Table of Contents

 

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended July 2, 2010

 

OR

 

o         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

 

14-195112

(State or other Jurisdiction of
Incorporation or Organization)

 

(IRS Employer Identification No.)

 

 

 

2401 East Katella Avenue, Suite 300
Anaheim, California

 

92806

(Address of principal executive offices)

 

(Zip code)

 

Registrant’s Telephone Number, Including Area Code: (800) 424-9144

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report).

 

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 x  No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes o  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer o

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

Smaller reporting company x

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes o  No x

 

As of August 6, 2010, there were 7,228,683 shares of common stock, $0.01 par value per share, of Willdan Group, Inc. issued and outstanding.

 

 

 



Table of Contents

 

WILLDAN GROUP, INC.

FORM 10-Q QUARTERLY REPORT

 

TABLE OF CONTENTS

 

 

Page

PART I. FINANCIAL INFORMATION

1

 

 

Item 1. Financial Statements

1

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

12

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

21

 

 

Item 4. Controls and Procedures

21

 

 

PART II. OTHER INFORMATION

22

 

 

Item 1. Legal Proceedings

22

 

 

Item 1A. Risk Factors

22

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

22

 

 

Item 3. Defaults upon Senior Securities

22

 

 

Item 4. (Removed and Reserved)

22

 

 

Item 5. Other Information

22

 

 

Item 6. Exhibits

23

 

ii



Table of Contents

 

PART I. FINANCIAL INFORMATION

 

Item 1.  Financial Statements

 

WILLDAN GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

July 2,
2010

 

January 1,
2010

 

 

 

(unaudited)

 

 

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

6,753,000

 

$

8,445,000

 

Accounts receivable, net of allowance for doubtful accounts of $1,165,000 and $1,862,000 at July 2, 2010 and January 1, 2010, respectively

 

11,533,000

 

10,097,000

 

Costs and estimated earnings in excess of billings on uncompleted contracts

 

11,220,000

 

6,649,000

 

Income tax receivable

 

51,000

 

51,000

 

Other receivables

 

32,000

 

73,000

 

Prepaid expenses and other current assets

 

1,504,000

 

1,500,000

 

Total current assets

 

31,093,000

 

26,815,000

 

 

 

 

 

 

 

Equipment and leasehold improvements, net

 

1,371,000

 

1,596,000

 

Goodwill

 

12,371,000

 

10,371,000

 

Other intangible assets, net

 

132,000

 

149,000

 

Other assets

 

355,000

 

318,000

 

Deferred income taxes, net of current portion

 

1,083,000

 

1,083,000

 

Total assets

 

$

46,405,000

 

$

40,332,000

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Excess of outstanding checks over bank balance

 

$

798,000

 

$

488,000

 

Accounts payable

 

1,386,000

 

1,457,000

 

Purchase price payable

 

2,000,000

 

 

Accrued liabilities

 

6,346,000

 

4,509,000

 

Billings in excess of costs and estimated earnings on uncompleted contracts

 

1,380,000

 

1,030,000

 

Borrowings under line of credit

 

1,000,000

 

1,000,000

 

Current portion of notes payable

 

3,000

 

23,000

 

Current portion of capital lease obligations

 

102,000

 

125,000

 

Current portion of deferred income taxes

 

1,479,000

 

1,479,000

 

Total current liabilities

 

14,494,000

 

10,111,000

 

 

 

 

 

 

 

Capital lease obligations, less current portion

 

69,000

 

82,000

 

Deferred lease obligations

 

900,000

 

1,022,000

 

Total liabilities

 

15,463,000

 

11,215,000

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued and outstanding

 

 

 

Common stock, $0.01 par value, 40,000,000 shares authorized: 7,229,000 and 7,208,000 shares issued and outstanding at July 2, 2010 and January 1, 2010, respectively

 

72,000

 

72,000

 

Additional paid-in capital

 

33,615,000

 

33,440,000

 

Accumulated deficit

 

(2,745,000

)

(4,395,000

)

Total stockholders’ equity

 

30,942,000

 

29,117,000

 

Total liabilities and stockholders’ equity

 

$

46,405,000

 

$

40,332,000

 

 

See accompanying notes to condensed consolidated financial statements.

 

1



Table of Contents

 

WILLDAN GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

July 2,

 

July 3,

 

July 2,

 

July 3,

 

 

 

2010

 

2009

 

2010

 

2009

 

 

 

 

 

 

 

 

 

 

 

Contract revenue

 

$

20,367,000

 

$

15,484,000

 

$

37,318,000

 

$

32,669,000

 

 

 

 

 

 

 

 

 

 

 

Direct costs of contract revenue:

 

 

 

 

 

 

 

 

 

Salaries and wages

 

5,612,000

 

4,502,000

 

10,626,000

 

9,292,000

 

Sub-consultant services

 

3,542,000

 

2,182,000

 

5,479,000

 

4,608,000

 

Other direct costs

 

1,644,000

 

740,000

 

2,986,000

 

1,827,000

 

Total direct costs of contract revenue

 

10,798,000

 

7,424,000

 

19,091,000

 

15,727,000

 

 

 

 

 

 

 

 

 

 

 

General and administrative expenses:

 

 

 

 

 

 

 

 

 

Salaries and wages, payroll taxes and employee benefits

 

4,484,000

 

5,066,000

 

8,926,000

 

10,548,000

 

Facilities and facility related

 

1,035,000

 

1,098,000

 

2,129,000

 

2,236,000

 

Stock-based compensation

 

48,000

 

73,000

 

128,000

 

142,000

 

Depreciation and amortization

 

239,000

 

704,000

 

510,000

 

1,229,000

 

Other

 

2,498,000

 

2,552,000

 

4,884,000

 

4,925,000

 

Total general and administrative expenses

 

8,304,000

 

9,493,000

 

16,577,000

 

19,080,000

 

Income (loss) from operations

 

1,265,000

 

(1,433,000

)

1,650,000

 

(2,138,000

)

 

 

 

 

 

 

 

 

 

 

Other income (expense), net:

 

 

 

 

 

 

 

 

 

Interest income

 

1,000

 

11,000

 

6,000

 

23,000

 

Interest expense

 

(18,000

)

(9,000

)

(26,000

)

(20,000

)

Other, net

 

10,000

 

(3,000

)

20,000

 

(3,000

)

Total other income (expense), net

 

(7,000

)

(1,000

)

 

 

Income (loss) before income taxes

 

1,258,000

 

(1,434,000

)

1,650,000

 

(2,138,000

)

 

 

 

 

 

 

 

 

 

 

Income tax benefit

 

 

(536,000

)

 

(786,000

)

Net income (loss)

 

$

1,258,000

 

$

(898,000

)

$

1,650,000

 

$

(1,352,000

)

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share:

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

0.17

 

$

(0.12

)

$

0.23

 

$

(0.19

)

 

 

 

 

 

 

 

 

 

 

Weighted-average shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

7,229,000

 

7,188,000

 

7,226,000

 

7,178,000

 

Diluted

 

7,252,000

 

7,188,000

 

7,240,000

 

7,178,000

 

 

See accompanying notes to condensed consolidated financial statements.

 

2



Table of Contents

 

WILLDAN GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 

 

 

Six Months Ended

 

 

 

July 2,
2010

 

July 3,
2009

 

Cash flows from operating activities:

 

 

 

 

 

Net income (loss)

 

$

1,650,000

 

$

(1,352,000

)

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

 

 

 

 

 

Depreciation and amortization

 

518,000

 

1,229,000

 

Lease abandonment expense, net

 

13,000

 

(19,000

)

(Gain) loss on sale of equipment

 

(19,000

)

3,000

 

Provision for doubtful accounts

 

210,000

 

537,000

 

Stock-based compensation

 

128,000

 

142,000

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(1,646,000

)

2,440,000

 

Costs and estimated earnings in excess of billing on uncompleted contracts

 

(4,571,000

)

(23,000

)

Income tax receivable

 

 

(626,000

)

Other receivables

 

41,000

 

(35,000

)

Prepaid expenses and other current assets

 

(4,000

)

138,000

 

Other assets

 

(38,000

)

27,000

 

Accounts payable

 

(71,000

)

(727,000

)

Accrued liabilities

 

1,836,000

 

(438,000

)

Billings in excess of costs and estimated earnings on uncompleted contracts

 

350,000

 

95,000

 

Deferred lease obligations

 

(134,000

)

(111,000

)

Net cash (used in) provided by operating activities

 

(1,737,000

)

1,280,000

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Purchase of equipment and leasehold improvements

 

(241,000

)

(66,000

)

Proceeds from sale of equipment

 

30,000

 

 

Payments for business acquisitions

 

 

(1,009,000

)

Net cash used in investing activities

 

(211,000

)

(1,075,000

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Changes in excess of outstanding checks over bank balance

 

310,000

 

430,000

 

Payments on notes payable

 

(20,000

)

(26,000

)

Borrowings under line of credit

 

5,470,000

 

 

Repayments of line of credit

 

(5,470,000

)

 

Principal payments on capital lease obligations

 

(81,000

)

(96,000

)

Proceeds from sales of common stock under employee stock purchase plan

 

47,000

 

46,000

 

Net cash provided by financing activities

 

256,000

 

354,000

 

Net (decrease) increase in cash and cash equivalents

 

(1,692,000

)

559,000

 

Cash and cash equivalents at beginning of the period

 

8,445,000

 

8,144,000

 

Cash and cash equivalents at end of the period

 

$

6,753,000

 

$

8,703,000

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

Interest

 

$

28,000

 

$

21,000

 

Income taxes

 

2,000

 

1,000

 

Supplemental disclosures of noncash investing and financing activities:

 

 

 

 

 

Equipment acquired under capital lease obligations

 

$

51,000

 

$

 

Purchase price payable

 

2,000,000

 

1,323,000

 

 

See accompanying notes to condensed consolidated financial statements.

 

3


 


Table of Contents

 

WILLDAN GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

July 2, 2010
(Unaudited)

 

1.             BASIS OF PRESENTATION, ORGANIZATION AND OPERATIONS OF THE COMPANY

 

Basis of Presentation

 

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) and pursuant to the rules and regulations of the Securities and Exchange Commission and reflect all adjustments, which consist of only normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the consolidated results for the interim periods presented.  Results for the interim period are not necessarily indicative of results for the full year.  Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.  The consolidated financial statements should be read in conjunction with Willdan Group, Inc.’s 2009 Annual Report on Form 10-K filed on March 30, 2010.

 

Nature of Business

 

Willdan Group, Inc. and subsidiaries (“Willdan Group” or the “Company”) is a provider of outsourced services to small and mid-sized public agencies and large public utilities in California, New York, Arizona and to a lesser extent, other states throughout the United States. Outsourcing enables these agencies to provide a wide range of specialized services without having to incur and maintain the overhead necessary to develop staffing in-house. The Company provides a broad range of services to public agencies and, to a lesser extent, private industry, including civil engineering, building and safety services, geotechnical engineering, environmental engineering and environmental services, financial and economic consulting, energy efficiency, sustainability, water conservation, renewable energy, disaster preparedness, public safety consulting, management consulting and homeland security. Clients primarily consist of cities, counties, redevelopment agencies, water districts, school districts and universities, state agencies, federal agencies, a variety of other special districts and agencies, private industry and tribal governments.

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of Willdan Group, Inc. and its wholly owned subsidiaries, Willdan Engineering, Willdan Financial Services, Willdan Geotechnical, Willdan Homeland Solutions, Willdan Energy Solutions, Willdan Resource Solutions and Public Agency Resources. All significant intercompany balances and transactions have been eliminated in consolidation.

 

Accounting for Contracts

 

The Company enters into contracts with its clients that contain three principal types of pricing provisions: fixed price, time-and-materials, and unit-based. Revenue on fixed price contracts is recognized on the percentage-of-completion method based generally on the ratio of direct costs (exclusive of depreciation and amortization costs) incurred to date to estimated total direct costs at completion. Revenue on time-and-materials and unit-based contracts is recognized as the work is performed in accordance with the specific terms of the contract. Revenue for amounts that have been billed but not earned is deferred and such deferred revenue is referred to as billings in excess of costs and estimated earnings on uncompleted contracts in the accompanying consolidated balance sheets.

 

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 provided for currently in its entirety. Claims revenue is recognized only upon resolution of the claim. Change orders in dispute are evaluated as claims. Costs related to un-priced change orders are expensed when incurred and recognition of the related contract revenue up to costs incurred is based on an evaluation of the probability of recovery of the costs. Estimated profit is recognized for un-priced change orders if realization of the expected price of the change order is probable.

 

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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, sub-consultant 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 operations 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 nor is depreciation and amortization allocated to direct costs. The Company expenses direct costs of contract revenue when incurred.

 

Accounts receivable are carried at original invoice amount less an estimate made for doubtful accounts based upon a review of all outstanding amounts on a monthly basis. Management determines the allowance for doubtful accounts by identifying troubled accounts and by using historical experience applied to an aging of accounts. Credit risk is generally minimal with governmental entities, but disputes may arise related to these receivable amounts. Accounts receivables are written off when deemed uncollectible. Recoveries of accounts receivables previously written off are recorded when received.

 

The value of retainage is included in accounts receivable in the accompanying consolidated financial statements. Retainage represents the billed amount that is retained by the customer, in accordance with the terms of the contract, generally until performance is substantially complete.  At July 2, 2010 and January 1, 2010, the Company had retained accounts receivable of approximately $479,000 and $65,000, respectively.

 

Fair Value of Financial Instruments

 

The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, income tax receivable, excess of outstanding checks over bank balance, accounts payable, accrued liabilities, notes payable and purchase price payable.  Pursuant to the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 820, the fair value of the Company’s cash equivalents is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets.  We believe that the recorded values of all of our other financial instruments approximate their current values because of their nature and respective durations.

 

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.

 

2.             BUSINESS COMBINATION

 

On June 9, 2008, the Company acquired all of the outstanding stock of Willdan Energy Solutions, formerly known as Intergy Corporation, a California-based consulting company that assists companies, institutions and agencies with planning and implementing their energy efficiency, water conservation and renewable energy strategies. The acquisition cost recorded by the Company as of July 2, 2010 was $15.1 million, consisting of $9.9 million in cash paid at closing, a $0.2 million net asset value adjustment, a guaranteed payment of $1.0 million in cash paid in June 2009, an earn-out payment of $1.3 million paid in August 2009, an earn-out payment of $2.0 million to be paid in August 2010 and $0.7 million in transaction costs. The acquisition cost may further increase by up to $2.9 million if Willdan Energy Solutions achieves certain financial targets over the annual period ending on the last day of the Company’s second fiscal quarter in 2011. The Company has recorded $12.4 million of goodwill associated with the acquisition.

 

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Table of Contents

 

3.             GOODWILL AND OTHER INTANGIBLE ASSETS

 

As of July 2, 2010 and January 1, 2010, the Company had $12.4 million and $10.4 million of goodwill, respectively, all of which relates to the Energy Solutions reporting unit, which is a component of the Engineering Services reportable segment.

 

The changes in the carrying value of goodwill by reporting unit for the six months ended July 2, 2010 were as follows:

 

 

 

January 1,
2010

 

Goodwill Additions

 

July 2,
2010

 

Reporting Unit:

 

 

 

 

 

 

 

Energy Solutions

 

$

10,371,000

 

$

2,000,000

 

$

12,371,000

 

 

 

 

 

 

 

 

 

Total

 

$

10,371,000

 

$

2,000,000

 

$

12,371,000

 

 

The change in estimate to the carrying value of goodwill for the Energy Solutions reporting unit was a result of the accrual of $2.0 million of additional purchase price payable as a result of Willdan Energy Solutions achieving certain financial targets though July 2, 2010, the end of the second earn-out period.

 

The gross amounts and accumulated amortization of the Company’s acquired identifiable intangible assets with finite useful lives as of July 2, 2010 and January 1, 2010, included in intangible assets, net in the accompanying consolidated balance sheets, were as follows:

 

 

 

July 2, 2010

 

January 1, 2010

 

 

 

 

 

Gross
Amount

 

Accumulated
Amortization

 

Gross
Amount

 

Accumulated
Amortization

 

Amortization
Period (yrs)

 

Backlog

 

$

920,000

 

$

920,000

 

$

920,000

 

$

920,000

 

1

 

Training materials/courses

 

282,000

 

150,000

 

282,000

 

134,000

 

5

 

Non-compete agreements

 

30,000

 

30,000

 

30,000

 

29,000

 

3

 

 

 

$

1,232,000

 

$

1,100,000

 

$

1,232,000

 

$

1,083,000

 

 

 

 

For the three and six months ended July 2, 2010, the Company’s amortization expense for acquired identifiable intangible assets with finite useful lives was $4,000 and $16,000, respectively, as compared to $392,000 and $575,000, respectively for the fiscal three and six months ended July 3, 2009. Estimated amortization expense for acquired identifiable intangible assets for the remainder of fiscal 2010 and the succeeding years is as follows:

 

Fiscal year:

 

 

 

2010

 

$

37,000

 

2011

 

46,000

 

2012

 

37,000

 

2013

 

12,000

 

 

 

$

132,000

 

 

4.             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 using the treasury stock method.

 

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Table of Contents

 

The following table sets forth the number of weighted-average shares used to compute basic and diluted EPS:

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

July 2,
2010

 

July 3,
2009

 

July 2,
2010

 

July 3,
2009

 

 

 

(In thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

1,258,000

 

$

(898,000

)

$

1,650,000

 

$

(1,352,000

)

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding

 

7,229,000

 

7,188,000

 

7,226,000

 

7,178,000

 

Effect of dilutive stock options

 

23,000

 

 

14,000

 

 

Weighted-average common stock outstanding-diluted

 

7,252,000

 

7,188,000

 

7,240,000

 

7,178,000

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.17

 

$

(0.12

)

$

0.23

 

$

(0.19

)

Diluted

 

$

0.17

 

$

(0.12

)

$

0.23

 

$

(0.19

)

 

For the three and six months ended July 2, 2010, 306,000 and 326,000 options were excluded from the calculation of dilutive potential common shares, respectively, compared to 539,000 options for the same periods last year. 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 that period. Accordingly, the inclusion of these options would have been anti-dilutive.

 

5.             EQUIPMENT AND LEASEHOLD IMPROVEMENTS

 

Equipment and leasehold improvements consist of the following:

 

 

 

July 2,
2010

 

January 1,
2010

 

Furniture and fixtures

 

$

4,472,000

 

$

4,452,000

 

Computer hardware and software

 

5,061,000

 

4,903,000

 

Leasehold improvements

 

763,000

 

748,000

 

Equipment under capital leases

 

770,000

 

719,000

 

Automobiles, trucks, and field equipment

 

349,000

 

424,000

 

 

 

11,415,000

 

11,246,000

 

Accumulated depreciation and amortization

 

(10,044,000

)

(9,650,000

)

Equipment and leasehold improvements, net

 

$

1,371,000

 

$

1,596,000

 

 

6.             ACCRUED LIABILITIES

 

Accrued liabilities consist of the following:

 

 

 

July 2,
2010

 

January 1,
2010

 

Accrued bonuses

 

$

448,000

 

$

169,000

 

Paid leave bank

 

1,315,000

 

1,155,000

 

Compensation and payroll taxes

 

664,000

 

581,000

 

Accrued legal

 

145,000

 

136,000

 

Accrued workers’ compensation insurance

 

5,000

 

27,000

 

Accrued rent

 

484,000

 

563,000

 

Employee withholdings

 

183,000

 

171,000

 

Client deposits

 

210,000

 

469,000

 

Other

 

2,892,000

 

1,238,000

 

Total accrued liabilities

 

$

6,346,000

 

$

4,509,000

 

 

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7.             LINE OF CREDIT

 

Under the terms of the Company’s credit agreement with Wells Fargo Bank, National Association (“Wells Fargo”), the Company can borrow up to $5.0 million from time to time (as may be limited by the covenants in the credit agreement as discussed below) up to and until January 1, 2011. Loans made under the revolving line of credit will accrue interest at either (i) the floating rate equal to the prime rate in effect from time to time or (ii) the fixed rate of 1.75% above LIBOR, at the Company’s election. For prime rate loans, the interest rate will be adjusted when each prime rate change by the bank is announced and becomes effective. There were $1.0 million in outstanding borrowings under this agreement as of July 2, 2010.

 

Borrowings under the credit agreement are secured by all of the Company’s accounts receivable and other rights to payment, general intangibles, inventory and equipment, including those of the Company’s subsidiaries. In addition, borrowings under the credit agreement are secured by investments held in a securities account at Wells Fargo that must at all times have a collateral value of at least $5.0 million. Each of the Company’s subsidiaries (except Public Agency Resources and Willdan Resource Solutions) has signed an unconditional guaranty of the Company’s obligations under the credit agreement.

 

The credit agreement contains customary representations and affirmative covenants, including a covenant to maintain a tangible net worth of at least $18.0 million at all times. Tangible net worth is defined in the credit agreement as stockholders’ equity less intangible assets and loans or advances to, or investments in, any related entities or individuals. The impact of any non-cash property lease termination expense of up to $1.0 million in the aggregate recorded during the period from October 1, 2009 through December 31, 2010 will be excluded from the calculation of tangible net worth under the credit agreement. As of July 2, 2010, the Company’s tangible net worth as defined under the Company’s credit agreement was met.

 

The credit agreement also includes customary negative covenants, including a covenant that prohibits the incurrence of additional indebtedness by the Company or the Company’s subsidiaries other than purchase money indebtedness not to exceed $2.0 million and indebtedness existing on the date of the credit agreement, and a covenant that prohibits payment of dividends on the Company’s stock and redemptions, repurchases or other acquisitions of the Company’s stock, except that the Company can repurchase stock with an aggregate fair market value up to $5.0 million in any calendar year. In addition, the credit agreement includes customary events of default for a credit facility. Upon a default, the interest rate will be increased by a default rate margin of 4.0%. Upon the occurrence of an event of default under the credit agreement, including a breach of any of the covenants discussed above, Wells Fargo has the option to make any loans then outstanding under the credit agreement immediately due and payable and is no longer obligated to extend further credit to the Company under the credit agreement.

 

8.             COMMITMENTS

 

Leases

 

The Company is obligated under capital leases for certain furniture and office equipment that expire at various dates through the year 2013.

 

The Company also leases certain office facilities under noncancellable operating leases that expire at various dates through the year 2015 and is committed under noncancellable operating leases for the lease of computer equipment and automobiles through the year 2011.

 

Employee Benefit Plans

 

The Company has a qualified profit sharing plan (the Plan) pursuant to Code Section 401(a) and qualified cash or deferred arrangement pursuant to Code Section 401(k) covering substantially all employees. Employees may elect to contribute up to 50% of 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 has a discretionary bonus plan for regional managers, division managers and others as determined by the Company’s president. Bonuses are awarded if certain financial goals are achieved. The financial goals are not stated in the plan; rather they are judgmentally determined each year. In addition, the board of directors may declare discretionary bonuses to key employees and all employees are eligible for what the Company refers to as the “hot hand” bonus program, which pays awards for outstanding performance.

 

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Table of Contents

 

Post employment health benefits

 

In May 2006, the Company’s board of directors approved providing lifetime health insurance coverage for Win Westfall, the Company’s former chief executive officer and current chairman of the board of directors, and his spouse and for Linda Heil, the widow of the Company’s former chief executive officer, Dan Heil. Mrs. Heil is also a member of the Company’s board of directors.  These benefits relate to past services provided to the Company. Accordingly, there is no unamortized compensation cost for the benefits.

 

Additional Purchase Price Payable related to the Willdan Energy Solutions Acquisition

 

As discussed in Note 2, if certain financial targets are achieved by Willdan Energy Solutions over the annual period ending on the last day of the Company’s second fiscal quarter in 2011, one additional purchase price payment will be paid. The remaining payment cannot exceed $2.9 million, which is the $6.2 million maximum earn-out payments per the purchase agreement, less the earn-out amounts paid or to be paid through October 21, 2010.

 

9.             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.  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.  The Company applied net operating loss carryforwards to the extent of tax expense related to the three and six months ended July 2, 2010.

 

10.          SEGMENT INFORMATION

 

The Company has three segments: Engineering Services, Public Finance Services and Homeland Security Services. The Engineering Services segment includes Willdan Engineering, Willdan Geotechnical, Public Agency Resources, Willdan Resource Solutions and Willdan Energy Solutions. The Engineering Services segment performs services for a broad range of public agency clients and, to a lesser extent, private industry, and offers a full complement of civil and geotechnical engineering, building and safety services, energy efficiency, sustainability, water conservation, construction management, and municipal planning services to clients primarily located in California, New York, Arizona and to a lesser extent, other western states. The Public Finance Services segment, which consists of Willdan Financial Services, provides expertise and support for the various financing techniques employed by public agencies to finance their operations and infrastructure along with the mandated reporting and other requirements associated with these financings. The Homeland Security Services segment, which consists of Willdan Homeland Solutions, provides homeland security, management consulting and public safety consulting services to cities, counties and related municipal service agencies.

 

The accounting policies applied to determine the segment information are the same as those described in the summary of significant accounting policies, included in the Company’s 2009 Annual Report on Form 10-K filed on March 30, 2010.  There were no intersegment sales during the fiscal three or six months ended July 2, 2010 and July 3, 2009. Management 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.

 

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Table of Contents

 

Financial information with respect to the reportable segments as of and for the fiscal three and six months ended July 2, 2010 and the fiscal three and six months ended July 3, 2009 is as follows:

 

 

 

Engineering
Services

 

Public
Finance
Services

 

Homeland
Security
Services

 

Unallocated
Corporate

 

Intersegment

 

Consolidated
Total

 

Fiscal Three Months Ended July 2, 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

Contract revenue

 

$

16,133,000

 

$

2,804,000

 

$

1,430,000

 

$

 

$

 

$

20,367,000

 

Segment profit (loss) before income taxes

 

990,000

 

312,000

 

234,000

 

(278,000

)

 

1,258,000

 

Net income (loss)

 

990,000

 

312,000

 

234,000

 

(278,000

)

 

1,258,000

 

Segment assets

 

151,577,000

 

23,448,000

 

6,855,000

 

144,874,000

 

(280,349,000

)

46,405,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal Three Months Ended July 3, 2009

 

 

 

 

 

 

 

 

 

 

 

 

 

Contract revenue

 

$

11,617,000

 

$

3,100,000

 

$

767,000

 

$

 

$

 

$

15,484,000

 

Segment (loss) profit before income taxes

 

(1,710,000

)

269,000

 

10,000

 

(3,000

)

 

(1,434,000

)

Net (loss) income

 

(1,050,000

)

149,000

 

5,000

 

(2,000

)

 

(898,000

)

Segment assets

 

111,214,000

 

20,495,000

 

4,657,000

 

110,409,000

 

(200,938,000

)

45,837,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal Six Months Ended July 2, 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

Contract revenue

 

$

29,268,000

 

$

5,430,000

 

$

2,620,000

 

$

 

$

 

$

37,318,000

 

Segment profit (loss) before income taxes

 

1,242,000

 

443,000

 

270,000

 

(305,000

)

 

1,650,000

 

Net income (loss)

 

1,242,000

 

443,000

 

270,000

 

(305,000

)

 

1,650,000

 

Segment assets

 

151,577,000

 

23,448,000

 

6,855,000

 

144,874,000

 

(280,349,000

)

46,405,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal Six Months Ended July 3, 2009

 

 

 

 

 

 

 

 

 

 

 

 

 

Contract revenue

 

$

24,928,000

 

$

6,116,000

 

$

1,625,000

 

$

 

$

 

$

32,669,000

 

Segment (loss) profit before income taxes

 

(2,547,000

)

407,000

 

26,000

 

(24,000

)

 

(2,138,000

)

Net (loss) income

 

(1,572,000

)

221,000

 

13,000

 

(14,000

)

 

(1,352,000

)

Segment assets

 

111,214,000

 

20,495,000

 

4,657,000

 

110,409,000

 

(200,938,000

)

45,837,000

 

 

11.          CONTINGENCIES

 

Claims and Lawsuits

 

The Company is subject from time to time to various claims and lawsuits, 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 loss.

 

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Table of Contents

 

County of San Diego v. Willdan, Superior Court of California, Riverside County

 

A complaint was filed against the Company on February 28, 2008 relating to a project for the reconstruction of a portion of Valley Center Road located in an unincorporated area of San Diego County. The design was completed by the Company and a contract was awarded to a construction contractor for construction of the improvements. The construction was originally scheduled for completion in December 2008; however, completion was delayed until fall 2009. The lawsuit alleges that the delays in construction were caused by errors and omissions in the Company’s preparation of reports and design and engineering of the project, resulting in additional design and construction costs, in an amount to be determined but alleged to be in excess of $5.0 million. The Company denies the allegations asserted in the lawsuit and will vigorously defend against the claims. At July 2, 2010, the Company did not have a liability recorded on its balance sheet related to this complaint.

 

French v. Willdan Engineering, Superior Court of California, Riverside County

 

In January 1991, the Company was originally retained by the City of Calimesa, California to review and process development plans. The Company has provided plan review continuously since that date under various contracts with the City. As the City receives applications from developers for project approvals, the City forwards the project plans to the Company for processing. The Company processes the plans and the City pays the Company. In August 2008, a suit was filed by a City employee alleging that the City processed development applications without first collecting fees from developers to cover the costs of processing. The suit further alleges that even though the Company performed the work requested by the City, the City should not have paid the Company for its work in advance of collecting the developers’ fees. The complaint was amended by the plaintiff in May 2010 to provide additional details and the Company has until August 23, 2010 to file an answer to the amended complaint. The plaintiff seeks to recover for the City amounts paid to the Company for processing project plans for which the developer fees have not been paid. The City of Calimesa has not requested any refunds from the Company or joined in the litigation and the City continues to retain the Company’s services. The Company does not believe that this suit has any merit and will vigorously defend this claim. At July 2, 2010, the Company did not have a liability recorded on its balance sheet related to this complaint.

 

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Table of Contents

 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements included elsewhere in this Quarterly Report and the audited financial statements for the year ended January 1, 2010, included in our Annual Report on Form 10-K (File No. 001-33076).  This Quarterly Report contains, in addition to unaudited historical information, forward-looking statements, which involve risk and uncertainties.  The words “believe,” “expect,” “estimate,” “may,” “will,” “could,” “plan,” or “continue” and similar expressions are intended to identify forward-looking statements.  Our actual results could differ significantly from the results discussed in such forward-looking statements.  Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those discussed under the headings “Item 1A.  Risk Factors” in our 2009 Annual Report on Form 10-K, and in other filings made from time to time with the United States Securities and Exchange Commission (“SEC”) after the date of this Quarterly Report on Form 10-Q.  Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q.  We undertake no obligation to (and we expressly disclaim any obligation to) revise or update any forward-looking statement, whether as a result of new information, subsequent events, or otherwise (except as may be required by law), in order to reflect any event or circumstance which may arise after the date of this Quarterly Report on Form 10-Q.

 

Overview

 

We are a provider of outsourced services to small and mid-sized public agencies and large public utilities in California, New York, Arizona, and to a lesser extent, other states throughout the United States. Outsourcing enables these agencies to provide a wide range of specialized services, without having to incur and maintain the overhead necessary to develop staffing in-house. We provide a broad range of services to public agencies and to a lesser extent, private industry, including:

 

·      Civil Engineering;

 

·      Building and Safety Services;

 

·      Geotechnical Engineering;

 

·      Energy Efficiency Consulting;

 

·      Financial and Economic Consulting; and

 

·      Disaster Preparedness and Homeland Security.

 

We operate our business through a network of offices located primarily in California and New York. We also have operations in Arizona and, to lesser extent, other states throughout the United States. As of July 2, 2010, we had a staff of 489 that includes licensed engineers and other professionals. Our traditional clients have been public agencies in communities with populations ranging from 10,000 to 300,000 people. We believe communities of this size are underserved by large outsourcing companies that tend to focus on securing large federal and state projects, as well as projects for the private sector. We also provide services to large public utilities which service major metropolitan communities. We seek to establish close working relationships with our public agency clients and, over time, to expand the breadth and depth of the services we provide to them.

 

While we currently serve communities throughout the country, our business with public agencies is concentrated in California and neighboring states. We provide services to approximately 60% of the 480 cities and over 60% of the 58 counties in California. We also serve special districts, school districts, a range of public agencies, and to a lesser extent, private industry. Our business with large public utilities is concentrated in California and New York.

 

We were founded over 40 years ago, and today consist of a family of wholly-owned companies that operate within the following segments for financial reporting purposes:

 

Engineering Services.    Our Engineering Services segment includes the operations of our subsidiaries, Willdan Engineering, Willdan Geotechnical, Willdan Energy Solutions, Willdan Resource Solutions and Public Agency Resources (PARs). These businesses collectively provide engineering-related services, geotechnical engineering services, environmental engineering and environmental related services and energy efficiency, water conservation, sustainability and renewable energy services to public agencies and, to a lesser extent, private industry. Additionally, PARs primarily provides staffing to Willdan Engineering. Willdan Engineering is our largest subsidiary and currently represents our core business.  Contract revenue for the Engineering Services segment represented approximately 78.6% and 76.3% of our consolidated contract revenue for the six months ended July 2, 2010 and July 3, 2009, respectively.

 

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Table of Contents

 

Public Finance Services.    Our Public Finance Services segment consists of the business of our subsidiary, Willdan Financial Services, which offers financial and economic consulting services to public agencies. Contract revenue for the Public Finance Services segment represented approximately 14.5% and 18.7% of our consolidated contract revenue for the six months ended July 2, 2010 and July 3, 2009, respectively.

 

Homeland Security Services.    Our Homeland Security Services segment consists of the business of our subsidiary, Willdan Homeland Solutions, which offers homeland security, management consulting and public safety consulting services.  Contract revenue for our Homeland Security Services segment represented approximately 7.0% and 5.0% of our consolidated contract revenue for the six months ended July 2, 2010 and July 3, 2009, respectively.

 

Recent Developments

 

Over the last two years, general economic conditions declined due to a number of factors including slower economic activity, a lack of available credit, decreased consumer confidence and reduced corporate profits and capital spending.  These conditions led to a slowdown in construction, particularly residential housing construction, in the western United States.  While general economic conditions are beginning to improve, the housing market has not recovered while other areas such as energy and homeland security are showing improvement. As a result, we continue to experience declining revenue in our public finance services segment and our traditional engineering services, although the revenue for our engineering services segment overall increased this quarter due to the strong performance of Willdan Energy Solutions.  We will continue to evaluate our workforce and facility needs in business areas that are underperforming and focus on reducing discretionary expenditures and the efficient procurement of necessary services.

 

Components of Income and Expense

 

Contract Revenue

 

We enter into contracts with our clients that contain three principal types of pricing provisions: fixed price, time-and-materials and unit-based. 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 are relatively short in duration, thereby lowering the risks of not properly estimating the percent complete. 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. Approximately 53% of our contracts are based on contractual rates per hour plus costs incurred. Some of these contracts include maximum contract prices, but the majority of these contracts are not expected to exceed the maximum.

 

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 provided for currently in its entirety. Claims revenue is recognized only upon resolution of the claim. Change orders in dispute are evaluated as claims. Costs related to un-priced change orders are expensed when incurred and recognition of the related contract revenue is based on an evaluation of the probability of recovery of the costs. Estimated profit is recognized for un-priced change orders if realization of the expected price of the change order is probable.

 

Direct Costs of Contract Revenue

 

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, sub-consultant services and other expenses that are incurred in connection with revenue producing projects. Direct costs of contract revenue exclude depreciation and amortization, 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 of our personnel are included in general and administrative expenses 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 nor is depreciation and amortization allocated to direct costs. We expense direct costs of contract revenue when incurred.

 

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Table of Contents

 

As a firm that provides multiple and diverse outsource services, we do not believe gross margin is a consistent or appropriate indicator of our performance and therefore we do not use this measure as construction contractors and other types of consulting firms may. Other companies may classify as direct costs of contract revenue some of the costs that we classify as general and administrative expenses. As a result, our direct costs of contract revenue may not be comparable to direct costs for other companies, either as a line item expense or as a percentage of contract revenue.

 

General and Administrative Expenses

 

General and administrative expenses include the costs of the marketing and support staff, 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. 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 professional services, legal and accounting, computer costs, travel and entertainment and marketing costs. We expense general and administrative costs when incurred.

 

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., or GAAP. To prepare these financial statements in conformity with GAAP, we must make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the 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 Note 2 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended January 1, 2010. 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. The uncertainty inherent in such estimates and assumptions should be considered in tandem with the general economic conditions discussed above in “—Recent Developments.”

 

Contract Accounting

 

Applying the percentage-of-completion method of recognizing revenue requires us to estimate the indicated outcome of our long-term contracts. We forecast such outcomes to the best of our knowledge and belief of current and expected conditions and our expected course of action. Differences between our estimates and actual results often occur resulting in changes to reported revenue and earnings. Such changes could have a material effect on our future consolidated financial statements.

 

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 monthly basis. We determine the allowance for doubtful accounts by identifying troubled accounts and by using historical experience applied to an aging of accounts. Our credit risk is minimal with governmental entities. Account receivables are written off when deemed uncollectible. Recoveries of accounts receivable previously written off are recorded when received.

 

For further information on the types of contracts under which we perform our services, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Components of Income and Expense—Contract Revenue” elsewhere in this report.

 

Goodwill Impairment Valuation

 

We test 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.

 

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Table of Contents

 

We test our goodwill for impairment at the level of our reporting units, which are components of our operating segments. The only reporting unit that still has goodwill is Willdan Energy Solutions, which is part of our engineering services segment. The process of testing goodwill for impairment involves the determination of the fair value of the applicable reporting units. To estimate the fair value of our reporting units, we use an income approach based on a multiple of historical cash flows, management’s estimates of future cash flows and other market data. We also use a market approach based upon multiples of EBITDA earned by similar public companies. For our fiscal year 2009 annual impairment testing, we weighted the income approach and the market approach at 80% and 20%, respectively. The income approach was given a higher weight because it has a more direct correlation to the specific economics of the reporting units than the market approach, which is based on multiples of public companies that, although comparable, may not provide the same mix of services as our reporting units.

 

Once the fair value is determined, we then compare the fair value of the reporting unit to its carrying value, including goodwill. If the fair value of 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 current economic indicators and market valuations, including discount rates. To the extent these assumptions are incorrect or economic conditions that would impact the future operations of our reporting units change, our goodwill may be deemed to be impaired, and an impairment charge could result in a material adverse effect on our financial position or results of operation.  At our measurement date, the estimated fair value of our Energy Solutions reporting unit, which is the only remaining unit with goodwill, exceeded the carrying value by approximately 25%.  Therefore, a 10% decrease in the fair value of our Energy Solutions reporting unit from that determined during our 2009 annual impairment testing would not have resulted in an impairment charge.

 

Accounting for Claims Against the Company

 

We record liabilities to claimants for probable and estimable claims, if any, on our consolidated balance sheet, which we include in accrued liabilities, and record a corresponding receivable from our insurance company for the portion of the claim that is probable of being covered by insurance, which we include in other receivables. The estimated claim net of the amount estimated to be recoverable from the insurance company is included in our general and administrative expenses. Determining probability and estimating claim amounts is highly judgmental. Initial accruals and any subsequent changes in our estimates could have a material effect on our consolidated financial statements.

 

Results of Operations

 

The following table sets forth, for the periods indicated, certain information derived from our consolidated statements of operations expressed as a percentage of contract revenue:

 

 

 

Fiscal Three Months Ended

 

Fiscal Six Months Ended

 

Statement of Operations Data

 

July 2,
2010

 

July 3,
2009

 

July 2,
2010

 

July 3,
2009

 

 

 

 

 

 

 

 

 

 

 

Contract revenue

 

100.0

%

100.0

%

100.0

%

100.0

%

Direct costs of contract revenue (exclusive of depreciation and amortization shown separately below):

 

 

 

 

 

 

 

 

 

Salaries and wages

 

27.6

 

29.0

 

28.5

 

28.4

 

Sub-consultant services

 

17.4

 

14.1

 

14.7

 

14.1

 

Other direct costs

 

8.0

 

4.8

 

8.0

 

5.6

 

Total direct costs of contract revenue

 

53.0

 

47.9

 

51.2

 

48.1

 

General and administrative expenses:

 

 

 

 

 

 

 

 

 

Salaries and wages, payroll taxes, employee benefits

 

22.0

 

32.7

 

23.9

 

32.3

 

Facilities and facility related

 

5.1

 

7.1

 

5.7

 

6.8

 

Stock-based compensation

 

0.2

 

0.5

 

0.3

 

0.4

 

Depreciation and amortization

 

1.2

 

4.5

 

1.4

 

3.8

 

Other

 

12.3

 

16.5

 

13.1

 

15.1

 

Total general and administrative expenses

 

40.8

 

61.3

 

44.4

 

58.4

 

 

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Table of Contents

 

Income (loss) from operations

 

6.2

 

(9.3

)

4.4

 

(6.5

)

Other income (expense):

 

 

 

 

 

 

 

 

 

Interest income

 

 

0.1

 

 

0.1

 

Interest expense

 

 

(0.1

)

 

(0.1

)

Other, net

 

 

 

 

 

Total other income, net

 

 

 

 

 

Income (loss) before income tax expense

 

6.2

 

(9.3

)

4.4

 

(6.5

)

Income tax expense (benefit)

 

 

(3.5

)

 

(2.4

)

Net income (loss)

 

6.2

%

(5.8

)%

4.4

%

(4.1

)%

 

Three Months Ended July 2, 2010 Compared to Three Months Ended July 3, 2009

 

Contract revenue.    Our contract revenue was $20.4 million for the three months ended July 2, 2010, with $16.2 million attributable to the Engineering Services segment and $2.8 million attributable to the Public Finance Services segment. Our Homeland Security Services segment generated $1.4 million during this period.  Consolidated contract revenue increased $4.9 million, or 31.6%, to $20.4 million for the three months ended July 2, 2010, from $15.5 million for the three months ended July 3, 2009. This was due to increases of $4.6 million, or 39.7%, in contract revenue for the Engineering Services segment, primarily as a result of the increase in demand for the services of Willdan Energy Solutions, and $0.6 million, or 75.0%, in contract revenue for the Homeland Security Services segment, partially offset by a decrease in contract revenue for the Public Finance Services segment of $0.3 million, or 9.7%.

 

Contract revenue for the Engineering Services segment has increased primarily because we have experienced an increase in demand for energy efficiency, sustainability and renewable energy services.  The increased revenues generated by Willdan Energy Solutions has offset lower revenues in other areas of our Engineering Services segment, which was significantly impacted by the decline in the California residential housing market and state and local government budget cuts. A source of revenue in our Engineering Services segment is fees assessed for building permits. Since the second half of fiscal 2007, we have experienced reductions in revenue from these fees because of the continuing slowdown in residential construction in the western United States. We have also experienced a continuing decline in our other building and safety projects which is both directly and indirectly affected by the housing market. Revenue in the Public Finance Services segment decreased primarily due to lower levels of activity in the financial consulting business as a result of the general downturn in macro-economic conditions. Revenue in the Homeland Security Services segment has increased due to an increase in demand for our traditional and expanded homeland security, management consulting and public safety consulting services. Our Homeland Security Services segment has expanded its service offerings beyond its traditional planning, training and exercise services to include public safety and interoperability communications and management consulting.

 

Direct costs of contract revenue.    Direct costs of contract revenue were $10.8 million for the three months ended July 2, 2010, with $9.4 million attributable to the Engineering Services segment, $0.8 million attributable to the Public Finance Services segment and $0.6 million attributable to the Homeland Security Services segment.  Overall, direct costs increased by $3.4 million, or 45.9%, to $10.8 million for the three months ended July 2, 2010 from $7.4 million for the three months ended July 3, 2009.

 

Direct costs increased as a result of increases in subconsultant services, salaries and wages and other direct costs of $1.4 million, $1.1 million and $0.9 million, respectively. Within direct costs of contract revenue, salaries and wages decreased to 27.6% of contract revenue for the three months ended July 2, 2010 from 29.0% for the three months ended July 3, 2009. Comparing those same periods, subconsultant services increased to 17.4% of contract revenue from 14.1% of contract revenue.

 

General and administrative expenses.    General and administrative expenses decreased by $1.2 million, or 12.6%, to $8.3 million for the three months ended July 2, 2010 from $9.5 million for the three months ended July 3, 2009. This was due to decreases of $1.4 million in general and administrative expenses for the Engineering Services segment and $0.2 million for our Public Finance Services segment, partially offset by increases in general and administrative expenses of $0.1 million for our Homeland Security Services segment and $0.3 million for our unallocated corporate expenses. General and administrative expenses as a percentage of contract revenue decreased to 40.8% for the three months ended July 2, 2010 from 61.3% for the three months ended July 3, 2009.

 

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Of the $1.2 million decrease in general and administrative expenses, approximately $0.6 million related to decreases in salaries and wages, payroll taxes and employee benefits. The reduction in employee related costs primarily resulted from increased chargeability of labor, which shifted more employee related costs to direct costs of contract revenue. As discussed above under “—Components of Income and Expense—Direct Costs of Contract Revenue,” we do not allocate that portion of salaries and wages not related to time spent directly generating revenue to direct costs of contract revenue. General and administrative expenses also decreased by $0.5 million due to a decrease in amortization expense of acquired intangible assets. The remaining $0.2 million decrease is attributable to a reduction in facilities and facility related expenses, stock-based compensation and other general and administrative expenses.

 

Income (loss) from operations.     As a result of the above factors, our operating income was $1.3 million for the three months ended July 2, 2010 as compared to an operating loss of $1.4 million for the three months ended July 3, 2009. Income (loss) from operations as a percentage of contract revenue was 6.2% for the three months ended July 2, 2010, as compared to (9.3)% for the three months ended July 3, 2009.

 

Income tax benefit.     Due to our net operating loss carryforward position, we recorded no income tax expense or benefit for the three months ended July 2, 2010, compared to an income tax benefit of $0.5 million for the three months ended July 3, 2009.

 

Net income (loss).     As a result of the above factors, net income was $1.3 million for the three months ended July 2, 2010 compared to a net loss of $0.9 million for the three months ended July 3, 2009.

 

Six Months Ended July 2, 2010 Compared to Six Months Ended July 3, 2009

 

Contract revenue.    Our contract revenue was $37.3 million for the six months ended July 2, 2010, with $29.3 million attributable to the Engineering Services segment and $5.4 million attributable to the Public Finance Services segment.  Our Homeland Security Services segment generated $2.6 million during this period.  Consolidated contract revenue increased $4.6 million, or 14.1%, to $37.3 million for the six months ended July 2, 2010, from $32.7 million for the six months ended July 3, 2009.  This was due primarily to an increase of $4.3 million, or 17.2%, in contract revenue for the Engineering Services segment primarily as a result of the increase in demand for the services of our subsidiary, Willdan Energy Solutions.  Contract revenue in the Public Finance Services segment decreased $0.7 million, or 11.5%, from $6.1 million to $5.4 million for the six months ended July 2, 2010 as compared to the six months ended July 3, 2009.  Contract revenue for our Homeland Security Services segment increased $1.0 million, or 62.5%, from $1.6 million to $2.6 million for the six months ended July 2, 2010 as compared to $1.6 million for the six months ended July 3, 2009.

 

The $4.3 million increase in contract revenue for the Engineering Services segment resulted from an increase of $5.8 million of revenue recognized by Willdan Energy Solutions in the first six months of fiscal 2010, partially offset by decreases in other areas of the Engineering Services segment. Contract revenue for the Engineering Services segment was significantly impacted by the decline in the California residential housing market and state and local government budget cuts. A source of revenue in our Engineering Services segment is fees assessed for building permits. Since the second half of fiscal 2007, we have experienced reductions in revenue from these fees because of the continuing slowdown in residential construction in the western United States.  We have also experienced a continuing decline in our other building and safety projects which is both directly and indirectly affected by the housing market. Revenue in the Public Finance Services segment decreased primarily due to lower levels of activity in the financial consulting business as a result of the general downturn in macro-economic conditions. Revenue in the Homeland Security Services segment has increased due to an increase in demand for our traditional and expanded homeland security, management consulting and public safety consulting services. Our Homeland Security Services segment has expanded its service offerings beyond its traditional planning, training and exercise services to include public safety and interoperability communications and management consulting.

 

Direct costs of contract revenue.    Direct costs of contract revenue were $19.1 million for the six months ended July 2, 2010, with $16.3 million attributable to the Engineering Services segment, $1.6 million attributable to the Public Finance Services segment and $1.2 million attributable to the Homeland Security Services segment.  Overall, direct costs increased by $3.4 million, or 21.7%, to $19.1 million for the six months ended July 2, 2010, from $15.7 million for the six months ended July 3, 2009.  This increase is attributable to increases in direct costs within our Engineering Services and Homeland Security Services segments of $3.1 million and $0.4 million, respectively. Direct costs within the Public Finance Services segment decreased by $0.1 million.

 

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Direct costs increased as a result of increases in salaries and wages, other direct costs and subconsultant services of $1.3 million, $1.2 million and $0.9 million, respectively. Within direct costs of contract revenue, other direct costs increased to 8.0% of contract revenue for the six months ended July 2, 2010 from 5.6% for the six months ended July 3, 2009 and subconsultant services increased to 14.7% of contract revenue for the six months ended July 2, 2010 from 14.1% for the six months ended July 3, 2009.

 

General and administrative expenses.    General and administrative expenses decreased by $2.5 million, or 13.1%, to $16.6 million for the six months ended July 2, 2010 from $19.1 million for the six months ended July 3, 2009.  This was due to decreases in general and administrative expenses of $2.6 million for the Engineering Services segment and $0.5 million for the Public Finance Services segment, partially offset by increases of $0.3 million for the Homeland Security Services segment and $0.3 million for unallocated corporate expenses.  General and administrative expenses as a percentage of contract revenue decreased to 44.4% for the six months ended July 2, 2010 from 58.4% for the six months ended July 3, 2009.

 

Of the $2.5 million decrease in general and administrative expenses, approximately $1.6 million relates to decreases in salaries and wages, payroll taxes and employee benefits. The reduction in employee related costs primarily resulted from increased chargeability of labor which shifted more employee related costs to direct costs of contract revenue.  As discussed above under “—Components of Income and Expense—Direct Costs of Contract Revenue,” we do not allocate that portion of salaries and wages not related to time spent directly generating revenue to direct costs of contract revenue. The decrease in depreciation and amortization expenses of $0.7 million primarily resulted from a decrease in the amortization of intangible assets. The remaining $0.2 million decrease is attributable to a reduction in facility and facility related expenses and other general and administrative expenses.

 

Income (loss) from operations.     As a result of the above factors, our operating income was $1.7 million for the six months ended July 2, 2010, as compared to an operating loss of $(2.1) million for the six months ended July 3, 2009. Income (loss) from operations as a percentage of contract revenue was 4.4% for the six months ended July 2, 2010, as compared to (6.5)% in the prior year period.

 

Other income (expense).     Other income (expense), net was flat for the six months ended July 2, 2010, as compared to the six months ended July 3, 2009.

 

Income tax (benefit) expense.     Due to our net operating loss carryforward position, we recorded no income tax expense or benefit for the six months ended July 2, 2010, compared to an income tax benefit of $0.8 million for the prior year period.  The Company believes that it is more likely than not that a tax expense resulting from net income will be realized.

 

Net income (loss).     As a result of the above factors, our net income was $1.7 million for the six months ended July 2, 2010 compared to a net loss of $1.4 million for the six months ended July 3, 2009.

 

Liquidity and Capital Resources

 

As of July 2, 2010, we had $6.8 million of cash and cash equivalents. Our primary sources of liquidity are cash generated from operations and funds available under our revolving line of credit, which matures on January 1, 2011.  We cannot provide any assurance that Wells Fargo Bank, National Association (Wells Fargo) will renew this line of credit. While we believe that our cash and cash equivalents on hand, cash generated by operating activities and funds available under our line of credit will be sufficient to finance our operating activities for at least the next 12 months, if we do experience a cash flow shortage or violate the current terms of our credit agreement, we may have difficulty obtaining additional funds on favorable terms, if at all, in the current credit market.

 

Cash flows from operating activities

 

Cash flows used in operating activities were $1.7 million for the six months ended July 2, 2010 compared to cash flows provided by operating activities of $1.3 million for the six months ended July 3, 2009.  The cash flows used in operating activities in the six months ended July 2, 2010 primarily resulted from net changes in the balances of accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts.  These decreases in cash from operating activities were partially offset by increases resulting primarily from the change in accrued liabilities along with the net income recognized for the 2010 period versus net loss incurred for the 2009 period.

 

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Table of Contents

 

Cash flows from investing activities

 

Cash flows used in investing activities were $0.2 million for the six months ended July 2, 2010 compared to $1.1 million for the six months ended July 3, 2009. Cash flows used in investing activities decreased by $0.9 million primarily due to a $1.0 million decrease in payments for business acquisitions, partially offset by an increase in the purchase of equipment and leasehold improvements.

 

Cash flows from financing activities

 

Cash flows provided by financing activities were $0.3 million for the six months ended July 2, 2010 compared to $0.4 million provided by financing activities for the six months ended July 3, 2009.  Cash flows provided by financing activities decreased by $0.1 million primarily due to a $0.1 million decrease in excess of outstanding checks over bank balances.

 

Outstanding indebtedness

 

We currently have a revolving line of credit with Wells Fargo, which was amended on November 9, 2009. We have also financed, from time to time, insurance premiums by entering into unsecured notes payable with insurance companies. During our annual insurance renewals in the fourth quarter of our fiscal year ended January 1, 2010, we elected not to finance our insurance premiums for fiscal 2010.

 

Under the terms of our credit agreement with Wells Fargo, we can borrow up to $5.0 million from time to time (as may be limited by the covenants in the credit agreement as discussed below) up to and until January 1, 2011. Loans made under the revolving line of credit will accrue interest at either (i) the floating rate equal to the prime rate in effect from time to time or (ii) the fixed rate of 1.75% above LIBOR, at our election. For prime rate loans, the interest rate will be adjusted when each prime rate change by the bank is announced and becomes effective. There were outstanding borrowings of $1.0 million under this agreement as of July 2, 2010.

 

Borrowings under the credit agreement are secured by all of our accounts receivable and other rights to payment, general intangibles, inventory and equipment, including those of our subsidiaries. In addition, borrowings under the credit agreement are secured by investment property we hold in a securities account at Wells Fargo that must at all times have a collateral value of at least $5.0 million. Each of our subsidiaries (except Public Agency Resources and Willdan Resource Solutions) has signed an unconditional guaranty of our obligations under the agreements.

 

The credit agreement contains customary representations and affirmative covenants, including a covenant to maintain a tangible net worth of at least $18.0 million at all times. Tangible net worth is defined in the credit agreement as stockholders’ equity less intangible assets and loans or advances to, or investments in, any related entities or individuals. As of July 2, 2010, our tangible net worth as defined under our credit agreement was $19.0 million(1).

 


(1)   Tangible net worth is a supplemental measure used in our credit agreement. If we do not maintain tangible net worth of at least $18.0 million, Wells Fargo could choose to accelerate any loans then outstanding under the facility or refuse to make additional loans to us under the facility. Management therefore believes that presentation of tangible net worth as defined in the credit agreement is useful to investors because it helps them understand how our tangible net worth compares to the financial covenant contained in our credit agreement and whether we are close to violating such covenant. Management also reviews tangible net worth to ensure it will continue to have access to its financing sources. Tangible net worth is defined in the credit agreement as the “aggregate of total stockholders’ equity less any intangible assets and less any loans or advances to, or investments in, any related entities or individuals. For the purposes of calculating Tangible Net Worth, the impact of non-cash property lease termination expense of up to $1.0 million in the aggregate recorded during the period from October 1, 2009 through December 31, 2010 will be excluded from the covenant calculation.” This definition of tangible net worth may differ from those of many companies reporting similarly named measures. This measure should be considered in addition to, and not as a substitute for or superior to, other measures of financial performance prepared in accordance with U.S. generally accepted accounting principles, or GAAP, such as stockholders’ equity. Tangible net worth is not a recognized term under GAAP and does not purport to be an alternative to stockholders’ equity as an indicator of net worth or any other GAAP measure.

 

The following is a reconciliation of stockholders’ equity to tangible net worth:

 

 

 

July 2, 2010

 

 

 

 

 

Stockholders’ equity

 

$

30,942,000

 

Goodwill and other intangibles, net

 

(12,503,000

)

Permitted lease abandonment

 

531,000

 

Tangible net worth

 

$

18,970,000

 

 

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Table of Contents

 

The credit agreement also includes customary negative covenants, including a covenant that prohibits the incurrence of additional indebtedness by us or our subsidiaries other than purchase money indebtedness not to exceed $2.0 million and indebtedness existing on the date of the credit agreement, and a covenant that prohibits payment of dividends on our stock and redemptions, repurchases or other acquisitions of our stock, except that we can repurchase stock with an aggregate fair market value up to $5.0 million in any calendar year. In addition, the credit agreement includes customary events of default for a credit facility. Upon a default, the interest rate will be increased by a default rate margin of 4.0%. Upon the occurrence of an event of default under the credit agreement, including a breach of any of the covenants discussed above, Wells Fargo has the option to make any loans then outstanding under the credit agreement immediately due and payable and is no longer obligated to extend further credit to us under the credit agreement.

 

Contractual obligations

 

We had no material changes in commitments for long-term debt obligations, operating lease obligations or capital lease obligations as of July 2, 2010, as compared to those disclosed in our table of contractual obligations included in our Annual Report on Form 10-K for the year ended January 1, 2010.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

 

Recent Accounting Pronouncements

 

As of July 2, 2010, the impact of recent accounting pronouncements on the Company is not expected to be material.

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

 

In addition to current and historical information, this report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to our future operations, prospects, potential products, services, developments and business strategies. These statements can, in some cases, be identified by the use of words like “may,” “will,” “should,” “could,” “would,” “intend,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” or “continue” or the negative of such terms or other comparable terminology. This report includes, among others, forward-looking statements regarding our:

 

·                                          Expectations about future customers;

 

·                                          Expectations about expanded service offerings;

 

·                                          Expectations about our ability to cross-sell additional services to existing clients;

 

·                                          Expectations about our intended geographical expansion;

 

·                                          Expectations about our ability to attract executive officers and key employees;

 

·                                          Expectations about our ability to renew our existing credit agreement with Wells Fargo;

 

·                                          Evaluation of the materiality of our current legal proceedings; and

 

·                                          Expectations about positive cash flow generation and available cash and cash equivalents being sufficient to meet normal operating requirements.

 

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Table of Contents

 

These statements involve certain known and unknown risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties include, among others, those listed in this report. The forward-looking statements in this report, as well as subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf, are hereby expressly qualified in their entirety by the cautionary statements in this report, including the risk factors in our Form 10-K for the year ended January 1, 2010. We do not intend, and undertake no obligation, to update any of our forward-looking statements after the date of this report to reflect actual results or future events or circumstances.

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

 

Market risk is the risk of loss to future earnings, to fair values or to future cash flows that may result from changes in the price of a financial instrument. The value of a financial instrument may change as a result of changes in interest rates, exchange rates, commodity prices, equity prices and other market changes. Market risk is attributed to all market risk sensitive financial instruments, including long-term debt.

 

We had cash and cash equivalents of $6.8 million as of July 2, 2010. This amount includes $0.4 million invested in the Wells Fargo Stage Coach Sweep Investment Account, $5.3 million invested in the Wells Fargo Money Market Mutual Fund and $0.1 million invested in the Wells Fargo Investment Account. The balance of $1.0 million represents cash on hand in business checking accounts.  Although these investments are subject to variable interest rates, we do not believe we are subject to significant market risk for these short-term investments.

 

We do not engage in trading activities and do not participate in foreign currency transactions or utilize derivative financial instruments. As of July 2, 2010, we had $1.0 million outstanding debt under our revolving credit facility that bears interest at variable rates.

 

Item 4.  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 President and Chief Executive Officer, Thomas Brisbin, and our Chief Financial Officer, Kimberly Gant, as appropriate to allow timely decisions regarding required disclosure.

 

Our management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures as of July 2, 2010.  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 July 2, 2010.  No change in our internal control over financial reporting occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

21



Table of Contents

 

PART II.  OTHER INFORMATION

 

Item 1.  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, like ours, 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. We may incur substantial expenses in defending against third party claims. In the event of a determination adverse to us, we may incur substantial monetary liability and be required to change our business practices. Either of these results could have a material adverse effect on our financial position, results of operations or cash flows.

 

In August 2010, we settled a lawsuit, Topaz v. City of Laguna Beach, involving a project by the City of Laguna Beach to reconstruct a retaining wall supporting a city road in which we served as the construction observer and designed the retaining wall.  We settled all claims asserted against us by the plaintiff for $15,000.

 

Other than as described below, we are not currently involved in any material litigation nor, to our knowledge, is any material litigation currently threatened against us, other than routine litigation arising in the ordinary course of business, most of which is expected to be covered by liability insurance.

 

County of San Diego v. Willdan, Superior Court of California, Riverside County

 

A complaint was filed against us on February 28, 2008 relating to a project for the reconstruction of a portion of Valley Center Road located in an unincorporated area of San Diego County. The design was completed by us and a contract was awarded to a construction contractor for construction of the improvements. The construction was originally scheduled for completion in December 2008; however completion was delayed until fall 2009. The lawsuit alleges that the delays in construction were caused by errors and omissions in our preparation of reports and design and engineering of the project, resulting in additional design and construction costs, in an amount to be determined but alleged to be in excess of $5.0 million. We deny the allegations asserted in the lawsuit and will vigorously defend against the claims.

 

French v. Willdan Engineering, Superior Court of California, Riverside County

 

In January 1991, we were originally retained by the City of Calimesa, California to review and process development plans. We have provided plan review continuously since that date under various contracts with the City. As the City receives applications from developers for project approvals, the City forwards the project plans to us for processing. We process the plans and the City pays the Company for its services. In August 2008, a suit was filed by a City employee alleging that the City processed development applications without first collecting fees from developers to cover the costs of processing. The suit further alleges that even though we performed the work requested by the City, the City should not have paid us for our work in advance of collecting the developers’ fees. The complaint was amended by the plaintiff in May 2010 to provide additional details and we have until August 23, 2010 to file an answer to the amended complaint. The plaintiff seeks to recover for the City amounts paid to Willdan for processing project plans for which the developer fees have not been paid. The City of Calimesa has not requested any refunds from us or joined in the litigation, and the City continues to retain our services. We do not believe that this suit has any merit and will vigorously defend this claim.

 

Item 1A.  Risk Factors

 

There have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the year ended January 1, 2010.

 

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3.  Defaults upon Senior Securities

 

None.

 

Item 4.  (Removed and Reserved)

 

Item 5.  Other Information

 

None.

 

22



Table of Contents

 

Item 6.  Exhibits

 

Exhibit
Number

 

Exhibit Description

3.1

 

First Amended and Restated Certificate of Incorporation of Willdan Group, Inc., including amendments thereto(1)

3.2

 

Bylaws of Willdan Group, Inc.(2)

10.1

 

Willdan Group, Inc. 2008 Performance Incentive Plan, as amended*

31.1

 

Certification of Chief Executive 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*

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*

 


*            Filed herewith.

 

(1)         Incorporated by reference to Willdan Group, Inc.’s Registration Statement on Form S-1, filed with the Securities and Exchange Commission on August 9, 2006, as amended (File No. 333-136444).

 

(2)         Incorporated by reference to Willdan Group, Inc.’s Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on August 13, 2009.

 



Table of Contents

 

SIGNATURE

 

Pursuant to the requirements 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.

 

 

WILLDAN GROUP, INC.

 

 

 

 

 

 

 

By:

/s/ Kimberly D. Gant

 

 

Kimberly D. Gant

 

 

Chief Financial Officer, Senior Vice President

 

 

Date: August 12, 2010

 

24


 

Exhibit 10.1

 

WILLDAN GROUP, INC.

2008 PERFORMANCE INCENTIVE PLAN

 

1.     PURPOSE OF PLAN

 

The purpose of this Willdan Group, Inc. 2008 Performance Incentive Plan (this “Plan”) of Willdan Group, Inc., a Delaware corporation (the “Corporation”), is to promote the success of the Corporation and to increase stockholder value by providing an additional means through the grant of awards to attract, motivate, retain and reward selected employees and other eligible persons.

 

2.     ELIGIBILITY

 

The Administrator (as such term is defined in Section 3.1) may grant awards under this Plan only to those persons that the Administrator determines to be Eligible Persons.  An “Eligible Person” is any person who is either: (a) an officer (whether or not a director) or employee of the Corporation or one of its Subsidiaries; (b) a director of the Corporation or one of its Subsidiaries; or (c) an individual consultant or advisor who renders or has rendered bona fide services (other than services in connection with the offering or sale of securities of the Corporation or one of its Subsidiaries in a capital-raising transaction or as a market maker or promoter of securities of the Corporation or one of its Subsidiaries) to the Corporation or one of its Subsidiaries and who is selected to participate in this Plan by the Administrator; provided, however, that a person who is otherwise an Eligible Person under clause (c) above may participate in this Plan only if such participation would not adversely affect either the Corporation’s eligibility to use Form S-8 to register under the Securities Act of 1933, as amended (the “Securities Act”), the offering and sale of shares issuable under this Plan by the Corporation or the Corporation’s compliance with any other applicable laws.  An Eligible Person who has been granted an award (a “participant”) may, if otherwise eligible, be granted additional awards if the Administrator shall so determine.  As used herein, “Subsidiary” means any corporation or other entity a majority of whose outstanding voting stock or voting power is beneficially owned directly or indirectly by the Corporation; and “Board” means the Board of Directors of the Corporation.

 

3.     PLAN ADMINISTRATION

 

3.1                              The Administrator.  This Plan shall be administered by and all awards under this Plan shall be authorized by the Administrator.  The “Administrator” means the Board or one or more committees appointed by the Board or another committee (within its delegated authority) to administer all or certain aspects of this Plan.  Any such committee shall be comprised solely of one or more directors or such number of directors as may be required under applicable law.  A committee may delegate some or all of its authority to another committee so constituted.  The Board or a committee comprised solely of directors may also delegate, to the extent permitted by Section 157(c) of the Delaware General Corporation Law and any other applicable law, to one or more officers of the Corporation, its powers under this Plan (a) to designate the officers and employees of the Corporation and its Subsidiaries who will receive grants of awards under this Plan, and (b) to determine the number of shares subject to, and the other terms and conditions of, such awards.  The Board may delegate different levels of authority to different committees with administrative and grant authority under this Plan.  Unless otherwise provided in the Bylaws of the Corporation or the applicable charter of any Administrator: (a) a majority of the members of the acting Administrator shall constitute a quorum, and (b) the vote of a majority of the members present assuming the presence of a quorum or the unanimous written consent of the members of the Administrator shall constitute action by the acting Administrator.

 

With respect to awards intended to satisfy the requirements for performance-based compensation under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), this Plan shall be administered by a committee consisting solely of two or more outside directors (as this requirement is applied under Section 162(m) of the Code); provided, however, that the failure to satisfy such requirement shall not affect the validity of the action of any committee otherwise duly authorized and acting in the matter.  Award grants, and transactions in or involving awards, intended to be exempt under Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), must be duly and timely authorized by the Board or a committee consisting solely of two or more non-employee directors (as this requirement is applied under Rule 16b-3 promulgated under the Exchange Act).  To the extent required by any applicable listing agency, this Plan shall be administered by a committee composed entirely of independent directors (within the meaning of the applicable listing agency).

 



 

3.2                              Powers of the Administrator.  Subject to the express provisions of this Plan, the Administrator is authorized and empowered to do all things necessary or desirable in connection with the authorization of awards and the administration of this Plan (in the case of a committee or delegation to one or more officers, within the authority delegated to that committee or person(s)), including, without limitation, the authority to:

 

(a)                                 determine eligibility and, from among those persons determined to be eligible, the particular Eligible Persons who will receive an award under this Plan;

 

(b)                                grant awards to Eligible Persons, determine the price at which securities will be offered or awarded and the number of securities to be offered or awarded to any of such persons, determine the other specific terms and conditions of such awards consistent with the express limits of this Plan, establish the installments (if any) in which such awards shall become exercisable or shall vest (which may include, without limitation, performance and/or time-based schedules), or determine that no delayed exercisability or vesting is required, establish any applicable performance targets, and establish the events of termination or reversion of such awards;

 

(c)                                 approve the forms of award agreements (which need not be identical either as to type of award or among participants);

 

(d)                                construe and interpret this Plan and any agreements defining the rights and obligations of the Corporation, its Subsidiaries, and participants under this Plan, further define the terms used in this Plan, and prescribe, amend and rescind rules and regulations relating to the administration of this Plan or the awards granted under this Plan;

 

(e)                                 cancel, modify, or waive the Corporation’s rights with respect to, or modify, discontinue, suspend, or terminate any or all outstanding awards, subject to any required consent under Section 8.6.5;

 

(f)                                   accelerate or extend the vesting or exercisability or extend the term of any or all such outstanding awards (in the case of options or stock appreciation rights, within the maximum ten-year term of such awards) in such circumstances as the Administrator may deem appropriate (including, without limitation, in connection with a termination of employment or services or other events of a personal nature) subject to any required consent under Section 8.6.5;

 

(g)                                adjust the number of shares of Common Stock subject to any award, adjust the price of any or all outstanding awards or otherwise change previously imposed terms and conditions, in such circumstances as the Administrator may deem appropriate, in each case subject to Sections 4 and 8.6, and provided that in no case (except due to an adjustment contemplated by Section 7 or any repricing that may be approved by stockholders) shall such an adjustment constitute a repricing (by amendment, substitution, cancellation and regrant, exchange or other means) of the per share exercise or base price of any option or stock appreciation right;

 

(h)                                determine the date of grant of an award, which may be a designated date after but not before the date of the Administrator’s action (unless otherwise designated by the Administrator, the date of grant of an award shall be the date upon which the Administrator took the action granting an award);

 

(i)                                    determine whether, and the extent to which, adjustments are required pursuant to Section 7 hereof and authorize the termination, conversion, substitution or succession of awards upon the occurrence of an event of the type described in Section 7;

 

(j)                                    acquire or settle (subject to Sections 7 and 8.6) rights under awards in cash, stock of equivalent value, or other consideration, provided, however, that in no case without stockholder approval shall the Corporation effect a “repricing” of a stock option or stock appreciation right granted under this Plan by purchasing the option or stock appreciation right at a time when the exercise or base price of the award is greater than the fair market value of a share of Common Stock; and

 



 

(k)                                 determine the fair market value of the Common Stock or awards under this Plan from time to time and/or the manner in which such value will be determined.

 

3.3                              Binding Determinations.  Any action taken by, or inaction of, the Corporation, any Subsidiary, or the Administrator relating or pursuant to this Plan and within its authority hereunder or under applicable law shall be within the absolute discretion of that entity or body and shall be conclusive and binding upon all persons.  Neither the Board nor any Board committee, nor any member thereof or person acting at the direction thereof, shall be liable for any act, omission, interpretation, construction or determination made in good faith in connection with this Plan (or any award made under this Plan), and all such persons shall be entitled to indemnification and reimbursement by the Corporation in respect of any claim, loss, damage or expense (including, without limitation, attorneys’ fees) arising or resulting therefrom to the fullest extent permitted by law and/or under any directors and officers liability insurance coverage that may be in effect from time to time.

 

3.4                              Reliance on Experts.  In making any determination or in taking or not taking any action under this Plan, the Administrator may obtain and may rely upon the advice of experts, including employees and professional advisors to the Corporation.  No director, officer or agent of the Corporation or any of its Subsidiaries shall be liable for any such action or determination taken or made or omitted in good faith.

 

3.5                              Delegation.  The Administrator may delegate ministerial, non-discretionary functions to individuals who are officers or employees of the Corporation or any of its Subsidiaries or to third parties.

 

4.     SHARES OF COMMON STOCK SUBJECT TO THE PLAN; SHARE LIMITS

 

4.1                              Shares Available.  Subject to the provisions of Section 7.1, the capital stock that may be delivered under this Plan shall be shares of the Corporation’s authorized but unissued Common Stock and any shares of its Common Stock held as treasury shares.  For purposes of this Plan, “Common Stock” shall mean the common stock of the Corporation and such other securities or property as may become the subject of awards under this Plan, or may become subject to such awards, pursuant to an adjustment made under Section 7.1.

 

4.2                              Share Limits.  The maximum number of shares of Common Stock that may be delivered pursuant to awards granted to Eligible Persons under this Plan (the “Share Limit”) is equal to the sum of the following:

 

(1)                                 800,000 shares of Common Stock, plus

 

(2)                                 the number of shares of Common Stock available for additional award grant purposes under the Corporation’s Willdan Group, Inc. 2006 Stock Incentive Plan (the “2006 Plan”) as of the date of stockholder approval of this Plan (the “Stockholder Approval Date”) and determined immediately prior to the termination of the authority to grant new awards under the 2006 Plan as of the Stockholder Approval Date, plus

 

(3)                                 the number of any shares subject to stock options granted under the 2006 Plan and outstanding on the Stockholder Approval Date which expire, or for any reason are cancelled or terminated, after the Stockholder Approval Date without being exercised.

 

The following limits also apply with respect to awards granted under this Plan:

 

(a)                                 The maximum number of shares of Common Stock that may be delivered pursuant to options qualified as incentive stock options granted under this Plan is 1,100,000 shares.

 

(b)                                The maximum number of shares of Common Stock subject to those options and stock appreciation rights that are granted during any calendar year to any individual under this Plan is 100,000 shares.

 



 

(c)                                 The maximum number of shares of Common Stock that may be delivered pursuant to awards granted under this Plan, other than those described in the next sentence, is 750,000 shares.  This limit on so-called “full-value awards” does not apply, however, to (1) shares delivered in respect of compensation earned but deferred, (2) shares delivered in respect of stock option grants, and (3) shares delivered in respect of stock appreciation right grants.

 

(d)                                Additional limits with respect to Performance-Based Awards are set forth in Section 5.2.3.

 

Each of the foregoing numerical limits is subject to adjustment as contemplated by Section 4.3, Section 7.1, and Section 8.10.

 

4.3                              Awards Settled in Cash, Reissue of Awards and Shares.  To the extent that an award granted under this Plan is settled in cash or a form other than shares of Common Stock, the shares that would have been delivered had there been no such cash or other settlement shall not be counted against the shares available for issuance under this Plan.  In the event that shares of Common Stock are delivered in respect of a dividend equivalent right granted under this Plan, only the actual number of shares delivered with respect to the award shall be counted against the share limits of this Plan.  To the extent that shares of Common Stock are delivered pursuant to the exercise of a stock appreciation right or stock option granted under this Plan, the number of underlying shares as to which the exercise related shall be counted against the applicable share limits under Section 4.2, as opposed to only counting the shares actually issued.  (For purposes of clarity, if a stock appreciation right relates to 100,000 shares and is exercised at a time when the payment due to the participant is 15,000 shares, 100,000 shares shall be charged against the applicable share limits under Section 4.2 with respect to such exercise.)  Shares that are subject to or underlie awards granted under this Plan which expire or for any reason are cancelled or terminated, are forfeited, fail to vest, or for any other reason are not paid or delivered under this Plan shall again be available for subsequent awards under this Plan.  Shares that are exchanged by a participant or withheld by the Corporation as full or partial payment in connection with any award under this Plan, as well as any shares exchanged by a participant or withheld by the Corporation or one of its Subsidiaries to satisfy the tax withholding obligations related to any award, shall not be available for subsequent awards under this Plan.  Refer to Section 8.10 for application of the foregoing share limits with respect to assumed awards.  The foregoing adjustments to the share limits of this Plan are subject to any applicable limitations under Section 162(m) of the Code with respect to awards intended as performance-based compensation thereunder.

 

4.4                              Reservation of Shares; No Fractional Shares; Minimum Issue.  The Corporation shall at all times reserve a number of shares of Common Stock sufficient to cover the Corporation’s obligations and contingent obligations to deliver shares with respect to awards then outstanding under this Plan (exclusive of any dividend equivalent obligations to the extent the Corporation has the right to settle such rights in cash).  No fractional shares shall be delivered under this Plan.  The Administrator may pay cash in lieu of any fractional shares in settlements of awards under this Plan.  No fewer than 100 shares may be purchased on exercise of any award (or, in the case of stock appreciation or purchase rights, no fewer than 100 rights may be exercised at any one time) unless the total number purchased or exercised is the total number at the time available for purchase or exercise under the award.

 

5.     AWARDS

 

5.1                              Type and Form of Awards.  The Administrator shall determine the type or types of award(s) to be made to each selected Eligible Person.  Awards may be granted singly, in combination or in tandem.  Awards also may be made in combination or in tandem with, in replacement of, as alternatives to, or as the payment form for grants or rights under any other employee or compensation plan of the Corporation or one of its Subsidiaries.  The types of awards that may be granted under this Plan are:

 

5.1.1       Stock Options.  A stock option is the grant of a right to purchase a specified number of shares of Common Stock during a specified period as determined by the Administrator.  An option may be intended as an incentive stock option within the meaning of Section 422 of the Code (an “ISO”) or a nonqualified stock option (an option not intended to be an ISO).  The award agreement for an option will indicate if the option is intended as an ISO; otherwise it will be deemed to be a nonqualified stock option.  The maximum term of each option (ISO or nonqualified) shall be ten (10) years.  The per share exercise price for each option shall be not less than 100% of the fair market value of a share of Common Stock on the date of grant of the option.  When an option is exercised, the exercise price for the shares to be purchased shall be paid in full in cash or such other method permitted by the Administrator consistent with Section 5.5.

 



 

5.1.2       Additional Rules Applicable to ISOs.  To the extent that the aggregate fair market value (determined at the time of grant of the applicable option) of stock with respect to which ISOs first become exercisable by a participant in any calendar year exceeds $100,000, taking into account both Common Stock subject to ISOs under this Plan and stock subject to ISOs under all other plans of the Corporation or one of its Subsidiaries (or any parent or predecessor corporation to the extent required by and within the meaning of Section 422 of the Code and the regulations promulgated thereunder), such options shall be treated as nonqualified stock options.  In reducing the number of options treated as ISOs to meet the $100,000 limit, the most recently granted options shall be reduced first.  To the extent a reduction of simultaneously granted options is necessary to meet the $100,000 limit, the Administrator may, in the manner and to the extent permitted by law, designate which shares of Common Stock are to be treated as shares acquired pursuant to the exercise of an ISO.  ISOs may only be granted to employees of the Corporation or one of its subsidiaries (for this purpose, the term “subsidiary” is used as defined in Section 424(f) of the Code, which generally requires an unbroken chain of ownership of at least 50% of the total combined voting power of all classes of stock of each subsidiary in the chain beginning with the Corporation and ending with the subsidiary in question).  There shall be imposed in any award agreement relating to ISOs such other terms and conditions as from time to time are required in order that the option be an “incentive stock option” as that term is defined in Section 422 of the Code.  No ISO may be granted to any person who, at the time the option is granted, owns (or is deemed to own under Section 424(d) of the Code) shares of outstanding Common Stock possessing more than 10% of the total combined voting power of all classes of stock of the Corporation, unless the exercise price of such option is at least 110% of the fair market value of the stock subject to the option and such option by its terms is not exercisable after the expiration of five years from the date such option is granted.

 

5.1.3       Stock Appreciation Rights.  A stock appreciation right or “SAR” is a right to receive a payment, in cash and/or Common Stock, equal to the excess of the fair market value of a specified number of shares of Common Stock on the date the SAR is exercised over the “base price” of the award, which base price shall be set forth in the applicable award agreement and shall be not less than 100% of the fair market value of a share of Common Stock on the date of grant of the SAR.  The maximum term of a SAR shall be ten (10) years.

 

5.1.4       Other Awards.  The other types of awards that may be granted under this Plan include: (a) stock bonuses, restricted stock, performance stock, stock units, phantom stock, dividend equivalents, or similar rights to purchase or acquire shares, whether at a fixed or variable price or ratio related to the Common Stock, upon the passage of time, the occurrence of one or more events, or the satisfaction of performance criteria or other conditions, or any combination thereof; or (b) any similar securities with a value derived from the value of or related to the Common Stock and/or returns thereon.

 

5.2                              Section 162(m) Performance-Based Awards.  Without limiting the generality of the foregoing, any of the types of awards listed in Section 5.1.4 above may be, and options and SARs granted to officers and employees (“Qualifying Options” and “Qualifying SARS,” respectively) typically will be, granted as awards intended to satisfy the requirements for “performance-based compensation” within the meaning of Section 162(m) of the Code (“Performance-Based Awards).  The grant, vesting, exercisability or payment of Performance-Based Awards may depend (or, in the case of Qualifying Options or Qualifying SARs, may also depend) on the degree of achievement of one or more performance goals relative to a pre-established targeted level or level using one or more of the Business Criteria set forth below (on an absolute or relative basis) for the Corporation on a consolidated basis or for one or more of the Corporation’s subsidiaries, segments, divisions or business units, or any combination of the foregoing.  Any Qualifying Option or Qualifying SAR shall be subject only to the requirements of Section 5.2.1 and 5.2.3 in order for such award to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code.  Any other Performance-Based Award shall be subject to all of the following provisions of this Section 5.2.

 

5.2.1       Class; AdministratorThe eligible class of persons for Performance-Based Awards under this Section 5.2 shall be officers and employees of the Corporation or one of its Subsidiaries.  The Administrator approving Performance-Based Awards or making any certification required pursuant to Section 5.2.4 must be constituted as provided in Section 3.1 for awards that are intended as performance-based compensation under Section 162(m) of the Code.

 



 

5.2.2       Performance GoalsThe specific performance goals for Performance-Based Awards (other than Qualifying Options and Qualifying SARs) shall be, on an absolute or relative basis, established based on one or more of the following business criteria (“Business Criteria”) as selected by the Administrator in its sole discretion: earnings per share, cash flow (which means cash and cash equivalents derived from either net cash flow from operations or net cash flow from operations, financing and investing activities), stock price, total stockholder return, gross revenue, revenue growth, operating income (before or after taxes), net earnings (before or after interest, taxes, depreciation and/or amortization), return on equity or on assets or on net investment, cost containment or reduction, or any combination thereof.  These terms are used as applied under generally accepted accounting principles or in the financial reporting of the Corporation or of its Subsidiaries.  To qualify awards as performance-based under Section 162(m), the applicable Business Criterion (or Business Criteria, as the case may be) and specific performance goal or goals (“targets”) must be established and approved by the Administrator during the first 90 days of the performance period (and, in the case of performance periods of less than one year, in no event after 25% or more of the performance period has elapsed) and while performance relating to such target(s) remains substantially uncertain within the meaning of Section 162(m) of the Code.  Performance targets shall be adjusted to mitigate the unbudgeted impact of material, unusual or nonrecurring gains and losses, accounting changes or other extraordinary events not foreseen at the time the targets were set unless the Administrator provides otherwise at the time of establishing the targets.  The applicable performance measurement period may not be less than three months nor more than 10 years.

 

5.2.3       Form of Payment; Maximum Performance-Based Award.  Grants or awards under this Section 5.2 may be paid in cash or shares of Common Stock or any combination thereof.  Grants of Qualifying Options and Qualifying SARs to any one participant in any one calendar year shall be subject to the limit set forth in Section 4.2(b).  The maximum number of shares of Common Stock which may be delivered pursuant to Performance-Based Awards (other than Qualifying Options and Qualifying SARs) that are granted to any one participant in any one calendar year shall not exceed 100,000 shares, either individually or in the aggregate, subject to adjustment as provided in Section 7.1.  Awards that are cancelled during the year shall be counted against these limits to the extent required by Section 162(m) of the Code.

 

5.2.4       Certification of PaymentBefore any Performance-Based Award under this Section 5.2 (other than Qualifying Options and Qualifying SARs) is paid and to the extent required to qualify the award as performance-based compensation within the meaning of Section 162(m) of the Code, the Administrator must certify in writing that the performance target(s) and any other material terms of the Performance-Based Award were in fact timely satisfied.

 

5.2.5       Reservation of DiscretionThe Administrator will have the discretion to determine the restrictions or other limitations of the individual awards granted under this Section 5.2 including the authority to reduce awards, payouts or vesting or to pay no awards, in its sole discretion, if the Administrator preserves such authority at the time of grant by language to this effect in its authorizing resolutions or otherwise.

 

5.2.6       Expiration of Grant AuthorityAs required pursuant to Section 162(m) of the Code and the regulations promulgated thereunder, the Administrator’s authority to grant new awards that are intended to qualify as performance-based compensation within the meaning of Section 162(m) of the Code (other than Qualifying Options and Qualifying SARs) shall terminate upon the first meeting of the Corporation’s stockholders that occurs in the fifth year following the year in which the Corporation’s stockholders first approve this Plan.

 

5.3                              Award Agreements.  Each award shall be evidenced by either (1) a written award agreement in a form approved by the Administrator and executed by the Corporation by an officer duly authorized to act on its behalf, or (2) an electronic notice of award grant in a form approved by the Administrator and recorded by the Corporation (or its designee) in an electronic recordkeeping system used for the purpose of tracking award grants under this Plan generally (in each case, an “award agreement”), as the Administrator may provide and, in each case and if required by the Administrator, executed or otherwise electronically accepted by the recipient of the award in such form and manner as the Administrator may require.  The Administrator may authorize any officer of the Corporation (other than the particular award recipient) to execute any or all award agreements on behalf of the Corporation.  The award agreement shall set forth the material terms and conditions of the award as established by the Administrator consistent with the express limitations of this Plan.

 



 

5.4                              Deferrals and Settlements.  Payment of awards may be in the form of cash, Common Stock, other awards or combinations thereof as the Administrator shall determine, and with such restrictions as it may impose.  The Administrator may also require or permit participants to elect to defer the issuance of shares or the settlement of awards in cash under such rules and procedures as it may establish under this Plan.  The Administrator may also provide that deferred settlements include the payment or crediting of interest or other earnings on the deferral amounts, or the payment or crediting of dividend equivalents where the deferred amounts are denominated in shares.

 

5.5                              Consideration for Common Stock or Awards.  The purchase price for any award granted under this Plan or the Common Stock to be delivered pursuant to an award, as applicable, may be paid by means of any lawful consideration as determined by the Administrator, including, without limitation, one or a combination of the following methods:

 

·                  services rendered by the recipient of such award;

 

·                  cash, check payable to the order of the Corporation, or electronic funds transfer;

 

·                  notice and third party payment in such manner as may be authorized by the Administrator;

 

·                  the delivery of previously owned shares of Common Stock;

 

·                  by a reduction in the number of shares otherwise deliverable pursuant to the award; or

 

·                  subject to such procedures as the Administrator may adopt, pursuant to a “cashless exercise” with a third party who provides financing for the purposes of (or who otherwise facilitates) the purchase or exercise of awards.

 

In no event shall any shares newly-issued by the Corporation be issued for less than the minimum lawful consideration for such shares or for consideration other than consideration permitted by applicable state law.  Shares of Common Stock used to satisfy the exercise price of an option shall be valued at their fair market value on the date of exercise.  The Corporation will not be obligated to deliver any shares unless and until it receives full payment of the exercise or purchase price therefor and any related withholding obligations under Section 8.5 and any other conditions to exercise or purchase have been satisfied.  Unless otherwise expressly provided in the applicable award agreement, the Administrator may at any time eliminate or limit a participant’s ability to pay the purchase or exercise price of any award or shares by any method other than cash payment to the Corporation.

 

5.6                              Definition of Fair Market Value.  For purposes of this Plan, “fair market value” shall mean, unless otherwise determined or provided by the Administrator in the circumstances, the last price (in regular trading) for a share of Common Stock as furnished by the National Association of Securities Dealers, Inc. (the “NASD”) through the NASDAQ Global Market Reporting System (the “Global Market”) for the date in question or, if no sales of Common Stock were reported by the NASD on the Global Market on that date, the last price (in regular trading) for a share of Common Stock as furnished by the NASD through the Global Market for the next preceding day on which sales of Common Stock were reported by the NASD.  The Administrator may, however, provide with respect to one or more awards that the fair market value shall equal the last price (in regular trading) for a share of Common Stock as furnished by the NASD through the Global Market on the last trading day preceding the date in question or the average of the high and low trading prices of a share of Common Stock as furnished by the NASD through the Global Market for the date in question or the most recent trading day.  If the Common Stock is no longer listed or is no longer actively traded on the Global Market as of the applicable date, the fair market value of the Common Stock shall be the value as reasonably determined by the Administrator for purposes of the award in the circumstances.  The Administrator also may adopt a different methodology for determining fair market value with respect to one or more awards if a different methodology is necessary or advisable to secure any intended favorable tax, legal or other treatment for the particular award(s) (for example, and without limitation, the Administrator may provide that fair market value for purposes of one or more awards will be based on an average of closing prices (or the average of high and low daily trading prices) for a specified period preceding the relevant date).

 



 

5.7          Transfer Restrictions.

 

5.7.1       Limitations on Exercise and Transfer.  Unless otherwise expressly provided in (or pursuant to) this Section 5.7 or required by applicable law: (a) all awards are non-transferable and shall not be subject in any manner to sale, transfer, anticipation, alienation, assignment, pledge, encumbrance or charge; (b) awards shall be exercised only by the participant; and (c) amounts payable or shares issuable pursuant to any award shall be delivered only to (or for the account of) the participant.

 

5.7.2       Exceptions.  The Administrator may permit awards to be exercised by and paid to, or otherwise transferred to, other persons or entities pursuant to such conditions and procedures, including limitations on subsequent transfers, as the Administrator may, in its sole discretion, establish in writing.  Any permitted transfer shall be subject to compliance with applicable federal and state securities laws and shall not be for value (other than nominal consideration, settlement of marital property rights, or for interests in an entity in which more than 50% of the voting interests are held by the Eligible Person or by the Eligible Person’s family members).

 

5.7.3       Further Exceptions to Limits on Transfer.  The exercise and transfer restrictions in Section 5.7.1 shall not apply to:

 

(a)                                 transfers to the Corporation (for example, in connection with the expiration or termination of the award),

 

(b)                                the designation of a beneficiary to receive benefits in the event of the participant’s death or, if the participant has died, transfers to or exercise by the participant’s beneficiary, or, in the absence of a validly designated beneficiary, transfers by will or the laws of descent and distribution,

 

(c)                                 subject to any applicable limitations on ISOs, transfers to a family member (or former family member) pursuant to a domestic relations order if approved or ratified by the Administrator,

 

(d)                                if the participant has suffered a disability, permitted transfers or exercises on behalf of the participant by his or her legal representative, or

 

(e)                                 the authorization by the Administrator of “cashless exercise” procedures with third parties who provide financing for the purpose of (or who otherwise facilitate) the exercise of awards consistent with applicable laws and the express authorization of the Administrator.

 

5.8                              International Awards.  One or more awards may be granted to Eligible Persons who provide services to the Corporation or one of its Subsidiaries outside of the United States.  Any awards granted to such persons may be granted pursuant to the terms and conditions of any applicable sub-plans, if any, appended to this Plan and approved by the Administrator.

 

6.     EFFECT OF TERMINATION OF EMPLOYMENT OR SERVICE ON AWARDS

 

6.1                              General.  The Administrator shall establish the effect of a termination of employment or service on the rights and benefits under each award under this Plan and in so doing may make distinctions based upon, inter alia, the cause of termination and type of award.  If the participant is not an employee of the Corporation or one of its Subsidiaries and provides other services to the Corporation or one of its Subsidiaries, the Administrator shall be the sole judge for purposes of this Plan (unless a contract or the award otherwise provides) of whether the participant continues to render services to the Corporation or one of its Subsidiaries and the date, if any, upon which such services shall be deemed to have terminated.

 



 

6.2                              Events Not Deemed Terminations of Service.  Unless the express policy of the Corporation or one of its Subsidiaries, or the Administrator, otherwise provides, the employment relationship shall not be considered terminated in the case of (a) sick leave, (b) military leave, or (c) any other leave of absence authorized by the Corporation or one of its Subsidiaries, or the Administrator; provided that, unless reemployment upon the expiration of such leave is guaranteed by contract or law or the Administrator otherwise provides, such leave is for a period of not more than three months.  In the case of any employee of the Corporation or one of its Subsidiaries on an approved leave of absence, continued vesting of the award while on leave from the employ of the Corporation or one of its Subsidiaries may be suspended until the employee returns to service, unless the Administrator otherwise provides or applicable law otherwise requires.  In no event shall an award be exercised after the expiration of the term set forth in the applicable award agreement.

 

6.3                              Effect of Change of Subsidiary Status.  For purposes of this Plan and any award, if an entity ceases to be a Subsidiary of the Corporation a termination of employment or service shall be deemed to have occurred with respect to each Eligible Person in respect of such Subsidiary who does not continue as an Eligible Person in respect of the Corporation or another Subsidiary that continues as such after giving effect to the transaction or other event giving rise to the change in status.

 

7.     ADJUSTMENTS; ACCELERATION

 

7.1                              Adjustments.  Subject to Section 7.2, upon (or, as may be necessary to effect the adjustment, immediately prior to): any reclassification, recapitalization, stock split (including a stock split in the form of a stock dividend) or reverse stock split; any merger, combination, consolidation, or other reorganization; any spin-off, split-up, or similar extraordinary dividend distribution in respect of the Common Stock; or any exchange of Common Stock or other securities of the Corporation, or any similar, unusual or extraordinary corporate transaction in respect of the Common Stock; then the Administrator shall equitably and proportionately adjust (1) the number and type of shares of Common Stock (or other securities) that thereafter may be made the subject of awards (including the specific share limits, maximums and numbers of shares set forth elsewhere in this Plan), (2) the number, amount and type of shares of Common Stock (or other securities or property) subject to any outstanding awards, (3) the grant, purchase, or exercise price (which term includes the base price of any SAR or similar right) of any outstanding awards, and/or (4) the securities, cash or other property deliverable upon exercise or payment of any outstanding awards, in each case to the extent necessary to preserve (but not increase) the level of incentives intended by this Plan and the then-outstanding awards.

 

Unless otherwise expressly provided in the applicable award agreement, upon (or, as may be necessary to effect the adjustment, immediately prior to) any event or transaction described in the preceding paragraph or a sale of all or substantially all of the business or assets of the Corporation as an entirety, the Administrator shall equitably and proportionately adjust the performance standards applicable to any then-outstanding performance-based awards to the extent necessary to preserve (but not increase) the level of incentives intended by this Plan and the then-outstanding performance-based awards.

 

It is intended that, if possible, any adjustments contemplated by the preceding two paragraphs be made in a manner that satisfies applicable U.S. legal, tax (including, without limitation and as applicable in the circumstances, Section 424 of the Code, Section 409A of the Code and Section 162(m) of the Code) and accounting (so as to not trigger any charge to earnings with respect to such adjustment) requirements.

 

Without limiting the generality of Section 3.3, any good faith determination by the Administrator as to whether an adjustment is required in the circumstances pursuant to this Section 7.1, and the extent and nature of any such adjustment, shall be conclusive and binding on all persons.

 

7.2                              Corporate Transactions - Assumption and Termination of Awards.  Upon the occurrence of any of the following: any merger, combination, consolidation, or other reorganization; any exchange of Common Stock or other securities of the Corporation; a sale of all or substantially all the business, stock or assets of the Corporation; a dissolution of the Corporation; or any other event in which the Corporation does not survive (or does not survive as a public company in respect of its Common Stock); then the Administrator may make provision for a cash payment in settlement of, or for the assumption, substitution or exchange of any or all outstanding share-based awards or the cash, securities or property deliverable to the holder of any or all outstanding share-based awards, based upon, to the extent relevant under the circumstances, the distribution or consideration payable to holders of the Common Stock upon or in respect of such event.  Upon the occurrence of any event described in the preceding sentence, then, unless the Administrator has made a provision for the substitution, assumption, exchange or other continuation or

 



 

settlement of the award or the award would otherwise continue in accordance with its terms in the circumstances: (1) subject to Section 7.4 and unless otherwise provided in the applicable award agreement, each then-outstanding option and SAR shall become fully vested, all shares of restricted stock then outstanding shall fully vest free of restrictions, and each other award granted under this Plan that is then outstanding shall become payable to the holder of such award; and (2) each award shall terminate upon the related event; provided that the holder of an option or SAR shall be given reasonable advance notice of the impending termination and a reasonable opportunity to exercise his or her outstanding vested options and SARs (after giving effect to any accelerated vesting required in the circumstances) in accordance with their terms before the termination of such awards (except that in no case shall more than ten days’ notice of the impending termination be required and any acceleration of vesting and any exercise of any portion of an award that is so accelerated may be made contingent upon the actual occurrence of the event).

 

Without limiting the preceding paragraph, in connection with any event referred to in the preceding paragraph or any change in control event defined in any applicable award agreement, the Administrator may, in its discretion, provide for the accelerated vesting of any award or awards as and to the extent determined by the Administrator in the circumstances.

 

The Administrator may adopt such valuation methodologies for outstanding awards as it deems reasonable in the event of a cash or property settlement and, in the case of options, SARs or similar rights, but without limitation on other methodologies, may base such settlement solely upon the excess if any of the per share amount payable upon or in respect of such event over the exercise or base price of the award.

 

In any of the events referred to in this Section 7.2, the Administrator may take such action contemplated by this Section 7.2 prior to such event (as opposed to on the occurrence of such event) to the extent that the Administrator deems the action necessary to permit the participant to realize the benefits intended to be conveyed with respect to the underlying shares.  Without limiting the generality of the foregoing, the Administrator may deem an acceleration to occur immediately prior to the applicable event and/or reinstate the original terms of the award if an event giving rise to an acceleration does not occur.

 

Without limiting the generality of Section 3.3, any good faith determination by the Administrator pursuant to its authority under this Section 7.2 shall be conclusive and binding on all persons.

 

7.3                              Other Acceleration Rules.  The Administrator may override the provisions of Section 7.2 and/or 7.4 by express provision in the award agreement and may accord any Eligible Person a right to refuse any acceleration, whether pursuant to the award agreement or otherwise, in such circumstances as the Administrator may approve.  The portion of any ISO accelerated in connection with an event referred to in Section 7.2 (or such other circumstances as may trigger accelerated vesting of the award) shall remain exercisable as an ISO only to the extent the applicable $100,000 limitation on ISOs is not exceeded.  To the extent exceeded, the accelerated portion of the option shall be exercisable as a nonqualified stock option under the Code.

 

7.4                              Golden Parachute Limitation.  Notwithstanding anything else contained in this Section 7 to the contrary, in no event shall any award or payment be accelerated under this Plan to an extent or in a manner so that such award or payment, together with any other compensation and benefits provided to, or for the benefit of, the participant under any other plan or agreement of the Corporation or any of its Subsidiaries, would not be fully deductible by the Corporation or one of its Subsidiaries for federal income tax purposes because of Section 280G of the Code.  If a participant would be entitled to benefits or payments hereunder and under any other plan or program that would constitute “parachute payments” as defined in Section 280G of the Code, then the participant may by written notice to the Corporation designate the order in which such parachute payments will be reduced or modified so that the Corporation or one of its Subsidiaries is not denied federal income tax deductions for any “parachute payments” because of Section 280G of the Code.  Notwithstanding the foregoing, if a participant is a party to an employment or other agreement with the Corporation or one of its Subsidiaries, or is a participant in a severance program sponsored by the Corporation or one of its Subsidiaries, that contains express provisions regarding Section 280G and/or Section 4999 of the Code (or any similar successor provision), or the applicable award agreement includes such provisions, the Section 280G and/or Section 4999 provisions of such employment or other agreement or plan, as applicable, shall control as to the awards held by that participant (for example, and without limitation, a participant may be a party to an employment agreement with the Corporation or one of its Subsidiaries that provides for a “gross-up” as opposed to a “cut-back” in the event that the Section 280G thresholds are reached or exceeded in connection with a change in control and, in such event, the Section 280G and/or Section 4999 provisions of such employment agreement shall control as to any awards held by that participant).

 



 

8.     OTHER PROVISIONS

 

8.1                              Compliance with Laws.  This Plan, the granting and vesting of awards under this Plan, the offer, issuance and delivery of shares of Common Stock, and/or the payment of money under this Plan or under awards are subject to compliance with all applicable federal and state laws, rules and regulations (including but not limited to state and federal securities law and federal margin requirements) and to such approvals by any listing, regulatory or governmental authority as may, in the opinion of counsel for the Corporation, be necessary or advisable in connection therewith.  The person acquiring any securities under this Plan will, if requested by the Corporation or one of its Subsidiaries, provide such assurances and representations to the Corporation or one of its Subsidiaries as the Administrator may deem necessary or desirable to assure compliance with all applicable legal and accounting requirements.

 

8.2                              No Rights to Award.  No person shall have any claim or rights to be granted an award (or additional awards, as the case may be) under this Plan, subject to any express contractual rights (set forth in a document other than this Plan) to the contrary.

 

8.3                              No Employment/Service Contract.  Nothing contained in this Plan (or in any other documents under this Plan or in any award) shall confer upon any Eligible Person or other participant any right to continue in the employ or other service of the Corporation or one of its Subsidiaries, constitute any contract or agreement of employment or other service or affect an employee’s status as an employee at will, nor shall interfere in any way with the right of the Corporation or one of its Subsidiaries to change a person’s compensation or other benefits, or to terminate his or her employment or other service, with or without cause.  Nothing in this Section 8.3, however, is intended to adversely affect any express independent right of such person under a separate employment or service contract other than an award agreement.

 

8.4                              Plan Not Funded.  Awards payable under this Plan shall be payable in shares or from the general assets of the Corporation, and no special or separate reserve, fund or deposit shall be made to assure payment of such awards.  No participant, beneficiary or other person shall have any right, title or interest in any fund or in any specific asset (including shares of Common Stock, except as expressly otherwise provided) of the Corporation or one of its Subsidiaries by reason of any award hereunder.  Neither the provisions of this Plan (or of any related documents), nor the creation or adoption of this Plan, nor any action taken pursuant to the provisions of this Plan shall create, or be construed to create, a trust of any kind or a fiduciary relationship between the Corporation or one of its Subsidiaries and any participant, beneficiary or other person.  To the extent that a participant, beneficiary or other person acquires a right to receive payment pursuant to any award hereunder, such right shall be no greater than the right of any unsecured general creditor of the Corporation.

 

8.5                              Tax Withholding.  Upon any exercise, vesting, or payment of any award or upon the disposition of shares of Common Stock acquired pursuant to the exercise of an ISO prior to satisfaction of the holding period requirements of Section 422 of the Code, the Corporation or one of its Subsidiaries shall have the right at its option to:

 

(a)                                 require the participant (or the participant’s personal representative or beneficiary, as the case may be) to pay or provide for payment of at least the minimum amount of any taxes which the Corporation or one of its Subsidiaries may be required to withhold with respect to such award event or payment; or

 

(b)                                deduct from any amount otherwise payable in cash to the participant (or the participant’s personal representative or beneficiary, as the case may be) the minimum amount of any taxes which the Corporation or one of its Subsidiaries may be required to withhold with respect to such cash payment.

 



 

In any case where a tax is required to be withheld in connection with the delivery of shares of Common Stock under this Plan, the Administrator may in its sole discretion (subject to Section 8.1) require or grant (either at the time of the award or thereafter) to the participant the right to elect, pursuant to such rules and subject to such conditions as the Administrator may establish, that the Corporation reduce the number of shares to be delivered by (or otherwise reacquire) the appropriate number of shares, valued in a consistent manner at their fair market value or at the sales price in accordance with authorized procedures for cashless exercises, necessary to satisfy the minimum applicable withholding obligation on exercise, vesting or payment.  In no event shall the shares withheld exceed the minimum whole number of shares required for tax withholding under applicable law.

 

8.6          Effective Date, Termination and Suspension, Amendments.

 

8.6.1       Effective Date.  This Plan is effective as of June 9, 2008, the Stockholder Approval Date (the “Effective Date”).  Unless earlier terminated by the Board, this Plan shall terminate at the close of business on the day before the tenth anniversary of the date of Board approval of the Plan.  After the termination of this Plan either upon such stated expiration date or its earlier termination by the Board, no additional awards may be granted under this Plan, but previously granted awards (and the authority of the Administrator with respect thereto, including the authority to amend such awards) shall remain outstanding in accordance with their applicable terms and conditions and the terms and conditions of this Plan.

 

8.6.2       Board Authorization.  The Board may, at any time, terminate or, from time to time, amend, modify or suspend this Plan, in whole or in part.  No awards may be granted during any period that the Board suspends this Plan.

 

8.6.3       Stockholder Approval.  To the extent then required by applicable law or any applicable listing agency or required under Sections 162, 422 or 424 of the Code to preserve the intended tax consequences of this Plan, or deemed necessary or advisable by the Board, any amendment to this Plan shall be subject to stockholder approval.

 

8.6.4       Amendments to Awards.  Without limiting any other express authority of the Administrator under (but subject to) the express limits of this Plan, the Administrator by agreement or resolution may waive conditions of or limitations on awards to participants that the Administrator in the prior exercise of its discretion has imposed, without the consent of a participant, and (subject to the requirements of Sections 3.2 and 8.6.5) may make other changes to the terms and conditions of awards.  Any amendment or other action that would constitute a repricing of an award is subject to the limitations set forth in Section 3.2(g).

 

8.6.5       Limitations on Amendments to Plan and Awards.  No amendment, suspension or termination of this Plan or amendment of any outstanding award agreement shall, without written consent of the participant, affect in any manner materially adverse to the participant any rights or benefits of the participant or obligations of the Corporation under any award granted under this Plan prior to the effective date of such change.  Changes, settlements and other actions contemplated by Section 7 shall not be deemed to constitute changes or amendments for purposes of this Section 8.6.

 

8.7                              Privileges of Stock Ownership.  Except as otherwise expressly authorized by the Administrator, a participant shall not be entitled to any privilege of stock ownership as to any shares of Common Stock not actually delivered to and held of record by the participant.  Except as expressly required by Section 7.1 or otherwise expressly provided by the Administrator, no adjustment will be made for dividends or other rights as a stockholder for which a record date is prior to such date of delivery.

 

8.8          Governing Law; Construction; Severability.

 

8.8.1       Choice of Law.  This Plan, the awards, all documents evidencing awards and all other related documents shall be governed by, and construed in accordance with the laws of the State of Delaware.

 

8.8.2       Severability.  If a court of competent jurisdiction holds any provision invalid and unenforceable, the remaining provisions of this Plan shall continue in effect.

 



 

8.8.3                    Plan Construction.

 

(a)                                 Rule 16b-3.  It is the intent of the Corporation that the awards and transactions permitted by awards be interpreted in a manner that, in the case of participants who are or may be subject to Section 16 of the Exchange Act, qualify, to the maximum extent compatible with the express terms of the award, for exemption from matching liability under Rule 16b-3 promulgated under the Exchange Act.  Notwithstanding the foregoing, the Corporation shall have no liability to any participant for Section 16 consequences of awards or events under awards if an award or event does not so qualify.

 

(b)                                Section 162(m).  Awards under Section 5.1.4 to persons described in Section 5.2 that are either granted or become vested, exercisable or payable based on attainment of one or more performance goals related to the Business Criteria, as well as Qualifying Options and Qualifying SARs granted to persons described in Section 5.2, that are approved by a committee composed solely of two or more outside directors (as this requirement is applied under Section 162(m) of the Code) shall be deemed to be intended as performance-based compensation within the meaning of Section 162(m) of the Code unless such committee provides otherwise at the time of grant of the award.  It is the further intent of the Corporation that (to the extent the Corporation or one of its Subsidiaries or awards under this Plan may be or become subject to limitations on deductibility under Section 162(m) of the Code) any such awards and any other Performance-Based Awards under Section 5.2 that are granted to or held by a person subject to Section 162(m) will qualify as performance-based compensation or otherwise be exempt from deductibility limitations under Section 162(m).

 

8.9                              Captions.  Captions and headings are given to the sections and subsections of this Plan solely as a convenience to facilitate reference.  Such headings shall not be deemed in any way material or relevant to the construction or interpretation of this Plan or any provision thereof.

 

8.10                       Stock-Based Awards in Substitution for Stock Options or Awards Granted by Other Corporation.  Awards may be granted to Eligible Persons in substitution for or in connection with an assumption of employee stock options, SARs, restricted stock or other stock-based awards granted by other entities to persons who are or who will become Eligible Persons in respect of the Corporation or one of its Subsidiaries, in connection with a distribution, merger or other reorganization by or with the granting entity or an affiliated entity, or the acquisition by the Corporation or one of its Subsidiaries, directly or indirectly, of all or a substantial part of the stock or assets of the employing entity.  The awards so granted need not comply with other specific terms of this Plan, provided the awards reflect only adjustments giving effect to the assumption or substitution consistent with the conversion applicable to the Common Stock in the transaction and any change in the issuer of the security.  Any shares that are delivered and any awards that are granted by, or become obligations of, the Corporation, as a result of the assumption by the Corporation of, or in substitution for, outstanding awards previously granted by an acquired company (or previously granted by a predecessor employer (or direct or indirect parent thereof) in the case of persons that become employed by the Corporation or one of its Subsidiaries in connection with a business or asset acquisition or similar transaction) shall not be counted against the Share Limit or other limits on the number of shares available for issuance under this Plan.

 

8.11                       Non-Exclusivity of Plan.  Nothing in this Plan shall limit or be deemed to limit the authority of the Board or the Administrator to grant awards or authorize any other compensation, with or without reference to the Common Stock, under any other plan or authority.

 

8.12                       No Corporate Action Restriction.  The existence of this Plan, the award agreements and the awards granted hereunder shall not limit, affect or restrict in any way the right or power of the Board or the stockholders of the Corporation to make or authorize: (a) any adjustment, recapitalization, reorganization or other change in the capital structure or business of the Corporation or any Subsidiary, (b) any merger, amalgamation, consolidation or change in the ownership of the Corporation or any Subsidiary, (c) any issue of bonds, debentures, capital, preferred or prior preference stock ahead of or affecting the capital stock (or the rights thereof) of the Corporation or any Subsidiary, (d) any dissolution or liquidation of the Corporation or any Subsidiary, (e) any sale or transfer of all or any part of the assets or business of the Corporation or any Subsidiary, or (f) any other corporate act or proceeding by the Corporation or any Subsidiary.  No participant, beneficiary or any other person shall have any claim under any award or award agreement against any member of the Board or the Administrator, or the Corporation or any employees, officers or agents of the Corporation or any Subsidiary, as a result of any such action.

 



 

8.13                       Other Company Benefit and Compensation Programs.  Payments and other benefits received by a participant under an award made pursuant to this Plan shall not be deemed a part of a participant’s compensation for purposes of the determination of benefits under any other employee welfare or benefit plans or arrangements, if any, provided by the Corporation or any Subsidiary, except where the Administrator expressly otherwise provides or authorizes in writing.  Awards under this Plan may be made in addition to, in combination with, as alternatives to or in payment of grants, awards or commitments under any other plans or arrangements of the Corporation or its Subsidiaries.

 


Exhibit 31.1

 

SECTION 302 CERTIFICATION OF CHIEF EXECUTIVE OFFICER

 

I, Thomas D. Brisbin, certify that:

 

1.             I have reviewed this quarterly report on Form 10-Q 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 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 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: August 12, 2010

 

 

 

 

 

 

By:

/s/ Thomas D. Brisbin

 

 

Thomas D. Brisbin

 

 

President and Chief Executive Officer

 


Exhibit 31.2

 

SECTION 302 CERTIFICATION OF CHIEF FINANCIAL OFFICER

 

I, Kimberly D. Gant, certify that:

 

1.             I have reviewed this quarterly report on Form 10-Q 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 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 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: August 12, 2010

 

 

 

 

 

 

By:

/s/ Kimberly D. Gant

 

 

Kimberly D. Gant

 

 

Chief Financial Officer and Senior Vice President

 


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 Quarterly Report on Form 10-Q of Willdan Group, Inc. (the “Company”) for the quarterly period ended July 2, 2010, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Thomas D. Brisbin, as President and Chief Executive Officer of the Company, and Kimberly D. Gant, as Chief Financial Officer and Senior Vice President of the Company, each hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his or her knowledge:

 

(1)           The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2)           The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

 

 

By:

/s/ Thomas D. Brisbin

 

 

 

Thomas D. Brisbin

 

 

 

President and Chief Executive Officer

 

 

 

August 12, 2010

 

 

 

 

 

 

 

 

 

 

By:

/s/ Kimberly D. Gant

 

 

 

Kimberly D. Gant

 

 

 

Chief Financial Officer and Senior Vice President

 

 

 

August 12, 2010

 

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.