Group, Inc.'s Annual Report on Form 10-K, filed with the Securities and Exchange Commissionon March 27, 2007. (5)Incorporated by reference to Willdan Group, Inc.'s Current Report on Form 8-K, filed with the Securities and Exchange Commissionon May 4, 2011. (6)Incorporated by reference to Willdan Group, Inc.'s Proxy Statement for its 2012 Annual Meeting of Stockholders, filed with theSecurities and Exchange Commission on April 18, 2012. (7)Incorporated by reference to Willdan Group, Inc.'s Quarterly Report on Form 10-Q, filed with the Securities and ExchangeCommission on November 8, 2012. Table of Contents SIGNATURES AND CERTIFICATIONS Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report on Form 10-K to besigned on its behalf by the undersigned, thereunto duly authorized, in the City of Anaheim, State of California, on March 26, 2013. KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature appears below constitutes and appoints Kimberly D. Gant his/herattorney-in-fact, with the power of substitution, for him/her in any and all capacities, to sign any amendments to this Report on Form 10-K and to file thesame, with Exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, hereby ratifying and confirming allthat said attorney-in-fact, or substitute or substitutes may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant andin the capacities and on the dates indicated.51 WILLDAN GROUP, INC. /s/ KIMBERLY D. GANTKimberly D. GantChief Financial Officer, Senior Vice President and TreasurerDate: March 26, 2013Signature Title Date /s/ THOMAS D. BRISBINThomas D. Brisbin Director, President and Chief Executive Officer(principal executive officer) March 26, 2013/s/ KIMBERLY D. GANTKimberly D. Gant Chief Financial Officer, Senior Vice Presidentand Treasurer (principal financial andaccounting officer) March 26, 2013/s/ WIN WESTFALLWin Westfall Director March 26, 2013/s/ KEITH W. RENKENKeith W. Renken Director March 26, 2013/s/ JOHN M. TOUPSJohn M. Toups Director March 26, 2013/s/ RAYMOND W. HOLDSWORTHRaymond W. Holdsworth Director March 26, 2013/s/ DOUGLAS J. MCEACHERNDouglas J. McEachern Director March 26, 2013 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and StockholdersWilldan Group, Inc. We have audited the accompanying consolidated balance sheets of Willdan Group, Inc. and subsidiaries (the "Company") as of December 28, 2012 andDecember 30, 2011 and the related consolidated statements of operations, stockholders' equity, and cash flows for the three-year period ended December 28,2012. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financialstatements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were notengaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financialreporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of the Company's internal control over financial reporting. Accordingly we express no such opinion. An audit also includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates madeby management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Willdan Group, Inc.and subsidiaries as of December 28, 2012 and December 30, 2011, and the results of their operations and their cash flows for the three-year period endedDecember 28, 2012, in conformity with U.S. generally accepted accounting principles./s/ Ernst & Young LLPLos Angeles, CaliforniaMarch 26, 2013F-1 Table of Contents WILLDAN GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS See accompanying notes to consolidated financial statements.F-2 December 28,2012 December 30,2011 Assets Current assets: Cash and cash equivalents $10,006,000 $3,001,000 Accounts receivable, net of allowance for doubtful accounts of $303,000 and $421,000 atDecember 28, 2012 and December 30, 2011, respectively 15,484,000 16,782,000 Costs and estimated earnings in excess of billings on uncompleted contracts 9,860,000 20,672,000 Other receivables 95,000 175,000 Prepaid expenses and other current assets 1,782,000 1,724,000 Total current assets 37,227,000 42,354,000 Equipment and leasehold improvements, net 979,000 1,217,000 Goodwill — 15,208,000 Other intangible assets, net 12,000 49,000 Other assets 307,000 383,000 Deferred income taxes 3,452,000 5,100,000 Total assets $41,977,000 $64,311,000 Liabilities and Stockholders' Equity Current liabilities: Excess of outstanding checks over bank balance $1,188,000 $1,777,000 Borrowings under line of credit 3,000,000 256,000 Accounts payable 6,983,000 8,182,000 Accrued liabilities 5,306,000 10,192,000 Billings in excess of costs and estimated earnings on uncompleted contracts 3,419,000 752,000 Current portion of notes payable 628,000 600,000 Current portion of capital lease obligations 152,000 163,000 Current portion of deferred income taxes 3,452,000 7,349,000 Total current liabilities 24,128,000 29,271,000 Notes payable, less current portion — 77,000 Capital lease obligations, less current portion 124,000 136,000 Deferred lease obligations 374,000 534,000 Total liabilities 24,626,000 30,018,000 Commitments and contingencies Stockholders' equity: Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued andoutstanding — — Common stock, $0.01 par value, 40,000,000 shares authorized; 7,335,000 and 7,274,000shares issued and outstanding at December 28, 2012 and December 30, 2011, respectively 73,000 73,000 Additional paid-in capital 34,423,000 34,065,000 Accumulated (deficit) earnings (17,145,000) 155,000 Total stockholders' equity 17,351,000 34,293,000 Total liabilities and stockholders' equity $41,977,000 $64,311,000 Table of Contents WILLDAN GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS See accompanying notes to consolidated financial statements.F-3 Fiscal Year 2012 2011 2010 Contract revenue $93,443,000 $107,165,000 $77,896,000 Direct costs of contract revenue (exclusive of depreciation andamortization shown separately below): Salaries and wages 23,218,000 25,714,000 21,607,000 Subconsultant services and other direct costs 35,741,000 39,013,000 20,415,000 Total direct costs of contract revenue 58,959,000 64,727,000 42,022,000 General and administrative expenses: Salaries and wages, payroll taxes and employee benefits 22,421,000 22,594,000 17,582,000 Facilities and facility related 4,871,000 4,875,000 4,290,000 Stock-based compensation 227,000 201,000 235,000 Depreciation and amortization 671,000 877,000 1,042,000 Lease abandonment (recovery), net 26,000 2,000 (68,000)Impairment of goodwill 15,208,000 — — Other 10,315,000 10,488,000 9,719,000 Total general and administrative expenses 53,739,000 39,037,000 32,800,000 (Loss) income from operations (19,255,000) 3,401,000 3,074,000 Other (expense) income: Interest income 6,000 5,000 12,000 Interest expense (106,000) (77,000) (54,000)Other, net (28,000) 1,000 32,000 Total other (expense) income, net (128,000) (71,000) (10,000) (Loss) income before income taxes (19,383,000) 3,330,000 3,064,000 Income tax (benefit) expense (2,083,000) 1,500,000 344,000 Net (loss) income $(17,300,000)$1,830,000 $2,720,000 (Loss) earnings per share: Basic $(2.37)$0.25 $0.38 Diluted $(2.37)$0.24 $0.37 Weighted-average shares outstanding: Basic 7,310,000 7,262,000 7,233,000 Diluted 7,310,000 7,485,000 7,311,000 Table of Contents WILLDAN GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY See accompanying notes to consolidated financial statements.F-4 Common Stock RetainedEarnings/(AccumulatedDeficit) AdditionalPaid-inCapital Shares Amount Total Balances at January 1, 2010 7,208,000 $72,000 $33,440,000 $(4,395,000)$29,117,000 Shares of common stock issued in connection withemployee stock purchase plan 36,000 — 87,000 — 87,000 Shares of common stock issued in connection withemployee stock option exercise 2,000 — 3,000 — 3,000 Stock-based compensation — — 235,000 — 235,000 Net income — — — 2,720,000 2,720,000 Balances at December 31, 2010 7,246,000 72,000 33,765,000 (1,675,000) 32,162,000 Shares of common stock issued in connection withemployee stock purchase plan 25,000 1,000 92,000 — 93,000 Shares of common stock issued in connection withemployee stock option exercise 3,000 — 7,000 — 7,000 Stock-based compensation — — 201,000 — 201,000 Net income — — — 1,830,000 1,830,000 Balances at December 30, 2011 7,274,000 73,000 34,065,000 155,000 34,293,000 Shares of common stock issued in connection withemployee stock purchase plan 56,000 — 120,000 — 120,000 Shares of common stock issued in connection withemployee stock option exercise 5,000 — 11,000 — 11,000 Stock-based compensation — — 227,000 — 227,000 Net loss — — — (17,300,000) (17,300,000) Balances at December 28, 2012 7,335,000 $73,000 $34,423,000 $(17,145,000)$17,351,000 Table of Contents WILLDAN GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS See accompanying notes to consolidated financial statementsF-5 Fiscal Year 2012 2011 2009 Cash flows from operating activities: Net (loss) income $(17,300,000)$1,830,000 $2,720,000 Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: Non-cash revenue from subcontractor settlement — (902,000) — Depreciation and amortization 737,000 944,000 1,053,000 Deferred income taxes (2,249,000) 1,465,000 389,000 Goodwill impairment 15,208,000 — — Lease abandonment expense (recovery), net 26,000 2,000 (68,000)Loss (gain) on sale of equipment 18,000 2,000 (17,000)Provision for doubtful accounts 673,000 209,000 20,000 Stock-based compensation 227,000 201,000 235,000 Changes in operating assets and liabilities: Accounts receivable 625,000 (2,507,000) (4,407,000)Costs and estimated earnings in excess of billings on uncompleted contracts 10,812,000 (8,427,000) (4,694,000)Income tax receivable — — 51,000 Other receivables 80,000 1,000 (103,000)Prepaid expenses and other current assets (58,000) (10,000) (214,000)Other assets 76,000 24,000 (89,000)Accounts payable (1,199,000) 2,802,000 3,923,000 Accrued liabilities (4,886,000) 4,206,000 1,476,000 Billings in excess of costs and estimated earnings on uncompleted contracts 2,667,000 (289,000) 11,000 Deferred lease obligations (186,000) (234,000) (189,000) Net cash provided by (used in) operating activities 5,271,000 (683,000) 97,000 Cash flows from investing activities: Purchase of equipment and leasehold improvements (359,000) (395,000) (685,000)Proceeds from sale of equipment 20,000 6,000 40,000 Payments related to business acquisitions — (2,733,000) (2,104,000) Net cash used in investing activities (339,000) (3,122,000) (2,749,000) Cash flows from financing activities: Changes in excess of outstanding checks over bank balance (589,000) 554,000 735,000 Payments on notes payable (663,000) (211,000) (17,000)Proceeds from notes payable 614,000 667,000 214,000 Borrowings under line of credit 11,663,000 33,965,000 14,123,000 Repayments of line of credit (8,919,000) (34,709,000) (14,123,000)Principal payments on capital leases (164,000) (202,000) (173,000)Proceeds from stock option exercise 11,000 7,000 3,000 Proceeds from sales of common stock under employee stock purchase plan 120,000 93,000 87,000 Net cash provided by financing activities 2,073,000 164,000 849,000 Net increase (decrease) in cash and cash equivalents 7,005,000 (3,641,000) (1,803,000)Cash and cash equivalents at beginning of the year 3,001,000 6,642,000 8,445,000 Cash and cash equivalents at end of the year $10,006,000 $3,001,000 $6,642,000 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $106,000 $77,000 $52,000 Income taxes 139,000 70,000 48,000 Supplemental disclosures of noncash investing and financing activities: Equipment acquired under capital leases $151,000 $247,000 $240,000 Table of Contents WILLDAN GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fiscal Years 2012, 2011 and 2010 1. ORGANIZATION AND OPERATIONS OF THE COMPANYNature of Business Willdan Group, Inc. and subsidiaries ("Willdan Group" or the "Company") is a provider of professional technical and consulting services to publicagencies at all levels of government, public and private utilities and commercial and industrial firms in California and New York. The Company also hasoperations in Arizona, Florida, Texas, Washington and Washington, D.C. The Company enables these entities to provide a wide range of specialized serviceswithout having to incur and maintain the overhead necessary to develop staffing in-house. The Company provides a broad range of complementary servicesincluding engineering and planning, energy efficiency and sustainability, economic and financial consulting, and national preparedness andinteroperability. The Company's clients primarily consist of public and governmental agencies, including cities, counties, public utilities, redevelopmentagencies, water districts, school districts and universities, state agencies, federal agencies, a variety of other special districts and agencies, private utilities andindustry and tribal governments.2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESPrinciples of Consolidation The consolidated financial statements include the accounts of Willdan Group, Inc. and its wholly owned subsidiaries, Willdan Engineering, WilldanEnergy Solutions, Public Agency Resources, Willdan Financial Services and Willdan Homeland Solutions. All significant intercompany balances andtransactions have been eliminated in consolidation.Fiscal Years The Company operates and reports financial results on a fiscal year of 52 or 53 weeks ending on the Friday closest to December 31. Fiscal years 2012,2011 and 2010 contained 52 weeks. All references to years in the notes to consolidated financial statements represent fiscal years.Cash, Cash Equivalents and Liquid Investments All highly liquid investments purchased with a remaining maturity of three months or less are considered to be cash equivalents. Outstanding checks inexcess of cash on deposit have been classified as current liabilities. Cash and cash equivalents consisted of the following: The Company from time to time may be exposed to credit risk with its bank deposits in excess of the FDIC insurance limits and with uninsured moneymarket investments. The Company has notF-6 December 28,2012 December 30,2011 Wells Fargo Stage Coach Sweep Investment Account $8,484,000 $— Wells Fargo Money Market Mutual Fund 1,001,000 2,000,000 Wells Fargo Advantage Heritage Fund 48,000 47,000 Cash on hand in business checking accounts 473,000 954,000 $10,006,000 $3,001,000 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Fiscal Years 2012, 2011 and 20102. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.Fair Value of Financial Instruments As of December 28, 2012 and December 30, 2011, the carrying amounts of the Company's cash, cash equivalents, accounts receivable, costs andestimated earnings in excess of billings on uncompleted contracts, other receivables, prepaid expenses and other current assets, excess of outstanding checksover bank balance, accounts payable, accrued liabilities and billings in excess of costs and estimated earnings on uncompleted contracts, approximate theirfair values because of the relatively short period of time between the origination of these instruments and their expected realization or payment. The carryingamounts of debt obligations approximate their fair values since the terms are comparable to terms currently offered by local lending institutions for loans ofsimilar terms to companies with comparable credit risk.Segment Information Willdan Group, Inc. ("WGI") is a holding company with five wholly owned subsidiaries. The Company presents segment information externallyconsistent with the manner in which the Company's chief operating decision maker reviews information to assess performance and allocate resources. WGIperforms administrative functions on behalf of its subsidiaries, such as treasury, legal, accounting, information systems, human resources and certain businessdevelopment activities, and earns revenue that is only incidental to the activities of the enterprise. As a result, WGI does not meet the definition of anoperating segment. Two of the five WGI subsidiaries are aggregated into one reportable segment as they have similar economic characteristics including thenature of services, the methods used to provide services and the type of customers. The remaining three subsidiaries each comprise separate reportingsegments.Off-Balance Sheet Financings and Liabilities Other than lease commitments, legal contingencies incurred in the normal course of business, and employment contracts, the Company does not haveany off-balance sheet financing arrangements or liabilities. In addition, the Company's policy is not to enter into derivative instruments, futures or forwardcontracts. Finally, the Company does not have any majority-owned subsidiaries or any interests in, or relationships with, any special-purpose entities that arenot included in the consolidated financial statements.Accounting for Contracts The Company enters into contracts with its clients that contain three principal types of pricing provisions: fixed price, time-and-materials, and unit-based. Revenue on fixed price contracts is recognized on the percentage-of-completion method based generally on the ratio of direct costs (primarilyexclusive of depreciation and amortization costs) incurred to date to estimated total direct costs at completion. Revenue on time-and-materials and unit-based contracts is recognized as the work is performed in accordance with the specific terms of the contract. Contracts that provide for multiple services ordeliverables are evaluated as multiple element arrangements to determine the appropriateF-7 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Fiscal Years 2012, 2011 and 20102. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)unit of accounting, allocation of contract value, and method of revenue recognition for each element. Revenue for amounts that have been billed but notearned is deferred and such deferred revenue is referred to as billings in excess of costs and estimated earnings on uncompleted contracts in theaccompanying consolidated balance sheets. Service-related contracts, including operations and maintenance services and a variety of technical assistanceservices, are accounted for over the period of performance, in proportion to the costs of performance. Adjustments to contract cost estimates are made in the periods in which the facts requiring such revisions become known. When the revised estimateindicates a loss, such loss is provided for currently in its entirety. Claims revenue is recognized only upon resolution of the claim. Change orders in disputeare evaluated as claims. Costs related to un-priced change orders are expensed when incurred and recognition of the related contract revenue is based on anevaluation of the probability of recovery of the costs. Estimated profit is recognized for un-priced change orders if realization of the expected price of thechange order is probable. Applying the percentage-of-completion method of recognizing revenue requires the Company to estimate the outcome of its long-term contracts. TheCompany forecasts such outcomes to the best of its knowledge and belief of current and expected conditions and its expected course of action. Differencesbetween the Company's estimates and actual results often occur resulting in changes to reported revenue and earnings. Such changes could have a materialeffect on future consolidated financial statements. Direct costs of contract revenue consist primarily of that portion of technical and nontechnical salaries and wages that has been incurred in connectionwith revenue producing projects. Direct costs of contract revenue also include production expenses, subconsultant services and other expenses that areincurred in connection with revenue producing projects. Direct costs of contract revenue exclude that portion of technical and nontechnical salaries and wages related to marketing efforts, vacations, holidaysand other time not spent directly generating revenue under existing contracts. Such costs are included in general and administrative expenses. Additionally,payroll taxes, bonuses and employee benefit costs for all Company personnel are included in general and administrative expenses in the accompanyingconsolidated statements of operations since no allocation of these costs is made to direct costs of contract revenue. No allocation of facilities costs is made todirect costs of contract revenue. Other companies may classify as direct costs of contract revenue some of the costs that the Company classifies as general andadministrative costs. The Company expenses direct costs of contract revenue when incurred. Accounts receivable are carried at original invoice amount less an estimate made for doubtful accounts based upon a review of all outstanding amountson a quarterly basis. Management determines the allowance for doubtful accounts by identifying troubled accounts and by using historical experienceapplied to an aging of accounts. Credit risk is generally minimal with governmental entities, but disputes may arise related to these receivable amounts.Accounts receivables are written off when deemed uncollectible. Recoveries of accounts receivables previously written off are recorded when received.F-8 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Fiscal Years 2012, 2011 and 20102. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) The value of retainage is included in accounts receivable in the accompanying consolidated financial statements. Retainage represents the billed amountthat is retained by the customer, in accordance with the terms of the contract, generally until performance is substantially complete.General and Administrative Expenses General and administrative expenses include the costs of the marketing and support staffs, other marketing expenses, management and administrativepersonnel costs, payroll taxes, bonuses and employee benefits for all of the Company's employees and the portion of salaries and wages not allocated todirect costs of contract revenue for those employees who provide the Company's services. General and administrative expenses also include facility costs,depreciation and amortization, professional services, legal and accounting fees and administrative operating costs. Within general and administrativeexpenses, "Other" includes expenses such as provision for billed or unbilled receivables, professional services, legal and accounting, computer costs, traveland entertainment and marketing costs. The Company expenses general and administrative costs when incurred.Leases All of the Company's office leases are classified as operating leases and rent expense is included in facilities expense in the accompanying consolidatedstatements of operations. Some of the lease terms include rent concessions and rent escalation clauses, all of which are taken into account in computingminimum lease payments. Minimum lease payments are recognized on a straight-line basis over the minimum lease term. The excess of rent expenserecognized over the amounts contractually due pursuant to the underlying leases is reflected as a liability in the accompanying consolidated balance sheets.The cost of improvements that the Company makes to the leased office space is capitalized as leasehold improvements. The Company is subject to non-cancellable leases for offices or portions of offices for which use has ceased. For each of these abandoned leases, the present value of the future leasepayments, net of estimated sublease payments, along with any unamortized tenant improvement costs, are recognized as lease abandonment expense in theCompany's consolidated statements of operations with a corresponding liability in the Company's consolidated balance sheets.Equipment and Leasehold Improvements Equipment and leasehold improvements are stated at cost less accumulated depreciation and amortization. Equipment under capital leases is stated at thepresent value of the minimum lease payments as of the acquisition date. Depreciation and amortization on equipment are calculated using the straight-linemethod over estimated useful lives of two to five years. Leasehold improvements and assets under capital leases are amortized using the straight-line methodover the shorter of estimated useful lives or the term of the related lease.F-9 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Fiscal Years 2012, 2011 and 20102. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Following are the estimated useful lives used to calculate depreciation and amortization: Equipment and leasehold improvements are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount ofan asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimatedundiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, animpairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.Goodwill Goodwill represents the excess of costs over fair value of the assets acquired. Goodwill, which has an indefinite useful life, is not amortized, but insteadtested for impairment at least annually or more frequently if events and circumstances indicate that the asset might be impaired. Impairment losses forreporting units are recognized to the extent that a reporting unit's carrying amount exceeds its fair value.Accounting for Claims Against the Company The Company records liabilities to claimants for probable and estimable claims on its consolidated balance sheet, which is included in accruedliabilities, and records a corresponding receivable from the insurance company for the portion of the claim that is probable of being covered by insurance,which is included in other receivables. The estimated claim amount net of the amount estimated to be recoverable from the insurance company is included ingeneral and administrative expense.Stock Options The Company accounts for stock options under the fair value recognition provisions of the accounting standard entitled "Compensation—StockCompensation." This standard requires the measurement of compensation cost at the grant date, based upon the estimated fair value of the award, and requiresamortization of the related expense over the employee's requisite service period.Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences oftemporary differences between the financial reporting basis and tax basis of the Company's assets and liabilities. Deferred tax assets and liabilities aremeasured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered orsettled. The effect on deferred tax assets andF-10Category Estimated Useful LifeFurniture and fixtures 5 yearsComputer hardware 2 yearsComputer software 3 yearsAutomobiles and trucks 3 yearsField equipment 5 years Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Fiscal Years 2012, 2011 and 20102. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded when it is morelikely than not that all or a portion of the deferred tax assets may not be realized. The Company recognizes the tax benefit from uncertain tax positions if it is more likely than not that the tax positions will be sustained on examinationby the tax authorities, based on the technical merits of the position. The tax benefit is measured based on the largest benefit that has a greater than 50%likelihood of being realized upon ultimate settlement. The Company recognizes interest and penalties related to unrecognized tax benefits in income taxexpense.Operating Cycle In accordance with industry practice, amounts realizable and payable under contracts that extend beyond one year are included in current assets andliabilities.Use of Estimates The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the U.S. requires management tomake estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of theconsolidated financial statements. Estimates also affect the reported amounts of revenue and expenses during the reporting period. Actual results could differfrom those estimates.New Accounting Pronouncements As of December 28, 2012, the impact of recent accounting pronouncements applicable to the Company is not expected to be material.3. BUSINESS COMBINATION On June 9, 2008, the Company acquired all of the outstanding stock of Willdan Energy Solutions, formerly known as Intergy Corporation, a California-based consulting company that assists companies, institutions and agencies with planning and implementing their energy efficiency, water conservation andrenewable energy strategies. The acquisition cost recorded by the Company as of December 28, 2012 was $17.9 million, consisting of $9.9 million in cashpaid at closing, a $0.2 million net asset value adjustment, a guaranteed payment of $1.0 million in cash paid in June 2009, an earn-out payment of$1.3 million paid in August 2009, an earn-out payment of $2.1 million paid in September 2010, an earn-out payment of $2.7 million paid in August 2011and $0.7 million in transaction costs. The earn-out payments were required because Willdan Energy Solutions achieved certain financial targets over therelevant periods. The Company recorded $15.2 million of goodwill in connection with the acquisition, and as of December 28, 2012, this entire goodwillamount has been written off (See Note 4).F-11 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Fiscal Years 2012, 2011 and 20104. GOODWILL AND OTHER INTANGIBLE ASSETS The changes in the carrying value of goodwill by reporting unit for the fiscal years ended December 28, 2012 were as follows: The additions to goodwill in fiscal 2010 and fiscal 2011 for Energy Solutions related to the $2.1 million earn-out payment in September 2010 and the$2.7 million earn-out payment in August 2011, respectively. As of December 30, 2011, the Company had $15.2 million of goodwill, all of which related tothe Energy Solutions reporting unit, which comprises the Energy Efficiency Services reporting segment. During the second quarter of 2012, the Companydetermined that a quantitative assessment of its goodwill was warranted for the Energy Solutions reporting unit. This assessment indicated that the estimatedfair value of the Energy Solutions reporting unit was less than its carrying value. The Company further determined that all of the remaining goodwill for theEnergy Solutions reporting unit was impaired and recognized an impairment charge of $15.2 million. The income approach was based on the present value ofprojected cash flows during the holding period and disposition of the reporting unit at the end of the final year of the assumed holding period. The marketapproach was based on a multiple of earnings before interest, taxes, depreciation and amortizationF-12 Fiscal Year 2012 Balance atBeginning of Year GoodwillAdditions Impairment Balance atEnd of Year Reporting Unit: Energy Solutions $15,208,000 $— $(15,208,000)$— Financial Services — — — — Homeland Security Services — — — — $15,208,000 $— $(15,208,000)$— Fiscal Year 2011 Balance atBeginning of Year GoodwillAdditions Impairment Balance atEnd of Year Reporting Unit: Energy Solutions $12,475,000 $2,733,000 $— $15,208,000 Financial Services — — — — Homeland Security Services — — — — $12,475,000 $2,733,000 $— $15,208,000 Fiscal Year 2010 Balance atBeginning of Year GoodwillAdditions Impairment Balance atEnd of Year Reporting Unit: Energy Solutions $10,371,000 $2,104,000 $— $12,475,000 Financial Services — — — — Homeland Security Services — — — — $10,371,000 $2,104,000 $— $12,475,000 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Fiscal Years 2012, 2011 and 20104. GOODWILL AND OTHER INTANGIBLE ASSETS (Continued)("EBITDA") utilizing publicly available EBITDA multiples for similar companies. The terminal sales value computed in the income approach was also basedon a multiple of projected EBITDA for the last year of the assumed holding period. The goodwill balances included in the accompanying consolidated balance sheets consist of the following: The gross amounts and accumulated amortization of the Company's acquired identifiable intangible assets with finite useful lives as of December 28,2012 and December 30, 2011, included in intangible assets, net in the accompanying consolidated balance sheets, were as follows: At the time of acquisition, the Company estimates the fair value of the acquired identifiable intangible assets based upon the facts and circumstancesrelated to the particular intangible asset. Inherent in such estimates are judgments and estimates of future revenue, profitability, cash flows and appropriatediscount rates for any present value calculations. The Company preliminarily estimates the value of the acquired identifiable intangible assets and thenfinalizes the estimated fair values during the purchase allocation period, which does not extend beyond 12 months from the date of acquisition.F-13 Reporting Units Energy Solutions Financial Services HomelandSecurity Services Total December 28, 2012: Goodwill $15,208,000 $2,763,000 $148,000 $18,119,000 Accumulated impairment (15,208,000) (2,763,000) (148,000 (18,119,000) $— $— $— $— December 30, 2011: Goodwill $15,208,000 $2,763,000 $148,000 $18,119,000 Accumulated impairment — (2,763,000) (148,000) (2,911,000) $15,208,000 $— $— $15,208,000 December 31, 2010: Goodwill $12,475,000 $2,763,000 $148,000 $15,386,000 Accumulated impairment — (2,763,000) (148,000) (2,911,000) $12,475,000 $— $— $12,475,000 December 28, 2012 December 30, 2011 GrossAmount AccumulatedAmortization GrossAmount AccumulatedAmortization AmortizationPeriod (yrs) Backlog $920,000 $920,000 $920,000 $920,000 1 Training materials/courses 282,000 270,000 282,000 233,000 5 Non-compete agreements 30,000 30,000 30,000 30,000 3 $1,232,000 $1,220,000 $1,232,000 $1,183,000 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Fiscal Years 2012, 2011 and 20104. GOODWILL AND OTHER INTANGIBLE ASSETS (Continued)The purchase allocation for Willdan Energy Solutions was finalized during the second quarter of fiscal 2009. For the years ended December 28, 2012, December 30, 2011 and December 31, 2010, the Company's amortization expense for acquired identifiableintangible assets with finite useful lives was $37,000, $46,000 and $54,000, respectively. Estimated future amortization expense for acquired identifiableintangible assets is as follows:5. EARNINGS PER SHARE ("EPS") Basic EPS is computed by dividing net income (loss) available to common stockholders by the weighted-average number of common shares outstanding.Diluted EPS is computed by dividing net income (loss) by the weighted-average number of common shares outstanding and dilutive potential commonshares for the period. Potential common shares include the weighted-average dilutive effects of outstanding stock options using the treasury stock method. The following table sets forth the number of weighted-average shares used to compute basic and diluted EPS: For the fiscal year ended December 28, 2012, 654,000 options were excluded from the calculation of dilutive potential common shares, compared to304,000 and 524,000 options, for fiscal 2011 and fiscal 2010, respectively. These options were not included in the computation of dilutive potentialcommon shares because of the net loss position for the 2012 period and because the assumed proceeds per share exceeded the average market price per sharefor the 2012 period. Accordingly, the inclusion of these options would have been anti-dilutive. For periods in which the Company incurs net losses, dilutivepotential common shares are excluded as they would be anti-dilutive.F-14Fiscal year: 2013 $12,000 $12,000 Fiscal Year 2012 2011 2010 Net (loss) income $(17,300,000)$1,830,000 $2,720,000 Weighted-average common shares outstanding 7,310,000 7,262,000 7,233,000 Effect of dilutive stock options — 223,000 78,000 Weighted-average common stock outstanding-diluted 7,310,000 7,485,000 7,311,000 (Loss) earnings per share: Basic $(2.37)$0.25 $0.38 Diluted $(2.37)$0.24 $0.37 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Fiscal Years 2012, 2011 and 20106. ACCOUNTS RECEIVABLE Accounts receivable consisted of the following at December 28, 2012 and December 30, 2011: The movements in the allowance for doubtful accounts consisted of the following for fiscal years 2012, 2011 and 2010: Billed accounts receivable represent amounts billed to clients that have yet to be collected. Unbilled accounts receivable represent revenue recognizedbut not yet billed pursuant to contract terms or accounts billed after the period end. Substantially all unbilled receivables as of December 28, 2012 andDecember 30, 2011 are or were expected to be billed and collected within twelve months of such date. Contract retentions represent amounts invoiced toclients where payments have been withheld pending the completion of certain milestones, other contractual conditions or upon the completion of the project.These retention agreements vary from project to project and could be outstanding for several months. 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. As of December 28, 2012, one client accounted for 34% of outstanding receivables, as compared to 40% of the Company's outstanding receivables as ofDecember 30, 2011.F-15 December 28,2012 December 30,2011 Billed $15,145,000 $16,624,000 Unbilled 9,860,000 20,672,000 Contract retentions 642,000 579,000 25,647,000 37,875,000 Allowance for doubtful accounts (303,000) (421,000) $25,344,000 $37,454,000 Fiscal Year 2012 2011 2010 Balance as of the beginning of the year $421,000 $959,000 $1,862,000 Provision for doubtful accounts 220,000 219,000 149,000 Write-offs of uncollectible accounts (341,000) (765,000) (1,059,000)Recoveries of accounts written off 3,000 8,000 7,000 Balance as of the end of the year $303,000 $421,000 $959,000 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Fiscal Years 2012, 2011 and 20107. EQUIPMENT AND LEASEHOLD IMPROVEMENTS Equipment and leasehold improvements consisted of the following at December 28, 2012 and December 30, 2011: Included in accumulated depreciation and amortization is $172,000 and $191,000 of amortization expense related to equipment held under capitalleases in fiscal years 2012 and 2011, respectively.8. ACCRUED LIABILITIES Accrued liabilities consisted of the following at December 28, 2012 and December 30, 2011:9. EQUITY PLANS As of December 28, 2012, the Company had two share-based compensation plans, which are described below. The Company may no longer grant awardsunder the 2006 Stock Incentive Plan. The compensation expense that has been recognized for stock options issued under these plans was $227,000,$201,000 and $235,000 for fiscal years 2012, 2011 and 2010, respectively.F-16 December 28,2012 December 30,2011 Furniture and fixtures $3,163,000 $3,393,000 Computer hardware and software 6,299,000 6,279,000 Leasehold improvements 769,000 787,000 Equipment under capital leases 808,000 821,000 Automobiles, trucks, and field equipment 495,000 543,000 11,534,000 11,823,000 Accumulated depreciation and amortization (10,555,000) (10,606,000) Equipment and leasehold improvements, net $979,000 $1,217,000 December 28,2012 December 30,2011 Accrued bonuses $52,000 $944,000 Paid leave bank 1,288,000 1,415,000 Compensation and payroll taxes 729,000 770,000 Accrued legal 338,000 101,000 Accrued workers' compensation insurance 209,000 24,000 Accrued rent 356,000 320,000 Employee withholdings 215,000 234,000 Client deposits 88,000 247,000 Unvouchered accounts payable 1,800,000 6,083,000 Other 231,000 54,000 Total accrued liabilities $5,306,000 $10,192,000 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Fiscal Years 2012, 2011 and 20109. EQUITY PLANS (Continued) 2006 STOCK INCENTIVE PLAN In June 2006, the Company's board of directors adopted the 2006 Stock Incentive Plan ("2006 Plan") and it received stockholder approval. TheCompany 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 2006Plan will terminate ten years after the board of directors approved it and no additional awards were or will be granted under the 2006 Plan after the Company'sshareholders approved the 2008 Plan (as defined below) in June 2008. The 2006 Plan had 300,000 shares of common stock reserved for issuance to theCompany's directors, executives, officers, employees, consultants and advisors and currently has 193,500 shares of common stock reserved for issuance.Approximately 70,333 shares that were available for award grant purposes under the 2006 Plan have become available for grant under the 2008 Planfollowing shareholder approval of the 2008 Plan. Options granted under the 2006 Plan could be "non-statutory stock options" which expire no more than tenyears from the date of grant or "incentive stock options" as defined in Section 422 of the Internal Revenue Code of 1986, as amended. 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 exerciseprice 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 incentivestock option. Option awards provide for accelerated vesting if there is a change in control (as defined in the 2006 Plan). Through December 28, 2012, optionsgranted, net of forfeitures and expirations, under the 2006 Plan consisted of 187,500 shares and 6,000 shares for incentive stock options and non-statutorystock options, respectively. 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 the2008 annual meeting of the stockholders in June 2008. The 2008 Plan will terminate ten years after the board of directors approved it. At the 2010 and 2012annual meetings of the stockholders, the stockholders approved 350,000 and 500,000 share increases, respectively, to the 2008 Plan. The maximum numberof 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 sharessubject 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, afterJune 9, 2008 without being exercised. The 2008 Plan currently has 1,406,500 shares of common stock reserved for issuance. Awards authorized by the 2008Plan include stock options, stock appreciation rights, restricted stock, stock bonuses, stock units, performance stock, and other share-based awards. Noparticipant may be granted an option to purchase more than 100,000 shares in any fiscal year. Options generally may not be granted with exercise prices lessthan fair market value at the date of grant, with vesting provisions and contractual terms determined by the compensation committee of the board of directorson a grant-by-grant basis. Options granted under the 2008 Plan may be "nonqualified stock options" or "incentive stock options" as defined in Section 422 ofthe Internal Revenue Code of 1986, as amended. The maximum term of each option shall be 10 years. Upon exercise of nonqualified stock options, theCompany 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 marketvalue 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. Optionawards provide for accelerated vesting if there is a change in control (as defined in the 2008F-17 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Fiscal Years 2012, 2011 and 20109. EQUITY PLANS (Continued)Plan). Through December 28, 2012, options granted, net of forfeitures and exercises, under the 2008 Plan consisted of 687,900 shares and 111,000 shares forincentive stock options and non-statutory stock options, respectively. The fair value of each option is calculated using the Black-Scholes option valuation model that uses the assumptions noted in the following table.Expected volatility is based upon historical volatility of "guideline companies" since the length of time the Company's shares have been publicly traded isshorter than the expected or contractual term of the options. The expected term of the option, taking into account both the contractual term of the option andthe effects of employees' expected exercise and expected post-vesting termination behavior is estimated based upon the simplified method. Under thisapproach, the expected term is presumed to be the mid-point between the vesting date and the end of the contractual term. The risk-free rate for periods withinthe contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The assumptions are as follows: A summary of option activity under the 2006 Plan and 2008 Plan as of December 28, 2012 and changes during the fiscal years ended December 28,2012, December 30, 2011 and December 31, 2010 is presented below. The intrinsic value of the fully-vested options is $111,000, based on the Company'sclosing stock price of $2.23 on December 28, 2012.F-18 2012 2011 2010 Expected volatility 39% 39%-40% 39% Expected dividends 0% 0% 0% Expected term (in years) 5.75-6.00 5.75-6.00 5.75-6.00 Risk-free rate 0.65%-1.09% 0.88%-2.20% 1.48%-2.59% Options Weighted-AverageExercisePrice Weighted-AverageRemainingContractualTerm (Years) Outstanding at December 30, 2011 912,000 $3.94 7.47 Granted 202,000 3.30 9.34 Exercised (5,000) 1.81 6.73 Forfeited or expired (117,000) — — Outstanding at December 28, 2012 992,000 $3.86 6.95 Vested at December 28, 2012 700,000 $4.09 6.19 Exercisable at December 28, 2012 700,000 $4.09 6.19 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Fiscal Years 2012, 2011 and 20109. EQUITY PLANS (Continued) A summary of the status of the Company's nonvested options and changes in nonvested options during the fiscal years ended December 28, 2012,December 30, 2011 and December 31, 2010, is presented below:F-19 Options Weighted-AverageExercisePrice Weighted-AverageRemainingContractualTerm (Years) Outstanding at December 31, 2010 859,000 $3.90 8.26 Granted 86,000 4.02 9.44 Exercised (3,000) 1.96 7.92 Forfeited or expired (30,000) — — Outstanding at December 30, 2011 912,000 $3.94 7.47 Vested at December 30, 2011 570,000 $4.61 6.84 Exercisable at December 30, 2011 570,000 $4.61 6.84 Options Weighted-AverageExercisePrice Weighted-AverageRemainingContractualTerm (Years) Outstanding at January 1, 2010 566,000 $4.54 8.63 Granted 295,000 2.67 9.65 Exercised (2,000) 1.65 8.58 Forfeited or expired — — — Outstanding at December 31, 2010 859,000 $3.90 8.26 Vested at December 31, 2010 356,000 $6.07 7.21 Exercisable at December 31, 2010 356,000 $6.07 7.21 Options Weighted-AverageGrant-DateFair Value Nonvested at December 30, 2011 341,000 $1.13 Granted 202,000 1.27 Vested (212,000) 1.07 Forfeited (38,000) 1.10 Nonvested at December 28, 2012 293,000 1.28 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Fiscal Years 2012, 2011 and 20109. EQUITY PLANS (Continued) As of December 28, 2012, there was $261,000 of total unrecognized compensation expense related to non-vested stock options. That expense isexpected to be recognized over a weighted-average period of 1.79 years. There were no options granted that were immediately vested during the fiscal yearsended December 28, 2012, December 30, 2011 and December 31, 2010. AMENDED AND RESTATED 2006 EMPLOYEE STOCK PURCHASE PLAN The Company adopted its Amended and Restated 2006 Employee Stock Purchase Plan to allow eligible employees the right to purchase shares ofcommon 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. A total of 300,000 sharesof the Company's common stock have been reserved for issuance under the plan, with no more than 100,000 shares being issuable in any one calendar year. 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 eachDecember 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. The accumulated contributions are applied tothe purchase of shares. Shares are purchased under the plan on or as soon as practicable after, the last day of the offering period. The purchase price per shareequals 95% of the fair market value of a share on the last day of such offering period.F-20 Options Weighted-AverageGrant-DateFair Value Nonvested at December 31, 2010 503,000 $0.96 Granted 86,000 1.60 Vested (232,000) 0.94 Forfeited (16,000) 0.95 Nonvested at December 30, 2011 341,000 1.13 Options Weighted-AverageGrant-DateFair Value Nonvested at January 1, 2010 394,000 $1.24 Granted 295,000 1.06 Vested (186,000) 1.72 Forfeited — — Nonvested at December 31, 2010 503,000 0.96 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Fiscal Years 2012, 2011 and 20109. EQUITY PLANS (Continued) The Company's Amended and Restated 2006 Employee Stock Purchase Plan is a non-compensatory plan. As a result, stock-based compensation expenseis not recognized in relation to this plan. As of December 28, 2012, there were 122,773 shares available for issuance under the plan.10. DEBT OBLIGATIONS Debt obligations, excluding obligations under capital leases (note 11), consist of the following: The Company currently has a revolving credit agreement with Wells Fargo Bank, National Association ("Wells Fargo"), which was entered into onDecember 23, 2011 and became effective as of January 1, 2012. The credit agreement replaced the Company's prior credit facility with Wells Fargo thatexpired on January 1, 2012. There were $3.0 million of outstanding borrowings under this agreement as of December 28, 2012. The Company has alsofinanced, from time to time, insurance premiums by entering into unsecured notes payable with insurance companies. During its annual insurance renewals inthe fourth quarter of the fiscal year ended December 28, 2012, the Company elected to finance its insurance premiums for the upcoming fiscal year. The Company's credit agreement with Wells Fargo provides for a $5.0 million revolving line of credit, including a $5.0 million standby letter of creditsub-facility, and matures on April 1, 2013. Loans made under the revolving line of credit will accrue interest at either (i) a floating rate equal to the prime ratein effect from time to time or (ii) a fixed rate of 2.25% above LIBOR, with the interest rate to be selected by the Company. Borrowings under the revolving line of credit are guaranteed by all of the Company's subsidiaries except Public Agency Resources (the "Guarantors")and secured by all of the Company's and the Guarantors' accounts receivable and other rights to payment, general intangibles, inventory and equipment.Pursuant to the credit agreement, the Company also must pay a 0.25% fee on unused commitments and customary fees on any letters of credit drawn underthe facility. The credit agreement contains customary representations and affirmative covenants, including financial covenants that require the Company to maintain(i) net income after taxes of at least $250,000, measured on a rolling four quarter basis, without losses in two consecutive quarters; (ii) aF-21 2012 2011 Outstanding borrowings on line of credit $3,000,000 $256,000 Notes payable for vehicles, 36 month term, bearing interest at 1.9%, payable in monthlyprincipal and interest installments of $6,000 through January 2014, secured by vehicles 78,000 147,000 Notes payable for insurance, 9 month term, bearing interest at 1.9%, payable in monthlyprincipal and interest installments of $64,000 through August 2013, secured by vehicles 508,000 501,000 Other 42,000 29,000 3,628,000 933,000 Less current portion 3,628,000 856,000 Debt obligations, less current portion $— $77,000 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Fiscal Years 2012, 2011 and 201010. DEBT OBLIGATIONS (Continued)maximum ratio of total funded debt (measured as the sum of all obligations for borrowed money, including subordinated debt, plus all capital leaseobligations) to EBITDA of 1.75 to 1.00, measured quarterly on a rolling four quarter basis; and (iii) a minimum asset coverage ratio of 2.50 to 1.00 as of eachquarter end, measured as unrestricted cash plus net-billed accounts receivables divided by amounts outstanding and issued letters of credit under therevolving line of credit. The credit agreement also includes customary negative covenants, including (i) restrictions on the incurrence of additional indebtedness by theCompany or the Guarantors other than purchase money indebtedness not to exceed $2.0 million and indebtedness existing on the date of the creditagreement, (ii) restrictions on the payment of dividends on the Company's stock and redemptions, repurchases or other acquisitions of the Company's stock,except that the Company can repurchase stock with an aggregate fair market value up to $5.0 million in any calendar year, and (iii) limitations on asset sales,mergers and acquisitions. In addition, the credit agreement includes customary events of default. As of December 28, 2012, the Company breached the net income covenant under the credit agreement because it did not have net income of at least$250,000 measured on a rolling four quarter basis and it sustained net losses during two consecutive quarters in the past year. Additionally, the Company'sratio of total funded debt to EBITDA exceeds the limit permitted under the credit agreement. Because of these covenant breaches, the Company's ability toborrow additional amounts under the credit agreement is currently subject to Wells Fargo's discretion and Wells Fargo could choose to increase the interestrate by 4.0%, make the loans outstanding under the credit agreement immediately due and payable, and/or terminate its commitments to the Company underthe credit agreement. Although the Company is seeking a waiver for these covenant breaches and to extend the maturity of the line of credit, Wells Fargo isnot obligated to provide any waiver for current or future covenant breaches or modify the terms of the credit agreement. Wells Fargo may also refuse to renewthe facility when it expires on April 1, 2013, and if they do so, the Company will have to repay the outstanding balance of $3.0 million. Principal maturities on notes payable as of December 28, 2012 are as follows:11. COMMITMENTSLeases The Company is obligated under capital leases for certain furniture and office equipment that expire at various dates through the year 2015. The Company also leases certain office facilities under non-cancelable operating leases that expire at various dates through the year 2016 and iscommitted under non-cancelable operating leases for the lease of computer equipment and automobiles through the year 2013 and 2014, respectively.F-22Fiscal year: 2013 $3,628,000 $3,628,000 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Fiscal Years 2012, 2011 and 201011. COMMITMENTS (Continued) Future minimum rental payments under capital and non-cancelable operating leases are summarized as follows: During the fiscal year ended December 28, 2012, the Company moved certain offices to new locations and closed certain virtual offices. As a result of theoffice closures and relocations, the Company recorded lease abandonment expense, net, of $26,000. This expense includes future rental obligations and othercosts associated with the leased space net of the fair value of subleases. As of September 1, 2010, the Company turned over to the landlord a portion of itsheadquarters office space that was subleased by an entity that is owned by one of the Company's directors. Pursuant to the sublease agreement, this tenantpaid the Company monthly rent of approximately $8,500, for a total of approximately $72,000 through August 31, 2010. The tenant had also paid theCompany a proportionate share of certain operating expenses and taxes relating to the subleased space. Rent expense and related charges for common area maintenance for all facility operating leases for fiscal years 2012, 2011 and 2010 was approximately$3,615,000, $3,627,000 and $3,116,000, respectively. The following is a reconciliation of the liability for lease abandonment (recovery) expense for fiscal years 2012 and 2011:F-23 Capital Operating Fiscal year: 2013 $159,000 $3,388,000 2014 91,000 2,591,000 2015 37,000 913,000 2016 — 8,000 2017 — — Thereafter — — Total future minimum lease payments 287,000 $6,900,000 Amount representing maintenance (1,000) Amount representing interest (at rates ranging from 3.25% to 3.75%) (10,000) Present value of net minimum lease payments under capital leases 276,000 Less current portion 152,000 $124,000 Fiscal 2012 Fiscal 2011 Liability for abandoned leases as of beginning of year $327,000 $678,000 Lease abandonment expense (recovery), net 26,000 2,000 Lease payments on abandoned leases, net of sublease payments (238,000) (380,000)Other 47,000 27,000 Liability for abandoned leases as of the end of the year $162,000 $327,000 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Fiscal Years 2012, 2011 and 201011. COMMITMENTS (Continued) The current portion of the liability for abandoned leases is included in accrued liabilities and the non-current portion is included in deferred leaseobligations in the accompanying consolidated balance sheets.Employee Benefit Plans The Company has a qualified profit sharing plan (the Plan) pursuant to Code Section 401(a) and qualified cash or deferred arrangement pursuant to CodeSection 401(k) covering substantially all employees. Employees may elect to contribute up to 50% of compensation limited to the amount allowed by taxlaws. Company contributions are made solely at the discretion of the Company's board of directors. The Company made matching contributions ofapproximately $248,000, $219,000 and $157,000 during fiscal years 2012, 2011 and 2010, respectively. The Company has a discretionary bonus plan for regional managers, division managers and others as determined by the Company president. Bonuses areawarded if certain financial goals are achieved. The financial goals are not stated in the plan; rather they are judgmentally determined each year. In addition,the board of directors may declare discretionary bonuses to key employees and all employees are eligible for what the Company refers to as the "hot hand"bonus program, which pays awards for outstanding performance. The Company's compensation committee of the board of directors determines thecompensation of the president. Bonus expense for fiscal years 2012, 2011 and 2010 totaled approximately $258,000, $1,602,000 and $403,000, respectively,of which approximately $52,000 and $944,000 is included in accrued liabilities at December 28, 2012 and December 30, 2011, respectively.Post employment health benefits In May 2006, the Company's board of directors approved providing lifetime health insurance coverage for Win Westfall, the Company's former chiefexecutive officer and current chairman of the board of directors, and his spouse and for Linda Heil, the widow of the Company's former chief executiveofficer, Dan Heil. These benefits relate to past services provided to the Company. Accordingly, there is no unamortized compensation cost for the benefits. Included in accrued liabilities in the accompanying consolidated balance sheets related to this obligation is the present value of expected payments forhealth insurance coverage, $143,000 as of December 28, 2012 and $158,000 as of December 30, 2011.F-24 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Fiscal Years 2012, 2011 and 201012. INCOME TAXES The provision (benefit) for income taxes is comprised of: The provision (benefit) for income taxes reconciles to the amounts computed by applying the statutory federal tax rate of 34% to our income (loss)before income taxes. The sources and tax effects of the differences for fiscal years 2012, 2011 and 2010 are as follows:F-25 Fiscal Year 2012 2011 2010 Current federal (benefit) taxes $88,000 $(22,000)$(80,000)Current state taxes 77,000 58,000 32,000 Deferred federal taxes (benefit) (1,830,000) 1,064,000 94,000 Deferred state taxes (benefit) (418,000) 400,000 298,000 $(2,083,000)$1,500,000 $344,000 2012 2011 2010 Computed "expected" federal income tax (benefit) expense $(6,590,000)$1,132,000 $1,042,000 Permanent differences 93,000 88,000 107,000 Current and deferred state income tax expense (benefit), net of federal benefit (1,081,000) 302,000 217,000 Change in valuation allowances on deferred tax assets 5,473,000 — (934,000)Other 22,000 (22,000) (88,000) $(2,083,000)$1,500,000 $344,000 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Fiscal Years 2012, 2011 and 201012. INCOME TAXES (Continued) The tax effects of temporary differences that give rise to significant portions of the net deferred tax assets and liabilities are as follows: At December 28, 2012, the Company had federal and state operating loss carryovers of $8.3 million and $10.8 million, respectively. These carryoversexpire through 2032 and 2033 for federal and state income taxes, respectively. Management also believes that there are no material uncertain tax positions that would impact the accompanying consolidated financial statements. TheCompany's policy is to recognize interest and penalties related to unrecognized tax benefits in income tax expense. The Company may be subject toexamination by the Internal Revenue Service for calendar years 2009 through 2012. The Company may also be subject to examination on certain state andlocal jurisdictions for the years 2008 through 2012.F-26 December 28,2012 December 30,2011 December 31,2010 Current deferred tax assets: Accrued litigation judgment $—— $— $18,000 Accounts receivable allowance 119,000 171,000 382,000 Other accrued liabilities 866,000 895,000 794,000 Federal and state net operating losses — — 1,937,000 985,000 1,066,000 3,131,000 Valuation allowance (570,000) — — Net deferred tax assets 415,000 1,066,000 3,131,000 Current deferred tax liabilities: Deferred revenue (3,867,000) (8,353,000) (4,491,000)Other — (62,000) (47,000) (3,867,000) (8,415,000) (4,538,000) Net current deferred tax liability $(3,452,000)$(7,349,000)$(1,407,000) Deferred tax assets, net of current portion: Federal and state net operating losses $3,370,000 $5,680,000 $455,000 Equipment and leasehold improvement depreciation — — 42,000 Intangible assets 4,962,000 — 33,000 Other 143,000 72,000 121,000 8,475,000 5,752,000 651,000 Valuation allowance (4,903,000) — — Net deferred tax assets 3,572,000 5,752,000 651,000 Deferred tax liabilities, net of current portion: Goodwill amortization — (460,000) (29,000)Fixed assets (67,000) (83,000) — Other (53,000) (109,000) — Net non-current deferred tax assets $3,452,000 $5,100,000 $622,000 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Fiscal Years 2012, 2011 and 201013. SEGMENT INFORMATION The Company has four reporting segments: Engineering Services, Energy Efficiency Services, Public Finance Services and Homeland Security Services.The Engineering Services segment consists of Willdan Engineering and Public Agency Resources. The Engineering Services segment offers a broad range ofengineering and planning services to our public and private sector clients. The Energy Efficiency Services segment, which consists of Willdan EnergySolutions, provides energy efficiency and sustainability consulting services to utilities, state agencies, municipalities, private industry and non-profitorganizations. Prior to December 30, 2011, the energy efficiency and sustainability services were aggregated into the Engineering Services segment. Giventhe manner in which the chief operating decision maker reviews financial results and allocates resources, these services now compromise a separate reportingsegment. Segment information for the comparable prior year period has been restated to conform to the Company's current segment presentation of fouroperating segments. The Public Finance Services segment, which consists of Willdan Financial Services, provides expertise and support for the variousfinancing techniques employed by public agencies to finance their operations and infrastructure along with the mandated reporting and other requirementsassociated with these financings. The Homeland Security Services segment, which consists of Willdan Homeland Solutions, provides national preparedness,homeland security consulting, public safety and emergency response services to cities, related municipal service agencies and other entities. The accounting policies applied to determine the segment information are the same as those described in the summary of significant accounting policies.There were no intersegment sales in any of the three fiscal years ended December 28, 2012. Management evaluates the performance of each segment basedupon income or loss from operations before income taxes. Certain segment asset information including expenditures for long-lived assets has not beenpresented as it is not reported to or reviewed by the chief operating decision maker. In addition, enterprise-wide service line contract revenue is not includedas it is impracticable to report this information for each group of similar services.F-27 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Fiscal Years 2012, 2011 and 201013. SEGMENT INFORMATION (Continued) Financial information with respect to the reportable segments and reconciliation to the amounts reported in the Company's consolidated financialstatements follows:F-28 EngineeringServices EnergyEfficiencyServices PublicFinanceServices HomelandSecurityServices UnallocatedCorporate(2)(3) Intersegment ConsolidatedTotal Fiscal Year 2012: Contract revenue $34,026,000 $45,549,000 $9,780,000 $4,088,000 $— $— $93,443,000 Depreciation and amortization 256,000 262,000 53,000 100,000 — — 671,000 Interest expense (income) 50,000 52,000 1,000 3,000 — — 106,000 Segment (loss) profit before income taxexpense (726,000) (19,314,000) 930,000 (273,000) — — (19,383,000)Income tax (benefit) expense (115,000) (2,211,000) 344,000 (101,000) — — (2,083,000)Net (loss) income (611,000) (17,103,000) 586,000 (172,000) — — (17,300,000)Segment assets(1) 9,237,000 13,256,000 3,411,000 1,371,000 37,831,000 (23,129,000) 41,977,000 Fiscal Year 2011: Contract revenue $33,850,000 $57,731,000 $9,687,000 $5,897,000 $— $— $107,165,000 Depreciation and amortization 372,000 306,000 67,000 132,000 — — 877,000 Interest expense (income) 93,000 (21,000) (5,000) 10,000 — — 77,000 Segment (loss) profit before income taxexpense (158,000) 3,271,000 1,116,000 (299,000) (600,000) — 3,330,000 Income tax expense (benefit) 7,000 1,296,000 469,000 (67,000) (205,000) — 1,500,000 Net (loss) income (165,000) 1,975,000 647,000 (232,000) (395,000) — 1,830,000 Segment assets(1) 9,667,000 39,416,000 4,008,000 2,010,000 32,339,000 (23,129,000) 64,311,000 Fiscal Year 2010: Contract revenue 33,012,000 29,211,000 10,364,000 5,309,000 — — 77,896,000 Depreciation and amortization 597,000 179,000 152,000 114,000 — — 1,042,000 Interest expense (income) 18,000 59,000 (20,000) (3,000) — — 54,000 Segment (loss) profit before income taxexpense (31,000) 2,158,000 698,000 360,000 (121,000) — 3,064,000 Income tax (benefit) expense (224,000) 397,000 120,000 58,000 (7,000) — 344,000 Net income (loss) 193,000 1,761,000 578,000 302,000 (114,000)(1) — 2,720,000 Segment assets(1) 8,266,000 26,651,000 4,029,000 1,957,000 28,947,000 (20,396,000) 49,454,000 (1)Segment assets are presented net of intercompany receivables. (2)The following sets forth the amounts included in the net loss that was Unallocated Corporate for fiscal years 2012, 2011 and 2010: 2012 2011 2010 Unallocated net loss: Income tax benefit $— $205,000 $7,000 Other — (600,000) (121,000) $— $(395,000)$(114 ,000) (3)The following sets forth the assets that are included in Unallocated Corporate as of December 28, 2012, of December 30, 2011 and December 31, 2010. 2012 2011 2010 Assets: Cash and cash equivalents $9,881,000 $2,378,000 $6,169,000 Prepaid expenses 1,041,000 1,268,000 1,211,000 Intercompany receivables 113,615,000 117,937,000 114,703,000 Other receivables 49,000 41,000 75,000 Equipment and leasehold improvements, net 194,000 329,000 380,000 Investments in subsidiaries 23,130,000 23,130,000 20,396,000 Other 3,536,000 5,194,000 716,000 $151,446,000 $150,277,000 $143,650,000 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Fiscal Years 2012, 2011 and 201014. CONTINGENCIESClaims and Lawsuits The Company is subject to claims and lawsuits from time to time, including those alleging professional errors or omissions that arise in the ordinarycourse of business against firms that operate in the engineering and consulting professions. The Company carries professional liability insurance, subject tocertain deductibles and policy limits, for such claims as they arise and may from time to time establish reserves for litigation that is considered probable of aloss. In accordance with accounting standards regarding loss contingencies, the Company accrues an undiscounted liability for those contingencies where theincurrence of a loss is probable and the amount can be reasonably estimated, and discloses the amount accrued and an estimate of any reasonably possibleloss in excess of the amount accrued, if such disclosure is necessary for the Company's financial statements not to be misleading. The Company does notaccrue liabilities when the likelihood that the liability has been incurred is probable but the amount cannot be reasonably estimated, or when the liability isbelieved to be only reasonably possible or remote. Because litigation outcomes are inherently unpredictable, the Company's evaluation of legal proceedings often involves a series of complex assessmentsby management about future events and can rely heavily on estimates and assumptions. If the assessments indicate that loss contingencies that could bematerial to any one of the Company's financial statements are not probable, but are reasonably possible, or are probable, but cannot be estimated, then theCompany will disclose the nature of the loss contingencies, together with an estimate of the possible loss or a statement that such loss is not reasonablyestimable. While the consequences of certain unresolved proceedings are not presently determinable, and a reasonable estimate of the probable andreasonably possible loss or range of loss in excess of amounts accrued for such proceedings cannot be made, an adverse outcome from such proceedingscould have a material adverse effect on the Company's earnings in any given reporting period. However, in the opinion of the Company's management, afterconsulting with legal counsel, and taking into account insurance coverage, the ultimate liability related to current outstanding claims and lawsuits is notexpected to have a material adverse effect on the Company's financial statements.F-29 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Fiscal Years 2012, 2011 and 201015. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The tables below reflect selected quarterly information for the fiscal years ended December 28, 2012 and December 30, 2011. F-30 Fiscal Three Months Ended March 30,2012 June 29,2012 September 28,2012 December 28,2012 (in thousands except per share amounts) Contract revenue $25,468 $23,481 $21,547 $22,947 (Loss) income from operations (2,317) (19,583) 1,420 1,225 Income tax (benefit) expense (927) (2,657) 593 908 Net (loss) income (1,411) (16,976) 787 300 (Loss) earnings per share: Basic and diluted $(0.19)$(2.33)$0.11 $0.04 Weighted-average shares outstanding: Basic 7,291 7,297 7,315 7,335 Diluted 7,291 7,297 7,315 7,343 Fiscal Three Months Ended April 1,2011 July 1,2011 September 30,2011 December 30,2011 (in thousands except per share amounts) Contract revenue $22,742 $25,812 $28,605 $30,006 (Loss) income from operations (280) 954 2,380 347 Income tax expense — 199 203 1,098 Net (loss) income (291) 735 2,165 (779)(Loss) earnings per share: Basic $(0.04)$0.10 $0.30 $(0.11)Diluted $(0.04)$0.10 $0.29 $(0.11)Weighted-average shares outstanding: Basic 7,251 7,257 7,267 7,273 Diluted 7,251 7,471 7,468 7,273 QuickLinks -- Click here to rapidly navigate through this document Exhibit 21.1 WILLDAN GROUP, INC.LIST OF SUBSIDIARIES(a) (a)As of December 28, 2012. Name of Entity Jurisdiction of Organization Ownership Interest1. Willdan Engineering California 100% Willdan Group, Inc.2. Willdan Energy Solutions California 100% Willdan Group, Inc.3. Public Agency Resources California 100% Willdan Group, Inc.4. Willdan Financial Services California 100% Willdan Group, Inc.5. Willdan Homeland Solutions California 100% Willdan Group, Inc. QuickLinksExhibit 21.1WILLDAN GROUP, INC. LIST OF SUBSIDIARIES(a) QuickLinks -- Click here to rapidly navigate through this document Exhibit 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-139127, No. 333-152951, No. 333-168787 andNo. 333-184823) pertaining to the 2008 Performance Incentive Plan of Willdan Group, Inc. of our report dated March 26, 2013, with respect to theconsolidated financial statements of Willdan Group, Inc. and subsidiaries included in this Annual Report (Form 10-K) for the year ended December 28, 2012. /s/ Ernst & Young LLPLos Angeles, CaliforniaMarch 26, 2013 QuickLinksExhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM QuickLinks -- Click here to rapidly navigate through this document Exhibit 31.1 SECTION 302 CERTIFICATION OF CHIEF EXECUTIVE OFFICER I, Thomas D. Brisbin, certify that:1.I have reviewed this annual report on Form 10-K of Willdan Group, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared; b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recentfiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant's internal control over financial reporting; and 5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internalcontrol over financial reporting.Date: March 26, 2013 By: /s/ THOMAS D. BRISBINThomas D. BrisbinPresident and Chief Executive Officer QuickLinksExhibit 31.1SECTION 302 CERTIFICATION OF CHIEF EXECUTIVE OFFICER QuickLinks -- Click here to rapidly navigate through this document Exhibit 31.2 SECTION 302 CERTIFICATION OF CHIEF FINANCIAL OFFICER I, Kimberly D. Gant, certify that:1.I have reviewed this annual report on Form 10-K of Willdan Group, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared; b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recentfiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant's internal control over financial reporting; and 5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internalcontrol over financial reporting.Date: March 26, 2013 By: /s/ KIMBERLY D. GANTKimberly D. GantChief Financial Officer, Senior Vice President andTreasurer QuickLinksExhibit 31.2SECTION 302 CERTIFICATION OF CHIEF FINANCIAL OFFICER QuickLinks -- Click here to rapidly navigate through this document Exhibit 32.1 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. 1350, as Adopted Pursuant to § 906 of the Sarbanes-Oxley Actof 2002 In connection with the Annual Report on Form 10-K of Willdan Group, Inc. (the "Company") for the annual period ended December 28, 2012, as filedwith the Securities and Exchange Commission on the date hereof (the "Report"), Thomas D. Brisbin, as President and Chief Executive Officer of theCompany, and Kimberly D. Gant, as Chief Financial Officer and Senior Vice President of the Company, each hereby certifies, pursuant to 18 U.S.C. § 1350, asadopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his or her knowledge:(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany. This certification accompanies the Report pursuant to § 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by theSarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of § 18 of the Securities Exchange Act of 1934, as amended. A signed original ofthis written statement required by § 906 has been provided to the Company and will be retained by the Company and furnished to the Securities andExchange Commission or its staff upon request. By: /s/ THOMAS D. BRISBINThomas D. BrisbinPresident and Chief Executive OfficerMarch 26, 2013 By: /s/ KIMBERLY D. GANTKimberly D. GantChief Financial Officer, Senior Vice Presidentand TreasurerMarch 26, 2013 QuickLinksExhibit 32.1Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. 1350, as Adopted Pursuant to § 906 of the Sarbanes-Oxley Act of2002
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