OMelveny & Myers LLP 400 South Hope Street |
T: +1 213 430 6000 F: +1 213 430 6407 omm.com |
|
|
| |
July 25, 2017 |
John-Paul Motley D: +1 213 430 6100 jpmotley@omm.com |
Jay Ingram
Legal Branch Chief
Office of Manufacturing and Construction
Division of Corporation Finance
United States Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549-3628
Re: Willdan Group, Inc.
Registration Statement on Form S-3
Filed April 18, 2017
File No. 333-217356
Form 10-K for Fiscal Year Ended December 30, 2016
Filed March 10, 2017
File No. 001-33076
Dear Mr. Ingram:
On behalf of Willdan Group, Inc., a Delaware corporation (the Company), this letter sets forth the Companys responses to the comments of the staff (the Staff) of the Securities and Exchange Commission (the Commission or the SEC) in your letter dated May 15, 2017 (the Comment Letter) regarding the above referenced Registration Statement on Form S-3 (the Registration Statement) and Annual Report on Form 10-K for the fiscal year ended December 30, 2016 (the Form 10-K).
For your convenience, the Companys responses below are numbered to correspond to the numbered paragraphs in the Comment Letter and we have repeated in italics each of the Staffs comments prior to each response.
Century City · Los Angeles · Newport Beach · New York · San Francisco · Silicon Valley · Washington, DC
Beijing · Brussels · Hong Kong · London · Seoul · Shanghai · Singapore · Tokyo
Form 10-K for Fiscal Year Ended December 30, 2016
General
1. Please be advised that you must clear any outstanding Staff comments on your Form 10-K for the year ended December 30, 2016 before you may request to accelerate the effectiveness of your registration statement.
Response:
The Company acknowledges the Staffs comment and has confirmed that it will not request to accelerate the effectiveness of the Registration Statement until it has cleared all outstanding comments related to its Form 10-K for the year ended December 30, 2016.
Financial Statements
Note 2 - Summary of Significant Accounting Policies, page F-9
Principles of Consolidation, page F-9
2. We note your disclosure stating that as of December 30, 2016 you had one variable interest entity that you consolidate since you are the primary beneficiary. We further note no discussion of this VIE in prior periodic reports. Please tell us the nature of and any changes in your involvement with this entity during 2016 in order to consolidate and expand your disclosure to provide the information required ASC 810-10-50, as applicable to you.
Response:
The variable interest entity (VIE) referred to in note 2 to the Companys consolidated financial statements refers to Genesys Engineering P.C. (Genesys). The Company acquired substantially all of the assets of Genesys on March 4, 2016 (the Genesys Acquisition). The Company did not acquire any of the capital stock of Genesys. However, in connection with the Genesys Acquisition, the Company entered into an administrative services agreement with Genesys pursuant to which the Companys subsidiary, Willdan Energy Solutions, provides Genesys with ongoing administrative, operational and other non-professional support services. As a result of the administrative services agreement and the Genesys Acquisition, the Company has the power to direct the activities that most significantly impact the performance of Genesys, in addition to being obligated to absorb expected losses or receive benefits from Genesys. Accordingly, the Company appropriately accounts for Genesys as a VIE in accordance with ASC 810.
The Company believes that it complied with the disclosure requirements of ASC 810-10-50 in its Form 10-K for the fiscal year ended December 30, 2016. The Company will enhance its disclosures in future filings by referencing Genesys as the VIE, including a cross reference to its discussion of the acquisition of Genesys and removing references to a joint venture.
The Company did not have any VIEs in fiscal year 2015 or fiscal year 2014.
Note 3 - Business Combinations, page F-18
3. We note your disclosure stating that, on March 4, 2016, you acquired substantially all of the assets of Genesys Engineering P.C. for approximately $15.1 million. Please tell us what consideration you gave to the financial statement and pro forma financial information requirements in Regulation S-X for this acquisition, and provide us with your significance tests. In this regard we note the purchase price represents approximately 21% of your consolidated assets as of January 1, 2016.
Response:
The Company believes that the Genesys Acquisition was not significant for purposes of Rule 3-05 of Regulation S-X because the Company performed the significance tests outlined in Rule 1-02(w) using pro forma financial information for the fiscal year ended January 2, 2015 (Fiscal 2014) rather than the Companys historical financial information for the fiscal year ended January 1, 2016 (Fiscal 2015), and the purchase price for the Genesys Acquisition, calculated at the time of the Genesys Acquisition and excluding remote adjustments, did not exceed the 20% threshold for any of the tests using such pro forma Fiscal 2014 financial information, as shown on Exhibit A attached hereto.
On March 4, 2016, the date on which the Genesys Acquisition was completed, the Company had not yet filed its Annual Report on Form 10-K or completed its financial statements for Fiscal 2015. Accordingly, pursuant to Section 2025.2 of the Division of Corporation Finances Financial Reporting Manual (the FRM), the Company elected to use its audited financial statements for Fiscal 2014 as the basis for evaluating the significance of the Genesys Acquisition. Then, as permitted by Section 2025.3 of the FRM, the Company elected to use pro forma financial information for Fiscal 2014 that gave effect to two significant business acquisitions completed during Fiscal 2014, as if each acquisition had been completed on the first day of Fiscal 2014 (the Fiscal 2014 Pro Forma Financial Statements).1 The Companys Fiscal 2014 Pro Forma Financial Statements are attached as Exhibit B hereto.
The Staff notes that the final purchase price, after working capital and tax adjustments, of $15.1 million for the Genesys Acquisition represented approximately 21% of the Companys consolidated assets as of January 1, 2016. However, the purchase price for Genesys as of March 4, 2016 was $12.6 million, subject to post-closing working capital and tax adjustments. The purchase price of $12.6 million represented approximately 18.2% of the Companys consolidated assets reflected in the Fiscal 2014 Pro Forma Financial Statements and, although the Company considered the potential for working capital and tax adjustments when calculating the significance tests outlined in Rule 1-02(w), it viewed the likelihood of a working capital or tax adjustment greater than $1,221,569 (which would have resulted in the investment test exceeding 20%) to be remote. Accordingly, pursuant to the Note to Section 2015.5 of the FRM, the Company did not consider a working capital adjustment of this magnitude for purposes of the purchase price used for the investment test calculation.
1 On January 15, 2015, the Company completed the acquisitions of Abacus Resource Management Company (Abacus) and 360 Energy Engineers, LLC (360 Energy) (collectively, the Prior Acquisitions). The Prior Acquisitions were reported on the Companys Current Report on Form 8-K on January 21, 2015. Each of the Prior Acquisitions was determined to be significant under Rule 1-02(w) and, accordingly, the financial statements of Abacus and 360 Energy and pro forma financial information of the Company were filed on the Companys Current Report on Form 8-K/A on March 27, 2015. Because the Company used its Fiscal 2014 financial statements as the basis for evaluating the significance of the Genesys Acquisition, the Company elected, as permitted by Section 2025.3 of the FRM, to use its Fiscal 2014 financial statements after giving effect to the Prior Acquisitions, as if each had occurred on December 28, 2013.
The Company later determined that it would recognize an unexpectedly large working capital adjustment after it completed its preliminary purchase price allocation. The Company reflected this purchase price adjustment in its Quarterly Report on Form 10-Q filed on May 6, 2016 and reported a preliminary total purchase price for the Genesys Acquisition of $14.8 million, reflecting a net working capital and tax adjustment of $2.2 million in favor of Genesys.
Six months after the consummation of the Genesys Acquisition, and after negotiations with the sellers in the Genesys Acquisition, the Company and the sellers agreed to a final net working capital and tax adjustment amount of approximately $2.5 million in favor of Genesys. This adjustment increased the purchase price for the Genesys Acquisition to approximately $15.1 million, which was reported in the Companys Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2016 and the Companys Annual Report on Form 10-K for the fiscal year ended December 30, 2016. While this final working capital and tax adjustment resulted in a final purchase price for the Genesys Acquisition that exceeded 20% of the Companys assets reflected in its Fiscal 2014 Pro Forma Financial Statements, the Company believes that it appropriately considered only non-remote potential working capital adjustments when evaluating significance in March 2016 and therefore determined, in accordance with Regulation S-X and guidance provided in the FRM, that the Genesys Acquisition was not significant at that time.
Note 8 - Accrued Expenses, page F-26
4. Tell us the nature of your unvouchered accounts payable balance, why it has significantly increased during 2016 and the three months ending March 31, 2017 and how you considered Rule 5-02.20 of Regulation S-X.
Response:
The Company notes for the Staff that its unvouchered accounts payable for the fiscal year ended December 30, 2016 (Fiscal 2016) and the first three months ended March 31, 2017 (First Quarter 2017) related entirely to the Companys subcontracted services, and represented accrued subcontractor costs that were incurred during the period of the respective reports but for which an invoice had not been received within the reporting period. In Fiscal 2016, the Companys unvouchered accounts payable increased by approximately $5.0 million compared to Fiscal 2015, primarily due to an increase in the Companys use of subcontracted services as a result of the Genesys Acquisition in March 2016. In First Quarter 2017, the Companys unvouchered accounts payable increased by approximately $6.7 million compared to Fiscal 2016, primarily because of subcontractor services related to a new client contract executed in First Quarter 2017 for which an invoice had not been received. The Companys increased use of subcontractors during these periods was disclosed and discussed in Managements Discussion and Analysis of Financial Condition and Results of OperationsResults of Operations in both the Companys Annual Report on Form 10-K for the fiscal year ended December 30, 2016 (the 2016 Form 10-K) and the Companys Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2017 (the Q1 2017 Form 10-Q). In future periodic reports, the Company will clarify the nature of this line item by renaming it as Accrued subcontractor costs.
The Company respectfully advises the Staff that it considered Rule 5-02.20 of Regulation S-X when preparing the 2016 Form 10-K and the Q1 2017 Form 10-Q. In each such periodic report, as permitted by Rule 5-02.20 of Regulation S-X, the Company separately stated in its Notes to the Consolidated Financial Statements the applicable period-end balance of its unvouchered accounts payable.
*****
We appreciate the Staffs comments and request that the Staff contact the undersigned at (213) 430-6100 or jpmotley@omm.com with any questions or comments regarding this letter.
|
Sincerely, |
|
|
|
/s/ John-Paul Motley |
|
|
|
John-Paul Motley |
|
of OMELVENY & MYERS LLP |
cc: Stacy B. McLaughlin, Chief Financial Officer, Willdan Group, Inc.
Exhibit A
Significance Tests
Pre-Tax Income Test
Willdan Group, Inc. FY 2014 Pro Forma Income before Income Taxes |
|
$ |
9,553,971 |
|
Genesys FY 2014 Income before Income Taxes |
|
$ |
1,762,065 |
|
Significance |
|
18.4% |
|
Investment Test
Willdan Group, Inc. Pro Forma Assets as of January 2, 2015 |
|
$ |
69,107,843 |
|
Genesys Purchase Price(1) |
|
$ |
12,600,000 |
|
Significance |
|
18.2% |
|
(1) As discussed above, the Genesys purchase price was later adjusted upwards, finally settling at $15.1 million nearly six months after the consummation of the Genesys Acquisition.
Asset Test
Willdan Group, Inc. Pro Forma Assets as of January 2, 2015 |
|
$ |
69,107,843 |
|
Genesys Assets as of December 31, 2014 |
|
$ |
7,824,021 |
|
Significance |
|
10.8% |
|
WILLDAN GROUP, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATION INFORMATION
|
|
Fiscal Year |
|
360 |
|
Abacus |
|
Combined |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Contract revenue |
|
$ |
108,080,000 |
|
$ |
11,859,428 |
|
$ |
10,241,925 |
|
$ |
130,181,353 |
|
Income (loss) before income tax expense |
|
8,426,000 |
|
972,986 |
|
154,986 |
|
9,553,972 |
| ||||
Income tax expense (benefit) |
|
(990,000) |
|
|
|
|
|
(990,000) |
| ||||
Net income (loss) |
|
$ |
9,416,000 |
|
$ |
972,986 |
|
$ |
154,986 |
|
$ |
10,543,972 |
|
WILLDAN GROUP, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET INFORMATION
|
|
January 2, |
|
360 |
|
Abacus |
|
Combined |
| ||||
Assets |
|
|
|
|
|
|
|
|
| ||||
Current assets: |
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents |
|
$ |
20,371,000 |
|
$ |
(2,875,000) |
|
$ |
(2,733,957) |
|
$ |
14,762,043 |
|
Accounts receivable, net of allowance for doubtful accounts of $662,000 and $385,000 at January 2, 2015 and December 27, 2013, respectively |
|
13,189,000 |
|
|
|
1,580,000 |
|
14,769,000 |
| ||||
Costs and estimated earnings in excess of billings on uncompleted contracts |
|
12,170,000 |
|
|
|
|
|
12,170,000 |
| ||||
Other receivables |
|
208,000 |
|
|
|
|
|
208,000 |
| ||||
Prepaid expenses and other current assets |
|
2,244,000 |
|
36,000 |
|
|
|
2,280,000 |
| ||||
Total current assets |
|
48,182,000 |
|
(2,839,000) |
|
(1,153,957) |
|
44,189,043 |
| ||||
Equipment and leasehold improvements, net |
|
1,384,000 |
|
85,000 |
|
114,000 |
|
1,583,000 |
| ||||
Goodwill |
|
|
|
10,773,000 |
|
4,575,000 |
|
15,348,000 |
| ||||
Other intangible assets, net |
|
|
|
1,894,000 |
|
991,800 |
|
2,885,800 |
| ||||
Other assets |
|
535,000 |
|
4,400 |
|
4,600 |
|
544,000 |
| ||||
Deferred income taxes, net of current portion |
|
4,558,000 |
|
|
|
|
|
4,558,000 |
| ||||
Total assets |
|
$ |
54,659,000 |
|
$ |
9,917,400 |
|
$ |
4,531,443 |
|
$ |
69,107,843 |
|