Use these links to rapidly review the document TABLE OF CONTENTS ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA PART IV 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(I.R.S. EmployerIdentification No.)2401 East Katella Avenue, Suite 300, Anaheim, California 92806(Address of principal executive offices) (Zip Code)(800) 424-9144(Registrant's telephone number, including area code)Securities registered pursuant to Section 12(b) of the Act:Common Stock, $0.01 parvalue NASDAQ Global Market (Title of class) (Name of exchange)Securities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No ýIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes o No ýIndicate 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 oIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required tobe submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files). Yes ý No oIndicate 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, to the bestof registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to thisForm 10-K. ýIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See(MarkOne) ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934For the Fiscal Year Ended January 2, 2015.Oro TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934For the Transition Period from to . definitions 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 the commonequity was last sold, as reported on the NASDAQ Global Market, as of the last business day of the registrant's most recently completed second fiscal quarterwas $39.0 million.Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ýOn March 30, 2015, 7,795,248 shares of the registrant's common stock were issued and outstanding.DOCUMENTS INCORPORATED BY REFERENCEPart III of this Form 10-K incorporates information by reference from the registrant's definitive proxy statement for the 2015 Annual Meeting to be filed on orprior to 120 days after the end of our fiscal year. Large accelerated filer o Accelerated filer o Non-accelerated filer o(Do not check if a smaller reporting company) Smaller reporting company ý Table of Contents TABLE OF CONTENTS i Page PART I ITEM 1. BUSINESS 1 ITEM 1A. RISK FACTORS 19 ITEM 1B. UNRESOLVED STAFF COMMENTS 31 ITEM 2. PROPERTIES 31 ITEM 3. LEGAL PROCEEDINGS 32 ITEM 4. MINE SAFETY DISCLOSURES 32 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK, RELATED STOCKHOLDER MATTERSAND ISSUER PURCHASES OF EQUITY SECURITIES 33 ITEM 6. SELECTED FINANCIAL DATA 34 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS 36 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 50 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 51 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING ANDFINANCIAL DISCLOSURE 52 ITEM 9A. CONTROLS AND PROCEDURES 52 ITEM 9B. OTHER INFORMATION 53 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 54 ITEM 11. EXECUTIVE COMPENSATION 54 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ANDRELATED SHAREHOLDER MATTERS 54 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 54 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 54 PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 55 Table of Contents PART I ITEM 1. BUSINESS Overview We are a provider of professional technical and consulting services to utilities, private industry, and public agencies at all levels of government.Nationwide, we enable our clients to realize cost and energy savings by providing a wide range of specialized services, including comprehensive energyefficiency solutions, without having to incur and maintain the overhead necessary to develop staffing in-house. We assist our clients with a broad range ofcomplementary services relating to:•Energy Efficiency and Sustainability; •Engineering and Planning; •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, Kansas,Oregon, Texas, Washington and Washington, DC. As of January 2, 2015, we had a staff of 637, which includes licensed engineers and other professionals.Historically, our clients have 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, and projects for the private sector. Weseek to establish close working relationships 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 71% of the 482 cities and approximately 89% 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 primarily in California and New York. We alsohave business with utilities in Texas, Illinois, Ohio and Washington State. 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: 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 42% of our consolidated contract revenue for fiscal years 2014 and 2013, respectively. Engineering Services. Our Engineering Services segment includes the operations of our subsidiaries, Willdan Engineering, Willdan Infrastructure andPublic Agency Resources ("PARs"). Willdan Engineering provides civil engineering-related and city planning services, geotechnical and other engineeringconsulting services to our clients. Willdan Infrastructure, which was launched in fiscal year 2013, provides engineering services to larger rail, port, water,mining and other civil engineering projects. PARs primarily provides staffing to Willdan Engineering. Contract revenue for the Engineering Servicessegment represented approximately 38% and 41% of our overall consolidated contract revenue for fiscal years 2014 and 2013, 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 public1 Table of Contentsagencies. Contract revenue for the Public Finance Services segment represented approximately 10% and 12% of our consolidated contract revenue for fiscalyears 2014 and 2013, 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 3% and 5% of our consolidated contract revenue for fiscal years 2014 and 2013, respectively.Our Markets We provide energy efficiency, engineering and planning, 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:•Increased demand for services and solutions that provide energy efficiency, sustainability, water conservation and renewable energy in thepublic and private sectors; •Population growth, which leads to a need for increased capacity in government services and infrastructure; •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; •Demand by constituents for a wider variety of services; •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.Energy 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 energy, 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.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 ContentsEconomic and Financial Consulting Public agencies must raise the necessary funding to build, improve and maintain infrastructure and to provide services to their local communities. Whilerevenue is the primary source of public agency funding, certain states, including California, impose property tax and spending limits that curtail thegeneration of such funds. Alternatives include the issuance of tax-exempt securities; the formation of special financing districts to assess property owners ona parcel basis for infrastructure and public improvements, such as assessment districts and community facilities districts (known as Mello-Roos districts inCalifornia); the implementation of development impact fee programs that require developers to bear the cost of the impact of development on localinfrastructure; user fee programs that pass costs along to the actual users of services; optimization of utility rates; and special taxes enacted by voters forspecific purposes. Public agencies frequently contract with private consultants to provide advance studies, manage the processes and provide the administration necessaryto support these methods. Consultants have the expertise necessary to form the special financing districts and produce an impact fee study used to develop aschedule of developer fees. Privatized services are also utilized to implement the programs or revised rate schedules, and in the case of special financingdistricts, administer the districts through the life of the bonds. Consultants also frequently provide the services necessary to comply with federal requirementsfor tax-exempt debt, such as arbitrage rebate calculations and continuing disclosure reports. Use of such services allows public agencies to capitalize oninnovative 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. Suchevents place 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.Our Services We specialize in providing professional technical and consulting services to utilities, private industry and public agencies at all levels of government.Our core client base is composed of public and private utilities and commercial and industrial firms, cities, counties, special districts, other local and stateagencies and tribal governments. 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 contracts typically have a duration of less than 12 months, although we have city services contracts that have been in effect for over30 years. At January 2, 2015, we had approximately 1,909 open projects. We offer services in four segments: Energy Efficiency Services, Engineering 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 of3 Table of Contentstheir respective clients. The following table presents, for the years indicated, the approximate percentage of our consolidated contract revenue attributable toeach segment: See Note 12—"Segment Information" for additional segment information.Energy Efficiency Services In fiscal year 2008, we acquired our subsidiary, Willdan Energy Solutions ("WES"), formerly known as Intergy. WES is an energy efficiency consultingfirm that provides specialized, innovative, comprehensive energy solutions nationwide to businesses, utilities, state agencies, municipalities, and non-profitorganizations. Our experienced engineers and staff help our clients realize cost and energy savings by tailoring efficient and cost-effective solutions to assistthem in maximizing their energy spend. WES' energy efficiency services include comprehensive surveys, program design, master planning, benchmarkinganalysis, installation, alternative financing, and measurement and verification services. 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; implementation, trainingand management; data management and reporting; retro-commissioning services; and measurement and verification services. Program Design and Implementation. We assist utilities and governmental clients with the design, development and implementation of energyefficiency plans and programs. These plans include energy efficiency design, outreach implementation, water conservation, renewable, and Green House Gas("GHG") reduction strategies. Direct Customer Support. We assist clients (including utilities, schools and private companies) in developing and managing facilities andinfrastructures through a holistic, practical approach to facility management. Our services cover audits, local compliance, operations and maintenance review,renewable energy planning, master plans, infrastructure analysis, Leadership in Energy and Environmental Design (LEED) certification for buildings, andenergy spend and GHG reduction strategies. Representative Projects. The following are examples of typical ongoing projects 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,offering both free and cost-shared energy efficiency retrofits, including installation of high-efficiency lighting and refrigeration energyconservation 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 or in cooperation withsmall group of contractors. We initially operated the4 Fiscal Year 2014 2013 2012 Energy Efficiency Services 49% 42% 49%Engineering Services 38% 41% 36%Public Finance Services 10% 12% 11%Homeland Security Services 3% 5% 4% Table of Contentsprogram in the Bronx, Brooklyn, and Queens areas and, in July 2014, we were awarded an expanded contract to add the Manhattan, StatenIsland and Westchester County areas to our scope of services. In August 2014, we started a significant effort to reduce a load pocket (an area ofintensive power use) in Brooklyn and Queens with a goal of achieving an electric demand reduction of 9 million watts by May 2015. In 2014,across the SBDI program, we achieved a reduction of 93 million kilowatt hours.•New York State Energy Research & Development Authority ("NYSERDA"). We serve as NYSERDA's Commercial and Industrial OutreachContractor for its Existing Facilities Program, Flexible Technical Assistance Services Program, and Industrial and Process Efficiency DataCenter Program. Additionally, WES is an Outreach Contractor for two joint initiatives that NYSERDA has with Consolidated Edison: theDemand Management Program and the Data Center Efficiency Program. As an Outreach Contractor, we provide targeted, statewide marketingand customer outreach services that include the performing market research, developing market partnerships, conducting direct outreach,calculating energy savings, and assisting with customer project development and implementation. Contract goals are set forth to successfullyusher utility customer energy efficiency projects through the programs at a value of 510,000 megawatt-hours ("MWh"), 233,400 dekatherms("Dth"), and 24.26 peak megawatts ("MW"). •Pacific Gas & Electric ("PG&E"), Southern California Edison ("SCE"), and San Diego Gas & Electric ("SDG&E")—Hospital EnergyEfficiency Program ("HEEP"). We serve as program implementer for HEEP, which offers energy efficiency services for hospitals andhealthcare-related buildings in the territories of PG&E, SCE, and SDG&E, including acute hospitals (ambulatory surgery centers licensedunder acute hospitals and acute hospital outpatient services), acute psychiatric hospitals, medical or healthcare-related office buildings;chemical dependency recovery hospitals; skilled nursing facilities; free-standing trauma centers, community clinics, convalescent hospitals,and extended care facilities. In 2014, these programs delivered total approximate energy savings of 24 million kWh, 1,717 kW, and 358,000therms (1 Therm equals 100,000 BTU). •Southern California Edison ("SCE") and San Diego Gas & Electric ("SDG&E")—Lodging Energy Efficiency Program ("LEEP"). We serve asthe program implementer for LEEP, which provides customized energy-saving solutions for lodging facilities including full-servicedevelopment, management, and implementation support of energy-savings projects. In 2014, the program delivered total approximate energysavings of 23 million kWh, 108,000 therms, and 3,400 kW of peak demand reduction. •Puget Sound Energy ("PSE") Direct Install Program. We serve as the program administrator for the PSE Direct Install Program, which offersincentives for small-sized businesses to make energy efficiency upgrades. Typical upgrades include lighting, refrigeration, electric waterheating, occupancy sensors, and LED signs. We completed the initial contract in December 2013, producing energy savings of 11 millionkWh and 30,000 therms, which exceeded contract goals. A new 2-year contract began in January 2014 with the express goal of delivering totalapproximate energy savings of 16 million kWh and 20,000 therms. We are currently ahead of this savings target, reporting 8.6 million kWh ofenergy savings in 2014 alone. •American Electric Power Ohio ("AEP Ohio") Data Center Efficiency Program. We implement AEP Ohio's Data Center Efficiency Program,which includes program design, energy efficiency consulting and engineering, and incentive processing. The program offers incentives to datacenter operators, owners and customers for making energy efficiency upgrades in their current facilities or implementing them in theconstruction of new facilities. We also create program literature, case studies, and marketing material specific to the data center industry in thecentral5 Table of ContentsOhio region. In 2014, we delivered over 14 million kWh in energy savings from nearly 50 projects for AEP Ohio. During the 2014 programyear, Willdan, AEP Ohio and one program customer received the Uptime Institute's 2014 Brill award for Efficient IT, an international awardselected from hundreds of entries.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 related services that we offer under this umbrella include performing accessibilitycompliance and providing disaster recovery teams, energy compliance evaluations, permit processing and issuance, seismic retrofitting programs, andstructural plan review. Many of our 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 services 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. 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 Americans with Disabilities Act compliance, preliminary and final plats (maps), grading and drainage, completeinfrastructure improvements for residential site plans, commercial site plans, industrial developments, subdivision, and major master planned developments.Our development review services include grading plans, street lighting and traffic signal plans, erosion control plans, storm drain plans, street improvementplans, 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.6 Table of Contents 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, California Environmental Quality Act and Environmental Impact Report compliance and document preparation),mitigation monitoring programs and third party environmental review. We also provide urban planning and design services focused on investigation ofspecific planning and design issues and the formulation of plans, policies, and strategies for communities as a whole or for specific study areas. Typicalassignments include land use studies, development of specific plans or general plan elements, design guidelines, and zoning ordinances. Our urban planningservices include assisting communities with the implementation of general plans, land use enforcement, capital improvement planning, communitydevelopment and redevelopment programs, and economic development strategies. We typically perform the development services function for emerging andnewly incorporated 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.7 Table of Contents Survey. Our surveying and mapping services include major construction layout, design survey, topographic survey, aerial mapping, GeographicInformation Systems, 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 flooding in streets and adjacent properties. We design open and closed stormdrain systems and detention basin facilities, for cities, counties and the Army Corp of Engineers. Representative Projects. The following are examples of typical projects we have in the Engineering Services segment:•County of Orange, California. We have been retained to evaluate the County's Road Fee Programs to determine how land use changes affectthe programs, how Construction Price Index rates have changed since the programs were established, and if changes or improvements areneeded. Three Road Fee Programs—Santiago Canyon Improvements, South County Road Improvements, and Coastal Area Road and TrafficSignal Improvements—are involved in our evaluation. These fee programs were initiated to ensure timely construction of needed publicinfrastructure to match land development growth within the respective communities. Hundreds of millions of dollars are involved and theBoard of Supervisors retained our services to ensure that adequate funding is available within the current fee structure. Our evaluation includesproviding engineering feasibility studies for new improvements and reviewing costs of existing projects that are programmed but awaitingadditional program fee collections to fund construction. We are also evaluating surplus program funds to determine potential methods ofequitably distributing the surplus. Our Engineering Services and Public Finance Services segments are involved in the Road Fee Programevaluation. •City of Henderson. We were retained by the City to provide professional civil engineering plan review and staff augmentation services. Theservices include onsite assistance at the public counter, review of drainage studies and grading plans, review of offsite improvement plans;review of additional documents as requested by Public Works, meeting with applicants and the applicants' engineers to address reviewcomments as requested by Public Works, and performing8 Table of Contentssite visits to observe site conditions as related to documents being reviewed. Document review will be conducted both onsite at the City ofHenderson Public Works and offsite at our offices.•County of Mariposa, California. As part of a $1.9 million contract with the County, we are providing project management, traffic staging,roadway and bridge engineering, utility coordination, and geotechnical engineering services to the County for replacement of Tip Top RoadBridge. This single-span, 21-foot long by 16-foot wide bridge was originally constructed in 1945 and has been classified as FunctionallyObsolete by Caltrans. The new single-span, 25-foot long by 24-foot 10-inch wide replacement bridge will accommodate two lanes of traffic. •City of South Gate, California. We were selected to provide engineering services for roughly $15.4 million of improvements to the FirestoneBoulevard Regional Corridor from Alameda Street to Hunt Avenue, a project for which we secured $15 million in funding. Funding isintended to convert the existing four-lane road to a six-lane road during peak hours to accommodate additional vehicle traffic created byimprovements to Interstate 710 and to complete a gap of six-lane road on Firestone Boulevard. The project will be designed as a CompleteStreet and integrate with the City's general plan desire to create a themed, high-density urban corridor of walkable mixed-used development.To the maximum extent practical, the design will emphasize sustainability, including but not limited to, in pavement technologies, air quality,storm water treatment, water conservation, green-street technologies, and complete streets. •City of Winters, California. We were selected by the city of Winters to provide professional services to assist their staff in managing state andfederally funded projects. In January 2015, the City approved a three-year contract to provide project management, including coordinationwith Caltrans Local Assistance, consultant selection and contract oversight, document preparation and review, funding programming, design,utility, right-of-way and construction phase coordination, and schedule and budget monitoring. The City has issued the first task order toassist with the bidding and award process for the Railroad Avenue and Dry Creek bridge replacement. •County of Sacramento, California. In January 2014, we were retained by the County of Sacramento with a three-year, $2 million renewablecontract to provide comprehensive planning services involving three main service areas—current planning, long-range and special projects,and environmental review. Currently, there are six full-time planners assigned to the County's Department of Community Development. Inconjunction with this contract, we are preparing a draft environmental impact report for the Barrett Ranch East project—a proposeddevelopment consisting of mixed low- and medium-density residential homes, commercial shopping center and parks, and open spaces on thelargest undeveloped property (128.1 acres) remaining within the Antelope community. In October 2014, we were additionally selected by theCounty for a four-year further contract to provide on-call improvement plan review, permit support, and land surveying services. •US Navy, California. We partnered with another firm for a design-build project to replace/repair 3.3 miles of sewer pipeline and 80 manholeswithin the Marine Corps Recruit Depot base facilities in San Diego. In this capacity, we were responsible for field survey, geotechnicalinvestigation, CCTV investigation, design of sewer replacement/repair facilities and affected surface replacement, and submittals for approvalprior to construction. Engineering during construction will also be provided. We again partnered with the firm to provide design andconstruction of the U.S. Navy's Naval Weapons Station Small Arms Range in Seal Beach. The range is comprised of two small-caliber rangesand three shotgun ranges. The design-build team will design and construct modifications to two small-caliber-gun ranges with a verticalbaffling system and a wooden brow for bullet and bullet fragment containment. These upgrades involve installing new granular bullet traps,replacing vertical baffle systems, replacing sidewall9 Table of Contentsprotection systems, modifying concrete slab-on-grade, removing a timber divider wall, removing timber retaining wall, installing reinforcedconcrete retaining wall, replacing lighting, and relocating the target retrieval system. We are providing geotechnical engineering, foundation,retaining wall, structural baffles design; and hydrology/hydraulics services.•City of Davis, California. We are providing a full range of development review services including inspection and material testing for a 100acre, mixed use subdivision. The project consists of two major phases with 6 smaller sub-phases within each major phase (12 phases total). Weare tasked with attending client and developer coordination meetings; process reviews for grading plans, improvement plans, storm drainpump station, joint trench plans, agricultural water well (for landscape irrigation), off-site improvements, map reviews, bond estimates andother related services. The estimated cost of all public improvements is $26 million. •Ridgecrest, California. We are under contract with the City of Ridgecrest to provide over $0.5 million of design, bidding assistance, andconstruction engineering services for this federally-funded street reconstruction project on China Lake Boulevard—a four-lane principalarterial street. Our services include utility notices and coordination, geotechnical investigation, environmental clearances, plans,specifications, and estimate preparation, bidding assistance, engineering support during project bidding and construction, and constructionmanagement, inspection, labor compliance, quality assurance materials testing, and federal funding administration. •City of Phoenix, Arizona. Following a competitive bid process, we were awarded two contracts with the City of Phoenix—one for plan reviewand the other for inspection. Plan review services include building, plumbing, mechanical, electrical, energy, and fire code compliance forpermit issuance purposes. Under the second contract, we will provide field inspections for building, mechanical, plumbing, electrical, energy,and fire code compliance for construction of new development with the City. Both contracts are multi-year contracts with the potential tocapture $1.5 million annually per discipline.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 that we offer our clients. In general, we supply expertise and support for the various financing techniques employed by publicagencies to finance their operations and infrastructure. We also support the mandated reporting and other requirements associated with these financings. Wedo not provide underwriting or financial advisory services for municipal securities. 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, benefitassessment districts, fire suppression districts, and business improvement districts. Our administration services include calculating the annual levy for eachparcel in the district; billing charges directly or through a county tax roll; preparing the annual Engineer's Report, budget and resolutions; reporting oncollections and payment status; calculating prepayment quotes; and providing financial analyses, modeling and budget forecasting.10 Table of Contents The key to our District Administration services is our proprietary software package, MuniMagicSM: Municipal Administration & GovernmentInformation Coordinator, which we developed internally to redefine the way we administer special districts. MuniMagic is a database management programthat maintains 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 large quantities of data. MuniMagic is also available for licensing by our existing clients. 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; •Strategic economic development and redevelopment plans; •Real estate and market analysis associated with planning efforts, and development fee studies; •Proposition 218 studies, assessment balloting, and re-engineering; •Special district formation, which involves the feasibility determinations, design, development and initiation of community facilities districts,school facilities improvement districts, tax increment financing districts, assessment districts, landscape and lighting districts, benefitassessment districts, business improvement districts, and fire suppression assessments; •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 the issuers. We provide federal compliance services to approximately 750issuers in 42 states and the District of Columbia on more than 2,500 bond issues totaling over $60 billion in municipal debt. Representative Projects. Examples of typical projects we have in the Public Finance Services segment include:•Durango, Colorado. We worked with the City to develop a balanced long-term water and wastewater financial plan incorporating acombination of rate increases and debt issuances to fully fund the City's operations while minimizing rate impacts on the City's customers. Oneof the challenges facing the City is the need to upgrade the wastewater treatment plant in order to meet and maintain compliance with Statewastewater treatment standards and to provide available capacity for new growth. The project cost for the upgrade is approximately$50 million over 3 years.11 Table of Contents•San Benito County, California. We were hired by the County of San Benito to provide professional consulting services specific to thereplacement of its Enterprise Resource Planning system. We assisted the County with several project components including review of the draftcontract, coordination with County staff to ensure that comprehensive functional and technical specifications were developed and added as acontract addendum. In addition, we are involved in the design the Chart of Accounts to facilitate employee time tracking, andinternal/external financial reporting, including internal management reporting, monthly financial reporting, grant reporting, projectaccounting and Comprehensive Annual Financial Report preparation. Also, we interface with the software developer's project manager toresolve issues, develop the project task list and schedule, and monitor the work plan and project schedule. •Bay County, Florida. The County owns and operates a water and sewer system that provides wholesale water to eight municipal customerswithin the County, as well as to retail customers within the unincorporated communities. The County is in the process of issuing bonds torefund certain outstanding debt obligations and provide funding for system improvements. We are currently developing the financialfeasibility report contained within the offering documents for the bonds. •Columbia, Missouri. In partnership with the City of Columbia, we are preparing a solid waste collection cost-of-service, benchmarking andrate Study. This multi-faceted project included observation of the City collection system and development of full cost rates for the City'slandfill and Material Recovery Facility, as well as collection rates for residential, commercial dumpster, and commercial roll-off rates. Ourtasks included the development of a utility rate model, which would serve as a long-term planning and decision-making tool as the City's solidwaste system evolves over time. •Brighton, Colorado. We were hired by the City to prepare a comprehensive fee and rate study for utility services, including water, wastewaterand storm drainage. Due to the increase in residential development over the past few decades, the Brighton community doubled in sizecausing water distribution and collection pipelines to triple. This relatively sudden increase in system growth diverted needed attention andresources away from the appropriate maintenance of the existing utility system components and focused City resources primarily on newinstallations and growth planning, which accelerated the need for the study and updated fees. Working with City staff, we identified andprioritized the utility system objectives and desired rate attributes, reviewed existing rates and made recommendations on refinements thateffectively meet these goals. This information was used to develop a comprehensive multi-year capital financing analysis as well as ratepolicies that will guide the rate setting process. •Flagstaff, Arizona. Willdan was retained by the City, in second quarter of 2014, to conduct a comprehensive utility rate analyses for water,wastewater and reclaimed water rates, as well as connection/capacity fees. We had previously completed a similar analysis for the City in 2010.Willdan is currently working with the City to create a new comprehensive revenue sufficiency analysis and financial plan from the ground up,and design updated utility rates and fees that effectively meet previously identified project goals. Key issues being addressed include theequity of utility rates for customers inside the City, as compared with those outside the City, and ensuring that capacity fee and rates reflect theproper burden on new development. The project team is also actively involved in stakeholder meetings, which are necessary to gain politicaland community acceptance of the proposed rate structures by explaining the process and results at each key milestone of the project.12 Table of ContentsHomeland Security Services In fiscal year 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, the StateEmergency Management System for California, and the National Response Framework. Exercises are designed to evaluate and test "first responders" andsupport 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 broadbandnetworks, commercial cellular test plans, data networks, microwave network planning and related engineering design. Water Security. We offer NIMS and Incident Command System courses specific to water and wastewater agencies. Our instructors and course facilitatorshave significant experience in water and wastewater security, emergency preparedness, and business continuity. All courses are DHS-certified. Eligibleagencies may use DHS Transit Security Grant Program funds for this approved training. The program is one in a number of comprehensive measuresauthorized by congress to directly support transportation infrastructure security activities.13 Table of Contents Representative Projects. Examples of typical Homeland Security Services projects include:•New York State Mass Transit Authority Training Program ("NYS MTA"). For several years we have been contracted to develop and deliverNYS MTA's Phase III Advanced Security and Emergency Response training courses for NYS MTA employees. The NYS MTA is the largestpublic transportation provider in the western hemisphere, serving approximately 14.4 million people. The program covers several NYS MTAagencies and course development and includes topical material focused on Behavioral Recognition, Counter Terrorism, Evacuation,Emergency Command and Control, Critical Incident Management, Crisis Communications and Leadership. Phase III was successfullycompleted in fiscal year 2014 and work on NYS MTA's Phase IV preparedness training has been started. •Amtrak Security Exercise Program. In 2013, WHS was part of the Obsidian Analysis team that was awarded a one year contract to design,develop, and deliver preparedness exercises for Amtrak stations across the United States. The purpose of the Amtrak Security Exercise Programwas to evaluate the plans, policies, and procedures Amtrak will use to respond to a natural or man-caused event involving Amtrak stations,trains, or property. Successfully completed in fiscal year 2014, this contract adds to our expanding portfolio of professional transportationsecurity services, which now includes work at the national level. Moreover, in 2014, Amtrak selected the Obsidian Analysis and Willdan teamto provide the follow on training and exercise program in 2015. •Alameda County-Bay Area UASI Training Services. In 2014, WHS was awarded a three-year contract to provide the Alameda County-BayArea Urban Area Security Initiative ("Bay Area UASI") with a wide range of training courses taught by subject matter experts and/orrecognized professionals in the fields of law enforcement, fire, emergency medical services, emergency management, and public health. TheBay Area UASI consists of 12 counties, including three major cities, with a total population of seven and a half million residents. Prior to this,from 2011 to 2014, we provided instruction to participants from all 12 Bay Area counties on a range of topics, including, underwater hazarddevices, improvised explosive device electronics, maritime interdiction, and situational awareness for Emergency Operations Centers. Weexpect that our training and exercise services will be used to prepare the Bay Area to host Super Bowl 50 in Levi Stadium in Santa Clara, CA.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 the fees proposed. We believe that our service levels, experience and expertise satisfy even the mostrigorous qualification standards. We have developed a strong reputation for quality, based upon our depth of experience, ability to attract qualityprofessionals, customized technology and software that support our services, local knowledge and the expertise we possess across multiple disciplines. Webelieve we are well-positioned to serve public sector clients due to our knowledge of the unique reporting processes and operating procedures of publicagencies, which differ substantially from the private sector. We believe our high quality of service is a significant reason we currently provide services toapproximately 71% of the cities and approximately 89% of the counties in California.14 Table of Contents 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, Florida, Chicago, Washington, D.C., and New York. Each of our offices is staffed withquality professionals, including former management level public sector employees, such as planners, engineers, inspectors, and police and fire departmentpersonnel. These professionals understand the 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 40 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 36 years of experience in the engineering and consulting industry,and an average of 8 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 year 2014, we served over 763 distinct clients. For fiscal year 2014, we had two clients, the Consolidated Edison Company of New York andthe City of Elk Grove that accounted for 25% and 11%, respectively, of our consolidated contract revenue. None of our other clients accounted for over 10%of our consolidated contract revenue. Our clients are primarily based in California and New York, as well as Arizona, Florida, Texas, Washington andWashington, DC. In fiscal year 2014, services provided to clients in California accounted for approximately 57% of our contract revenue and servicesprovided to clients in New York accounted for approximately 32% 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 is15 Table of Contentsapproximately $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 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 and generally low customer concentration, the renewal, termination or modification of a contract may have a material adverse effect on ourconsolidated operations.16 Fiscal Year 2014 2013 Time and materials 14% 29%Unit based 43% 39%Fixed price 42% 31%Monthly retainer 1% 1%Total 100% 100% Table of ContentsCompetition 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 50 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 segment, 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 our Energy Efficiency Services segment competes primarily with Lockheed-Martin, EnerPath, KEMA (a division of the DNV Group) andNexant, Inc. 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 TechnologyCorporation, CH2M Hill and Jacobs Engineering Group, Inc. Our chief competitors in our Public Finance Services segment include David Taussig &Associates, Harris & Associates, BLX Group, Arbitrage Compliance Specialists, Raftelis Financial Consultants, Inc., FCS Group and the NBS GovernmentFinance Group. We believe the Homeland Security Services segment competes primarily with Leidos (formerly Science Applications InternationalCorporation or SAIC) and IEM, Inc.Insurance We currently maintain the following insurance coverage: commercial general liability with limits of $1.0 million per occurrence and $2.0 milliongeneral aggregate; automobile liability insurance with limits of $1.0 million per occurrence; employer's liability with limits of $1.0 million per occurrence.We also carry professional liability insurance with limits of $5.0 million per claim and $10.0 million annual aggregate and excess liability insurance with alimit of $10.0 million. 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 January 2, 2015, we had approximately 443 full-time employees and 194 part-time employees. All Public Agency Resources' employees are classifiedas part-time. Our employees include, among others, licensed civil, traffic and structural engineers, land surveyors, certified building officials, licensedgeotechnical engineers and engineering geologists, certified inspectors and plans examiners, licensed architects and landscape architects, certified planners,and information technology specialists. We believe that we attract and retain highly skilled personnel with significant industry experience and strong clientrelationships 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 January 2, 2015, we contracted with approximately 150 former and current public safety officers to conduct homeland security services trainingcourses. These instructors are classified as subcontractors and not employees.Intellectual Property The Willdan, Willdan Group, Inc., Willdan Engineering, Willdan Infrastructure, Willdan Financial Services, Willdan Energy Solutions and WilldanHomeland Services names are service marks of ours, and we have obtained a service mark for the Willdan logo. We have also obtained federal servicemarkregistration with the United States Patent and Trademark Office for the "Willdan" name and the "extending your reach" tagline. We believe we have strongname recognition in the western United States and New York, and that this provides us a competitive advantage in obtaining new business. Consequently, webelieve it is important to protect our brand identity through trademark registrations. The name and logo of our proprietary software, MuniMagic®, areregistered servicemarks of Willdan Financial Services, and we have registered a federal copyright for the source code for the MuniMagic® software. Welicense the MuniMagic® software to existing clients pursuant to licensing agreements that allow varying levels of access to data. This technology allowsclients to view their own data and is a form of deliverable to our clients. The use of licensing provides us protection for this proprietary technology.MuniMagic® is not a commercial product 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 ofFiscal Year End 2014 2013 2012 Engineering Services 326 294 282 Energy Efficiency Services 204 142 135 Public Finance Services 58 53 51 Homeland Security Services 10 10 10 Holding Company Employees (Willdan Group, Inc.) 39 35 56 Total 637 534 534 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 We operate in a changing environment that involves numerous known and unknown risks and uncertainties that could materially adversely affect ouroperations. Set forth below are descriptions of risks and uncertainties that could cause our actual results to differ materially from the results andexpectations contained in this report. Additional risks we do not yet know of or that we currently think are immaterial may also affect our businessoperations. If any of the events or circumstances described in the following risks actually occurs, our business, financial condition or results of operationscould be materially adversely affected.If we fail to complete a project in a timely manner, miss a required performance standard, or otherwise fail to adequately perform on a project, then wemay incur a loss on that project, which may reduce or eliminate our overall profitability. Our engagements often involve large-scale, complex projects. The quality of our performance on such projects depends in large part upon our ability tomanage the relationship with our clients and our ability to effectively manage the project and deploy appropriate resources, including third-party contractorsand our own personnel, in a timely manner. We may commit to a client that we will complete a project by a scheduled date or that, when completed, a projectwill achieve specified performance standards. If the project is not completed by the scheduled date or fails to meet required performance standards, we mayeither incur significant additional costs or be held responsible for the costs incurred by the client to rectify damages due to late completion or failure toachieve the required performance standards. The uncertainty of the timing of a project can present difficulties in planning the amount of personnel needed forthe project. If the project is delayed or canceled, we may bear the cost of an underutilized workforce that was dedicated to fulfilling the project. In addition,performance of projects can be affected by a number of factors beyond our control, including unavoidable delays from government inaction, publicopposition, inability to obtain financing, weather conditions, unavailability of vendor materials, changes in the project scope of services requested by ourclients, industrial accidents, environmental hazards, and labor disruptions. To the extent these events occur, the total costs of the project could exceed ourestimates, and we could experience reduced profits or, in some cases, incur a loss on a project, which may reduce or eliminate our overall profitability.Further, any defects or errors, or failures to meet our clients' expectations, could result in claims for damages against us. Failure to meet performance standardsor complete performance on a timely basis could also adversely affect our reputation.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 2014, a portion of our contract revenue was generated by services renderedto public agencies in connection with private and public sector construction projects.19 Table of Contents In the recent past, 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 and we made several reductions in workforce and facility leases. While economic conditions haveimproved from fiscal year 2010 through fiscal year 2014, the recovery has been slow with regard to our traditional engineering and public finance servicessegments. If the economy declines again, we will need to evaluate whether reductions in headcount and facilities in geographic areas that areunderperforming are again 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. 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 and New York could have a material adverse effect on our business, financial condition andresults of operations. Adverse economic and other conditions affecting the local and regional economies of California and New York may reduce the demand for our services,which could have a material adverse effect on our business, financial condition and results of operations. During fiscal year 2014, approximately 57% and32% of our contract revenue was derived from services rendered to public agencies, utilities, and private industry in California and New York, respectively.California and New York each experienced an economic downturn in fiscal year 2009, which negatively impacted our revenue and profitability andcontinues to negatively impact revenues in our Engineering Services and Public Finance Services segments. Any future downturns could have similarsignificant adverse impacts on our results of operations.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 and20 Table of Contentsprofitability. Our state and local government clients may continue to face budget deficits that prohibit them from funding new or existing projects. Inaddition, existing and potential clients may either postpone entering into new contracts or request price concessions. If we are not able to reduce our costsquickly enough to respond to the revenue decline from these clients that may occur, our operating results would be adversely affected. Accordingly, thesefactors affect our ability to accurately forecast our future revenue and earnings from business areas that may be adversely impacted by market conditions.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; •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.Each year, client funding for some of our government contracts may rely on government appropriations or public-supported financing. If adequate publicfunding is delayed or is not available, then our profits and revenue could decline. Each year, client funding for some of our government contracts may directly or indirectly rely on government appropriations or public-supportedfinancing. Legislatures may appropriate funds for a given project on a year-by-year basis, even though the project may take more than one year to perform. Inaddition, public-supported financing such as state and local municipal bonds may be only partially raised to support existing projects. Similarly, the impactof the economic downturn on state and local governments may make it more difficult for them to fund projects. In addition to the state of the economy andcompeting political priorities, public funds and the timing of payment of these funds may be influenced by, among other things, curtailments in the use ofgovernment contracting firms, increases in raw material costs, delays associated with insufficient numbers of government staff to oversee contracts, budgetconstraints, the timing and amount of tax receipts, and the overall level of government expenditures. If adequate public funding is not available or is delayed,then our profits and revenue could decline.We may not be able to obtain capital when desired on favorable terms, if at all, or without dilution to our stockholders, which may impact our ability toexecute on our current or future business strategies. We anticipate that our current cash, cash equivalents, cash provided by operating activities and borrowing ability under our revolving line of credit willbe sufficient to meet our current and anticipated needs for general corporate purposes during the next 12 months. It is possible, however, that we may notgenerate sufficient cash flow from operations or otherwise have the capital resources to meet our future capital needs.21 Table of Contents If we do not generate sufficient cash flow from operations or otherwise, we may need additional financing to execute on our current or future businessstrategies, including hiring additional personnel, developing new or enhancing existing service lines, expanding our business geographically, enhancing ouroperating infrastructure, acquiring complementary businesses, or otherwise responding to competitive pressures. We cannot assure you that additionalfinancing will be available to us on favorable terms, or at all. Furthermore, if we raise additional funds through the issuance of convertible debt or equitysecurities, the percentage ownership of our stockholders could be significantly diluted, and these newly issued securities may have rights, preferences orprivileges senior to those of existing stockholders. If adequate funds are not available or are not available on acceptable terms, if and when needed, ourability to fund our operations, meet obligations in the normal course of business, take advantage of strategic opportunities, or otherwise respond tocompetitive pressures would be significantly limited.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 25% of our consolidated contract revenue in fiscal year2014 and 16% in fiscal year 2013. Prior to July 2012, this revenue primarily related to a contract we entered into in fiscal year 2009 with ConsolidatedEdison, which has terminated. We entered into a new contract with Consolidated Edison in July 2012, but this contract is for fewer services than the 2009contract with Consolidated Edison. Our top five customers collectively accounted for approximately 50% of our revenue in fiscal year 2014. The loss of, orreduction in orders from, these clients could have a material adverse effect on our business, financial condition and results of operations.Our actual business and financial results could differ from the estimates and assumptions that we use to prepare our financial statements, which maysignificantly reduce or eliminate our profits. To prepare financial statements in conformity with generally accepted accounting principles in the United States of America ("GAAP"), management isrequired to make estimates and assumptions as of the date of the financial statements. These estimates and assumptions affect the reported values of assets,liabilities, revenue and expenses, as well as disclosures of contingent assets and liabilities. For example, we typically recognize revenue of our fixed pricecontracts over the life of a contract based on the proportion of costs incurred to date compared to the total costs estimated to be incurred for the entire project.Areas requiring significant estimates by our management include:•the application of the percentage-of-completion method of accounting and revenue recognition on contracts, change orders, and contractclaims, including related unbilled accounts receivable; •unbilled accounts receivable, including amounts related to requests for equitable adjustment to contracts that provide for priceredetermination, primarily with the U.S. federal government. These amounts are recorded only when they can be reliably estimated andrealization is probable; •provisions for uncollectible receivables, client claims, and recoveries of costs from subcontractors, vendors, and others; •provisions for income taxes, valuation allowances, and unrecognized tax benefits; •value of goodwill and recoverability of other intangible assets; •valuations of assets acquired and liabilities assumed in connection with business combinations; •valuation of contingent earn-out liabilities recorded in connection with business combinations; •valuation of stock-based compensation expense; and22 Table of Contents•accruals for estimated liabilities, including litigation and insurance reserves.Our actual business and financial results could differ from those estimates, which may significantly reduce or eliminate our profits.Our profitability could suffer if we are not able to maintain adequate utilization of our workforce. The cost of providing our services, including the extent to which we utilize our workforce, affects our profitability. The rate at which we utilize ourworkforce is affected by a number of factors, including:•our ability to transition employees from completed projects to new assignments and to hire and assimilate new employees; •our ability to forecast demand for our services and thereby maintain an appropriate headcount in each of our geographies and workforces; •our ability to manage attrition; •our need to devote time and resources to training, business development, professional development, and other non-chargeable activities; and •our ability to match the skill sets of our employees to the needs of the marketplace. If we over-utilize our workforce, our employees may become disengaged, which could impact employee attrition. If we under-utilize our workforce, ourprofit margin and profitability could suffer.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 2014, approximately 57% 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. 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. Kempton). The California Supreme Court ruled in favor of Caltrans, concludingthat Caltrans may hire private contractors to23 Table of Contentsperform architectural and engineering services on public works. Although Caltrans was successful in this litigation, similar claims may be brought in thefuture and we cannot predict their outcome. If a state or other public employee union is successful in its challenge and as a result the ability of state agenciesto hire private firms is severely limited, such a decision would likely lead to additional litigation challenging the ability of the state, counties, municipalitiesand other public agencies to hire private engineering, architectural and other firms, the outcome of which could affect our ability to compete for contracts andmay 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 2014, approximately 42% 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.Our use of the percentage-of-completion method of revenue recognition on our fixed price contracts could result in a reduction or reversal of previouslyrecorded revenue and profits. We account for our fixed price contracts on the percentage-of-completion method of revenue recognition. Generally, our use of this method results inrecognition of revenue and profit ratably over the life of the contract, based on the proportion of costs incurred to date to total costs expected to be incurredfor the entire project. The effects of revisions to revenue and estimated costs, including the achievement of award fees and the impact of change orders andclaims, are recorded when the amounts are known and can be reasonably estimated. Such revisions could occur in any period and their effects could bematerial. Although we have historically made reasonably reliable estimates of the progress towards completion of long-term contracts, the uncertaintiesinherent in the estimating process make it possible for actual costs to vary materially from estimates, including reductions or reversals of previously recordedrevenue and profit.24 Table of ContentsWe have made and expect to continue to make acquisitions that could disrupt our operations and adversely impact our business and operating results. Ourfailure to conduct due diligence effectively, or our inability to successfully integrate acquisitions, could impede us from realizing all of the benefits of theacquisitions, which could weaken our results of operations. A key part of our growth strategy, as shown by our January 2015 acquisitions discussed below under "Management's Discussion and Analysis ofFinancial Condition and Results of Operations—Recent Developments," is to acquire other companies that complement our lines of business or that broadenour technical capabilities and geographic presence. We may continue to acquire companies as an element of our growth strategy; however, our ability tomake acquisitions is restricted under our amended credit agreement. Acquisitions involve certain known and unknown risks that could cause our actualgrowth or operating results to differ from our expectations or the expectations of securities analysts. For example:•we may not be able to identify suitable acquisition candidates or to acquire additional companies on acceptable terms; •we compete with others to acquire companies, which may result in decreased availability of, or increased price for, suitable acquisitioncandidates; •we may not be able to obtain the necessary financing, on favorable terms or at all, to finance any of our potential acquisitions; •we may ultimately fail to consummate an acquisition even if we announce that we plan to acquire a company; and •acquired companies may not perform as we expect, and we may fail to realize anticipated revenue and profits. Our acquisition strategy may divert management's attention away from our existing businesses, resulting in the loss of key clients or key employees, andexpose us to unanticipated problems or legal liabilities, including responsibility as a successor-in-interest for undisclosed or contingent liabilities ofacquired businesses or assets. If we fail to conduct due diligence on our potential targets effectively, we may, for example, not identify problems at target companies, or fail torecognize incompatibilities or other obstacles to successful integration. Our inability to successfully integrate future acquisitions could impede us fromrealizing all of the benefits of those acquisitions and could severely weaken our business operations. The integration process may disrupt our business and, ifimplemented ineffectively, may preclude realization of the full benefits expected by us and could harm our results of operations. In addition, the overallintegration of the combining companies may result in unanticipated problems, expenses, liabilities, and competitive responses, and may cause our stockprice to decline. The difficulties of integrating an acquisition include, among others:•issues in integrating information, communications, and other systems; •incompatibility of logistics, marketing, and administration methods; •maintaining employee morale and retaining key employees; •integrating the business cultures of both companies; •preserving important strategic client relationships; •consolidating corporate and administrative infrastructures, and eliminating duplicative operations; and •coordinating and integrating geographically separate organizations.25 Table of Contents Even if the operations of an acquisition are integrated successfully, we may not realize the full benefits of the acquisition, including the synergies, costsavings or growth opportunities that we expect. These benefits may not be achieved within the anticipated time frame, or at all. Further, acquisitions may cause us to:•issue common stock that would dilute our current stockholders' ownership percentage; •use a substantial portion of our cash resources; •increase our interest expense, leverage, and debt service requirements (if we incur additional debt to pay for an acquisition); •assume liabilities, including environmental liabilities, for which we do not have indemnification from the former owners. Further,indemnification obligations may be subject to dispute or concerns regarding the creditworthiness of the former owners; •record goodwill and non-amortizable intangible assets that are subject to impairment testing and potential impairment charges; •experience volatility in earnings due to changes in contingent consideration related to acquisition earn-out liability estimates; •incur amortization expenses related to certain intangible assets; •lose existing or potential contracts as a result of conflict of interest issues; •incur large and immediate write-offs; or •become subject to litigation.If we are not able to successfully manage our growth strategy, our business and results of operations may be adversely affected. Our expected future growth presents numerous managerial, administrative, operational, and other challenges. Our ability to manage the growth of ouroperations will require us to continue to improve our management information systems and our other internal systems and controls. In addition, our growthwill increase our need to attract, develop, motivate, and retain both our management and professional employees. The inability to effectively manage ourgrowth or the inability of our employees to achieve anticipated performance could have a material adverse effect on our business.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.26 Table of ContentsThe loss of key personnel or our inability to attract and retain qualified personnel could impair our ability to provide services to our clients and otherwiseconduct our business effectively. As primarily a professional and technical services company, we are labor-intensive and, therefore, our ability to attract, retain, and expand our seniormanagement and our professional and technical staff is an important factor in determining our future success. The market for qualified engineers iscompetitive and, from time to time, it may be difficult to attract and retain qualified individuals with the required expertise within the timeframe demandedby our clients. In addition, we rely heavily upon the expertise and leadership of our senior management. If we are unable to retain executives and other keypersonnel, the roles and responsibilities of those employees will need to be filled, which may require that we devote time and resources to identify, hire, andintegrate new employees. The loss of the services of any of these key personnel could adversely affect our business. We do not maintain key-man lifeinsurance policies on any of our executive officers or senior managers. Our failure to attract and retain key individuals could impair our ability to provideservices to our clients and conduct our business effectively.We operate in a highly fragmented industry, and we may not be able to compete effectively with our larger competitors. The market for energy efficiency, engineering and planning, 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 energy efficiency and sustainability consulting services, which represented approximately 49% and 42% of our contractrevenue for fiscal years 2014 and 2013, respectively, competes with larger energy efficiency consulting firms such as Lockheed-Martin, EnerPath, KEMA (adivision of the DNV Group) and Nexant, Inc. Our competitors for engineering related services, which represented approximately 38% and 41% of our contractrevenue for fiscal years 2014 and 2013, respectively, include many larger consulting firms such as 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. In certain public finance consulting services, we may compete with large accounting firms. We can offer noassurance 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 the following insurance coverage: commercial general liability with limits of $1.0 million per occurrence and $2.0 milliongeneral aggregate; automobile liability insurance with limits of $1.0 million per occurrence; employer's liability with limits of $1.0 million per occurrence.We also carry professional liability insurance with limits of $5.0 million per claim and $10.0 million annual aggregate and excess liability insurance with alimit of $10.0 million. We are liable to pay these claims from our assets if and when the aggregate settlement or judgment amount exceeds our policy limits.We are liable to pay claims from our assets if and when the aggregate settlement or judgment amount exceeds our policy limits. Our professional liabilitypolicy is a "claims made" policy. Thus, only claims made during the term of the policy are covered. If we terminate our professional liability policy and donot obtain retroactive coverage, we would be uninsured for claims made after termination even if these27 Table of Contentsclaims are based on events or acts that occurred during the term of the policy. Further, our insurance may not protect us against liability because our policiestypically have various exceptions to the claims covered and also require us to assume some costs of the claim even though a portion of the claim may becovered. 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, thedollar amount of any liabilities incurred could exceed our insurance coverage. A partially or completely uninsured claim, if successful and of significantmagnitude, could have a material adverse effect on our liquidity.We often rely on subcontractors. The quality of our service and our ability to perform under some of our contracts would be adversely affected if qualifiedsubcontractors are unavailable for us to engage. Under some of our contracts, we rely on the efforts and skills of subcontractors for the performance of some of the tasks. Subcontractor services and otherdirect costs comprised approximately 33% of our contract revenue in fiscal year 2014. Our use of subcontractors has decreased in recent years primarilybecause our subsidiary Willdan Energy Solutions has reduced its utilization of subcontractors. Our subsidiary Willdan Energy Solutions generally utilizes ahigher percentage of subcontractors than our other subsidiaries. The absence of qualified subcontractors with whom we have a satisfactory relationship couldadversely affect the quality of our service offerings and therefore our financial results. Additionally, we may have disputes with our subcontractors arisingfrom, among other things, the quality and timeliness of work performed by the subcontractor or client concerns about the subcontractor.If our contractors and subcontractors fail to satisfy their obligations to us or other parties, or if we are unable to maintain these relationships, our revenue,profitability, and growth prospects could be adversely affected. We depend on contractors and subcontractors in conducting our business. There is a risk that we may have disputes with our subcontractors arising from,among other things, the quality and timeliness of work performed by the subcontractor, client concerns about the subcontractor, or our failure to extendexisting task orders or issue new task orders under a subcontract. In addition, if a subcontractor fails to deliver on a timely basis the agreed-upon supplies,fails to perform the agreed-upon services, or goes out of business, then we may be required to purchase the services or supplies from another source at a higherprice, and our ability to fulfill our obligations as a prime contractor may be jeopardized. This may reduce the profit to be realized or result in a loss on aproject for which the services or supplies are needed. We also rely on relationships with other contractors when we act as their subcontractor or joint venture partner. The absence of qualified subcontractorswith which we have a satisfactory relationship could adversely affect the quality of our service and our ability to perform under some of our contracts. Ourfuture revenue and growth prospects could be adversely affected if other contractors eliminate or reduce their subcontracts or teaming arrangementrelationships with us, or if a government agency terminates or reduces these other contractors' programs, does not award them new contracts, or refuses to payunder a contract.If our reports and opinions are not in compliance with professional standards and other regulations, we could be subject to monetary damages andpenalties. We issue reports and opinions to clients based on our professional engineering expertise, as well as our other professional credentials. Our reports andopinions may need to comply with professional standards, licensing requirements, securities regulations, and other laws and rules governing the performanceof professional services in the jurisdiction in which the services are performed. In addition, we could be liable to third parties who use or rely upon our reportsor opinions even if we are not contractually bound to those third parties. For example, if we deliver an inaccurate report or28 Table of Contentsone that is not in compliance with the relevant standards, and that report is made available to a third party, we could be subject to third-party liability,resulting in monetary damages and penalties.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.Changes in resource management, environmental, or infrastructure industry laws, regulations, and programs could directly or indirectly reduce thedemand for our services, which could in turn negatively impact our revenue. Some of our services are directly or indirectly impacted by changes in U.S. federal, state, local or foreign laws and regulations pertaining to the resourcemanagement, environmental, and infrastructure industries. Accordingly, a relaxation or repeal of these laws and regulations, or changes in governmentalpolicies regarding the funding, implementation or enforcement of these programs, could result in a decline in demand for our services, which could in turnnegatively impact our revenue.Force majeure events, including natural disasters and terrorist actions, could negatively impact the economies in which we operate or disrupt ouroperations, which may affect our financial condition, results of operations, or cash flows. Force majeure or extraordinary events beyond the control of the contracting parties, such as natural and man-made disasters, as well as terrorist actions,could negatively impact the economies in which we operate by causing the closure of offices, interrupting projects, and forcing the relocation of employees.We typically remain obligated to perform our services after a terrorist action or natural disaster unless the contract contains a force majeure clause thatrelieves us of our contractual obligations in such an extraordinary event. If we are not able to react quickly to force majeure, our operations may be affectedsignificantly, which would have a negative impact on our financial condition, results of operations, or cash flows.We have only a limited ability to protect our intellectual property rights, and our failure to protect our intellectual property rights could adversely affectour competitive position. Our success depends, in part, upon our ability to protect our proprietary information and other intellectual property. We rely principally on trade secretsto protect much of our intellectual property where we do not believe that patent or copyright protection is appropriate or obtainable. However, trade secretsare difficult to protect. Although our employees are subject to confidentiality obligations, this protection may be inadequate to deter or preventmisappropriation of our confidential information. In addition, we may be unable to detect unauthorized use of our intellectual property or otherwise takeappropriate steps to enforce our rights. Failure to obtain or maintain trade secret protection could adversely affect our competitive business position. Inaddition, if we are unable to prevent third parties from infringing or misappropriating our trademarks or other proprietary information, our competitiveposition could be adversely affected.Systems and information technology interruption could adversely impact our ability to operate. We rely heavily on computer, information, and communications technology and systems to operate. From time to time, we experience systeminterruptions and delays. If we are unable to effectively deploy software and hardware, upgrade our systems and network infrastructure, and take steps toimprove and protect our systems, systems operations could be interrupted or delayed.29 Table of Contents Our computer and communications systems and operations could be damaged or interrupted by natural disasters, telecommunications failures, acts of waror terrorism, and similar events or disruptions. In addition, we face the threat of unauthorized system access, computer hackers, computer viruses, maliciouscode, organized cyber-attacks, and other security breaches and system disruptions. We devote significant resources to the security of our computer systems,but they may still be vulnerable to threats. Anyone who circumvents security measures could misappropriate proprietary information or cause interruptions ormalfunctions in system operations. As a result, we may be required to expend significant resources to protect against the threat of system disruptions andsecurity breaches, or to alleviate problems caused by disruptions and breaches. Any of these or other events could cause system interruption, delays, and loss of critical data that could delay or prevent operations, and could have amaterial adverse effect on our business, financial condition, results of operations, and cash flows, and could negatively impact our clients.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 January 2, 2015, the price of ourstock ranged from a high of $18.42 per share to a low of $4.44 per share. We cannot assure you as to the prices at which our common stock will trade or thatan active trading market in our common stock will be sustained in the future. In addition to the matters discussed in other risk factors included herein, someof the 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; •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 23, 2015, our directors and executiveofficers beneficially own 1,035,375 shares of common stock, or approximately 14.88% of our outstanding common stock. In addition, Jeremy Zhu,individually and as managing director of Wedbush Opportunity Capital LLC, Edward Wedbush, individually and as the Chairman and a stockholder of30 Table of ContentsWedbush Inc., beneficially own 1,066,074 and 1,052,184 shares of common stock, respectively, 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:•Ability to achieve energy savings goals on our contracts; •Expectations about future customers; •Expectations regarding the industries and geographies that we primarily serve, including the impact of economic conditions in thoseindustries and geographies; •Ability to successfully integrate our recent acquisitions; •Expectations about our 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 and retain executive officers and key employees; •Expectations about the impact of legislation on our business and that of our customers; •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. ITEM 2. PROPERTIES Our corporate headquarters are located in approximately 18,000 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 nationwide, principally in California and New York. In total, our facilities containapproximately 121,000 square feet of office space and are subject to leases that expire through February 2020. 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.31 Table of Contents 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. City of Glendale v. Willdan Financial Services, Superior Court of California, Los Angeles County A complaint was filed against us on July 16, 2014 relating to a project performed by Willdan Financial Services to prepare a Cost of Services Analysis (a"COSA") for the Department of Water and Power of the City of Glendale, California (the "City of Glendale"). The purpose of the COSA was to assist the Cityof Glendale in setting water rates for property owners. The lawsuit alleges that the City of Glendale suffered damages due to mistakes in the COSA, as follows:the City of Glendale received less revenue than anticipated in an amount exceeding $9,000,000; the City of Glendale was required to retain anotherconsultant to prepare a new COSA at the cost of $130,000; and the City of Glendale incurred costs associated with noticing and conducting public hearingsat a cost of $83,052. We deny the allegations asserted in the lawsuit and will vigorously defend against the claims. Additionally, this matter is covered by ourprofessional liability insurance policy. ITEM 4. MINE SAFETY DISCLOSURES Not applicable.32 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 2014 and 2013. Thesereported prices reflect inter-dealer prices without adjustments for retail markups, markdowns, or commissions. On March 16, 2015, the closing sales price per share of our common stock, as reported on the Nasdaq Global Market, was $13.99.Stockholders As of March 16, 2015, there were 138 stockholders of record of our common stock.Dividends We did not declare or pay cash dividends on our common stock in fiscal years 2014 and 2013. 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 On January 15, 2015, in connection with our acquisition of Abacus Resource Management Company ("Abacus"), we issued 75,758 shares of commonstock (the "Abacus Stock Issuance") to the selling shareholders of Abacus with an agreed upon value of $1 million (based on the volume-weighted averageprice of shares of common stock for the ten trading days immediately prior to, but not including, January 15, 2015). Specifically, we issued 37,879 shares ofcommon stock to Mr. Kinzer and 37,879 shares of common stock to Mr. Rubbert. On January 15, 2015, in connection with our acquisition of 360 Energy Engineers, LLC ("360 Energy"), we issued 47,348 shares of common stock (the"360 Energy Stock Issuance") to 360 Energy with an agreed upon value of $525,000 (based on the volume-weighted average price of shares of common stockfor the ten trading days immediately prior to, but not including, January 15, 2015). The issuances of common stock in the Abacus Stock Issuance and the 360 Energy Stock Issuance were not registered under the Securities Act of 1933, asamended (the "Securities Act"). Such shares were issued in a private placement exempt from the registration requirements of the Securities Act, in reliance onthe exemptions set forth in Section 4(a)(2) of the Securities Act.Issuer Purchases of Equity Securities None.33 2014 2013 High Low High Low 1st Quarter $5.31 $4.44 $2.30 $2.01 2nd Quarter $8.31 $4.45 $3.70 $2.18 3rd Quarter $13.82 $7.34 $3.75 $2.76 4th Quarter $18.42 $10.80 $5.50 $3.53 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.34 Fiscal Year 2014 2013 2012 2011 2010 (in thousands except per share amounts) Consolidated Statement of Operations Data: Contract revenue $108,080 $85,510 $93,443 $107,165 $77,896 Direct costs of contract revenue (exclusive of depreciationand amortization shown separately below): Salaries and wages 28,207 24,098 23,218 25,714 21,607 Subcontractor services and other direct costs 35,611 24,831 35,741 39,013 20,415 Total direct costs of contract revenue 63,818 48,929 58,959 64,727 42,022 General and administrative expenses: Salaries and wages, payroll taxes, employee benefits 21,394 20,555 22,421 22,594 17,582 Facilities and facility related 4,371 4,654 4,871 4,875 4,290 Stock-based compensation 258 150 227 201 235 Depreciation and amortization 459 517 671 877 1,042 Lease abandonment (recovery), net 9 30 26 2 (68)Impairment of goodwill — — 15,208 — — Other 9,462 8,067 10,315 10,488 9,719 Total general and administrative expenses 35,953 33,973 53,739 39,037 32,800 Income (loss) from operations 8,309 2,608 (19,255) 3,401 3,074 Other income (expense): Interest income 8 10 6 5 12 Interest expense (16) (94) (106) (77) (54)Other, net 125 238 (28) 1 32 Total other income (expense), net 117 154 (128) (71) (10)Income (loss) before income tax expense 8,426 2,762 (19,383) 3,330 3,064 Income tax (benefit) expense (990) 132 (2,083) 1,500 344 Net income (loss) $9,416 $2,630 $(17,300)$1,830 $2,720 Earnings (loss) per common share: Basic $1.26 $0.36 $(2.37)$0.25 $0.38 Diluted $1.22 $0.35 $(2.37)$0.24 $0.37 Weighted average common shares outstanding: Basic 7,488 7,355 7,310 7,262 7,233 Diluted 7,739 7,495 7,310 7,485 7,311 Other Operating Data (unaudited): Adjusted EBITDA(1) $8,913 $3,455 $(3,294)$4,350 $4,074 Employee headcount at period end(2) 637 534 534 562 540 Table of Contents35 Fiscal Year Ended January 2,2015 December 27,2013 December 28,2012 December 30,2011 December 31,2010 Consolidated Balance Sheet Data: Cash and cash equivalents $20,371 $8,134 $10,006 $3,001 $6,642 Working capital 24,406 15,706 13,099 13,083 18,060 Total assets 54,659 38,237 41,977 64,311 49,454 Total indebtedness 985 731 3,904 1,232 1,490 Total stockholders' equity 30,413 20,213 17,351 34,293 32,162 (1)Adjusted EBITDA is a supplemental measure used by our management to measure our operating performance. We define AdjustedEBITDA as net income (loss) plus interest expense (income), income tax expense (benefit), lease abandonment expense (recovery),goodwill impairment, depreciation and amortization, and loss (gain) on sale of assets. Our definition of Adjusted EBITDA may differfrom those of many companies reporting similarly named measures. This measure should be considered in addition to, and not as asubstitute 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 income (loss) to Adjusted EBITDA (in thousands): Fiscal Year 2014 2013 2012 2011 2010 Net income (loss) $9,416 $2,630 $(17,300)$1,830 $2,720 Interest income (8) (10) (6) (5) (12)Interest expense 16 94 106 77 54 Income tax (benefit) expense (990) 132 (2,083) 1,500 344 Lease abandonment expense (recovery) 9 13 26 2 (68)Impairment of goodwill — — 15,208 — — Depreciation and amortization 459 585 737 944 1,053 Loss (gain) on sale of assets 11 (6) 18 2 (17)Adjusted EBITDA $8,913 $3,455 $(3,294)$4,350 $4,074 (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 utilities, private industry, and public agencies at all levels of government.Nationwide, we enable our clients to realize cost and energy savings by providing a wide range of specialized services, including comprehensive energyefficiency solutions, without having to incur and maintain the overhead necessary to develop staffing in-house. We assist our clients with a broad range ofcomplementary services relating to:•Energy Efficiency and Sustainability; •Engineering and Planning; •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 January 2, 2015 we had a staff of 637 which includes licensed engineers and other professionals. Since fiscal 2008,we have been providing increased services to public and private utilities that service major metropolitan communities and commercial and industrial firms,particularly in connection with the growth of our energy efficiency and sustainability services. Historically, our clients have primarily been public agenciesin 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 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 71% of the 482 cities and approximately 89% 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 also havebusiness with utilities in Texas, Illinois, Ohio and Washington State. 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:•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 42% of our consolidated contract revenue forfiscal years 2014 and 2013, respectively. •Engineering Services. Our Engineering Services segment includes the operations of our subsidiaries, Willdan Engineering, WilldanInfrastructure and Public Agency Resources ("PARs"). Willdan Engineering provides civil engineering-related and city planning services toour clients. PARs primarily provides staffing to Willdan Engineering. Contract revenue for the Engineering Services segment representedapproximately 38% and 41% of our overall consolidated contract revenue for fiscal years 2014 and 2013, 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 to36 Table of Contentspublic agencies. Contract revenue for the Public Finance Services segment represented approximately 10% and 12% of our consolidatedcontract revenue for fiscal years 2014 and 2013, 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 3% and 5% of our consolidated contract revenue for fiscal years 2014and 2013, respectively. While we were profitable in fiscal year 2014 and fiscal year 2013, our profitability in fiscal year 2012 was severely impacted by a goodwill impairmentcharge related to a prior acquisition.Recent Developments Acquisitions. On January 15, 2015, we completed two separate acquisitions. Through our wholly-owned subsidiary, Willdan Energy Solutions("WES"), we acquired all of the outstanding shares of Abacus Resource Management Company ("Abacus"), an Oregon-based energy engineering company. Inaddition, we, through our wholly-owned subsidiary WES, also acquired substantially all of the assets of 360 Energy Engineers, LLC ("360 Energy"), aKansas-based energy and engineering energy management consulting company. Pursuant to the terms of the Stock Purchase Agreement, dated as of January 15, 2015 (the "Abacus Agreement"), by and among us, WES, Abacus andMark Kinzer and Steve Rubbert (the "Abacus Shareholders"), WES will pay the Abacus Shareholders a maximum purchase price of $6,150,000, consisting of(i) $2,500,000 in cash paid at closing (subject to certain post-closing adjustments), (ii) 75,758 shares of Common Stock, par value $0.01 per share, of theCompany ("Common Stock") equaling $1,000,000 based on the volume-weighted average price of shares of the Common Stock for the ten trading daysimmediately prior to, but not including, the closing date of the Abacus Acquisition, (iii) $1,250,000 aggregate principal amount of promissory notes issuedto the Abacus Shareholders (collectively, the "Abacus Notes") and (iv) up to $1,400,000 in cash, payable at the end of the Company's and WES's 2015 and2016 fiscal years, if certain financial targets of Abacus are met during such fiscal years. The Abacus Notes were issued in an initial outstanding principalamount of $625,000 to each of the Abacus Shareholders. The Abacus Notes provide for a fixed interest rate of 4% per annum and are fully amortizing andpayable in equal monthly installments between January 15, 2015 and their January 15, 2017 maturity date. The Abacus Notes contain events of defaultprovisions customary for documents of their nature. Pursuant to the terms of the Asset Purchase Agreement, dated as of January 15, 2015 (the "360 Energy Agreement"), by and among us, WES and 360Energy, WES will pay 360 Energy a maximum purchase price of $15,000,000, consisting of (i) $4,875,000 in cash paid at closing, (ii) 47,348 shares ofCommon Stock equaling $625,000 based on the volume-weighted average price of shares of the Common Stock for the ten trading days immediately prior to,but not including, the closing date of the 360 Energy Acquisition, (iii) $3,000,000 aggregate principal amount of promissory note issued to 360 Energy (the"360 Energy Note" and, together with the Abacus Notes, the "Notes") and (iv) up to $6,500,000 in cash, payable at the end of the Company's and WES's 2015,2016 and 2017 fiscal years, if certain financial targets of WES's division made up of the assets acquired from, and former employees of, 360 Energy are metduring such fiscal years. The 360 Energy Note was issued in an initial outstanding principal amount of $3,000,000. The 360 Energy Note provides for a fixedinterest rate of 4% per annum and is fully amortizing and payable in equal monthly installments between January 15, 2015 and their January 15, 2018maturity date. The 360 Energy Note contains events of default provisions customary for documents of its nature. We also provided a guaranty to 360 Energywhich guarantees WES's obligations under the promissory note issued to 360 Energy.37 Table of Contents To finance the acquisitions of Abacus and 360 Energy, we borrowed $2,000,000 under our delayed draw term loan facility and used cash on hand to paythe remaining $5,375,000. Amended Credit Facility. On January 14, 2015, we and our subsidiaries, as guarantors, entered into the Second Amendment (the "Second Amendment")to the Credit Agreement (as amended, the "BMO Credit Agreement"), dated as of March 24, 2014, by and between us, the guarantors listed therein and BMOHarris Bank National Association ("BMO Harris"). The BMO Credit Agreement governs our credit facility that includes a revolving line of credit and adelayed draw term loan facility. The Second Amendment revised the BMO Credit Agreement to, among other things, permit the acquisitions of Abacus and 360 Energy, the incurrence ofthe Notes and the 360 Energy Guaranty issued in connection with the acquisitions of Abacus and 360 Energy and to add Abacus as a guarantor under theBMO Credit Agreement upon the closing of the acquisition of Abacus. The Second Amendment also increased the amount available to us for borrowing under the delayed draw term loan facility from $2,500,000 to$3,000,000. In addition, the Second Amendment increased the interest rate under the delayed draw term loan facility by 25 basis points. Giving effect to theSecond Amendment, borrowings under the delayed draw term loan facility will now bear interest, at our option, at (a) the base rate plus an applicable marginranging between 1.25% and 1.75%, or (b) the LIBOR rate plus an applicable margin ranging between 2.25% and 2.75%. Borrowings under the revolving lineof credit will continue to bear interest, at our option, at (a) the base rate plus an applicable margin ranging between 0.75% and 1.25%, or (b) the LIBOR rateplus an applicable margin ranging between 1.75% and 2.25%. The applicable margin is determined based on our total leverage ratio. The Second Amendment also revised some of the covenants in the BMO Credit Agreement. As a result of the Second Amendment, we must maintain(A) a maximum total leverage ratio of not more than 2.25 for the first four fiscal quarters after the acquisitions of Abacus and 360 Energy, and not more than2.0 thereafter and (B) a minimum tangible net worth of at least (x) the greater of (1) $5.0 million and (2) 85% of our actual tangible net worth as of March 31,2015, plus (y) an amount equal to 50% of net income for the first fiscal quarter of 2015, and 50% of net income (only if positive) for each fiscal quarterending thereafter, plus or minus (z) 80% of any adjustments to our tangible net worth arising as a result of the consummation of the acquisitions of Abacusand 360 Energy. The limit on the total consideration allowed for all permitted acquisitions (including potential future earn-out obligations) during the termof the BMO Credit Agreement was also reduced from $2.5 million to $1.5 million. In addition, the conditions required to extend the maturity date of thecredit facility by one year to March 24, 2017 were amended to require that we have a trailing twelve month EBITDA (as defined in the BMO CreditAgreement) of not less than $10.0 million (previously $5.0 million) as of the end of the third fiscal quarter of 2015. As of March 23, 2015, there was approximately $2.0 million of borrowings outstanding under the BMO Credit Agreement. For further information on our revolving credit facility, see "—Liquidity and Capital Resources—Outstanding Indebtedness" elsewhere in this report.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 14% of our contracts are based on contractual rates per hour plus costs incurred.Some of these contracts include38 Table of Contentsmaximum contract prices, but the majority of these contracts are not expected to exceed the maximum. Contract revenue on our fixed price contracts isdetermined on the percentage of completion method based generally on the ratio of direct costs incurred to date to estimated total direct costs at completion.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 subcontractor 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.39 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 We enter into contracts with clients that contain three principal types of pricing provisions: fixed price, time-and-materials, and unit-based. Revenue onfixed price contracts is recognized on the percentage-of-completion method based generally on the ratio of direct costs (primarily exclusive of depreciationand amortization costs) incurred to date to estimated total direct costs at completion. Revenue on time-and-materials and unit-based contracts is recognizedas the work is performed in accordance with the specific terms of the contract. Contracts that provide for multiple services or deliverables are evaluated asmultiple element arrangements to determine the appropriate unit of accounting, allocation of contract value, and method of revenue recognition for eachelement. Revenue for amounts that have been billed but not earned is deferred and such deferred revenue is referred to as billings in excess of costs andestimated earnings on uncompleted contracts in the accompanying consolidated balance sheets. Service-related contracts, including operations andmaintenance services and a variety of technical assistance services, are accounted for over the period of performance, in proportion to the costs ofperformance. Award and incentive fees are recorded when they are fixed or determinable and consider customer contract terms. 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 fiscal40 Table of Contentsyear 2012. Following this impairment charge, none of our reporting units had any goodwill remaining. We did not recognize any goodwill impairmentcharges in fiscal years 2014 or 2013. We expect to have goodwill in the first quarter of fiscal year 2015 as the result of two acquisitions in January 2015. Wehave not yet finalized our purchase price allocation to determine the amount of the goodwill. 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 of EBITDA earned bysimilar public companies. 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 offiscal year 2012, we determined that a quantitative assessment of our goodwill was warranted for the Energy Solutions reporting unit. This assessmentindicated that the estimated fair value of such reporting unit was less than its carrying value. For this testing, we weighted the income approach and themarket approach at 80% and 20%, respectively. The income approach was given a higher weight because it has a more direct correlation to the specificeconomics of the reporting units than the market approach, which is based on multiples of public companies that, although comparable, may not provide thesame mix of services as our reporting units. We determined that all of the remaining goodwill for the Energy Solutions reporting unit was impaired andrecognized an impairment charge of $15.2 million in fiscal year 2012.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.41 Table of Contents 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.Business Combinations The acquisition method of accounting for business combinations requires us to use significant estimates and assumptions, including fair value estimates,as of the business combination date and to refine those estimates as necessary during the measurement period (defined as the period, not to exceed one year,in which we may adjust the provisional amounts recognized for a business combination) in a manner that is generally similar to the previous purchasemethod of accounting. Under the acquisition method of accounting, we recognize separately from goodwill the identifiable assets acquired, the liabilities assumed, and anynoncontrolling interests in an acquiree, generally at the acquisition date fair value. We measure goodwill as of the acquisition date as the excess ofconsideration transferred, which we also measure at fair value, over the net of the acquisition date amounts of the identifiable assets acquired and liabilitiesassumed. Costs that we incur to complete the business combination such as investment banking, legal and other professional fees are not considered part ofconsideration and we charge them to acquisition expense as they are incurred. Should the initial accounting for a business combination be incomplete by the end of a reporting period that falls within the measurement period, wereport provisional amounts in our financial statements. During the measurement period, we adjust the provisional amounts recognized at the acquisition dateto reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurementof the amounts recognized as of that date and we record those adjustments to our financial statements. We apply those measurement period adjustments thatwe determine to be significant retrospectively to comparative information in our financial statements, including adjustments to depreciation andamortization expense.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 the recoverabilityof deferred tax assets. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which 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. Significant judgment is applied when assessing the need for valuation allowances. Areas of estimation include our consideration of future taxableincome and ongoing prudent and feasible tax planning strategies. Should a change in circumstances lead to a change in judgment about the utilization ofdeferred tax assets in future years, we would adjust the related valuation allowances in the period that the change in circumstances occurs, along with acorresponding increase or charge to income. During fiscal year 2014, management assessed the available positive and negative evidence to estimate ifsufficient future taxable income will be generated to utilize the existing deferred tax assets. Based on this evaluation, as of January 2, 2015, we reversed thevaluation allowance on our deferred tax assets. We will continue to assess the need for a valuation allowance in the future. The provision for income taxesrepresents the tax payable for the period and the change during the period in deferred tax assets and liabilities. 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 the42 Table of Contentsposition. The tax benefit is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Werecognize 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 2014 Compared to Fiscal Year 2013 Contract revenue. Our contract revenue was $108.1 million for fiscal year 2014, with $52.9 million attributable to the Energy Efficiency Servicessegment, $40.8 million attributable to the Engineering Services segment, $10.6 million attributable to the Public Finance Services segment, and $3.7 millionattributable to the Homeland Security Services segment. Consolidated contract revenue increased $22.6 million, or 26.4%, to $108.1 million for fiscal year2014 from $85.5 million for fiscal year 2013. This was primarily the result of increases of $16.9 million, or 46.9%, and $5.6 million, or 15.8%, in contractrevenue from our Energy Efficiency Services and Engineering Services segments, respectively. Contract revenue for our Public Finance Services increased$0.8 million, or 8.0% to $10.6 million for fiscal year 2014 from $9.8 million for fiscal year 2013. Contract revenue for our Homeland Security Servicessegment decreased by $0.7 million, or 15.4%, to $3.7 million for fiscal year 2014 from43 Fiscal Year 2014 2013 2012 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 26.1 28.2 24.8 Subcontractor services and other direct costs 32.9 29.0 38.2 Total direct costs of contract revenue 59.0 57.2 63.1 General and administrative expenses: Salaries and wages, payroll taxes, employee benefits 19.8 24.0 24.0 Facilities and facility related 4.1 5.4 5.2 Stock-based compensation 0.2 0.2 0.2 Depreciation and amortization 0.4 0.6 0.7 Impairment of goodwill — — 16.3 Other 8.8 9.4 11.0 Total general and administrative expenses 33.3 39.7 57.5 Income (loss) from operations 7.7 3.0 (20.6)Other income (expense): Interest income — — — Interest expense — 0.1 (0.1)Other, net 0.1 0.3 — Total other income (expense), net 0.1 0.4 (0.1)Income (loss) before income taxes 7.8 3.2 (20.7)Income tax (benefit) expense (0.9) 0.1 (2.2)Net income (loss) 8.7% 3.1% (18.5)% Table of Contents$4.4 million for fiscal year 2013. Contract revenue for the Energy Efficiency Services segment increased primarily because of increased demand for energyefficiency services in the states of New York and California, largely due to a contract modification that expanded an existing Small Business Direct Install("SBDI") contract with Consolidated Edison. Contract revenue for the Engineering Services segment increased primarily due to greater demand for our cityengineering services in northern California, our building and safety services, and our construction management services. Revenue in the Homeland SecurityServices segment decreased due to slightly lower levels of activity in the traditional planning, training and exercise consulting services business. Direct costs of contract revenue. Direct costs of contract revenue were $63.8 million for fiscal year 2014, with $34.9 million attributable to the EnergyEfficiency Services segment, $22.4 million attributable to the Engineering Services segment, $4.3 million attributable to the Public Finance Servicessegment, and $2.2 million attributable to the Homeland Security Services segment. Overall, direct costs increased by $14.9 million, or 30.4%, to$63.8 million for fiscal year 2014 from $48.9 million for fiscal 2013. The increase in direct costs was primarily attributable to an increase in direct costswithin our Energy Efficiency Services segment of $11.8 million, or 51.2% for fiscal year 2014. Direct costs of contract revenue also increased within ourEngineering Services and Public Finance segments by $3.4 million, or 17.7%, and $0.3 million, or 6.2%, respectively. Direct costs of contract revenue in ourHomeland Security Services segment decreased by $0.5 million, or 19.1% to $2.2 million for fiscal year 2014 from $2.8 million for fiscal year 2013. Direct costs increased as a result of increases in subcontractor services and other direct costs of $10.8 million and an increase in salaries and wages of$4.1 million. Within direct costs of contract revenue, salaries and wages decreased to 26.1% of contract revenue for fiscal year 2014 as compared to 28.2% forfiscal 2013. Subcontractor services and other direct costs increased to 32.9% of contract revenue for fiscal 2014 from 29.0% of contract revenue for fiscal year2013. Subcontractor services increased primarily because of increased demand for the energy efficiency, sustainability and renewable energy services of oursubsidiary Willdan Energy Solutions, which generally utilizes a higher percentage of subcontractors than our other subsidiaries. General and administrative expenses. General and administrative expenses increased by $2.0 million, or 5.8%, to $36.0 million for fiscal year 2014from $34.0 million for fiscal year 2013. This reflected increases of $0.6 million and $0.4 million in general and administrative expenses of the EnergyEfficiency Services and the Public Finance Services segments, respectively. General and administrative expenses for our Engineering Services and HomelandSecurity Services segments decreased by $0.4 million and $0.2 million, respectively. Our unallocated corporate expenses increased by $1.5 million. Generaland administrative expenses as a percentage of contract revenue was 33.3% for fiscal year 2014 as compared to 39.7% for the fiscal year 2013. We were ableto keep our overall general and administrative expenses relatively stable while our revenues increased by 26.4% during this same period. We were partiallyable to do this because we were able to more fully utilize some of our employees, which resulted in those salaries and wages being allocated to direct costs.As discussed above under "—Components of Income and Expense—Direct Costs of Contract Revenue," we do not allocate that portion of salaries and wagesnot related to time spent directly generating revenue to direct costs of contract revenue and instead accrue it under general and administrative expenses. Of the $2.0 million increase in general and administrative expenses, approximately $1.4 million resulted from an increase in other general andadministrative expenses. Salaries and wages, payroll taxes and employee benefits and stock-based compensation increased by $0.8 million and $0.1 million,respectively. These increases were partially offset by decreases in facility and facilities related expenses and depreciation and amortization expenses of$0.3 million and $0.1 million, respectively. Income from operations. As a result of the above factors, our operating income was $8.3 million for fiscal year 2014 as compared to $2.6 million forfiscal year 2013. Income from operations, as a44 Table of Contentspercentage of contract revenue, was 7.7% for fiscal year 2014, as compared to 3.1% for fiscal year 2013. Other income. Other income was $117,000 for fiscal year 2014 as compared to $154,000 for fiscal year 2013. The decrease is primarily the result oflower interest expense due to decreased borrowings under the Wells Fargo line of credit. Income tax expense (benefit). We recorded an income tax benefit of $990,000 for fiscal year 2014, as compared to an income tax expense of $132,000for fiscal year 2013. The income tax benefit is attributable to a reversal of a valuation allowance that occurred during the third quarter. The effect of therelease resulted in a total decrease to tax expense of $4.6 million. For further discussion of our income tax provision, see Note 11 "—Income Taxes" of notesto our consolidated financial statements. Net income. As a result of the above factors, our net income was $9.4 million for fiscal year 2014, as compared to net income of $2.6 million for fiscalyear 2013.Fiscal Year 2013 Compared to Fiscal Year 2012 Contract revenue. Our contract revenue was $85.5 million for fiscal year 2013, with $36.0 million attributable to the Energy Efficiency Servicessegment, $35.2 million attributable to the Engineering Services segment, $9.8 million attributable to the Public Finance Services segment, and $4.4 millionattributable to the Homeland Security Services segment. Consolidated contract revenue decreased $7.9 million, or 8.5%, to $85.5 million for fiscal year 2013from $93.4 million for fiscal year 2012. This decrease was due primarily to a decrease of $9.5 million, or 20.9%, in contract revenue for the Energy EfficiencyServices segment. Contract revenue for the Energy Efficiency Services segment decreased primarily because of decreased energy efficiency services in thestate of New York, where we are providing fewer services than we did in the prior year period. Contract revenue for the Engineering Services segmentincreased by $1.2 million, or 3.5%, to $35.2 million for fiscal year 2013 from $34.0 million for fiscal year 2012. Contract revenue for the EngineeringServices segment increased primarily due to greater demand for our city engineering services in California and our building and safety, constructionmanagement and geotechnical services. Contract revenue in the Homeland Security Services segment increased by $0.3 million, or 7.8%, to $4.4 million forfiscal year 2013 from $4.1 million for fiscal year 2012. Revenue in the Homeland Security Services segment increased due to higher levels of activity in thetraditional planning, training and exercise consulting services business. Contract revenue for our Public Finance Services segment remained flat at$9.8 million for fiscal year 2013, as compared to fiscal year 2012. Direct costs of contract revenue. Direct costs of contract revenue were $48.9 million for fiscal year 2013, with $23.1 million attributable to the EnergyEfficiency Services segment, $19.0 million attributable to the Engineering Services segment, $4.0 million attributable to the Public Finance Servicessegment, and $2.8 million attributable to the Homeland Security Services segment. Overall, direct costs of contract revenue decreased by $10.0 million, or17.0%, to $48.9 million for fiscal year 2013 from $59.0 million for fiscal year 2012. This decrease is primarily attributable to a decrease in direct costs withinour Energy Efficiency Services segment of $11.5 million, or 33.2%. This decrease was partially offset by increases of $0.6 million, or 18.7%, $0.6 million or25.3% and $0.3 million or 1.5%, respectively, in our Public Finance Services, Homeland Security Services and Engineering Services segments. Direct costs ofcontract revenue as a percentage of contract revenue for fiscal year 2013 decreased to 57.2% from 63.1% for fiscal year 2012. Direct costs decreased primarily as a result of a decrease in subcontractor services (used primarily by our Energy Efficiency Services segment) and otherdirect costs of $10.9 million, partially offset by an increase in salaries and wages of $0.9 million. Salaries and wages increased to 28.2% of contract revenuefor fiscal year 2013 from 24.8% for fiscal year 2012 and subcontractor services and other direct45 Table of Contentscosts decreased to 29.0% of contract revenue for fiscal year 2013 from 38.2% of contract revenue for fiscal year 2012. Salaries and wages categorized as directcosts of contract revenue increased as a result of increased chargeability of labor. Subcontractor services decreased primarily because of decreased use ofsubcontractor services to perform certain energy efficiency, sustainability and renewable energy services of our subsidiary Willdan Energy Solutions, whichgenerally utilizes a higher percentage of subcontractors than our other subsidiaries. General and administrative expenses. General and administrative expenses decreased by $19.7 million, or 36.6%, to $34.0 million for fiscal year 2013from $53.7 million for fiscal year 2012. This decrease resulted from, in part, decreases of $17.5 million and $1.0 million in the general and administrativeexpenses of the Energy Efficiency Services and the Engineering Services segments, respectively. General and administrative expenses for our Public FinanceServices and Homeland Security Services segments also decreased by $0.2 million and $0.9 million, respectively. General and administrative expenses as apercentage of contract revenue decreased to 39.7% for fiscal year 2013 from 57.5% for fiscal year 2012. Of the $19.8 million decrease in general and administrative expenses, approximately $15.2 million was related to a goodwill impairment charge werecognized relating to our Energy Efficiency Services segment in fiscal year 2012 and we had no impairment charges in fiscal year 2013. See Note. 3 "—Goodwill and Other Intangible Assets." Salaries and wages, payroll taxes and employee benefits also decreased by $1.9 million, primarily as a result ofincreased chargeability of labor. As discussed above under "—Components of Income and Expense—Direct Costs of Contract Revenue," we only allocatethat portion of salaries and wages related to time spent directly generating revenue to direct costs of contract revenue. Other general and administrativeexpenses decreased by $2.3 million this decrease is primarily attributable to decreases in other expenses, marketing expenses, professional service fees, andaccounting, legal and recruiting expenses. The remaining $0.4 million decrease relates to decreases in facilities and facility related expenses, anddepreciation and amortization expenses each of $0.2 million. Income (loss) from operations. As a result of the above factors, our operating income was $2.6 million for fiscal year 2013 as compared to an operatingloss of $19.3 million for fiscal year 2012. Income from operations, as a percentage of contract revenue, was 3.1% for fiscal year 2013, while loss fromoperations, as a percentage of contract revenue, was 20.6% for fiscal year 2012. Other income (expense). Other income was $154,000 for fiscal year 2013 as compared to other expense of $128,000 for fiscal year 2012. The increase isprimarily the result of income from the sale of a subsidiary asset and lower interest expense due to decreased borrowings under the Wells Fargo line of credit. Income tax expense (benefit). We recorded an income tax expense of $132,000 for fiscal year 2013, as compared to an income tax benefit of$2.1 million for fiscal year 2012. The income tax expense is attributable to higher pre-tax income in fiscal year 2013. For further discussion of our income taxprovision, see Note. 11 "—Income Taxes" of notes to our consolidated financial statements. Net (loss) income. As a result of the above factors, our net income was $2.6 million for fiscal year 2013, as compared to a net loss of $17.3 million forfiscal year 2012.Liquidity and Capital Resources As of January 2, 2015, we had $20.4 million of cash and cash equivalents. Our primary source of liquidity is cash generated from operations. We alsohave a revolving line of credit with BMO Harris Bank, N.A., which matures on March 24, 2016. While we believe that our cash and cash equivalents on hand,cash generated by operating activities and available borrowings under our revolving line of credit will be sufficient to finance our operating activities for atleast the next 12 months, if we do experience46 Table of Contentsa cash flow shortage, we may have difficulty obtaining additional funds on favorable terms, if at all, in order to meet obligations as they come due in thenormal course of business.Cash Flows from Operating Activities Cash flows provided by operating activities were $12.6 million for fiscal year 2014, as compared to cash flows provided by operating activities of$1.5 million and $4.7 million for fiscal years 2013 and 2012, respectively. Our cash flows provided by operating activities for fiscal year 2014 were dueprimarily to a higher net income, increases in accounts payable, accrued liabilities and billings in excess of costs and estimated earnings on uncompletedcontracts, partially offset by increases in deferred income taxes, accounts receivable and costs and estimated earnings in excess of billings on uncompletedcontracts and decreases in accounts payable. Our cash flows provided by operating activities for fiscal year 2013 resulted from a decrease in accounts payableand an increase in costs and estimated earnings in excess of billing on uncompleted contracts, partially offset by a decrease in accounts receivable and anincrease in accrued liabilities. Our cash flows provided by operating activities for fiscal year 2012 were due primarily to decreases in costs and estimatedearnings in excess of billings on uncompleted contracts and accounts receivable, and an increase in billings in excess of costs and estimated earnings onuncompleted contracts. In fiscal year 2012, these items were partially offset by decreases in accrued liabilities and accounts payable.Cash Flows from Investing Activities Cash flows used in investing activities were $0.5 million for fiscal year 2014 and $0.3 million for fiscal years 2013 and 2012. Cash used in investingactivities primarily relates to the purchase of equipment and leasehold improvements.Cash Flows from Financing Activities Cash flows provided by financing activities were $0.1 million for fiscal year 2014, as compared to cash flows used in financing activities of $3.1 millionand cash flows provided by financing activities of $2.7 million for fiscal years 2013 and 2012, respectively. The net cash flows provided by financingactivities for fiscal year 2014 increased by $3.2 million from fiscal year 2013 primarily due to a decrease in repayments on our line of credit during fiscal year2014. The net cash flows used in financing activities for fiscal year 2013 increased by $5.8 million from fiscal year 2012 primarily due to a decrease in netborrowings under our line of credit during fiscal year 2013. The net cash flows provided by financing activities in fiscal year 2012 were primarily attributableto borrowings under our revolving line of credit, partially offset by repayments of our revolving line of credit and changes in the excess of outstandingchecks over bank balance.Outstanding Indebtedness On March 24, 2014, we entered into a credit agreement with BMO Harris Bank, N.A., or BMO, that provides for a revolving line of credit of up to$7.5 million, subject to a borrowing base calculation, including a $5.0 million standby letter of credit sub-facility, and a delayed draw term loan facility of upto $2.5 million. All borrowings under the revolving line of credit are limited to a borrowing base equal to roughly 75% of the eligible accounts receivableplus 50% of the lower of cost or market value of our eligible inventory, each term as defined in the credit agreement. As of January 2, 2015, there were nooutstanding borrowings under the revolving line of credit or term loan facility and all $7.5 million under the revolving line of credit and $2.5 million underthe delayed draw term loan facility were available for borrowing. Under the BMO credit agreement, as of January 2, 2014, no cash amounts are restricted. Therevolving line of credit matures on March 24, 2016 and term loans can be requested at any time prior to February 23, 2016. Subject to certain conditions,including that we are not in default under the credit agreement and that our trailing twelve month EBITDA (as defined in the credit47 Table of Contentsagreement) is not less than $5.0 million as of the end of the third fiscal quarter of 2015, we may request that the maturity date be extended by one year toMarch 24, 2017 and term loans could accordingly be requested at any time prior to February 22, 2017. Loans made under the revolving line of credit willaccrue interest at either (i) a floating rate equal to 0.75% above the base rate in effect from time to time or (ii) a floating rate of 1.75% above LIBOR, with theinterest rate to be selected by us. Borrowings under the revolving line of credit are guaranteed by all of our subsidiaries (the "Guarantors") and secured by all of our and the Guarantors'accounts receivable and other rights to payment, general intangibles, inventory and equipment. Pursuant to the credit agreement, we also must pay a fee of upto 0.3% 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) amaximum total leverage ratio, measured as total funded debt (measured as the sum of all obligations for borrowed money, including subordinated debt, plusall capital lease obligations) plus capital leases plus financial letters of credit divided by a trailing twelve month EBITDA (as defined in the credit agreement)measured on a rolling basis) of not more than 2.00; (ii) a minimum fixed charge coverage ratio (measured as the sum of EBITDA plus rent expense lessunfinanced capital expenditures divided by the sum of rent expense plus principal payments plus cash taxes plus cash interest plus restricted payments plusdistributions) of not less than 1.25; and (iii) a minimum tangible net worth of at least 85% of actual tangible net worth for the last financial statementsreceived prior to the closing date of the agreement, with step ups in an amount equal to 50% of net income (if positive) for each fiscal quarter endingthereafter (no add-back for losses). The credit agreement also includes customary negative covenants, including (i) restrictions on the incurrence of additional indebtedness by us or theGuarantors other than indebtedness existing on the date of the credit agreement, (ii) restrictions on the total consideration for all permitted acquisitions(including potential future earn-out obligations) shall not exceed $2.5 million during the term of the agreement and the total consideration for any individualpermitted acquisition shall not exceed $750,000 without BMO's consent, and (iii) limitations on asset sales, mergers and acquisitions. In addition, the creditagreement includes customary events of default. Upon the occurrence of an event of default, the interest rate may be increased by 2.0%, BMO has the optionto make any loans then outstanding under the credit agreement immediately due and payable, and BMO is no longer obligated to extend further credit to usunder the credit agreement. On March 20, 2014, in connection with entering into our current credit facility with BMO, we amended our credit agreement with Wells Fargo Bank N.A.to reduce the size of the facility from $5.0 million to $75,905 and extended its maturity from April 1, 2014 to June 1, 2014. On July 1, 2014, we furtherextended the maturity on the letter of credit to June 30, 2015. Loans made under the Wells Fargo credit facility during fiscal year 2013 accrued interest at afloating rate of LIBOR plus 2.25%. We also were required to pay a 0.25% fee on unused commitments and customary fees on any letters of credit drawn underthe facility. We were in compliance with each of our covenants under the Wells Fargo credit agreement as of January 2, 2015.Contractual Obligations We have certain cash obligations and other commitments which will impact our short- and long-term liquidity. At January 2, 2015, such obligations andcommitments consisted of long-term debt,48 Table of Contentsoperating leases and capital leases. The following table sets forth our contractual obligations as of January 2, 2015: The table above does not include the payment of up to $7.9 million in earn-out payments in connection with our acquisition of 360 Energy and Abacus.We are obligated to pay (i) up to $6,500,000 in cash, payable at the end of our 2015, 2016 and 2017 fiscal years, if certain financial targets of our divisionmade up of the assets acquired from, and former employees of, 360 Energy are met during such fiscal years and (ii) up to $1,400,000 in cash, payable at theend of our 2015 and 2016 fiscal years, if certain financial targets of Abacus are met during such fiscal years.Off-Balance Sheet Arrangements Other than operating lease commitments, we do not have any off-balance sheet financing arrangements or liabilities. In addition, our policy is not toenter into derivative instruments, futures or forward contracts. Finally, we do not have any majority-owned subsidiaries or any interests in, or relationshipswith, any special-purpose entities that are not included in the consolidated financial statements.New Accounting PronouncementsIncome Taxes In July 2013, the FASB issued guidance that requires entities to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, as areduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward when settlement in this manner isavailable under the tax law and we intend to use the deferred tax asset for that purpose. The amendments in this update are effective for fiscal years, andinterim periods within those fiscal years, beginning after December 15, 2013. The adoption of this guidance did not have a material impact on ourconsolidated financial position, results of operations or cash flows.Discontinued Operations In April 2014, the FASB issued guidance on reporting discontinued operations. The new guidance changes the criteria for determining which disposalscan be presented as discontinued operations and modifies related disclosure requirements. Under the new guidance, a discontinued operation is defined as adisposal of a component or group of components that is disposed of or is classified as held for sale and represents a strategic shift that has or will have a majoreffect on an entity's operations and financial results. The guidance applies prospectively to new disposals and new classifications of disposal groups as heldfor sale after the effective date. The standard is required to be adopted in annual periods beginning on or after December 15, 2014. The adoption of thisguidance is not expected to have any impact on our consolidated financial position, results of operations or cash flows.49Contractual Obligations Total Less than1 Year 1 - 3 Years 3 - 5 Years More than5 Years Long term debt(1) $— $— $— $— $— Operating leases 4,567,000 1,862,000 1,660,000 996,000 50,000 Capital leases 667,000 352,000 315,000 — — Total contractual cash obligations $5,234,000 $2,214,000 $1,975,000 $996,000 $— (1)Long-term debt includes principal and interest payments under our debt agreements assuming no additional borrowings or principalpayments and includes borrowings under our line of credit. Table of ContentsRevenue Recognition In May 2014, the FASB issued an amendment to the accounting guidance related to revenue recognition. Accounting Standards Update No. 2014-09,Revenue from Contracts with Customers: Topic 606, provides for a single comprehensive principles based standard for the recognition of revenue across allindustries through the application of the following five-step process: Step 1—Identify the contract(s) with a customer, Step 2—Identify the performanceobligations in the contract, Step 3—Determine the transaction price, Step 4—Allocate the transaction price to the performance obligations in the contract,and Step 5—Recognize revenue when (or as) the entity satisfies a performance obligation. The new guidance is effective prospectively for annual periodsbeginning after December 15, 2016. Early application is not permitted. We are evaluating the impact that adopting this prospective guidance will have onour consolidated financial statements. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 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 $20.4 million as of January 2, 2015. This amount represents cash on hand in business checking accounts with BMOHarris Bank. We do not engage in trading activities and do not participate in foreign currency transactions or utilize derivative financial instruments. As of January 2,2015, we had no outstanding debt under the BMO Harris Bank revolving credit facility.50 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 51 Page Report of Independent Registered Public Accounting Firm F-1 Consolidated Balance Sheets as of January 2, 2015 and December 27, 2013 F-2 Consolidated Statements of Operations for each of the fiscal years in the three-year period ended January 2, 2015 F-3 Consolidated Statements of Stockholders' Equity for each of the fiscal years in the three-year period endedJanuary 2, 2015 F-4 Consolidated Statements of Cash Flows for each of the fiscal years in the three-year period ended January 2, 2015 F-5 Notes to Consolidated Financial Statements F-6 Table of Contents 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 January 2, 2015. 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, StacyMcLaughlin, 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 ofJanuary 2, 2015. 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 January 2, 2015. 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). Internal control over financial reporting is a process to provide reasonable assurance regarding the reliabilityof our financial reporting for external purposes in accordance with accounting principles generally accepted in the United States. Because of its inherentlimitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would beprevented or detected. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of ourinternal control over financial reporting as of January 2, 2015. In making this assessment, our management used the criteria set forth by the Committee ofSponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (2013 Framework). Our management hasconcluded that, as of January 2, 2015, our internal control over financial 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.52 Table of ContentsChanges 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 2014 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.53 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 2015 Annual Meeting of Stockholdersto be filed with the SEC within 120 days after the end of the Company's 2014 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 2015 Annual Meeting of Stockholdersto be filed with the SEC within 120 days after the end of the Company's 2014 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 2015 Annual Meeting of Stockholdersto be filed with the SEC within 120 days after the end of the Company's 2014 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 2015 Annual Meeting of Stockholdersto be filed with the SEC within 120 days after the end of the Company's 2014 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 2015 Annual Meeting of Stockholdersto be filed with the SEC within 120 days after the end of the Company's 2014 fiscal year.54 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:55 Page Report of Independent Registered Public Accounting Firm F-1 Consolidated Balance Sheets as of January 2, 2015 and December 27, 2013 F-2 Consolidated Statements of Operations for each of the fiscal years in the three-year period ended January 2, 2015 F-3 Consolidated Statements of Stockholders' Equity for each of the fiscal years in the three-year period endedJanuary 2, 2015 F-4 Consolidated Statements of Cash Flows for each of the fiscal years in the three-year period ended January 2, 2015 F-5 Notes to Consolidated Financial Statements F-6 ExhibitNumber Exhibit Description 2.1 Stock Purchase Agreement, by and among Willdan Energy Solutions, Abacus Resource Management Company,Willdan Group, Inc. and the shareholders of Abacus Resource Management Company, dated as of January 15,2015.(1) 2.2 Asset Purchase Agreement, by and among Willdan Energy Solutions, Willdan Group, Inc. and 360 EnergyEngineers, LLC, dated as of January 15, 2015.(1) 3.1 Articles of Incorporation of Willdan Group, Inc., including amendments thereto(2) 3.2 Amended and Restated Bylaws of Willdan Group, Inc.(3) 4.1 Specimen Stock Certificate for shares of the Registrant's Common Stock(2) 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 March 24, 2014, between Willdan Group, Inc. and BMO Harris Bank, NationalAssociation(4) Table of Contents56ExhibitNumber Exhibit Description 10.2 Form of Delayed Draw Term Note for $2,500,000, dated as of March 24, 2014, by Willdan Group, Inc. in favor ofBMO Harris Bank, N.A.(4) 10.3 Revolving Line of Credit Note for $7,500,000, dated as of March 24, 2014, by Willdan Group, Inc. in favor ofBMO Harris Bank, National Association(4) 10.4 Security Agreement, dated as of March 24, 2014, between Willdan Group, Inc. and BMO Harris Bank, NationalAssociation (portions of this exhibit have been omitted pursuant to a request for confidential treatment)(4) 10.5†Willdan Group, Inc. 2006 Stock Incentive Plan(2) 10.6†Form of Incentive Stock Option Agreement(2) 10.7†Form of Non-Qualified Stock Option Agreement(2) 10.8†Amended and Restated Willdan Group, Inc. 2006 Employee Stock Purchase Plan(5) 10.9†Form of Indemnification Agreement between Willdan Group, Inc. and its Directors and Officers(2) 10.10†Offer Letter from Willdan Group, Inc. to Daniel Chow dated October 29, 2008 and accepted November 9, 2008(6) 10.11†Employment Agreement, dated as of May 3, 2011 by and between Willdan Group, Inc. and Thomas D. Brisbin(7) 10.12†Employment Agreement, dated as of May 3, 2011 by and between Willdan Group, Inc. and Marc Tipermas(7) 10.13†Willdan Group, Inc. 2008 Performance Incentive Plan(8) 10.14 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)(9) 10.15 First Amendment, dated September 23, 2014, to Agreement for Small Business Direct Install Program, dated July 2,2012, between Consolidated Edison Company of New York, Inc. and Willdan Energy Solutions (portions of thisexhibit have been omitted pursuant to a request for confidential treatment)(10) 10.16 First Amendment to the Credit Agreement, dated as of June 3, 2014, between Willdan Group, Inc., BMO HarrisBank, National Association and the parties thereto.(11) 10.17†Employment Agreement, by and between Willdan Group, Inc. and Mike Bieber, dated as of December 17, 2014.(11) 10.18 Second Amendment to the Credit Agreement, dated as of January 14, 2015, by and between Willdan Group, Inc.and BMO Harris Bank National Association.(12) 14.1 Code of Ethical Conduct of Willdan Group, Inc.(5) 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) Table of Contents57ExhibitNumber Exhibit Description 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 of January 2,2015 and December 27, 2013; (ii) the Consolidated Statements of Operations for each of the fiscal years in thethree-year period ended January 2, 2015; (iii) the Consolidated Statements of Stockholders' Equity for each of thefiscal years in the three-year period ended January 2, 2015; (iv) the Consolidated Statement of Cash Flows for eachof the fiscal years in the three-year period ended January 2, 2015; and (v) the Notes to the Consolidated FinancialStatements.*Filed herewith. †Indicates a management contract or compensating plan or arrangement. (1)Incorporated by reference to Willdan Group, Inc.'s Current Report on Form 8-K, filed with the Securities and Exchange Commissionon January 21, 2015. (2)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). (3)Incorporated by reference to Willdan Group, Inc.'s Quarterly Report on Form 10-Q, filed with the Securities and ExchangeCommission on August 13, 2009. (4)Incorporated by reference to Willdan Group, Inc.'s Annual Report on Form 10-K, filed with the Securities and Exchange Commissionon March 25, 2014. (5)Incorporated by reference to Willdan Group, Inc.'s Annual Report on Form 10-K, filed with the Securities and Exchange Commissionon March 27, 2007. (6)Incorporated by reference to Willdan Group, Inc.'s Current Report on Form 8-K, filed with the Securities and Exchange Commissionon December 17, 2008. (7)Incorporated by reference to Willdan Group, Inc.'s Current Report on Form 8-K, filed with the Securities and Exchange Commissionon May 4, 2011. (8)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. (9)Incorporated by reference to Willdan Group, Inc.'s Quarterly Report on Form 10-Q, filed with the Securities and ExchangeCommission on November 8, 2011. (10)Incorporated by reference to Willdan Group, Inc.'s Quarterly Report on Form 10-Q, filed with the Securities and ExchangeCommission on November 6, 2014. (11)Incorporated by reference to Willdan Group, Inc.'s Quarterly Report on Form 10-Q, filed with the Securities and ExchangeCommission on August 7, 2014. (12)Incorporated by reference to Willdan Group, Inc.'s Current Report on Form 8-K, filed with the Securities and Exchange Commissionon January 7, 2015. 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 31, 2015. KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature appears below constitutes and appoints Stacy McLaughlin 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.58 WILLDAN GROUP, INC. /s/ STACY B. MCLAUGHLINStacy B. McLaughlinChief Financial Officer and Vice President Date: March 31, 2015Signature Title Date/s/ THOMAS D. BRISBINThomas D. Brisbin Director, President and Chief Executive Officer(chief executive officer) March 31, 2015/s/ STACY B. MCLAUGHLINStacy B. McLaughlin Chief Financial Officer and Vice President (chieffinancial officer and chief accounting officer) March 31, 2015/s/ WIN WESTFALLWin Westfall Director March 31, 2015/s/ KEITH W. RENKENKeith W. Renken Director March 31, 2015/s/ JOHN M. TOUPSJohn M. Toups Director March 31, 2015/s/ RAYMOND W. HOLDSWORTHRaymond W. Holdsworth Director March 31, 2015/s/ DOUGLAS J. MCEACHERNDouglas J. McEachern Director March 31, 2015 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 January 2, 2015 andDecember 27, 2013, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period endedJanuary 2, 2015. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on thesefinancial statements 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Willdan Group, Inc.and subsidiaries as of January 2, 2015 and December 27, 2013, and the consolidated results of their operations and their cash flows for each of the three yearsin the period ended January 2, 2015, in conformity with U.S. generally accepted accounting principles.Los Angeles, CaliforniaMarch 31, 2015F-1 /s/ Ernst & Young LLP Table of Contents WILLDAN GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS See accompanying notes to consolidated financial statements.F-2 January 2,2015 December 27,2013 Assets Current assets: Cash and cash equivalents $20,371,000 $8,134,000 Accounts receivable, net of allowance for doubtful accounts of $662,000 and $385,000 atJanuary 2, 2015 and December 27, 2013, respectively 13,189,000 13,167,000 Costs and estimated earnings in excess of billings on uncompleted contracts 12,170,000 9,635,000 Other receivables 208,000 212,000 Prepaid expenses and other current assets 2,244,000 2,377,000 Total current assets 48,182,000 33,525,000 Equipment and leasehold improvements, net 1,384,000 691,000 Other assets 535,000 333,000 Deferred income taxes, net of current portion 4,558,000 3,688,000 Total assets $54,659,000 $38,237,000 Liabilities and Stockholders' Equity Current liabilities: Excess of outstanding checks over bank balance $2,198,000 $1,473,000 Accounts payable 3,237,000 3,957,000 Accrued liabilities 10,668,000 5,808,000 Billings in excess of costs and estimated earnings on uncompleted contracts 3,863,000 2,247,000 Current portion of notes payable 355,000 517,000 Current portion of capital lease obligations 324,000 129,000 Current portion of deferred income taxes 3,131,000 3,688,000 Total current liabilities 23,776,000 17,819,000 Capital lease obligations, less current portion 306,000 85,000 Deferred lease obligations 164,000 120,000 Total liabilities 24,246,000 18,024,000 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; 7,635,000 and 7,375,000shares issued and outstanding at January 2, 2015 and December 27, 2013, respectively 76,000 74,000 Additional paid-in capital 35,436,000 34,654,000 Accumulated deficit (5,099,000) (14,515,000)Total stockholders' equity 30,413,000 20,213,000 Total liabilities and stockholders' equity $54,659,000 $38,237,000 Table of Contents WILLDAN GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS See accompanying notes to consolidated financial statements.F-3 Fiscal Year 2014 2013 2012 Contract revenue $108,080,000 $85,510,000 $93,443,000 Direct costs of contract revenue (exclusive of depreciation andamortization shown separately below): Salaries and wages 28,207,000 24,098,000 23,218,000 Subcontractor services and other direct costs 35,611,000 24,831,000 35,741,000 Total direct costs of contract revenue 63,818,000 48,929,000 58,959,000 General and administrative expenses: Salaries and wages, payroll taxes and employee benefits 21,394,000 20,555,000 22,421,000 Facilities and facility related 4,371,000 4,654,000 4,871,000 Stock-based compensation 258,000 150,000 227,000 Depreciation and amortization 459,000 517,000 671,000 Lease abandonment , net 9,000 30,000 26,000 Impairment of goodwill — — 15,208,000 Other 9,462,000 8,067,000 10,315,000 Total general and administrative expenses 35,953,000 33,973,000 53,739,000 Income (loss) from operations 8,309,000 2,608,000 (19,255,000)Other income (expense): Interest income 8,000 10,000 6,000 Interest expense (16,000) (94,000) (106,000)Other, net 125,000 238,000 (28,000)Total other income (expense), net 117,000 154,000 (128,000)Income (loss) before income taxes 8,426,000 2,762,000 (19,383,000)Income tax (benefit) expense (990,000) 132,000 (2,083,000)Net income (loss) $9,416,000 $2,630,000 $(17,300,000)Earnings (loss) per share: Basic $1.26 $0.36 $(2.37)Diluted $1.22 $0.35 $(2.37)Weighted-average shares outstanding: Basic 7,488,000 7,355,000 7,310,000 Diluted 7,739,000 7,495,000 7,310,000 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 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 Shares of common stock issued in connection withemployee stock purchase plan 31,000 1,000 72,000 — 73,000 Shares of common stock issued in connection withemployee stock option exercise 9,000 — 9,000 — 9,000 Stock-based compensation — — 150,000 — 150,000 Net income — — — 2,630,000 2,630,000 Balances at December 27, 2013 7,375,000 74,000 34,654,000 (14,515,000) 20,213,000 Shares of common stock issued in connection withemployee stock purchase plan 12,000 — 76,000 — 76,000 Shares of common stock issued in connection withemployee stock plans 248,000 2,000 448,000 — 450,000 Stock-based compensation — — 258,000 — 258,000 Net income — — — 9,416,000 9,416,000 Balances at January 2, 2015 7,635,000 $76,000 $35,436,000 $(5,099,000)$30,413,000 Table of Contents WILLDAN GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS See accompanying notes to consolidated financial statementsF-5 Fiscal Year 2014 2013 2012 Cash flows from operating activities: Net income (loss) $9,416,000 $2,630,000 $(17,300,000)Adjustments to reconcile net income (loss) to net cash provided byoperating activities: Depreciation and amortization 460,000 585,000 737,000 Deferred income taxes (1,427,000) — (2,249,000)Goodwill impairment — — 15,208,000 Lease abandonment expense (recovery), net 9,000 30,000 26,000 Loss (gain) on sale of equipment 11,000 (6,000) 18,000 Provision for doubtful accounts 510,000 101,000 673,000 Stock-based compensation 258,000 150,000 227,000 Changes in operating assets and liabilities: Accounts receivable (532,000) 2,216,000 625,000 Costs and estimated earnings in excess of billings on uncompletedcontracts (2,535,000) 225,000 10,812,000 Other receivables 4,000 (117,000) 80,000 Prepaid expenses and other current assets 133,000 (595,000) (58,000)Other assets (202,000) (26,000) 76,000 Accounts payable (720,000) (3,026,000) (1,199,000)Changes in excess of outstanding checks over bank balance 725,000 285,000 (589,000)Accrued liabilities 4,860,000 502,000 (4,886,000)Billings in excess of costs and estimated earnings on uncompletedcontracts 1,616,000 (1,172,000) 2,667,000 Deferred lease obligations 35,000 (284,000) (186,000)Net cash provided by operating activities 12,621,000 1,498,000 4,682,000 Cash flows from investing activities: Purchase of equipment and leasehold improvements (492,000) (306,000) (359,000)Proceeds from sale of equipment 5,000 27,000 20,000 Net cash used in investing activities (487,000) (279,000) (339,000)Cash flows from financing activities: Payments on notes payable (162,000) (621,000) (663,000)Proceeds from notes payable — 510,000 614,000 Borrowings under line of credit — — 11,663,000 Repayments of line of credit — (3,000,000) (8,919,000)Principal payments on capital leases (261,000) (62,000) (164,000)Proceeds from stock option exercise 450,000 9,000 11,000 Proceeds from sales of common stock under employee stock purchase plan 76,000 73,000 120,000 Net cash provided by (used in) financing activities 103,000 (3,091,000) 2,662,000 Net increase (decrease) in cash and cash equivalents 12,237,000 (1,872,000) 7,005,000 Cash and cash equivalents, at beginning of the year 8,134,000 10,006,000 3,001,000 Cash and cash equivalents, at end of the year $20,371,000 $8,134,000 $10,006,000 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $16,000 $100,000 $106,000 Income taxes 134,000 324,000 139,000 Supplemental disclosures of noncash investing and financing activities: Equipment acquired under capital leases $677,000 $87,000 $151,000 Table of Contents1. 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, includingcomprehensive energy efficiency solutions, for utilities, private industry, and public agencies at all levels of government, primarily in California and NewYork. The Company also has operations in Arizona, Florida, Texas, Washington and Washington, D.C. The Company enables these entities to provide a widerange of specialized services without having to incur and maintain the overhead necessary to develop staffing in-house. The Company provides a broadrange of complementary services including energy efficiency, engineering and planning, 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 Energy Solutions,Willdan Engineering, 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 its annual financial results based on 52 or 53-week periods ending on the Friday closest to December 31, withconsideration of business days. The Company operates and reports its quarterly financial results based on the 13-week period ending on the Friday closest toMarch 31, June 30 and September 30 and the 13 or 14-week period ending on the Friday closest to December 31, as applicable, with consideration ofbusiness days. Fiscal year 2014 contained 53 weeks. Fiscal years 2013 and 2012 contained 52 weeks. All references to years in the notes to consolidatedfinancial 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:F-6 January 2,2015 December 27,2013 Wells Fargo Stage Coach Sweep Investment Account $— $1,103,000 Wells Fargo Money Market Mutual Fund — 1,002,000 Wells Fargo Advantage Heritage Fund — 48,000 Wells Fargo Collateral Investment Account — 5,003,000 BMO Harris Bank Master Control Operating Account 20,317,000 — Cash on hand in business checking accounts 54,000 978,000 $20,371,000 $8,134,000 Table of Contents2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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 not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash andcash equivalents.Fair Value of Financial Instruments As of January 2, 2015 and December 27, 2013, the carrying amounts of the Company's cash and 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 six 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. Three of the six 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. See Note 12.Off-Balance Sheet Arrangements Other than operating lease commitments, the Company does not have any off-balance sheet financing arrangements or liabilities. In addition, theCompany's policy is not to enter into derivative instruments, futures or forward contracts. Finally, the Company does not have any majority-ownedsubsidiaries or any interests in, or relationships with, any special-purpose entities that are not 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 appropriate unit of accounting, allocation of contract value, and method ofrevenue recognition for each element. Revenue for amounts that have been billed but not earned is deferred and such deferred revenue is referred to asbillings in excess of costs and estimated earnings on uncompleted contracts in theF-7 Table of Contents2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)accompanying 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. Award and incentive fees are recorded when they arefixed or determinable and consider customer contract terms. 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, subcontractor 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. 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 notF-8 Table of Contents2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)allocated to direct costs of contract revenue for those employees who provide the Company's services. General and administrative expenses also includefacility costs, depreciation and amortization, professional services, legal and accounting fees and administrative operating costs. Within general andadministrative expenses, "Other" includes expenses such as provision for billed or unbilled receivables, professional services, legal and accounting, computercosts, travel and 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. 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 moreF-9Category Estimated Useful LifeFurniture and fixtures 5 yearsComputer hardware 2 yearsComputer software 3 yearsAutomobiles and trucks 3 yearsField equipment 5 years Table of Contents2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)frequently if events and circumstances indicate that the asset might be impaired. Impairment losses for reporting units are recognized to the extent that areporting unit's carrying amount exceeds its fair value.Accounting for Claims Against the Company The Company accrues an undiscounted liability related to claims against it for which the incurrence of a loss is probable and the amount can bereasonably estimated. The Company discloses the amount accrued and an estimate of any reasonably possible loss in excess of the amount accrued, if suchdisclosure is necessary for its financial statements not to be misleading. The Company does not accrue liabilities related to claims when the likelihood that aloss has been incurred is probable but the amount cannot be reasonably estimated, or when the liability is believed to be only reasonably possible or remote.Losses related to recorded claims are included in general and administrative expenses. Determining probability and estimating claim amounts is highly judgmental. Initial accruals and any subsequent changes in the Company's estimatescould have a material effect on its consolidated financial statements.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.Business Combinations The acquisition method of accounting for business combinations requires the Company to use significant estimates and assumptions, including fairvalue estimates, as of the business combination date and to refine those estimates as necessary during the measurement period (defined as the period, not toexceed one year, in which the Company may adjust the provisional amounts recognized for a business combination) in a manner that is generally similar tothe previous purchase method of accounting. Under the acquisition method of accounting, the Company recognizes separately from goodwill the identifiable assets acquired, the liabilities assumed,and any noncontrolling interests in an acquiree, generally at the acquisition date fair value. The Company measures goodwill as of the acquisition date as theexcess of consideration transferred, which it also measures at fair value, over the net of the acquisition date amounts of the identifiable assets acquired andliabilities assumed. Costs that the Company incurs to complete the business combination such as investment banking, legal and other professional fees arenot considered part of consideration and the Company charges them to acquisition expense as they are incurred.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, subject to judgmental assessment of therecoverability of deferred tax assets. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the yearsin which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in taxF-10 Table of Contents2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded when it is more likely than not that all or aportion of the deferred tax assets may not be realized. Significant judgment is applied when assessing the need for valuation allowances. Areas of estimationinclude the Company's consideration of future taxable income and ongoing prudent and feasible tax planning strategies. Should a change in circumstanceslead to a change in judgment about the utilization of deferred tax assets in future years, the Company would adjust the related valuation allowances in theperiod that the change in circumstances occurs, along with a corresponding increase or charge to income. During fiscal year 2014, management assessed theavailable positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets. Based onthis evaluation, as of January 2, 2015, the Company reversed the valuation allowance on its deferred tax assets. The Company will continue to assess theneed for a valuation allowance in the future. The provision for income taxes represents the tax payable for the period and the change during the period indeferred tax assets and liabilities. If the Company identifies changes to acquired deferred tax asset valuation allowances or liabilities related to uncertain tax positions during themeasurement period and they relate to new information obtained about facts and circumstances that existed as of the acquisition date, those changes areconsidered a measurement period adjustment and the Company records the offset to goodwill. The Company records all other changes to deferred tax assetvaluation allowances and liabilities related to uncertain tax positions in current period income tax expense. 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 PronouncementsIncome Taxes In July 2013, the FASB issued guidance that requires entities to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, as areduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward when settlement in this manner isavailable under the tax law and the Company intends to use the deferred tax asset for that purpose. The amendments in this update are effective for fiscalyears, and interim periods within these fixed years, beginning after December 15, 2013. The adoption of this guidance did not have a material impact on theCompany's consolidated financial position, results of operations or cash flows.F-11 Table of Contents2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)Discontinued Operations In April 2014, the FASB issued guidance on reporting discontinued operations. The new guidance changes the criteria for determining which disposalscan be presented as discontinued operations and modifies related disclosure requirements. Under the new guidance, a discontinued operation is defined as adisposal of a component or group of components that is disposed of or is classified as held for sale and represents a strategic shift that has or will have a majoreffect on an entity's operations and financial results. The guidance applies prospectively to new disposals and new classifications of disposal groups as heldfor sale after the effective date. The standard is required to be adopted in annual periods beginning on or after December 15, 2014. The adoption of thisguidance is not expected to have any impact on the Company's consolidated financial position, results of operations or cash flows.Revenue Recognition In May 2014, the FASB issued an amendment to the accounting guidance related to revenue recognition. Accounting Standards Update No. 2014-09,Revenue from Contracts with Customers: Topic 606, provides for a single comprehensive principles based standard for the recognition of revenue across allindustries through the application of the following five-step process: Step 1—Identify the contract(s) with a customer, Step 2—Identify the performanceobligations in the contract, Step 3—Determine the transaction price, Step 4—Allocate the transaction price to the performance obligations in the contract,and Step 5—Recognize revenue when (or as) the entity satisfies a performance obligation. The new guidance is effective prospectively for annual periodsbeginning after December 15, 2016. Early application is not permitted. The Company is evaluating the impact that adopting this prospective guidance willhave on its consolidated financial statements.3. GOODWILL AND OTHER INTANGIBLE ASSETS As of January 2, 2015 and December 27, 2013, the Company had no goodwill. The gross amounts and accumulated amortization of the Company's acquired identifiable intangible assets with finite useful lives as of January 2, 2015and December 27, 2013, 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. For the years ended January 2, 2015, December 27, 2013 and December 28, 2012, the Company's amortization expense for acquired identifiableintangible assets with finite useful lives was $0, $12,000F-12 January 2, 2015 December 27, 2013 GrossAmount AccumulatedAmortization GrossAmount AccumulatedAmortization AmortizationPeriod (yrs) Backlog $920,000 $920,000 $920,000 $920,000 1 Training materials/courses 282,000 282,000 282,000 282,000 5 Non-compete agreements 30,000 30,000 30,000 30,000 3 $1,232,000 $1,232,000 $1,232,000 $1,232,000 Table of Contents3. GOODWILL AND OTHER INTANGIBLE ASSETS (Continued)and $37,000, respectively. There is no estimated future amortization expense for acquired identifiable intangible assets.4. 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 January 2, 2015, 251,000 options were excluded from the calculation of dilutive potential common shares, compared to459,000 and 654,000 options, for fiscal 2013 and fiscal 2012, 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.5. ACCOUNTS RECEIVABLE Accounts receivable consisted of the following at January 2, 2015 and December 27, 2013:F-13 Fiscal Year 2014 2013 2012 Net income (loss) $9,416,000 $2,630,000 $(17,300,000)Weighted-average common shares outstanding 7,488,000 7,355,000 7,310,000 Effect of dilutive stock options and restricted stock awards 251,000 140,000 — Weighted-average common stock outstanding-diluted 7,739,000 7,495,000 7,310,000 Earnings (loss) per share: Basic $1.26 $0.36 $(2.37)Diluted $1.22 $0.35 $(2.37) January 2,2015 December 27,2013 Billed $13,151,000 $12,879,000 Unbilled 12,170,000 9,635,000 Contract retentions 700,000 673,000 26,021,000 23,187,000 Allowance for doubtful accounts (662,000) (385,000) $25,359,000 $22,802,000 Table of Contents5. ACCOUNTS RECEIVABLE (Continued) The movements in the allowance for doubtful accounts consisted of the following for fiscal years 2014, 2013 and 2012: 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 January 2, 2015 andDecember 27, 2013 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 January 2, 2015, one client accounted for 17% of outstanding receivables, as compared to 26% of the Company's outstanding receivables as ofDecember 27, 2013.F-14 Fiscal Year 2014 2013 2012 Balance as of the beginning of the year $385,000 $303,000 $421,000 Provision for doubtful accounts 486,000 189,000 220,000 Write-offs of uncollectible accounts (209,000) (107,000) (341,000)Recoveries of accounts written off — — 3,000 Balance as of the end of the year $662,000 $385,000 $303,000 Table of Contents6. EQUIPMENT AND LEASEHOLD IMPROVEMENTS Equipment and leasehold improvements consisted of the following at January 2, 2015 and December 27, 2013: Included in accumulated depreciation and amortization is $176,000 and $152,000 of amortization expense related to equipment held under capitalleases in fiscal years 2014 and 2013, respectively.7. ACCRUED LIABILITIES Accrued liabilities consisted of the following at January 2, 2015 and December 27, 2013:8. 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 $258,000,$150,000 and $227,000 for fiscal years 2014, 2013 and 2012, respectively. 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'sshareholdersF-15 January 2,2015 December 27,2013 Furniture and fixtures $2,994,000 $3,039,000 Computer hardware and software 5,667,000 6,338,000 Leasehold improvements 785,000 776,000 Equipment under capital leases 919,000 831,000 Automobiles, trucks, and field equipment 677,00 533,000 11,042,000 11,517,000 Accumulated depreciation and amortization (9,658,000) (10,826,000)Equipment and leasehold improvements, net $1,384,000 $691,000 January 2,2015 December 27,2013 Accrued bonuses $1,450,000 $31,000 Paid leave bank 1,404,000 1,243,000 Compensation and payroll taxes 1,371,000 749,000 Accrued legal 556,000 356,000 Accrued workers' compensation insurance 192,000 141,000 Accrued rent 149,000 367,000 Employee withholdings 637,000 343,000 Client deposits 79,000 232,000 Unvouchered accounts payable 4,462,000 2,282,000 Other 368,000 64,000 Total accrued liabilities $10,668,000 $5,808,000 Table of Contents8. EQUITY PLANS (Continued)approved the 2008 Plan (as defined below) in June 2008. The 2006 Plan had 300,000 shares of common stock reserved for issuance to the Company'sdirectors, executives, officers, employees, consultants and advisors and currently has 168,500 shares of common stock reserved for issuance. Approximately70,333 shares that were available for award grant purposes under the 2006 Plan have become available for grant under the 2008 Plan following shareholderapproval of the 2008 Plan. Options granted under the 2006 Plan could be "non-statutory stock options" which expire no more than ten years from the date ofgrant 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 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 2006 Plan). Through January 2, 2015, options granted, net offorfeitures and expirations, under the 2006 Plan consisted of 162,500 shares and 6,000 shares for incentive stock options and non-statutory stock 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. The 2008 Plan initiallyhad 450,000 shares of common stock reserved for issuance (not counting any shares originally available under the 2006 Plan that "poured over.") At the 2010and 2012 annual meetings of the stockholders, the stockholders approved 350,000 and 500,000 share increases, respectively, to the 2008 Plan. Themaximum number of shares of the Company's common stock that may be issued or transferred pursuant to awards under the 2008 Plan can also be increasedby any shares subject to stock options granted under the 2006 Plan and outstanding as of June 9, 2008 which expire, or for any reason are cancelled orterminated, after June 9, 2008 without being exercised. The 2008 Plan currently has 426,602 shares of common stock reserved for issuance. Awardsauthorized by the 2008 Plan include stock options, stock appreciation rights, restricted stock, stock bonuses, stock units, performance stock, and other share-based awards. No participant may be granted an option to purchase more than 100,000 shares in any fiscal year. Options generally may not be granted withexercise prices less than fair market value at the date of grant, with vesting provisions and contractual terms determined by the compensation committee ofthe board of directors on a grant-by-grant basis. Options granted under the 2008 Plan may be "nonqualified stock options" or "incentive stock options" asdefined in Section 422 of the Internal Revenue Code of 1986, as amended. The maximum term of each option shall be 10 years. Upon exercise ofnonqualified 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 theexercise price of the fair market value of the shares at the date of exercise. The Company is generally not entitled to any tax deduction on the exercise of anincentive stock option. Option awards provide for accelerated vesting if there is a change in control (as defined in the 2008 Plan). Through January 2, 2015,options granted, net of forfeitures and exercises, under the 2008 Plan consisted of 646,234 shares, 111,000 shares and 50,000 shares for incentive stockoptions, non-statutory stock options and restricted stock grants, 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 exerciseF-16 Table of Contents8. EQUITY PLANS (Continued)and expected post-vesting termination behavior is estimated based upon the simplified method. Under this approach, the expected term is presumed to be themid-point between the vesting date and the end of the contractual term. The risk-free rate for periods within the contractual life of the option is based on theU.S. Treasury yield curve in effect at the time of grant. The assumptions are as follows: The Company's restricted stock awards are valued on the closing price of the Company's common stock on the date of grant and typically vest over a twoyear period.Summary of Stock Option Activity A summary of option activity under the 2006 Plan and 2008 Plan as of January 2, 2015 and changes during the fiscal years ended January 2, 2015,December 27, 2013 and December 28, 2012 is presented below. The intrinsic value of the fully-vested options is $5,960,000, based on the Company's closingstock price of $14.50 on January 2, 2015. F-17 2014 2013 2012Expected volatility 38.35% - 40.00% 40% 39%Expected dividends 0% 0% 0%Expected term (in years) 6.00 5.75 - 6.00 5.75 - 6.00Risk-free rate 1.63% - 1.73% 1.31% - 1.36% 0.65% - 1.09% Options Weighted-AverageExercisePrice Weighted-AverageRemainingContractualTerm (Years) Outstanding at December 27, 2013 978,000 $3.86 6.95 Granted 235,000 10.23 9.68 Exercised (198,000) 2.24 4.74 Forfeited or expired (89,000) 2.57 — Outstanding at January 2, 2015 926,000 $5.84 6.44 Vested at January 2, 2015 595,000 $4.47 4.92 Exercisable at January 2, 2015 595,000 $4.47 4.92 Options Weighted-AverageExercisePrice Weighted-AverageRemainingContractualTerm (Years) Outstanding at December 28, 2012 992,000 $3.86 6.95 Granted 100,000 3.62 2.44 Exercised (9,000) 1.65 5.67 Forfeited or expired (105,000) — — Outstanding at December 27, 2013 978,000 $3.95 3.35 Vested at December 27, 2013 796,000 $4.04 7.90 Exercisable at December 27, 2013 796,000 $4.04 7.90 Table of Contents8. EQUITY PLANS (Continued) A summary of the status of the Company's nonvested options and changes in nonvested options during the fiscal years ended January 2, 2015,December 27, 2013 and December 28, 2012, is presented below: F-18 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 Options Weighted-AverageGrant-DateFair Value Nonvested at December 27, 2013 207,000 $3.55 Granted 235,000 4.15 Vested (108,000) 3.41 Forfeited (3,000) 3.85 Nonvested at January 2, 2015 331,000 3.37 Options Weighted-AverageGrant-DateFair Value Nonvested at December 28, 2012 293,000 $1.28 Granted 100,000 3.62 Vested (143,000) 3.17 Forfeited (43,000) 3.33 Nonvested at December 27, 2013 207,000 3.55 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 Contents8. EQUITY PLANS (Continued)Summary of Restricted Stock Activity A summary of restricted stock activity under the 2008 Plan as of January 2, 2015 and changes during the fiscal years ended January 2, 2015, is presentedbelow. The intrinsic value of the fully-vested restricted stock is $144,000, based on the Company's grant date price of $7.13 for fiscal 2014. As of January 2, 2015, there was $422,000 and $142,000 of total unrecognized compensation expense related to non-vested stock options and restrictedstock grants, respectively. That expense is expected to be recognized over a weighted-average period of 6.04 years. There were no options granted that wereimmediately vested during the fiscal years ended January 2, 2015, December 27, 2013 and December 28, 2012. 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. 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 January 2, 2015, there were 81,113 shares available for issuance under the plan.F-19 RestrictedStock Weighted-AverageGrant DateFair Value Outstanding at December 27, 2013 25,000 $2.96 Granted 25,000 7.13 Vested (12,500) 2.96 Forfeited — Outstanding at January 2, 2015 37,500 $5.74 Table of Contents9. DEBT OBLIGATIONS Debt obligations, excluding obligations under capital leases (note 11), consist of the following: On March 24, 2014, the Company entered into a credit agreement with BMO Harris Bank, N.A. ("BMO") that provides for a revolving line of credit of upto $7.5 million, subject to a borrowing base calculation, including a $5.0 million standby letter of credit sub-facility, and a delayed draw term loan facility ofup to $2.5 million. All borrowings under the revolving line of credit are limited to a borrowing base equal to roughly 75% of the eligible accounts receivableplus 50% of the lower of cost or market value of our eligible inventory, each term as defined in the credit agreement. As of January 2, 2015, there were nooutstanding borrowings under the revolving line of credit or term loan facility and all $7.5 million under the revolving line of credit and $2.5 million underthe delayed draw term loan facility were available for borrowing. Under the BMO credit agreement, as of January 2, 2015, no cash amounts are restricted. Therevolving line of credit matures on March 24, 2016 and term loans can be requested at any time prior to February 23, 2016. Subject to certain conditions,including that the Company is not in default under the credit agreement and that the Company's trailing twelve month EBITDA (as defined in the creditagreement) is not less than $5.0 million as of the end of the third fiscal quarter of 2015, the Company may request that the maturity date be extended by oneyear to March 24, 2017 and term loans could accordingly be requested at any time prior to February 22, 2017. Loans made under the revolving line of creditwill accrue interest at either (i) a floating rate equal to 0.75% above the base rate in effect from time to time or (ii) a floating rate of 1.75% above LIBOR, withthe interest rate to be selected by the Company. The Company has also financed, from time to time, insurance premiums by entering into unsecured notespayable with insurance companies. During its annual insurance renewals in the fourth quarter of the fiscal year ended January 2, 2015 the Company electedto finance its insurance premiums for the upcoming fiscal year. Borrowings under the revolving line of credit are guaranteed by all of the Company's subsidiaries (the "Guarantors") and secured by all of the Company'sand the Guarantors' accounts receivable and other rights to payment, general intangibles, inventory and equipment. Pursuant to the credit agreement, theCompany also must pay a fee of up to 0.3% 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) amaximum total leverage ratio, measured as total funded debt (measured as the sum of all obligations for borrowed money, including subordinated debt, plusall capital lease obligations) plus capital leases plus financial letters of credit divided by a trailing twelve month EBITDA, measured on a rolling basis) of notmore than 2.00; (ii) a minimum fixedF-20 2014 2013 Outstanding borrowings on line of credit $— $— Notes payable for vehicles, 36 month term, bearing interest at 1.9%, payable in monthly principaland interest installments of $6,000 through January 2014, secured by vehicles — 7,000 Notes payable for insurance, 9 month term, bearing interest at 1.9%, payable in monthly principaland interest installments of $28,000 through August 2014 — 462,000 Notes payable for insurance, 9 month term, bearing interest at 1.8%, payable in monthly principaland interest installments of $50,000 through August 2015 352,000 — Other 3,000 48,000 355,000 517,000 Less current portion 355,000 517,000 Debt obligations, less current portion $— $— Table of Contents9. DEBT OBLIGATIONS (Continued)charge coverage ratio (measured as the sum of EBITDA plus rent expense less unfinanced capital expenditures divided by the sum of rent expense plusprincipal payments plus cash taxes plus cash interest plus restricted payments plus distributions) of not less than 1.25; and (iii) a minimum tangible net worthof at least 85% of actual tangible net worth for the last financial statements received prior to the closing date of the agreement, with step ups in an amountequal to 50% of net income (if positive) for each fiscal quarter ending thereafter (no add-back for losses). The credit agreement also includes customary negative covenants, including (i) restrictions on the incurrence of additional indebtedness by us or theGuarantors other than indebtedness existing on the date of the credit agreement, (ii) restrictions on the total consideration for all permitted acquisitions(including potential future earn-out obligations) not to exceed $2.5 million during the term of the agreement and the total consideration for any individualpermitted acquisition not to exceed $750,000 without BMO's consent, and (iii) limitations on asset sales, mergers and acquisitions. In addition, the creditagreement includes customary events of default. Upon the occurrence of an event of default, the interest rate may be increased by 2.0%, BMO has the optionto make any loans then outstanding under the credit agreement immediately due and payable, and BMO is no longer obligated to extend further credit to theCompany under the credit agreement. During fiscal year 2013, the Company had a revolving credit agreement with Wells Fargo Bank, N.A, which was entered into on December 23, 2011 andbecame effective as of January 1, 2012. Loans made under the revolving line of credit accrued interest at a floating rate of LIBOR plus 2.25%. The Companywas also required to pay a 0.25% fee on unused commitments and customary fees on any letters of credit drawn under the facility. The Wells Fargo revolvingline of credit was scheduled to mature on April 1, 2014, but, on March 20, 2014, in connection with entering into the credit facility with BMO discussedabove, the Company reduced the size of this Wells Fargo facility from $5.0 million to $75,905, which is the amount outstanding under a current letter ofcredit and extended the maturity of the letter of credit until June 1, 2014. On July 1, 2014, the Company further extended the maturity of the letter of credit toJune 30, 2015.10. COMMITMENTSLeases The Company is obligated under capital leases for certain furniture and office equipment that expire at various dates through the year 2017. The Company also leases certain office facilities under non-cancelable operating leases that expire at various dates through the year 2017 and iscommitted under non-cancelable operating leases for the lease of computer equipment and automobiles through the year 2015.F-21 Table of Contents10. COMMITMENTS (Continued) Future minimum rental payments under capital and non-cancelable operating leases are summarized as follows: During the fiscal year ended January 2, 2015, 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 $9,000. This expense includes future rental obligations and othercosts associated with the leased space net of the fair value of subleases. Rent expense and related charges for common area maintenance for all facility operating leases for fiscal years 2014, 2013 and 2012 was approximately$3,004,000, $3,405,000 and $3,615,000, respectively. The following is a reconciliation of the liability for lease abandonment expense for fiscal years 2014 and 2013: 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 boardF-22 Capital Operating Fiscal year: 2015 $352,000 $1,862,000 2016 259,000 965,000 2017 56,000 695,000 2018 — 502,000 2019 — 494,000 Thereafter — 49,000 Total future minimum lease payments 667,000 $4,567,000 Amount representing maintenance (24,000) Amount representing interest (at rates ranging from 3.25% to 3.75%) (13,000) Present value of net minimum lease payments under capital leases 630,000 Less current portion 324,000 $306,000 Fiscal 2014 Fiscal 2013 Liability for abandoned leases as of beginning of year $122,000 $162,000 Lease abandonment expense, net 9,000 30,000 Lease payments on abandoned leases, net of sublease payments (153,000) (189,000)Other 66,000 119,000 Liability for abandoned leases as of the end of the year $44,000 $122,000 Table of Contents10. COMMITMENTS (Continued)of directors. The Company made matching contributions of approximately $624,000, $507,000 and $248,000 during fiscal years 2014, 2013 and 2012,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 2014, 2013 and 2012 totaled approximately $1,500,000, $262,000 and $258,000, respectively,of which approximately $1,450,000 and $31,000 is included in accrued liabilities at January 2, 2015 and December 27, 2013, 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, $139,000 as of January 2, 2015 and $137,000 as of December 27, 2013.11. INCOME TAXES The provision (benefit) for income taxes is comprised of:F-23 Fiscal Year 2014 2013 2012 Current federal taxes $274,000 $88,000 $88,000 Current state taxes 164,000 44,000 77,000 Deferred federal taxes (benefit) (782,000) — (1,830,000)Deferred state taxes (benefit) (646,000) — (418,000) $(990,000)$132,000 $(2,083,000) Table of Contents11. INCOME TAXES (Continued) 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 2014, 2013 and 2012 are as follows: The tax effects of temporary differences that give rise to significant portions of the net deferred tax assets and liabilities are as follows:F-24 2014 2013 2012 Computed "expected" federal income tax expense (benefit) $2,864,000 $940,000 $(6,590,000)Permanent differences 139,000 93,000 93,000 Current and deferred state income tax expense (benefit), net of federal benefit 586,000 (19,000) (1,081,000)Change in valuation allowances on deferred tax assets (4,576,000) (897,000) 5,473,000 Other (3,000) 15,000 22,000 $(990,000)$132,000 $(2,083,000) January 2,2015 December 27,2013 December 28,2012 Current deferred tax assets: Accounts receivable allowance $265,000 $156,000 $119,000 Other accrued liabilities 1,482,000 764,000 866,000 1,747,000 920,000 985,000 Valuation allowance — (483,000) (570,000)Net deferred tax assets 1,747,000 437,000 415,000 Current deferred tax liabilities: Deferred revenue (4,878,000) (4,125,000) (3,867,000) (4,878,000) (4,125,000) (3,867,000)Net current deferred tax liability $(3,131,000)$(3,688,000)$(3,452,000)Deferred tax assets, net of current portion: Federal and state net operating losses $244,000 $3,157,000 $3,370,000 Intangible assets 4,016,000 4,571,000 4,962,000 Other 409,000 64,000 143,000 4,669,000 7,792,000 8,475,000 Valuation allowance — (4,093,000) (4,903,000)Net deferred tax assets 4,669,000 3,699,000 3,572,000 Deferred tax liabilities, net of current portion: Fixed assets (111,000) (11,000) (67,000)Other — — (53,000)Net non-current deferred tax assets $4,558,000 $3,688,000 $3,452,000 Table of Contents11. INCOME TAXES (Continued) At January 2, 2015, the Company had state operating loss carryovers of $4.0 million. The carryovers expire through 2033. During 2014 managementassessed the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred taxassets. Significant pieces of objective positive evidence evaluated were the cumulative earnings generated over the three-year period ended January 2, 2015and the Company's strong future earnings projections. Based on this evaluation, as of January 2, 2015, the Company reversed $4.6 million of its valuationallowance. 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. As of January 2, 2015 and December 27,2013, there was no unrecognized tax benefit. The Company may be subject to examination by the Internal Revenue Service for calendar years 2011 through2014. The Company may also be subject to examination on certain state and local jurisdictions for the years 2010 through 2014.12. SEGMENT INFORMATION The Company has four reporting segments: Energy Efficiency Services, Engineering Services, Public Finance Services and Homeland Security Services.The Engineering Services segment consists of Willdan Engineering and Public Agency Resources. The Energy Efficiency Services segment, which consistsof Willdan Energy Solutions, provides energy efficiency consulting services to utilities, state agencies, municipalities, private industry and non-profitorganizations. The Engineering Services segment offers a broad range of engineering and planning services to our public and private sector clients. Prior toDecember 30, 2011, the energy efficiency and sustainability services were aggregated into the Engineering Services segment. Given the manner in which thechief operating decision maker reviews financial results and allocates resources, these services now compromise a separate reporting segment. Segmentinformation for the comparable prior year period has been restated to conform to the Company's current segment presentation of four operating segments. ThePublic Finance Services segment, which consists of Willdan Financial Services, provides expertise and support for the various financing techniquesemployed by public agencies to finance their operations and infrastructure along with the mandated reporting and other requirements associated with thesefinancings. The Homeland Security Services segment, which consists of Willdan Homeland Solutions, provides national preparedness, homeland securityconsulting, 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 January 2, 2015. Management evaluates the performance of each segment based uponincome or loss from operations before income taxes. Certain segment asset information including expenditures for long-lived assets has not been presented asit is not reported to or reviewed by the chief operating decision maker. In addition, enterprise-wide service line contract revenue is not included as it isimpracticable to report this information for each group of similar services.F-25 Table of Contents12. SEGMENT INFORMATION (Continued) Financial information with respect to the reportable segments and reconciliation to the amounts reported in the Company's consolidated financialstatements follows:13. 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.F-26 EngineeringServices EnergyEfficiencyServices PublicFinanceServices HomelandSecurityServices UnallocatedCorporate(2) Intersegment ConsolidatedTotal Fiscal Year 2014: Contract revenue $40,783,000 $52,941,000 $10,630,000 $3,726,000 $— $— $108,080,000 Depreciation and amortization 191,000 212,000 39,000 18,000 — — 459,000 Interest expense (income) 17,000 (33,000) 2,000 (2,000) (16,000)Segment profit (loss) beforeincome tax expense 4,008,000 4,814,000 661,000 443,000 (1,500,000) — 8,426,000 Income tax (benefit) expense (454,000) (599,000) (64,000) (49,000) 176,000 — (990,000)Net income (loss) 4,462,000 5,413,000 725,000 492,000 (1,676,000) — 9,416,000 Segment assets(1) 11,166,000 11,769,000 3,944,000 708,000 50,202,000 (23,130,000) 54,659,000 Fiscal Year 2013: Contract revenue $35,217,000 $36,041,000 $9,845,000 $4,407,000 $— $— $85,510,000 Depreciation and amortization 214,000 223,000 41,000 39,000 — — 517,000 Interest (income) expense (68,000) (25,000) (3,000) 2,000 — — (94,000)Segment profit before income taxexpense 1,125,000 710,000 535,000 392,000 — — 2,762,000 Income tax expense (benefit) 53,000 45,000 17,000 17,000 — — 132,000 Net income 1,072,000 665,000 518,000 375,000 — — 2,630,000 Segment assets(1) 10,436,000 10,305,000 3,528,000 1,406,000 35,692,000 (23,130,000) 38,237,000 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 beforeincome tax expense (726,000) (19,314,000) 930,000 (273,000) — — (19,383,000)Income tax expense (benefit) (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 (1)Segment assets are presented net of intercompany receivables. (2)The following sets forth the assets that are included in Unallocated Corporate as of January 2, 2015, December 27, 2013 and December 30, 2011. 2014 2013 2012 Assets: Cash and cash equivalents $20,371,000 $7,341,000 $9,881,000 Prepaid expenses 1,404,000 1,206,000 1,041,000 Intercompany receivables 85,259,000 114,800,000 113,615,000 Other receivables 19,000 73,000 49,000 Equipment and leasehold improvements, net 440,000 177,000 194,000 Investments in subsidiaries 23,130,000 23,130,000 23,130,000 Other 4,640,000 3,765,000 3,536,000 $135,263,000 $150,492,000 $151,446,000 Table of Contents13. CONTINGENCIES (Continued) 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. City of Glendale v. Willdan Financial Services, Superior Court of California, Los Angeles County A complaint was filed against the Company on July 16, 2014 relating to a project performed by Willdan Financial Services to prepare a Cost of ServicesAnalysis (a "COSA") for the Department of Water and Power of the City of Glendale, California (the "City of Glendale"). The purpose of the COSA was toassist the City of Glendale in setting water rates for property owners. The lawsuit alleges that the City of Glendale suffered damages due to mistakes in theCOSA, as follows: the City of Glendale received less revenue than anticipated in an amount exceeding $9,000,000; the City of Glendale was required toretain another consultant to prepare a new COSA at the cost of $130,000; and the City of Glendale incurred costs associated with noticing and conductingpublic hearings at a cost of $83,052. The Company denies the allegations asserted in the lawsuit and will vigorously defend against the claims. Additionally,this matter is covered by the Company's professional liability insurance policy.F-27 Table of Contents14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The tables below reflect selected quarterly information for the fiscal years ended January 2, 2015 and December 27, 2013. 15. SUBSEQUENT EVENTS Acquisitions. On January 15, 2015, the Company completed two separate acquisitions. Through its wholly-owned subsidiary, Willdan EnergySolutions ("WES"), the Company acquired all of the outstanding shares of Abacus Resource Management Company ("Abacus"), an Oregon-based energyengineering company. In addition, through its wholly-owned subsidiary WES, the Company also acquired substantially all of the assets of 360 EnergyEngineers, LLC ("360 Energy"), a Kansas-based energy and engineering energy management consulting company. Pursuant to the terms of the Stock Purchase Agreement, dated as of January 15, 2015 (the "Abacus Agreement"), by and among the Company, WES,Abacus and Mark Kinzer and Steve Rubbert (the "Abacus Shareholders"), WES will pay the Abacus Shareholders a maximum purchase price of $6,150,000,consisting of (i) $2,500,000 in cash paid at closing (subject to certain post-closing adjustments), (ii) 75,758 shares of Common Stock, par value $0.01 pershare, of the Company ("Common Stock") equaling $1,000,000 based on the volume-weighted average price of shares of the Common Stock for the tentrading days immediately prior to, but not including, the closing date of the Abacus Acquisition, (iii) $1,250,000 aggregate principal amount of promissorynotes issued to theF-28 Fiscal Three Months Ended March 28,2014 June 27,2014 September 26,2014 January 2,2015 (in thousands except per share amounts) Contract revenue $22,686 $26,970 $28,187 $30,237 Income from operations 1,312 1,941 2,651 2,405 Income tax expense (benefit) 44 64 (1,464) 366 Net income 1,315 1,893 4,161 2,047 Earnings per share: Basic $0.18 $0.26 $0.55 $0.27 Diluted $0.17 $0.25 $0.53 $0.26 Weighted-average shares outstanding: Basic 7,397 7,405 7,507 7,618 Diluted 7,609 7,661 7,855 7,986 Fiscal Three Months Ended March 29,2013 June 28,2013 September 27,2013 December 27,2013 (in thousands except per share amounts) Contract revenue $21,385 $20,496 $21,167 $22,462 Income from operations 457 718 882 551 Income tax expense (benefit) 49 (8) 44 47 Net income 399 688 842 701 Earnings per share: Basic $0.05 $0.09 $0.11 $0.10 Diluted $0.05 $0.09 $0.11 $0.09 Weighted-average shares outstanding: Basic 7,335 7,353 7,359 7,375 Diluted 7,382 7,401 7,526 7,520 Table of Contents15. SUBSEQUENT EVENTS (Continued)Abacus Shareholders (collectively, the "Abacus Notes") and (iv) up to $1,400,000 in cash, payable at the end of the Company's and WES's 2015 and 2016fiscal years, if certain financial targets of Abacus are met during such fiscal years. The Abacus Notes were issued in an initial outstanding principal amount of$625,000 to each of the Abacus Shareholders. The Abacus Notes provide for a fixed interest rate of 4% per annum and are fully amortizing and payable inequal monthly installments between January 15, 2015 and their January 15, 2017 maturity date. The Abacus Notes contain events of default provisionscustomary for documents of their nature. Pursuant to the terms of the Asset Purchase Agreement, dated as of January 15, 2015 (the "360 Energy Agreement"), by and among the Company, WESand 360 Energy, WES will pay 360 Energy a maximum purchase price of $15,000,000, consisting of (i) $4,875,000 in cash paid at closing, (ii) 47,348 sharesof Common Stock equaling $625,000 based on the volume-weighted average price of shares of the Common Stock for the ten trading days immediately priorto, but not including, the closing date of the 360 Energy Acquisition, (iii) $3,000,000 aggregate principal amount of promissory note issued to 360 Energy(the "360 Energy Note" and, together with the Abacus Notes, the "Notes") and (iv) up to $6,500,000 in cash, payable at the end of the Company's and WES's2015, 2016 and 2017 fiscal years, if certain financial targets of WES's division made up of the assets acquired from, and former employees of, 360 Energy aremet during such fiscal years. The 360 Energy Note was issued in an initial outstanding principal amount of $3,000,000. The 360 Energy Note provides for afixed interest rate of 4% per annum and is fully amortizing and payable in equal monthly installments between January 15, 2015 and their January 15, 2018maturity date. The 360 Energy Note contains events of default provisions customary for documents of its nature. The Company also provided a guaranty to360 Energy which guarantees WES's obligations under the promissory note issued to 360 Energy. To finance the cash paid at closing for the acquisitions of Abacus and 360 Energy, the Company borrowed $2,000,000 under its delayed draw term loanfacility and used cash on hand to pay the remaining $5,375,000. Amended Credit Facility. On January 14, 2015, the Company and its subsidiaries, as guarantors, entered into the Second Amendment (the "SecondAmendment") to the Credit Agreement (as amended, the "BMO Credit Agreement"), dated as of March 24, 2014, by and between the Company, the guarantorslisted therein and BMO Harris Bank National Association ("BMO Harris"). The BMO Credit Agreement governs the Company's credit facility that includes arevolving line of credit and a delayed draw term loan facility. The Second Amendment revised the BMO Credit Agreement to, among other things, permit the acquisitions of Abacus and 360 Energy, the incurrence ofthe Notes and the 360 Energy Guaranty issued in connection with the acquisitions of Abacus and 360 Energy and to add Abacus as a guarantor under theBMO Credit Agreement upon the closing of the acquisition of Abacus. The Second Amendment also increased the amount available to the Company for borrowing under the delayed draw term loan facility from $2,500,000to $3,000,000. In addition, the Second Amendment increased the interest rate under the delayed draw term loan facility by 25 basis points. Giving effect tothe Second Amendment, borrowings under the delayed draw term loan facility will now bear interest, at the Company's option, at (a) the base rate plus anapplicable margin ranging between 1.25% and 1.75%, or (b) the LIBOR rate plus an applicable margin ranging between 2.25% and 2.75%. Borrowings underthe revolving line of credit will continue to bear interest, at the Company's option, at (a) the base rate plus an applicable margin ranging between 0.75% and1.25%, or (b) the LIBOR rate plus an applicable margin ranging between 1.75% and 2.25%. The applicable margin is determined based on the Company'stotal leverage ratio.F-29 Table of Contents15. SUBSEQUENT EVENTS (Continued) The Second Amendment also revised some of the covenants in the BMO Credit Agreement. As a result of the Second Amendment, the Company mustmaintain (A) a maximum total leverage ratio of not more than 2.25 for the first four fiscal quarters after the acquisitions of Abacus and 360 Energy, and notmore than 2.0 thereafter and (B) a minimum tangible net worth of at least (x) the greater of (1) $5.0 million and (2) 85% of the Company's actual tangible networth as of March 31, 2015, plus (y) an amount equal to 50% of net income for the first fiscal quarter of 2015, and 50% of net income (only if positive) foreach fiscal quarter ending thereafter, plus or minus (z) 80% of any adjustments to the Company's tangible net worth arising as a result of the consummation ofthe acquisitions of Abacus and 360 Energy. The limit on the total consideration allowed for all permitted acquisitions (including potential future earn-outobligations) during the term of the BMO Credit Agreement was also reduced from $2.5 million to $1.5 million. In addition, the conditions required to extendthe maturity date of the credit facility by one year to March 24, 2017 were amended to require that the Company have a trailing twelve month EBITDA (asdefined in the BMO Credit Agreement) of not less than $10.0 million (previously $5.0 million) as of the end of the third fiscal quarter of 2015.F-30 QuickLinks -- Click here to rapidly navigate through this document Exhibit 21.1 WILLDAN GROUP, INC.LIST OF SUBSIDIARIES(a) Name of Entity Jurisdiction ofOrganization Ownership Interest1. Willdan Engineering California 100% Willdan Group, Inc.2. Willdan Energy Solutions California 100% Willdan Group, Inc.3. Willdan Engineers and Constructors California 100% Willdan Group, Inc.4. Willdan Financial Services California 100% Willdan Group, Inc.5. Willdan Homeland Solutions California 100% Willdan Group, Inc.6. Willdan Infrastructure California 100% Willdan Group, Inc.7 Willdan Lighting & Electric, Inc. California 100% Willdan Group, Inc.8. Willdan Lighting & Electric of California California 100% Willdan Group, Inc.9. Willdan Lighting & Electric of Washington, Inc. California 100% Willdan Group, Inc.11. Electrotech of NY Electrical Inc. California 100% Willdan Group, Inc.12. Public Agency Resources California 100% Willdan Group, Inc.(a)As of January 2, 2015. 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 2006 Stock Incentive Plan and the 2008 Performance Incentive Plan of Willdan Group, Inc. of our report dated March 31,2015, with respect to the consolidated financial statements of Willdan Group, Inc. and subsidiaries included in this Annual Report (Form 10-K) of WilldanGroup, Inc. for the year ended January 2, 2015./s/ Ernst & Young LLPLos Angeles, CaliforniaMarch 31, 2015 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 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 31, 2015 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, Stacy B. McLaughlin, certify that:1.I have reviewed this 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 31, 2015 By: /s/ STACY B. MCLAUGHLINStacy B. McLaughlinChief Financial Officer and Vice President 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 Act of 2002 In connection with the Annual Report on Form 10-K of Willdan Group, Inc. (the "Company") for the annual period ended January 2, 2015, as filed withthe Securities and Exchange Commission on the date hereof (the "Report"), Thomas D. Brisbin, as President and Chief Executive Officer of the Company, andStacy B. McLaughlin, as Chief Financial Officer, each hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Actof 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 31, 2015 By: /s/ STACY B. MCLAUGHLINStacy B. McLaughlinChief Financial Officer and Vice PresidentMarch 31, 2015 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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