Table of Contents
“C/l
(Mark One)
☒
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
☐
For the Fiscal Year Ended January 1, 2021.
Or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from to .
Commission File Number 001-33076
WILLDAN GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
14-1951112
(I.R.S. Employer
Identification 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:
Title of each class
Common Stock, par value $0.01 per share
Trading Symbol(s)
WLDN
Securities registered pursuant to Section 12(g) of the Act: None
Name of Exchange
The Nasdaq Stock Market LLC
(Nasdaq Global Market)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ⌧
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐
No ⌧
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during 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 filing
requirements for the past 90 days. Yes ⌧ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files). Yes ⌧ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company”
in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Accelerated filer ⌧
Non-accelerated filer ☐
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a) 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 common
equity was last sold, as reported on the Nasdaq Global Market, as of the last business day of the registrant’s most recently completed second fiscal quarter
was $276.4 million.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that
prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ⌧
On March 15, 2021, there were 12,237,257 shares of the registrant’s common stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Table of Contents
TABLE OF CONTENTS
BUSINESS
ITEM 1.
ITEM 1A. RISK FACTORS
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2.
ITEM 3.
ITEM 4. MINE SAFETY DISCLOSURES
PROPERTIES
LEGAL PROCEEDINGS
PART I
PART II
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
SELECTED FINANCIAL DATA
ITEM 6.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8.
ITEM 9.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9B. OTHER INFORMATION
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11.
ITEM 12.
EXECUTIVE COMPENSATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED SHAREHOLDER MATTERS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
ITEM 14.
ITEM 15.
ITEM 16.
INDEPENDENCE
PRINCIPAL ACCOUNTING FEES AND SERVICES
PART IV
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
FORM 10-K SUMMARY
i
Page
3
15
30
30
30
30
31
33
34
51
53
109
109
109
110
121
141
145
147
148
151
Table of Contents
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Annual Report on Form 10-K (this “10-K”) contains statements that constitute forward-looking statements as
that term is defined by the Private Securities Litigation Reform Act of 1995, as amended. These statements concern our
business, operations and financial performance and condition as well as our plans, objectives and expectations for our
business operations and financial performance and condition, which are subject to risks and uncertainties. All statements
other than statements of historical fact included in this 10-K are forward-looking statements. These statements may include
words such as “aim,” “anticipate,” “assume,” “believe,” “can have,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,”
“likely,” “may,” “objective,” “plan,” “potential,” “positioned,” “predict,” “should,” “target,” “will,” “would” and other
words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or
financial performance or other events or trends. For example, all statements we make relating to our plans and objectives
for future operations, growth or initiatives and strategies are forward-looking statements.
These forward-looking statements are based on current expectations, estimates, forecasts and projections about
our business and the industry in which we operate and our management’s beliefs and assumptions. We derive many of our
forward-looking statements from our own operating budgets and forecasts, which are based upon many detailed
assumptions. While we believe that our assumptions are reasonable, we caution that predicting the impact of known factors
is very difficult, and we cannot anticipate all factors that could affect our actual results.
All of our forward-looking statements are subject to risks and uncertainties that may cause our actual results to
differ materially from our expectations. Important factors that could cause actual results to differ materially from our
expectations include, but are not limited to:
● the extent to which the coronavirus (“Covid-19”) pandemic and measures taken to contain its spread
ultimately impact our business, results of operation and financial condition, including the speed with which
our various direct install programs for small businesses are able to resume normal operations following
government mandated shutdowns and phased re-openings;
● our ability to adequately complete projects in a timely manner;
● our ability to compete successfully in the highly competitive energy efficiency services market;
● our reliance on work from our top ten clients;
● changes in state, local and regional economies and government budgets;
● our ability to win new contracts, to renew existing contracts and to compete effectively for contracts awarded
through bidding processes;
● our ability to successfully integrate our acquisitions and execute on our growth strategy;
● our ability to make principal and interest payments on our outstanding debt as they come due and to comply
with the financial covenants contained in our debt agreements; and
● our ability to obtain financing and to refinance our outstanding debt as it matures.
The factors noted above and risks included in “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-
K may be increased or intensified as a result of the Covid-19 pandemic, including ongoing resurgences of the Covid-19
virus and the emergence of new Covid-19 variants in the United States. The extent to which the Covid-19 pandemic
ultimately impacts our business, results of operations and financial condition will depend on future developments, which
are highly uncertain and cannot be predicted.
The above is not a complete list of factors or events that could cause actual results to differ from our expectations,
and we cannot predict all of them. All written and oral forward-looking statements attributable to us, or
1
Table of Contents
persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements disclosed under “Risk
Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this
Annual Report on Form 10-K, as such disclosures may be amended, supplemented or superseded from time to time by
other reports we file with the Securities and Exchange Commission (the “SEC”), including subsequent Annual Reports on
Form 10-K and Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and public communications. You should
evaluate all forward-looking statements made in this Annual Report on Form 10-K and otherwise in the context of these
risks and uncertainties.
Potential investors and other readers are urged to consider these factors carefully in evaluating the forward-
looking statements and are cautioned not to place undue reliance on any forward-looking statements we make. These
forward-looking statements speak only as of the date of this Annual Report on Form 10-K and are not guarantees of future
performance or developments and involve known and unknown risks, uncertainties and other factors that are in many cases
beyond our control. Except as required by law, we undertake no obligation to update or revise any forward-looking
statements publicly, whether as a result of new information, future developments or otherwise.
2
Table of Contents
ITEM 1. BUSINESS
Overview
PART I
Willdan Group, Inc. (“Willdan”) is a provider of professional, technical and consulting services to utilities, private
industry, and public agencies at all levels of government. As resources and infrastructures undergo continuous change, we
help organizations and their communities evolve and thrive by providing a wide range of technical services for energy
solutions and government infrastructure. Through engineering, program management, policy advisory, and software and
data management, we design and deliver trusted, comprehensive, innovative, and proven solutions to improve efficiency,
resiliency, and sustainability in energy and infrastructure to our clients.
The original company was founded in 1964, and Willdan, a Delaware corporation, was formed in 2006 to serve as
our holding company. We have a rich heritage of partnering with public agencies in communities with populations ranging
from 10,000 to 300,000 people, as we believe that communities of this size are underserved by large outsourcing
companies who tend to focus on securing large federal, state, and private sector projects. We commenced providing energy
efficiency services in 2008 and, as a result, our client base has grown to include investor-owned and other public utilities,
as well as substantial energy users in government and business.
Our overall growth strategy revolves around a combination of strong organic expansion and strategic acquisitions
which provides us the ability to expand the breadth and depth of the services we provide to new and existing clients. We
believe that we are well positioned to capitalize on the ongoing expansion and transformation of the energy and
infrastructure environments.
We operate our business through a nationwide network of offices spread across 25 states and the District of
Columbia. We serve 18 of the 25 largest electric utilities and 5 of the 10 largest municipal utilities in the United States
(“U.S.”). Our business with public and private utilities has concentrations in California and New York, but includes
numerous other utilities in the Midwest, Southeast and Mountain states and additional acquisitions may continue to expand
our geographic footprint. Our business with public agencies is concentrated in California, New York, and Arizona. We also
serve special districts, school districts, a large range of public agencies and private industry.
Our broad portfolio of services operates within two financial reporting segments: (1) Energy and (2) Engineering
and Consulting. The interfaces and synergies between these segments are important elements of our strategy to design and
deliver trusted, comprehensive, innovative, and proven solutions for our customers.
Our Markets
We operate in the energy efficiency services market and the engineering and consulting market. We provide a
wide variety of services related to energy efficiency and sustainability, engineering, construction management, economic
and financial consulting, and national preparedness and interoperability services primarily to public agencies, utilities, and
commercial/industrial firms.
We believe the energy efficiency services market will continue to expand in response to the increasing awareness
of global warming, climate change issues, and the advent of new technologies in renewable energy generation and the
electrification of the nation’s economy. Private industry and public agencies increasingly seek out cost-effective, turnkey
solutions that provide innovative energy efficiency, renewable energy, water conservation and sustainability services. State
and local governments frequently turn to specialized resource conservation firms to strike the balance between
environmental responsibility and economic competitiveness. The use of energy efficiency services, including audits,
program design, benchmark analysis, metering and incentivized sale and installation of selected energy efficiency measures
provides public agencies, utilities, and commercial/industrial firms with the ability to realize long-term savings.
The engineering and consulting market has grown as public agencies and utilities, as well as private utilities and
firms, find it more efficient to outsource design, construction oversight, advisory, and training services to service providers,
rather than maintain the necessary staff and resources to provide such services themselves. For example, we
3
Table of Contents
design and provide construction oversight of infrastructure projects for state and local governments who have increased
their infrastructure-related spending as a result of population growth, increases in local and state funding and aging
infrastructure. We provide consulting services to public agencies as they raise the necessary funds to develop such
infrastructure projects and provide other services. Relatedly, we provide local government staffing, traffic and
transportation engineering, studies, plan reviews, grant support, and inspections. We also advise public agencies on disaster
and emergency preparedness.
We believe we are a market and customer driven company, focused on growth and value creation for our clients,
employees and shareholders. We seek to establish close working relationships with our clients and expand the breadth and
depth of the services we provide to them over time. We believe the market for these services is, and will be, driven by a
number of factors, including:
● Demand for services and solutions that provide energy efficiency, sustainability, water conservation,
infrastructure development and renewable energy in the public and private sectors;
● Changes in technology that affect the generation, distribution and consumption of energy;
● Aging infrastructure, which leads to a need for increased capacity in engineering consulting and construction
management services;
● The need for small and medium sized communities to obtain highly specialized services without incurring
the costs of hiring permanent staffing and the associated support structure;
● Demand by constituents for a wider variety of services;
● Financial assistance from government-funded programs and state legislation for local communities to provide
services to constituents; and
● Changes in government policy.
Our Services
We offer services in two financial reporting segments: (1) Energy and (2) Engineering and Consulting.
Management established these segments based upon the services provided, the different marketing strategies associated
with these services, and the specialized needs of their respective clients.
The following table presents the approximate percentage of our consolidated contract revenue attributable to each
segment.
Energy
Engineering and Consulting
Fiscal Year
2020
2019
83 %
17 %
84 %
16 %
2018
72 %
28 %
During fiscal year 2020, we derived 22.5% of our Energy segment contract revenues from two customers, the Los
Angeles Department of Water and Power (“LADWP”) and the Dormitory Authority State of New York (“DASNY”), and
we derived 18.3% of our Engineering and Consulting segment contract revenues from one customer, the City of Elk Grove.
For further information related to our financial reporting segments, see Part II, Item 8, Note 9, Segment
Information and Geographical Information, of the Notes to Consolidated Financial Statements included in this Annual
Report on Form 10-K.
4
Table of Contents
Energy Efficiency Services
Our Energy segment provides specialized, innovative, comprehensive energy solutions to businesses, utilities,
state agencies, municipalities, and non-profit organizations in the U.S. Our experienced engineers, consultants, and staff
help our clients realize cost and energy savings by tailoring efficient and cost-effective solutions to assist in optimizing
energy spend. Our energy efficiency services include comprehensive audit and surveys, program design, master planning,
demand reduction, grid optimization, benchmarking analyses, design engineering, construction management, performance
contracting, installation, alternative financing, measurement and verification services, and advances in software and data
analytics.
Our energy efficiency services include the following:
Energy Efficiency. We provide complete energy efficiency consulting and engineering services, including
program design, management and administration; marketing, customer outreach, and project origination; energy audits and
feasibility analyses; implementation; training; management; retro-commissioning; data management and reporting;
measurement and verification services; and construction management.
Program Design and Implementation. We assist utilities and governmental clients with the design, development
and implementation of energy efficiency plans and programs. These plans include the design, outreach, and implementation
of strategies to deliver energy efficiency, water conservation, renewable energy planning, and to reduce greenhouse gas.
Direct Customer Support. We assist clients (including hospitals, hotels, government offices, schools, and private
companies) in developing and managing facilities and related infrastructures through a holistic, practical approach to
facility management. Our services cover audits, local compliance, operations and maintenance review, renewable energy
planning, master plan development, infrastructure analyses, Leadership in Energy and Environmental Design (“LEED”)
certification for buildings, and strategies for energy spend and greenhouse gas reduction.
Turnkey Facility and Infrastructure Projects. We provide turnkey/design-build facility and infrastructure
improvement projects to a wide array of private and public clients including municipalities, county governments, public
and private K-12 schools, and higher education institutions. Our services cover preliminary planning, project design,
construction management, commissioning, post-project support and measurement and verification.
Project Examples. The following are examples of typical projects in the Energy segment:
● Consolidated Edison, New York. We serve as Consolidated Edison’s program manager and implementer for
its Small Business Direct Install (“SMB”) program across the utility’s New York City and Westchester
County service areas. The SMB program, Consolidated Edison’s largest energy efficiency program, helps
customers save energy, lower their bills, and protect the environment by providing financial incentives to
identify and install energy efficiency measures. To support this effort, we provide full-service program
implementation, including outreach and direct sales to potential commercial customers, on-site energy
efficiency assessments, direct implementation of energy-savings measures, and subcontractor management.
● Dormitory Authority-State New York (“DASNY”), New York. In connection with our acquisition of
substantially all of the assets of Genesys Engineering, P.C. (“Genesys”) in March 2016, we entered into an
administrative services agreement with Genesys pursuant to which we, through our subsidiary Willdan
Energy Solutions (“WES”), provide Genesys with ongoing administrative, operational and other non-
professional support services in its performance of rehabilitation, construction management, architectural,
and engineering services at various college and university sites within New York State. Services for DASNY
under these contracts also include energy efficient design, utility cost evaluation, and various regulatory
compliance services. Specific project descriptions are set out by DASNY in work authorizations, which are
issued under the terms of the master contracts.
5
Table of Contents
● Marshak Science Building Rehabilitation, The City University of New York. Performed under the DASNY
master contract, the Marshak Science Building is a mid-rise, 750,000 square-foot science building, which
consists of a 350,000 square-foot, 13-story tower and a 300,000 square-foot plaza level and underground.
The science building houses research and teaching labs, a vivarium, a morgue, office areas, a library, an
auditorium, a gymnasium and a pool. We were responsible for the study, design, and construction
management that included the retrofit of 200 standard-flow fume hoods to low-flow, high-efficiency hoods
and the installation of high-entrainment fume hood exhaust systems, new lab make-up air units with heat
recovery, liquid desiccant dehumidification systems, new supply air risers and general exhaust risers
throughout the tower, new hot water and chilled water risers, new central station air handling equipment,
new high-temperature hot water to low-temperature hot water heat exchangers, and a lab fit-out with chilled
beam secondary heating and cooling.
● San Diego Gas and Electric (“SDG&E”), California. We provide peak-load reduction and energy capacity
to SDG&E by coordinating the installation of proven energy efficiency measures, including chiller retrofits,
chiller variable-frequency drives (“VFDs”), HVAC VFDs, evaporative cooling, demand control ventilation,
two-way valves, and chilled water pump VFDs. These measures produce both peak-load reductions and
energy savings.
● Healthcare Energy Efficiency Program (“HEEP”), Southern California Edison (“SCE”). We are the
implementer of HEEP, which provides incentives and support to healthcare-related facilities to implement
energy efficiency upgrades related to lighting, HVAC, boilers, medical equipment, building automation
systems, VFDs, sensors, vending controls and retro-commissioning. We perform American Society of
Heating, Refrigerating and Air-Conditioning Engineers (“ASHRAE”) Level I and II audits and ongoing
analysis and support of installed measures, as well as develop customized energy efficiency measures
including energy savings and peak demand reduction estimates. Further, we provide financial calculations
including forecasted cost savings, payback, and return on investment. We assist with contractor referrals,
request for proposals, and monitoring of installation, as well as perform measurement and verification
(“M&V”) to ensure energy savings are achieved.
● Baldwin High School, Kansas. We provided a central plant HVAC replacement and building wide HVAC
controls installation. We installed a new chilled water and boiler plant and refurbished two large air handling
units. We also installed new heating hot water control valves on all variable air volume boxes and new
HVAC controls to ensure the achievement of specified energy cost savings for the school.
● Entergy Corporation, Louisiana. We supported Entergy’s investments in grid data and analytics capabilities
across its electric distribution footprint through a software license for LoadSEER, the modeling application
of Integral Analytics. LoadSEER was developed to provide unique insights and modeling capability for
distributed energy resources (“DERs”) and the evolving distribution grid. The application is used in short-
and long-term circuit-level planning and to proactively integrate renewables, energy storage, and efficiency
investments. LoadSEER combines multi-layer risk, geospatial, and scenario modeling; utilities’ existing
tools; engineering efforts; and multiple data sources in order to deliver dynamic, granular load profiles and
perform valuation analyses.
Engineering and Consulting Services
Our Engineering and Consulting segment provides civil engineering-related construction management, building
and safety, city engineering, city planning, geotechnical, material testing and other engineering consulting services to our
clients. Our engineering services include rail, port, water, mining and other civil engineering projects. We also provide
economic and financial consulting to public agencies along with national preparedness and interoperability services,
communications, and technology solutions. Lastly, we supplement the engineering services that we offer our clients by
offering expertise and support for the various financing techniques public agencies utilize to finance their operations and
infrastructure. We also support the mandated reporting and other requirements associated with these financings. We
provide financial advisory services for municipal securities but do not provide underwriting services.
6
Table of Contents
In general, contracts for engineering and consulting services are awarded by public agencies based primarily upon
the qualifications of the engineering or consulting professional, rather than the proposed fees. We have longstanding
relationships with many of these agencies and are recognized as having relevant expertise and customer focused services.
A substantial percentage of our work is for existing clients that we have served for many years.
Our Engineering and Consulting services include the following:
Building and Safety. Our building and safety services range from managing and staffing an entire municipal
building department to providing specific outsourced services, such as plan review and field inspections. Other related
services under this umbrella include performing accessibility compliance and providing disaster recovery teams, energy
compliance evaluations, permit processing and issuance, seismic retrofitting programs, and structural plan review. Many of
our building and safety services contracts are with municipalities and counties where we supplement the capacity of in-
house staff.
City Engineering and Code Enforcement. We provide municipalities with city engineering services and assist
with the development, implementation and enforcement of building and development codes. These services are tailored to
the unique needs of each municipality, ranging from staffing an entire engineering department to carrying out specific
projects within a municipality.
Development Review. We offer development plan review and inspection services including Americans with
Disabilities Act (“ADA”) compliance, preliminary and final plats (maps), grading and drainage, complete infrastructure
improvements for residential site plans, commercial site plans, industrial development and subdivision, and major master
plan development services. We have reviewed grading plans, street lighting and traffic signal plans, erosion control plans,
storm drain plans, street improvement plans, and sewer water and utility plans.
Disaster Recovery. We provide disaster recovery services to cities, counties and local government. Our
experience in disaster recovery includes assisting communities in the disaster recovery process following earthquakes,
firestorms, mudslides and other natural disasters. We typically organize and staff several local disaster recovery centers
which function as “one-stop permit centers” that guarantee turn-around performance for fast-track plan checking and
inspection services. Additionally, we have performed 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.
Geotechnical. Our geotechnical and earthquake engineering services include soil engineering, earthquake and
seismic hazard studies, geology and hydrogeology 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.
Planning and Surveying. We assist communities with a full range of planning services, from the preparation of
long-range policy plans to assistance with the day-to-day operations of a planning department. For several cities, we
provide contract staff support, which ranges from staffing entire departments to providing interim or long-term services to
entities that have determined that it is not cost-effective to have a full-time engineer on staff, to relieve peak workload
situations or to fill vacant positions during a job search. Typical assignments include land use studies, development of
specific plans or general plan elements, design guidelines, and zoning ordinances. We also provide surveying and mapping
services, including major construction layout, design survey, topographic survey, aerial mapping, Geographic Information
Systems, and right-of-way engineering.
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 and the scope of the specific project. Our
construction management experience encompasses projects such as streets, bridges, sewers and storm drains, water
systems, parks, pools, public buildings, and utilities.
7
Table of Contents
Structures. Our structural engineering services include bridge design, bridge evaluation and inspection, highway
and railroad bridge planning and design, highway interchange design, railroad grade separation design, bridge seismic
retrofitting, building design and retrofit, sound wall and retaining wall design, and planning and design for bridge
rehabilitation and replacement.
Transportation and Traffic. We provide a wide range of services relating to transportation, traffic and other
infrastructure projects. For example, 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. Our traffic engineering services include serving as the contract city traffic engineer in
communities, as well as performing design and traffic planning projects for our clients.
Water Resources. We assist clients in addressing the many facets of water development, treatment, distribution
and conservation, including energy savings, technical, financial, legal, political, and regulatory requirements. Our core
competencies include hydraulic modeling, master planning, rate studies and design and construction services. Our design
experience includes reservoirs, pressure reducing stations, pump and lift stations, and pipeline alignment studies, as well as
water/wastewater collection, distribution, and treatment facilities. We also provide a complete analysis and projection of
storm flows for use in drainage master plans and for individual storm drain systems to reduce flooding in streets and
adjacent properties. We design open and closed storm drain systems and detention basin facilities, for cities, counties and
the Army Corp of Engineers.
District Administration. We administer special districts on behalf of public agencies. The types of special districts
administered include community facilities districts (in California, Mello-Roos districts), assessment districts, landscape and
lighting districts, school facilities improvement districts, benefit assessment districts, fire suppression districts, and
business improvement districts. Our district administration services include calculating the annual levy for each parcel in
the district; billing charges directly or through a county tax roll; preparing the annual Engineer’s Report, budget and
resolutions; reporting on collections and payment status; calculating prepayment quotes; and providing financial analyses,
modeling and budget forecasting.
The key to our district administration services is our proprietary software package, MuniMagic+SM: Municipal
Administration & Government Information Coordinator, which we developed internally to redefine the way we administer
special districts. MuniMagic+SM is a database management program that 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+SM offers a significant
competitive advantage in an industry driven by the ability to accurately process large quantities of data.
Financial Consulting. We perform economic analyses and financial projects for public agencies, including fee
and rate studies; utility rate analysis; utility system appraisals and asset acquisitions; economic development and
redevelopment planning; Community Choice Aggregation feasibility studies, in which local entities contemplate
aggregating buying power in order to secure alternative energy supply contracts; real estate and market analysis associated
with planning efforts, and development fee studies; special district formation and other special projects.
Federal Compliance. We offer several services that support bonded debt compliance reporting for cities, counties,
states, school districts, water districts, housing authorities, 501(c)(3) and other municipal entities. We provide federal
compliance services to approximately 765 issuers in 48 states and the District of Columbia managing approximately
$72 billion in municipal debt.
Emergency Preparedness, Planning and Training. We design, develop, implement, review and evaluate public and
private agencies’ emergency operations and hazard mitigation preparedness and plans. We also provide customized training
courses and exercises.
The following are examples of typical projects we have performed in the Engineering and Consulting segment:
● City of Elk Grove, California, City Engineering, Capital Improvement, and Infrastructure Services. We
provide comprehensive technical support to the Public Works and Development Services Departments for
8
Table of Contents
the over 170,000-resident community of Elk Grove, California. Services include public counter service,
drainage/stormwater/NPDES, traffic engineering, permitting, land development review and inspection, CIP
design and construction support. Serving the two City departments is a team of over 35 of our full-time
engineers, scientists, managers, observers/inspectors, project managers, administrative support staff, and a
team of subconsultants. All work is accomplished through a task order process that defines the scope of
work, time of performance, and cost of services.
● City of Palm Springs, California, Engineering and Construction Management Services. We provide
construction management and public works inspection services related to the City’s Police Department
Remodel Project. The project involves the remodeling of the training center, lobby, records area, detective
bureau, and men’s and women’s locker rooms. We are acting as Owner’s Representative and Construction
Manager responsible for coordinating all aspects of the construction, including coordination with the City’s
Building Inspection Staff.
● Contra Costa County, California, City Engineering Services. We provide finance review, financial analysis,
and contract administration services for the Contra Costa County Public Works Department. Willdan is
providing municipal services in a variety of professional and technical administrative and finance measures.
● County of Los Angeles, California, Traffic Engineering Services. We provide professional traffic engineering
services for the Lower Azusa Road/Los Angeles Street Traffic Signal Synchronization Project. The services
include meetings and project coordination with Los Angeles County and various municipalities as well as
field review, equipment inventory, reporting for recommended improvements, traffic signal base plans, traffic
signal improvement plans and traffic signal utility plans for 29 signalized intersections along the Lower
Azusa/Los Angeles Street corridor.
● County of Orange, California, Code Enforcement Services. Our code enforcement team is responsible for
responding to citizen concerns and investigations of a variety of code violations throughout the
unincorporated areas of Orange County in support of its Neighborhood Preservation Program, including the
reviewing, processing, and closing of code enforcement cases related to land use, zoning, building, grading,
nuisance, and property maintenance violations. Our staff performs review of all case files, inspection of
properties, filing notices and complaints against violators, documenting, and preparing violation cases for the
district attorney’s office and/or County counsel and testifying in court. We assist in the
entitlement/development process consisting of general land use, zoning and building violations.
● State of Nevada, Building and Safety Services. We have provided building safety/plan check services for the
State of Nevada Public Works Department since 2007. Projects for the State of Nevada include several for
the University of Nevada, Las Vegas and Reno campuses. The projects consist of installation of photo voltaic
and parking lot lighting upgrades, a new baseball clubhouse, and the complete structural upgrade and
remodel of several historic buildings at the Reno campus.
● Property Assessed Clean Energy (“PACE”). PACE is a financing mechanism that enables low-cost, long-
term funding for energy efficiency, renewable energy and water conservation projects. PACE financing is
repaid as an assessment on the property owner’s regular tax bill, and is processed the same way as other local
public benefit assessments that have been utilized for decades. Depending on local legislation, PACE can be
used to pay for new heating and cooling systems, solar panels, insulation and more for commercial, nonprofit
and residential properties. This allows property owners to implement improvements without a large up-front
cash payment. We have partnered with Ygrene Energy Fund to provide a national PACE program.
Clients
Our clients primarily consist of investor and municipal owned energy utilities, public and governmental agencies
including cities, counties, redevelopment agencies, water districts, school districts and universities, state agencies, federal
agencies and a variety of other special districts and agencies. We also provide services to private industry, hospitals, hotels,
and other commercial enterprises.
9
Table of Contents
We are organized to profitably manage numerous small and large contracts at the same time. The majority of our
contracts typically range from $1,000 to $10,000,000 in contract revenue; however, some of our multi-year contracts have
the capacity to provide up to, and in excess, of $380,000,000 in revenue for the implementation of certain energy efficiency
programs. Our contracts typically have a duration of between two and thirty-six months, although we have city services
contracts that have been in effect for over 30 years. Most of our contracts include a provision allowing for termination for
convenience after reimbursement of any unbilled effort under the contract. As of January 1, 2021, we had approximately
2,000 open projects.
During fiscal year 2020, we had an individual customer that accounted for more than 10% of our consolidated
contract revenues. For fiscal year 2020, the LADWP accounted for 10.2% of our consolidated contract revenue. For fiscal
year 2020, our top 10 customers accounted for 48.0% of our consolidated contract revenues.
Our largest clients are based in New York and California. In fiscal year 2020, services provided to clients in
California accounted for 37.0% of our consolidated contract revenue and services provided to clients in New York
accounted for 19.2% of our consolidated contract revenue.
In 2013, Lime Energy collaborated with Duke Energy - Progress to launch the first ever small business direct
install program in North Carolina and South Carolina. Since its launch, the program has grown to encompass all eligible
Duke Energy customers in North Carolina, South Carolina, Ohio, Indiana, and Kentucky. The Small Business Energy
Saver Program offers eligible commercial customers the opportunity to retrofit a comprehensive list of existing inefficient
equipment with more energy-efficient measures. The program provides integrated turn-key services including program
marketing, energy assessments, installation by local contractors, up to 80 percent incentives to offset the cost of projects,
and education to encourage the replacement of existing equipment with improvements in lighting, refrigeration, and
HVAC. We continue to implement programs across these five states and have completed over 22,000 projects for Duke
Energy resulting in over 696,000 MWh in savings to small businesses.
We collaborate with the LADWP through the Commercial Direct Install Program, which is a small business
lighting energy efficiency program that serves all commercial customers in LADWP territory with demand up to 250kW.
On average, this program typically implements approximately 8,000 energy efficiency projects a year and has implemented
almost 80,000 projects since program inception in 2008. Over that time, we have saved LADWP and its customers over
480,000 MWh per year and 96 MW of peak demand and also provided lead generation identifying roughly 9,000 HVAC
tune-ups, 6,000 programmable thermostats installations, and 5,000 hot water efficiency upgrades.
In January 2017, we announced a new three-year contract with Consolidated Edison to implement Consolidated
Edison’s Small and Medium Business Direct Install (“SMB”) program across the utility's New York City and Westchester
County service area. This program replaced and expanded Consolidated Edison's Small Business Direct Install (“DCI”)
program, which we had implemented since 2009. It continues the process of diversifying the program offerings. The
Consolidated Edison contract continues through the end of 2022. The SMB program, Consolidated Edison's largest energy
efficiency program, helps customers save energy, lower their bills and protect the environment by providing financial
incentives to identify and buy down the cost of energy efficiency measures. To support this effort, we provide full-service
program implementation including outreach and direct sales to potential commercial customers, on-site energy efficiency
assessments, direct implementation of energy savings measures and subcontractor management. The administration of
incentive payments to other contractors providing services through the program is included in Willdan’s scope, but the
structure of the contract is such that these payments are not included in revenue or expenses. Consolidated Edison may
terminate the contract at any time for any reason.
In connection with our acquisition of substantially all of the assets of Genesys in March 2016, we entered into an
administrative services agreement with Genesys pursuant to which our subsidiary, WES, provides Genesys with ongoing
administrative, operational and other non-professional support services. Under such administrative services agreement,
WES provides administrative services for a series of Genesys’s DASNY contracts. WES provides administrative services
to Genesys in its performance of rehabilitation and construction work and architectural and engineering services at various
sites within New York State. Services for DASNY under these contracts also include energy efficient design, utility cost
evaluation and review, and various regulatory compliance services. Specific project descriptions are set out by DASNY in
work authorizations, which are issued under the terms of the contracts. The
10
Table of Contents
termination dates of the DASNY contracts vary; the latest of which is April 2024. Work authorized but not yet completed
under this contract continues to be bound by the terms of the agreement beyond the termination date until completion of the
projects. Genesys expects to receive an amendment from DASNY to the master contract extending the termination date
under DASNY’s option to extend this contract term twice, one year at a time. DASNY may at any time terminate any of
the contracts or suspend all projects, for its convenience and without cause.
Contract Structure
We generally provide our services under contracts, purchase orders, or retainer letters. The agreements we enter
into with our clients typically incorporate one of three principal types of pricing provisions:
● Time-and-materials provisions provide for reimbursement of costs and overhead plus a fee for labor based on
the time expended on a project multiplied by a negotiated hourly billing rate. The profitability achievable on
a time-and-materials basis is driven by billable headcount and cost control.
● Unit-based provisions require the delivery of specific units of work, such as energy efficiency savings goals
measured in kWh or Therms, arbitrage rebate calculations, dissemination of municipal securities continuing
disclosure reports, or building plan checks, at an agreed price per unit, with the total payment under the
contract determined by the actual 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 the scope of the project changes. Contracts with fixed price provisions carry
certain inherent risks, including risks of losses from underestimating costs, delays in project completion,
problems with new technologies, price increases for materials, and economic and other changes that may
occur over the contract period. Consequently, the profitability, if any, of fixed price contracts can vary
substantially. Willdan typically hedges some of these risks through the use of fixed price subcontracts for
services, material, and equipment.
The following table presents, for the periods indicated, the approximate percentage of our contract revenue subject to each
type of pricing provision:
Time-and-materials
Unit-based
Fixed price
Total
Fiscal Year
2020
26 %
46 %
28 %
100 %
2019
16 %
65 %
19 %
100 %
2018
27 %
47 %
26 %
100 %
In relation to the pricing provisions, our service-related contracts, including operations and maintenance services
and a variety of technical assistance services, are accounted for over the period of performance, in proportion to the cost of
performance. Award and incentive fees are recorded when they are fixed and determinable and consider customer contract
terms.
For time-and-materials and fixed price contracts, we bill our clients periodically in accordance with the contract
terms, based on costs incurred on either an hourly fee basis or on a percentage of completion basis or upon the achievement
of certain prescribed milestones, as the project progresses. For unit-based contracts, we bill our clients upon delivery and
completion 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 or
recompetition, which could impact the profitability on that contract. In addition, during the term of a contract, public
agencies may request additional or revised services which may impact the economics of the transaction. Most of our
contracts permit our clients, with prior notice, to terminate the contracts at any time without cause. While we have a large
volume of transactions and generally low customer concentration, the renewal, termination, or modification of a contract
may have a material effect on our consolidated operations.
11
Table of Contents
Competition
The markets for energy efficiency and sustainability, engineering, construction management, economic and
financial consulting, design planning and national preparedness services are competitive and highly fragmented. Our
competition varies by type of client, type of service and geography. The range of competitors for any one project can vary
depending upon technical specialties, the relative value of the project, geographic location, financial terms, risks associated
with the work, and any client-imposed restrictions. We often compete with many other firms ranging from small local firms
to large national firms. Contract awards are based primarily on qualifications, relevant experience, staffing capabilities,
geographic presence, financial stability and price. We face strong competition primarily from other regional, national, and
international providers of energy efficiency and sustainability consulting services, local electrical and mechanical
contractors and engineering firms, lighting and lighting fixture manufacturers and lighting fixture distributors. In addition
to our existing competitors, new competitors such as large national or international engineering and/or construction
companies could enter our markets.
Doing business with utilities and governmental agencies is complex and requires the ability to understand and
comply with intricate regulations and to satisfy periodic audits. We have been serving cities, counties, special districts and
other public agencies for over half a century. We believe that the ability to understand these requirements and to
successfully conduct business with utilities, governmental entities and agencies is a barrier to entry for potential
competitors.
Unlike some of our competitors, we focus our services on utilities and public sector clients. Utility and public
sector clients generally choose among competing firms by weighing the quality, experience, innovation and timeliness of
the firm’s services. When selecting consultants for engineering projects, many utilities and government agencies are
required to, and others choose to, employ Qualifications Based Selection (“QBS”). QBS requires the selection of the most
technically qualified firms for a project, while the financial and legal terms of the engagement are generally secondary.
Our competition varies geographically. Although we provide services in several states, we may be stronger in
certain service lines in some geographical areas than in other regions. Similarly, some of our larger competitors are
stronger in some service lines in certain localities but are not as competitive in others. Our smaller competitors generally
are limited both geographically as well as by the depth and breadth of services they are able to provide.
We believe that no single competitor has sufficient market share to influence the markets in which we operate in.
Insurance
To address the hazards inherent in our business, we maintain insurance coverage through the following policies:
commercial general liability, automobile liability, workers’ compensation and employer’s liability, cyber liability,
professional liability and umbrella/excess liability. However, if any claims, settlements, or judgements, individually or in
the aggregate, exceed our policy limits, we are liable to pay these claims from our assets. We believe our coverage limits
reasonably protect us from any material adverse impact that may arise from these insured risks.
12
Table of Contents
Government Regulation, Licensing, and Enforcement
A significant portion of our revenues is derived from services provided to public utilities which are generally
overseen by state or local public utility commissions who provide and administer a regulatory framework governing the
sourcing, distribution, pricing and general management of electricity and natural gas. Our services are often mandated by
these regulatory frameworks requiring utilities to meet certain goals for energy efficiency, renewable energy and other
metrics which impact demand for our services. This framework of regulatory mandates is updated by state and local
ordinance and some federal regulatory action as well. Demand for our services can be impacted from year to year by
changes in these regulatory acts regarding energy management, utility budgets and the allowable financial parameters
imposed by these regulatory agencies.
Human Capital Resources
The foundation of our continuing success as a professional services enterprise is the ability to attract and retain
qualified talent by providing a culture of equity, diversity, inclusion, development, opportunity and empowerment. This
understanding informs our approach to managing our human capital resources.
Our Workforce
As of January 1, 2021, we employed a total of 1,353 employees, excluding contractors. Our employees include,
among others, licensed electrical, mechanical, structural, geotechnical and civil engineers; land surveyors; certified
building officials; certified inspectors and plans examiners; licensed architects and landscape architects; certified planners;
energy sales and audit specialists; installation technicians; program managers; policy advisors and information technology
specialists. We believe that we attract and retain highly skilled personnel with significant industry experience and strong
client relationships by offering them challenging assignments in a stable work environment combined with employee
benefit programs that we believe are competitive with those offered by our competitors. See Part I, Item 1A, "Risk Factors"
included in this Annual Report on Form 10-K for a discussion of the risks related to the loss of key personnel or our
inability to attract and retain qualified personnel.
The following table sets forth the number of our employees in each of our business segments and our holding
company:
Energy
Engineering and Consulting
Holding Company Employees (Willdan Group, Inc.)
Total
Diversity, Equity and Inclusion
2020
748
531
74
2019
900
487
64
2018
677
469
56
1,353
1,451
1,202
While diversity, equity and inclusion has always been a part of our culture, we continue to advance efforts to
integrate our principles into all aspects of our work and measure results. We believe our success depends on creating and
maintaining a qualified and diverse company. As our people represent an ever-broader diversity of gender, age, race,
cultural background, language, sexual orientation, ability, and national origin, we become an ever-stronger company. Our
vision is to create a culture of acceptance and individuality, where all employees feel respected, included, and encouraged
to bring their unique perspectives, ideas, and skills to work each day. In 2020, we established Willdan’s Diversity, Equity,
and Inclusion (DEI) Working Group which identified initial goals and objectives focused on two key areas: 1) conducting a
multi-pronged analysis of employee recruitment, development, engagement, and community outreach; and 2) developing
and tracking key performance indicators and progress toward DEI objectives.
We strive to attract and retain professionals with the diverse expertise our clients and teams require to solve
complex challenges, as energy and infrastructure transform and expand. Our goal is for our staff, suppliers, and
subcontractors to accurately reflect the communities where we live and work.
13
Table of Contents
To bring more diverse and talented people to our team, we partner with professional organizations that represent
and support diverse applicants. We seek out and hire minority-owned subcontractors on our projects and regularly use
minority-owned suppliers. These partnerships offer economic opportunity to local, minority-owned, and disadvantaged
business enterprises. We can better serve all communities by using contracting teams that mirror the culture and
demographics of the communities where we work.
Workplace Safety
We recognize the critical role that all of our employees play in sustaining a safe and compliant work environment,
and we understand that our leaders are responsible for the ongoing improvement of operational discipline and safety
culture. Every employee and subcontractor is expected to apply this approach when performing all work activities.
Our Health and Safety Council meets monthly and our Health and Safety program is designed to address the
hazards associated with our business and to prevent workplace injuries and illness.
We track and report all safety incidents. Our safety incident metrics is provided below. For context, lost-time
injuries are those occurring in the workplace and resulting in an employee’s inability to work the next full workday.
RCR
LTIR
2020
0.78
0.35
2019
1.06
0.53
2018
1.97
0.66
A recordable case rate (RCR) describes the number of employees per 100 full-time employees that have been
involved in an OSHA recordable injury or illness. The lost-time incident rate (LTIR) is the number of lost-time injuries that
occurred in a given period, relative to the total number of hours worked in the same period.
Intellectual Property
We believe we have strong name recognition and that this provides us with a competitive advantage in obtaining
new business. Consequently, we believe it is important to protect our brand identity through trademark registrations. The
Willdan, Willdan Group, Inc., Willdan Engineering, Willdan Infrastructure, Willdan Financial Services, Willdan Energy
Solutions and Willdan Homeland Services names are service marks of ours, and we have obtained a service mark for the
Willdan and “W” logo. We have also obtained federal service mark registration with the United States Patent and
Trademark Office for the “Willdan” name, “Willdan Group, Inc.” name and the “extending your reach” tagline. The name
and logo of our proprietary software, MuniMagic+SM, are registered service marks of Willdan Financial Services, and we
have registered a federal copyright for the source code for the MuniMagic+SM software. In connection with our
acquisitions, we have obtained the trademark for our “LoadSEER” software, have obtained the patent for “Optimization of
Microgrid Energy Use and Distribution”, have obtained the service marks for the Enerpath, Enerworks and Lime/Green
Dial Design, and have obtained the registered copyright of Lime, Lime Energy, Lime Energy “less is more” design and
Main Street Efficiency.
Available Information
We maintain an Internet website at http://www.willdan.com. Through our website, in the “Investors” section under
the heading “SEC Filings”, we make available, free of charge, our annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K, proxy statements, and amendments to those reports, as soon as reasonably
practicable after we electronically file or furnish such materials to the SEC. We also make available on this website our
prior earnings calls under the heading “Events and Presentations” and our Code of Ethical Conduct under the heading
“Investors—Corporate Governance.” The information on our website is not a part of or incorporated by reference into this
filing. The SEC maintains an Internet site that contains reports, proxy, and information statements and other information
regarding our filings at http://www.sec.gov.
14
Table of Contents
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 our operations. Set forth below and elsewhere in this report and in other documents we
file with the SEC are descriptions of risks and uncertainties that could cause our actual results to differ materially from the
results and expectations contained in this report. Additional risks we do not yet know of or that we currently think are
immaterial may also affect our business operations. If any of the events or circumstances described in the following risks
actually occurs, our business, financial condition or results of operations could be materially adversely affected.
Risks Related to Operations
The COVID-19 pandemic and health and safety measures intended to slow its spread have adversely affected, and may
continue to adversely affect, our business, results of operations and financial condition.
The Covid-19 pandemic and efforts to limit its spread negatively impacted our business during the fiscal year
ended January 1, 2021 and may continue to impact our business in the future. In California and New York, the states in
which we have historically derived a majority of our revenue, mandatory shutdown orders were issued on March 19, 2020
and March 20, 2020, respectively, negatively impacting our business, financial condition and results of operations.
The impact of the Covid-19 pandemic on our business subjects us to various risks and uncertainties that could
materially adversely affect our business, results of operations and financial condition including: the extent and length of
shutdowns of our direct install programs for small businesses in our Energy segment, which have resulted and will continue
to result in material decreases in our revenues during the period of such shutdowns and are subject to determination by
governmental authorities of the states in which we operate and outside of our control; the possibility that some of our
clients will request deferral, modification or reduction in their contractual work orders with us or, in the case of those
clients that we service under a purchase order model, if such clients reduce or cancel the amount of work requested relative
to historical practices; fewer subcontractors being available to complete our work if our subcontractors must limit or cease
operations or declare bankruptcy as a result of the Covid-19 pandemic; increased difficulty in estimating and controlling
costs, in particular for our fixed-price contracts; increased difficulty in our ability to make principal and interest payments
on our debt obligations as they mature and our ability to comply with applicable financial covenants in our debt agreements
in light of reduced revenues; increased borrowing costs; potential charges to our long-lived assets as a result of the
measures implemented to contain the spread of Covid-19, including impairment of goodwill and other intangible assets;
potential changes to our effective tax rate and our valuation allowance against our deferred tax assets as a result of changes
to our forecasted future profitability; our clients becoming insolvent or initiating bankruptcy or similar proceedings, which
would adversely affect our ability to collect contractual payments from such clients for work that may have already been
completed and result in decreased revenues; the impact on our results of operations and financial condition resulting from a
temporary suspension in capital expenditures from our government clients; increased difficulty in executing our growth
strategy, which could result in fewer acquisition opportunities for us compared to historical levels; increased employee
absenteeism due to fear of infection and increased difficulty in maintaining our workforce during this uncertain time; and
the potential adverse impacting on productivity of management and our employees that are working remotely, including
impacting our ability to maintain our financial reporting processes and related controls.
Given the uncertainties associated with the duration of the pandemic, we cannot reasonably estimate the ultimate
impacts of Covid-19 and efforts to limit its spread on our business, financial condition, results of operations or cash flows
for the foreseeable future or whether our assumptions used to estimate our future liquidity requirements will be correct.
The extent of the impact of the Covid-19 pandemic on our business and financial results will depend on future
developments, including the duration, severity and spread of the pandemic, health and safety actions taken to contain its
spread, any possible resurgence of Covid-19 that may occur and how quickly and to what extent normal economic and
operating conditions can resume within the markets in which we operate, each of which are highly uncertain at this time
and outside of our control. Even after the Covid-19 pandemic has ultimately subsided, we may continue to experience
adverse impacts to our business and financial results as a result of its global economic impact,
15
Table of Contents
including any economic downturn or recession that has occurred or may occur in the future. The adverse impact of the
Covid-19 pandemic on our business, results of operations and financial condition could be material.
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 we may 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 to manage the relationship with our clients and our ability to effectively manage the
project and deploy appropriate resources, including third-party contractors and 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 project will achieve
specified performance standards (e.g., some of our contracts stipulate certain energy savings requirements). If the project is
not completed by the scheduled date or fails to meet required performance standards, we may either incur significant
additional costs or be held responsible for the costs incurred by the client to rectify damages due to late completion or
failure to achieve the required performance standards. The uncertainty of the timing of a project can present difficulties in
planning the amount of personnel needed for the 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, among other things, unavoidable delays from government inaction,
public opposition, inability to obtain financing, weather conditions, unavailability of vendor materials (including but not
limited to import restrictions or pandemics or other public health emergencies such as the recent coronavirus outbreak),
changes in the project scope of services requested by our clients, industrial accidents, environmental hazards, and labor
disruptions. To the extent these events occur, the total costs of the project could exceed our estimates, 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 standards or complete performance on a timely basis could also adversely affect
our reputation and client base.
Our revenues are primarily derived from the energy efficiency services industry and, therefore, we are highly
susceptible to risks relating to such industry.
A loss of customers, inability to procure or maintain contracts, or downturn in demand in the energy efficiency
services industry could have a material adverse impact on our business, results of operations and financial condition. If we
are unable to maintain and expand our current utility relationships and develop new relationships, maintain and enhance
our existing energy efficiency services, execute our business and marketing strategies successfully and achieve the energy
savings that are specified in our contracts, we may not be able to supplement the loss of revenue from our other services
and it may result in lower revenues and have an adverse impact on our business, results of operations and financial
condition.
Demand for our services is cyclical and vulnerable to economic downturns. If economic growth slows, government
fiscal conditions worsen, public and private construction/renovation activity slows, or client spending declines, it may
have a material adverse effect on our business, results of operations and financial condition.
Demand for our services is cyclical, and vulnerable to economic downturns and reductions in government and
private industry spending. Such downturns or reductions may result in clients delaying, curtailing or canceling proposed
and existing projects. Our business traditionally lags the overall recovery in the economy; therefore, our business may not
recover immediately when the economy improves. If economic growth slows, government fiscal conditions worsen, or
client spending declines, it may have a material adverse effect on our business, results of operations and financial
condition. Our government clients may face budget deficits that prohibit them from funding new or existing projects. In
addition, our existing and potential clients may either postpone entering into new contracts or request price concessions.
Difficult financing and economic conditions may cause some of our clients to demand better pricing terms or delay
payments for services we perform, thereby increasing the average number of days our receivables are outstanding, and the
potential of increased credit losses of uncollectible invoices. Further, these conditions may result in the inability of some of
our clients to pay us for services that we have already performed. If we are not able to reduce our costs quickly enough to
respond to the revenue decline from these clients, our operating results may be adversely affected.
16
Table of Contents
Accordingly, these factors affect our ability to forecast our future revenue and earnings from business areas that may be
adversely impacted by market conditions. Any of these factors could adversely affect the demand for our services, which
could have a material adverse effect on our business, results of operations and financial condition.
The quality of our service and our ability to perform under some of our contracts would be adversely affected if
qualified subcontractors are unavailable for us to engage, if our subcontractors fail to satisfy their obligations to us or
other parties, or if we are unable to maintain these relationships which, in each case, could adversely affect our
business, results of operations and financial condition.
Under some of our contracts, we rely on the efforts and skills of subcontractors for the performance of some of the
tasks. Our use of subcontractors has increased in recent years as a result of the increase in the percentage of our revenues
derived from the direct installation of energy efficiency measures, including performance contracting and construction
management services for more complex projects. Our Energy segment generally utilizes a higher percentage of
subcontractors than Engineering and Consulting segment. The absence of qualified subcontractors with whom we have a
satisfactory relationship could adversely affect the quality of our service offerings and therefore, adversely affect our
business, results of operations and financial condition.
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 extend
existing 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 higher price, 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 a project 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 subcontractors with which we have a satisfactory relationship could adversely affect the quality of
our service and our ability to perform under some of our contracts. Our future revenue and growth prospects could be
adversely affected if other contractors eliminate or reduce their subcontracts or teaming arrangement relationships with us,
or if a government agency terminates or reduces these other contractors’ programs, does not award them new contracts, or
refuses to pay under a contract.
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 our workforce 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, our profit margin and profitability could suffer.
If we are unable to accurately estimate and control our contract costs, then we may incur losses on our contracts, which
could decrease our operating margins and reduce our profits. In particular, our fixed-price contracts could increase the
unpredictability of our earnings.
Under fixed-price contracts, we receive a fixed price irrespective of the actual costs we incur (which protects
clients) and, consequently, we are exposed to a number of risks than either time-and-materials and unit-based contracts. We
realize a profit on fixed price contracts only if we can control our costs and prevent cost overruns on our contracts. Fixed ‐
price contracts require cost and scheduling estimates that are based on a number of assumptions, including those about
future economic conditions, costs, and availability of labor, equipment and materials, and other exigencies. We could
experience cost overruns if these estimates were initially inaccurate as a result of errors or ambiguities in the contract
specifications, or become inaccurate as a result of a change in circumstances following the submission of the
17
Table of Contents
estimate due to, among other things, unanticipated technical or equipment problems, difficulties in obtaining permits or
approvals, changes in local laws or labor conditions, weather delays, changes in costs of raw materials, or the inability of
our vendors or subcontractors to perform their obligations. If cost overruns occur, we could experience reduced profits or,
in some cases, a loss for that project. If a project is significant, or if there are one or more common issues that impact
multiple projects, costs overruns could increase the unpredictability of our earnings, as well as have a material adverse
impact on our business, results of operations and financial condition.
Under our time-and-material contracts, we are generally paid for our efforts at negotiated hourly billing rates for
our staff, plus reimbursement for subcontractors and other direct costs. Profitability on these contracts is driven by control
over the number of hours required to execute the tasks, the mix of staff utilized and the percentage of staff time expended
on directly billable activities. Many of our time-and-materials contracts are subject to maximum contract values. In the
event that we estimate the potential to exceed those maximum contract values at the contracted rates, revenue relating to
these contracts is recognized as if these contracts were fixed-price contracts.
If we are unable to accurately estimate and manage our costs, we may incur losses on our contracts, which could
decrease our operating margins and significantly reduce or eliminate our profits. Certain of our contracts require us to
satisfy specific design, engineering, procurement, or construction milestones in order to receive payment for the work
completed or equipment or supplies procured prior to achievement of the applicable milestone. As a result, under these
types of arrangements, we may incur significant costs or perform significant amounts of services prior to receipt of
payment. If a client determines not to proceed with the completion of the project or if the client defaults on its payment
obligations, we may face difficulties in collecting payment of amounts due to us for the costs previously incurred or for the
amounts previously expended to purchase equipment or supplies.
Our use of the percentage-of-completion method of revenue recognition on our fixed price contracts could result in a
reduction or reversal of previously recorded 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 in recognition 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 incurred for the entire project. The effects of revisions
to revenue and estimated costs, including the achievement of award fees and the impact of change orders and claims, are
recorded when the amounts are known and can be reasonably estimated. Such revisions could occur in any period and their
effects could be material. While we have historically made reasonably reliable estimates of the progress towards
completion of long-term contract, the uncertainties inherent in the estimating process make it possible for actual costs to
vary materially from estimates, including reductions or reversals of previously recorded revenue and profit.
The loss of key personnel or our inability to attract and retain qualified personnel could impair our ability to provide
services to our clients and otherwise conduct 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 senior management and our professional and technical staff, including management and staff
acquired in connection with our business acquisitions, is an important factor in determining our future success. We believe
there are only a limited number of available qualified executives in the energy efficiency services industry, and we
therefore have encountered, and will likely continue to encounter, intense competition for qualified employees from other
companies in the industry. In addition, the market for qualified engineers is competitive and, from time to time, it may be
difficult to attract and retain qualified individuals with the required expertise within the timeframe demanded by our
clients. Further, we rely heavily upon the expertise and leadership of our senior management. If we are unable to retain
executives and other key personnel, the roles and responsibilities of those employees will need to be filled, which may
require that we devote time and resources to identify, hire, and integrate new employees. The loss of the services of any of
these key personnel could adversely affect our business, results of operations and financial condition.
Unavailability of third-party insurance coverage would increase our overall risk exposure as well as disrupt the
management of our business operations.
Our services involve significant risks of professional and other liabilities, which may substantially exceed the fees
we derive from our services. We maintain insurance coverage from third-party insurers as part of our overall risk
18
Table of Contents
management strategy and because some of our contracts require us to maintain specific insurance coverage limits. From
time to time, we assume liabilities as a result of indemnification provisions contained in our service contracts. We cannot
predict the magnitude of these potential liabilities.
We are liable to pay these such liabilities from our assets if and when the aggregate settlement or judgment
amount exceeds our insurance policy limits. Further, our insurance may not protect us against liability because our policies
typically 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 be covered. A partially or completely uninsured claim, if successful and of significant
magnitude, could have a material adverse effect on our liquidity.
If any of our third-party insurers fail, suddenly cancel our coverage, or otherwise are unable to provide us with
adequate insurance coverage, then our overall risk exposure and our operational expenses would increase and the
management of our business operations would be disrupted. In addition, if we expand into new markets, we may not be
able to obtain insurance coverage for these new activities or, if insurance is obtained, the dollar amount of any liabilities
incurred could exceed our insurance coverage. There can be no assurance that any of our existing insurance coverage will
be renewable upon the expiration of the coverage period or that future coverage will be affordable at the required limits.
Product liability and personal injury claims could have a material adverse effect on our business, results of operations
and financial condition.
We face exposure to product liability and personal injury claims in the event that our services cause bodily injury
or property damage. Since the majority of our products use electricity, it is possible that the products we use could result in
injury, whether due to product malfunctions, defects, improper installation or other causes. Further, we face exposure to
personal injury claims in the event that an individual is injured because of our negligence or the negligence of one of our
subcontractors. Moreover, we may not have adequate resources in the event of a successful claim against us. A successful
product liability or personal injury claim against us that is not covered by insurance or is in excess of our available
insurance limits could require us to make significant payments of damages which could materially adversely affect our
business, results of operations and financial condition.
Events outside our control, including natural and man-made disasters, could negatively impact the economies in which
we operate or disrupt our operations, which may adversely affect our business, results of operations and financial
condition.
Events outside our control, such as natural and man-made disasters, as well as terrorist actions, pandemics or other
public health emergencies (such as the recent coronavirus outbreak), 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 that relieves 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 affected significantly, which would have a negative impact on our
business, results of operations and financial condition.
We have only a limited ability to protect our intellectual property rights, and our failure to protect our intellectual
property rights could adversely affect our competitive position.
Our success depends, in part, upon our ability to protect our proprietary information and other intellectual
property. We rely principally on trade secrets to protect much of our intellectual property where we do not believe that
patent or copyright protection is appropriate or obtainable. However, trade secrets are difficult to protect. Although our
employees are subject to confidentiality obligations, this protection may be inadequate to deter or prevent misappropriation
of our confidential information. In addition, we may be unable to detect unauthorized use of our intellectual property or
otherwise take appropriate steps to enforce our rights. Failure to obtain or maintain trade secret protection could adversely
affect our competitive business position. In addition, if we are unable to prevent third parties from infringing or
misappropriating our trademarks or other proprietary information, our competitive position could be adversely affected.
19
Table of Contents
Employee, agent, or partner misconduct, or our failure to comply with anti-bribery and other laws or regulations, could
harm our reputation, reduce our revenue and profits, and subject us to criminal and civil enforcement actions.
Misconduct, fraud, non-compliance with applicable laws and regulations, or other improper activities by one of
our employees, agents, or partners could have a significant negative impact on our business and reputation. Such
misconduct could include the failure to comply with government procurement regulations, regulations regarding the
protection of classified information, regulations prohibiting bribery and other foreign corrupt practices, regulations
regarding the pricing of labor and other costs in government contracts, regulations on lobbying or similar activities,
regulations pertaining to the internal controls over financial reporting, environmental laws, and any other applicable laws
or regulations. Since our internal controls are subject to inherent limitations, including human error, it is possible that these
controls could be intentionally circumvented or become inadequate because of changed conditions. As a result, we cannot
assure that our controls will protect us from reckless or criminal acts committed by our employees or agents. Our failure to
comply with applicable laws or regulations, or acts of misconduct could subject us to fines and penalties, loss of security
clearances, and suspension or debarment from contracting, any or all of which could harm our reputation, reduce our
revenue and profits, and subject us to criminal and civil enforcement actions.
Our failure to implement and comply with our safety program could adversely affect our operating results or financial
condition.
Our safety program is a fundamental element of our overall approach to risk management, and the implementation
of the safety program is a significant issue in our dealings with our clients. We maintain an enterprise-wide group of health
and safety professionals to help ensure that the services we provide are delivered safely and in accordance with standard
work processes. Unsafe job sites and office environments have the potential to increase employee turnover, increase the
cost of a project to our clients, expose us to types and levels of risk that are fundamentally unacceptable, and raise our
operating costs. The implementation of our safety processes and procedures are monitored by various agencies and rating
bureaus and may be evaluated by certain clients in cases in which safety requirements have been established in our
contracts. Our failure to meet these requirements or our failure to properly implement and comply with our safety program
could result in reduced profitability or the loss of projects or clients or potential litigation and could have a material adverse
effect on our business, results of operations and financial condition.
The diversity of the services we provide, and the clients we serve, may create actual, potential, and perceived conflicts of
interest and conflicts of business that limit our growth and could lead to potential liabilities for us.
Because we provide services to a wide array of both government and commercial clients, occasions arise where,
due to actual, potential, or perceived conflicts of interest or business conflicts, we cannot perform work for which we are
qualified. A number of our contracts contain limitations on the work we can perform for others, such as, for example, when
we are assisting a government agency or department in developing regulations or enforcement strategies. Actual, potential,
and perceived conflicts limit the work we can do and, consequently, can limit our growth and adversely affect our operating
results. In addition, if we fail to address actual or potential conflicts properly, or even if we simply fail to recognize a
perceived conflict, we may be in violation of our existing contracts, may otherwise incur liability, and may lose future
business for not preventing the conflict from arising, and our reputation may suffer. Particularly as we grow our
commercial business, we anticipate that conflicts of interest and business conflicts will pose a greater risk.
Risks Related to Indebtedness
Our substantial leverage and significant debt service obligations due to debt incurred in connection with our
acquisitions could adversely affect our business, results of operations and financial condition.
Our financial performance could be adversely affected by our substantial leverage. We may also incur significant
additional indebtedness in the future, subject to various conditions. This significant level of indebtedness could have
important negative consequences to us, including making it more difficult to satisfy our obligations on our outstanding debt
obligations; making it more difficult to obtain financing in the future for working capital, capital expenditures, acquisitions
or other general corporate purposes; requiring us to use more of our excess cash flow to pay interest and principal on our
debt, which will reduce the amount of money available to finance our operations and other
20
Table of Contents
business activities; increasing our vulnerability to general economic downturns and adverse industry conditions; potentially
limiting our flexibility in planning for, or reacting to, changes in our business and in our industry in general; exposing us to
the risk of increased interest rates because the debt outstanding under our term loan and revolving credit facility bear
interest at variable rates; placing us at a competitive disadvantage compared to our competitors that have less debt; and
potentially limiting our ability to comply with the financial and other restrictive covenants in our debt instruments which,
among other things, require us to maintain specified financial ratios, and could result in an event of default that, if not
cured or waived, could have a material adverse effect on our business or prospects.
Our ability to make scheduled payments on or refinance our debt obligations depends on our financial condition
and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial,
business, legislative, regulatory and other factors beyond our control. We may be unable to maintain a level of cash flows
from operating activities sufficient to permit us to pay the amounts due on our indebtedness. If our cash flows and capital
resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be
forced to reduce or delay investments and capital expenditures or to dispose of material assets or operations, seek
additional debt or equity capital or restructure or refinance our indebtedness. We may not be able to effect any such
alternative measures, if necessary, on commercially reasonable terms or at all and, even if successful, those alternative
actions may not allow us to meet our scheduled debt service obligations. The Credit Agreement restricts our ability to
dispose of assets and use the proceeds from those dispositions and also restricts our ability to raise debt or equity capital to
be used to repay other indebtedness when it becomes due. We may not be able to consummate those dispositions or to
obtain proceeds in an amount sufficient to meet any debt service obligations then due. Our inability to generate sufficient
cash flows to satisfy our debt obligations, or to refinance our indebtedness on commercially reasonable terms or at all,
would materially adversely affect our financial position and results of operations. If we cannot make scheduled payments
on our debt, we will be in default and the lenders under our Credit Agreement could terminate their commitments to loan
money and could foreclose against the assets securing their borrowings and we could be forced into bankruptcy or
liquidation.
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 to execute on our current or future business strategies.
If we do not generate sufficient cash flow from operations or otherwise, we may need additional financing to
execute on our current or future business strategies, including developing new or enhancing existing service lines,
expanding our business geographically, enhancing our operating infrastructure, acquiring complementary businesses, or
otherwise responding to competitive pressures. We cannot assure you that additional financing will be available to us on
favorable terms, or at all. Furthermore, if we raise additional funds through the issuance of convertible debt or equity
securities, the percentage ownership of our stockholders could be significantly diluted, and these newly issued securities
may have rights, preferences or privileges senior to those of existing stockholders. If adequate funds are not available or
are not available on acceptable terms, if and when needed, our ability to fund our operations, meet obligations in the
normal course of business, take advantage of strategic business opportunities, or otherwise respond to competitive
pressures would be significantly limited.
Restrictive covenants in our credit agreement may restrict our ability to pursue certain business strategies.
Our credit agreement limits or restricts our and our subsidiaries ability to, among other things, incur, create or
assume additional indebtedness; incur, create or assume liens securing debt or other encumbrances on our assets; purchase,
hold or acquire unpermitted acquisitions or investments; make loans or advances; pay dividends or make distributions to
our stockholders; purchase or redeem our stock; repay indebtedness that is junior to indebtedness under our Credit
Agreement; acquire the assets of, or merge or consolidate with, other companies; and sell, lease, or otherwise dispose of
assets.
Our credit agreement also requires that we maintain a maximum total leverage ratio and a minimum fixed charge
coverage ratio, tested on a quarterly basis, which we may not be able to achieve. The covenants may impair our ability to
finance future operations or capital needs or to engage in other favorable business activities. Failing to comply with these
covenants could result in an event of default under the Credit Agreement, which could result in us being
21
Table of Contents
required to repay the amounts outstanding prior to maturity. These prepayment obligations could have an adverse effect on
our business, results of operations and financial condition.
Furthermore, if we are unable to repay the amounts due and payable under the credit agreement, the lenders could
proceed against the collateral granted to them to secure that indebtedness. In the event the lenders accelerate the repayment
of our borrowings, we and our subsidiaries may not have sufficient assets to repay that indebtedness.
Changes in banks’ inter-bank lending rate reporting practices or the method pursuant to which LIBOR is determined
could impact the cost of our indebtedness.
London Interbank Offered Rate (“LIBOR”) and other indices which are deemed “benchmarks” are the subject of
recent national, international, and other regulatory guidance and proposals for reform. Some of these reforms are already
effective while others are still to be implemented. The Chief Executive of the U.K. Financial Conduct Authority (the
“FCA”), which regulates LIBOR, has announced that the FCA will no longer persuade or compel banks to submit rates for
the calculation of LIBOR after 2021. However, for U.S dollar LIBOR, it now appears that the relevant date may be
deferred to June 30, 2023 for certain lengths of time to maturity (including overnight and one, three, six and 12 months), at
which time the LIBOR administrator has indicated that it intends to cease publication of U.S. dollar LIBOR. Despite this
potential deferral, the LIBOR administrator has advised that no new contracts using U.S. dollar LIBOR should be entered
into after December 31, 2021. These actions indicate that the continuation of U.S. LIBOR on the current basis cannot and
will not be guaranteed after June 30, 2023. Moreover, it is possible that U.S. LIBOR will be discontinued or modified prior
to June 30, 2023. At this time, it is not possible to predict the effect of any such changes, any establishment of alternative
reference rates or any other reforms to LIBOR that may be implemented in the United Kingdom or elsewhere.
All of our debt outstanding under our credit agreement as of January 1, 2021 bears interest at a floating rate that uses
LIBOR as the applicable reference rate to calculate the interest. Our credit agreement provides that, if the administrative
agent has determined that adequate means do not exist for ascertaining LIBOR or the lenders have advised the
administrative agent that (i) LIBOR does not adequately and fairly reflect the cost to lenders for maintaining their loans or
(ii) making or funding LIBOR loans has become impracticable for the lenders, then, unless we amend the credit agreement
to replace LIBOR with an alternative reference rate, all of our outstanding loans under the credit agreement will be
converted to Base Rate Loans and the component of the Base Rate based upon LIBOR will not be used in any
determination of the Base Rate. Further, the lenders under our credit agreement will no longer be obligated to make loans
using LIBOR as the applicable reference rate.
Uncertainty as to the nature of potential changes to LIBOR, fallback provisions, alternative reference rates or other
reforms could adversely impact our interest expense on our floating rate debt that currently uses LIBOR as the applicable
reference rate. In addition, any alternative reference rates to LIBOR may result in interest that does not correlate over time
with the payments that would have been made on our indebtedness if LIBOR was available in its current form. Further, the
discontinuance or modification of LIBOR and uncertainty of an alternative reference rate may result in the increase in the
cost of future indebtedness, which could have a material adverse effect on our financial condition, cash flow and results of
operations.
Risks Related to Our Clients and Our Projects
If we have a loss or reduction of business from a key customer or key utility programs, it could result in significant
harm to our revenue, profitability and financial condition.
Most of our clients are not committed to purchase any minimum amount of our services, as our agreements with
them are based on a “purchase order” model. As a result, they may discontinue utilizing some or all of our services with
little or no notice. As well, certain of our contracts are with other entities that are periodically funded by the applicable
utility. Such funding is subject to periodic renewal and is outside our control or its contract counterparty and may, at times,
be delayed or inhibited.
22
Table of Contents
The loss of key utility programs or key clients (or financial difficulties at this utility program or these clients,
which result in nonpayment or nonperformance) could have a significant and adverse effect on our business, results of
operations and financial condition. If these clients or utility programs significantly reduce their business or orders with us,
default on their agreements with us or fail to renew or terminate their agreements with us, our business, results of
operations and financial condition could be materially and adversely affected. We may not be able to win new contracts to
replace these contracts if they are terminated early or expire as planned without being renewed.
In addition, the potential for requests from certain clients to significantly increase the services we provide them
requires us to have sufficient resource capacity available in the regions where they are located. If we are unable to maintain
such resource capacity, these clients or utility program may reduce or stop purchasing certain services from us. If such
clients or utility program reduce or stop purchasing certain services from us, we may have substantial capacity available in
regions where we do not have corresponding clients to service.
Our failure to win new contracts and renew existing contracts with private and public sector clients could adversely
affect our business, results of operations and financial condition.
Our business depends on our ability to win new contracts and renew existing contracts with private and public
sector clients. Contract proposals and negotiations are complex and frequently involve a lengthy bidding and selection
process. If we are not able to replace the revenue from expiring contracts, either through follow-on contracts or new
contracts, our business, results of operations and financial condition may be adversely affected. A number of factors affect
our ability to win new contracts and renew existing contracts, including, among other things, market conditions, financing
arrangements, required governmental approvals, our client relationships and professional reputation. For example, a client
may require us to provide a bond or letter of credit to protect the client should we fail to perform under the terms of the
contract. If negative market conditions arise, or if we fail to secure adequate financial arrangements or the required
government approval, we may not be able to pursue particular projects, which could adversely affect our business, results
of operations and financial condition. Any factor that diminishes our reputation or client relationships with federal, state
and local governments, as well as commercial clients, could make it substantially more difficult for us to compete
successfully for both new engagements and qualified employees. To the extent our reputation and/or client relationships
deteriorate, our business, results of operations and financial condition could be adversely affected.
Our contracts may contain provisions that are unfavorable to us and permit our clients to, among other things,
terminate our contracts partially or completely at any time prior to completion.
Certain of our contracts contain provisions that allow our clients or utility programs to terminate or modify the
contract at their convenience upon short notice. For example, our largest clients and utility programs may terminate their
contracts with us at any time for any reason. If one of these clients or utility programs terminates their contract for
convenience, we may only bill the client or utility program, as applicable, for work completed prior to the termination, plus
any commitments and settlement expenses such client or utility program agrees to pay, but not for any work not yet
performed.
In addition, many of our government contracts and task and delivery orders are incrementally funded as
appropriated funds become available. The reduction or elimination of such funding can result in contract options not being
exercised and further work on existing contracts and orders being curtailed. In any such event, we would have no right to
seek lost fees or other damages. If a client were to terminate, decline to exercise options under, or curtail further
performance under one or more of our major contracts, it could have a material adverse effect on our business, results of
operations and financial condition.
Changes to tax laws and regulations, including changes to the energy efficient building deduction, could adversely
affect our business, results of operations and financial condition.
Tax laws and regulations are highly complex and subject to interpretation, and the tax laws and regulations to
which we are subject to change over time. Our tax filings are based upon our interpretation of the tax laws in effect in
various jurisdictions for the periods for which the filings are made. As our business grows, we are required to comply with
increasingly complex taxation rules and practices. We are subject to tax in multiple U.S. tax jurisdictions. Changes
23
Table of Contents
in federal, state and local tax laws and regulations could adversely affect our business, results of operations and financial
condition.
Because we primarily provide services to municipalities, public utilities and other public agencies, we are more
susceptible to the unique risks associated with government contracts.
We primarily work for utilities, municipalities and other public agencies. Consequently, we are exposed to certain
risks associated with public agency and government contracting, any one of which can have a material adverse effect on
our business, results of operations and financial condition. These risks include the ability of the public agency to terminate
the contract with 30 days’ prior notice or less; changes in public agency spending and fiscal policies which can have an
adverse effect on demand for our services; contracts that are subject to public agency 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 rely on government appropriations or public-supported
financing. If adequate public funding is delayed or is not available, then we may not be able to realize all of our
anticipated revenue and profits from such contracts, which could adversely affect our business, results of operations
and financial condition.
A substantial portion of our revenue is derived from contracts with agencies and departments of state and local
governments. Each year, client funding for some of our government contracts may directly or indirectly rely on
government appropriations or public-supported financing. 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. In addition, public-supported financing
such as state and local municipal bonds may be only partially raised to support existing projects. Similarly, the impact of
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 and competing political priorities, public funds and the timing of payment of these funds may be
influenced by, among other things, curtailments in the use of government contracting firms, increases in raw material costs,
delays associated with insufficient numbers of government staff to oversee contracts, budget constraints, 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 and we will not realize all of our potential revenue and profit from that
contract.
We derive significant revenue and profit from contracts awarded through a competitive bidding process, which can
impose substantial costs on us, and we will lose revenue and profit if we fail to compete effectively.
We derive significant revenue and profit from contracts that are awarded through a competitive bidding process.
Competitive bidding imposes substantial costs and presents a number of risks, including the substantial cost and
managerial time and effort that we spend to prepare bids and proposals; the need to estimate accurately the resources and
costs that will be required to service any contracts we are awarded, sometimes in advance of the final determination of their
full scope; the expense and delay that may arise if our competitors protest or challenge awards made to us pursuant to
competitive bidding, as discussed below; and the opportunity cost of not bidding on and winning other contracts we may
have otherwise pursued.
To the extent we engage in competitive bidding and are unable to win particular contracts, we not only incur
substantial costs in the bidding process that negatively affect our operating results, but we may lose the opportunity to
operate in the market for the services provided under those contracts for a number of years. Even if we win a particular
contract through competitive bidding, our profit margins may be depressed or we may even suffer losses as a result of the
costs incurred through the bidding process and the need to lower our prices to overcome competition.
24
Table of Contents
Changes in elected or appointed officials could have a material adverse effect on our ability to retain an existing
contract with or obtain additional contracts 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, our business and financial results or condition could be adversely affected by the results of
local and regional elections. A change in the individuals responsible for selecting consultants for and awarding contracts on
behalf of a public agency (for example, due to an election) could adversely affect our ability to retain an existing contract
with or obtain additional contracts from such public agency.
If our business partners fail to perform their contractual obligations on a project, we could be exposed to legal liability,
loss of reputation and profit reduction or loss on the project.
We routinely enter into subcontracts and, occasionally, joint ventures, teaming arrangements, and other contractual
arrangements so that we can jointly bid and perform on a particular project. Success under these arrangements depends in
large part on whether our business partners fulfill their contractual obligations satisfactorily. In addition, when we operate
through a joint venture in which we are a minority holder, we have limited control over many project decisions, including
decisions related to the joint venture’s internal controls, which may not be subject to the same internal control procedures
that we employ. If these unaffiliated third parties do not fulfill their contract obligations, the partnerships or joint ventures
may be unable to adequately perform and deliver their contracted services. Under these circumstances, we may be
obligated to pay financial penalties, provide additional services to ensure the adequate performance and delivery of the
contracted services, and may be jointly and severally liable for the other’s actions or contract performance. These
additional obligations could result in reduced profits and revenues or, in some cases, significant losses for us with respect
to the joint venture, which could also affect our reputation in the industries we serve.
If our reports and opinions are not in compliance with professional standards and other regulations or without the
appropriate disclaimers or in a misleading or incomplete manner, we could be subject to monetary damages and
penalties.
We issue reports and opinions to clients based on our professional engineering expertise, as well as our other
professional credentials. Our reports and opinions may need to comply with professional standards, licensing requirements,
securities regulations, and other laws and rules governing the performance of professional services in the jurisdiction in
which the services are performed. In addition, the reports and other work product we produce for clients sometimes include
projections, forecasts and other forward-looking statements. Such information by its nature is subject to numerous risks and
uncertainties, any of which could cause the information produced by us to ultimately prove inaccurate. While we include
appropriate disclaimers in the reports that we prepare for our clients, once we produce such written work product, we do
not always have the ability to control the manner in which our clients use such information. As a result, if our clients
reproduce such information to solicit funds from investors for projects without appropriate disclaimers or the information
proves to be incorrect, or if our clients reproduce such information for potential investors in a misleading or incomplete
manner, our clients or such investors may threaten to or file suit against us for, among other things, securities law
violations.
We may be required to pay liquidated damages if we fail to meet milestone requirements in our contracts.
We may be required to pay liquidated damages if we fail to meet milestone requirements in our contracts. Failure
to meet any of the milestone requirements could result in additional costs, and the amount of such additional costs could
exceed the projected profits on the project. These additional costs include liquidated damages paid under contractual
penalty provisions, which can be substantial and can accrue on a regular basis.
Risks Related to Growth and Acquisitions
25
Table of Contents
We have made and expect to continue to make acquisitions that could disrupt our operations and adversely impact our
business, results of operations and financial condition. Our failure to conduct due diligence effectively, or our inability
to successfully integrate acquisitions, could impede us from realizing all of the benefits of the acquisitions, which could
weaken our results of operations.
A key part of our growth strategy is to acquire other companies that complement our lines of business, broaden
our technical capabilities and/or expand our geographic presence. We expect to continue to acquire companies as an
element of our growth strategy; however, our ability to make acquisitions may be restricted by our inability to incur
additional indebtedness and/or make unpermitted acquisitions or investments under our Credit Agreement. Our acquisition
strategy may divert management’s attention away from our existing businesses, resulting in the loss of key clients or key
employees, and expose us to unanticipated problems or legal liabilities, including responsibility as a successor-in-interest
for undisclosed or contingent liabilities of acquired businesses or assets.
Acquisitions involve certain known and unknown risks that could cause our actual growth or operating results to
differ from our expectations or the expectations of securities analysts. If we fail to conduct due diligence on our potential
targets effectively, we may, for example, not identify problems at target companies, or fail to recognize incompatibilities or
other obstacles to successful integration. Our inability to successfully integrate future acquisitions within the intended
timeframes or at all could impede us from realizing all of the benefits of those acquisitions and could severely weaken our
business operations. The integration process may disrupt our business and, if implemented ineffectively, may preclude
realization of the full benefits expected by us and could harm our results of operations. In addition, the overall integration
of the combining companies may result in unanticipated problems, expenses, liabilities and competitive responses and may
cause our stock price to decline.
Even if the operations of an acquisition are integrated successfully, we may not realize the full benefits of the
acquisition, including the synergies, cost savings 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.
If we are not able to successfully manage our growth strategy, our business, results of operations and financial
condition may be adversely affected.
Our expected future growth presents numerous managerial, administrative, operational, and other challenges. Our
ability to manage the growth of our operations will require us to continue to improve our management information systems
and our other internal systems and controls. In addition, our growth will increase our need to attract, develop, motivate, and
retain both our management and professional employees. The inability to effectively manage our growth or the inability of
our employees to achieve anticipated performance could have a material adverse effect on our business, results of
operations and financial condition.
Moreover, our continued expansion into new states will increase our legal and regulatory risk. Our failure, or
alleged failure, to comply with applicable laws and regulations in any new jurisdiction in which we operate, and ensuing
inquiries or investigations by regulatory and enforcement authorities, may result in regulatory action, including suspension
or revocation of one or more of our licenses, civil or criminal penalties or other disciplinary actions and restrictions on or
suspension of some or all of our business operations. As a result, our business could suffer, our reputation could be harmed,
one or more of our contracts with governmental or non-governmental entities could be terminated and we could be subject
to additional legal risk. This could, in turn, increase the size and number of claims and damages asserted against us, subject
us to additional regulatory investigations, enforcement actions or other proceedings or lead to increased regulatory or
supervisory concerns. We cannot predict the timing or form of any current or future regulatory or law enforcement
initiatives, and any such initiatives could have a material adverse effect on our business, results of operations and financial
condition.
26
Table of Contents
Our acquired businesses may underperform relative to our expectations.
We may not be able to maintain the levels of growth, revenue, earnings or operating efficiency that we and our
acquired businesses have historically achieved or might achieve separately. The business and financial performance of an
acquired business is subject to certain risks and uncertainties, including the risk of the loss of, or changes to, the acquired
business’s client relationships; the dependence of its business on a limited number of customers to generate substantially all
of its revenue; the acquired business’s reliance on subcontractors to meet its contractual obligations and the failure by such
subcontractors to effectively perform their services in a timely manner; negative publicity or reputation from any prior
investigations and settlements involving the acquired business; and reliance on the key personnel of the acquired business.
If our goodwill or other intangible assets become impaired, then our profits may be significantly reduced.
Because we have recently completed a number of acquisitions, goodwill and other intangible assets represent a
substantial portion of our assets. Under generally accepted accounting principles in the United States, we are required to
perform a goodwill impairment test for potential impairment at least on an annual basis. We also assess the recoverability
of the unamortized balance of our intangible assets when indications of impairment are present based on expected future
profitability and undiscounted expected cash flows and their contribution to our overall operations. The goodwill
impairment test requires us to determine the fair value of our reporting units, which are the components at or one level
below our reportable segments. In determining fair value, we make significant judgments and estimates, including
assumptions about our strategic plans with regard to our operations. We also analyze current economic indicators and
market valuations to help determine fair value. To the extent economic conditions that would impact the future operations
of our reporting units change, our goodwill may be deemed to be impaired, and we would be required to record a non-cash
charge that could result in a material adverse effect on our business, results of operations and financial condition. We had
no goodwill impairment in fiscal 2020, 2019, or fiscal 2018.
Risks Related to Our Regulatory Environment
We are subject to various routine and non -routine governmental reviews, audits and investigations, and unfavorable
government audit results could force us to adjust previously reported operating results, could affect future operating
results, could subject us to a variety of penalties and sanctions, and could result in harm to our reputation.
Government departments and agencies and their representatives audit and review our contract performance, pricing
practices, cost structure, financial capability and compliance with applicable laws, rules and regulations. Audits could raise
issues that have significant adverse effects, including, among other things, substantial adjustments to our previously
reported operating results and substantial effects on future operating results. Historically, we have not experienced
significant disallowed costs as a result of government audits. However, we can provide no assurance that government
audits will not result in material disallowances for incurred costs in the future. In addition, we must also comply with other
government regulations related to employment practices, environmental protection, health and safety, tax, accounting, and
anti-fraud measures, as well as many other regulations in order to maintain our government contractor status. These laws
and regulations affect how we do business with our clients and, in some instances, impose additional costs on our business
operations. Although we take precautions to prevent and deter fraud, misconduct, and non-compliance, we face the risk
that our employees or outside partners may engage in misconduct, fraud, or other improper activities. If a government
audit, review or investigation uncovers improper or illegal activities, we may be subject to civil and criminal penalties and
administrative sanctions, including termination of contracts, repayment of amounts already received under contracts,
forfeiture of profits, suspension of payments, fines and suspension or debarment from doing business with federal and state
and local government agencies and departments, any of which could adversely affect our reputation, our business, results
of operations and financial condition, and/or the value of our stock. We may also lose business if we are found not to be
sufficiently able to meet ongoing cash flow and financial obligations on a timely basis. In addition, we could suffer serious
harm to our reputation and our stock price could decline if allegations of impropriety are made against us, whether true or
not.
27
Table of Contents
Legislation, policy, rules or regulations may be enacted that limit or change the ability of state, regional or local
agencies to contract for our privatized services. Such changes would affect our ability to obtain new contracts and may
decrease the demand for our services.
Legislation is proposed periodically, particularly in the states of New York and California, that attempts to limit
the ability of governmental agencies to contract with private consultants to provide services. Should such changes occur
and be upheld, demand for our services may be materially adversely affected. While attempts at such legislation have failed
in the past, such measures could be adopted in the future.
Changes in energy, environmental, or infrastructure industry laws, regulations, and programs could directly or
indirectly reduce the demand 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, or local laws and
regulations pertaining to the energy, environmental, and infrastructure industries. Accordingly, a relaxation or repeal of
these laws and regulations, or changes in governmental policies regarding the funding, implementation or enforcement of
these programs, could result in a decline in demand for our services, which could in turn negatively impact our revenue.
Corporate responsibility, specifically related to environmental, social and governance (“ESG”) matters, may impose
additional costs and expose us to new risks.
Public ESG and sustainability reporting is becoming more broadly expected by investors, shareholders, and other
stakeholders. Certain organizations that provide corporate governance and other corporate risk information to investors and
shareholders have developed, and others may in the future develop, scores and ratings to evaluate companies and
investment funds based upon ESG or “sustainability” metrics. Many investment funds focus on positive ESG business
practices and sustainability scores when making investments and may consider a company’s ESG or sustainability scores as
a reputational or other factor in making an investment decision. In addition, investors, particularly institutional investors,
use these scores to benchmark companies against their peers and if a company is perceived as lagging, these investors may
engage with such company to improve ESG disclosure or performance and may also make voting decisions, or take other
actions, to hold these companies and their boards of directors accountable. Board diversity is an ESG topic that is, in
particular, receiving heightened attention by investors, shareholders, lawmakers and listing exchanges. Certain states,
including California where we maintain our principal executive offices, have passed laws requiring companies to meet
certain gender and ethnic diversity requirements on their boards of directors. If we are unable to recruit, attract and/or
retain qualified members of our board of directors to maintain compliance with the diversity requirements of this California
mandate within the prescribed timelines, we could be exposed to financial penalties. We may also face reputational damage
in the event our corporate responsibility initiatives or objectives, including with respect to board diversity, do not meet the
standards set by our investors, shareholders, lawmakers, listing exchanges or other constituencies, or if we are unable to
achieve an acceptable ESG or sustainability rating from third party rating services. A low ESG or sustainability rating by a
third-party rating service could also result in the exclusion of our common stock from consideration by certain investors
who may elect to invest with our competition instead. Ongoing focus on corporate responsibility matters by investors and
other parties as described above may impose additional costs or expose us to new risks
General Risk Factors
Our bylaws, our certificate of incorporation and Delaware law contain provisions that could discourage another
company from acquiring us and may prevent attempts by our stockholders to replace or remove our current
management.
Provisions of our bylaws, our certificate of incorporation and Delaware law may discourage, delay or prevent a
merger or acquisition that stockholders may consider favorable, including transactions in which our stockholders might
otherwise receive a premium for their shares. In addition, these provisions may frustrate or prevent any attempts by our
stockholders to replace or remove our current management by making it more difficult for stockholders to replace or
remove our board of directors. These provisions include eliminating the ability of stockholders to call special meetings
28
Table of Contents
of stockholders; requiring at least a supermajority vote of the outstanding shares of our common stock for stockholders to
amend our bylaws or certain provisions of our certificate of incorporation; not providing for cumulative voting in the
election of directors, prohibiting stockholder action by written consent; establishing advance notice procedure for
stockholders to make nominations of candidates for election as directors, or bring other business before an annual or
special meeting of the stockholders; and authorizing the Board of Directors to issue “blank check” preferred stock or
authorized but unissued shares of common stock without stockholder approval.
In addition, we are subject to Section 203 of the Delaware General Corporation Law. In general, subject to some
exceptions, Section 203 prohibits a Delaware corporation from engaging in any business combination with any “interested
stockholder” (which is generally defined as an entity or person who, together with the person’s affiliates and associates,
beneficially owns, or within three years prior to the time of determination of interested stockholder status did own, 15% or
more of the outstanding voting stock of the corporation), for a three-year period following the date that the stockholder
became an interested stockholder. Section 203 could have the effect of delaying, deferring or preventing a change in
control that our stockholders might consider to be in their best interests.
Together, these charter and statutory provisions could make the removal of management more difficult and may
discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our common
stock. The existence of the foregoing provisions and anti-takeover measures could limit the price that investors might be
willing to pay in the future for shares of our common stock. They could also deter potential acquirers of our company,
thereby potentially reducing the likelihood that our stockholders could receive a premium for their common stock in an
acquisition.
Cyber security breaches or other systems and information technology interruption could result in liability, harm our
reputation and impact our ability to operate.
We rely heavily on computer, information, and communications technology and systems to operate. We store and
process increasingly large amounts of confidential information concerning our employees, customers, contractors and
vendors. We must ensure that we are at all times compliant with various privacy laws, rules, and regulations. The risk of
failing to comply with these laws, rules, and regulations increases as we continue to expand. We also rely in part on third-
party software and information technology vendors to run certain parts of our information technology systems. We must
ensure that all of our vendors who have access to our information also have the appropriate privacy policies, procedures
and protections in place.
In the ordinary course of business, we have been targeted by malicious cyber-attacks. Cybersecurity attacks in
particular are evolving, and we face the constant risk of cybersecurity threats, including, among other things, computer
viruses, malicious code, attacks by computer hackers, organized cyber-attacks, and other electronic security breaches that
could lead to disruptions in critical systems, unauthorized release of confidential or otherwise protected information and/or
corruption of data.
If we experience system interruptions and delays from cybersecurity attacks or otherwise, such as from natural
disasters, telecommunications failures, acts of war or terrorism, and similar events or disruptions, it could suspend or stop
our operations, and could have a material adverse effect on our business, results of operations and financial condition, and
could negatively impact our clients. Further, improper disclosure of confidential information of our employees, customers,
contractors and vendors could harm our reputation and subject us to liability.
29
Table of Contents
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our corporate headquarters is located at 2401 East Katella Avenue, Anaheim, California, where we lease
approximately 18,000 square feet of office space. In addition, we lease office space in 49 other locations nationwide,
principally in California and New York, and also have one office in Canada. In total, our facilities contain approximately
259,000 square feet of office space and are subject to leases that expire through 2027. We rent a small portion of this total
space on a month-to-month basis. We believe that our existing facilities are adequate to meet current requirements and that
suitable additional or substitute space will be available as needed to accommodate any expansion of operations and for
additional offices.
ITEM 3. LEGAL PROCEEDINGS
We are subject to claims and lawsuits from time to time, including those alleging professional errors or omissions
that arise in the ordinary course of business against firms that operate in the engineering and consulting professions. We
carry professional liability insurance, subject to certain deductibles and policy limits, for such claims as they arise and may
from time to time establish reserves for litigation that is considered probable of a loss.
In accordance with accounting standards regarding loss contingencies, we accrue an undiscounted liability for
those contingencies where the incurrence of 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 in excess of the amount accrued, if such disclosure is
necessary for our financial statements not to be misleading. We do not accrue liabilities when the likelihood that the
liability has been incurred is probable but the amount cannot be reasonably estimated, or when the liability is believed to be
only reasonably possible or remote.
Because litigation outcomes are inherently unpredictable, our evaluation of legal proceedings often involves a
series of complex assessments by management about future events and can rely heavily on estimates and assumptions. If
the assessments indicate that loss contingencies that could be material to any one of our financial statements are not
probable, but are reasonably possible, or are probable, but cannot be estimated, then we disclose the nature of the loss
contingencies, together with an estimate of the possible loss or a statement that such loss is not reasonably estimable.
While the consequences of certain unresolved proceedings are not presently determinable, and a reasonable estimate of the
probable and reasonably possible loss or range of loss in excess of amounts accrued for such proceedings cannot be made,
an adverse outcome from such proceedings could have a material adverse effect on our earnings in any given reporting
period. However, in the opinion of our management, after consulting with legal counsel, and taking into account insurance
coverage, the ultimate liability related to current outstanding claims and lawsuits is not expected to have a material adverse
effect on our financial statements.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
30
Table of Contents
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY 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”.
Stockholders
As of March 15, 2021, there were 146 stockholders of record of our common stock. This number does not include
persons who hold our common stock in nominee or “street name” accounts through brokers or banks.
Dividends
We did not declare or pay cash dividends on our common stock in fiscal years 2020 or 2019.
We currently expect to retain all available funds and future earnings, if any, for use in the operation and growth of
our business and do not anticipate paying any cash dividends in the foreseeable future. Any future determination to pay
dividends will be at the discretion of our board of directors, subject to compliance with applicable law and any contractual
provisions, including under the Credit Agreement and agreements governing any additional indebtedness we may incur in
the future, that restrict or limit our ability to pay dividends, and will depend upon, among other factors, our results of
operations, financial condition, earnings, capital requirements and other factors that our board of directors deems relevant.
Because we are a holding company, our ability to pay dividends depends on our receipt of cash dividends from our
operating subsidiaries, which may further restrict our ability to pay dividends as a result of the laws of their jurisdiction of
organization, agreements of our subsidiaries or covenants under our existing or future indebtedness.
Performance Graph
The following graph compares the 5-year cumulative total stockholder return of our common stock with the
cumulative total return of the Nasdaq Composite and a customized peer group. The customized peer group consists of:
Ameresco, Inc., Charah Solutions, Inc., Cypress Environmental Partners, L.P., Exponent, Inc., Hill International, Inc.,
Limbach Holdings, Inc., NV5 Global, Inc., RCM Technologies, Inc., and Resources Connection, Inc. The old peer group
consisted of: Ecology & Environment, Inc., Iteris, Inc., NV5 Global, Inc., ICF International, Inc. and Ameresco, Inc.
The peer group investment is weighted by market capitalization as of January 1, 2016 and is adjusted monthly. An
investment of $100, with reinvestment of all dividends, is assumed to have been made in our common stock, in the peer
group and in the Nasdaq Composite on January 1, 2016, and the relative performance of each is tracked through and
31
Table of Contents
including January 1, 2021. The stock price performance shown in the graph is not necessarily indicative of future stock
price performance.
Recent Sales of Unregistered Securities
None.
Issuer Repurchases of Equity Securities
During the three months ended January 1, 2021, we repurchased an aggregate of 2,505 shares of our common
stock at an average price of $26.93 per share from employees to satisfy tax withholding obligations incurred in connection
with the vesting of restricted stock.
32
Table of Contents
ITEM 6. SELECTED FINANCIAL DATA
Reserved.
33
Table of Contents
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Our Company
We are a provider of professional, technical and consulting services to utilities, private industry, and public
agencies at all levels of government. As resources and infrastructures undergo continuous change, we help organizations
and their communities evolve and thrive by providing a wide range of technical services for energy solutions and
government infrastructure. Through engineering, program management, policy advisory, and software and data
management, we design and deliver trusted, comprehensive, innovative, and proven solutions to improve efficiency,
resiliency, and sustainability in energy and infrastructure to our customers.
Our broad portfolio of services operates within two reporting segments: (1) Energy and (2) Engineering and
Consulting. The interfaces and synergies between these segments are important elements of our strategy to design and
deliver trusted, comprehensive, innovative, and proven solutions for our customers.
Our Energy segment provides specialized, innovative, comprehensive energy solutions to businesses, utilities,
state agencies, municipalities, and non-profit organizations in the U.S. Our experienced engineers, consultants, and staff
help our clients realize cost and energy savings by tailoring efficient and cost-effective solutions to assist in optimizing
energy spend. Our energy efficiency services include comprehensive audit and surveys, program design, master planning,
demand reduction, grid optimization, benchmarking analyses, design engineering, construction management, performance
contracting, installation, alternative financing, measurement and verification services, and advances in software and data
analytics.
Our Engineering and Consulting segment provides civil engineering-related construction management, building
and safety, city engineering, city planning, geotechnical, material testing and other engineering consulting services to our
clients. Our engineering services include rail, port, water, mining and other civil engineering projects. We also provide
economic and financial consulting to public agencies along with national preparedness and interoperability services,
communications, and technology solutions. Lastly, we supplement the engineering services that we offer our clients by
offering expertise and support for the various financing techniques public agencies utilize to finance their operations and
infrastructure. We also support the mandated reporting and other requirements associated with these financings. We
provide financial advisory services for municipal securities but do not provide underwriting services.
Impact of Covid-19 on Our Business
On January 30, 2020, the spread of a novel strain of coronavirus (“Covid-19”) was declared a Public Health
Emergency of International Concern by the World Health Organization (“WHO”). On March 11, 2020, WHO characterized
the Covid-19 outbreak as a pandemic. The Covid-19 pandemic has resulted in governmental authorities around the world
implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-
place or total lock-down orders and business limitations and shutdowns (subject to exceptions for certain essential
operations and businesses). Although some of these measures have since been lifted or scaled back, ongoing resurgences of
Covid-19 in the United States has resulted in the reimposition of certain restrictions and may lead to other restrictions
being reimplemented in response to efforts to reduce the spread of Covid-19. The Covid-19 outbreak and restrictions
intended to slow the spread of Covid-19 have caused economic and social disruption on an unprecedented scale. It is
unclear how long these restrictions will remain in place and they may remain in place in some form for an extended period
of time. Given the uncertainties associated with the duration of the pandemic, we cannot reasonably estimate the ultimate
impacts of Covid-19 and efforts to limit its spread on our business, financial condition, results of operations or cash flows
for the foreseeable future or whether our assumptions used to estimate our future liquidity requirements will be correct.
Health and Safety
In response to the Covid-19 pandemic, we have taken and will continue to take temporary precautionary measures
intended to help minimize the risk of Covid-19 to our employees, including requiring the majority of our employees to
work remotely, suspending non-essential travel and restricting in-person work-related meetings. We expect
34
Table of Contents
to continue to implement these measures until we determine that the Covid-19 pandemic is adequately contained for
purposes of our business, and we may take further actions as government authorities require or recommend or as we
determine to be in the best interests of our employees, customers, business partners and third-party service providers.
Financial Position and Results of Operations
The Covid-19 pandemic and efforts to limit its spread negatively impacted our business during our fiscal year
2020. In California and New York, the states in which we have historically derived a majority of our revenue, mandatory
shutdown orders were issued in March 2020. In New York, phased re-openings began in June 2020 and our business in
New York has been improving since and all of our New York utility programs have restarted. In California, phased re-
openings began in May 2020, followed by periods of curtailments as a result of resurgences of Covid-19 cases, and
subsequent re-openings. As a result, the most significant pandemic related impacts to our business are now occurring in
California to our direct install business.
In the Energy segment, we have experienced and expect to continue to experience a negative impact on our direct
install programs that serve small businesses as a result of restrictions put in place by governmental authorities that have
required temporary shutdowns of all “non-essential” businesses. In fiscal year 2019, we derived approximately 40% of our
gross revenue from our direct install programs that serve small businesses, and a significant portion of our direct install
work on these programs was suspended for varying periods of time during fiscal year 2020. With the exception of our
direct install programs in California, phased re-openings have continued to progress since the second quarter of 2020. Our
other programs, which generated approximately 60% of our revenue in fiscal 2019, are either businesses that have been
determined to be “essential” by government authorities or have continued to progress during the pandemic.
In the Engineering and Consulting segment, our revenues have been less affected by Covid-19 than our revenues
in the Energy segment. The services in this segment have generally been deemed “essential” by the government and have
continued to operate while abiding social distancing measures.
As of March 15, 2021, though some of our work has been suspended as a result of the Covid-19 pandemic and
efforts to limit its spread, none of our contracts have been cancelled and proposal activities for new programs have
continued to advance. We estimate that pandemic related slowdowns and work suspensions reduced our fiscal 2020
revenue by approximately 20% from our planned pre-pandemic levels for 2020.
In response to the Covid-19 pandemic and efforts to prevent its spread, we began taking a number of steps during
the first quarter of fiscal 2020 aimed at preserving liquidity and positioning ourselves to resume our growth trajectory after
work restrictions are lifted. These steps include:
● Executing a reduction in workforce, primarily through an unpaid furlough, impacting approximately 300
members of our staff. The largest reductions were a result of government-mandated work restrictions
impacting our direct install programs in California and New York. During our second fiscal quarter,
furloughed employees began to return to work as government authorities began lifting restrictions through
phased re-openings and, by the end of the third fiscal quarter, the majority of our furloughed employees had
returned to work;
● A temporary freeze on all non-critical spending for travel, capital expenditures, and other discretionary
expenses;
● A temporary cash wage reduction for salaried employees, ranging from 0% for lower salary bands up to 75%
for senior management, all of which had been restored by the end of July 2020;
● Suspension of cash fees for our Board of Directors, which was lifted during our third fiscal quarter;
● Implementing a temporary hiring freeze; and
35
Table of Contents
● Amending our credit facility for increased flexibility.
We believe our financial position is sufficiently flexible to enable us to maneuver in the current economic
environment. Throughout our fiscal year 2020, we enhanced liquidity by minimizing working capital and significantly
improving cash collections. In addition, in May 2020, we amended our credit facility to temporarily modify, among other
things, certain covenants to increase our financial flexibility. Combined with availability under our credit facilities, we
believe our enhanced liquidity position provides a cushion against liquidity disruptions.
Asset and liability valuation and other estimates used in preparation of financial statements
As of January 1, 2021, we did not have any impairment with respect to our goodwill or long-lived assets,
including intangible assets. Because the full extent and duration of the impact of the Covid-19 outbreak and efforts to slow
its spread are unknown at this time, they could, under certain circumstances, cause impairment and result in a non-cash
impairment charge being recorded in future periods.
Changes to the estimated future profitability of the business may require that we establish an additional valuation
allowance against all or some portion of our net deferred tax assets.
Impact on Clients and Subcontractors and Other Risks
We primarily work for utilities, municipalities and other public agencies. We expect many governmental and other
public agencies could have significant budget shortfalls for 2020 and potentially beyond as a result of the economic
slowdown from the measures taken to mitigate the Covid-19 pandemic. Although none of our contracts with governmental
or other public agencies were materially modified during our fiscal year 2020, these potential budget deficits could result in
delayed funding for existing contracts with us, postponements of new contracts or price concessions. Further, most of our
clients are not committed to purchase any minimum amount of our services, as our agreements with them are based on a
“purchase order” model. As a result, they may discontinue utilizing some or all of our services with little or no notice.
In addition, we rely on subcontractors and material suppliers to complete a substantial portion of our work,
especially in our Energy segment. If our significant subcontractors and material suppliers suffer significant economic harm
and must limit or cease operations or file for bankruptcy as a result of the current economic slowdown, our subcontractors
and material suppliers may not be able to fulfill their contractual obligations satisfactorily and we may not have the ability
to select our subcontractors and material suppliers of choice for new contracts. If our subcontractors and material suppliers
are not able to fulfill their contractual obligations, it could result in a significant increase in costs for us to complete the
projects or cause significant delays to the realization of revenues under those projects. The ultimate impact of Covid-19 on
our financial condition and results of operations will depend on all of the factors noted above, including other factors that
we may not be able to forecast at this time. See the risk factor “The Covid-19 pandemic and health and safety measures
intended to slow its spread have adversely affected, and may continue to adversely affect, our business, results of
operations and financial condition.” under Part I, Item 1A, “Risk Factors” of this Annual Report on Form 10-K. While
Covid-19 has had, and we expect it to continue to have, an adverse effect on our business, financial condition and results of
operations, we are unable to predict the extent or duration of these impacts at this time.
Recent Developments
During our fourth quarter of fiscal 2020, we signed a total of $781 million in new California Investor Owned
Utility (“IOU”) Contracts. These six contracts are three to five years in duration, and on a weighted average basis,
represent approximately $150 million per year in incremental contract revenue on average over the next three to five years
if we successfully execute the work. The new work is expected to begin slowly and accelerate throughout 2021, with most
of the contribution expected in the back half of the year. We anticipate increased working capital requirements
36
Table of Contents
related to these newly signed $781 million in California Owned Utility Contracts, and thus may seek to modify certain
terms under our bank borrowing facilities to ensure an adequate margin for certain covenant compliance obligations.
Results of Operations
Summary Comparison of 2020, 2019, and 2018
The following table sets forth, for the periods indicated, certain information derived from our consolidated
statements of comprehensive income(1):
Contract revenue
$ 390,980
100.0 %
2020
Fiscal Year
2019
(in thousands, except percentages)
$ 443,099 100.0 %
2018
$
272,252 100.0 %
Direct costs of contract revenue
(inclusive of directly related
depreciation and amortization):
Salaries and wages
Subcontractor services and other direct
costs
Total direct costs of contract revenue
General and administrative expenses:
Salaries and wages, payroll taxes and
employee benefits
Facilities and facility related
Stock-based compensation
Depreciation and amortization
Other
Total general and administrative
expenses
Income from operations
Other income (expense):
Interest expense, net
Other, net
Total other expense, net
Income before income taxes
65,149
16.7
64,485
14.6
46,588
17.1
196,438
261,587
50.2
66.9
243,641
308,126
55.0
69.5
132,693
179,281
48.7
65.9
71,229
10,481
16,113
18,743
29,054
18.2
2.7
4.1
4.8
7.4
145,620
(16,227)
37.2
(4.2)
(5,068)
1,626
(3,442)
(19,669)
(1.3)
0.4
(0.9)
(5.0)
66,303
8,568
12,112
15,027
23,600
125,610
9,363
15.0
1.9
2.7
3.4
5.3
28.3
2.1
(4,900)
193
(4,707)
4,656
(1.1)
0.0
(1.1)
1.1
45,248
5,600
6,262
6,060
17,030
80,200
12,771
16.6
2.1
2.3
2.2
6.3
29.5
4.7
(700)
90
(610)
12,161
(0.3)
0.0
(0.2)
4.5
Income tax expense (benefit)
Net income
(5,173)
$ (14,496)
(1.3)
(3.7)%
$
(185)
4,841
(0.0)
1.1 %
$
2,131
10,030
0.8
3.7 %
(1)
Percentages are expressed as a percentage of contract revenue and may not total due to rounding.
37
Table of Contents
The following tables provides information about disaggregated revenue of the Company’s two segments Energy
and Engineering and Consulting by contract type, client type and geographical region:
Contract Type
Time-and-materials
Unit-based
Fixed price
Total
Client Type
Commercial
Government
Utilities
Total
Geography (1)
Domestic
Contract Type
Time-and-materials
Unit-based
Fixed price
Total
Client Type
Commercial
Government
Utilities
Total
Geography (1)
Domestic
Contract Type
Time-and-materials
Unit-based
Fixed price
Total
Client Type
Commercial
Government
Utilities
Total
Geography (1)
Domestic
Energy
2020
Engineering and
Consulting
(in thousands, except percentage)
Total
47,912
170,991
105,275
324,178
36,212
93,821
194,145
324,178
324,178
$
$
$
$
$
53,840
9,195
3,767
66,802
5,155
61,412
235
66,802
66,802
$
$
$
$
$
101,752
180,186
109,042
390,980
41,367
155,233
194,380
390,980
390,980
Energy
2019
Engineering and
Consulting
(in thousands, except percentage)
Total
18,625
272,978
79,112
370,715
39,311
57,020
274,384
370,715
370,715
$
$
$
$
$
54,560
14,391
3,433
72,384
4,895
67,049
440
72,384
72,384
$
$
$
$
$
73,185
287,369
82,545
443,099
44,206
124,069
274,824
443,099
443,099
Energy
2018
Engineering and
Consulting
(in thousands, except percentage)
Total
13,790
113,749
69,294
196,833
20,715
62,897
113,221
196,833
196,833
$
$
$
$
$
59,744
13,300
2,375
75,419
4,882
70,091
446
75,419
75,419
$
$
$
$
$
73,534
127,049
71,669
272,252
25,597
132,988
113,667
272,252
272,252
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(1)
Revenue from our Canadian operations were not material for fiscal years 2020, 2019, and 2018.
38
Table of Contents
Fiscal Year 2020 Compared to Fiscal Year 2019
Contract revenue. Consolidated contract revenue decreased $52.1 million, or 11.8%, in fiscal year 2020
compared to fiscal year 2019, primarily due to decreased contract revenues from our direct install programs for small
businesses in our Energy segment, partially offset by $31.2 million of incremental contract revenue generated from
government projects and $22.0 million of incremental contract revenue from the acquisitions of Energy and Environmental
Economics, Inc. (“E3, Inc.”) and Onsite Energy Corporation (“Onsite Energy”) on October 28, 2019, and July 2, 2019,
respectively. Contract revenues for our direct install programs for small businesses decreased as a result of the business
suspensions resulting from the Covid-19 pandemic and efforts to limit its spread that started in March 2020, which we
estimate to have reduced our contract revenue by approximately 20% from our planned pre-pandemic levels.
Contract revenue in our Energy segment decreased $46.5 million, or 12.6%, in fiscal year 2020 compared to fiscal
year 2019. Contract revenue for the Energy segment primarily decreased as a result of reduced contract revenues from our
direct install programs for small businesses as a result of the effects of Covid-19 noted above, partially offset by $36.8
million of incremental contract revenue generated from government projects and $22.0 million of incremental contract
revenue from the acquisitions of E3, Inc. and Onsite Energy.
Contract revenue in our Engineering and Consulting segment decreased $5.6 million, or 7.7%, in fiscal year 2020
compared to fiscal year 2019. Contract revenue for the Engineering and Consulting segment decreased primarily due to
decreased subcontractor revenues combined with a $2 million reduction of scope of work related to one of our customers
implemented during the second quarter of 2020. Contract revenue in our Engineering and Consulting segment has been less
affected by Covid-19 than contract revenue in our Energy segment as the services in the Engineering and Consulting
segment have generally been deemed “essential” by the government and continue to operate while abiding social
distancing measures.
Direct costs of contract revenue. Direct costs of consolidated contract revenue decreased $46.5 million, or 15.1%,
in fiscal year 2020 compared to fiscal year 2019. Direct costs of consolidated contract revenue decreased as a result of
decreased contract revenues from our direct install programs for small businesses in our Energy segment, partially offset by
$31.2 million of incremental contract revenue generated from government projects combined with an additional $7.9
million of incremental direct costs of contract revenue related to our acquisitions of E3, Inc. and Onsite Energy.
Direct cost of contract revenue in our Energy segment decreased $41.3 million, or 15.5%, in the fiscal year 2020
compared to the fiscal year 2019, primarily as a result of the decrease in our contract revenues related to direct install
programs for small businesses as described above, which generally use a higher percentage of materials and subcontractor
services than other projects in our Energy segment, partially offset by $36.8 million of incremental contract revenues
related to government projects combined with an incremental $7.9 million in direct costs of contract revenue contributed
from the acquisitions of E3, Inc. and Onsite Energy in the Energy segment. Direct costs of contract revenue for the
Engineering and Consulting segment decreased $5.2 million, or 12.6%, for the fiscal year 2020 compared to fiscal year
2019, primarily due to the reduction of revenues described above.
Subcontractor services and other direct costs decreased $47.2 million and salaries and wages increased by
$0.7 million for the fiscal year 2020 compared to the fiscal year 2019. As a percentage of contract revenue, salaries and
wages increased to 16.7% of contract revenue for the fiscal year 2020 from 14.6% for the fiscal year 2019 and
subcontractor services and other direct costs decreased to 50.2% of contract revenue for the fiscal year 2020 from 55.0% of
contract revenue for the fiscal year 2019. Salaries and wages within direct costs of contract revenue increased as a
percentage of contract revenue primarily as a result of our acquisition of E3, Inc. and Onsite Energy which contain a higher
percentage of labor costs and lower percentage of material costs and installation subcontracting. Subcontractor services and
other direct costs decreased as a percentage of contract revenue primarily as a result of the decrease in contract revenues
from our direct install programs for small businesses, as described above.
General and administrative expenses. General and administrative (“G&A”) expenses increased by $20.0 million,
or 15.9%, in the fiscal year 2020 compared to the fiscal year 2019. The increase in G&A expenses consisted of an increase
of $12.2 million in the Energy segment and an increase of $8.5 million in the unallocated
39
Table of Contents
corporate expenses, partially offset by a decrease of $0.7 million in the Engineering and Consulting segment. The increase
in G&A expenses in the Energy segment was primarily attributed to incremental expenses of $13.0 million from the
addition of E3, Inc. and Onsite Energy, combined with increases in stock-based compensation, intangible asset
amortization, and other corporate general and administrative expenses, partially offset by our cost-saving measures
instituted, as described earlier, in response to Covid-19.
Of the $20.0 million increase in G&A expenses, $4.9 million resulted from an increase in salaries and wages,
payroll taxes and employee benefits, $4.0 million resulted from an increase in stock-based compensation, $3.7 million
resulted from an increase in depreciation and amortization, $1.9 million resulted from an increase in facilities and facility
related expenses, and $5.4 million resulted from an increase in other general and administrative expenses. The increase in
other general and administrative expenses was primarily due to an increase of $6.5 million in the liability for contingent
consideration, partially offset by lower traveling expenses as a result of the measures put in place for Covid-19, combined
with lower acquisition costs and lower professional services. The increase in salaries and wages, payroll taxes and
employee benefits was primarily attributable to the addition of employees from the acquisition of E3, Inc. and Onsite
Energy, partially offset by our actions related to placing a temporary cash wage reduction for salaried employees, as well as
instituting a reduction in workforce, primarily through unpaid furloughs, aimed at preserving liquidity as a result of the
Covid-19 pandemic. During the second half of the three months ended July 3, 2020, furloughed employees began to return
to work as government authorities began loosening restrictions through phased re-openings and, by the end of the third
fiscal quarter, the majority of furloughed employees had returned to work. In addition, as the initial impact of Covid-19
was ascertained and operations were adjusted accordingly, salaries were reinstituted in June 2020 with the exception of
corporate staff, whose salaries were reinstituted at the end of July 2020. The increase in facilities and facility related
expenses was primarily due to the addition of offices in connection with the acquisition of E3, Inc., and Onsite Energy. The
increase in stock-based compensation expenses was primarily related to new stock grants to current employees and
executives. The increase in depreciation and amortization was primarily due to an increase in amortization of intangible
assets derived from the acquisition of E3, Inc., and Onsite Energy.
Income (loss) from operations. Our operating loss was $16.2 million for fiscal year 2020, compared to operating
income of $9.4 million for fiscal year 2019, as a result of the factors noted above. As a percentage of contract revenue,
operating loss was 4.2% for the fiscal year 2020 compared to an operating income of 2.1% for the fiscal year 2019. The
decrease in operating margin was primarily attributable to decreases in contract revenue as a result of Covid-19 combined
with increases in stock-based compensation and intangible asset amortization from the acquisition of E3, Inc. and Onsite
Energy, partially offset by increases in governmental contract revenue.
Total other expense, net. Total other expense, net was $3.4 million for fiscal year 2020 compared to $4.7 million
for fiscal year 2019. The decrease in total other expense, net was primarily the result of the recognition of $0.6 million in
income from an indemnification agreement and higher interest income. Interest expense was relatively flat year over year.
Income tax expense (benefit). We recorded an income tax benefit of $5.2 million for the fiscal year 2020 compared
to a tax benefit of $0.2 million for the fiscal year 2019. The effective tax rate for fiscal year 2020 was (26.3)% as compared
to (4.0)% for fiscal year 2019. The increase in the year-over-year effective tax rate for fiscal year 2020 is primarily
attributable to our loss before income tax, reduced energy efficient commercial building deductions and increased
nondeductible compensation recognized in 2020.
Net income (loss). As a result of the above factors, our net loss was $14.5 million for the fiscal year ended 2020,
as compared to a net income of $4.8 million for the fiscal year 2019.
Fiscal Year 2019 Compared to Fiscal Year 2018
Contract revenue. Consolidated contract revenue increased $170.8 million, or 62.4%, in fiscal year 2019
compared to fiscal year 2018, primarily as a result of a full year of contract revenue related to our acquisition of Lime
Energy Co. (“Lime Energy”) in October 1, 2018, compared to a partial year of such revenues in the prior year, and
increases in contract revenue related to our acquisitions of E3, Inc., Onsite Energy, and the Weidt Group during fiscal year
2019. This increase was partially offset by a decrease in contract revenue in the Engineering and Consulting segment due
to normal fluctuations in the level of services provided.
40
Table of Contents
Contract revenue in our Energy segment increased $173.9 million, or 88.0%, in fiscal year 2019 compared to
fiscal year 2018. Contract revenue in our Engineering and Consulting segment decreased $3.0 million, or 4.0%, in fiscal
year 2019 compared to fiscal year 2018. Contract revenue for the Energy segment increased as a result of the reasons
mentioned above as Lime Energy, E3 Inc., Onsite Energy, and the Weidt Group are included in our Energy segment.
Contract revenue for the Engineering and Consulting segment decreased primarily as a result of lower subcontracted
revenue during fiscal year 2019.
Direct costs of contract revenue. Direct costs of consolidated contract revenue increased $128.8 million, or
71.4%, in fiscal year 2019 compared to fiscal year 2018, primarily as a result of a full year of direct costs of contract
revenue related to Lime Energy, compared to a partial year of such costs in the prior year, and an increase in direct costs of
contract revenues related to our acquisitions of E3, Inc., Onsite Energy, and the Weidt Group during fiscal year 2019.
Direct cost of contract revenue in our Energy segment increased $129.4 million, or 94.7%, to $266.0 million for
fiscal year 2019 from $136.6 million for fiscal year 2018 as a result of the acquisitions in the Energy segment mentioned
above which collectively contributed $132.3 million in direct costs of contract revenue in fiscal year 2019. Direct costs of
contract revenue for the Engineering and Consulting segment decreased $1.3 million, or 3.0%, to $41.4 million for fiscal
year 2019 from $42.7 million for fiscal year 2018 in conjunction with the decrease in revenue in this segment.
Subcontractor services and other direct costs increased by $110.2 million and salaries and wages increased by
$17.9 million compared to the prior year. Within direct costs of contract revenue, salaries and wages decreased to 14.6% of
contract revenue for fiscal year 2019 from 17.1% for fiscal year 2018. Subcontractor services and other direct costs
increased to 55.0% of contract revenue for fiscal year 2019 from 48.7% of contract revenue for fiscal year 2018. Salaries
and wages within direct costs of contract revenue decreased as a percentage of contract revenue and subcontractor services
increased as a percentage of contract revenue, primarily as a result of increased mix of revenues derived from the Lime
acquisition which contain a higher percentage of material costs and installation subcontracting and a lower percentage of
labor costs compared to the previous year.
General and administrative expenses. General and administrative (“G&A”) expenses increased by $45.4 million,
or 56.6%, to $125.6 million for fiscal year 2019 from $80.2 million for fiscal year 2018. The increase in G&A expenses
consisted of an increase of $43.3 million in the Energy segment and an increase of $2.4 million in the unallocated corporate
expenses, partially offset by a decrease of $3.0 million in the Engineering and Consulting segment. The increase in G&A
expenses in the Energy segment was primarily attributed of a full year of G&A expenses related to our acquisition of Lime
Energy, compared to a partial year of such expenses in the prior year, and an increase in G&A expenses related to our
acquisitions of E3, Inc., Onsite Energy, and The Weidt Group during fiscal year 2019, which collectively contributed $40.9
million in G&A expenses in fiscal year 2019. The increase in our unallocated corporate expenses is primarily attributable
to increased acquisition-related costs related to E3, Inc., Onsite Energy, and the Weidt Group. The decrease in G&A
expenses in the Engineering and Consulting segment was primarily attributed to lower contract revenues in that segment as
described above.
Of the $42.7 million increase in G&A expenses, $18.3 million resulted from an increase in salaries and wages,
payroll taxes and employee benefits, $5.9 million resulted from an increase in stock-based compensation, $9.0 million
resulted from an increase in depreciation and amortization, $6.7 million resulted from an increase in other general and
administrative expenses and $3.0 million resulted from an increase in facilities and facility related expenses. The increase
in salaries and wages, payroll taxes and employee benefits was primarily attributable to the addition of employees from the
acquisitions of Lime Energy, The Weidt Group, Onsite Energy, and E3, Inc. The increase in facilities and facility related
expenses was primarily due to the addition of offices in connection with our fiscal year 2019 acquisitions. The increase in
stock-based compensation expenses was primarily related to an increase in stock grants to current employees and
executives. The increase in depreciation and amortization was primarily due to an increase in amortization of intangible
assets derived from the acquisitions of Lime Energy, The Weidt Group, Onsite Energy, and E3, Inc. The increase in other
general and administrative expenses was primarily due to acquisition costs related to the acquisition of the Weidt Group,
Onsite Energy, and E3, Inc.
Income from operations. Our operating income decreased by $0.8 million, or 6.3% as a result of the factors noted
above. As a percentage of contract revenue, operating income decreased to 2.7% in fiscal year 2019 compared to
41
Table of Contents
4.7% in fiscal year 2018. This decrease was primarily attributable to higher direct costs of contract revenue, as a percentage
of revenue, partially offset by lower G&A expenses, as a percentage of contract revenue.
Total other expense, net. Total other expense, net, increased to $4.7 million for fiscal year 2019 as compared
$610,000 for fiscal year 2018. This increase in total other expense, net is primarily the result of higher interest expense
during fiscal year 2019 as a result of borrowings under our credit facilities related to our acquisitions of Lime Energy, the
Weidt Group, Onsite Energy, and E3, Inc.
Income tax (benefit) expense. We recorded an income tax benefit of $0.2 million for fiscal year 2019, as
compared to $2.1 million expense for fiscal year 2018. The effective tax rate for fiscal year 2019 was (4.0)%, as compared
to 17.5% for fiscal year 2018. The decrease in the year-over-year effective tax rate for fiscal year 2019 and the difference
between the tax expense recorded and the expense that would be recorded by applying the federal statutory rate was
primarily attributable to increased deductions for stock options, increased research and development credits, and the impact
of the energy efficient commercial building deductions recognized in 2019.
Net income. As a result of the above factors, our net income was $4.8 million for fiscal year 2019, as compared to
net income of $10.0 million for fiscal year 2018.
Liquidity and Capital Resources
Net Cash Provided by (used in):
Operating activities
Investing activities
Financing activities
Net increase (decrease) in cash and cash equivalents
2020
Fiscal Year
2019
(in thousands)
2018
$
$
47,025
(5,059)
(19,013)
22,953
$
$
11,621
(78,348)
56,920
(9,807)
$
$
7,568
(126,390)
119,657
835
We believe that our cash and cash equivalents on hand, cash generated by operating activities and available
borrowings under our revolving credit facility will be sufficient to finance our operating activities for at least the next 12
months. However, as a result of forecasted increased working capital requirements related to our newly signed $781
million in California Owned Utility Contracts, we may seek to modify certain terms under our bank borrowing facilities to
ensure an adequate margin for certain covenant compliance obligations. As of January 1, 2021, we had $28.4 million of
cash and cash equivalents. Our cash increased by $22.9 million since December 27, 2019. We generated cash flow from
operations of $47.0 million during fiscal year 2020, partially offset by net cash used for capital expenditures. Our primary
source of liquidity is cash generated from operations. In addition, as of January 1, 2021, we had $85.0 million outstanding
in Term A Loan, a $50.0 million Revolving Credit Facility with no amounts outstanding and $2.7 million in letters of credit
issued, and a $50.0 million Delayed Draw Term Loan with $27.0 million outstanding, each scheduled to mature on June
26, 2024. However, as described in Part II, Item 8, Note 5, “Debt Obligations”, of the Notes to Consolidated Financial
Statements included in this quarterly report on Form 10-Q, we are not able to access additional borrowings under the
Delayed Draw Term Loan during our Covenant Relief Period.
Cash Flows from Operating Activities
Cash flows provided by operating activities were $47.0 million for fiscal year 2020, as compared to $11.6 million
and $7.6 million for fiscal years 2019 and 2018, respectively. Cash flow from operating activities primarily consists of net
income, adjusted for non-cash charges, such as depreciation and amortization and stock-based compensation, plus or minus
changes in operating assets and liabilities. Changes in cash flows provided by operating activities for fiscal year 2020
resulted primarily due to improvements in cash collections, reductions in working capital requirements as a result of the
reduction of revenues from the suspension of our small business energy programs, and incremental operating cash flow
from our acquisitions of E3, Inc. and Onsite Energy. Cash flows provided by operating activities for fiscal year 2019
resulted primarily as a result of our fiscal year 2019 acquisitions, combined with a decrease in accounts receivable and an
increase in accrued liabilities, partially offset by an increase in contract assets. Cash flows
42
Table of Contents
provided by operating activities for fiscal year 2018 resulted primarily from our net income, as adjusted for non-cash
activity such as depreciation and amortization and stock-based compensation and collections of accounts receivable,
partially offset by increases in contract assets combined with decreases in accrued liabilities and accounts payable.
Cash Flows used in Investing Activities
Cash flows used in investing activities were $5.0 million for fiscal year 2020, as compared to $78.3 million and
$126.4 million for fiscal years 2019 and 2018, respectively. Cash flows used in investing activities for fiscal year 2020
were primarily due to cash paid for the purchase of equipment, the enhancement of internal operating software, and
leasehold improvements. Cash flows used in investing activities for fiscal year 2019 were primarily due to cash paid for the
acquisitions of The Weidt Group, Onsite Energy, and E3, Inc. Cash flows used in investing activities for fiscal year 2018
were primarily due to cash paid for the acquisition of Lime Energy.
Cash Flows used in Financing Activities
Cash flows used in financing activities were $19.0 million for fiscal year 2020, as compared to cash flows
provided by financing activities of $56.9 million and $119.7 million for fiscal years 2019 and 2018, respectively. Cash
flows used in financing activities for fiscal year 2020 were primarily attributable to repayments of $42.0 million under our
term loan facility and revolving line of credit, a payment of $2.9 million in employee payroll taxes related to the vesting of
performance-based restricted stock units, and payments of $1.4 million for contingent consideration related to prior
acquisitions, partially offset by $24.0 million of borrowings under our revolving line of credit. Cash flows provided by
financing activities for fiscal year 2019 were primarily attributable to borrowings under our credit facilities related to our
acquisitions of The Weidt Group, Onsite Energy, and E3, Inc. Cash flows provided by financing activities for fiscal year
2018 were primarily attributable to borrowings under our Delayed Draw Term Loan Facility and the net proceeds from our
equity offering, each related to our acquisition of Lime Energy.
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 to enter into futures or forward contracts. Finally, we do not have any majority-
owned subsidiaries or any interests in, or relationships with, any special-purpose entities that are not included in the
consolidated financial statements. We have, however, an administrative services agreement with Genesys in which we
provide Genesys with ongoing administrative, operational and other non-professional support services. We manage
Genesys and have the power to direct the activities that most significantly impact Genesys’ performance, in addition to
being obligated to absorb expected losses from Genesys. Accordingly, we are the primary beneficiary of Genesys and
consolidate Genesys as a variable interest entity.
Short and Long-term Liquidity
Contractual Obligations
The following table sets forth our known contractual obligations as of January 1, 2021:
Contractual Obligations
Long term debt (1)
Interest payments on debt outstanding (2)
Operating leases
Finance leases
Total contractual cash obligations
Total
$ 113,174
9,473
23,634
503
$ 146,784
43
Less than
1 Year
3 - 5 Years
More than
5 Years
1 - 3 Years
( in thousands)
$ 25,469
4,776
10,602
239
$ 41,086
$ 14,996
3,733
5,844
248
$ 24,822
$ 72,709
964
4,699
16
$ 78,389
$
$
—
—
2,489
—
2,489
Table of Contents
(1) Long-term debt includes $85.0 million outstanding on our Term A Loan, no amounts outstanding on our Revolving Credit Facility,
and $27.0 million outstanding on our Delayed Draw Term Loan as of January 1, 2021. We have assumed no future borrowings or
repayments (other than at maturity) for purposes of this table.
(2) Borrowings under our Delayed Draw Term Loan bear interest at a variable rate. Future interest payments on our Delayed Draw
Term Loan Facility are estimated using floating rates in effect as of January 1, 2021.
We are obligated to pay earn-out payments in connection with our 2019 and 2017 acquisitions of E3, Inc. and
Integral Analytics, respectively. We are obligated to pay up to (i) $12.0 million in cash if E3, Inc. exceeds certain financial
targets during the three years after the E3, Inc. closing date, and (ii) $12.0 million in cash based on future work obtained
from the business of Integral Analytics during the four years after the closing of the acquisition, payable in installments, if
certain financial targets are met during the four years. As of January 1, 2021, we had contingent consideration payable of
$15.3 million related to these acquisitions. For fiscal 2020, our statement of operations includes $7.7 million of accretion
(excluding fair value adjustments) related to the contingent consideration.
Outstanding Indebtedness
See part II, Item 8, Note 5, “Debt Obligations”, of the Notes to consolidated financial statements included in this
Annual Report on Form 10-K for information regarding our indebtedness, including information about new borrowings and
repayments, principal repayment terms, interest rates, covenants, and other key terms of our outstanding indebtedness.
Insurance Premiums
We have also financed, from time to time, insurance premiums by entering into unsecured notes payable with
insurance companies. See part II, Item 8, Note 5, “Debt Obligations”, of the Notes to Consolidated Financial Statements
included in this Annual Report on Form 10-K for information regarding our financing arrangements related to our
insurance premiums including principal repayment terms, interest rates, and other related key terms.
Interest Rate Swap
We have entered into an interest rate swap agreement to moderate our exposure to fluctuations in interest rates
underlying our variable rate debt. For more information, see Part II, Item 7A, “Quantitative and Qualitative Disclosures
About Market Risk”, and Note 4, “Derivatives”, to the Notes of Consolidated Financial Statements included in this Annual
Report on Form 10-K.
Impact of Inflation
Due to the average duration of our projects and our ability to negotiate prices as contracts end and new contracts begin,
we believe our operations have not been, and, in the foreseeable future, are not expected to be, materially impacted by
inflation.
Components of Revenue and Expense
Contract Revenue
We generally provide our services under contracts, purchase orders or retainer letters. The agreements we enter
into with our clients typically incorporate one of three principal types of pricing provisions: time-and-materials, unit-based,
and fixed price. Revenue on our time-and-materials and unit-based contracts are recognized as the work is performed in
accordance with specific terms of the contract. As of January 1, 2021, approximately 26% of our contracts are time-and-
materials contracts and approximately 46% of our contracts are unit-based contracts, compared to approximately 17% for
time-and-materials contracts and approximately 65% for unit-based contracts as of December 27, 2019. The shifts in
percentages are attributable to the impact resulting from the Covid-19 pandemic and efforts to limit its spread that started in
March 2020 which resulted in decreases in our direct install programs for small businesses.
44
Table of Contents
Some of these contracts include maximum contract prices, but contract maximums are often adjusted to reflect the
level of effort to achieve client objectives and thus the majority of these contracts are not expected to exceed the maximum.
Contract revenue on our fixed price contracts is determined 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 involve
a high degree of subcontracted fixed price effort and are relatively short in duration, thereby lowering the risks of not
properly estimating the percent complete.
Adjustments to contract cost estimates are made in the periods in which the facts requiring such revisions become
known. When the revised estimate indicates a loss, such loss is recognized in the current period in its entirety. Claims and
change orders that have not been finalized are evaluated to determine whether or not a change has occurred in the
enforceable rights and obligations of the original contract. If these non-finalized changes qualify as a contract modification,
a determination is made whether to account for the change in contract value as a modification to the existing contract, or a
separate contract and revenue under the claims or change orders is recognized accordingly. Costs related to un-priced
change orders are expensed when incurred, and recognition of the related revenue is based on the assessment above of
whether or not a contract modification has occurred. Estimated profit for un-priced change orders is recognized only if
collection 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 that contract. In addition, during the term of a contract, public agencies may request
additional or revised services which may impact the economics of the transaction. Most of our contracts permit our clients,
with prior notice, to terminate the contracts at any time without cause. While we have a large volume of contracts, the
renewal, termination or modification of a contract, in particular contracts with Consolidated Edison, the City of Elk Grove,
DASNY, and utility programs associated with Los Angeles Department of Water and Power and Duke Energy Corp., may
have a material effect on our consolidated operations.
Some of our contracts include certain performance guarantees, such as a guaranteed energy saving quantity. Such
guarantees are generally measured upon completion of a project. In the event that the measured performance level is less
than the guaranteed level, any resulting financial penalty, including any additional work that may be required to fulfill the
guarantee, is estimated and charged to direct expenses in the current period. We have not experienced any significant costs
under such guarantees.
Direct Costs of Contract Revenue
Direct costs of contract revenue consist primarily of that portion of salaries and wages that have been incurred in
connection with revenue producing projects. Direct costs of contract revenue also include material costs, subcontractor
services, equipment and other expenses that are incurred in connection with revenue producing projects. Direct costs of
contract revenue exclude that portion of salaries and wages related to marketing efforts, vacations, holidays and 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 of our personnel are included in general
and administrative expenses since no allocation of these costs is made to direct costs of contract revenue.
Other companies may classify as direct costs of contract revenue some of the costs that we classify as general and
administrative costs. We expense direct costs of contract revenue when incurred.
General and Administrative Expenses
G&A expenses include the costs of the marketing and support staffs, other marketing expenses, management and
administrative personnel costs, payroll taxes, bonuses and employee benefits for all of our employees and the portion of
salaries and wages not allocated to direct costs of contract revenue for those employees who provide our services. G&A
expenses also include facility costs, depreciation and amortization, professional services, legal and accounting fees and
administrative operating costs. Within G&A expenses, “Other” includes expenses such as professional services, legal and
accounting, computer costs, travel and entertainment, marketing costs and acquisition costs. We expense general and
administrative costs when incurred.
45
Table of Contents
Critical Accounting Policies
This discussion and analysis of financial condition and results of operations is based upon our consolidated
financial statements, which have been prepared in accordance with generally accepted accounting principles in the U.S.
(“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 reported amount of
revenue and expenses in the reporting period. Our actual results may differ from these estimates. We have provided a
summary of our significant accounting policies in Part II, Item 8, Note 1, Organization and Operations of the Company, of
the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K. We describe below those
accounting policies that require material subjective or complex judgments and that have the most significant impact on our
financial condition and results of operations. Our management evaluates these estimates on an ongoing basis, based upon
information currently available and on various assumptions management believes are reasonable as of the date of this
report.
Contract Assets and Liabilities
Billing practices are governed by the contract terms of each project based upon costs incurred, achievement of
milestones or pre-agreed schedules. Billings in any given fiscal period do not necessarily correlate with revenue recognized
for that period. Contract assets include unbilled amounts typically resulting from revenue under contracts where the
percentage-of-completion method of revenue recognition is utilized and revenue recognized exceeds the amount billed to
the customer and right to repayment is not unconditional. Contract assets also include retainage amounts withheld from
billings to our clients pursuant to provisions in our contracts and other revenues earned but not billed in the current period.
Contract liabilities consist of advance payments and billings in excess of revenue recognized and deferred revenue.
Contract Accounting
We enter into contracts with our clients that contain various types of pricing provisions, including fixed price,
time-and-materials, and unit-based provisions. We recognize revenues in accordance with ASU 2014-09, Revenue from
Contracts with Customer, codified as ASC Topic 606 and the related amendments (collectively, “ASC 606”). As such, we
identify a contract with a customer, identify the performance obligations in the contract, determine the transaction price,
allocate the transaction price to each performance obligation in the contract and recognize revenue when (or as) we satisfy
a performance obligation.
The following table reflects our two reportable segments and the types of contracts that each most commonly
enters into for revenue generating activities.
Segment
Energy
Engineering and Consulting
Contract Type
Time-and-materials
Unit-based
Software license
Fixed price
Time-and-materials
Unit-based
Fixed price
Revenue Recognition Method
Time-and-materials
Unit-based
Unit-based
Percentage-of-completion
Time-and-materials
Unit-based
Percentage-of-completion
Revenue on the vast majority of our contracts will continue to be recognized over time because of the continuous
transfer of control to the customer. Revenue on fixed price contracts is recognized on the percentage-of-completion method
based generally on the ratio of direct costs incurred-to-date to estimated total direct costs at completion. We use the
percentage-of-completion method to better match the level of work performed at a certain point in time in relation to our
effort that will be required to complete a project. In addition, the percentage-of-completion method is a common method of
revenue recognition in our industry.
46
Table of Contents
Many of our fixed price contracts involve a high degree of subcontracted fixed price effort and are relatively short
in duration, thereby lowering the risks of not properly estimating the percent complete. Revenue on time-and-materials and
unit-based contracts is recognized as the work is performed in accordance with the specific rates and terms of the contract.
We recognize revenues for time-and-materials contracts based upon the actual hours incurred during a reporting period at
contractually agreed upon rates per hour and also include in revenue all reimbursable costs incurred during a reporting
period. Certain of our time-and-materials contracts are subject to maximum contract values and, accordingly, when revenue
is expected to exceed the maximum contract value, these contracts are generally recognized under the percentage-of-
completion method, consistent with fixed price contracts. For unit-based contracts, we recognize the contract price of units
of a basic production product as revenue when the production product is delivered during a period. Revenue recognition for
software licenses issued by the Energy segment is generally recognized utilizing the unit-based revenue recognition method
at a point in time, upon acceptance of the software by the customer and in recognition of the fulfillment of the performance
obligation. Certain additional performance obligations beyond the base software license may be separated from the gross
license fee and recognized on a straight-line basis over time. Revenue for amounts that have been billed but not earned is
deferred and such deferred revenue is referred to as contract liabilities in the accompanying condensed consolidated
balance sheets.
To determine the proper revenue recognition method for contracts, we evaluate whether two or more contracts
should be combined and accounted for as one single contract and whether the combined contract should be accounted for
as one performance obligation. With respect to our contracts, it is rare that multiple contracts should be combined into a
single performance obligation. This evaluation requires significant judgment and the decision to combine a group of
contracts or separate a single contract into multiple performance obligations could change the amount of revenue and profit
recorded in a given period. Contracts are considered to have a single performance obligation if the promise to transfer the
individual goods or services is not separately identifiable from other promises in the contracts, which is mainly because we
provide a significant service of integrating a complex set of tasks and components into a single project or capability.
We may enter into contracts that include separate phases or elements. If each phase or element is negotiated
separately based on the technical resources required and/or the supply and demand for the services being provided, we
evaluate if the contracts should be segmented. If certain criteria are met, the contracts would be segmented which could
result in revenues being assigned to the different elements or phases with different rates of profitability based on the
relative value of each element or phase to the estimated total contract revenue. Segmented contracts may comprise up to
approximately 2.0% to 3.0% of our consolidated contract revenue.
Contracts that cover multiple phases or elements of the project or service lifecycle (development, design,
construction and maintenance and support) may be considered to have multiple performance obligations even when they
are part of a single contract. For contracts with multiple performance obligations, we allocate the transaction price to each
performance obligation using the best estimate of the standalone selling price of each distinct good or service in the
contract. For the periods presented, the value of the separate performance obligations under contracts with multiple
performance obligations (generally measurement and verification tasks under certain energy performance contracts) were
not material. In cases where we do not provide the distinct good or service on a standalone basis, the primary method used
to estimate standalone selling price is the expected cost plus a margin approach, under which we forecast our expected
costs of satisfying a performance obligation and then adds an appropriate margin for the distinct good or service.
We provide quality of workmanship warranties to customers that are included in the sale and are not priced or sold
separately or do not provide customers with a service in addition to assurance of compliance with agreed-upon
specifications and industry standards. We do not consider these types of warranties to be separate performance obligations.
In some cases, we have a master service or blanket agreement with a customer under which each task order
releases us to perform specific portions of the overall scope in the service contract. Each task order is typically accounted
for as a separate contract because the task order establishes the enforceable rights and obligations, and payment terms.
47
Table of Contents
Under ASC 606, variable consideration should be considered when determining the transaction price and
estimates should be made for the variable consideration component of the transaction price, as well as assessing whether an
estimate of variable consideration is constrained. For certain of our contracts, variable consideration can arise from
modifications to the scope of services resulting from unapproved change orders or customer claims. Variable consideration
is included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized
will not occur when the uncertainty associated with the variable consideration is resolved. Our estimates of variable
consideration and determination of whether to include estimated amounts in the transaction price are based largely on
assessments of legal enforceability, our performance, and all information (historical, current and forecasted) that is
reasonably available to us.
Due to the nature of the work required to be performed on many of our performance obligations, the estimation of
total revenue and cost at completion is complex, subject to many variables and requires significant judgment. As a
significant change in one or more of these estimates could affect the profitability of our contracts, we review and update
our contract-related estimates regularly through a company-wide disciplined project review process in which management
reviews the progress and execution of our performance obligations and the estimate at completion (“EAC”). As part of this
process, management reviews information including, but not limited to, any outstanding key contract matters, progress
towards completion and the related program schedule and the related changes in estimates of revenues and costs.
Management must make assumptions and estimates regarding labor productivity and availability, the complexity of the
work to be performed, the cost and availability of materials, the performance of subcontractors, and the availability and
timing of funding from the customer, among other variables.
We recognize adjustments in estimated profit on contracts under the cumulative catch-up method. Under this
method, the impact of the adjustment on profit recorded to date is recognized in the period the adjustment is identified.
Revenue and profit in future periods of contract performance is recognized using the adjusted estimate. If at any time the
estimate of contract profitability indicates an anticipated loss on the contract, we recognize the total loss in the period it is
identified.
Contracts are often modified to account for changes in contract specifications and requirements. We consider
contract modifications to exist when the modification either creates new rights or obligations or changes the existing
enforceable rights or obligations. Most of our contract modifications are for goods or services that are not distinct from
existing contracts due to the significant integration provided in the context of the contract and are accounted for as if they
were part of the original contract. The effect of a contract modification that is not distinct from the existing contract on the
transaction price and our measure of progress for the performance obligation to which it relates is recognized as an
adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis.
For contract modifications that result in the promise to deliver goods or services that are distinct from the existing
contract and the increase in price of the contract is for the same amount as the standalone selling price of the additional
goods or services included in the modification, we account for such contract modifications as a separate contract.
We include claims to vendors, subcontractors and others as a receivable and a reduction in recognized costs when
enforceability of the claim is established by the contract and the amounts are reasonably estimable and probable of being
recovered. The amounts are recorded up to the extent of the lesser of the amounts management expects to recover or to
costs incurred.
Billing practices are governed by the contract terms of each project based upon costs incurred, achievement of
milestones or pre-agreed schedules. Billings do not necessarily correlate with revenue recognized using the percentage-of-
completion method of revenue recognition.
Accounts receivable are carried at original invoice amount less an estimate made for doubtful accounts based
upon our review of all outstanding amounts on a quarterly basis. Management determines allowances for doubtful accounts
through specific identification of amounts considered to be uncollectible and potential write-offs, plus a non-specific
allowance for other amounts for which some potential loss has been determined to be probable based on current and past
experience. Historical credit losses have been minimal with governmental entities and large public utilities, but
48
Table of Contents
disputes may arise related to these receivable amounts. Accounts receivable are written off when deemed uncollectible.
Recoveries of accounts receivable previously written off are recorded when received.
In addition to the above, we derive revenue from software licenses and professional services and maintenance
fees. In accordance with ASC 606, we perform an assessment of each contract to identify the performance obligations,
determine the overall transaction price for the contract, allocate the transaction price to the performance obligations, and
recognize the revenue when the performance obligations are satisfied.
We utilize the residual approach by which we estimate the standalone selling price by reference to the total
transaction price less the sum of the observable standalone selling prices of other goods or services promised in the
contract. The software license revenue is typically recognized at a point in time when control is transferred to the client,
which is defined as the point in time when the client can use and benefit from the license. The software license is delivered
before related services are provided and is functional without services, updates, or technical support. Related professional
services include training and support services in which the standalone selling price is determined based on an input
measure of hours incurred to total estimated hours and is recognized over time, usually which is the life of the contract.
For further information on the types of contracts under which we perform our services, see Part II, Item 8, Note 1,
Organization and Operations of the Company, of the Notes to consolidated financial statements included in this Annual
Report on Form 10-K.
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 our fourth fiscal quarter each year to determine whether there is impairment. In addition to
our annual test, we regularly evaluate whether events and circumstances have occurred that may indicate a potential
impairment of goodwill. We did not recognize any goodwill impairment charges in fiscal years 2020, 2019, or 2018.
We test our goodwill for impairment at the level of our reporting units, which are components of our operating
segments. In January 2017, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update
(“ASU”) Update No. 2017-04 (“ASU 2017-04”), Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for
Impairment. This accounting guidance eliminates the requirement to compare the implied fair value of reporting unit
goodwill with the carrying amount of that goodwill (commonly referred to as Step 2) from the goodwill impairment test.
The new standard does not change how a goodwill impairment is identified. We will continue to perform our quantitative
and qualitative goodwill impairment test by comparing the fair value of each reporting unit to its carrying amount, but if
we are required to recognize a goodwill impairment charge, under the new standard the amount of the charge will be
calculated by subtracting the reporting unit’s fair value from its carrying amount. Under the prior standard, if we were
required to recognize a goodwill impairment charge, Step 2 required us to calculate the implied value of goodwill by
assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a
business combination and the amount of the charge was calculated by subtracting the reporting unit’s implied fair value of
goodwill from its actual goodwill balance.
To estimate the fair value of our reporting units, we use both an income approach based on management’s
estimates of future cash flows and other market data and a market approach based upon multiples of earnings before
interest, taxes, depreciation and amortization, or EBITDA, earned by similar 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 the reporting unit is determined to be less than the carrying value, we perform an additional assessment to determine the
extent of the impairment based on the implied 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 than the 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
49
Table of Contents
current economic indicators and market valuations. To the extent these assumptions are incorrect or economic conditions
that would impact the future operations of our reporting units change, any goodwill may be deemed to be impaired, and an
impairment charge could have in a material impact on our financial position or results of operation. Almost all of our
goodwill is contained in our Energy segment, with the remainder in our Engineering and Consulting segment. At our
measurement date, the estimated fair value of our Energy segment exceeded its carrying value. Any reduction in the
estimated fair value of our Energy segment could result in an impairment charge of goodwill associated with this segment
in future periods.
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. For reporting periods prior to the
completion of our procedures to value assets and liabilities, the acquisition method requires us 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) based upon new information about facts that existed on the
business combination date.
Under the acquisition method of accounting, we recognize separately from goodwill the identifiable assets
acquired, the liabilities assumed, and any non-controlling interests in an acquiree, at the acquisition date fair value. We
measure goodwill as of the acquisition date as the excess of consideration transferred over the net of the acquisition date
amounts of the identifiable assets acquired and liabilities assumed. Costs that we incur to complete the business
combination such as investment banking, legal and other professional fees are not considered part of consideration. We
charge these acquisition costs to other general and administrative 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, we report provisional amounts in our financial statements. During the measurement period,
we adjust the provisional amounts recognized at the acquisition date to reflect new information obtained about facts and
circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts
recognized as of that date and we record those adjustments to our financial statements. We recognize adjustments to
provisional amounts that are identified during the measurement period in the reporting period in which the adjustment
amounts are determined, including the effect on earnings of changes in depreciation, amortization or other income effects,
if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the
acquisition date. For further discussion of our acquisitions, see Part II, Item 8, Note 13, “Business Combinations” of the
Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
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 of temporary differences between the financial reporting basis and tax basis of
our assets and liabilities, subject to a judgmental assessment of the recoverability of deferred tax assets. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded when it
is more-likely-than-not that some of the deferred tax assets may not be realized. Significant judgment is applied when
assessing the need for valuation allowances and includes the evaluation of historical income (loss) adjusted for the effects
of non-recurring items and the impact of recent business combinations. Areas of estimation include our consideration of
future taxable income which is driven by verifiable signed contracts and ongoing prudent and feasible tax planning
strategies. Should a change in circumstances lead to a change in judgment about the utilization of deferred tax assets in
future years, we would adjust the related valuation allowances in the period that the change in circumstances occurs, along
with a corresponding increase or charge to income.
For acquired business entities, if we identify changes to acquired deferred tax asset valuation allowances or
liabilities related to uncertain tax positions during the measurement period and they relate to new information obtained
about facts and circumstances that existed as of the acquisition date, those changes are considered a measurement period
50
Table of Contents
adjustment and we record the offset to goodwill. We record all other changes to deferred tax asset valuation allowances and
liabilities related to uncertain tax positions in current period income tax expense.
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 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. We recognize
interest and penalties related to unrecognized tax benefits in income tax expense.
For further discussion of our income taxes, see Part II, Item 8, Note 11, “Income Taxes” of the Notes to
Consolidated Financial Statements included in this Annual Report on Form 10-K.
Recent Accounting Standards
For a description of recently issued and adopted accounting pronouncements, including adoption dates and
expected effects on our results of operations and financial condition, see Part II, Item 8, Note 2, “Recent Accounting
Pronouncements”, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate 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 market changes. Market risk is attributed to all market risk
sensitive financial instruments, including long-term debt.
As of January 1, 2021, we had cash and cash equivalents of $28.4 million. This amount represents cash on hand in
business checking accounts with BMO Harris Bank, N.A.
We do not engage in trading activities and do not participate in foreign currency transactions.
We are subject to interest rate risk in connection with our Term A Loan and borrowings, if any, under our
revolving credit facility and delayed draw term loan, each of which bears interest at variable rates. As of January 1, 2021,
$85.0 million was outstanding under our Term A Loan, $27.0 million was outstanding under our delayed draw term loan,
no borrowed amounts were outstanding and $2.7 million in letters of credit were issued under the revolving credit facility.
Each of our Term A Loan, revolving credit facility and delayed draw term loan mature as of June 26, 2024 and are
governed by our Credit Agreement.
During the Covenant Relief Period (as described in Part II, Item 8, Note 5, “Debt Obligations”, of the Notes to
Consolidated Financial Statements included in this Annual Report on Form 10-K), borrowings under the Credit Agreement
bear interest (A) from March 5, 2020 until the date of the Third Amendment, at a rate equal to one-month LIBOR plus
2.0%, (B) from the date of the Third Amendment until the date the administrative agent received our financial statements
for the quarter ended July 3, 2020, at a rate equal to one-month LIBOR, plus an applicable margin of 1.50% with respect to
Base Rate borrowings and 2.50% with respect to LIBOR borrowings and (C) at all other times during the Covenant Relief
Period, at a rate equal to either, at our option, (i) the Base Rate or (ii) one-month LIBOR, in each case plus an applicable
margin ranging from 0.125% to 1.50% with respect to Base Rate borrowings and 1.125% to 2.50% with respect to LIBOR
borrowings, depending on our consolidated leverage ratio; provided, that one-month LIBOR shall not be less than 0.75%
during the Covenant Relief Period. During the Covenant Relief Period, we will pay a commitment fee for the unused
portion of the revolving credit facility and the delayed draw term loan facility, which ranges from 0.15% to 0.45% per
annum depending on our consolidated leverage ratio, and fees on the face amount of any letters of credit outstanding under
the revolving credit facility, which range from 0.84% to 2.50% per annum, in each case, depending on whether such letter
of credit is a performance or financial letter of credit and the Leverage Ratio.
After the Covenant Relief Period, borrowings under the Credit Agreement will bear interest at a rate equal to
either, at our option, (i) the Base Rate or (ii) one-month LIBOR, in each case plus an applicable margin ranging from
51
Table of Contents
0.125% to 1.00% with respect to Base Rate borrowings and 1.125% to 2.00% with respect to LIBOR borrowings,
depending on our consolidated leverage ratio; provided, that one-month LIBOR shall not be less than 0.00%. After the
Covenant Relief Period, we will pay a commitment fee for the unused portion of the revolving credit facility and the
delayed draft term loan facility, which will range from 0.15% to 0.35% per annum depending on our consolidated leverage
ratio, and fees on the face amount of any letters of credit outstanding under the revolving credit facility, which will range
from 0.84% to 2.00% per annum, in each case, depending on whether such letter of credit is a performance or financial
letter of credit and our consolidated leverage ratio.
The Term A Loan amortizes quarterly in installments of $2.5 million beginning with the fiscal quarter ending
September 27, 2019, with a final payment of all then remaining principal and interest due on the maturity date of June 26,
2024. Each borrowing under our delayed draw term loan will amortize quarterly in an amount equal to 2.5% of the
aggregate outstanding borrowings under the delayed draw term loan, beginning with the first full fiscal quarter ending after
the initial borrowing date, with a final payment of all then remaining principal and interest due on the maturity date of June
26, 2024.
On January 31, 2019, we entered into an interest swap agreement for $35.0 million notional amount. The interest
swap agreement was designated as a cash flow hedge to fix the variable interest rate on a portion of the outstanding
principal amount under our prior term loan facility. The interest swap fixed rate is 2.47% and the amortization is quarterly
in an amount equal to 10% annually. The interest swap agreement expires on January 31, 2022.
Based upon the amount of our outstanding indebtedness as of January 1, 2021, a one percentage point increase in
the effective interest rate would change our annual interest expense by approximately $1.1 million in 2020.
Risk Related to LIBOR Transition
All of our $112.0 million of debt outstanding under our Credit Agreement as of January 1, 2021 bears interest at a
floating rate that uses LIBOR as the applicable reference rate to calculate the interest. The Chief Executive of the U.K.
Financial Conduct Authority (the “FCA”), which regulates the London Interbank Offered Rate, or LIBOR, has announced
that the FCA will no longer persuade or compel banks to submit rates for the calculation of LIBOR after 2021. However,
for U.S dollar LIBOR, it now appears that the relevant date may be deferred to June 30, 2023 for certain lengths of time to
maturity (including overnight and one, three, six and 12 months), at which time the LIBOR administrator has indicated that
it intends to cease publication of U.S. dollar LIBOR. Despite this potential deferral, the LIBOR administrator has advised
that no new contracts using U.S. dollar LIBOR should be entered into after December 31, 2021. These actions indicate that
the continuation of U.S. LIBOR on the current basis cannot and will not be guaranteed after June 30, 2023. Moreover, it is
possible that U.S. LIBOR will be discontinued or modified prior to June 30, 2023. At this time, it is not possible to predict
the effect of any such changes, any establishment of alternative reference rates or any other reforms to LIBOR that may be
implemented in the United Kingdom or elsewhere.
Our Credit Agreement provides that, if the administrative agent has determined that adequate means do not exist
for ascertaining LIBOR or the lenders have advised the administrative agent that (i) LIBOR does not adequately and fairly
reflect the cost to lenders for maintaining their loans or (ii) making or funding LIBOR loans has become impracticable for
the lenders, then, unless we amend the Credit Agreement to replace LIBOR with an alternative reference rate, all of our
outstanding loans under the Credit Agreement will be converted to Base Rate Loans and the component of the Base Rate
based upon LIBOR will not be used in any determination of the Base Rate Further, the lenders under our credit agreement
will no longer be obligated to make loans using LIBOR as the applicable reference rate. If the rate used to calculate interest
on our outstanding floating rate debt under our Credit Agreement that currently uses LIBOR were to increase by 1.0%
either as a result of an increase in LIBOR or the result of the conversion to Base Rate Loans, we would expect to incur
additional interest expense on such indebtedness as of January 1, 2021 of approximately $1.1 million on an annualized
basis.
52
Table of Contents
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firms
Consolidated Balance Sheets as of January 1, 2021 and December 27, 2019
Consolidated Statements of Comprehensive Income for each of the fiscal years in the three-year period ended
January 1, 2021
Consolidated Statements of Stockholders’ Equity for each of the fiscal years in the three-year period
ended January 1, 2021
Consolidated Statements of Cash Flows for each of the fiscal years in the three-year period ended January 1,
2021
Notes to Consolidated Financial Statements
Page
54
57
58
59
60
61
53
Table of Contents
Report of Independent Registered Public Accounting Firm
Shareholders and the Board of Directors of Willdan Group, Inc.
Anaheim, California
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Willdan Group, Inc. (the "Company") as of January 1,
2021 and December 27, 2019, the related consolidated statements of comprehensive income, stockholders’ equity, and cash
flows for each of the years in the three-year period ended January 1, 2021, and the related notes (collectively referred to as
the "financial statements"). We also have audited the Company’s internal control over financial reporting as of January 1,
2021, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the
Company as of January 1, 2021 and December 27, 2019, and the results of its operations and its cash flows for each of the
years in the three-year period ended January 1, 2021 in conformity with accounting principles generally accepted in the
United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control
over financial reporting as of January 1, 2021, based on criteria established in Internal Control – Integrated Framework:
(2013) issued by COSO.
Basis for Opinions
The Company’s management is responsible for these financial statements, for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Report on Internal Controls Over Financial Reporting. Our responsibility is to express an
opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting
based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement,
whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material
respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the
financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary in the circumstances. We believe that
our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles,
54
Table of Contents
and that receipts and expenditures of the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated
financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to
accounts or disclosures that are material to the consolidated financial statements and (2) involved especially challenging,
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the
consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below,
providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Estimated costs to complete on fixed price contracts
As discussed in Note 1 to the consolidated financial statements, revenues from fixed price contracts are recognized over
time since control of the services is transferred continuously to the client. Generally, revenue is recognized using costs
incurred to date relative to total estimated costs at completion to measure progress toward satisfying the Company’s
performance obligations, which typically occurs over time periods ranging from six months to one year.
We identified auditing management’s estimates of costs to complete on select fixed price contracts to be a critical audit
matter. The critical audit matter relates to select long-term fixed price construction contracts, based on magnitude of
estimated costs to complete and the stage of completion of the contract. These estimates require management to make
assumptions about future events and, as a result, a high degree of auditor judgment is involved in auditing these estimates.
Due to the factors above, auditing management’s estimates of costs to complete required extensive audit procedures.
Our audit procedures related to the evaluation of estimated costs at completion for fixed price construction contracts
included the following, among others:
● Tested the design, implementation, and operating effectiveness of controls that are designed to address the
reasonableness of estimates of costs to complete fixed price contracts;
● Evaluated the reasonableness of management’s estimates related to the cost to complete for fixed price contracts
through testing of the key components of the estimated costs to complete, including, labor, materials, and
subcontractor costs;
● Agreed a sample of contract costs incurred to supporting documentation;
● Performed inquiries of management and project personnel regarding facts and circumstances relevant to the
accounting for a sample of such contracts;
● Recalculated revenue recognition based on the percentage of completion;
● Performed a retrospective review procedures to assess management’s historical ability to accurately estimate the
transaction price and cost to complete of construction contracts.
Estimated realization of deferred income tax assets for net operating losses
As described in Notes 1 and 11 to the consolidated financial statements, the Company’s consolidated net deferred tax assets
includes the value of net operating losses that management expects to realize before the net operating losses expire. In
assessing the need for a valuation allowance, management estimates future taxable income by jurisdiction. Significant
estimates are required in estimating future taxable income, the reversal of income tax liabilities, leading to significant
judgment from management.
55
Table of Contents
The principal considerations for our determination that performing procedures relating to the income tax
valuation allowances on deferred tax assets is a critical audit matter are there was significant judgment by management
when estimating future taxable income and reversal of income tax liabilities. This in turn led to a high degree of auditor
judgment, subjectivity and effort in performing procedures and in evaluating audit evidence relating to the realization of
deferred income tax assets. In addition, the audit effort involved the use of professionals with specialized skill and
knowledge to assist in performing these procedures and evaluating the audit evidence obtained.
Our audit procedures related to the evaluation of management's estimates over the realization of deferred income tax assets
included the following, among others:
● Testing the design, implementation, and operating effectiveness of controls relating to the valuation allowances
on deferred tax assets,
● Testing underlying historical data used in calculating the cumulative book income (loss) subject to tax,
● Assessing the reasonableness of management’s estimate of future book income, as adjusted for permanent income
tax items, which included evaluating historical book income (loss) subject to tax, adjusted for the Company's
increase in existing backlog.
● Professionals with specialized skill and knowledge were used to assist in evaluating management’s analysis,
including cumulative book income (loss) subject to tax.
We have served as the Company's auditor since 2018.
Sherman Oaks, California
March 16, 2021
/s/Crowe LLP
56
Table of Contents
WILLDAN GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net of allowance for doubtful accounts of $2,127 and
$1,147 at January 1, 2021 and December 27, 2019, respectively
Contract assets
Other receivables
Prepaid expenses and other current assets
Total current assets
Equipment and leasehold improvements, net
Goodwill
Right-of-use assets
Other intangible assets, net
Other assets
Deferred income taxes, net
Total assets
Current liabilities:
Accounts payable
Accrued liabilities
Contingent consideration payable
Contract liabilities
Notes payable
Finance lease obligations
Lease liability
Liabilities and Stockholders’ Equity
Total current liabilities
Contingent consideration payable
Notes payable
Finance lease obligations, less current portion
Lease liability, less current portion
Other noncurrent liabilities
Total liabilities
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value, 10,000 shares authorized, no shares issued and
outstanding
Common stock, $0.01 par value, 40,000 shares authorized; 12,160 and 11,497
shares issued and outstanding at January 1, 2021 and December 27, 2019,
respectively
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Total stockholders’ equity
Total liabilities and stockholders’ equity
January 1,
2021
December 27,
2019
$
28,405
$
5,452
$
$
60,403
62,426
6,405
5,564
163,203
12,506
130,124
20,130
64,256
5,993
14,111
410,323
41,372
41,754
12,321
7,434
14,996
248
5,844
123,969
2,999
98,178
236
15,649
128
241,159
57,504
101,418
4,845
6,254
175,473
12,051
127,647
22,297
76,837
16,296
9,312
439,913
34,000
67,615
5,155
5,563
13,720
375
5,550
131,978
4,891
116,631
191
18,411
533
272,635
—
—
122
149,014
(488)
20,516
169,164
410,323
$
115
132,547
(396)
35,012
167,278
439,913
$
$
$
See accompanying notes to consolidated financial statements.
57
Table of Contents
WILLDAN GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands, except per share amounts)
Contract revenue
Direct costs of contract revenue (inclusive of directly related depreciation
and amortization):
Salaries and wages
Subcontractor services and other direct costs
Total direct costs of contract revenue
General and administrative expenses:
Salaries and wages, payroll taxes and employee benefits
Facilities and facility related
Stock-based compensation
Depreciation and amortization
Other
Total general and administrative expenses
Income (loss) from operations
Other income (expense):
Interest expense, net
Other, net
Total other expense, net
Income (loss) before income taxes
Income tax (benefit) expense
Net income (loss)
Other comprehensive income (loss):
Net unrealized loss on derivative contracts
Comprehensive income (loss)
Earnings (loss) per share:
Basic
Diluted
Weighted-average shares outstanding:
Basic
Diluted
2020
390,980
$
Fiscal Year
2019
443,099
$
2018
272,252
$
65,149
196,438
261,587
71,229
10,481
16,113
18,743
29,054
145,620
(16,227)
(5,068)
1,626
(3,442)
(19,669)
(5,173)
(14,496)
(92)
(14,588)
(1.23)
(1.23)
$
$
$
64,485
243,641
308,126
66,303
8,568
12,112
15,027
23,600
125,610
9,363
(4,900)
193
(4,707)
4,656
(185)
4,841
(396)
4,445
0.43
0.41
$
$
$
$
$
$
11,793
11,793
11,162
11,766
46,588
132,693
179,281
45,248
5,600
6,262
6,060
17,030
80,200
12,771
(700)
90
(610)
12,161
2,131
10,030
—
10,030
1.08
1.03
9,264
9,763
See accompanying notes to consolidated financial statements.
58
Table of Contents
WILLDAN GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
Balances at December 29, 2017
8,799
$
88
$
50,976
$
— $
19,588
$
70,652
Additional
Paid-in
Shares Amount Capital
Common Stock
Accumulated
other
Comprehensive
Loss
Retained
Earnings Total
Shares of common stock issued in connection with employee
stock purchase plan
Shares of common stock issued in connection with incentive
stock plan
Shares used to pay taxes on stock grants
Unregistered sales of equity securities and use of proceeds
Restricted Stock Awards
Stock issued to acquire businesses
Stock-based compensation expense
Net income
Cumulative effect from adoption of ASC 606
Balance at December 28, 2018
Shares of common stock issued in connection with employee
stock purchase plan
Shares of common stock issued in connection with incentive
stock plan
Shares used to pay taxes on stock grants
Issuance of restricted stock award and units
Unregistered sales of stock
Stock issued to acquire businesses
Stock-based compensation expense
Net income
Net unrealized loss on derivative contracts
Balance at December 27, 2019
Shares of common stock issued in connection with employee
stock purchase plan
Shares of common stock issued in connection with incentive
stock plan
Shares used to pay taxes on stock grants
Issuance of restricted stock award and units
Stock-based compensation expense
Net loss
Net unrealized gain on derivative contracts
Balance at January 1, 2021
65
1
1,299
—
—
$
$ 114,008
62
1
1,739
85
—
(15)
22
2,012
—
—
—
$
10,968
115
(76)
213
53
162
—
—
—
$
11,497
94
119
(95)
545
—
—
—
12,160
$
667
(442)
—
—
55,246
6,262
930
(2,878)
(2)
1,699
4,939
12,112
1
—
—
—
20
—
—
—
110
1
(2)
2
1
2
—
—
—
115
—
—
$
$ 132,547
1
1
(1)
6
—
—
—
122
2,223
1,081
(2,945)
(5)
16,113
—
—
$ 149,014
$
See accompanying notes to consolidated financial statements.
59
—
—
—
—
—
—
—
—
—
— $
—
—
—
—
—
—
—
—
—
1,300
—
—
—
—
—
—
668
(442)
—
—
55,266
6,262
10,030
553
$ 144,289
10,030
553
30,171
—
1,740
—
—
—
—
—
—
—
931
(2,880)
—
1,700
4,941
12,112
4,841
(396)
$ 167,278
4,841
$
35,012
—
2,224
—
—
—
—
—
1,082
(2,946)
1
16,113
(14,496)
(92)
$ 169,164
(14,496)
$
20,516
(396)
(396)
—
—
—
—
—
—
(92)
(488)
Table of Contents
WILLDAN GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Deferred income taxes, net
(Gain) loss on sale/disposal of equipment
Provision for doubtful accounts
Stock-based compensation
Accretion and fair value adjustments of contingent consideration
Changes in operating assets and liabilities, net of effects from business acquisitions:
Accounts receivable
Contract assets
Other receivables
Prepaid expenses and other current assets
Other assets
Accounts payable
Accrued liabilities
Contract liabilities
Right-of-use assets
Net cash provided by operating activities
Cash flows from investing activities:
Purchase of equipment and leasehold improvements
Proceeds from sale of equipment
Cash paid for acquisitions, net of cash acquired
Net cash used in investing activities
Cash flows from financing activities:
Payments on contingent consideration
Payments on notes payable
Payments on debt issuance costs
Proceeds from notes payable
Borrowings under term loan facility and line of credit
Repayments under term loan facility and line of credit
Principal payments on finance leases
Proceeds from stock option exercise
Proceeds from sales of common stock under employee stock purchase plan
Proceeds from equity raise
Shares used to pay taxes on stock grants
Restricted Stock Award and Units
Proceeds from unregistered sales of equity
Net cash provided by (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest
Income taxes
Supplemental disclosures of noncash investing and financing activities:
Loss on cash flow hedge valuations, net of tax
Contingent consideration related to business acquisitions
Other working capital adjustment
Equipment acquired under finance leases
2020
Fiscal Year
2019
2018
$
(14,496)
$
4,841
$
10,030
18,743
(5,209)
(15)
1,330
16,113
7,707
(4,229)
35,498
(1,192)
577
9,955
7,372
(27,210)
1,871
210
47,025
(5,076)
17
—
(5,059)
(1,433)
(205)
(327)
1,140
24,000
(42,000)
(549)
1,082
2,224
—
(2,946)
1
—
(19,013)
22,953
5,452
28,405
5,031
174
(92)
—
1,179
467
$
$
15,472
(209)
(8)
1,051
12,112
(302)
11,627
(34,598)
(2,714)
(343)
(6,520)
(6,294)
16,761
315
430
11,621
(6,637)
45
(71,756)
(78,348)
(1,381)
(1,842)
(709)
—
138,000
(78,000)
(639)
931
1,740
—
(2,880)
—
1,700
56,920
(9,807)
15,259
5,452
4,169
4,052
(396)
—
—
661
$
$
6,211
(2,890)
(12)
470
6,262
(1,426)
3,177
(11,539)
4,081
(154)
(778)
(1,583)
(1,945)
(2,272)
(64)
7,568
(2,105)
59
(124,344)
(126,390)
(4,296)
(477)
(1,300)
1,805
70,000
(2,500)
(367)
668
1,300
55,266
(442)
—
—
119,657
835
14,424
15,259
494
3,163
—
943
63
462
$
$
See accompanying notes to consolidated financial statements.
60
Table of Contents
WILLDAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND OPERATIONS OF THE COMPANY
Willdan Group, Inc. (“Willdan”) is a provider of professional, technical and consulting services to utilities, private
industry, and public agencies at all levels of government. As resources and infrastructures undergo continuous change, the
Company helps organizations and their communities evolve and thrive by providing a wide range of technical services for
energy solutions and government infrastructure. Through engineering, program management, policy advisory, and software
and data management, the Company designs and delivers trusted, comprehensive, innovative, and proven solutions to
improve efficiency, resiliency, and sustainability in energy and infrastructure.
Basis of Presentation
The Company has prepared its Consolidated Financial Statements in accordance with accounting principles
generally accepted in the United States (“U.S. GAAP”).
The consolidated statement of stockholders' equity includes repurchases of shares of our common stock from
employees to satisfy tax withholding obligations incurred in connection with the vesting of restricted stock or performance
stock units, which amount is presented as a reduction of additional paid-in capital and common stock.
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. The Company operates and reports its quarterly financial results based on the 13-week
period ending on the Friday closest to June 30, September 30, and December 31 and the 13 or 14-week period ending on
the Friday closest to March 31, as applicable. Fiscal year 2020, which ended on January 1, 2021, was comprised
of 53 weeks, with the first quarter consisting of 14 weeks and the remaining quarters consisting of 13 weeks each. Fiscal
year 2019, which ended on December 27, 2019, and fiscal year 2018, which ended on December 28, 2018, was comprised
of 52 weeks, with all quarters presented consisting of 13 weeks. All references to years in the notes to consolidated
financial statements represent fiscal years.
Principles of Consolidation
The consolidated financial statements include the accounts of Willdan Group, Inc. and its wholly-owned
subsidiaries and their respective subsidiaries. All significant intercompany balances and transactions have been eliminated
in consolidation.
Reclassifications
Certain prior year amounts have been reclassified in the condensed consolidated balance sheets to conform to the
current year presentation.
Use of Estimates
The preparation of consolidated financial statements in conformity with generally accepted accounting principles
in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Estimates
also affect the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents
All highly liquid investments purchased with a remaining maturity of three months or less are considered to be
cash equivalents. The Company from time to time may be exposed to credit risk with its bank deposits in excess of the
61
Table of Contents
WILLDAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
FDIC insurance limits and with uninsured money market investments. The Company has not experienced any losses in
such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.
Fair Value of Financial Instruments
The Company uses the three-tier hierarchy of fair value measurement, which prioritizes the inputs. These tiers
include: Level 1 (the highest priority), defined as observable inputs, such as quoted prices in active markets, Level 2,
defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3
(the lowest priority), defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to
develop its own assumptions.
The Company’s financial instruments consist primarily of cash, cash equivalents, accounts receivable, contract
assets, other receivables, prepaid expenses and other current assets, accounts payable, accrued liabilities and contract
liabilities. The carrying amounts of certain other assets and contingent consideration are discounted to their present value
because the time between the origination of these instruments and their expected realization or payment is greater than one
year.
As of January 1, 2021 and December 27, 2019, the carrying amounts of the Company's cash and cash equivalents,
accounts receivable, contract assets, other receivables, prepaid expenses and other current assets, accounts payable, accrued
liabilities and contract liabilities, approximate their fair values because of the relatively short period of time between the
origination of these instruments and their expected realization or payment. The carrying amounts of debt obligations
approximate their fair values since the terms are comparable to terms currently offered by local lending institutions for
loans of similar terms to companies with comparable credit risk.
The carrying amounts of the derivative financial instrument is valued based on Level 2 inputs.
Variable Interest Entities
The Company accounts for variable interest entities in accordance with Accounting Standards Codification
(“ASC”) 810, Consolidation. Under ASC 810, a variable interest entity (“VIE”) is created when any of the following
criteria are present: (a) the equity investment at risk in the entity is not sufficient to permit the entity to finance its activities
without additional subordinated financial support provided by other parties, including the equity holders; (b) the entity’s
equity holders as a group either (i) lack the direct or indirect ability to make decisions about the entity, (ii) are not obligated
to absorb expected losses of the entity or (iii) do not have the right to receive expected residual returns of the entity; or (c)
the entity’s equity holders have voting rights that are not proportionate to their economic interests, and the activities of the
entity involve or are conducted on behalf of the equity holder with disproportionately few voting rights. If an entity is
deemed to be a VIE pursuant to ASC 810, the enterprise that has both (i) the power to direct the activities of a VIE that
most significantly impact the entity’s economic performance and (ii) the obligation to absorb the expected losses of the
entity or right to receive benefits from the entity that could be potentially significant to the VIE is considered the primary
beneficiary and must consolidate the VIE. In accordance with ASC 810, the Company performs ongoing reassessments of
whether an enterprise is the primary beneficiary of a VIE.
As of January 1, 2021, the Company had one VIE — Genesys Engineering, P.C. (“Genesys”). Pursuant to New
York law, the Company does not own capital stock of Genesys and does not have control over the professional decision
making of Genesys’s engineering services. The Company, however, has entered into an administrative services agreement
with Genesys pursuant to which WES, the Company’s wholly-owned subsidiary, will provide Genesys with ongoing
administrative, operational and other non-professional support services. The Company manages Genesys and has the power
to direct the activities that most significantly impact Genesys’s performance, in addition to being obligated to absorb
expected losses from Genesys. Accordingly, the Company is the primary beneficiary of Genesys and consolidates Genesys
as a VIE.
Management also concluded there is no noncontrolling interest related to the consolidation of Genesys because
management determined that (i) the shareholder of Genesys does not have more than a nominal amount of equity
62
Table of Contents
WILLDAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
investment at risk, (ii) WES absorbs the expected losses of Genesys through its deferral of Genesys’s service fees owed to
WES and the Company has, since entering into the administrative services agreement, had to continuously defer service
fees for Genesys, and (iii) the Company believes Genesys will continue to have a shortfall on payment of its service fees
for the foreseeable future, leaving no expected residual returns for the shareholder. For more information regarding
Genesys, see Note 8 “Commitments and Variable Interest Entities.”
Segment Information
The Company presents segment information externally consistent with the manner in which the Company’s chief
operating decision maker reviews information to assess performance and allocate resources. The Company’s two segments
are (i) Energy, and (ii) Engineering and Consulting.
Willdan Group, Inc. (“WGI”) is a holding company and performs administrative functions on behalf of its
subsidiaries, such as treasury, legal, accounting, information systems, human resources and certain business development
activities, and earns revenue that is only incidental to the activities of the enterprise. As a result, WGI does not meet the
definition of an operating segment.
Contract Assets and Liabilities
Billing practices are governed by the contract terms of each project based upon costs incurred, achievement of
milestones or pre-agreed schedules. Billings do not necessarily correlate with revenue recognized using the percentage-of-
completion method of revenue recognition. Contract assets include unbilled amounts typically resulting from revenue
under contracts where the percentage-of-completion method of revenue recognition is utilized and revenue recognized
exceeds the amount billed to the customer. In addition, contract assets include retainage amounts withheld from billings to
the Company’s clients pursuant to provisions in our contracts. Contract liabilities consist of advance payments and billings
in excess of revenue recognized and deferred revenue.
Adoption of ASC 606
On December 30, 2017, the Company adopted ASC 606, using the modified retrospective method applied to those
contracts which were not completed as of December 29, 2017. Prior to adopting ASC 606, the Company established an
implementation team, which included senior managers from its finance and accounting group. The implementation team
evaluated the impact of adopting ASC 606 on its contracts expected to be uncompleted as of December 30, 2017 (the date
of adoption). The evaluation included reviewing its accounting policies and practices to identify differences that would
result from applying the requirements of the new standard. The Company identified and made changes to its processes,
systems and controls to support recognition and disclosure under the new standard. The implementation team worked
closely with various professional consultants and attended several formal conferences and seminars to conclude on certain
interpretative issues.
The Company recognizes engineering and consulting contract revenue over time using the percentage-of-
completion method, based primarily on contract cost incurred to date compared to total estimated contract cost. Revenue
on the vast majority of its contracts will continue to be recognized over time because of the continuous transfer of control
to the customer. Revenue recognition for software licenses issued by the Energy segment is recognized at a point in time,
upon acceptance of the software by the customer and in recognition of the fulfillment of the performance obligation.
Certain additional performance obligations beyond the base software license may be separated from the gross license fee
and recognized on a straight-line basis over time.
Contract Accounting
The Company enters into contracts with its clients that contain various types of pricing provisions, including fixed
price, time-and-materials, and unit-based provisions. The Company recognizes revenues in accordance with ASU 2014-09,
Revenue from Contracts with Customer, codified as ASC Topic 606 and the related amendments (collectively “ASC 606”).
As such, the Company identifies a contract with a customer, identifies the performance obligations in the
63
Table of Contents
WILLDAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
contract, determines the transaction price, allocates the transaction price to each performance obligation in the contract and
recognizes revenues when (or as) the Company satisfies a performance obligation.
The following table reflects the Company’s two reportable segments and the types of contracts that each most
commonly enters into for revenue generating activities.
Segment
Energy
Engineering and Consulting
Contract Type
Time-and-materials
Unit-based
Software license
Fixed price
Time-and-materials
Unit-based
Fixed price
Revenue Recognition Method
Time-and-materials
Unit-based
Unit-based
Percentage-of-completion
Time-and-materials
Unit-based
Percentage-of-completion
Revenue on the vast majority of the Company’s contracts will continue to be recognized over time because of the
continuous transfer of control to the customer. Revenue on fixed price contracts is recognized on the percentage-of-
completion method based generally on the ratio of direct costs incurred-to-date to estimated total direct costs at completion.
The Company uses the percentage-of-completion method to better match the level of work performed at a certain point in
time in relation to the effort that will be required to complete a project. In addition, the percentage-of-completion method is
a common method of revenue recognition in the Company’s industry.
Many of the Company’s fixed price contracts involve a high degree of subcontracted fixed price effort and are
relatively short in duration, thereby lowering the risks of not properly estimating the percent complete. Revenue on time-
and-materials and unit-based contracts is recognized as the work is performed in accordance with the specific rates and
terms of the contract. The Company recognizes revenues for time-and-materials contracts based upon the actual hours
incurred during a reporting period at contractually agreed upon rates per hour and also includes in revenue all reimbursable
costs incurred during a reporting period. Certain of the Company’s time-and-materials contracts are subject to maximum
contract values and, accordingly, when revenue is expected to exceed the maximum contract value, these contracts are
generally recognized under the percentage-of-completion method, consistent with fixed price contracts. For unit-based
contracts, the Company recognizes the contract price of units of a basic production product as revenue when the production
product is delivered during a period. Revenue recognition for software licenses issued by the Energy segment is generally
recognized at a point in time, utilizing the unit-based revenue recognition method, upon acceptance of the software by the
customer and in recognition of the fulfillment of the performance obligation. Certain additional performance obligations
beyond the base software license may be separated from the gross license fee and recognized on a straight-line basis over
time. Revenue for amounts that have been billed but not earned is deferred, and such deferred revenue is referred to as
contract liabilities in the accompanying condensed consolidated balance sheets.
To determine the proper revenue recognition method for contracts, the Company evaluates whether two or more
contracts should be combined and accounted for as one single contract and whether the combined contract should be
accounted for as one performance obligation. With respect to the Company’s contracts, it is rare that multiple contracts
should be combined into a single performance obligation. This evaluation requires significant judgment and the decision to
combine a group of contracts or separate a single contract into multiple performance obligations could change the amount
of revenue and profit recorded in a given period. Contracts are considered to have a single performance obligation if the
promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts,
which is mainly because the Company provides a significant service of integrating a complex set of tasks and components
into a single project or capability.
The Company may enter into contracts that include separate phases or elements. If each phase or element is
negotiated separately based on the technical resources required and/or the supply and demand for the services being
provided, the Company evaluates if the contracts should be segmented. If certain criteria are met, the contracts would be
segmented which could result in revenues being assigned to the different elements or phases with different rates of
64
Table of Contents
WILLDAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
profitability based on the relative value of each element or phase to the estimated total contract revenue. Segmented
contracts may comprise up to approximately 2.0% to 3.0% of the Company’s consolidated contract revenue.
Contracts that cover multiple phases or elements of the project or service lifecycle (development, construction and
maintenance and support) may be considered to have multiple performance obligations even when they are part of a single
contract. For contracts with multiple performance obligations, the Company allocates the transaction price to each
performance obligation using the best estimate of the standalone selling price of each distinct good or service in the
contract. For the periods presented, the value of the separate performance obligations under contracts with multiple
performance obligations (generally measurement and verification tasks under certain energy performance contracts) were
not material. In cases where the Company does not provide the distinct good or service on a standalone basis, the primary
method used to estimate standalone selling price is the expected cost plus a margin approach, under which the Company
forecasts the Company’s expected costs of satisfying a performance obligation and then adds an appropriate margin for the
distinct good or service.
The Company provides quality of workmanship warranties to customers that are included in the sale and are not
priced or sold separately or do not provide customers with a service in addition to assurance of compliance with agreed-
upon specifications and industry standards. The Company does not consider these types of warranties to be separate
performance obligations.
In some cases, the Company has a master service or blanket agreement with a customer under which each task
order releases the Company to perform specific portions of the overall scope in the service contract. Each task order is
typically accounted for as a separate contract because the task order establishes the enforceable rights and obligations, and
payment terms.
Under ASC 606, variable consideration should be considered when determining the transaction price and
estimates should be made for the variable consideration component of the transaction price, as well as assessing whether an
estimate of variable consideration is constrained. For certain of the Company’s contracts, variable consideration can arise
from modifications to the scope of services resulting from unapproved change orders or customer claims. Variable
consideration is included in the transaction price to the extent it is probable that a significant reversal of cumulative
revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The
Company estimates of variable consideration and determination of whether to include estimated amounts in the transaction
price are based largely on assessments of legal enforceability, the Company’s performance, and all information (historical,
current and forecasted) that is reasonably available to the Company.
Due to the nature of the work required to be performed on many of the Company’s performance obligations, the
estimation of total revenue and cost at completion is complex, subject to many variables and requires significant judgment.
As a significant change in one or more of these estimates could affect the profitability of the Company’s contracts, the
Company reviews and updates the Company’s contract-related estimates regularly through a company-wide disciplined
project review process in which management reviews the progress and execution of the Company’s performance
obligations and the estimate at completion (EAC). As part of this process, management reviews information including, but
not limited to, any outstanding key contract matters, progress towards completion and the related program schedule and the
related changes in estimates of revenues and costs. Management must make assumptions and estimates regarding labor
productivity and availability, the complexity of the work to be performed, the cost and availability of materials, the
performance of subcontractors, and the availability and timing of funding from the customer, among other variables.
The Company recognizes adjustments in estimated profit on contracts under the cumulative catch-up method.
Under this method, the impact of the adjustment on profit recorded to date is recognized in the period the adjustment is
identified. Revenue and profit in future periods of contract performance is recognized using the adjusted estimate. If at any
time the estimate of contract profitability indicates an anticipated loss on the contract, the Company recognizes the full
amount of estimated loss in the period it is identified.
65
Table of Contents
WILLDAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Contracts are often modified to account for changes in contract specifications and requirements. The Company
considers contract modifications to exist when the modification either creates new rights or obligations or changes the
existing enforceable rights or obligations. Most of the Company’s contract modifications are for goods or services that are
not distinct from existing contracts due to the significant integration provided in the context of the contract and are
accounted for as if they were part of the original contract. The effect of a contract modification that is not distinct from the
existing contract on the transaction price and the Company’s measure of progress for the performance obligation to which
it relates is recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative
catch-up basis.
For contract modifications that result in the promise to deliver goods or services that are distinct from the existing
contract and the increase in price of the contract is for the same amount as the standalone selling price of the additional
goods or services included in the modification, the Company accounts for such contract modifications as a separate
contract.
The Company includes claims to vendors, subcontractors and others as a receivable and a reduction in recognized
costs when enforceability of the claim is established by the contract and the amounts are reasonably estimable and probable
of being recovered. The amounts are recorded up to the extent of the lesser of the amounts management expects to recover
or to costs incurred.
Billing practices are governed by the contract terms of each project based upon costs incurred, achievement of
milestones or pre-agreed schedules. Billings do not necessarily correlate with revenue recognized using the percentage-of-
completion method of revenue recognition.
Direct costs of contract revenue consist primarily of that portion of technical and nontechnical salaries and wages
that has been incurred in connection with revenue producing projects. Direct costs of contract revenue also include
production expenses, subcontractor services and other expenses that are incurred 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, holidays and 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 accompanying consolidated
statements of comprehensive income since no allocation of these costs is made to direct costs of contract revenue. No
allocation of facilities costs is made to direct costs of contract revenue. Other companies may classify as direct costs of
contract revenue some of the costs that the Company classifies as general and administrative costs. The Company expenses
direct costs of contract revenue when incurred.
Included in revenue and costs are all reimbursable costs for which the Company has the risk or on which the fee
was based at the time of bid or negotiation. No revenue or cost is recorded for costs in which the Company acts solely in
the capacity of an agent and has no risks associated with such costs.
Accounts receivable are carried at original invoice amount less an estimate made for doubtful accounts based
upon a review of all outstanding amounts on a quarterly basis. Management determines allowances for doubtful accounts
through specific identification of amounts considered to be uncollectible and potential write-offs, plus a non-specific
allowance for other amounts for which some potential loss has been determined to be probable based on current and past
experience. The Company’s historical credit losses have been minimal with governmental entities and large public utilities,
but disputes may arise related to these receivable amounts. Accounts receivable are written off when deemed uncollectible.
Recoveries of accounts receivable previously written off are recorded when received.
Retainage, included in contract assets, represents amounts withheld from billings to the Company’s clients
pursuant to provisions in the contracts and may not be paid to the Company until specific tasks are completed or the
66
Table of Contents
WILLDAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
project is completed and, in some instances, for even longer periods. At January 1, 2021 and December 27, 2019, contract
assets included retainage of approximately $6.2 million and $5.4 million, respectively.
In addition to the above, the Company derives revenue from software licenses and professional services and
maintenance fees. In accordance with ASC 606, the Company performs an assessment of each contract to identify the
performance obligations, determine the overall transaction price for the contract, allocate the transaction price to the
performance obligations, and recognize the revenue when the performance obligations are satisfied.
The Company utilizes the residual approach by which it estimates the standalone selling price by reference to the
total transaction price less the sum of the observable standalone selling prices of other goods or services promised in the
contract. The software license revenue is typically recognized at a point in time when control is transferred to the client,
which is defined as the point in time when the client can use and benefit from the license. The software license is delivered
before related services are provided and is functional without services, updates, or technical support. Related professional
services include training and support services in which the standalone selling price is determined based on an input
measure of hours incurred to total estimated hours and is recognized over time, usually which is the life of the contract.
General and Administrative Expenses
General and administrative expenses include the costs of the marketing and support staff, other marketing
expenses, management and administrative personnel costs, payroll taxes, bonuses and employee benefits for all of the
Company’s employees and the portion of salaries and wages not allocated to direct costs of contract revenue for those
employees who provide the Company’s services. General and administrative expenses also include facility costs,
depreciation and amortization, professional services, legal and accounting fees and administrative operating costs. Within
general and administrative expenses, “Other” includes expenses such as provision for billed or unbilled receivables,
professional services, legal and accounting, computer costs, travel and entertainment, marketing costs and acquisition
costs. The Company expenses general and administrative costs when incurred.
Leases
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“ASU”) No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 require, among other things, that lessees
recognize the following for all leases (unless a policy election is made by class of underlying asset to exclude short-term
leases) at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a
lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use,
or the direct use of, a specified asset for the lease term. The FASB issued ASU 2018-11 on July 30, 2018, which allows
entities to apply the provisions of ASC 842 at the effective date without adjusting comparative periods.
On December 29, 2018, the Company adopted ASU 2016-02 using the modified retrospective method. Under this
guidance, the net present value of future lease payments is recorded as right-of-use assets and lease liabilities. In addition,
the Company elected the ‘package of practical expedients’ permitted under the transition guidance within the new standard,
which among other things, allowed the Company to carry forward the historical lease classification. In addition, the
Company elected not to utilize the hindsight practical expedient to determine the lease term for existing leases. The
Company also elected the practical expedient to not separate lease and non-lease components for its facilities leases.
Previously, all of the Company’s office leases were classified as operating leases and rent expense was included in facilities
expense in the consolidated statements of comprehensive income.
In addition, the Company leases certain equipment under financing leases. The economic substance of the leases
is a financing transaction for acquisition of equipment and leasehold improvements. Accordingly, the right-of-use assets for
these leases are included in the balance sheets in equipment and leasehold improvements, net of accumulated depreciation,
with a corresponding amount recorded in current portion of financing lease obligations or noncurrent portion of financing
lease obligations, as appropriate. The financing lease assets are amortized over the life of the lease or, if shorter, the life of
the leased asset, on a straight-line basis and included in depreciation expense in the statements of
67
Table of Contents
WILLDAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
comprehensive income. The interest associated with financing lease obligations is included in interest expense in the
statements of comprehensive income. For more information, see Note 2, “Recent Accounting Pronouncements”, and Note
7, “Leases”.
Equipment and Leasehold Improvements
Equipment and leasehold improvements are stated at cost less accumulated depreciation and amortization.
Equipment under capital leases is stated at the present value of the minimum lease payments as of the acquisition date.
Depreciation and amortization on equipment are calculated using the straight-line method over estimated useful lives of
two to five years. Leasehold improvements and assets under capital leases are amortized using the straight-line method
over the shorter of estimated useful lives or the term of the related lease.
Following are the estimated useful lives used to calculate depreciation and amortization:
Category
Furniture and fixtures
Computer hardware
Computer software
Automobiles and trucks
Field equipment
Goodwill
Estimated Useful Life
5 years
3 years
3 years
3 years
5 years
Goodwill represents the excess of costs over fair value of the assets acquired. The Company completes its annual
testing of goodwill as of the last day of the first month of its fourth fiscal quarter each year to determine whether there is
impairment. Goodwill, which has an indefinite useful life, is not amortized, but instead tested for impairment at least
annually or more frequently if events and circumstances indicate that the asset might be impaired. Impairment losses for
reporting units are recognized to the extent that a reporting unit’s carrying amount exceeds its fair value.
Long-lived assets
Long-lived assets, such as equipment, leasehold improvements and purchased intangible assets subject to
amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount
of an 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 estimated undiscounted future cash flows expected to be generated by the asset. If the
carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by
which the carrying amount of the asset exceeds the fair value of the asset.
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 be reasonably estimated. The Company discloses the amount accrued and an estimate of any
reasonably possible loss in excess of the amount accrued, if such disclosure is necessary for its financial statements not to
be misleading. The Company does not accrue liabilities related to claims when the likelihood that a loss 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 estimates could have a material effect on its consolidated financial statements.
68
Table of Contents
WILLDAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Stock-based Compensation
The Company accounts for all stock-based compensation under the fair value recognition provisions of the
accounting standard entitled “Compensation—Stock Compensation.” Stock-based compensation cost is measured at the
grant date based on the fair value of the award and is recognized as expense over the requisite vesting period. The fair
values of all stock options granted and the fair values of all Employee Stock Purchase Plan (“ESPP”) purchase rights are
estimated using the Black-Scholes option-valuation model. The Black-Scholes option-valuation model requires the input of
highly subjective assumptions. Performance-based restricted stock unit awards (“PBRSUs”) are granted to certain
employees and vest only after the achievement of pre-determined performance metrics. Once the performance metrics are
met, vesting of PBRSUs is subject to continued service by the employee. At the end of each reporting period, the Company
evaluates the probability that PBRSUs will be earned. The Company records stock-based compensation expense based on
the probability that the performance metrics will be achieved over the vesting period.
Business Combinations
The acquisition method of accounting for business combinations requires the Company 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 the Company may
adjust the provisional amounts recognized for a business combination based upon new information about facts that existed
on the business combination date).
Under the acquisition method of accounting, the Company recognizes separately from goodwill the identifiable
assets acquired, the liabilities assumed, and any non-controlling interests in an acquiree, at the acquisition date fair value.
The Company measures goodwill as of the acquisition date as the excess of consideration transferred over the net of the
acquisition date amounts of the identifiable assets acquired and liabilities assumed. Costs that the Company incurs to
complete the business combination such as investment banking, legal and other professional fees are not considered part of
consideration. The Company charges these acquisition costs to general and administrative expense as they are incurred.
On October 28, 2019, the Company acquired all of the capital stock of Energy and Environmental Economics, Inc.
(“E3, Inc.”). On July 2, 2019, the Company acquired substantially all of the assets and liabilities of Onsite Energy
Corporation (“Onsite Energy”). On March 8, 2019, the Company acquired substantially all of the assets of the energy
practice division of The Weidt Group Inc. (“The Weidt Group”). For further discussion of these acquisitions, see Note 13
“Business Combinations”.
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 of temporary differences between the financial reporting basis and tax basis of
the Company’s assets and liabilities, subject to a judgmental assessment of the recoverability of deferred tax assets.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is
recorded when it is more-likely-than-not that some of the deferred tax assets may not be realized. Significant judgment is
applied when assessing the need for valuation allowances. Areas of estimation include the Company’s consideration of
future taxable income and ongoing prudent and feasible tax planning strategies. Should a change in circumstances lead to a
change in judgment about the utilization of deferred tax assets in future years, the Company would adjust the related
valuation allowances in the period that the change in circumstances occurs, along with a corresponding increase or charge
to income.
During each fiscal year, management assesses the available positive and negative evidence to estimate if sufficient
future taxable income will be generated to utilize existing deferred tax assets. For fiscal years 2020 and 2019,
69
Table of Contents
WILLDAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
the Company ultimately determined that it was more-likely-than-not that the entire California net operating loss will not be
utilized prior to expiration. Significant pieces of objective evidence evaluated included the Company’s history of utilization
of California net operating losses in prior years for each of the Company’s subsidiaries, as well as the Company’s
forecasted amount of net operating loss utilization for certain members of the combined group. As a result, at the end of
fiscal years 2020 and 2019, the Company recorded a valuation allowance in the amount of $86,000, for each year, related
to California net operating losses.
For acquired business entities, if the Company identifies changes to acquired deferred tax asset valuation
allowances or liabilities related to uncertain tax positions during the measurement period and they relate to new
information obtained about facts and circumstances that existed as of the acquisition date, those changes are considered a
measurement period adjustment and the Company records the offset to goodwill. The Company records all other changes
to deferred tax asset valuation 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 examination by 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 tax expense.
Earnings per Share
The Company computes basic income per common share using net income and the weighted average number of
common shares outstanding during the period. Diluted income per common share is computed using net income and the
weighted average number of common shares and potentially dilutive common shares outstanding during the period.
Potentially dilutive common shares include dilutive outstanding employee stock options, RSAs, PBRSUs, and rights to
purchase shares of common stock under the Company’s ESPP.
Other Comprehensive Income (loss), Net of Tax
Other comprehensive income (loss), net of tax refers to revenue, expenses, gains and losses that are recorded as an
element of shareholders’ equity but are excluded from net income. The Company’s other comprehensive income (loss), net
of tax is comprised of unrealized gains or losses on its interest rate swap agreement designated as cash flow hedges.
Derivatives
The Company accounts for its interest rate swap as designated cash flow hedges to mitigate variations in interest
payments under a portion of its LIBOR-based term loans due to variations in the LIBOR index. The Company pays interest
monthly at a fixed rate and receives interest monthly at the LIBOR rate on the notional amount of the contract with realized
gains or losses recognized in interest expense.
Operating Cycle
In accordance with industry practice, amounts realizable and payable under contracts that extend beyond one year
are included in current assets (included in contract assets) and current liabilities.
Management’s Plans in Response to Covid-19
On January 30, 2020, the spread of a novel strain of coronavirus (“Covid-19”) was declared a Public Health
Emergency of International Concern by the World Health Organization (“WHO”). On March 11, 2020, WHO characterized
the Covid-19 outbreak as a pandemic. The Covid-19 pandemic has resulted in governmental authorities around the world
implementing numerous measures to try to contain the virus, such as travel bans and restrictions,
70
Table of Contents
WILLDAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
quarantines, shelter-in-place or total lock-down orders and business limitations and shutdowns (subject to exceptions for
certain essential operations and businesses). Although some of these measures have since been lifted or scaled back,
ongoing resurgences of Covid-19 in the United States has resulted in the reimposition of certain restrictions and may lead
to other restrictions being reimplemented in response to efforts to reduce the spread of Covid-19. The Covid-19 outbreak
and restrictions intended to slow the spread of Covid-19 have caused economic and social disruption on an unprecedented
scale. It is unclear how long these restrictions will remain in place and they may remain in place in some form for an
extended period of time. Given the uncertainties associated with the duration of the pandemic, the Company cannot
reasonably estimate the ultimate impacts of Covid-19 and efforts to limit its spread on its business, financial condition,
results of operations or cash flows for the foreseeable future or whether the Company’s assumptions used to estimate its
future liquidity requirements will be correct.
Health and Safety
In response to the Covid-19 pandemic, the Company has taken, and will continue to take, temporary precautionary
measures intended to help minimize the risk of Covid-19 to its employees, including requiring the majority of its
employees to work remotely, suspending non-essential travel and restricting in-person work-related meetings. The
Company expects to continue to implement these measures until it determines that the Covid-19 pandemic is adequately
contained for purposes of its business, and may take further actions as government authorities require or recommend or as
it determines to be in the best interests of its employees, customers, business partners and third-party service providers.
Financial Position and Results of Operations
The Covid-19 pandemic and efforts to limit its spread negatively impacted the Company’s business during its
fiscal year 2020. In California and New York, the states in which the Company has historically derived a majority of its
revenue, mandatory shutdown orders were issued in March 2020. In New York, phased re-openings began in June 2020
and the Company’s business in New York has been improving since and all of its New York utility programs have restarted.
In California, phased re-openings began in May 2020, followed by periods of curtailments as a result of resurgences of
Covid-19 cases, and subsequent re-openings. As a result, the most significant pandemic related impacts to the Company’s
business are now occurring in California to its direct install business.
In the Energy segment, the Company has experienced, and expects to continue to experience, a negative impact on
its direct install programs that serve small businesses as a result of restrictions put in place by governmental authorities that
have required temporary shutdowns of all “non-essential” businesses. In fiscal year 2019, the Company derived
approximately 40% of its gross revenue from its direct install programs that serve small businesses, and a significant
portion of the Company’s direct install work on these programs was suspended for varying periods of time during fiscal
year 2020. With the exception of the direct install programs in California, phased re-openings have continued to progress
since the second quarter of 2020. The Company’s other programs, which generated approximately 60% of our revenue in
fiscal 2019, are either businesses that have been determined to be “essential” by government authorities or have continued
to progress during the pandemic.
In the Engineering and Consulting segment, the Company’s revenues have been less affected by Covid-19 than the
revenues in the Energy Segment. The services in this segment have generally been deemed “essential” by the government
and have continued to operate while abiding social distancing measures.
As of March 15, 2021, though some of the Company’s work has been suspended as a result of the Covid-19
pandemic and efforts to limit its spread, none of its contracts have been cancelled and proposal activities for new programs
have continued to advance. The Company estimates that pandemic related slowdowns and work suspensions reduced the
fiscal 2020 revenue by approximately 20% from its planned pre-pandemic levels for 2020.
In response to the Covid-19 pandemic and efforts to prevent its spread, the Company began taking a number of
steps during the first quarter of fiscal 2020 aimed at preserving liquidity and positioning itself to resume its growth
trajectory after work restrictions are lifted. These steps include:
71
Table of Contents
WILLDAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
● Executing a reduction in workforce, primarily through an unpaid furlough, impacting approximately 300
members of the Company’s staff. The largest reductions were a result of government-mandated work
restrictions impacting the Company’s direct install programs in California and New York. During the
Company’s second fiscal quarter, furloughed employees began to return to work as government authorities
began lifting restrictions through phased re-openings and, by the end of the third fiscal quarter, the majority
of the Company’s furloughed employees had returned to work;
● A temporary freeze on all non-critical spending for travel, capital expenditures, and other discretionary
expenses;
● A temporary cash wage reduction for salaried employees, ranging from 0% for lower salary bands up to 75%
for senior management, all of which had been restored by the end of July 2020;
● Suspension of cash fees for the Company’s Board of Directors, which was lifted during the third fiscal
quarter;
● Implementing a temporary hiring freeze; and
● Amending the Company’s credit facility for increased flexibility.
The Company believes that its financial position is sufficiently flexible to enable it to maneuver in the current
economic environment. Throughout the fiscal year 2020, the Company enhanced liquidity by minimizing working capital
and significantly improving cash collections. In addition, in May 2020, the Company amended its credit facility to
temporarily modify, among other things, certain covenants to increase its financial flexibility. Combined with availability
under its credit facilities, the Company believes its enhanced liquidity position provides a cushion against liquidity
disruptions.
Asset and liability valuation and other estimates used in preparation of financial statements
As of January 1, 2021, the Company did not have any impairment with respect to its goodwill or long-lived assets,
including intangible assets. Because the full extent and duration of the impact of the Covid-19 outbreak and efforts to slow
its spread are unknown at this time, they could, under certain circumstances, cause impairment and result in a non-cash
impairment charge being recorded in future periods.
Changes to the estimated future profitability of the business may require that the Company establish an additional
valuation allowance against all or some portion of its net deferred tax assets.
Impact on Clients and Subcontractors and Other Risks
The Company primarily work for utilities, municipalities and other public agencies. The Company expects many
governmental and other public agencies could have significant budget shortfalls for 2020 and potentially beyond as a result
of the economic slowdown from the measures taken to mitigate the Covid-19 pandemic. Although none of the Company’s
contracts with governmental or other public agencies were materially modified during fiscal year 2020, these potential
budget deficits could result in delayed funding for existing contracts with the Company, postponements of new contracts or
price concessions. Further, most of the Company’s clients are not committed to purchase any minimum amount of the
Company’s services, as the Company’s agreements with them are based on a “purchase order” model. As a result, they may
discontinue utilizing some or all of the Company’s services with little or no notice.
In addition, the Company relies on subcontractors and material suppliers to complete a substantial portion of the
work, especially in the Company’s Energy segment. If the Company’s significant subcontractors and material suppliers
suffer significant economic harm and must limit or cease operations or file for bankruptcy as a result of the current
economic slowdown, the Company’s subcontractors and material suppliers may not be able to fulfill their contractual
72
Table of Contents
WILLDAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
obligations satisfactorily and the Company may not have the ability to select its subcontractors and material suppliers of
choice for new contracts. If the Company’s subcontractors and material suppliers are not able to fulfill their contractual
obligations, it could result in a significant increase in costs for the Company to complete the projects or cause significant
delays to the realization of revenues under those projects. The ultimate impact of Covid-19 on the Company’s financial
condition and results of operations will depend on all of the factors noted above, including other factors that the Company
may not be able to forecast at this time. See the risk factor “The Covid-19 pandemic and health and safety measures
intended to slow its spread have adversely affected, and may continue to adversely affect, our business, results of
operations and financial condition.” under Part I, Item 1A, “Risk Factors” of this Annual Report on Form 10-K. While
Covid-19 has had, and the Company expects it to continue to have, an adverse effect on the Company’s business, financial
condition and results of operations, the Company is unable to predict the extent or duration of these impacts at this time.
73
Table of Contents
WILLDAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
2. RECENT ACCOUNTING PRONOUNCEMENTS
Accounting Pronouncements Recently Adopted
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
(“ASU 2016-13”). ASU 2016-13 requires entities to report “expected” credit losses on financial instruments and other
commitments to extend credit rather than the current “incurred loss” model. These expected credit losses for financial
assets held at the reporting date are to be based on historical experience, current conditions, and reasonable and supportable
forecasts. ASU 2016-13 will also require enhanced disclosures relating to significant estimates and judgments used in
estimating credit losses, as well as the credit quality. The Company adopted this standard effective December 28, 2019.
The adoption of this standard did not have a material impact on the Company’s Condensed Consolidated Financial
Statements.
Accounting Pronouncements Recently Issued
In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): facilitation of the
Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”). ASU 2020-04 provides optional expedients
and exceptions for applying U.S. GAAP to contract modifications and hedging relationships that reference LIBOR or
another reference rate expected to be discontinued because of reference rate reform. ASU 2020-04 provides, among other
things, guidance that modifications of contracts within the scope of Topic 470, Debt, should be accounted for by
prospectively adjusting the effective interest rate; modifications of contracts within the scope of Topic 840, Leases, should
be accounted for as a continuation of the existing contract; and, changes in the critical terms of hedging relationships,
caused by reference rate reform, should not result in the de-designation of the instrument, provided certain criteria are met.
In January 2021, the FASB issued ASU No. 2021-01, “Reference Rate Reform (Topic 848) - Scope” (“ASU 2021-01”).
ASU 2021-01 clarifies the scope and application of ASU 2020-04 and permits entities, among other things, to elect certain
optional expedients and exceptions when accounting for derivative contracts and certain hedging relationships affected by
changes in the interest rates used for discounting cash flows. The Company’s exposure to LIBOR rates includes its credit
facilities and swap agreement. The amendments are effective as of March 12, 2020 through December 31, 2022. Adoption
is permitted at any time. The Company is currently evaluating the impact this update will have on its Consolidated
Financial Statements.
In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting
for Income Taxes” (“ASU 2019-12”). ASU 2019-12 amends the accounting for income taxes by, among other things,
removing: (i) The exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing
operations and income or a gain from other items (for example, discontinued operations or other comprehensive income);
(ii) The exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign
subsidiary becomes an equity method investment; (iii) The exception to the ability not to recognize a deferred tax liability
for a foreign subsidiary when a foreign equity method investment becomes a subsidiary; and (iv) The exception to the
general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss
for the year. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2020, which for the Company is the first quarter of fiscal 2021. The Company is currently evaluating the
impact this update will have on its Consolidated Financial Statements.
74
Table of Contents
WILLDAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
3. SUPPLEMENTAL FINANCIAL STATEMENT DATA
Accounts Receivable
Accounts receivable consisted of the following:
Billed
Unbilled (1)
Contract retentions
Other assets (2)
Allowance for doubtful accounts
January 1,
2021
December 27,
2019
(in thousands)
$
$
62,530
56,262
6,164
4,524
129,480
(2,127)
127,353
$
$
58,651
96,041
5,377
14,075
174,144
(1,147)
172,997
(1) Unbilled portion represents contract assets which is presented separately from accounts receivable on the consolidated balance sheets.
(2) Other assets represents a portion of receivables greater than one year from the normal course of business presented separately from current assets on
the consolidated balance sheets.
The movements in the allowance for doubtful accounts consisted of the following:
Balance as of the beginning of the year
(Recovery of) provision for doubtful accounts
Write-offs of uncollectible accounts
Fair value adjustment
Balance as of the end of the year
2020
1,147
1,329
(388)
39
2,127
$
$
Fiscal Year
2019
(in thousands)
$
$
442
1,051
(346)
—
1,147
$
$
2018
369
470
(397)
—
442
Billed accounts receivable represent amounts billed to clients that have yet to be collected. Unbilled accounts
receivable represent revenue recognized, but not yet billed, pursuant to contract terms or accounts billed after the period
end. Substantially all unbilled receivables as of January 1, 2021 and December 27, 2019 are, or were expected to be, billed
and collected within twelve months of such date. Contract retentions represent amounts invoiced to clients where payments
have been withheld pending the completion of certain milestones, other contractual conditions or upon the completion of
the project. 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.
Consolidated Edison of New York accounted for 31% of the Company’s outstanding receivables as of January 1,
2021. The Los Angeles Department of Water and Power (“LADWP”) accounted for 16% of the Company’s outstanding
receivables as of December 27, 2019.
From time to time, in connection with factoring agreements, the Company sells trade accounts receivable without
recourse to third party purchasers in exchange for cash. During 2020 and 2019, the Company sold trade accounts
receivable and received cash proceeds of $10.6 million and $4.9 million, respectively. The discounts on the trade accounts
receivable sold during 2020 were $1.7 million and the discounts on the trade accounts receivable sold during
75
Table of Contents
WILLDAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
2019 were not material. Discounts on the trade accounts receivable were recorded within “Other, net” in other income
(expense) in the consolidated financial statements.
Equipment and Leasehold Improvements
Equipment and leasehold improvements were as follows:
Furniture and fixtures
Computer hardware and software
Leasehold improvements
Equipment under finance leases
Automobiles, trucks, and field equipment
Subtotal
Accumulated depreciation and amortization
Equipment and leasehold improvements, net
January 1,
2021
December 27,
2019
(in thousands)
$
$
4,088
18,047
2,994
2,370
3,216
30,715
(18,209)
12,506
$
$
4,614
14,789
2,410
1,957
3,564
27,334
(15,283)
12,051
Depreciation expense of equipment and leasehold improvements totaled $5.0 million, $3.4 million, and $1.6
million in fiscal years 2020, 2019, and 2018, respectively.
Included in accumulated depreciation and amortization is $0.6 million, $0.5 million and $0.4 million of
amortization expense related to equipment held under finance leases in fiscal years 2020, 2019, and 2018, respectively.
Accrued Liabilities
Accrued liabilities were as follows:
Accrued subcontractor costs
Other
Accrued bonuses
Employee withholdings
Compensation and payroll taxes
Paid leave bank
Total accrued liabilities
January 1,
2021
December 27,
2019
(in thousands)
$
$
19,124
11,981
5,211
2,768
1,983
687
41,754
$
$
45,366
4,630
7,756
3,463
3,286
3,114
67,615
76
Table of Contents
WILLDAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
4. DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses certain interest rate derivative contracts to hedge interest rate exposures on its variable rate
debt. The Company’s hedging program is not designated for trading or speculative purposes.
The Company recognizes derivative instruments as either assets or liabilities on the accompanying consolidated
balance sheets at fair value. The Company records changes in the fair value (i.e., gains or losses) of the derivatives that
have been designated as cash flow hedges in its consolidated balance sheets as accumulated other comprehensive income
(loss) and in its condensed consolidated statements of comprehensive (loss) income as a loss or gain on cash flow hedge
valuation.
On January 31, 2019, the Company entered into an interest rate swap agreement that the Company designated as
cash flow hedge to fix the variable interest rate on a portion of the Company’s 2018 Term Loan Facility. The interest rate
swap agreement total notional amount of $35.0 million, has a fixed annual interest rate of 2.47% and expires on January
31, 2022. As of January 1, 2021, the effective portion of the Company’s interest rate swap agreement designated as a cash
flow hedge before tax effects was $0.7 million, of which no amounts were reclassified from accumulated other
comprehensive income to interest expense in fiscal 2020. The Company expects to reclassify $0.5 million from
accumulated other comprehensive income to interest expense within the next twelve months.
The fair values of the Company’s outstanding derivatives designated as hedging instruments were as follows:
Interest rate swap agreement
Interest rate swap agreement
Accrued liabilities
Other noncurrent (liabilities) assets
$
$
(624) $
(48) $
(241)
(306)
Balance Sheet Location
Fair Value of Derivative
Instruments as of
January 1, 2021 December 27, 2019
(in thousands)
The impact of the effective portions of derivative instruments in cash flow hedging relationships and fair value
relationships on other comprehensive income was $0.7 million for the year ended January 1, 2021.
The accumulated balances and reporting period activities for the year ended January 1, 2021 related to
reclassifications out of accumulated other comprehensive income (loss) are summarized as follows:
Accumulated Other
Derivative Instruments Comprehensive Loss
Gain (Loss) on
Balances at December 28, 2018
Other comprehensive loss before reclassifications
Amounts reclassified from accumulated other comprehensive income:
Income tax benefit (expense) related to derivative instruments
Net current-period other comprehensive loss
Balances at December 27, 2019
Other comprehensive loss before reclassifications
Amounts reclassified from accumulated other comprehensive income:
Income tax benefit (expense) related to derivative instruments
Net current-period other comprehensive loss
Balances at January 1, 2021
$
$
$
(in thousands)
— $
(546)
150
(396)
(396)
(126)
34
(488)
(488)
$
$
—
(546)
150
(396)
(396)
(126)
34
(488)
(488)
77
Table of Contents
WILLDAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
5. DEBT OBLIGATIONS
Debt obligations, excluding obligations under finance leases (see Note 7, Leases, below), consisted of the
following:
Outstanding borrowings on Term A Loan
Outstanding borrowings on Revolving Credit Facility
Outstanding borrowings on Delayed Draw Term Loan
Other debt agreements
Total debt
Issuance costs and debt discounts
Subtotal
Less current portion of long-term debt
Long-term debt portion
Credit Facilities
January 1,
2021
December 27,
2019
(in thousands)
85,000
—
27,000
1,996
113,996
(822)
113,174
14,996
98,178
$
$
95,000
5,000
30,000
1,060
131,060
(709)
130,351
13,720
116,631
$
$
On June 26, 2019, the Company and certain of its subsidiaries entered into an Amended and Restated Credit
Agreement (as amended by the First Amendment, dated as of August 15, 2019, and the Second Amendment, dated as of
November 6, 2019, the “Credit Agreement”) with a syndicate of financial institutions as lenders and BMO Harris Bank,
N.A. (“BMO”), as administrative agent.
The Credit Agreement provides for (i) a $100.0 million secured term loan (the “Term A Loan”), (ii) up to $50.0
million in delayed draw secured term loans (the “Delayed Draw Term Loan”), and (iii) a $50.0 million secured revolving
credit facility (the “Revolving Credit Facility” and, collectively with the Term A Loan and the Delayed Draw Term Loan,
the “Credit Facilities”), each maturing on June 26, 2024. The Company’s obligations under the Credit Agreement are
guaranteed by its present and future domestic subsidiaries, with limited exceptions.
Prior to the Third Amendment (as defined below), the Credit Agreement required the Company to comply with
certain financial covenants, including requiring that the Company maintain a (i) total leverage ratio (the “Leverage Ratio”),
defined as the ratio of total funded debt to Adjusted EBITDA (as defined in the Credit Agreement), of at least 3.50 to 1.00
through December 31, 2020, and 3.25 to 1.00 thereafter and (ii) fixed charge coverage ratio (“FCCR Ratio”), defined as the
ratio of Adjusted EBITDA less Unfinanced Capital Expenditures (as defined in the Credit Agreement) to Fixed Charges
(as defined in the Credit Agreement), of not less than 1.20 to 1.00, in each case tested quarterly.
The Credit Agreement also contains other customary restrictive covenants including (i) restrictions on the
incurrence of additional indebtedness and additional liens on property, (ii) restrictions on permitted acquisitions and other
investments and (iii) limitations on asset sales, mergers and acquisitions. Further, the Credit Agreement limits the
Company’s payment of future dividends and distributions and share repurchases by the Company. Subject to certain
exceptions, borrowings under the Credit Agreement are also subject to mandatory prepayment from (a) any issuances of
debt or equity securities, (b) any sale or disposition of assets, (c) insurance and condemnation proceeds (d) representation
and warranty insurance proceeds related to insurance policies issued in connection with acquisitions and (e) excess cash
flow. The Credit Agreement includes customary events of default.
Third Amendment to the Credit Agreement
On May 6, 2020, the Company entered into the Third Amendment to the Amended and Restated Credit
Agreement (the “Third Amendment”) which, among other things, amends or suspends certain covenants contained in the
Credit Agreement from March 5, 2020 until the earlier of (i) July 2, 2021 and (ii) the last day of the fiscal quarter in
78
Table of Contents
WILLDAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
which the Company delivers an irrevocable election to terminate the covenant relief granted by the Third Amendment (the
“Covenant Relief Period”).
The Third Amendment increases the maximum Leverage Ratio the Company is permitted to maintain during the
Covenant Relief Period and replaces the covenant to maintain a minimum FCCR Ratio during the Covenant Relief Period
with a requirement to maintain a minimum Adjusted EBITDA (as defined in the Third Amendment). During the Covenant
Relief Period, no further delayed draw term loans may be borrowed under the Credit Facilities and the Company is
prohibited from engaging in share repurchases or making any Permitted Acquisitions (as defined in the Credit Agreement).
Additionally, during the Covenant Relief Period, the aggregate amount of all capital expenditures made by the Company
may not exceed $7.0 million, and the Company is prohibited from making any earn-out payments if, after giving effect to
such earn-out payment, the Company’s liquidity would be less than $5.0 million or the aggregate amount of all earn-out
payments made by the Company during the Covenant Relief Period would exceed $7.0 million.
During the Covenant Relief Period, borrowings under the Credit Agreement bear interest (A) from March 5, 2020
until the date of the Third Amendment, at a rate equal to one-month LIBOR plus 2.0%, (B) from the date of the Third
Amendment until the date the administrative agent received the Company’s financial statements for the quarter ended July
3, 2020, at a rate equal to one-month LIBOR, plus an applicable margin of 1.50% with respect to Base Rate borrowings
and 2.50% with respect to LIBOR borrowings and (C) at all other times during the Covenant Relief Period, at a rate equal
to either, at the Company’s option, (i) the highest of the prime rate, the Federal Funds Rate plus 0.5% or one-month LIBOR
plus 1.00% or (ii) one-month LIBOR, in each case plus an applicable margin ranging from 0.125% to 1.50% with respect
to Base Rate borrowings and 1.125% to 2.50% with respect to LIBOR borrowings, depending on the Leverage Ratio;
provided, that one-month LIBOR shall not be less than 0.75% during the Covenant Relief Period. During the Covenant
Relief Period, the Company will pay a commitment fee for the unused portion of the Revolving Credit Facility and the
delayed draw term loan facility, which ranges from 0.15% to 0.45% per annum depending on the Leverage Ratio, and fees
on the face amount of any letters of credit outstanding under the Revolving Credit Facility, which range from 0.84% to
2.50% per annum, in each case, depending on whether such letter of credit is a performance or financial letter of credit and
the Leverage Ratio.
After the Covenant Relief Period, borrowings under the Credit Agreement will bear interest at a rate equal to
either, at the Company’s option, (i) the Base Rate or (ii) one-month LIBOR, in each case plus an applicable margin ranging
from 0.125% to 1.00% with respect to Base Rate borrowings and 1.125% to 2.00% with respect to LIBOR borrowings,
depending on the Leverage Ratio; provided, that one-month LIBOR shall not be less than 0.00%. After the Covenant Relief
Period, the Company will pay a commitment fee for the unused portion of the Revolving Credit Facility and the delayed
draft term loan facility, which will range from 0.15% to 0.35% per annum depending on the Leverage Ratio, and fees on
the face amount of any letters of credit outstanding under the Revolving Credit Facility, which will range from 0.84% to
2.00% per annum, in each case, depending on whether such letter of credit is a performance or financial letter of credit and
the Leverage Ratio.
The Term A Loan issuance costs are amortized to interest expense over the term of the loan, and as of January 1,
2021, issuance costs of $0.8 million remained unamortized. The Delayed Draw Term Loan and Revolving Credit Facility
issuance cost of $0.6 million are included in assets in the accompanying condensed consolidated balance sheets.
The Term A Loan amortizes quarterly in installments of $2.5 million beginning with the fiscal quarter ending
September 27, 2019, with a final payment of all then remaining principal and interest due on the maturity date of June 26,
2024. Each borrowing under the Delayed Draw Term Loan will amortize quarterly in an amount equal to 2.5% of the
aggregate outstanding borrowings under the Delayed Draw Term Loan, beginning with the first full fiscal quarter ending
after the initial borrowing date, with a final payment of all then remaining principal and interest due on the maturity date of
June 26, 2024. The amounts outstanding under the Credit Facilities may be prepaid in whole or in part at any time without
penalty.
Willdan is the borrower under the Credit Agreement and its obligations under the Credit Agreement are
guaranteed by its present and future domestic subsidiaries (other than any inactive subsidiaries and Factoring SPV (as
defined in the Credit Agreement)). In addition, subject to certain exceptions, all such obligations are secured by
substantially all of the assets of Willdan and the subsidiary guarantors.
79
Table of Contents
WILLDAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The Company believes that, as of January 1, 2021, it was in compliance with all covenants contained in the Credit
Agreement, as amended by the Third Amendment.
As of January 1, 2021, the Company’s composite interest rate, exclusive of the effects of upfront fees, undrawn
fees and issuance cost amortization, was 2.8% and $2.7 million in letters of credit were issued.
Other Debt Agreements
Insurance Premiums
The Company’s annual commercial insurance policy protection package renews in the fourth quarter of every
year. From time to time, the Company will finance insurance premiums by entering into unsecured notes payable with
insurance companies.
During the Company’s annual insurance renewals in the fourth quarter of its fiscal year ended January 1, 2021, the
Company elected to finance its insurance premiums for the 2021 fiscal year with a note payable bearing interest at an
annual rate of 2.75%, payable in monthly principal and interest installments of $0.2 million through August 2021. As of
January 1, 2021, the unpaid balance of the financed premiums totaled $1.1 million. During the Company’s annual
insurance renewals in the fourth quarter of its year ended December 27, 2019, the Company did not finance any of its
insurance premiums for the 2020 fiscal year.
Software Agreements
The Company has also financed, from time to time, software costs by entering into unsecured notes payable with
software providers. During the fiscal year ended December 28, 2018, the Company elected to finance its IBM software
costs of $0.2 million with a note payable bearing interest at an annual rate of 4.656%, payable in monthly principal and
interest installments of $6,315 through November 2021. As of January 1, 2021, and December 27, 2019, the unpaid
balance related to the IBM software agreement totaled $57,000 and $133,000, respectively.
Utility Customer Agreement
In connection with the acquisition of substantially all of the assets of Onsite Energy, the Company assumed a
contract dispute settlement agreement between Onsite Energy and one of its utility customers dated December 20, 2018
(the “Utility Customer Agreement”) where Onsite Energy agreed to pay $1.7 million, bearing interest at an imputed annual
rate of 4.332%, payable in quarterly principal and interest installments through June 2021. As of January 1, 2021 and
December 27, 2019, the unpaid balance of the Utility Customer Agreement totaled $0.8 million and $0.9 million,
respectively.
Future Debt Payments
The following table summarizes the combined principal installments for the Company’s debt obligations,
excluding capital leases, over the next five years and beyond, as of January 1, 2021:
Fiscal Year:
2021
2022
2023
2024
Total debt maturities
Issuance costs and debt discounts
Net carrying value
80
14,996
13,000
13,000
73,000
113,996
(822)
113,174
$
Table of Contents
WILLDAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
6. GOODWILL AND OTHER INTANGIBLE ASSETS
As of January 1, 2021, the Company had $130.1 million of goodwill, which primarily relates to the Energy
segment and the acquisitions within this segment of E3, Inc., Lime Energy, NAM, Integral Analytics and Abacus Resource
Management Company (“Abacus”) and substantially all of the assets of Onsite Energy, The Weidt Group, Genesys and 360
Energy Engineers, LLC (“360 Energy”). The remaining goodwill relates to the Engineering and Consulting reporting
segment and the acquisition within this segment of Economists LLC.
The changes in the carrying value of goodwill by reporting unit were as follows:
Reporting Unit:
Energy
Engineering and Consulting
Reporting Unit:
Energy
Engineering and Consulting
December 27,
2019
Additional
Additions /
Purchase Cost Adjustments
(in thousands)
January 1,
2021
$
$
126,898
749
127,647
$
$
— $
—
— $
2,477
—
2,477
$
$
129,375
749
130,124
December 28,
2018
Additional
Additions /
Purchase Cost Adjustments
(in thousands)
December 27,
2019
$
$
96,999
749
97,748
$
$
39,690
39,690
$
$
(9,791) $
(9,791) $
126,898
749
127,647
The Company tests its goodwill at least annually for possible impairment. The Company completes its annual
testing of goodwill as of the last day of the first month of its fourth fiscal quarter each year to determine whether there is
impairment. In addition to the Company’s annual test, it regularly evaluates whether events and circumstances have
occurred that may indicate a potential impairment of goodwill, including the current economic impact caused by the Covid-
19 pandemic. No impairment was recorded in any year during the three-year period ended January 1, 2021.
The gross amounts and accumulated amortization of the Company’s acquired identifiable intangible assets with
finite useful lives, included in other intangible assets, net in the accompanying consolidated balance sheets, were as
follows:
January 1, 2021
December 27, 2019
Gross
Amount
Accumulated
Amortization
Gross
Amount
Accumulated
Amortization
Finite:
Backlog
Tradename
Non-compete agreements
Developed technology
Customer relationships
Total finite intangible assets
In-process research and technology (1)
Total intangible assets
$
$
$
7,944
15,911
1,420
15,500
58,149
98,924
310
99,234
$
$
$
6,249
6,984
1,390
6,107
14,248
34,978
—
34,978
$
$
$
7,134
13,351
2,320
14,620
60,733
98,158
—
98,158
$
$
$
3,763
4,882
1,384
3,227
8,065
21,321
—
21,321
(1)
In-process research and technology is not amortized until put into use.
Amortization
Period
(in years)
1.0
2.5
4.0
- 6.0
- 5.0
8.0
5.0
- 8.0
81
Table of Contents
WILLDAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
At the time of acquisition, the Company estimates the fair value of the acquired identifiable intangible assets
based upon the facts and circumstances related to the particular intangible asset. Inherent in such estimates are judgments
and estimates of future revenue, profitability, cash flows and appropriate discount rates for any present value calculations.
The Company preliminarily estimates the value of the acquired identifiable intangible assets and then finalizes the
estimated fair values during the purchase allocation period, which does not extend beyond 12 months from the date of
acquisition.
The Company’s amortization expense for acquired identifiable intangible assets with finite useful lives was $13.7
million, $11.6 million and $4.5 million for the fiscal years 2020, 2019 and 2018, respectively.
Estimated amortization expense for acquired identifiable intangible assets for fiscal year 2021 and the succeeding
years is as follows:
Fiscal year:
2021
2022
2023
2024
2025
Thereafter
Future Intangible Asset
Amortization expense
(in thousands)
11,543
11,227
9,928
6,806
6,235
18,517
64,256
$
82
Table of Contents
7. LEASES
WILLDAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The Company leases certain office facilities under long-term, non-cancellable operating leases that expire at
various dates through the year 2027. In addition, the Company is obligated under finance leases for certain furniture and
office equipment that expire at various dates through the year 2023.
On December 29, 2018, the Company adopted ASU No. 2016-02, Leases (Topic 842) using the modified
retrospective method. Under this guidance, the net present value of future lease payments is recorded as right-of-use assets
and lease liabilities. In addition, the Company elected the ‘package of practical expedients’ permitted under the transition
guidance within the new standard, which among other things, allowed the Company to carry forward the historical lease
classification. In addition, the Company elected not to utilize the hindsight practical expedient to determine the lease term
for existing leases. The Company elected the short-term lease recognition exemption for all leases that qualify. This means,
for those leases that qualify, the Company did not recognize right-of-use assets or lease liabilities, including not
recognizing right-of-use assets or lease liabilities for existing short-term leases of those assets in transition. The Company
also elected the practical expedient to not separate lease and non-lease components for our facilities leases.
From time to time, the Company enters into non-cancelable leases for some of our facility and equipment needs.
These leases allow the Company to conserve cash by paying a monthly lease rental fee for the use of facilities and
equipment rather than purchasing them. The Company’s leases have remaining terms ranging from one to eight years,
some of which may include options to extend the leases for up to five years, and some of which may include options to
terminate the leases within one year. Currently, all of the Company’s leases contain fixed payment terms. The Company
may decide to cancel or terminate a lease before the end of its term, in which case we are typically liable to the lessor for
the remaining lease payments under the term of the lease. Additionally, all of our month-to-month leases are cancelable by
the Company or the lessor, at any time, and are not included in our right-of-use asset or lease liability. As of January 1,
2021, the Company had no leases with residual value guarantees. Typically, the Company has purchase options on the
equipment underlying its long-term leases. The Company may exercise some of these purchase options when the need for
equipment is on-going and the purchase option price is attractive. Nonperformance-related default covenants, cross-default
provisions, subjective default provisions and material adverse change clauses contained in material lease agreements, if
any, are also evaluated to determine whether those clauses affect lease classification in accordance with “ASC” Topic 842-
10-25. Leases are accounted for as operating or financing leases, depending on the terms of the lease.
Financing Leases
The Company leases certain equipment under financing leases. The economic substance of the leases is a
financing transaction for acquisition of equipment and leasehold improvements. Accordingly, the right-of-use assets for
these leases are included in the balance sheets in equipment and leasehold improvements, net of accumulated depreciation,
with a corresponding amount recorded in current portion of financing lease obligations or noncurrent portion of financing
lease obligations, as appropriate. The financing lease assets are amortized over the life of the lease or, if shorter, the life of
the leased asset, on a straight-line basis and included in depreciation expense. The interest associated with financing lease
obligations is included in interest expense.
Right-of-use assets
Operating leases are included in right-of-use assets, and current portion of lease liability and noncurrent portion of
lease liability, as appropriate. Right-of-use assets and lease liabilities are recognized based on the present value of the
future minimum lease payments over the lease term at commencement date. As most of the Company’s leases do not
provide an implicit rate to calculate present value, the Company determines this rate by estimating the Company’s
incremental borrowing rate at the lease commencement date. The right-of-use asset also includes any lease payments made
and initial direct costs incurred at lease commencement and excludes lease incentives. Our lease terms may include options
to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for minimum
lease payments is recognized on a straight-line basis over the lease term.
83
Table of Contents
WILLDAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following is a summary of the lease expense:
Operating lease cost
Finance lease cost:
Amortization of assets
Interest on lease liabilities
Total net lease cost
Fiscal Year
2020
2019
(in thousands)
7,031
$
589
29
7,649
$
5,053
509
36
5,598
$
$
The following is a summary of lease information presented on the Company’s consolidated balance sheet:
Operating leases:
Right-of-use assets
Lease liability
Lease liability, less current portion
Total lease liabilities
Finance leases (included in equipment and leasehold improvements, net):
Equipment and leasehold improvements, net
Accumulated depreciation
Total equipment and leasehold improvements, net
Finance lease obligations
Finance lease obligations, less current portion
Total finance lease obligations
Weighted average remaining lease term (in years):
Operating Leases
Finance Leases
Weighted average discount rate:
Operating Leases
Finance Leases
$
$
$
$
$
$
$
January 1,
2021
December 27,
2019
(in thousands)
$
$
$
$
$
$
$
20,130
5,844
15,649
21,493
2,370
(1,826)
544
248
236
484
4.40
2.02
22,297
5,550
18,411
23,961
1,957
(1,291)
666
375
191
566
4.59
1.47
4.44 %
3.74 %
5.14 %
4.80 %
Rent expense for fiscal years 2020, 2019, and 2018 was $7.6 million, and $6.2 million, and $4.5 million,
respectively.
84
Table of Contents
WILLDAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following is a summary of other information and supplemental cash flow information related to finance and
operating leases:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flow from operating leases
Operating cash flow from finance leases
Financing cash flow from finance leases
Right-of-use assets obtained in exchange for lease liabilities:
Operating leases
Fiscal Year
2020
2019
(in thousands)
$
$
$
6,972
29
549
5,151
36
639
3,186
$
4,918
The following is a summary of the maturities of lease liabilities as of January 1, 2021:
Fiscal year:
2021
2022
2023
2024
2025
2026 and thereafter
Total lease payments
Less: Imputed interest
Total lease obligations
Less: Current obligations
Noncurrent lease obligations
Operating
Finance
(in thousands)
$
$
$
6,645
5,818
3,983
2,611
2,088
2,489
23,634
(2,141)
21,493
5,844
15,649
$
$
$
261
172
54
14
2
—
503
(19)
484
248
236
The imputed interest for finance lease obligations represents the interest component of finance leases that will be
recognized as interest expense in future periods. The financing component for operating lease obligations represents the
effect of discounting the operating lease payments to their present value.
85
Table of Contents
WILLDAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
8. COMMITMENTS AND VARIABLE INTEREST ENTITIES
Employee Benefit Plans
The Company has a qualified profit sharing plan pursuant to Code Section 401(a) and qualified cash or deferred
arrangement pursuant to Code Section 401(k) covering all employees. Employees may elect to contribute up to 50% of
their compensation limited to the amount allowed by tax laws. Company contributions are made solely at the discretion of
the Company’s board of directors.
The Company also had a defined contribution plan (the “Plan”) covering employees who have completed three
months of service and who have attained 21 years of age. The Company elected to make matching contributions equal to
50% of the participants’ contributions to the Plan up to 6% of the individual participant’s compensation. Under the defined
contribution plan, the Company may make discretionary matching contributions to employee accounts.
The Company made matching contributions of $1.5 million, $2.0 million, and $1.1 million during fiscal years
2020, 2019 and 2018, respectively.
Variable Interest Entities
On March 4, 2016, the Company and the Company’s wholly-owned subsidiary, WES acquired substantially all of
the assets of Genesys and assumed certain specified liabilities of Genesys (collectively, the “Purchase”) pursuant to an
Asset Purchase and Merger Agreement, dated as of February 26, 2016 (the “Agreement”), by and among Willdan Group,
Inc., WES, WESGEN (as defined below), Genesys and Ronald W. Mineo (“Mineo”) and Robert J. Braun (“Braun” and,
together with Mineo, the “Genesys Shareholders”). On March 5, 2016, pursuant to the terms of the Agreement, WESGEN,
Inc., a non-affiliated corporation (“WESGEN”), merged (the “Merger” and, together with the Purchase, the “Acquisition”)
with Genesys, with Genesys remaining as the surviving corporation. Genesys was acquired to strengthen the Company’s
power engineering capability in the northeastern U.S., and also to increase client exposure and experience with universities.
Genesys continues to be a professional corporation organized under the laws of the State of New York, wholly-
owned by one or more licensed engineers. Pursuant to New York law, the Company does not own capital stock of Genesys.
The Company has entered into an agreement with the Shareholder of Genesys pursuant to which the Shareholder will be
prohibited from selling, transferring or encumbering the Shareholder’s ownership interest in Genesys without the
Company’s consent. Notwithstanding the Company’s rights regarding the transfer of Genesys’s stock, the Company does
not have control over the professional decision making of Genesys’s engineering services. The Company has entered into
an administrative services agreement with Genesys pursuant to which WES will provide Genesys with ongoing
administrative, operational and other non-professional support services. Genesys pays WES a service fee, which consists of
all of the costs incurred by WES to provide the administrative services to Genesys plus ten percent of such costs, as well as
any other costs that relate to professional service supplies and personnel costs. As a result of the administrative services
agreement, the Company absorbs the expected losses of Genesys through its deferral of Genesys’s service fees owed to
WES.
The Company manages Genesys and has the power to direct the activities that most significantly impact
Genesys’s performance, in addition to being obligated to absorb expected losses from Genesys. Accordingly, the Company
is the primary beneficiary of Genesys and consolidates Genesys as a VIE. In addition, the Company concluded there is no
noncontrolling interest related to the consolidation of Genesys because the Company determined that (i) the shareholder of
Genesys does not have more than a nominal amount of equity investment at risk, (ii) WES absorbs the expected losses of
Genesys through its deferral of Genesys’s service fees owed to WES and the Company has, since entering into the
administrative services agreement, had to continuously defer service fees for Genesys, and (iii) the Company believes
Genesys will continue to have a shortfall on payment of its service fees for the foreseeable future, leaving no expected
residual returns for the shareholder.
As of January 1, 2021, the Company had one VIE — Genesys.
86
Table of Contents
WILLDAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
9. SEGMENT AND GEOGRAPHICAL INFORMATION
Segment Information
The Company’s two segments are Energy and Engineering and Consulting, and the Company’s chief operating
decision maker, which continues to be its chief executive officer, receives and reviews financial information in this format.
There were no intersegment sales in any of the three fiscal years ended January 1, 2021. The Company’s chief
operating decision maker evaluates the performance of each segment based upon income or loss from operations before
income taxes. Certain segment asset information including expenditures for long-lived assets has not been presented as it is
not reported to or reviewed by the chief operating decision maker. In addition, enterprise-wide service line contract revenue
is not included as it is impracticable to report this information for each group of similar services.
Financial information with respect to the reportable segments and reconciliation to the amounts reported in the
Company’s consolidated financial statements follows:
Fiscal Year 2020
Contract revenue
Depreciation and amortization
Interest expense
Segment profit (loss) before income tax expense
Income tax (benefit) expense
Net income (loss)
Segment assets (1)
Fiscal Year 2019
Contract revenue
Depreciation and amortization
Interest expense
Segment profit (loss) before income tax expense
Income tax (benefit) expense
Net income (loss)
Segment assets (1)
Fiscal Year 2018
Contract revenue
Depreciation and amortization
Interest expense
Segment profit before income tax expense
Income tax expense (benefit)
Net income (loss)
Segment assets (1)
Energy
Engineering
Unallocated
& Consulting Corporate Intersegment
(in thousands)
Consolidated
Total
$
$
$
$
$
$
324,178
17,666
32
(9,963)
(2,621)
(7,343)
337,739
370,715
13,703
32
11,971
3,308
8,664
392,362
196,833
5,274
312
8,959
1,570
7,390
252,124
$
$
$
66,802
1,077
—
9,500
2,499
7,002
21,796
72,384
1,324
—
8,839
2,442
6,397
23,682
75,419
786
388
7,589
1,330
6,259
20,402
— $
—
5,036
(19,206)
(5,051)
(14,155)
73,918
— $
—
4,868
(16,154)
(5,935)
(10,220)
46,999
— $
—
—
(4,387)
(769)
(3,619)
51,515
— $
—
—
—
—
—
(23,130)
— $
—
—
—
—
—
(23,130)
— $
—
—
—
—
—
(23,130)
390,980
18,743
5,068
(19,669)
(5,173)
(14,496)
410,323
443,099
15,027
4,900
4,656
(185)
4,841
439,913
272,252
6,060
700
12,161
2,131
10,030
300,911
(1)
Segment assets are presented net of intercompany receivables.
87
Table of Contents
WILLDAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following tables provides information about disaggregated revenue by contract type, client type and
geographical region:
Contract Type
Time-and-materials
Unit-based
Fixed price
Total
Client Type
Commercial
Government
Utilities
Total
Geography (1)
Domestic
Contract Type
Time-and-materials
Unit-based
Fixed price
Total
Client Type
Commercial
Government
Utilities
Total
Geography (1)
Domestic
Contract Type
Time-and-materials
Unit-based
Fixed price
Total
Client Type
Commercial
Government
Utilities
Total
Energy
2020
Engineering and
Consulting
(in thousands)
Total
$
$
$
$
$
$
$
$
$
$
$
$
$
$
47,912
170,991
105,275
324,178
36,212
93,821
194,145
324,178
324,178
Energy
18,625
272,978
79,112
370,715
39,311
57,020
274,384
370,715
370,715
Energy
13,790
113,749
69,294
196,833
20,715
62,897
113,221
196,833
$
$
$
$
$
$
$
$
$
$
$
$
$
$
53,840
9,195
3,767
66,802
5,155
61,412
235
66,802
66,802
2019
Engineering and
Consulting
(in thousands)
54,560
14,391
3,433
72,384
4,895
67,049
440
72,384
72,384
2018
Engineering and
Consulting
(in thousands)
59,744
13,300
2,375
75,419
4,882
70,091
446
75,419
$
$
$
$
$
$
$
$
$
$
$
$
$
$
101,752
180,186
109,042
390,980
41,367
155,233
194,380
390,980
390,980
73,185
287,369
82,545
443,099
44,206
124,069
274,824
443,099
443,099
73,534
127,049
71,669
272,252
25,597
132,988
113,667
272,252
Total
Total
Geography (1)
Domestic
(1) Revenue from our foreign operations were immaterial for fiscal years 2020 and 2019. For fiscal year 2018, we did not have any
196,833
75,419
$
$
$
272,252
foreign revenues.
88
Table of Contents
WILLDAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following sets forth the assets that are included in Unallocated Corporate as of January 1, 2021 and December
27, 2019.
Assets:
Cash and cash equivalents
Accounts Receivable, net
Prepaid expenses
Intercompany receivables
Goodwill
Other receivables
Equipment and leasehold improvements, net
Investments in subsidiaries
ROU Assets
Other
Deferred income taxes
Geographical Information
2020
2019
(in thousands)
$
28,405
(4,845)
2,422
691,440
2
4,409
1,585
26,576
809
444
14,111
765,358
$
$
$
5,452
(108)
1,912
125,126
2
3,915
1,637
23,130
1,141
606
9,312
172,125
Substantially all of the Company’s consolidated revenue was derived from its operations in the U.S. In connection
with the Company’s acquisition of E3, Inc. in October 28, 2019, the Company expanded its operations into Canada.
Revenues from the Company’s Canadian operations were not material for fiscal years 2020 and 2019.
Customer Concentration
For fiscal years 2020, 2019, and 2018, the Company’s top 10 customers accounted for 48.0%, 50.6%, and 56.9%,
respectively, of the Company’s consolidated contract revenue. During fiscal years 2020, 2019, and 2018, the Company had
individual customers that accounted for more than 10% of its consolidated contract revenues. For fiscal year 2020, the
Company derived 10.2% of its consolidated contract revenue from one customer, Los Angeles Department of Water and
Power. For fiscal year 2019, the Company derived 29.1% of its consolidated contract revenue from two customers,
Consolidated Edison of New York and the Los Angeles Department of Water and Power. For fiscal year 2018, the
Company derived 19.0% of its consolidated contract revenue from one customer, Consolidated Edison of New York.
On a segment basis, the Company also had individual customers that accounted for more than 10% of its segment
contract revenues. For fiscal year 2020, the Company derived 22.5% of its Energy segment revenues from two customers,
Los Angeles Department of Water and Power and The Dormitory Authority State of New York (“DASNY”), and it derived
18.2% of its Engineering and Consulting segment revenues from one customer, the City of Elk Grove. For fiscal year 2019,
the Company derived 34.7% of its Energy segment revenues from two customers, Consolidated Edison of New York and
the Los Angeles Department of Water and Power, and it derived 25.0% of its Engineering and Consulting segment
revenues from one customer, the City of Elk Grove. For 2018, the Company derived 18.5% of its Energy segment revenues
from one customer, Consolidated Edison of New York, and it derived 10% of its Engineering and Consulting segment
revenues from three customers, the City of Elk Grove, City of Long Beach and Ygrene.
The Company’s largest clients are based in California and New York. In fiscal year 2020, 2019, and 2018, services
provided to clients in California accounted for 37.0%, 41.1%, and 35.0%, respectively, of the Company’s contract revenue
and services provided to clients in New York accounted for 19.2%, 27.2%, and 29.0%, respectively, of the Company’s
contract revenue.
89
Table of Contents
WILLDAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
10. SHAREHOLDERS’ EQUITY
Stock Incentive Plans
As of January 1, 2021, the Company had two share-based compensation plans, which are described below. The
Company may no longer grant awards under the 2006 Stock Incentive Plan.
2006 Stock Incentive Plan
In June 2006, the Company’s board of directors adopted the 2006 Stock Incentive Plan (“2006 Plan”) and it
received stockholder approval. The Company re-submitted the 2006 Plan to its stockholders for post-IPO approval at the
2007 annual meeting of the stockholders and it was approved. The 2006 Plan terminated in June 2016 and no additional
awards were granted under the 2006 Plan after the Company’s shareholders approved the 2008 Plan (as defined below) in
June 2008. The 2006 Plan had 300,000 shares of common stock reserved for issuance to the Company’s directors,
executives, officers, employees, consultants and advisors. Approximately 70,333 shares that were available for award grant
purposes under the 2006 Plan have become available for grant under the 2008 Plan following shareholder approval of the
2008 Plan. Options granted under the 2006 Plan could be “non-statutory stock options” which expire no more than 10 years
from the date of grant or “incentive stock options” as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the “Internal Revenue Code”). Upon exercise of non-statutory stock options, the Company is generally entitled
to a tax deduction on the exercise of the option for an amount equal to the excess over the exercise price of the fair market
value of the shares at the date of exercise. The Company is generally not entitled to any tax deduction on the exercise of an
incentive stock option.
As of January 1, 2021, there were no outstanding stock options under the 2006 Plan.
Amended and Restated 2008 Performance Incentive Plan
In March 2008, the Company’s board of directors adopted the 2008 Performance Incentive Plan (“2008 Plan”),
and it received stockholder approval at the 2008 annual meeting of the stockholders in June 2008. The 2008 Plan was
originally set to terminate on April 17, 2027 but received a ten-year extension at the 2019 annual meeting of the
stockholders. The 2008 Plan is currently scheduled to expire on April 18, 2029. The 2008 Plan initially had 450,000 shares
of common stock reserved for issuance (not counting any shares originally available under the 2006 Plan that “poured
over.”) At the 2010, 2012, 2016, 2017, 2019 annual meetings of the stockholders, the stockholders approved 350,000,
500,000, 500,000, 875,000 and 955,000 share increases, respectively, to the 2008 Plan. The maximum number of shares of
the Company’s common stock that may be issued or transferred pursuant to awards under the 2008 Plan can also be
increased by any shares subject to stock options granted under the 2006 Plan and outstanding as of June 9, 2008 which
expire, or for any reason are cancelled or terminated, after June 9, 2008 without being exercised. The 2008 Plan currently
has 161,000 shares of common stock reserved for issuance. Awards authorized 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 300,000 shares in any fiscal year. Options generally may not be
granted with exercise prices less than fair market value at the date of grant, with vesting provisions and contractual terms
determined by the compensation committee of the board of directors on a grant-by-grant basis, subject to the minimum
vesting provisions contained in the 2008 Plan. Options granted under the 2008 Plan may be “nonqualified stock options” or
“incentive stock options” as defined in Section 422 of the Internal Revenue Code. The maximum term of each option shall
be 10 years. Upon exercise of nonqualified stock options, the Company is generally entitled to a tax deduction on the
exercise of the option for an amount equal to the excess over the exercise price of the fair market value of the shares at the
date of exercise. The Company is generally not entitled to any tax deduction on the exercise of an incentive stock option.
For awards other than stock options, the Company is generally entitled to a tax deduction at the time the award holder
recognizes income with respect to the award equal to the amount of compensation income recognized by the award holder.
Options and other awards provide for accelerated vesting if there is a change in control (as defined in the 2008 Plan) and
the outstanding awards are not substituted or assumed in connection with the transaction.
90
Table of Contents
WILLDAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Through January 1, 2021, outstanding awards granted, net of forfeitures and exercises, under the 2008 Plan
consisted of 65,000 shares of incentive stock options, 938,000 shares of non-statutory stock options, 128,000 shares of
restricted stock awards and 380,000 shares of performance-based restricted stock units.
Employee Stock Purchase Plan
Amended and Restated 2006 Employee Stock Purchase Plan
The Company adopted its Amended and Restated 2006 Employee Stock Purchase Plan (“ESPP”) to allow eligible
employees the right to purchase shares of common stock, at semi-annual intervals, with their accumulated payroll
deductions. The plan received stockholder approval in June 2006. The Company re-submitted the plan to its stockholders
for post-IPO approval at the 2007 annual stockholders’ meeting where approval was obtained. The ESPP initially had
300,000 shares of common stock reserved for issuance. At the 2017 annual meeting of the stockholders, the stockholders
approved an 825,000 share increase to the ESPP. A total of 1,125,000 shares of the Company’s common stock have been
reserved for issuance under the plan.
The plan has semi-annual periods beginning on each January 1 and ending on each June 30 and beginning on each
July 1 and ending on each December 31. 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 rate of
payroll contributions elected by a Participant may not be less than one percent (1%) nor more than ten percent (10%) of the
Participant’s Earnings for each payroll period, and only whole percentages may be elected. The accumulated contributions
are applied to the purchase of shares. Shares are purchased under the plan on or as soon as practicable after, the last day of
the offering period. The purchase price per share equals 85% of the fair market value of a share on the lesser price of the
share on the first day or last day of the offering period. The Company’s Amended and Restated 2006 Employee Stock
Purchase Plan is a compensatory plan.
As of January 1, 2021, there were 519,000 shares available for issuance under the plan.
Stock-based Compensation Expense
The compensation expense that has been recognized for stock options, restricted stock awards (“RSA”),
performance-based restricted stock units (“PBRSU”), and ESPP issued under these plans was $16.7 million, $12.1 million,
and $6.3 million for fiscal years 2020, 2019, and 2018, respectively.
The total unrecognized compensation expense related to nonvested stock options was $0.4 million, $1.5 million,
and $3.6 million for fiscal years 2020, 2019, and 2018, respectively.
The total unrecognized compensation expense related to RSAs was $3.6 million, $1.5 million, and $1.0 million
for fiscal years 2020, 2019, and 2018, respectively.
The total unrecognized compensation expense related to PBRSUs was $13.2 million, $21.5 million, and $12.3
million for the fiscal years 2020, 2019, and 2018, respectively. That expense is expected to be recognized over a weighted-
average period of 0.61 years.
There were no options granted that were immediately vested during the fiscal years 2020, 2019, or 2018.
Summary of Stock Option Activity
A summary of option activity under the 2006 Plan and 2008 Plan as of January 1, 2021 and changes during the
fiscal years ended January 1, 2021, December 27, 2019 and December 28, 2018 is presented below. The intrinsic value
91
Table of Contents
WILLDAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
of the fully-vested options is $22.9 million based on the Company’s closing stock price of $41.70 and the average exercise
price of outstanding options on January 1, 2021.
Outstanding at December 27, 2019
Granted
Exercised
Forfeited or expired
Outstanding at January 1, 2021
Vested and expected to vest at January 1, 2021
Exercisable at January 1, 2021
Outstanding at December 28, 2018
Granted
Exercised
Forfeited or expired
Outstanding at December 27, 2019
Vested and expected to vest at December 27, 2019
Exercisable at December 27, 2019
Outstanding at December 29, 2017
Granted
Exercised
Forfeited or expired
Outstanding at December 28, 2018
Vested and expected to vest at December 28, 2018
Exercisable at December 28, 2018
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Term
(in years)
—
$ 17.80
—
9.12
2.71
$ 18.86
$ 18.86
$ 18.16
Options
(in thousands)
1,124
(119)
(2)
1,003
1,003
952
Options
(in thousands)
1,252
$ 16.87
—
8.08
14.97
$ 17.80
$ 17.80
$ 15.48
—
(115)
(13)
1,124
1,124
958
6.06
—
—
—
5.43
5.43
5.31
6.62
—
—
—
6.06
6.06
5.68
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Term
(in years)
Weighted-
Average
Exercise
Price
$ 14.04
31.54
7.85
5.07
$ 16.87
$ 16.87
$ 12.20
Weighted-
Average
Remaining
Contractual
Term
(in years)
7.02
—
—
—
6.62
6.62
5.58
Options
(in thousands)
1,207
158
(85)
(28)
1,252
1,252
838
92
Table of Contents
WILLDAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
A summary of the status of the Company’s nonvested options and changes in nonvested options is presented
below:
Weighted-
Average
Grant-Date
Nonvested at December 27, 2019
Granted
Vested
Forfeited
Nonvested at January 1, 2021
Nonvested at December 28, 2018
Granted
Vested
Forfeited
Nonvested at December 27, 2019
Nonvested at December 29, 2017
Granted
Vested
Forfeited
Nonvested at December 28, 2018
Fair Value
Options
(in thousands)
166
$
—
12.15
—
30.97
—
31.73
(114)
—
52
Weighted-
Average
Grant-Date
Fair Value
Options
(in thousands)
414
$
—
(242)
(6)
166
8.69
—
9.43
10.87
12.15
Weighted-
Average
Grant-Date
Fair Value
$
6.43
12.73
7.29
5.07
8.69
Options
(in thousands)
547
158
(263)
(28)
414
93
Table of Contents
WILLDAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Summary of Restricted Stock Activity
A summary of restricted stock activity under the 2008 Plan as of January 1, 2021 is presented below:
Outstanding at December 27, 2019
Awarded
Vested
Forfeited
Outstanding at January 1, 2021
Outstanding at December 28, 2018
Awarded
Vested
Forfeited
Outstanding at December 27, 2019
Outstanding at December 29, 2017
Awarded
Vested
Forfeited
Outstanding at December 28, 2018
94
Restricted Stock
(in thousands)
58
99
(29)
—
128
64
37
(43)
—
58
87
22
(45)
—
64
Weighted-
Average
Grant Date
Fair Value
33.33
32.89
32.35
—
33.21
22.28
35.60
18.90
—
33.33
17.67
28.17
16.09
—
22.28
$
$
$
$
$
$
Table of Contents
WILLDAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Summary of Performance-Based Restricted Stock Unit Activity
A summary of performance-based restricted stock unit activity under the 2008 Plan as of January 1, 2021 is
presented below:
Outstanding at December 27, 2019
Awarded
Released
Forfeited
Outstanding at January 1, 2021
Outstanding at December 28, 2018
Awarded
Released
Forfeited
Outstanding at December 27, 2019
Outstanding at December 28, 2018
Awarded
Released
Forfeited
Outstanding at December 27, 2019
Fair Value Valuation Assumptions
Stock Option Grants
Performance-Based
Weighted-Average
Restricted Stock Unit Grant Date Fair Value
(in thousands)
$
$
$
431
413
(447)
(18)
379
280
329
(175)
(3)
431
$
— $
280
—
—
280
$
20.68
29.22
28.26
28.62
20.68
21.94
28.99
38.20
27.28
20.68
—
21.94
—
—
21.94
The fair value of each option is calculated using the Black-Scholes option valuation model that uses the
assumptions noted in the following table. Expected volatility is based upon historical volatility of “guideline companies”
since the length of time the Company’s shares have been publicly traded is equal to the contractual term of the options. The
expected term of the option, taking into account both the contractual term of the option and the effects of employees’
expected exercise and expected post-vesting termination behavior is estimated based upon the simplified method. Under
this approach, the expected term is presumed to be the mid-point between the vesting date and the end of the contractual
term. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in
effect at the time of grant. No options were granted during fiscal year 2020. The fair value of stock options granted in fiscal
years 2019 and 2018 was estimated using the following assumptions:
Expected volatility
Expected dividends
Expected term (in years)
Risk-free rate
RSA and PBRSU Grants
2019
2018
34 %
0 %
6
37 % - 38 %
0 %
6
2.49 % 2.65 % - 2.78 %
The Company’s restricted stock awards are valued on the closing price of the Company’s common stock on the
date of grant and typically vest over a three-year period.
95
Table of Contents
WILLDAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The Company’s performance-based restricted stock unit awards are valued on the closing price of the Company’s
common stock on the date of grant and vest over performance period. Under the Company’s new performance-based
restricted stock unit (“PBRSU”) design, 50% of each award will vest based upon the Company’s EBITDA performance
over a two-year and four-year performance periods (“EBITDA Units”), and the remaining 50% of each award will vest
based upon the Company’s earnings per share performance over a two-year and four-years-performance periods (“EPS
Units”) for awards granted for 2019 and 2018, respectively. The Company must achieve a 10% growth rate for the
threshold number of EBITDA Units and EPS Units to vest for any performance year, and the target number of EBITDA
Units and EPS Units will only vest in any performance year if the Company is able to achieve a 20% growth rate. The
Compensation Committee determined to move away from its historical practice of granting only time-based equity awards
and introduced the PBRSUs in order to further align the interests of the Company’s executives with those of shareholders
by strengthening the relationship between executive pay and the Company’s performance against two critical performance
metrics that the Company believes will drive value creation for its shareholders.
ESPP
The fair value of ESPP purchase rights issued is calculated using the Black-Scholes valuation model that uses the
assumptions noted in the following table. Purchase right under the ESPP are generally granted on either January 1 or July 1
of each year. The assumptions are as follows:
Weighted-average expected term (in years)
Risk-Free interest Rate
Stock Price Volatility
Dividend yield
Fair Value
2020
2019
2018
.5
0.9 %
30.3 %
0 %
.5
2.3 %
35.6 %
0 %
.5
1.4 %
37.9 %
0 %
$
28.39
$
33.01
$
26.86
96
Table of Contents
WILLDAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
11. INCOME TAXES
The provision for income taxes is comprised of (1):
2020
Fiscal Year
2019
(in thousands)
2018
Current federal taxes
Current state taxes
Current foreign taxes
Deferred federal taxes
Deferred state taxes
3,632
1,389
—
(2,539)
(351)
2,131
(1) Revenue from the Company’s foreign operations were immaterial for fiscal years 2020 and 2019. For fiscal year 2018, the Company did not
(592) $
166
18
(2,939)
(1,826)
(5,173) $
(548) $
551
—
(159)
(29)
(185) $
$
$
have any foreign revenues
The provision for income taxes reconciles to the amounts computed by applying the statutory federal tax rate of
21% for fiscal years 2020, 2019 and 2018 to the Company’s income before income taxes. The sources and tax effects of the
differences for fiscal years 2020, 2019, and 2018 are as follows:
Computed “expected” federal income tax expense
Permanent differences
Nondeductible Executive Compensation
Stock options and disqualifying dispositions
Energy efficient building deduction
Current and deferred state income tax expense, net of federal benefit
Federal deferred tax adjustments
Adjustment for uncertain tax positions
Research and development tax credit
Adjustment to prior earn-out liability
Non-deductible transaction expenses
Other
True up income tax accounts
2020
$ (4,130) $
122
1,386
4
(738)
(1,205)
—
(142)
(527)
—
—
57
—
$ (5,173) $
$
2019
(in thousands)
977
163
688
(731)
(1,291)
466
231
(282)
(510)
—
—
27
77
(185) $
2018
2,554
77
—
(354)
(919)
815
220
61
(313)
(198)
203
(15)
—
2,131
Differences between the Company’s effective income tax rate and what would be expected if the federal statutory
rate was applied to income before income tax from continuing operations are primarily due to state income tax expense,
research and development tax credits, energy efficient building deductions, stock options and disqualifying dispositions.
The tax effects of temporary differences that give rise to significant portions of the net deferred tax assets and
liabilities are as follows:
97
Table of Contents
WILLDAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Deferred tax assets:
Accounts receivable allowance
Other accrued liabilities
Federal and state net operating losses
Lease Liability
Stock compensation
Adjustments to fair value of assets
Credit Carryforwards
Other
Valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Deferred revenue
Fixed assets
Intangible assets
Lease right-of-use assets
Other
Net deferred tax asset
January 1,
2021
December 27,
2019
(in thousands)
$
$
$
$
199
1,676
18,854
5,856
3,063
56
496
211
30,411
(86)
30,325
$
$
315
2,124
18,717
6,467
3,381
79
—
622
31,705
(86)
31,619
(2,999) $
(732)
(6,796)
(5,484)
(203)
(16,214)
14,111
$
(5,031)
(618)
(10,077)
(6,127)
(454)
(22,307)
9,312
At January 1, 2021, the Company had federal and state operating loss carryovers of $72.2 million and $59.2
million, respectively. The carryovers expire through 2040.
During each fiscal year, management assesses the available positive and negative evidence to estimate if sufficient
future taxable income will be generated to utilize existing deferred tax assets. For fiscal years 2020 and 2019, the Company
ultimately determined that it was more-likely-than-not that the entire California net operating loss will not be utilized prior
to expiration. Significant pieces of objective evidence evaluated included the Company’s history of utilization of California
net operating losses in prior years for each of the Company’s subsidiaries, as well as the Company’s forecasted amount of
net operating loss utilization for certain members of the combined group. As of January 1, 2021 and December 27, 2019,
the Company had a valuation allowance in the amount of $86,000, respectively, related to California net operating losses.
During the fiscal year 2020, the Company removed its recorded liability for uncertain tax positions due to the
expiration of federal and state statute of limitations during fiscal year 2020. This decrease resulted from the expiration of
federal uncertain tax positions during fiscal year 2019. The Company may be subject to examination by the Internal
Revenue Service (“IRS”) for calendar years 2017 through 2020. The Company may also be subject to examination on
certain state and local jurisdictions for the years 2016 through 2020.
98
Table of Contents
WILLDAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The Company's policy is to recognize interest and penalties related to unrecognized tax benefits in income tax
expense. The following is a reconciliation of beginning and ending amounts of unrecognized tax benefits:
Balance as of December 27, 2019
Additions based on tax positions related to the current year
Additions for tax positions of prior years
Reductions for tax positions related to the current year
Reductions for tax positions of prior years
Balance as of January 1, 2021
Amount
(in thousands)
142
$
—
—
—
(142)
—
$
During the year ended January 1, 2021, the Internal Revenue Service finalized its audit of the Company’s tax
return for the fiscal year ended December 30, 2016. There were no changes made by the Internal Revenue Service to the
tax return filed.
On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security
(CARES) Act (H.R. 748) which includes a number of provisions relating to refundable payroll tax credits, deferment of
employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds,
modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified
improvement property. Under ASC 740, the effects of new legislation are recognized upon enactment. Accordingly, the
effects of the CARES Act have been incorporated into the income tax provision computation for the fiscal year ended
January 1, 2021. These provisions did not have a material impact on the income tax provision.
On December 27, 2020, President Trump signed into law the Consolidated Appropriations Act, 2021 (CAA 2021)
which included a number of provisions including, but not limited to the extension of numerous employment tax credits, the
extension of the Section 179D deduction, enhanced business meals deductions, and the deductibility of expenses paid for
with Paycheck Protection Program (PPP) loan funds that are forgiven. Accordingly, the effects of the CCA have been
incorporated into the income tax provision computation for the fiscal year ended January 1, 2021. The extension of the
energy efficiency building deduction under Section 179D resulted in the continuation of this additional benefit for the
Company.
99
Table of Contents
WILLDAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
12. EARNINGS PER SHARE (“EPS”)
Basic EPS is computed by dividing net income available to common stockholders by the weighted-average
number of common shares outstanding. Diluted EPS is computed by dividing net income by the weighted-average number
of common shares outstanding and dilutive potential common shares for the period. Potential common shares include the
weighted-average dilutive effects of outstanding stock options and restricted stock awards using the treasury stock method.
The following table sets forth the number of weighted-average common shares outstanding used to compute basic
and diluted EPS:
Net income (loss)
Weighted-average common shares outstanding
Effect of dilutive stock options and restricted stock awards
Weighted-average common shares outstanding-diluted
Earnings (Loss) per share:
Basic
Diluted
2020
Fiscal Year
2019
(in thousands, except per share amounts)
2018
$
$
$
(14,496)
11,793
$
—
11,793
(1.23)
(1.23)
$
$
4,841
11,162
604
11,766
0.43
0.41
$
$
$
10,030
9,264
499
9,763
1.08
1.03
For the fiscal year 2020, the Company reported a net loss, and accordingly, all outstanding equity awards have
been excluded because including them would have been anti-dilutive. For the fiscal year ended December 27, 2019,
155,300 options were excluded from the calculation of dilutive potential common shares, compared to 247,800 options, for
2018. These options were not included in the computation of dilutive potential common shares because the assumed
proceeds per share exceeded the average market price per share for the respective periods. Accordingly, the inclusion of
these options would have been anti-dilutive.
100
Table of Contents
WILLDAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
13. BUSINESS COMBINATIONS
Acquisition of E3, Inc.
On October 28, 2019, the Company, through its wholly-owned subsidiary WES, acquired all of the capital stock of
Energy and Environmental Economics, Inc. (“E3, Inc.”), pursuant to the terms of a stock purchase agreement (the “Stock
Purchase Agreement”) by and among the Company, WES, E3, Inc., each of the stockholders of E3, Inc. (the “E3, Inc.
Stockholders”) and Ren Orans, as seller representative of the E3, Inc. Stockholders. E3, Inc. is an energy consulting firm
that helps utilities, regulators, policy makers, developers, and investors make strategic decisions as they implement new
public policies, respond to technological advances, and address customers’ shifting expectations in clean energy. The
Company believes that E3 will provide Willdan and our clients visibility into future market trends and position us to advise
clients on upcoming policy, electrification, and decarbonization. E3, Inc.’s financial information is included within the
Energy segment beginning in the fourth quarter of fiscal year 2019. The Company finalized the purchase price allocation
with respect to this transaction during the fourth quarter of fiscal 2020.
The Company agreed to pay up to $44.0 million for the purchase of all of the capital stock of E3, Inc., which
purchase price consists of (i) $27.0 million in cash paid on the E3, Inc. Closing Date (subject to holdbacks and
adjustments), (ii) $5.0 million in shares of the Company’s common stock, based on the volume-weighted average price per
share of the Company’s common stock for the ten trading days immediately following, but not including, the E3, Inc.
Closing Date and (iii) up to $12.0 million in cash if E3, Inc. exceeds certain financial targets during the three years after the
E3, Inc. Closing Date, as more fully described below (such potential payments of up to $12.0 million, being referred to as
“Earn-Out Payments” and $12.0 million in respect thereof, being referred to as the “Maximum Payout”).
The amount of the Earn-Out Payments to be paid will be determined based on E3, Inc.’s earnings before interest,
taxes, depreciation and amortization (“EBITDA”). The E3, Inc. Stockholders will receive Earn-Out Payments in each of
the three years after the E3, Inc. Closing Date (the “Earn-Out Period”) based on the amount by which E3, Inc.’s EBITDA
exceeds certain targets. The amounts due to the E3, Inc. Stockholders as Earn-Out Payments will in no event, individually
or in the aggregate, exceed the Maximum Payout. Earn-Out Payments will be made in annual installments for each of the
three years of the Earn-Out Period. In addition, the Earn-Out Payments will be subject to certain subordination provisions
in favor of the lenders under the Company’s Credit Agreement.
The Purchase Agreement also contains customary representations and warranties regarding WES, the Company,
E3, Inc. and the E3, Inc. Stockholders, indemnification provisions and other provisions customary for transactions of this
nature.
The Company borrowed $30.0 million under its Delayed Draw Term Loan on October 28, 2019 to fund the $27.0
million cash payment paid on the E3, Inc. Closing Date.
The acquisition was accounted for as a business combination in accordance with ASC 805. Under ASC 805, the
Company recorded the acquired assets and assumed liabilities at their estimated fair value with the excess allocated to
goodwill. Goodwill represents the value the Company expects to achieve through the operational synergies, the expansion
into new markets and the acquired company’s assembled work force. The Company estimates that the entire $21.8 million
of goodwill resulting from the acquisition will be tax deductible.
101
Table of Contents
WILLDAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Consideration for the acquisition includes the following:
Cash paid
Other working capital adjustment
Issuance of common stock
Contingent Consideration
Total consideration
E3, Inc.
(in thousands)
27,000
1,780
5,000
6,000
39,780
$
$
The following table summarizes the amounts for the acquired assets recorded at their estimated fair value as of the
acquisition date:
Current assets
Non-current assets (1)
Cash
Equipment and leasehold improvements, net
Right-of-use assets
Current lease liability
Non-current lease liability
Liabilities
Backlog
Customer relationships
Tradename
Developed technology
In-progress research & development
Goodwill
Net assets acquired
E3, Inc.
(in thousands)
5,278
341
2,264
409
7,641
(750)
(6,890)
(4,325)
2,600
6,050
4,200
880
310
21,772
39,780
$
$
(1) Excluded from non-current assets are equipment and leasehold improvements, net, right-of-use assets, customer
relationships, tradename, backlog and goodwill.
During the fiscal year 2020, the Company made adjustments, primarily related to other working capital and
contingent consideration, to the consideration paid for E3, Inc. which resulted in an adjustment to the purchase price
allocation of E3, Inc. The adjustments resulted in an aggregate increase of $5.1 million in the net carrying value of right of
use assets, non-current lease liability, backlog, tradename, developed technology, and in-progress research and
development, and an aggregate decrease of $4.5 million in the net carrying value of current assets, current lease liability,
liabilities, customer relationships, non-compete, and goodwill. The change in the fair value of intangible assets resulted in a
decrease in the amortization expense of $0.1 million for the fiscal year ended January 1, 2021.
The acquisition related costs associated with E3, Inc. included in other general and administrative expenses in the
consolidated statements of comprehensive income were not material for the year ended January 1, 2021.
During fiscal year 2020, the acquisition of E3, Inc. contributed $23.2 million in revenue and $4.3 million of
income from operations.
Acquisition of Onsite Energy Corporation
On July 2, 2019, the Company acquired substantially all of the assets and liabilities of Onsite Energy Corporation
(“Onsite Energy”), an energy efficiency services and project implementation firm that specializes in energy upgrades and
commissioning for industrial facilities. The Company believes the acquisition will expand its presence in the California-
based industrial energy management services. Pursuant to the terms of the Asset Purchase Agreement,
102
Table of Contents
WILLDAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
dated July 2, 2019, by and between WES and Onsite Energy, WES will pay a maximum aggregate purchase price of $26.4
million, subject to certain holdback and working capital adjustments, to be paid in cash. Onsite Energy’s financial
information is included within the Energy segment. The Company finalized the purchase price allocation with respect to
this transaction during the second quarter of fiscal year 2020.
The acquisition was accounted for as a business combination in accordance with ASC 805. Under ASC 805, the
Company recorded the acquired assets and assumed liabilities at their estimated fair value with the excess allocated to
goodwill. Goodwill represents the value the Company expects to achieve through the operational synergies, the expansion
into new markets and the acquired company’s assembled work force. The Company estimates that the entire $8.6 million of
goodwill resulting from the acquisition will be tax deductible.
Consideration for the acquisition includes the following:
Cash paid
Other working capital adjustment
Total consideration
Onsite Energy
(in thousands)
24,905
-
24,905
$
$
The following table summarizes the amounts for the acquired assets recorded at their estimated fair value as of the
acquisition date:
Current assets
Non-current assets (1)
Equipment and leasehold improvements, net
Right-of-use assets
Current lease liability
Non-current lease liability
Liabilities
Backlog
Customer relationships
Tradename
Goodwill
Net assets acquired
Onsite Energy
(in thousands)
19,058
10
39
828
(168)
(660)
(12,222)
1,510
7,050
860
8,600
24,905
$
$
(1) Excluded from non-current assets are equipment and leasehold improvements, net, right-of-use assets, customer
relationships, tradename, backlog and goodwill.
During fiscal year 2020, the Company made adjustments, primarily related to other working capital, to the
consideration paid for Onsite Energy which resulted in an adjustment to the purchase price allocation of Onsite Energy.
The adjustments resulted in an aggregate increase of $3.5 million in the net carrying value of backlog, tradename and
goodwill and an aggregate decrease of $3.5 million in the net carrying value of current assets and goodwill. The adjustment
in the fair value of intangible assets resulted in a $0.7 million change of the amortization expense for the year ended
January 1, 2021.
The acquisition related costs associated with Onsite Energy included in other general and administrative expenses
in the consolidated statements of comprehensive income were not material for the year ended January 1, 2021.
During the fiscal 2020, the acquisition of Onsite Energy contributed $10.4 million in revenue and $0.3 million of
income from operations.
103
Table of Contents
WILLDAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Acquisition of The Weidt Group
On March 8, 2019, the Company acquired substantially all of the assets of the energy practice division of The
Weidt Group Inc. (“The Weidt Group”). The Company believes the acquisition will expand its presence in the upper
Midwest and better position the Company to help utilities make their grids more resilient. Pursuant to the terms of the
Asset Purchase Agreement, dated March 8, 2019, by and among the Company, WES and The Weidt Group, WES paid a
cash purchase price of $22.1 million, inclusive of working capital adjustments. The Weidt Group’s financial information is
included within the Energy segment. The Company finalized the purchase price allocation with respect to this transaction
during the first quarter of 2020.
The acquisition was accounted for as a business combination in accordance with ASC 805. Under ASC 805, the
Company recorded the acquired assets and assumed liabilities at their estimated fair value with the excess allocated to
goodwill. Goodwill represents the value the Company expects to achieve through the operational synergies, the expansion
into new markets and the acquired company’s assembled work force. The Company estimates that the entire $11.5 million
of goodwill resulting from the acquisition will be tax deductible.
Consideration for the acquisition includes the following:
Cash paid
Other working capital adjustment
Total consideration
The Weidt Group
(in thousands)
$
$
22,136
-
22,136
The following table summarizes the amounts for the acquired assets recorded at their estimated fair value as of the
acquisition date:
Current assets
Non-current assets (1)
Equipment and leasehold improvements, net
Right-of-use assets
Current lease liability
Non-current lease liability
Liabilities
Backlog
Customer relationships
Tradename
Developed technology
Goodwill
Net assets acquired
The Weidt Group
(in thousands)
2,317
25
198
1,730
(245)
(1,533)
(612)
750
4,240
550
3,170
11,546
22,136
$
$
(1) Excluded from non-current assets are equipment and leasehold improvements, net, right-of-use assets, customer
relationships, tradename, developed technology, backlog and goodwill.
The acquisition related costs associated with The Weidt Group included in other general and administrative
expenses in the consolidated statements of comprehensive income were not material for the year ended January 1, 2021.
During the fiscal 2020, the acquisition of The Weidt Group contributed $14.9 million in revenue and $1.9 million
of income from operations.
104
Table of Contents
WILLDAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following unaudited pro forma financial information for the fiscal years ended January 1, 2021 and December
27, 2019 assumes that the acquisition of all of the capital stock of E3, Inc. and the acquisitions of substantially all of the
assets and liabilities of Onsite Energy and The Weidt Group each occurred on the first day of the year prior to the year of
acquisition:
Fiscal Year
Pro forma revenue
Pro forma income (loss) from operations
Pro forma net loss (1)
Loss per share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
$
$
$
$
$
2020
2019
(in thousands, except per share data)
390,980
$
471,330
(16,227)
(14,496)
(1.23)
(1.23)
11,793
11,793
$
$
$
$
10,846
(16,618)
(1.49)
(1.41)
11,162
11,766
(1) Adjustments to pro forma net income include income from operations, amortization and interest expenses.
This pro forma supplemental information does not purport to be indicative of what the Company’s operating
results would have been had the acquisition of all the capital stock of E3, Inc., and the acquisitions of substantially all of
the assets and liabilities of Onsite Energy and The Weidt Group, each occurred on the first day of the year prior to the year
of acquisition and may not be indicative of future operating results.
During the fiscal year 2020, the acquisition of E3, Inc., Onsite Energy, and The Weidt Group contributed $48.4
million in revenue and $6.5 million of income from operations.
105
Table of Contents
WILLDAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
14. CONTINGENCIES
Claims 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 ordinary course of business against firms that operate in the engineering and consulting
professions. The Company carries professional liability insurance, subject to certain deductibles and policy limits, for such
claims as they arise and may from time to time establish reserves for litigation that is considered probable of a loss.
In accordance with accounting standards regarding loss contingencies, the Company accrues an undiscounted
liability for those contingencies where the incurrence of a loss is probable and the amount can be reasonably estimated, and
discloses the amount accrued and an estimate of any reasonably possible loss in excess of the amount accrued, if such
disclosure is necessary for the Company’s financial statements not to be misleading. The Company does not accrue
liabilities when the likelihood that the liability has been incurred is probable but the amount cannot be reasonably
estimated, or when the liability is believed to be only reasonably possible or remote.
Because litigation outcomes are inherently unpredictable, the Company’s evaluation of legal proceedings often
involves a series of complex assessments by management about future events and can rely heavily on estimates and
assumptions. If the assessments indicate that loss contingencies that could be material to any one of the Company’s
financial statements are not probable, but are reasonably possible, or are probable, but cannot be estimated, then the
Company will disclose the nature of the loss contingencies, together with an estimate of the possible loss or a statement
that such loss is not reasonably estimable. While the consequences of certain unresolved proceedings are not presently
determinable, and a reasonable estimate of the probable and reasonably possible loss or range of loss in excess of amounts
accrued for such proceedings cannot be made, an adverse outcome from such proceedings could have a material adverse
effect on the Company’s earnings in any given reporting period. However, in the opinion of the Company’s management,
after consulting with legal counsel, and taking into account insurance coverage, the ultimate liability related to current
outstanding claims and lawsuits is not expected to have a material adverse effect on the Company’s financial statements.
106
Table of Contents
WILLDAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The tables below reflect selected quarterly information for the fiscal years ended January 1, 2021 and December
27, 2019.
Contract revenue
Income (loss) from operations
Income tax benefit
Net income (loss)
Earnings (loss) per share:
Basic
Diluted
Weighted-average shares outstanding:
Basic
Diluted
Contract revenue
Income (loss) from operations
Income tax expense (benefit)
Net income (loss)
Earnings (loss) per share:
Basic
Diluted
Weighted-average shares outstanding:
Basic
Diluted
April 3,
2020
Fiscal Three Months Ended
October 2,
2020
July 3,
2020
January 1,
2021
(in thousands except per share amounts)
$ 106,026
(8,269)
(1,605)
(8,154)
$ 83,549
(3,841)
(90)
(4,985)
$ 104,508
1,601
(1,586)
2,640
$ 96,897
(5,718)
(1,892)
(3,997)
$
$
(0.71) $ (0.43) $
(0.71) $ (0.43) $
0.22
0.21
$ (0.33)
$ (0.33)
11,510
11,510
11,682
11,682
11,992
12,417
12,011
12,011
March 29,
2019
Fiscal Three Months Ended
June 28,
2019
2019
September 27, December 27,
2019
(in thousands except per share amounts)
$ 91,793
(234)
(927)
(417)
$ 104,396
2,773
(70)
1,640
$ 117,494
1,295
(376)
416
$ 129,416
5,529
1,188
3,202
$
$
(0.04) $
(0.04) $
0.15
0.14
$
$
0.04
0.04
$
$
0.28
0.27
10,974
10,974
11,100
11,679
11,217
11,789
11,357
11,913
107
Table of Contents
WILLDAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
16. SUBSEQUENT EVENTS
The Company evaluates subsequent events in accordance with ASC Topic 855, Subsequent Events. The Company
evaluates subsequent events up until the date the consolidated financial statements are issued. As of March 16, 2021, there
were no subsequent events required to be reported.
108
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 fiscal year ended January 1, 2021.
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 to ensure that information required to be disclosed by the issuer in the reports that it
files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified
in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities
Exchange Act is accumulated and communicated to our management, including our Chairman and Chief Executive Officer,
Thomas Brisbin, and our Chief Financial Officer, Stacy McLaughlin, 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 our management, including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of our disclosure controls and procedures as of January 1, 2021. Based on that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective, at a
reasonable assurance level, as of January 1, 2021.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting
(as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). Internal control over financial
reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external
purposes in accordance with accounting principles generally accepted in the United States. Because of its inherent
limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our
financial statements would be prevented or detected. Our management, with the participation of our Chief Executive
Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of January
1, 2021. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (2013 Framework). Our
management has concluded that, as of January 1, 2021, our internal control over financial reporting was effective based on
these criteria.
Report of Independent Registered Public Accounting Firm
Crowe LLP, the independent registered public accounting firm that audited the fiscal year 2020 consolidated
financial statements included in this Annual Report on Form 10-K, has issued an attestation report on the effectiveness of
our internal control over financial reporting as of January 1, 2021, which is included herein.
Changes in Internal Controls
There have been no changes in our internal control over financial reporting during the quarter ended January 1,
2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
ITEM 9B. OTHER INFORMATION
None.
109
Table of Contents
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
Directors
Below is information on each of our directors, including his or her age, Board leadership roles held, and business
experience during at least the past five years. We also indicate the name of any other public company for which each
director currently serves as a director or served as a director during the past five years.
Dr. Thomas D. Brisbin | Chairman and Chief Executive Officer
Director Since 2007
Experiences
§ CEO and Director since 2007. Chairman since November 2016. President
from April 2007 to November 2016
§ Vice President and Consultant of AECOM Technology Corporation from
2004-2007
§ Chief Operating Officer and Executive VP at Tetra Tech, Inc. from 1999-
2004
§ Co-founder and President of PRC Environmental Management, Inc. from
1978-1995
§ Research Associate at Argonne National Laboratory and Adjunct Professor -
Illinois Institute of Technology (IIT) prior to PRC
Skills and Qualifications
Senior leadership; industry and technical experience; business development; risk
oversight; financial sophistication; talent management/compensation
§ B.S. Northern Illinois University. Ph.D. Environmental Engineering Illinois
State Technology
§ Completed Harvard Business School's Advanced Management Program
110
Age: 68
Table of Contents
Steven A. Cohen | Independent
Director Since 2015
Experiences
§ Senior Vice Dean and Chief Operating Officer of the School of Professional
Studies at Columbia University (CU) Directs CU's Master of Sustainability
Management Program. Professor in the Practice of Public Affairs at CU's
School of International and Public Affairs. Director of CU's Master of Public
Administration Program in Environmental Science and Policy
§ Consultant to U.S. Environmental Protection Agency for past three decades,
most recent from 2005-2010
§ Served on the United States Environmental Protection Agency’s Advisory
Council on environmental Policy and Technology from 2001-2004
§ Director of Columbia's Graduate Program in Public Policy and
Administration from 1985 to 1998
§ Former policy analyst for U.S. Environmental Protection Agency before
joining CU in 1981
Skills and Qualifications
Government policy; environmental policy; senior leadership; business
development
§ BA Political Science from Franklin College; M.A. Political Science from
University of New York at Buffalo (SUNY-Buffalo)
§ Ph.D. Political Science from SUNY-Buffalo
111
Age: 67
Current Committees:
Lead Independent Director;
Chairperson Strategy, Mergers and
Acquisitions Committee; Member,
Nominating & Corporate
Governance Committee.
Table of Contents
Debra Coy | Independent
Director Since 2018
Experiences
§ Principal Svanda & Coy Consulting, co-founded in 2010.
§ Chair of Corporate Governance, Nominating, Environmental, and Health and
Safety Committee of Global Water Resources
§ Partner XPV Water Partners from 2015-2019
§ Member of board of directors and as a member of Audit Committee of Aqua
Venture Holdings Limited from February 2019 - March 2020 when the
company was sold
§ Prior Managing Director, Global Water Sector Analyst covering the global
water sector Janney Montgomery Scott’s Capital Markets; Stanford
Washington Research Group; Schwab Capital Markets; HSBC Securities;
National Westminster Bank
Age: 63
Skills and Qualifications
Current Committees: Member
Audit Committee; Member
Compensation Committee.
Other Current Public Boards:
Global Water Resources, Inc.
Industry and technical expertise; financial sophistication; audit committee
financial expert; corporate governance; public board
§ Advisory Executive in Residence XPV Water Partners
§ BA English and Journalism from Southern Adventist University
§ MA Journalism from University of Maryland
Raymond W. Holdsworth | Independent
Director Since 2009
Experiences
§ Prior Vice Chairman of Corporate Development for AECOM from October
2005 to March 2009, which he joined in 1992
§ Director of the California Chamber of Commerce and the Los Angeles
Economic Development Corporation
§ Former Vice Chairman of the Civil Engineering Research Foundation /
International Institute; past trustee of the California State University system
and chaired Audit Committee for three consecutive years
§ Senior management positions held with International Technology Corp. and
Parsons Brinckerhoff Quade & Douglas Inc.
§ Worked in California’s Office of Transportation Planning and Research after
beginning career with Peat Marwick & Mitchell
Age: 78
Skills and Qualifications
Current Committees:
Chairperson Compensation
Committee; Member Strategy
Mergers and Acquisitions
Committee.
§ Audit committee financial expert; talent management/compensation; business
development and M&A; industry and technical expertise
§ California's Office of Transportation Planning and Research
§ B.A. English from Lake Forest College; M.B.A. from the University of
Pennsylvania Wharton School
112
Table of Contents
Douglas J. McEachern | Independent
Director Since 2009
Experiences
§ Retired Audit Partner with Deloitte & Touche, LLP from 1985-2009
§ Staff member and manager ad Deloitte’s predecessor, Touche Ross &
Co. from 1976-1983
§ Member of Board of Directors since May 2012, Chairman of Audit
Committee and Conflicts Committee and member of Compensation
Committee, Reading International
§ Chairman of the Board of Directors of Community Bank in Pasadena,
CA from October 2013-October 2015 and Member of the Nominating
and Governance Committee and Audit Committees June 2011 –
October 2015
§ Member of the Finance Committee and Board of Directors of the
Methodist Hospital of Arcadia Foundation until retirement in December
2017
§ Professional Accounting Fellow with Federal Home Loan Bank Board
§ Instructor of Auditing and Accountancy at Claremont McKenna
College
Age: 69
Skills and Qualifications
§ Audit committee financial expert; financial sophistication; talent
management/compensation; corporate governance
§ B.S. Business Administration from the University of California,
Berkeley; M.B.A. from the University of Southern California
Current Committees:
Chairperson Audit Committee;
Member Compensation
Committee.
Other Current Public Boards:
Reading International
113
Table of Contents
Vice Admiral Dennis V. McGinn | Independent
Director Since 2017
Experiences
§ Retired as Vice Admiral of United States Navy after 35 years. Deputy
Chief of Naval Operations for Warfare Requirements and Programs.
Previously commanded United States Third Fleet
§ Assistant Secretary of the Navy for Energy, Installations, and
Environment from September 2013 – January 2017
§ Former President of the American Council on Renewable Energy.
§ Past member of the Steering Committee of the Energy Future
Coalition, past member of the U.S. Energy Security Council; and past
member of the Bipartisan Center Energy Board
§ Past Co-Chairman of the CAN Military Advisory Board
§ Prior International Senior Fellow at the Rocky Mountain Institute
Age: 75
Skills and Qualifications
Current Committees: Member
Nominating & Corporate
Governance; Member Strategy,
Mergers and Acquisitions
Committee
§ Industry and technical expertise; corporate governance; business
development and M&A; senior leadership
§ B.S. Naval Engineering from the U.S. Naval Academy
§ Participant, National Security Program at Harvard University's
Kennedy School
Keith W. Renken | Independent
Director Since 2006
Experiences
§ Managing Partner, Renken Enterprises
§ Retired Senior Partner and Chairman, Executive Committee of
Southern California for Deloitte and Touche in 1992
§ Adjunct Professor (executive in residence) Marshall School of
Business at the University of Southern California from 1992 to 2006
§ Served on Board of Directors, Audit Committee and Compensation
Committee of East West Bancorp, Inc. from 2000-2018
§ Served on Board of Directors and Audit Committees of Limoneira
Company from 2009-2015
§ Served on Board of Directors and Audit Committees of Whittier Trust
Company since 2006
Skills and Qualifications
§ Corporate governance; public board; audit committee financial expert;
financial sophistication; talent management/compensation
§ B.S. Business Administration from the University of Arizona; M.S.
Business Administration from the University of Arizona
114
Age: 86
Current Committees:
Member Audit Committee
Table of Contents
Mohammad Shahidehpour | Independent
Director Since 2015
Experiences
§ Bodine Chair Professor in the Electrical and Computer Engineering
Department at IIT. Director of Robert W. Galvin Center for Electricity
Innovation. Faculty member at IIT since 1983 and recipient of IIT's
Excellence in Teaching Award
§ Awarded over $50 million in federal research and development grants
on electricity and modernization issues
§ Founding chair of the Institute of Electrical and Electronics
Engineers(IEEE) Great Lakes Symposium on Smart Grid and the New
Energy Economy.
§ Editor-in-Chief of IEEE Transactions on Smart Grid Journal since
2009
§ Keynote speaker in 20 International Conferences since 2007 and
counseled governments on electricity and grid modernization bills
globally
Age: 65
Skills and Qualifications
Current Committees:
Chairperson Nominating and
Governance Committee;
Member Compensation
Committee; Member Strategy,
Mergers and Acquisitions
Committee.
Board Committees
§ Industry and technical expertise; business development; corporate
governance; talent management/compensation
§ IEEE Distinguished Lecturer; Delivered over 100 invited lecturer one
electricity restructuring and smart grid issues
§ Author of six books and 400 technical papers on electric power
systems
§ B.S. Electrical Engineering from Iran's Sharif University of
Technology; M.S. in Electrical in Engineering; Ph.D. from the
University of Missouri
The Board has four standing committees: the Audit Committee, the Compensation Committee, the Nominating and
Governance Committee and the Strategy, Mergers and Acquisitions Committee. Each of our Board committees has a
separate written charter that describes its purposes, membership, meeting structure, authority, and responsibilities. These
charters, which may be found in the Corporate Governance section of our website at ir.willdangroup.com/corporate-
governance, are reviewed annually by the respective committee, with any recommended changes adopted upon approval by
our Board.
Each of these committees regularly reports to the Board as a whole. The following summaries identify the members of each
committee as of March 16, 2021. The composition of each committee may change from time to time.
115
Table of Contents
Audit Committee
Meetings in FY 2020:
5
Average Attendance in FY 2020:
93%
Chair:
Douglas J. McEachern
Members:
Debra Coy
Keith W. Renken
All members satisfy the audit committee
experience and independence standards
required by the Nasdaq Rules and the
Exchange Act and have been determined to
be financially literate in accordance with the
Nasdaq Rules.
Each member of the Audit Committee has
been determined to be an "audit committee
financial expert" under applicable SEC
regulations.
Compensation Committee
§ Oversee the integrity of the Company’s financial statements and financial reporting
§ Oversee compliance with legal and regulatory requirements
§ Review management letters or internal control reports and review our internal controls over
financial reporting
§ Review qualifications and independence of the Company’s independent registered public
accounting firm
§ Review performance of the Company’s internal reporting and audit functions
§ Oversee the Company’s disclosures controls and procedures and system of internal controls
regarding finance, accounting, legal compliance and ethics
§ Retain and oversee the independent auditor and review and approve the scope of the audit
conducted by the independent auditor
Meetings in FY 2020:
6
Average Attendance in FY 2020:
96%
Chair:
Raymond W. Holdsworth
Members:
Debra Coy
Douglas J. McEachern
Mohammad Shahidehpour
§ Produce an annual report on executive compensation for inclusion in the Company’s proxy
statement, if and as required by applicable rules and regulations
§ Review, evaluate and make recommendations to the full Board with respect to management’s
proposals regarding the Company’s overall compensation policies, and recommend performance-
based incentives that support and reinforce the Company’s long-term strategic goals, organization
objectives and stockholder interests.
§ Annually review and approve objectives relevant to the Chief Executive Officer’s compensation,
evaluate the Chief Executive Officer’s performance in light of those objectives and set the Chief
Executive Officer’s compensation level based on this evaluation.
§ Consider and approve the selection, retention and remuneration arrangements for senior executive
officers and establish, review and approve compensation plans in which any executive officer is
eligible to participate.
All members satisfy the independence
standards required by the Nasdaq Rules and
Exchange Act.
§ Make recommendations to the Board with respect to the Company’s incentive-compensation plans
and equity-based compensation plans and approve for submission to stockholders all new stock
option and equity compensation plans, including amendments or supplements thereto
All members qualify as "nonemployee
directors" under Rule 16b-3 of the Securities
Exchange Act of 1934, as amended, and as
"outside directors" under Section 162(m) of
the Internal Revenue Code.
§ Administer the Company’s 2008 Amended and Restated Performance Incentive Plan, 2006 Stock
Incentive Plan and the Amended and Restated Willdan Group, Inc. 2006 Employee Stock Purchase
Plan
§ Authorized to retain and terminate any compensation consultant engaged to assist in the evaluation
of the compensation of our senior executive officers including all Named Executive Officers (as
defined below)
116
Table of Contents
Nominating & Corporate Governance Committee
Meetings in FY 2020:
i i
i
l
Chair:
Mohammad Shahidehpour
h
d
4
f h
Average Attendance in FY 2020:
100%
§ Evaluate the size and composition of the Board, review and develop criteria for Board membership,
and evaluate the independence of existing and prospective directors
Members:
Steven A. Cohen
Vice Admiral Dennis V. McGinn
§ Actively seek and evaluate qualified individuals to become new directors as needed , establish
procedures to solicit, review and recommend to the Board potential director nominees proposed by
stockholders and recommend to the Board the director nominees for the annual meeting of
stockholders and any special meeting at which directors are elected
All members satisfy the independence
standards required by the Nasdaq Rules and
Exchange Act
§ Review the suitability of each Board member for continued service when his or her term expires
and when he or she has a significant change in status
§ Take diversity considerations into account when identifing director candidates
§ Evaluate the nature, structure and operations (including authority to delegate to subcommittees) of
other Board committees
§ Periodically review and, in the Nominating & Corporate Governance Committee’s discretion,
recommend to the Board changes to, the Company’s certificate of incorporation, bylaws, corporate
governance policies and practices, and other present or future policies of the Company as they relate
to corporate governance matters
Strategy, Mergers and Acquisitions Committee
Meetings in FY 2020:
4
Average Attendance in FY 2020:
100%
Chair
Steven A. Cohen
Members
Raymond W. Holdsworth
Vice Admiral Dennis V. McGinn
Mohammad Shahidehpour
§ Review with management, on a timely basis, significant financial matters of the Company and its
subsidiaries, including matters relating to the Company’s capitalization, dividend policy and
practices, credit ratings, cash flows, borrowing activities, and investments including mergers and
acquisitions
§ Review and recommend to the Board or take actions on behalf of the Board relating to the
Company’s financial and strategic plans
§ Review and recommend to the Board actions relating to offerings of the Company’s debt or equity
securities, purchases or disposals of treasury shares, except the repurchase of shares pursuant to
approved employee benefit plans, stock splits or reclassification of shares any dividend declaration,
guarantees of unconsolidated third party indebtedness and certain other financial transactions and
strategies
§ In consultation with the Audit Committee, as appropriate, review periodically the Company’s risk
management strategies
§ Be available to management as needed regarding various matters such as reviewing the
relationships with the Company’s principal lending institutions and investment and strategic
advisors
117
Table of Contents
Management
The following table sets forth the names, ages and positions of our current executive officers, as of March 16, 2021:
Name
Age
Title
Years in Years at
Position @ Willdan @
FYE 2020
FYE 2020
Dr. Thomas D.
Brisbin
Michael A, Bieber
Stacy B. McLaughlin
Daniel Chow
Micah Chen
Adam C. Procell
Paul Whitelaw
68
Chairman of the Board and Chief Executive Officer
13(a)
52 President
39 Vice President and Chief Financial Officer
70 Chief Operating Officer
49 General Counsel
53 Chief Strategy Officer
49 Senior Vice President, Business Development
4
7
4
3
1
3
(a)
(b)
Dr. Brisbin became Chief Executive Officer on 2007 and became Chairman of the Board on 2016
Mr. Procell’s years at Willdan was calculated from the date of Willdan Group’s acquisition of Lime Energy in November 2018
13
6
10
12
4
2(b)
24
Biographical information concerning Dr. Brisbin is set forth above under the caption “Directors”
Michael A. Bieber was appointed our President in November 2016. Previously, Mr. Bieber was Senior Vice President,
Corporate Development from December 2014 to November 2016. Previously, he served as Senior Vice President at Tetra
Tech, where he served in a number of leadership roles for over 18 years. From March 2007 to December 2014, Mr. Bieber
managed Tetra Tech’s mergers and acquisitions and investor relations functions, overseeing over fifty acquisitions. From
2005 to 2007, Mr. Bieber managed Tetra Tech’s corporate business development group, where he was responsible for
overseeing internal business development, marketing and communications. From January 2000 to December 2014,
Mr. Bieber also worked in Tetra Tech’s investor relations group. From 1996 to 2000, he was a proposal manager in Tetra
Tech’s corporate marketing group. From 1994 to 1996, he served at CRC, Inc., and its successor, as a strategic business
development consultant to large defense, infrastructure and environmental firms. Prior to 1994, Mr. Bieber worked for IT
Corporation (now CB&I) where he served as project manager and engineer on government nuclear and commercial
environmental projects. Mr. Bieber holds a B.S. degree in Civil Engineering from the Tennessee Technological University.
Stacy B. McLaughlin was appointed our Vice President and Chief Financial Officer, effective November 15, 2013. Ms.
McLaughlin served as our Compliance Manager from 2010 to 2013. Prior to joining us, Ms. McLaughlin was, from 2009
to 2010, Senior Associate at Windes & McClaughry Accountancy Corporation and, from 2004 to 2009, Senior Audit
Associate at the public accounting firm KPMG LLP. Ms. McLaughlin has a Masters in Accounting from the University of
Southern California and BS from the University of Arizona. Ms. McLaughlin is a Certified Public Accountant (CPA).
Daniel Chow was appointed our Chief Operating Officer in November 2016. Mr. Chow also continues to serve as
President and Chief Executive Officer of Willdan Energy Solutions, which position he has held since August 2016, and as
President and Chief Executive Officer of Willdan Engineering, which position he has held since December 2008. Prior to
joining us, Mr. Chow was the Vice President of AMEC Earth & Environmental, Inc., a subsidiary of AMEC plc, a global
provider of high value consultancy, engineering and project management services to the energy, power and process
industries, from April 2004 to December 2008. Prior to AMEC, Mr. Chow worked at Tetra Tech EM Inc. (formerly PRC
Environmental Management, Inc.) for over 20 years and held various senior management positions, including Vice
President of US operations. Mr. Chow received his B.Sc. in Mechanical Engineering from Tennessee Technological
University and his Master’s Degree in Environmental Engineering from Illinois Institute of Technology. He is a registered
professional engineer in the state of Illinois and Guam.
Paul M. Whitelaw was appointed our Senior Vice President, Business Development in March 2018. In this capacity, Mr.
Whitelaw leads our business development efforts. Mr. Whitelaw has been with us since 1996 beginning with Willdan
Financial Services, and taking on increasing responsibility and managerial oversight with each promotion over the last 24
118
Table of Contents
years. Prior to his role in national strategic development, Mr. Whitelaw was the Senior Vice President of Business
Development for Willdan Energy Solutions’ western region from 2015 to 2017. Before focusing exclusively on business
development, Mr. Whitelaw was the Regional Vice President for Willdan Energy Solutions’ western region from 2012 to
2015. Mr. Whitelaw is a member of the Board of Directors of the California Efficiency and Demand Management Council.
Mr. Whitelaw holds a Bachelor of Arts in Chemistry from Point Loma Nazarene University and a Master’s in Business
Administration from the University of California, Irvine.
Micah H. Chen was appointed our General Counsel in March 2018. Previously, Mr. Chen was our Legal Counsel from
July 2017 to March 2018. Prior to joining us, Mr. Chen held various management positions at Aon Corporation’s
Construction Services Group for nearly 10 years. From January 2016 to July 2017, Mr. Chen served as Managing Director
and Senior Vice President of Aon Corporation. In this role, Mr. Chen was responsible for the group’s Account Executive
practice for the West Region. From November 2008 to January 2016, Mr. Chen served as Senior Vice President of Aon
Corporation. In this role, he provided risk management consultation and assisted in the evaluation and development of
comprehensive risk management programs to many Top 100 Engineering-News Record clients, general contractors and
multibillion-dollar commercial construction projects. Mr. Chen received his B.A. in International Economics from the
University of California, Los Angeles and his J.D. from Western State University, School of Law.
Adam C. Procell was appointed our Chief Strategy Officer in June 2020. Prior to his appointment, he served as President
of the Lime Energy Business Unit of Willdan. Before our acquisition of Lime Energy in 2018, Mr. Procell served as Lime
Energy’s President and CEO from 2013 to 2018, and as the President of the Utility Program Business Unit from 2009 to
2013. He previously worked for 12 years at AECOM Technology Corporation in a variety of leadership positions, where he
led the development and implementation of more than $2 billion of clean energy programs. Prior to AECOM, Mr. Procell
held roles in engineering and project management for the energy efficiency divisions of Siemens Building Technologies
and DNV GL. Mr. Procell holds a BS in Interdisciplinary Engineering & Management from Clarkson University.
Material Litigation
There are currently no ongoing material proceedings in which any director or executive officer is a party adverse to the
Company or any of its subsidiaries, or in which any director or executive officer has a material interest adverse to the
Company or any of its subsidiaries.
Code of Ethics
The Company expects that all of its directors, officers and employees will maintain a high level of integrity in their
dealings with and on behalf of the Company and will act in the best interests of the Company. The Company has adopted a
Code of Ethical Conduct, which provides principles of conduct and ethics for the Company’s directors, officers and
employees, including employees of the Company’s subsidiaries. This Code complies with the requirements of the
Sarbanes-Oxley Act of 2002 and the Nasdaq Rules. This Code of Ethical Conduct is available on the Company’s website at
www.willdan.com under “Investors—Corporate Governance—Governance Documents” and is also available in print,
without charge, to any stockholder who requests a copy by writing to our Secretary at 2401 East Katella Avenue, Suite 300,
Anaheim, California 92806. To the extent required by rules adopted by the SEC and the Nasdaq Stock Market, we intend to
promptly disclose future amendments to certain provisions of the code, or waivers of such provisions granted to executive
officers and directors on our website at www.willdan.com under “Investors—Corporate Governance.”
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires our executive officers and directors, and persons who own more than 10% of a
registered class of our equity securities, to file reports of ownership and changes in ownership with the SEC and the
Nasdaq Global Market. Officers, directors and greater than 10% stockholders are required by the SEC’s regulations to
furnish us with copies of all Section 16(a) forms they file. Based solely on our review of the copies of such reports
furnished to us, the following officers, directors and greater than 10% stockholders failed to file certain reports required by
Section 16(a) of the Exchange Act on a timely basis.
119
Table of Contents
In March 2020, (i) Paul M. Whitelaw did not timely report three transactions on one Form 4 report, (ii) Michael A. Bieber
did not timely report three transactions on one Form 4 report, (iii) Thomas H. Brisbin did not timely report two transactions
on one Form 4 report, (iv) Stacy B. McLaughlin did not timely report three transactions on one Form 4 report, (v) Daniel
Chow did not timely report two transactions on one Form 4 report, and (vi) Micah H. Chen did not timely report two
transactions on one Form 4 report.
To our knowledge, based solely on our review of the copies of such reports electronically filed with the SEC, all other
Section 16(a) filing requirements applicable to our executive officers, directors and greater than 10% beneficial owners
were timely satisfied in fiscal 2020.
120
Table of Contents
ITEM 11. EXECUTIVE COMPENSATION
Executive Compensation Highlights
Our Board's Compensation Committee designs our executive compensation program to motivate our executives to execute
our business strategies and deliver long-term stockholder value. We pay for performance with compensation dependent on
our achieving financial, share price and business performance objectives while aligning executives with the interests of our
stockholders. Our compensation program is comprised of three elements:
■ Base salary;
■ Annual cash incentive based on performance; and
■ Long-term incentive compensation in the form of equity awards
FY 2020 Components of Annual and Long-Term Executive Compensation
Performance Level
EPS Growth Rate % of Target EPS
Achieved
<10%
Units Vesting
0%
Adjusted EBITDA % of Target
Growth Rate
Achieved
<10%
Adjusted EBITDA
Units Vesting
0%
20%
30%
100%
250%
20%
30%
100%
250%
Threshold
Target
Maximum
Growth rate achieved between performance level are interpolated on a linear basis for units vesting.
121
Table of Contents
FY 2020 Target Total Direct Compensation Mix
See the Compensation Discussion and Analysis section below for a description of the manner in which these amounts are
determined.
Compensation Highlights
Due to the Covid-19 pandemic and associated lack of financial predictability, executive pay was substantially cut by the
executive team for several months during 2020. Salary reductions of up to 75 percent were taken by our CEO and NEOs
until the Company’s financial performance became more predictable, along with other broad cost reduction measures. As
summarized below and described in further detail in the Compensation Discussion and Analysis section below, our
executive compensation governance practices are aligned with our goals and business structure, what we believe are
consistent with market best practices, and aligned with our stockholders expectations.
What We Do
Pay for performance: In FY20, 80% of our CEO's target
total direct compensation (TDC) and an average of 60%
of our other named executive officers' (NEO's) target
TDC was at risk; 80% of our CEO's target TDC and an
average of 60% of our other NEO's target TDC was tied
to company performance
Annually review the Compensation Committee's charter
and evaluate the Compensation Committee's
performance
Minimum vesting requirements
Emphasize long-term performance: In FY20, 54% of
our CEO's target TDC and an average of 46% of our
NEOs' target TDC was equity based and directly tied to
creating shareholder value
Regularly assess potential risks relating to our
compensation policies and practices
Deliver pay that is aligned with performance (below
target for weak years and above target for strong years)
Utilize an independent compensation advisor every two
years to review compensation alignment with
performance and for compensation comparison purposes
122
Table of Contents
What We Don’t Do
Do not enter employment contract agreements with our
executives other than our CEO
Provide excise tax gross-up payments in connection
with change in control severance benefits
Provide gross-ups to cover tax liabilities associated with
executive perquisites
Permit directors, officers or employees to hedge or
pledge company stock
No re-pricing or exchange of outstanding options and
PBRSUs
Do not grant stock options with an exercise price less
than fair market value on the date of grant
Promise multiyear guarantees for bonus payouts or
salary increases
Pay dividends or dividend equivalents on unvested
equity awards
Rigorous Change in Control Definition
For purposes of long-term equity incentive and performance based restricted stock units, a “Change in Control” of
the Company shall be deemed to have occurred if a consummation of any of the following events occurs:
(i)
(ii)
Any “person” or “group” (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act), other than a
trustee or other fiduciary holding securities under an employee benefit plan of the Company (an “Acquiring
Person”), is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of more than 33 1/3% of the then outstanding voting stock of the Company;
Consummation of a merger or consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted into voting securities of the
surviving entity) at least 51% of the combined voting power of the voting securities of the Company or surviving
entity outstanding immediately after such merger or consolidation;
(iii)
Consummation of a sale or other disposition by the Company of all or substantially all of the Company’s assets;
(iv)
During any period of two (2) consecutive years (beginning on or after the date of grant), individuals who at the
beginning of such period constitute the Board and any new director (other than a director who is a representative
or nominee of an Acquiring Person) whose election by the Board or nomination for election by the Company’s
shareholders was approved by a vote of at least a majority of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination was previously so approved, no longer
constitute a majority of the Board; provided, however, in no event shall any acquisition of securities, a change in
the composition of the Board or a merger or other consolidation pursuant to a plan of reorganization under chapter
11 of the Bankruptcy Code with respect to the Company, or a liquidation under the Bankruptcy Code, constitute a
Change in Control. In addition, a Change in Control shall not be deemed to have occurred in the event of a sale or
conveyance in which the Company continues as a holding company of an entity or entities that conduct the
business or businesses formerly conducted by the Company, or any transaction undertaken for the purpose of
reincorporating the Company under the laws of another jurisdiction, if such transaction does not materially affect
the beneficial ownership of the Company’s capital stock.
Potential Vesting Upon Change in Control
If a Change in Control occurs after the date of grant and prior to the end of any performance period, on the date of the
consummation of such Change in Control, the number of PBRSUs that shall be eligible to vest (the “Contingently Vested
Units”) shall be calculated as follows: (i) with respect to the pending performance period in-progress at the time of the
Change in Control, the greater of (with the EPS Units and EBITDA Units being evaluated separately and not in the
aggregate) (A) the target number of EPS Units or EBITDA Units associated with such performance period and (B) the
123
Table of Contents
number of EPS Units or EBITDA Units that become earned based on actual performance (assuming the last day of such
performance period is the date of the consummation of such Change in Control, with the Compensation Committee to
make such appropriate pro-rating adjustments to the performance metrics as shall be necessary to reflect the shortened
performance period), plus (ii) with respect to any performance period(s) remaining that have not commenced, the greater of
(with the EPS Units and EBITDA Units being evaluated separately and not in the aggregate) (X) the target number of EPS
Units or EBITDA Units associated with such performance period(s) and (Y) the average number (measured as a percentage
of target) of EPS Units or EBITDA Units that have become earned based on actual performance for all performance
periods that have been completed (and are not in-progress) as of the date of the Change in Control. Any PBRSUs that are
not Contingently Vested Units as of the date of the consummation of such Change in Control shall automatically terminate
without consideration as of such date.
The Contingently Vested Units shall become earned and vested on the first anniversary date of the consummation of such
Change in Control, subject to the employee’s continued employment or service with us (or any successor) through such
date; provided, however, that if the employee’s employment or service is terminated (i) by us (or any successor) without
“cause”, (ii) by the employee for “good reason”, or (iii) due to the employee’s death or “disability”, in each case, prior to
such first anniversary of the Change in Control, the Contingently Vested Units shall become earned and vested on such
termination date. Any Contingently Vested Units that do not vest pursuant to the preceding sentence shall automatically
terminate without consideration on such termination date.
Clawback Policy
The Company has a comprehensive clawback policy applicable to both short-term cash-based performance bonuses and
long-term equity-based compensation. If our Company is required to prepare an accounting restatement due to our material
noncompliance with any financial reporting requirements under the securities laws, then each executive officer must return
to us, or forfeit if not yet paid, a specified amount. The amount is any payment received with respect to any short-term
cash-based performance bonuses and any award under our 2008 Plan during the three-year period preceding the date on
which our Company is required to prepare the accounting restatement based on the erroneous data less what would have
been paid to the executive officer under the accounting restatement as determined by the Compensation Committee.
Director Compensation
In response to the Covid-19 pandemic, cash fees for all members of the Board of Directors was suspended, among other
broad cost cutting measures. The suspension was lifted in the third quarter of 2020. The following table provides
information concerning the compensation for services of our nonemployee directors during FY 2020. Dr. Brisbin is a
Named Executive Officer and his compensation is presented below under “Executive Compensation” in the Summary
Compensation Table and related explanatory tables. Dr. Brisbin is not entitled to additional compensation for his services
as a director.
124
Table of Contents
The majority of the compensation provided to nonemployee directors is delivered in equity to align director interests with
those of our stockholders.
Name
Steven A. Cohen
Debra Coy
Raymond W. Holdsworth
Douglas J. McEachern
Dennis V. McGinn
Keith W. Renken
Mohammad Shahidehpour
Fees Earned or
Paid in Cash
($)
25,500
28,250
26,750
31,000
24,000
30,750
27,000
Stock
Option
All Other
Awards (1), (2) ($) Awards ($) Compensation ($) Totals ($)
95,505
—
—
70,005
70,005
70,005
70,005
70,005
70,005
70,005
—
—
—
—
—
—
—
—
—
—
—
—
98,255
96,755
101,005
94,005
100,755
97,005
(1)
The amounts reported under “Stock Awards” above represent the aggregate grant date fair value of restricted stock awards granted to Non-Employee Directors
during fiscal 2020 (disregarding any estimate of forfeitures related to service-based vesting conditions). For a discussion of the assumptions and methodologies
used to calculate the amounts reported in this column, please see the discussion of restricted stock awards contained in Note 10 (Shareholders’ Equity) to our
consolidated financial statements above.
(2) As of January 1, 2021, the following Non-Employee Directors held the following number of outstanding restricted stock awards: Messrs. Cohen, Holdsworth,
McEachern, Renken and Shahidehpour each held 4,966 shares of restricted stock, of which (i) 1,913 shares of restricted stock vest on June 13, 2021 and (ii) 3,053
shares of restricted stock vest in two substantially equal installments on each of June 11, 2021 and June 11, 2022. Mr. McGinn held 5,120 shares of restricted
stock, of which (i) 2,067 shares of restricted stock vest on June 13, 2021 and (ii) 3,053 shares of restricted stock vest in substantially equal installments on each of
June 11, 2021 and June 11, 2022. Ms. Coy held 5,232 shares of restricted stock, of which (i) 2,179 shares of restricted stock vest on June 13, 2021 and (ii) 3,053
shares of restricted stock vest in two substantially equal installments on each of June 11, 2021 and June 11, 2022.
Annual Retainer and Meeting Fees
In response to the Covid-19 pandemic, cash fees for our nonemployee directors were suspended for a portion of fiscal
2020, resulting in a reduction of 50% of the annual fees for independent directors. This suspension lifted for the fourth
fiscal quarter of 2020. As a result, the cash fees for the second and third quarter meetings were withheld while the fourth
quarter of fiscal 2020 and the first quarter of fiscal 2021 were paid in fiscal year 2020.
125
Table of Contents
The following table sets forth the schedule of annual retainers and meeting fees for each Non-Employee Director in effect
during FY 2020.
Type of Fee (1)
Annual Board Retainer
Additional Annual Retainer to Lead Director
Additional Annual Retainer to Chair of Audit Committee
Additional Annual Retainer to Chair of Compensation Committee
Additional Annual Retainer to Chair of Strategy, Mergers and Acquisitions Committee
Additional Annual Retainer to Chair of Nominating and Governance Committee
Additional Annual Retainer to Member of Audit Committee
Additional Annual Retainer to Member of Compensation Committee
Additional Annual Retainer to Member of Strategy, Mergers and Acquisitions Committee
Additional Annual Retainer to Member of Nominating and Governance Committee
Additional Daily Fee for Attendance at Board Meetings (2)
Additional Daily Fee for Attendance at Committee Meetings (2)
Dollar Amount
36,000
$
$
$
$
$
$
$
$
$
$
$
$
15,000
16,500
11,000
7,500
7,500
7,500
5,500
4,500
4,500
1,500
1,000
(1)
The Willis Towers Watson report indicated that the compensation for Willdan directors is 10% below the median of the peer group.
(2) Directors only receive one fee for meetings per day after a minimum of: (i) 4 Board meetings, (ii) 6 Audit Committee meetings or (iii) 5
Compensation Committee, Nominating and Governance Committee or Strategy, Mergers and Acquisitions Committee meetings.
Compensation for Non-Employee Directors during FY 2020 generally consisted of an annual retainer, fees for attending
meetings, fees for work related to board committees and a restricted stock grant award. All Non-Employee Directors are
also reimbursed for out-of-pocket expenses they incur serving as directors.
Restricted Stock Awards
In June 2020, Messrs. Cohen, Conway, Holdsworth, McEachern, McGinn, Renken, and Shahidehpour and Ms. Coy were
granted a restricted stock award of 3,053 shares under the 2008 Plan. Each restricted stock award granted to our Non-
Employee Directors in fiscal 2020 is subject to a two year vesting schedule, with 50% of the award vesting on each of the
first and second anniversaries of the grant date, subject in each case to the Non-Employee Director’s continued service
through the applicable vesting date.
Executive Compensation
Compensation Discussion and Analysis
In response to the Covid-19 pandemic, senior management, including the named executive officers below took up to a 75%
cut in salary. The salary reduction was restored at the end of July 2020. This section describes each of the material elements
of compensation awarded to, earned by, or paid to our executive officers identified in the “Summary Compensation Table,”
whom we refer to in this section as our “Named Executive Officers.” This section also describes the role and involvement
of various parties in our executive compensation analysis and decisions, and provides a discussion of the process and
rationale for the decisions of our Compensation Committee to compensate our Named Executive Officers with specific
types and amounts of compensation.
126
Table of Contents
2020 Named Executive Officers
Our Named Executive Officers (NEOs) for 2020 were:
Name
Thomas D. Brisbin
Michael A. Bieber
Stacy B. McLaughlin
Daniel Chow
Adam C. Procell
Age
Title
68 Chairman of the Board and Chief Executive Officer
52 President
39 Vice President and Chief Financial Officer
70 Chief Operating Officer
49 Chief Strategy Officer
Financial Highlights
Record $47 million generated from cash flow from
operations in 2020
Awarded ~$150 million in contract revenue per year of
California Investor Owned Utility Contracts
Proactive cost management at the onset of the Covid-19
pandemic to preserve profitability
During 2020, we believe we achieved important operational performance results and we proved that we could acquire new
capabilities with acquisitions, combine and strategically cross sell those new capabilities and experience, and then win
what we believe are the largest most complex contracts in our industry. We believe our growth model is repeatable and
durable, so we plan to continue adding complimentary skills to catalyze organic growth continuing on our growth
trajectory that we have accomplished over the past four years, a period during which we have increased our stock price
from $22.86 per share at the end of our 2016 fiscal year to $41.01 at the end of our 2020 fiscal year, an increase of
approximately 79.4%. For fiscal year 2020, our stock price increased 31.2%.
During 2020, we generated $47 million in cash flow from operations, a Company record. At the onset of the Covid-19
pandemic, we were proactive and responded quickly on a cost management perspective to preserve profitability while
continuing to compassionately manage our team of employees for their hard work in the most trying times. Willdan serves
one of the most exciting markets in the world at one of the most exciting times. A cleaner, low carbon energy cycle is
transforming our electric grid, buildings, industrial production and transportation networks. Willdan helps these clients
evaluate new technical advances and implement cost effective solutions. We were awarded California Investor Owned
Utility (“IOU”) contracts that, on a weighted average basis, represent approximately $150 million per year in incremental
contract revenue in the next three to five years if we successfully execute the work.
2020 Say-on-Pay Vote and Executive Compensation Program
At the 2020 Annual Meeting, over 54% of our stockholders approved our fiscal year 2019 executive compensation. In
recent years, including fiscal year 2020, we have taken stockholder feedback into consideration as we have discussed and
implemented our compensation design changes and enhanced our disclosures.
Issue
Clawback Policies
Proxy Advisor and /or
Shareholder Issue
Shareholder Feedback
Resulting Changes From
WLDN
No clawback policy
disclosed; clawback was
not applicable to both cash
Governance best practices
include disclosure of policy
and clawback policy gives
Disclosed rigorous equity
clawback policy; adopted
cash bonus clawback policy
127
Table of Contents
Annual Incentive Plan
and equity bonus
compensation
company ability to claw
back both cash and equity
due to shareholder feedback
Company is silent on
metrics, goals and payout
formula related to incentive
plan and reasoning for
changes to payout levels
Provide additional
disclosure on the short-term
compensation metrics to
explain inconsistent
payouts and reasoning for
changes in annual payout
levels
Disclosed metrics, goals,
bonus pool payout formula
to provide rigor linking pay
with performance
Change in Control
No rigorous change in
control policy disclosed
Improve change in control
disclosures
Stock Ownership
Guidelines
No stock ownership
requirements, including
executive and non-
employee directors
Encourage the Company to
require stock ownership
guidelines for executive
management and non-
employee directors of the
Company
Peer Group Disclosure
No compensation peer
group disclosed
Enhance disclosure around
compensation peer group
selected for compensation
and the factors considered
in their selection
Disclosed our change in
control policies and
practices
In 2020, WLDN
Compensation Committee
adopted management stock
ownership guidelines with
compliance to be within
three years. Guideline
includes 5x of base salary
CEO; 3x base salary
President; 1x base salary
remaining Section 16
Officers
Disclosed our
compensation peer group
which has been provided
every two years by a third-
party consultant hired by
the Compensation
Committee
As a result of a 54% level of support for our “say-on-pay” proposal, we conducted a stockholder engagement program, and
proactively contacted our largest institutional shareholders, representing over 40% of our then-outstanding shares. After
soliciting shareholders’ views on our corporate governance and executive compensation programs, we took several
important actions based on shareholders’ feedback that are described in more detail in the Role of Shareholder Say-on-Pay
Votes section below. These actions included enhancing our disclosures related to our clawback policy, enhancing our
disclosure regarding the change in control definition that applies to outstanding PBRSU awards and continuing our practice
of generally granting Named Executive Officer long term incentive awards derived in PBRSUs. We believe these actions
have addressed the concerns shareholders expressed in response to our 2020 “say-on-pay” proposal.
Based on shareholder feedback during 2020, the Compensation Committee adopted management stock ownership
guidelines and now requires all officers and directors to be compliant within a three-year period of accepting their position.
All executive officers and directors are currently in compliance with this guideline as of March 16, 2021.
128
Table of Contents
Position
Unit Measure
Factor
Years to Achieve
Compliance
In Compliance as of
3/16/2021?
CEO
President
Base Salary
Base Salary
Section 16 Officers
Base Salary
Non-employee
Directors
Minimum holding
$115,000 in stock
value
5x
3x
1x
3
3
3
Not Applicable
By end of three years
of service
Yes
Yes
Yes
Yes
Executive Compensation Program Objectives and Philosophy
Executive pay leveraged more to performance and long-
term incentives versus peer group median
Align executive’s pay with long term interests of
stockholders
Our executive compensation program’s primary objective is aligning our executives’ pay with the interests of our
stockholders. The program is designed to provide a lower base compensation versus the peer group median combined with
a higher percentage of compensation at risk, and a higher percentage of compensation derived in equity. Cash bonuses and
long-term equity incentives are the elements of our executive compensation program that are “at risk”, are designed to
reward performance and align with shareholders in creating long-term value. Overall, we target to reward short and long-
term financial, strategic and operational performance, while facilitating the Company’s need to attract, motivate, develop
and retain highly-qualified executives who are critical to our long-term success.
Our Company’s short-term bonus pool is formula driven and is funded based on the following factors:
◾ Earnings; 25% of earnings greater than 6% of contract revenue; earnings are defined as operating earnings before
interest, taxes, amortization and bonus;
◾ Organic growth factor; The organic growth factor is defined as one plus/minus 2x and the organic growth rate where
the organic growth rate is expressed as organic revenue growth year over year. For instance, if organic growth rate is
20%, the organic growth factor would be 1+(2x0.2) = 1.40; and
◾ Day sales outstanding (DSO) factor; the DSO factor is calculated based on a mid-point of 70 days and is expressed as
one minus the percentage lower or higher than 70 days. If DSO was 65 days, the DSO would be 1-((65-70)/70) = 1.07
while if the DSO was 85 days, the DSO factor would be 1-((85-70)/70) = 0.79.
Our executive compensation philosophy is to:
■ Align the interests of our executives with those of the stockholders;
■ Attract, motivate, reward, and retain the top contributors upon whom, in large part, our success depends;
■ Be competitive with compensation programs for companies of similar size and complexity with whom we compete
for talent, including direct competitors;
■
■
Provide compensation based upon the short-term and long-term performance of both the individual executive and the
Company; and
Strengthen the relationship between pay and performance by emphasizing variable, at-risk compensation that is
dependent upon the successful achievement of specified corporate and individual goals.
129
Table of Contents
In structuring our executive compensation arrangements, our Compensation Committee considers how each compensation
element fits within our overall philosophy of long-term shareholder value. Our compensation program is comprised of
three elements:
■ Base salary - primarily intended to attract and retain top contributors. We believe that in order to attract and retain top
executives, we need to provide our executive officers with compensation levels that reward their continued service
and are competitive;
■ Annual cash bonus - the performance cash bonuses are primarily intended to motivate the Named Executive Officers
to achieve our short-term performance objectives. The cash bonus pool is formula driven based on organic growth,
earnings and cash flow metrics; and
◾ Long-term equity-based incentive compensation - primarily intended to align our Named Executive Officers’ long-
term interests with shareholders’ long-term interests.
We also provide 401(k) retirement benefits and, in some cases, severance benefits to our executive officers, including the
NEOs.
As described in more detail below, our Compensation Committee determined to introduce performance-based equity
awards into our executive compensation program in 2018. Starting with the year 2019, nearly all of the long-term equity
incentive awards granted to our Named Executive Officers were granted in the form of performance-based restricted stock
units (“PBRSUs”), other than to Mr. Procell, who was also granted time-based long-term incentive awards.
Under our PBRSU design, 50% of each award will vest based upon our Adjusted EBITDA performance over a two-year
performance period (“EBITDA Units”), and the remaining 50% of each award will vest based upon our adjusted diluted
earnings per share performance over two-year performance period (“EPS Units”). We believe Adjusted EBITDA and
earnings per share-based metrics are critical to measuring the growth in our business, and we believe that successful
Adjusted EBITDA and earnings per share growth will lead to the creation of long-term value for our shareholders.
We must achieve a 10% growth rate for the threshold number of EBITDA Units and EPS Units to vest for any
performance year. The Compensation Committee determined to move away from its historical practice of granting only
time-based equity awards and introduced the PBRSUs in 2018 in order to further align the interests of our executives with
those of shareholders by strengthening the relationship between executive pay and our performance against two critical
performance metrics that we believe will drive value creation for our shareholders.
Role of the Compensation Committee
Pursuant to its charter, the Compensation Committee of our Board has the authority to determine the amount of
compensation given to each of the Named Executive Officers. The Compensation Committee implements our executive
compensation philosophy, and is responsible for administering our equity compensation plans, including approving grants
of awards under the plans. In performing its duties, the Compensation Committee is authorized to consider the
recommendations of our Chief Executive Officer when determining the compensation of the other Named Executive
Officers. All of the members of the Compensation Committee are independent directors.
The elements of our executive compensation program were each approved by the Compensation Committee. None of the
Named Executive Officers is a member of the Compensation Committee or, except for recommendations made by our
Chief Executive Officer with respect to the compensation of the other Named Executive Officers, had any role in
determining the compensation of the Named Executive Officers.
The Compensation Committee is authorized to retain and terminate any compensation consultant engaged to assist in the
evaluation of the compensation of our senior executive officers (including all of the Named Executive Officers). In 2020,
the Compensation Committee hired Willis Towers Watson to evaluate and compare the compensation practices for
executive management and the Board. The Compensation Committee was directly responsible for the appointment,
compensation and oversight of Willis Towers Watson and, at the time of their appointment, assessed the independence of
Willis Towers Watson pursuant to applicable SEC and Nasdaq Rules and concluded that no conflict of interest existed with
respect to such consultant’s services to the Compensation Committee. Willis Towers Watson reported only to the
Compensation Committee and did not perform any other services for us.
130
Table of Contents
Compensation Peer Group
As part of their work for the Compensation Committee, Willis Towers Watson provided the Compensation Committee with
general compensation studies in 2017 and 2018 and again in 2020. These studies used publicly disclosed data from
companies similar to Willdan considering various metrics, including annual revenue, operating results, market
capitalization, and business complexity. In conjunction with their 2020 study, Willis Towers Watson advised the
Compensation Committee regarding the construction of our customized compensation peer group provided in the table
below.
COMPENSATION PEER GROUP
§ Ameresco, Inc.
§ Charah Solutions, Inc.
§ Cypress Environmental Partners, L.P.
§ Exponent, Inc.
§ Hill International, Inc.
§ Limbach Holdings, Inc.
§ NV5 Global, Inc.
§ RCM Technologies, Inc.
§ Resources Connection, Inc.
The Compensation Committee then compared the compensation of Willdan’s executive management with similarly
situated executives of those companies and used this comparative compensation information as a reference point when
setting compensation levels for 2020. In setting compensation levels for 2020, our Compensation Committee also
considered each executive’s level of responsibility and performance for the overall operations of the Company, historical
Company practices, long-term market trends, internal pay equity, expectations regarding the individual’s future
contributions, our own performance and budget considerations.
Role of Shareholder Say-on-Pay Votes
Responsive to Shareholder Feedback
Disclosure of our rigorous equity clawback policy
Disclosure of our change in control policies and practices
The Company annually offers shareholders the opportunity to cast an advisory vote on our executive compensation
program. This annual vote is known as the “say-on-pay” proposal. At our annual general meeting in 2020, approximately
54% of votes cast were in favor of our executive compensation program in 2019. We value our stockholders' opinions
about our governance policies and practices, and we actively solicit input through our stockholder engagement program. In
advance of the Annual Meeting, we proactively contacted our largest institutional stockholders, representing a majority of
our then-outstanding shares, to solicit their views on our corporate governance and executive compensation programs. We
welcome feedback on our corporate governance program that this active and ongoing engagement with stockholders
provides.
Executive Compensation Program Elements
Base Salaries
We pay each Named Executive Officer a base salary to provide each executive with a minimum, fixed level of cash
compensation. Decisions regarding increases to base salaries are made at the discretion of our Compensation Committee.
In reviewing base salary levels for our Named Executive Officers, our Compensation Committee primarily considers and
assesses the following factors: the base salaries paid by our peer group companies to their similarly situated executives,
each Named Executive Officer’s current base salary, their job responsibilities, leadership and experience, value to our
Company and the recommendations of our President and Chief Executive Officer (other than with respect to his own
compensation).
131
Table of Contents
In early March 2020, the Compensation Committee approved base salary increases for Dr. Brisbin, Mr. Bieber,
Ms. McLaughlin, and Mr. Chow to recognize their leadership and experience and incorporate the recommendations from a
third party compensation consultant benchmarking study. In late March, due to the Covid-19 pandemic and as previously
described, salaries were reduced up to 75% for NEO’s. Thus, the base salaries at the end of 2020 described in the table are
higher than the base salaries actually paid to NEO’s in 2020.
Named Executive
Officer
Thomas D. Brisbin
Michael A. Bieber
Stacy B.
McLaughlin
Daniel Chow
Adam C. Procell
Base Salary at end of 2019
Base Salary at end of 2020
$
$
$
$
$
448,473
390,389
219,926
290,198
370,781
$
$
$
$
$
505,003
440,003
240,011
310,003
370,781
Annual Bonuses
We determined to award performance-based cash bonuses to all of our Named Executive Officers, except Mr. Procell, in
2020. The Compensation Committee determined the amount of each executive’s bonus at its discretion, based on peer
group comparable data, past practices and individual performance. The compensation bonus pool is funded based 100% on
Company performance related to business metrics and the formula outlined above.
In determining the amount of each executive’s 2020 bonus, the Compensation Committee used third party benchmarking
studies and primarily considered bonus pool size limitations, each executive’s level of responsibility and performance,
contribution to the success of the business, strategic impact, retention risk, internal pay equity, and the recommendations of
our Chief Executive Officer (other than with respect to his own compensation) in allocating the bonus pool. The
Compensation Committee also evaluated each executive’s individual performance during 2020 and efforts to lead the
Company through the challenges of the Covid-19 pandemic (with input from our CEO for the other NEOs).
In addition, the Compensation Committee hired Willis Towers Watson, a third-party compensation consultant to
benchmark total direct compensation for Mr. Brisbin and Mr. Bieber.
Long-Term Equity Awards
Our long-term equity-based incentive plan permits us to award all types of incentive awards, including incentive or
nonqualified options, stock appreciation rights, stock bonuses, restricted stock, stock units, performance stock, phantom
stock, dividend equivalents and other forms of awards.
As noted above, our Compensation Committee determined to introduce PBRSUs into our executive compensation program
in 2018. Starting with 2019, nearly all of the long-term equity incentive awards granted to our Named Executive Officers
were granted in the form of PBRSUs (other than to Mr. Procell, who was also granted time-based long-term incentive
awards that vest over three years in annual installments).
In determining the level of awards granted to each of the Named Executive Officers, our Compensation Committee
primarily took into account the executive’s level of responsibility and performance for the overall operations of the
Company, internal pay equity, historical Company practices, each executive’s performance, and budget considerations. The
Compensation Committee also considered the compensation paid by our peer group companies described above to
similarly situated executives.
As described above, under our PBRSU design, 50% of each award will vest based upon our Adjusted EBITDA
performance over a two-year performance period (“EBITDA Units”), and the remaining 50% of each award will vest based
upon our earnings per share performance over a two-year performance period (“EPS Units”).
The chart below shows the adjusted EBITDA growth rate that we must achieve in order to satisfy the threshold, target and
maximum performance levels for each year in the performance period (each, a “Performance Year”), and the
132
Table of Contents
corresponding percentage of the target number of EBITDA Units related to that Performance Year eligible to vest. Results
between the points in the chart will be interpolated on a linear basis. If the threshold performance level is not achieved for
any Performance Year, all of the EBITDA Units related to that Performance Year will be forfeited.
Adjusted EBITDA Growth Rate % of Target EBITDA Units
Performance Level
Threshold
Target
Maximum
Achieved
<10%
20%
30%
Vesting
0%
100%
250%
Growth rate achieved between performance levels is interpolated on a linear basis for EBITDA Unit vesting.
In general, an equal number of EBITDA Units are eligible to vest based on the Company’s adjusted EBITDA growth as of
the end of each Performance Year, generally subject to the executive’s continued employment through the end of the
applicable Performance Year. For purposes of the EBITDA Units, adjusted EBITDA means the Company’s net income
(loss) for the applicable Performance Year as determined in accordance with GAAP, plus (1) interest expense (loss),
(2) income tax expense (benefit), (3) stock-based compensation, (4) interest accretion, (5) depreciation and amortization,
and (6) plus or minus the effect of any extraordinary item or extraordinary transaction. For purposes of setting the adjusted
annual EBITDA goals, the baseline was the adjusted EBITDA forecast for 2017 of $20,100,000, compounded each year
since then.
For the 2020 Performance Year, we achieved an actual EBITDA growth rate in excess of 10% but below 20%, which
resulted in each NEO being vested 94% of his or her target number of EBITDA Units for the 2020
Performance Year.
In general, an equal number of EPS Units are eligible to vest based on the Company’s EPS growth as of the end of each
Performance Year, generally subject to the executive’s continued employment through the end of the applicable
Performance Year. For purposes of the EPS Units, EPS means the Company’s trailing three year numerical average diluted
earnings per share for the applicable Performance Year as determined in accordance with GAAP, before stock
compensation expense net of tax, plus or minus the effect of any extraordinary item or extraordinary transaction.
The chart below shows the EPS growth rate that we must achieve in order to satisfy the threshold, target and maximum
performance levels for each Performance Year, and the corresponding percentage of the target number of EPS Units related
to that Performance Year eligible to vest. Results between the points in the chart will be interpolated on a linear basis. If the
threshold performance level is not achieved for any Performance Year, all of the EPS Units related to that Performance
Year will be forfeited.
EPS Growth Rate % of Target EPS Units
Performance Level
Vesting
0%
100%
250%
Growth rate achieved between performance levels is interpolated on a linear basis for EPS Unit vesting
Achieved
<10%
20%
30%
Threshold
Target
Maximum
For the 2020 Performance Year, we achieved an actual EPS growth rate in excess of 30%, which resulted in each
NEO being vested in 250% of his or her target number of EPS Units for the 2020 Performance Year.
Severance
Dr. Brisbin and Mr. Chow are employed pursuant to employment agreements or offer letters that provide specified levels of
severance benefits if the executive’s employment is terminated by us without “cause” or, in the case of Dr. Brisbin, by the
executive for a “good reason.” The level of each executive’s severance benefits was negotiated and established in
connection with the executive’s entry into his employment agreement or offer letter, and has been determined to be
appropriate by the Compensation Committee based on the executive’s level of responsibility and performance for the
overall operations of the Company, long-term market trends, and budget considerations. Severance
133
Table of Contents
benefits for Dr. Brisbin are based on a multiple of “2x” his base salary and severance benefits for Mr. Chow are based on a
multiple of “0.25x” base salary (or three months of base salary in total). Severance benefits for Dr. Brisbin also includes
payment of the executive’s target bonus for the year of termination of employment.
Ms. McLaughlin, Mr. Bieber and Mr. Procell are not party to employment agreements or offer letters with us that provide
for the payment of severance benefits for any type of termination of employment.
None of our Named Executive Officers is entitled to receive any automatic “single trigger” equity acceleration, as our
equity awards will only vest in connection with a change in control of the Company if they are not substituted or assumed
in connection with the transaction. Please see the introductory section above for the definition of a change in control that
applies to our equity awards, which we believe is a rigorous change in control definition. The treatment of PBRSUs in a
change in control is also described above.
No Named Executive Officer is entitled to receive a “gross-up” or similar payment for any excise taxes that may become
payable in connection with a change in control pursuant to Sections 280G and 4999 of the Code. Instead, our 2008
Performance Incentive Plan generally provides that awards or payments under the 2008 Plan are automatically “cut back”
in such circumstances in order to avoid triggering these excise taxes.
Other Benefits
While employed, we provide our Named Executive Officers with retirement benefits under our 401(k) Plan, participation
in our medical, dental and insurance programs and vacation and other holiday pay, all in accordance with the terms of such
plans and programs in effect from time to time and substantially on the same terms as those generally offered to our other
employees.
Policy with Respect to Section 162(m)
Section 162(m) of the Code generally prohibits a publicly-held company from deducting compensation paid to a current or
former Named Executive Officer that exceeds $1.0 million during the tax year. Certain awards granted before November 2,
2017 that were based upon attaining pre-established performance measures that were set by the Compensation Committee
under a plan approved by our shareholders, as well as amounts payable to former executives pursuant to a written binding
contract that was in effect on November 2, 2017, may qualify for an exception to the $1.0 million deductibility limit.
As one of the factors in its consideration of compensation matters, our Compensation Committee notes this deductibility
limitation. However, our Compensation Committee has the flexibility to take any compensation-related actions that it
determines are in the best interests of the Company and our shareholders, including awarding compensation that may not
be deductible for tax purposes. There can be no assurance that any compensation will in fact be deductible as a result of the
limitations under Section 162(m).
Compensation Committee Interlocks and Insider Participation
The Board’s Compensation Committee consists of Ms. Coy and Messrs. Holdsworth, McEachern and Shahidehpour. None
of the members of our Compensation Committee has at any time been one of our officers or employees, nor has any
member of our Compensation Committee had any relationship requiring disclosure under Item 404 of Regulation S-K.
None of our executive officers serves, or in the past year has served, as a member of the board of directors or the
compensation committee of any entity that has one or more executive officers who serve on our Board or Compensation
Committee
Compensation Committee Report
The Compensation Committee of the Board has reviewed and discussed with management the disclosures contained in the
Compensation Discussion and Analysis section of this Proxy Statement. Based upon this review and discussion, the
134
Table of Contents
Compensation Committee recommended to the Board that the Compensation Discussion and Analysis section be included
in this Proxy Statement.
Compensation Committee of the Board
Raymond W. Holdsworth (Chair)
Debra Coy
Douglas J. McEachern
Mohammad Shahidehpour
The foregoing report of the Compensation Committee does not constitute soliciting material and shall not be
deemed filed, incorporated by reference into or a part of any other filing by the Company (including any future filings)
under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent the Company specifically
incorporates such report by reference therein.
Compensation of Executive Officers
Summary Compensation Table – Fiscal 2020, Fiscal 2019, Fiscal 2018
The following table presents information regarding compensation during FY 2020, FY 2019, and FY 2018 of our named
executive officers (the “Named Executive Officers”). The Named Executive Officers include our principal executive
officer, principal financial officer, and our three other most highly compensated executive officers.
Name and
Principal Position
Year
Salary
($)
Bonus
($)(1)
Stock
Awards
($)(2)
Option All Other
Awards
($)(3)
Compensation
($)(4)
Total
($)
Thomas D. Brisbin(5)
Chairman of the Board
2020
2019
418,933
575,000
1,183,022
448,473
325,000
1,810,985
—
—
14,008
2,190,963
13,800
2,598,258
and Chief Executive Officer 2018
390,389
365,000
1,722,685
1,601,113
13,800
4,092,987
Michael A. Bieber
President
2020
2019
2018
364,913
475,000
899,093
390,389
250,000
1,376,361
—
—
3,750
1,742,756
3,750
2,020,500
340,390
150,000
1,168,963
320,223
3,750
1,983,326
Stacy B. McLaughlin
2020
217,951
70,000
165,633
Vice President and
2019
219,926
60,000
253,541
Chief Financial Officer
2018
194,709
60,000
246,101
Daniel Chow
2020
259,109
80,000
212,939
Chief Operating Officer
2019
290,198
70,000
325,968
2018
266,161
70,000
307,621
Adam C. Procell
Chief Strategy Officer
2020
346,539
—
460,990
—
—
—
—
—
—
—
4,250
457,834
21,559
555,026
4,250
505,060
9,360
561,408
9,240
695,406
10,770
654,552
4,750
812,279
(1) The amounts reported under “Bonus” for fiscal 2020, 2019 and 2018 include performance bonuses paid for fiscal
2020, 2019 and 2018.
135
Table of Contents
(2) The amounts reported under “Stock Awards” for fiscal 2020, 2019 and 2018 represent the aggregate grant date
fair value of performance based restricted stock units granted to Named Executive Officers during fiscal 2020,
2019 and 2018 (disregarding any estimate of forfeitures related to service-based vesting conditions). For a
discussion of the assumptions and methodologies used to calculate the amounts reported in this column, please
see the discussion of restricted stock awards and performance-based restricted stock units contained in Note 10
(Shareholders’ Equity) to our consolidated financial statements above. The EBITDA Units and EPS Units are
valued based on the probable outcome of the applicable performance conditions as determined on the grant date.
If we achieve the highest level of performance under the EBITDA Units and EPS Units, the total grant date fair
value for the EBITDA Units and EPS Units would increase to the following amounts: Dr. Brisbin $2,957,555; Mr.
Bieber $2,247,733; Ms. McLaughlin $414,083; Mr. Chow $532,348; and Mr. Procell $567,475.
(3) The amounts reported under “Option Awards” represent the aggregate grant date fair value of option awards
granted to our Named Executive Officers (disregarding any estimate of forfeitures related to service-based vesting
conditions). For a discussion of the assumptions and methodologies used to calculate the amounts reported in this
column, please see the discussion of stock option awards contained in Note 10 (Shareholders’ Equity) to our
consolidated financial statements above.
(4) The amounts reported under “All Other Compensation” for fiscal 2020 and 2019 include $3,000 in matching
contributions made by us for each of our Named Executive Officers and, other than Mr. Bieber, Ms. McLaughlin
and Mr. Procell, automobile allowances paid to them or use of a company vehicle. The remaining balance of the
amounts under “All Other Compensation” for Ms. McLaughlin for 2019 represents cashing out of accumulated
paid-time-off. The amounts reported under “All Other Compensation” for 2018 include $3,000 in matching
contributions made by for each of our Named Executive Officers and, other than Mr. Bieber and Ms. McLaughlin,
automobile allowances paid to them or use of a company vehicle.
(5) Dr. Brisbin served on the Board during each of fiscal 2020, 2019 and 2018. As an employee-director, Dr. Brisbin
did not receive additional compensation for his services as a director.
Compensation of Named Executive Officers
The Summary Compensation Table above quantifies the value of the different forms of compensation earned by or awarded
to our Named Executive Officers in each applicable fiscal year. As described in the “Compensation Discussion and
Analysis” section above, the primary elements of each Named Executive Officer’s total compensation reported in the table
for 2020 are base salary, performance bonus and a long-term equity incentive award consisting of EBITDA Units and EPS
Units. Named Executive Officers also received the other benefits listed in the “All Other Compensation” column of the
Summary Compensation Table, as further described in footnote (4) to the table.
The Summary Compensation Table should be read in conjunction with the “Compensation Discussion and Analysis”
section above and the tables and narrative descriptions that follow. A description of the material terms of each Named
Executive Officer’s employment agreement, if any, is provided immediately following this paragraph.
Description of Employment Agreements, Salary and Bonus Amounts
On May 3, 2011, we entered into an amended and restated employment agreement with Dr. Brisbin. This employment
agreement provides for “at-will” employment and does not include a specified term. This agreement provides for
Dr. Brisbin to receive a base salary and an annual incentive bonus as determined by the Compensation Committee. The
annual target bonus for Dr. Brisbin under this agreement is 100% of his annual base salary. Dr. Brisbin is also entitled to
participate in benefit plans made available to our employees generally.
On October 29, 2008, we entered into an offer letter with Mr. Chow. The letter provides that Mr. Chow’s employment is on
an “at-will” basis and for his initial base salary to be $205,000 per year (which has been subsequently increased to
approximately $310,003 per year).
On December 17, 2014, we entered into an offer letter with Mr. Bieber. The letter provides that Mr. Bieber’s employment is
on an “at-will” basis and for his initial base salary to be $270,000 per year (which has been subsequently increased to
approximately $440,003 per year).
136
Table of Contents
The Company has not entered into an employment agreement or offer letter with Ms. McLaughlin or Mr. Procell.
The provisions of these agreements relating to severance benefits following a termination of the Named Executive
Officer’s employment are described below under “Potential Payments Upon Termination or Change in Control.
Grants of Plan-Based Awards in Fiscal 2020
The following table presents information regarding the equity incentive awards granted to Named Executive Officers
during fiscal 2020 under the 2008 Plan. Please see the “Compensation Discussion and Analysis” section above for a
description of the material terms of the awards.
Estimated Future Payouts Under Equity
Incentive Plan Awards
Name
Thomas D. Brisbin
Michael A. Bieber
Stacy B. McLaughlin
Daniel Chow
Adam C. Procell
Grant
Date
3/2/2020
3/2/2020
3/2/2020
3/2/2020
3/2/2020
6/10/2020
Threshold
(#)
1
1
1
1
1
Target Awards Maximum
(#)
($/Sh)
38,162 —
29,003 —
5,343 —
6,869 —
2,290 —
(#)
95,405
72,508
13,358
17,173
5,725
All Other Stock
Awards
Number of Shares
Of Stock or Units
(#)
Grant Date Fair Value
of Options Awards
and Stock Awards
($)
1,183,022
899,093
165,633
212,939
70,990
390,000
15,000 (2)
(1) Consists of 50% EBITDA Units and 50% EPS Units that vest over a period of two years subject to the achievement of the applicable
performance requirements.
(2) Mr. Procell was granted a time-based long term incentive award of 15,000 restricted shares vesting in equal annual installments over three
years.
137
Table of Contents
Outstanding Equity Awards at Fiscal 2020 Year-End
The following table presents information regarding the outstanding option and restricted stock or unit awards held by each
Named Executive Officer as of January 1, 2021.
Options Awards
Stock Awards
Numbers of
Securities
Underlying
Unexercised
Options
Exercisable
(#)
25,000
50,000
50,000
100,000
83,333
100,000
25,000
25,000
50,000
16,667
16,667
1,667
10,000
15,000
15,000
6,667
7,000
5,000
5,000
30,000
13,333
13,333
—
—
—
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)
Option
Exercise
Price
(#)
—
—
—
—
41,667 (1)
—
—
—
—
—
8,334 (1)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
4.01
7.13
13.91
16.27
31.73
13.49
13.91
9.13
16.27
28.19
31.73
14.01
13.86
9.13
16.27
28.19
3.84
7.13
14.01
16.27
28.19
30.06
—
—
—
Option
Expiration
Date
6/6/2021
6/6/2024
6/5/2025
11/3/2026
9/4/2028
12/31/2024
6/5/2025
3/10/2026
11/3/2026
3/8/2027
9/4/2028
11/5/2024
3/26/2025
3/10/2026
11/3/2026
3/8/2027
3/26/2022
6/6/2024
11/5/2024
11/3/2026
3/8/2027
10/31/2027
—
—
—
Equity
Incentive
Plan Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
(#)
Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
($)
Number of
Shares or Units
of Stock that
Have Not
Vested
(#)
Market Value
of Shares or
Units of Stock
That Have Not
Vested
($)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
15,000
390,000 (5)
—
—
98,155 (2)
70,107 (3)
95,405 (4)
—
—
—
66,600 (2)
53,283 (3)
72,508 (4)
—
—
14,023 (2)
9,814 (3)
13,358 (4)
—
—
—
17,527 (2)
12,620 (3)
17,173 (4)
—
4,207 (3)
5,725 (4)
—
—
2,153,521
2,263,739
2,957,555
—
—
—
1,461,204
1,720,492
2,247,733
—
—
307,654
316,894
414,083
—
—
—
384,531
407,484
532,348
—
135,828
177,475
Name
Thomas D. Brisbin
Michael A. Bieber
Stacy B. McLaughlin
Daniel Chow
Adam C. Procell
(1) These options were granted on September 4, 2018 and vest in substantially equal annual installments over three years from their grant date.
(2) These performance based restricted stock units were granted on March 6, 2018 and vest in substantially equal annual installments over four years from their grant date.
(3) These performance based restricted stock units were granted on June 13, 2019 and vest in substantially equal annual installments over two years from their grant date.
(4) These performance based restricted stock units were granted on March 2, 2020 and vest in substantially equal annual installments over two years from their grant date.
(5) These restricted stock awards were granted on June 10, 2020 and vest in substantially equal annual installments over three years from their grant date.
138
Table of Contents
Option Exercises and Stock Vested in Fiscal 2020
The following table presents information regarding the options exercised by each Named Executive Officer and stock
awards vested during fiscal 2020, if any.
Name
Thomas D. Brisbin
Michael A. Bieber
Stacy B. McLaughlin
Daniel Chow
Adam C. Procell
Option Awards
Numbers of
Stock Awards
Numbers of
Shares Acquired Value Realized Shares Acquired Value Realized
on Exercise
(#)
50,000
—
—
10,000
—
on Exercise
($) (1)
1,223,552
—
—
177,200
—
on Vesting
(#)
119,176
87,714
17,280
23,195
4,206
on Vesting
($) (2)
3,343,926
2,454,639
487,363
653,098
109,356
(1) The amounts reported as the “Value Realized on Exercise” (if any) are determined by multiplying (i) the number of shares of common stock to which
the exercise of the option related by (ii) the difference between the per-share price of the common stock on the exercise date and exercise price of the
options.
(2) The amounts reported as the “Value Realized on Vesting” (if any) are determined by multiplying (i) the number of shares of common stock that
vested by (ii) the per-share price of the common stock on the vesting date.
Potential Payments Upon Termination or Change in Control
Outstanding options and restricted stock and unit awards issued under our 2008 Plan will vest immediately and become
fully exercisable upon a change in control of us to the extent such outstanding awards are not substituted or assumed in
connection with the transaction.
In addition, the terms of the EBITDA Units and EPS Units provide that in the event a change in control occurs before the
end of any Performance Year, the greater of the target number of each type of units subject to the award or the number of
each type of units earned based on actual performance through the date of the change in control will become eligible to
vest (with the number of units earned based on actual performance for Performance Years yet to begin measured on an
average basis based on actual performance in all completed Performance Years). Any EBITDA Units and EPS Units that
become eligible to vest will vest on the first anniversary of the date of the change in control, or earlier upon a Named
Executive Officer’s termination of employment by the Company without cause, by the executive for a “good reason,” or
due to an executive’s death or disability. Upon a Named Executive Officer’s death or disability at any time (whether or not
in connection with a change in control), the executive will become vested in the greater of the target number of each type
of units subject to the award or the number of each type of units earned based on actual performance for the then in-
progress Performance Year, and in the target number of each type of units for all Performance Years that have yet to begin.
The employment agreement entered into with Dr. Brisbin provides for severance benefits upon certain terminations of his
employment with us. If such Named Executive Officer’s employment is terminated by us without cause or by the Named
Executive Officer for good reason (as such terms are defined in his employment agreement), the Named Executive Officer
will be entitled to a severance benefit equal to two times his base salary at the annualized rate then in effect, paid in 24
equal installments. In addition, the Named Executive Officer would be entitled to payment of his target bonus for the year
in which such a termination of employment occurs. The Named Executive Officer’s right to receive the severance benefits
described above is contingent on the executive providing a general release of claims in favor of the Company and
complying with certain non-solicitation and other restrictive covenants set forth in his employment agreement.
Mr. Chow’s offer letter provides that if his employment is terminated by the Company without cause, he will be entitled to
a lump sum severance payment equal to three months of his base salary. Mr. Bieber’s offer letter does not provide for any
additional severance benefits. As noted above, Ms. McLaughlin and Mr. Procell are not party to an employment agreement
or offer letter with the Company.
139
Table of Contents
The following table sets forth the estimated payments and benefits that would be provided to each Named Executive
Officer in the event the Named Executive Officer’s employment is terminated as described above. In accordance with
applicable SEC disclosure rules, these estimates assume a termination date of January 1, 2020.
Name
Severance
($)
Continued Health
Coverage
($)
Equity
Acceleration (1)
($)
Total
($)
Thomas D. Brisbin
1,200,000
Michael A. Bieber
Stacy B. McLaughlin
Daniel Chow
Adam C. Procell
—
—
67,500
—
—
—
—
—
—
2,162,254
3,362,254
1,643,306
302,734
389,197
129,751
1,643,306
302,734
456,697
129,751
(1) Represents the value of the actual number of EBITDA Units and EPS Units earned for the 2020 Performance Year, and the value of
the target number of EBITDA Units and EPS Units for all future Performance Years. The value of the EBITDA Units and EPS Units
is based on the $41.70 closing price of our common stock on December 31, 2020.
Pay Ratio Disclosure
The 2020 annual total compensation of the Company’s Chief Executive Officer was $2,190,963. The 2020 annual total
compensation of our median employee (excluding our Chief Executive Officer) was $59,924. The ratio between the two
amounts is 36.3. The Company believes that the ratio of pay included above is a reasonable estimate calculated in a manner
consistent with applicable SEC rules.
To determine the pay ratio, we took the following steps:
■ We identified the median employee using our employee population consisting of 1,352 employees on January 1, 2021
(excluding our Chief Executive Officer). We identified the median employee based on gross wages paid in 2020 as
reported on Form W-2. We did not make any assumptions, adjustments or estimates with respect to gross wages paid
in 2020.
■ As required under the SEC rules, after identifying our median employee, we calculated annual total compensation for
both our median employee and our Chief Executive Officer using the same methodology that we used to determine
our Named Executive Officers’ annual compensation for the Summary Compensation Table above.
This information is being provided for compliance purposes. Neither the Compensation Committee nor management of the
Company used the pay ratio measure in making compensation decisions. Given the different methodologies that companies
use to determine an estimate of their pay ratio, the estimated ratio reported above should not be used as a basis for
comparison between companies.
140
Table of Contents
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED SHAREHOLDER MATTERS
Equity Compensation Plan Information
The following table sets forth, for each of our equity compensation plans, the number of shares of common stock subject to
outstanding awards, the weighted-average exercise price of outstanding options, and the number of shares remaining
available for future award grants as of January 1, 2021. Our equity compensation plans consist of our 2006 Plan, our 2008
Plan and our ESPP. The table below is presented assuming the maximum number of shares potentially issuable under the
EBITDA Units and EPS Units become vested and payable.
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
(a)
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
Number of
securities
remaining available
for future issuance
under equity
compensation
plans
(excluding
securities reflected
in column (a))
(c)(1)
1,003,198
$
—
$
1,003,198
18.86
—
18.86
648,154
—
648,154
Plan Category
Equity compensation plans
approved by security holders
Equity compensation plans not
approved by security holders
Totals
(1) Represents 129,219 shares available for future issuance under our 2008 Plan, and 518,935 shares available for future issuance under our
ESPP. Shares available under our 2008 Plan may be used for any type of award authorized in that plan (subject to certain limitations of the
plan), including stock options, stock appreciation rights, stock units, restricted stock, performance-based awards, stock bonuses and other
awards payable in shares of Company common stock.
Security Ownership Information
Except as otherwise noted, the following table sets forth information as of March 12, 2020 with respect to: (i) each person
known by us to own beneficially more than 5% of the outstanding shares of our common stock, based upon Schedule 13G
and Schedule 13D reports filed with the SEC, (ii) each of our directors and director nominees, (iii) each of our Named
Executive Officers (as defined in Item 11. Executive Compensation) and (iv) our directors and executive officers as a
group.
Unless otherwise noted below, the address of the persons listed in the table is c/o Willdan Group, Inc., 2401 East Katella
Avenue, Suite 300, Anaheim, California 92806. The amounts and percentages of common stock beneficially owned are
reported on the basis of regulations of the SEC governing the determination of beneficial ownership of securities. Under
the rules of the SEC, a person is deemed to be a “beneficial owner” of a security if that person has or shares “voting
power,” which includes the power to vote or to direct the voting of such security, or “investment power,” which includes
the power to dispose of or to direct the disposition of such security or has the right to acquire such powers within 60 days.
Under SEC rules, more than one person may be deemed a beneficial owner of the same securities and a person may be
deemed a beneficial owner of securities as to which that person has no economic interest. Except as otherwise noted, we
believe, based on the information furnished to us, that the persons named in the table below have sole voting and
investment power with respect to all shares of common stock reflected as beneficially owned, subject to applicable
community property laws. All percentages in the following table are based on a total of 12,237,257 shares of common
stock outstanding on March 15, 2021.
141
Table of Contents
Name and Address of Stockholder
5% Stockholders
Invesco Ltd. (1)
Handelsbanken Fonder AB (2)
Forager Capital Management, LLC (3)
BlackRock, Inc. (4)
Rice Hall James & Associates, LLC (5)
Named Executive Officers and Directors
Thomas D. Brisbin (6)
Michael A. Bieber (7)
Daniel Chow (8)
Steven A. Cohen (9)
Debra Coy (10)
Raymond W. Holdsworth (11)
Douglas J. McEachern (12)
Dennis V. McGinn (13)
Stacy B. McLaughlin (14)
Keith W. Renken (15)
Mohammad Shahidehpour (16)
Adam C. Procell (17)
All current Directors and Executive Officers as a group (14 persons)
Amount of
Beneficial
Ownership
Percent of
Common
Stock
1,381,120
962,230
758,452
746,498
617,524
555,632
283,500
121,490
17,363
9,504
98,863
98,406
9,642
63,831
133,763
10,253
17,637
1,552,059
11.3 %
7.9 %
6.2 %
6.1 %
5.0 %
4.5 %
2.3 %
1.0 %
* %
* %
* %
* %
* %
* %
1.1 %
* %
* %
12.7 %
* The percentage of shares beneficially owned does not exceed one percent of the Company’s outstanding stock.
(1)
(2)
(3)
(4)
(5)
Beneficial ownership information is given as of December 31, 2020 and was obtained from a Schedule
13G/A filed with the SEC on February 10, 2021 by Invesco Ltd. The principal office or business address of
Invesco Ltd. is 1555 Peachtree Street NE, Suite 1800, Atlanta GA 30309.
Beneficial ownership information is given as of December 31, 2020 and was obtained from a Schedule 13G
filed with the SEC on February 12, 2021 by Handelsbanken Fonder AB. The Schedule 13G states that
Handelsbanken Fonder AB has sole voting power over 962,230 shares and sole dispositive power over
962,230 shares. The principal office or business address of Handelsbanken Fonder AB is SE-106 70,
Stockholm, Sweden.
Beneficial ownership information is given as of December 31, 2020 and was obtained from a Schedule 13G
filed with the SEC on February 16, 2021 by Forager Capital Management, LLC. The principal office or
business address of Forager Capital Management, LLC is 2024 3rd Ave. N, Suite 201, Birmingham, AL
35203.
Beneficial ownership information is given as of December 31, 2020 and was obtained from a Schedule
13G/A filed with the SEC on February 1, 2021 by BlackRock, Inc. The Schedule 13G/A states that
BlackRock, Inc. has sole voting power over 746,498 shares and sole dispositive power over 746,498 shares.
The principal office or business address of BlackRock, Inc. is 55 East 52nd Street, New York, NY 10055.
Beneficial ownership information is given as of December 31, 2020 and was obtained from a Schedule
13G/A filed with the SEC on February 16, 2021 by Rice Hall James & Associates, LLC. The
Schedule 13G/A states that Rice Hall James & Associates, LLC has sole voting power over 436,233 shares
and sole dispositive power over 617,524 shares. The principal office or business address of Rice Hall
James & Associates, LLC is 600 W. Broadway, Ste 1000, San Diego, CA 92101-3383.
142
Table of Contents
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
The 555,632 shares of common stock held directly by Dr. Brisbin consists of 272,299 shares of common
stock and 283,333 shares of common stock subject to options exercisable on or before June 19, 2021.
The 283,500 shares of common stock held directly by Mr. Bieber consists of 50,167 shares of common stock
held directly by Mr. Bieber and 233,333 shares of common stock subject to options exercisable on or before
June 19, 2021.
The 121,490 shares of common stock held directly by Mr. Chow consists of 47,824 shares of common stock
and 73,666 shares of common stock subject to options exercisable on or before June 19,2021.
The 17,363 shares of common stock held directly by Dr. Cohen includes 4,966 shares of restricted stock, of
which (i) 1,913 shares of restricted stock vest on June 13, 2021 and (ii) 3,053 shares of restricted stock vest
in two substantially equal installments on each of June 11, 2021 and June 11, 2022.
The 9,504 shares of common stock held directly by Ms. Coy includes 5,232 shares of restricted stock, of
which (i) 2,179 shares of restricted stock vest on June 13, 2021 and (ii) 3,053 shares of restricted stock vest
in two substantially equal installments on each of June 11, 2021 and June 11, 2022
The 98,863 shares of common stock held by Mr. Holdsworth consists of 38,175 shares of common stock held
directly by Mr. Holdsworth and 60,688 shares of common stock held by The Holdsworth Family Trust. Mr.
Holdsworth is sole trustee and a beneficiary of The Holdsworth Family Trust and has sole voting and
investment control over the shares of Willdan Group, Inc. common stock held therein. The 38,175 shares of
common stock held directly by Mr. Holdsworth include 4,966 shares of restricted stock, of which (i) 1,913
shares of restricted stock vest on June 13, 2021 and (ii) 3,053 shares of restricted stock vest in two
substantially equal installments on each of June 11, 2021 and June 11, 2022.
The 98,406 shares of common stock held by Mr. McEachern consists of 19,863 shares of common stock held
directly by Mr. McEachern and 78,543 shares of common stock held by The McEachern Family Trust. Mr.
McEachern and his wife are co-trustees and beneficiaries of The McEachern Family Trust and have shared
voting and investment control over the shares of Willdan Group, Inc. common stock held therein. The 19,863
shares of common stock held directly by Mr. McEachern include 4,966 shares of restricted stock, of which (i)
1,913 shares of restricted stock vest on June 13, 2021 and (ii) 3,053 shares of restricted stock vest in two
substantially equal installments on each of June 11, 2021 and June 11, 2022.
The 9,642 shares of common stock held directly by Mr. McGinn includes 5,120 shares of restricted stock, of
which (i) 2,067 shares of restricted stock vest on June 13, 2021 and (ii) 3,053 shares of restricted stock vest
in substantially equal installments on each of June 11, 2021 and June 11, 2022.
The 63,931 shares of common stock held directly by Ms. McLaughlin consists of 15,597 shares of common
stock and 48,344 shares of common stock subject to options exercisable on or before June 10, 2021.
The 133,763 shares of common stock held by Mr. Renken consists of 53,363 shares of common stock held
directly by Mr. Renken and 80,400 shares of common stock held by the LVRJC Partnership. Mr. Renken is
the managing partner of the LVRJC Partnership and has sole voting and investment control over our shares of
common stock held therein. The 53,363 shares of common stock held directly by Mr. Renken include 4,966
shares of restricted stock, of which (i) 1,913 shares of restricted stock vest on June 13, 2021 and (ii) 3,053
shares of restricted stock vest in two substantially equal installments on each of June 11, 2021 and June 11,
2022.
143
Table of Contents
(16)
The 10,253 shares of common stock held directly by Dr. Shahidehpour includes 4,966 shares of restricted
stock, of which (i) 1,913 shares of restricted stock vest on June 13, 2021 and (ii) 3,053 shares of restricted
stock vest in two substantially equal installments on each of June 11, 2021 and June 11, 2022.
(17)
The 17,637shares of common stock held directly by Mr. Procell consists of 15,00 shares of restricted stock
that vest in three equal installments on each of June 11, 2021, June 11, 2022 and June 11, 2023.
144
Table of Contents
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Certain Relationships and Related Person Transactions
Related Person Transactions
The following provides a description of certain relationships and related transactions since the beginning of fiscal 2020
between some of our directors, executive officers and holders of 5% or more of our common stock and us or our
subsidiaries and affiliates involving an amount that exceeded or may exceed $120,000 in the aggregate.
Tax Agreements. In connection with our initial public offering in November 2006, we entered into a Tax Agreement
Relating to S Corporation Distributions with each of our stockholders at the time of our initial public offering. Pursuant to
these agreements, we agreed to indemnify, defend and hold harmless each stockholder on an after-tax basis against
additional income taxes, plus interest and penalties resulting from adjustments made, as a result of a final determination
made by a competent tax authority, to the taxable income we reported as an S Corporation. Such indemnification also
includes any losses, costs or expenses, including reasonable attorneys’ fees, arising out of a claim for such tax liability. In
fiscal 2020, we did not incur any indemnification related expenses as a result of the Tax Agreement.
Indemnification of Officers and Directors. We have entered into indemnification agreements with all of our current
executive officers and directors. These agreements require us to indemnify these individuals to the fullest extent permitted
under Delaware law against liabilities that may arise by reason of their service to us and to advance expenses reasonably
incurred as a result of any proceeding against them as to which they could be indemnified. Additionally, we may enter into
indemnification agreements with any future directors or executive officers. In fiscal 2020, we did not incur any
indemnification related expenses as a result of indemnification agreements with our current executive officers and
directors.
Related Person Transaction Policy
In March 2007, the Board adopted a policy addressing the Company’s procedures with respect to the review, approval and
ratification of “related person transactions” that are required to be disclosed pursuant to Item 404(a) of Regulation S-K.
The policy provides that any transaction, arrangement or relationship, or any series of similar transactions, in which the
Company was, is or will be a participant, the amount involved exceeds $120,000, and a “related person” (as defined in the
policy) has or will have a direct or indirect material interest (each such transaction, a “Related Person Transaction”) shall
be subject to review and approval or ratification by the Audit Committee. In its review of Related Person Transactions, the
Audit Committee shall review the material facts and circumstances of the transaction and shall take into account certain
factors, where appropriate, based on the particular facts and circumstances, including (i) the nature of the “related person’s”
interest in the transaction, (ii) the approximate dollar value of the amount involved in the Related Person Transaction,
(iii) whether the transaction was taken in the Company’s ordinary course of business, (iv) whether the transaction with the
“related person” is proposed to be, or was, entered into on terms no less favorable to the Company than terms that could
have been reached with an unrelated third party and (v) the purpose of, and the potential benefits to the Company of, the
Related Person Transaction.
No member of the Audit Committee may participate in the review, approval or ratification of a transaction with respect to
which he or she is a “related person” provided that such member can be counted for purposes of a quorum and shall
provide such information with respect to the transaction as may be reasonably requested by other members of the Audit
Committee or the Board.
Director Independence
The Board has determined that seven of our eight current directors (all but Dr. Brisbin) are independent pursuant to the
applicable independence requirements set forth in the rules of the listing standards for the Nasdaq Global Market (the
“Nasdaq Rules”) and by the SEC because they either have no relationship with the Company (other than as a Director and
stockholder) or because any relationship they have with the Company is immaterial. Under these standards of
145
Table of Contents
independence, for a director to be considered independent, the director must, among other things, not be an officer or
employee of the Company or its subsidiaries and the director must not have a relationship which, in the opinion of the
Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Dr.
Brisbin, due to his employment as our Chief Executive Officer, does not qualify as independent.
146
Table of Contents
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Audit and Other Fees
Crowe LLP and KPMG
The following is a summary of the fees billed to us by Crowe LLP and KPMG for professional services for the fiscal years
ended January 1, 2021 and December 27, 2019.
Fee Category
Audit Fees
Audit-Related Fees
Tax Fees
All Other Fees
Total Fees
Crowe 2020 Crowe 2019 KPMG 2019
$ 845,000
$ 700,000
—
$
—
—
—
—
—
15,700
45,000
—
—
$ 700,000
$ 860,700
$ 45,000
Audit Fees. Fees for audit services provided by Crowe LLP for fiscal 2020 and 2019 consisted of professional services for
the annual audit of our consolidated financial statements and for the review of our interim condensed consolidated financial
statements including quarterly reports.
Audit-Related Fees. Fees for audit-related services provided by KPMG for fiscal 2019 consisted of professional services
reasonably related to the performance of the audit of our consolidated financial statements or review of our interim
condensed consolidated financial statements including quarterly reports and are not reported as audit fees.
All Other Fees. Fees paid for any other services provided by (i) Crowe LLP for fiscal 2019 consisted of professional
services reasonably related to the Company’s 2019 acquisitions.
The Company has been advised by Crowe LLP that neither Crowe LLP nor any member of Crowe LLP has any financial
interest, direct or indirect, in any capacity in the Company or its subsidiaries. The Company has been advised by KPMG
that neither KPMG nor any member of KPMG has any financial interest, direct or indirect, in any capacity in the Company
or its subsidiaries.
Audit Committee Pre-Approval Policy
Consistent with SEC policies regarding independence, the Audit Committee has responsibility for appointing, setting
compensation and overseeing the work of the Company’s independent registered public accounting firm. In recognition of
this responsibility, the Audit Committee has established a policy to pre-approve all audit and permissible non-audit services
provided by the independent registered public accounting firm, including audit services, audit-related services, tax services
and other services. In some cases, the full Audit Committee provides pre-approval for up to a year, related to a particular
defined task or scope of work and subject to a specific budget. During the year, circumstances may arise when it becomes
necessary to engage the independent registered public accounting firm for additional services not contemplated in the
original pre-approval categories. In those instances, the Audit Committee requires specific pre-approval before engaging
the Company’s independent registered public accounting firm. The Audit Committee may delegate pre-approval authority
to one or more of its members. The member to whom such authority is delegated must report, for informational purposes
only, any pre-approval decisions to the Audit Committee at its next regularly scheduled meeting.
The Audit Committee has considered whether the provision of the services described above is compatible with maintaining
the Company’s independent public accounting firm’s independence and has determined that such services have not
adversely affected Crowe LLPs’ independence. All services described in the table above under “Audit-Related Fees” and
“All Other Fees” for fiscal 2019 were pre-approved by the Audit Committee.
147
Table of Contents
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this report:
1.
Financial Statements
The financial statements included in Part II, Item 8 of this document are filed as part of this Annual Report on
Form 10-K.
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 accompanying notes.
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:
Exhibit
Number
Exhibit Description
2.1 Stock Purchase Agreement, dated July 28, 2017, by and among Willdan Group, Inc., Willdan Energy
Solutions, Integral Analytics, Inc., the Shareholders of Integral Analytics, Inc. and the Sellers’ Representative
(as defined therein) (portions of this exhibit have been omitted pursuant to a request for confidential treatment)
(incorporated by reference to Willdan Group, Inc.’s Current Report on Form 8-K, filed with the SEC on
August 3, 2017).
2.2 Amendment No. 1, dated as of August 1, 2019, to the Stock Purchase Agreement, dated as of July 28, 2017,
by and among Willdan Group, Inc., Willdan Energy Solutions, Integral Analytics, Inc., the stockholders of
Integral Analytics, Inc. and the Sellers’ Representative (as defined therein) (incorporated by reference to
Exhibit 2.2 to Willdan Group, Inc.’s Quarterly Report on Form 10-Q filed on November 1, 2019).
2.3 Merger Agreement, dated as of October 1, 2018, by and among Willdan Energy Solutions, Luna Fruit, Inc.,
Lime Energy Co. and Luna Stockholders Representative, LLC, as representative of the participating
securityholders of Lime Energy Co. (incorporated by reference to Exhibit 2.1 to Willdan Group, Inc.’s Current
Report on Form 8-K filed on October 3, 2018).
2.4‡ Stock Purchase Agreement, dated as of October 28, 2019, by and among Willdan Group, Inc., Willdan Energy
Solutions, Energy and Environmental Economics, Inc., each of the stockholders of Energy and Environmental
Economics, Inc., and Ren Orans, as seller representative of the stockholders of Energy and Environmental
Economics, Inc. (incorporated by reference to Exhibit 2.1 to Willdan Group, Inc.’s Quarterly Report on Form
10-Q filed on October 31, 2019).
3.1 First Amended and Restated Certificate of Incorporation of Willdan Group, Inc. (incorporated by reference to
Willdan Group, Inc.’s Registration Statement on Form S-1, filed with the SEC on August 9, 2006, as amended
(File No. 333-136444)).
3.2 Amended and Restated Bylaws of Willdan Group, Inc. (incorporated by reference to Exhibit 3.1 to Willdan
Group, Inc.’s Current Report on Form 8-K, filed with the SEC on April 16, 2020).
148
Table of Contents
Exhibit
Number
Exhibit Description
4.1 Specimen Stock Certificate for shares of the Registrant’s Common Stock (incorporated by reference to
Willdan Group, Inc.’s Registration Statement on Form S-1, filed with the SEC on August 9, 2006, as amended
(File No. 333-136444)).
4.2* Description of Willdan Group, Inc.’s Capital Stock.
4.3 The Company agrees to furnish to the Securities and Exchange Commission upon request a copy of each
instrument with respect to issues of long-term debt of Willdan Group, Inc. and its subsidiaries, the authorized
principal amount of which does not exceed 10% of the consolidated assets of Willdan Group, Inc. and its
subsidiaries.
10.1 Amended and Restated Credit Agreement, dated as of June 26, 2019, by and among Willdan Group, Inc., the
Guarantors (as defined therein), the Lenders (as defined therein) and BMO Harris Bank N.A., as
administrative agent (incorporated by reference to Exhibit 10.1 to Willdan Group, Inc.’s Current Report on
Form 8-K filed on July 2, 2019).
10.2 First Amendment to Amended and Restated Credit Agreement, dated as of August 15, 2019, by and among
Willdan Group, Inc., the Guarantors signatory thereto, the Lenders signatory thereto and BMO Harris Bank
N.A., as administrative agent (incorporated by reference to Exhibit 10.2 to Willdan Group, Inc.’s Annual
Report on Form 10-K filed on March 6, 2020).
10.3 Second Amendment to Amended and Restated Credit Agreement, dated as of November 6, 2019, by and
among Willdan Group, Inc., the Guarantors signatory thereto, the Lenders signatory thereto and BMO Harris
Bank N.A., as administrative agent (incorporated by reference to Exhibit 10.3 to Willdan Group, Inc.’s Annual
Report on Form 10-K filed on March 6, 2020).
10.4 Third Amendment to Amended and Restated Credit Agreement, dated as of May 6, 2020, by and among
Willdan Group, Inc., the Guarantors signatory thereto, the Lenders signatory thereto and BMO Harris Bank
N.A., as administrative agent (incorporated by reference to Exhibit 10.1 to Willdan Group, Inc’s Quarterly
Report on Form 10-Q filed on May 8, 2020).
10.5 Security Agreement, dated as of October 1, 2018, by and among Willdan Group, Inc. the other Debtors (as
defined therein) and BMO Harris Bank N.A. (incorporated by reference to Exhibit 10.2 to Willdan Group,
Inc.’s Current Report on Form 8-K filed on October 3, 2019).
10.6 Master Reaffirmation of and Amendment to Collateral Documents, dated as of June 26, 2019, by and among
Willdan Group, Inc., the other Debtors (as defined therein) and BMO Harris Bank N.A., as administrative
agent (incorporated by reference to Exhibit 10.2 to Willdan Group, Inc.’s Current Report on Form 8-K, filed
with the SEC on July 2, 2019).
10.7† Willdan Group, Inc. 2006 Stock Incentive Plan (incorporated by reference to Willdan Group, Inc.’s
Registration Statement on Form S-1, filed with the SEC on August 9, 2006, as amended (File No. 333-
136444)).
10.8† Form of Incentive Stock Option Agreement (incorporated by reference to Willdan Group, Inc.’s Registration
Statement on Form S-1, filed with the SEC on August 9, 2006, as amended (File No. 333-136444)).
10.9† Form of Non-Qualified Stock Option Agreement (incorporated by reference to Willdan Group, Inc.’s
Registration Statement on Form S-1, filed with the SEC on August 9, 2006, as amended (File No. 333-
136444)).
10.10† Willdan Group, Inc. Amended and Restated 2008 Performance Incentive Plan (incorporated by reference to
Exhibit 10.1 to Willdan Group, Inc.’s Current Report on Form 8-K, filed with the SEC on June 17, 2019).
10.11† Amended and Restated Willdan Group, Inc. 2006 Employee Stock Purchase Plan (incorporated by reference to
Willdan Group, Inc.’s Current Report on Form 8-K, filed with the SEC on June 9, 2017).
149
Table of Contents
Exhibit
Number
Exhibit Description
10.12† Form of Indemnification Agreement between Willdan Group, Inc. and its Directors and Officers (incorporated
by reference to Willdan Group, Inc.’s Current Report on Form 8-K, filed with the SEC on June 13, 2016).
10.13† Offer Letter from Willdan Group, Inc. to Daniel Chow dated October 29, 2008 and accepted November 9,
2008 (incorporated by reference to Willdan Group, Inc.’s Current Report on Form 8-K, filed with the SEC on
December 17, 2008).
10.14† Employment Agreement, dated as of May 3, 2011 by and between Willdan Group, Inc. and Thomas D. Brisbin
(incorporated by reference to Willdan Group, Inc.’s Current Report on Form 8-K, filed with the SEC on May
4, 2011).
10.15† Employment Agreement, dated as of December 17, 2014, by and between Willdan Group, Inc. and Mike
Bieber (incorporated by reference to Willdan Group, Inc.’s Current Report on Form 8-K, filed with the SEC on
January 7, 2015).
10.16† Form of Performance Based Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit
10.15 to Willdan Group, Inc.’s Annual Report on Form 10-K filed on March 6, 2020).
21.1* Subsidiaries of Willdan Group, Inc.
23.1* Consent of Crowe LLP.
24.1* Power of Attorney (included on signature page hereto).
31.1* Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) under the Securities
Exchange Act 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
Act of 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 adopted
pursuant to § 906 of the Sarbanes-Oxley Act of 2002.
101.INS* Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because
its XBRL tags are embedded within the Inline XBRL document).
101.SCH* Inline XBRL Taxonomy Extension Schema Document
101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB* Inline XBRL Taxonomy Extension Definition Linkbase Document
101.PRE* Inline XBRL Taxonomy Extension Label Linkbase Document
101.DEF* Inline XBRL Taxonomy Extension Presentation Linkbase Document
104* Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
*
**
‡
†
Filed herewith.
Furnished herewith.
Portions of the referenced exhibit have been omitted pursuant to Item 601(b) of Regulation S-K because it (i) is
not material and (ii) would be competitively harmful if publicly disclosed.
Indicates a management contract or compensating plan or arrangement.
150
Table of Contents
ITEM 16. FORM 10-K SUMMARY
None.
151
Table of Contents
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
WILLDAN GROUP, INC.
/s/ STACY B. MCLAUGHLIN
Stacy B. McLaughlin
Chief Financial Officer and Vice President
March 16, 2021
KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature appears below constitutes and
appoints Stacy McLaughlin his/her attorney-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 the same, with Exhibits thereto and other documents in
connection therewith with the SEC, hereby ratifying and confirming all that 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 and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ THOMAS D. BRISBIN
Thomas D. Brisbin
/s/ STACY B. MCLAUGHLIN
Stacy B. McLaughlin
/s/ KEITH W. RENKEN
Keith W. Renken
/s/ STEVEN A. COHEN
Steven A. Cohen
/s/ DEBRA G. COY
Debra G. Coy
/s/ RAYMOND W. HOLDSWORTH
Raymond W. Holdsworth
/s/ DOUGLAS J. MCEACHERN
Douglas J. McEachern
/s/ DENNIS V. MCGINN
Dennis V. McGinn
/s/ MOHAMMAD SHAHIDEHPOUR
Mohammad Shahidehpour
Chairman and Chief Executive Officer (principal
executive officer)
March 16, 2021
Chief Financial Officer and Vice President (principal
financial officer and principal accounting officer)
March 16, 2021
March 16, 2021
March 16, 2021
March 16, 2021
March 16, 2021
March 16, 2021
March 16, 2021
March 16, 2021
Director
Director
Director
Director
Director
Director
Director
152
Exhibit 4.2
DESCRIPTION OF CAPITAL STOCK
The following description of the capital stock of Willdan Group, Inc., a Delaware corporation (the “Company”) and
provisions of the Company’s certificate of incorporation and bylaws are summaries only. For more detailed
information, please see the Company’s certificate of incorporation and bylaws, which are filed as exhibits to reports
the Company files with the Securities and Exchange Commission, and the Delaware General Corporation Law.
Authorized Capitalization
The Company’s authorized capital stock consists of 40,000,000 shares of common stock, par value of $0.01 per share,
and 10,000,000 shares of preferred stock, par value $0.01 per share. As of March 15, 2021, there were 12,237,257
shares of common stock outstanding and no shares of preferred stock outstanding.
Common Stock
Voting Rights
Each holder of the Company’s common stock is entitled to one vote for each share on all matters submitted to a vote of
stockholders, including the election or removal of directors. The Company’s directors are elected by a plurality of the
votes cast by stockholders entitled to vote on the election. All other matters to be voted on by stockholders must be
approved by a majority of the votes entitled to be cast by the holders of common stock present in person or represented
by proxy, subject to any voting rights granted to holders of any preferred stock.
There are no cumulative voting rights for the election of directors, which means that the holders of a majority of the
shares of the Company’s common stock voted are entitled to elect all of the Company’s directors.
Dividends
Subject to the rights of holders of any then-outstanding shares of any series of the Company’s preferred stock, holders
of the Company’s common stock are entitled to receive ratably any dividends that may be declared by the Company’s
board of directors out of funds legally available therefor.
Liquidation
In the event of the Company’s liquidation, dissolution or winding up, either voluntary or involuntary, holders of the
Company’s common stock would be entitled to share ratably in all assets available for distribution to stockholders after
the payment of or provision for all of the Company’s debts and other liabilities and the satisfaction of any liquidation
preference granted to the holders of any then-outstanding shares of preferred stock.
Other Rights
Holders of the Company’s common stock do not have preemptive rights to purchase shares of the Company’s stock.
The shares of the Company’s common stock are not subject to any redemption provisions and are not convertible into
any other shares of the Company’s capital stock. The rights, preferences and privileges of holders of the Company’s
common stock will be subject to those of the holders of any shares of the Company’s preferred stock which the
Company may issue in the future.
Blank Check Preferred Stock
Under the terms of the Company’s certificate of incorporation, the Company’s board of directors has the authority,
without further action by the Company’s stockholders, to issue preferred stock in one or more series and to fix the
rights, preferences, privileges and restrictions thereof, including voting rights, dividend rights, conversion rights,
redemption privileges and liquidation preferences.
The purpose of authorizing the Company’s board of directors to issue preferred stock and determine its rights and
preferences is to eliminate delays associated with a stockholder vote on specific issuances. The issuance of preferred
stock, while providing flexibility in connection with possible acquisitions, future financings and other corporate
purposes, could make it more difficult for a third party to acquire, or could adversely affect the rights of the
Company’s common stockholders by restricting dividends on the common stock, diluting the voting power of the
common stock, impairing the liquidation rights of the common stock or delaying or preventing a change in control
without further action by the stockholders. As a result of these or other factors, the issuance of preferred stock could
have an adverse impact on the market price of the Company’s common stock.
All shares of preferred stock offered hereby will, when issued, be fully paid and non-assessable and, unless otherwise
stated in a prospectus supplement relating to the series of preferred stock being offered, will not have any preemptive
or similar rights. The Company will set forth in a prospectus supplement relating to the class or series of preferred
stock being offered the specific terms of each series of the Company’s preferred stock, including the price at which the
preferred stock may be purchased, the number of shares of preferred stock offered, and the terms, if any, on which the
preferred stock may be convertible into common stock or exchangeable for other securities.
Anti-Takeover Effects of Certain Provisions of Delaware Law, the Certificate of Incorporation and the Bylaws
Set forth below is a summary of the relevant provisions of the Company’s certificate of incorporation and bylaws and
certain applicable sections of the Delaware General Corporation Law. For additional information, please refer to the
provisions of the Company’s certificate of incorporation, the Company’s bylaws and such sections of the Delaware
General Corporation Law.
The Company’s certificate of incorporation and bylaws contain provisions that are intended to enhance the likelihood
of continuity and stability in the composition of the Company’s board of directors and that could make it more difficult
to acquire control of the Company by means of a tender offer, open market purchases, a proxy contest or otherwise.
The Company expects that these provisions, which are summarized below, will discourage coercive takeover practices
or inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of the
Company to first negotiate with the Company’s board of directors, which the Company believes may result in an
improvement of the terms of any such acquisition in favor of the Company’s stockholders. However, they also give the
Company’s board of directors the power to discourage acquisitions that some stockholders may favor. A description of
these provisions is set forth below.
Special Meetings of Stockholders
The Company’s bylaws provide that special meetings of the Company’s stockholders may be called only by the board
of directors, the president, or by a committee of the board of directors which has been duly designated by the board of
directors and whose powers and authority, as expressly provided in a resolution of the board of directors, include the
power to call such meetings. Stockholders are not permitted to call a special meeting or require the Company’s board
of directors to call a special meeting.
Supermajority Vote to Amend Certificate of Incorporation and Bylaws
The Company’s certificate of incorporation provides that the approval of at least seventy-five percent of the
outstanding shares of the Company’s common stock is required to amend certain provisions of its certificate of
incorporation. The Company’s certificate of incorporation and bylaws provide that the approval of holders of at least
seventy-five percent of the outstanding shares of the Company’s common stock is required to amend its bylaws. The
Company’s bylaws and certain articles of the Company’s certificate of incorporation may also be amended by a
majority of the Company’s board of directors.
No Cumulative Voting
Under Delaware law, the right to vote cumulatively does not exist unless the certificate of incorporation specifically
authorizes cumulative voting. The Company’s certificate of incorporation does not grant stockholders the right to vote
cumulatively. Therefore, stockholders holding a majority of the shares of common stock outstanding are able to elect
all of the Company’s directors.
No Written Consent of Stockholders
The Company’s bylaws provide that all stockholder actions are required to be taken by a vote of the stockholders at an
annual or special meeting, and that stockholders may not take any action by written consent in lieu of a meeting.
Advance Notice Procedure
The Company’s bylaws provide that the Company’s board of directors, the president, or a committee of the board of
directors which has been duly designated by the board of directors and whose powers and authority, as expressly
provided in a resolution of the board of directors, include the power to call such meetings, may call special meetings of
stockholders and only those matters set forth in the notice of the special meeting may be considered or acted upon at a
special meeting of stockholders. The Company’s bylaws limit the business that may be conducted at an annual meeting
of stockholders to those matters properly brought before the meeting.
The Company’s bylaws also establish an advance notice procedure for stockholders to make nominations of candidates
for election as directors, or bring other business before an annual or special meeting of the stockholders. This notice
procedure provides that only persons who are nominated by, or at the direction of, the Company’s board of directors or
any duly authorized committee of the board of directors, or by a stockholder who is entitled to vote at the meeting and
who has given timely written notice to the secretary of the Company prior to the meeting at which directors are to be
elected, will be eligible for election as directors. The procedure also requires that, in order to raise matters at an annual
or special meeting, those matters must be raised before the meeting pursuant to the notice of meeting the company
delivers or by, or at the direction of, the Company’s board of directors or any duly authorized committee of the board
of directors, or by a stockholder who is entitled to vote at the meeting and who has given timely written notice to the
secretary of the Company of his, her or its intention to raise those matters at the annual or special meeting. If the
officer presiding at a meeting determines that a person was not nominated, or other business was not brought before
the meeting, in accordance with the notice procedure, that person is not be eligible for election as a director, or that
business will not be conducted at the meeting, as applicable.
Blank Check Preferred Stock
The Company’s certificate of incorporation provides for 10,000,000 authorized shares of preferred stock. The
existence of authorized but unissued shares of preferred stock may enable the Company’s board of directors to render
more difficult or to discourage an attempt to obtain control of the Company by means of a merger, tender offer, proxy
contest or otherwise. For example, if in the due exercise of its fiduciary obligations, the Company’s board of directors
were to determine that a takeover proposal is not in the best interest of the Company and its stockholders, the
Company’s board of directors could cause shares of preferred stock to be issued without stockholder approval in one or
more private offerings or other transactions that might dilute the voting or other rights of the proposed acquirer or
insurgent stockholder or stockholder group. In this regard, the Company’s certificate of incorporation grants the
Company’s board of directors broad power to establish the rights and preferences of authorized and unissued shares of
preferred stock. The issuance of shares of preferred stock could decrease the amount of earnings and assets available
for distribution to holders of shares of common stock. The issuance may also adversely affect the rights and powers,
including voting rights, of these holders and may have the effect of delaying, deterring or preventing a change in
control of the Company.
Authorized but Unissued Shares
Under Delaware law, the Company’s authorized but unissued shares of common stock are available for future issuance
without stockholder approval. The Company may use these additional shares for a variety of corporate purposes,
including future public offerings to raise additional capital, corporate acquisitions and employee benefit plans. The
existence of authorized but unissued shares of common stock could render more difficult or discourage an attempt to
obtain control of the Company by means of a proxy contest, tender offer, merger or otherwise.
Section 203 of the Delaware General Corporation Law
The Company’s certificate of incorporation does not opt out of Section 203 of the Delaware General Corporation Law.
Subject to certain exceptions, Section 203 prohibits a publicly-held Delaware corporation from engaging in a
“business combination” with an “interested stockholder” for a three-year period following the time that such
stockholder became an interested stockholder, unless the business combination is approved in a prescribed manner. A
“business combination” includes, among other things, a merger, asset or stock sale or other transaction resulting in a
financial benefit to the interested stockholder. An “interested stockholder” is a person who, together with affiliates and
associates, owns, or did own within three years prior to the determination of interested stockholder status, 15% or more
of the corporation’s voting stock. Under Section 203, such a business combination between a corporation and an
interested stockholder is prohibited unless it satisfies one of the following three conditions:
● before the stockholder became interested, the board of directors approved either the business combination or
the transaction that resulted in the stockholder becoming an interested stockholder;
● upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the voting stock outstanding, but not for
determining the outstanding voting stock owned by the interested stockholder, (1) shares owned by persons
who are directors and also officers, and (2) shares owned by employee stock plans in which employee
participants do not have the right to determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer; or
● at or after the time the stockholder became interested, the business combination was approved by the board of
directors of the corporation and authorized at an annual or special meeting of the stockholders by the
affirmative vote of at least two-thirds of the outstanding voting stock that is not owned by the interested
stockholder.
The overall effect of the foregoing provisions may be to deter a future tender offer and, as a consequence, they may
also inhibit temporary fluctuations in the market price of our common stock that often result from actual or rumored
tender offers. Stockholders might view such an offer to be in their best interest should the offer include a substantial
premium over the market price of the Company’s common stock at that time. In addition, these provisions may have
the effect of assisting the Company’s management to retain its position and place it in a better position to resist
changes that the stockholders may want to make if dissatisfied with the conduct of the Company’s business.
Limitation on Liability of Directors and Officers
The Company’s certificate of incorporation and bylaws limit the liability of directors to the fullest extent permitted by
Delaware law. The effect of these provisions is to eliminate the rights of the Company and its stockholders, through
stockholders’ derivative suits on behalf of the Company, to recover monetary damages from a director for breach of
fiduciary duty as a director, including breaches resulting from grossly negligent behavior. However, exculpation does
not apply to any director if the director has acted in bad faith, knowingly or intentionally violated the law, authorized
illegal dividends or redemptions or derived an improper benefit from his or her actions as a director.
In addition, the Company’s certificate of incorporation allows and the Company’s bylaws require that the Company
indemnify its directors and officers to the fullest extent permitted by Delaware law. The Company also expects to
continue to maintain directors’ and officers’ liability insurance. The Company believes that these indemnification
provisions and insurance are useful to attract and retain qualified directors and officers.
The limitation of liability and indemnification provisions in the Company’s certificate of incorporation and bylaws
may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duty. These
provisions may also have the effect of reducing the likelihood of derivative litigation against directors and officers,
even though such an action, if successful, might otherwise benefit the Company and its stockholders.
In addition to the indemnification in the Company’s certificate of incorporation and bylaws, the Company has entered
into indemnification agreements with each of its current directors and officers. These agreements provide for the
indemnification of the Company’s directors and officers for all reasonable expenses and liabilities incurred in
connection with any action or proceeding brought against them by reason of the fact that they are or were agents of the
Company. The Company believes that these bylaw provisions and indemnification agreements, as well as its
maintaining directors’ and officers’ liability insurance, help to attract and retain qualified persons as directors and
officers.
Transfer Agent and Registrar
The transfer agent and registrar for the Company’s common stock is Computershare Trust Company, N.A.
Exchange Listing
The Company’s common stock is listed on the Nasdaq Global Select Market under the symbol “WLDN.”
Exhibit 21.1
WILLDAN GROUP, INC.
LIST OF SUBSIDIARIES
AS OF JANUARY 1, 2021
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
Name of Entity
Willdan Engineering
Willdan Energy Solutions
Willdan Engineers and Constructors
Willdan Financial Services
Willdan Infrastructure
Willdan Lighting & Electric, Inc.
Willdan Lighting & Electric of California
Willdan Lighting & Electric of Washington, Inc.
Abacus Resource Management Company
Electrotec of NY Electrical Inc.
Public Agency Resources
Genesys Engineering P.C.
Integral Analytics, Inc.
Lime Energy Co.
The Weidt Group Inc.
Onsite Energy Corporation
Energy and Environmental Economics, Inc.
Jurisdiction of
Organization
California
California
California
California
California
Delaware
California
Washington
Washington
New York
California
New York
Ohio
Delaware
Minnesota
California
California
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
The Board of Directors
Willdan Group, Inc.:
We consent to the incorporation by reference in Registration Statements on Form S-8 (Nos. 333-232438, 333-
219133, 333-219129, 333-212907, 333-184823, 333-168787, 333-152951, and 333-139127) of Willdan Group,
Inc. of our report dated March 16, 2021 relating to the consolidated financial statements, and the related notes
thereto, and the effectiveness of internal control over financial reporting, appearing in this Annual Report on
Form 10-K.
/s/ Crowe LLP
Sherman Oaks, CA
March 16, 2021
Exhibit 31.1
SECTION 302 CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Thomas D. Brisbin, certify that:
1. I have reviewed this annual report on Form 10-K of Willdan Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial 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(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange 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, to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, 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 our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness 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 recent fiscal quarter (the registrant’s fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’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 are reasonably 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 internal control over financial reporting.
Date: March 16, 2021
By:
/s/ THOMAS D. BRISBIN
Thomas D. Brisbin
Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
SECTION 302 CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Stacy B. McLaughlin, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Willdan Group, Inc.;
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 the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange 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)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: March 16, 2021
By:
/s/ STACY B. MCLAUGHLIN
Stacy B. McLaughlin
Chief Financial Officer and Vice President
(Principal Financial Officer)
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 fiscal year
ended January 1, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”),
Thomas D. Brisbin, as Chief Executive Officer of the Company, and Stacy B. McLaughlin, as Chief Financial Officer of
the Company, each hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act
of 2002, that, to the best of his or her knowledge:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company.
By:
By:
/s/ THOMAS D. BRISBIN
Thomas D. Brisbin
Chief Executive Officer
(Principal Executive Officer)
March 16, 2021
/s/ STACY B. MCLAUGHLIN
Stacy B. McLaughlin
Chief Financial Officer and Vice President
(Principal Financial Officer)
March 16, 2021
This certification accompanies the Report pursuant to § 906 of the Sarbanes-Oxley Act of 2002 and shall not,
except to the extent required by the Sarbanes-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 of this written statement required by § 906 has been
provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission
or its staff upon request.