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Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the Quarterly Period Ended April 30, 2017

 

or

o              TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT

 

For the Transition Period from              to

 

Commission File Number 001-31756

 

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware

 

13-1947195

(State or Other Jurisdiction of Incorporation)

 

(I.R.S. Employer Identification No.)

 

One Church Street, Suite 201, Rockville, Maryland 20850

 

(Address of Principal Executive Offices) (Zip Code)

 

 

(301) 315-0027

 

(Registrant’s Telephone Number, Including Area Code)

 

 

 

(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 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 during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).  Yes x No o

 

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

 

Large accelerated filer o  Accelerated filer x  Non-accelerated filer o  Smaller reporting company o  Emerging growth company o

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

 

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

 

Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date.

Common stock, $0.15 par value: 15,519,719 shares as of June 1, 2017.

 

 

 



Table of Contents

 

ARGAN, INC. AND SUBSIDIARIES

FORM 10-Q QUARTERLY REPORT

APRIL 30, 2017

INDEX

 

 

 

Page No.

 

 

 

PART I.

FINANCIAL INFORMATION

3

 

 

 

Item 1.

Financial Statements.

3

 

 

 

 

Condensed Consolidated Statements of Earnings for the Three Months Ended April 30, 2017 and 2016

3

 

 

 

 

Condensed Consolidated Balance Sheets — April 30 and January 31, 2017

4

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended April 30, 2017 and 2016

5

 

 

 

 

Notes to Condensed Consolidated Financial Statements

6

 

 

 

Item 2.

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

15

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk.

22

 

 

 

Item 4.

Controls and Procedures.

23

 

 

 

PART II.

OTHER INFORMATION

23

 

 

 

Item 1.

Legal Proceedings.

23

 

 

 

Item 1A.

Risk Factors.

23

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

24

 

 

 

Item 3.

Defaults upon Senior Securities.

24

 

 

 

Item 4.

Mine Safety Disclosures (not applicable to the Registrant).

24

 

 

 

Item 5.

Other Information.

24

 

 

 

Item 6.

Exhibits.

24

 

 

 

SIGNATURES

 

25

 

CERTIFICATIONS

 

2



Table of Contents

 

ARGAN, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended April 30,

 

 

 

2017

 

2016

 

 

 

 

 

 

 

REVENUES

 

$

230,489

 

$

130,348

 

Cost of revenues

 

190,393

 

102,046

 

GROSS PROFIT

 

40,096

 

28,302

 

Selling, general and administrative expenses

 

9,489

 

7,047

 

INCOME FROM OPERATIONS

 

30,607

 

21,255

 

Other income, net

 

1,218

 

37

 

INCOME BEFORE INCOME TAXES

 

31,825

 

21,292

 

Income tax expense

 

11,076

 

7,172

 

NET INCOME

 

20,749

 

14,120

 

Net income attributable to non-controlling interests

 

124

 

1,890

 

NET INCOME ATTRIBUTABLE TO THE STOCKHOLDERS OF ARGAN, INC.

 

20,625

 

12,230

 

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME

 

 

 

 

 

Foreign currency translation adjustments, net of tax

 

104

 

645

 

COMPREHENSIVE INCOME ATTRIBUTABLE TO THE STOCKHOLDERS OF ARGAN, INC.

 

$

20,729

 

$

12,875

 

 

 

 

 

 

 

EARNINGS PER SHARE ATTRIBUTABLE TO THE STOCKHOLDERS OF ARGAN, INC.

 

 

 

 

 

Basic

 

$

1.33

 

$

0.82

 

Diluted

 

$

1.31

 

$

0.81

 

 

 

 

 

 

 

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING

 

 

 

 

 

Basic

 

15,467

 

14,842

 

Diluted

 

15,771

 

15,055

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

3



Table of Contents

 

ARGAN, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

 

 

 

April 30, 2017

 

January 31, 2017

 

 

 

(Unaudited)

 

(Note 1)

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

Cash and cash equivalents

 

$

167,347

 

$

167,198

 

Short-term investments

 

396,092

 

355,796

 

Accounts receivable, net

 

71,331

 

54,836

 

Costs and estimated earnings in excess of billings

 

4,357

 

3,192

 

Prepaid expenses and other current assets

 

4,544

 

6,927

 

TOTAL CURRENT ASSETS

 

643,671

 

587,949

 

Property, plant and equipment, net

 

14,434

 

13,112

 

Goodwill

 

34,913

 

34,913

 

Intangible assets, net

 

7,998

 

8,181

 

Deferred taxes

 

8,634

 

8,725

 

Other assets

 

276

 

92

 

TOTAL ASSETS

 

$

709,926

 

$

652,972

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

Accounts payable

 

$

118,077

 

$

101,944

 

Accrued expenses

 

32,258

 

39,539

 

Billings in excess of costs and estimated earnings

 

234,344

 

209,241

 

TOTAL CURRENT LIABILITIES

 

384,679

 

350,724

 

Deferred taxes

 

9,846

 

9,679

 

TOTAL LIABILITIES

 

394,525

 

360,403

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES (Note 9)

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

Preferred stock, par value $0.10 per share — 500,000 shares authorized; no shares issued and outstanding

 

 

 

Common stock, par value $0.15 per share — 30,000,000 shares authorized; 15,488,952 and 15,461,452 shares issued at April 30 and January 31, 2017, respectively; 15,485,719 and 15,458,219 shares outstanding at April 30 and January 31, 2017, respectively

 

2,323

 

2,319

 

Additional paid-in capital

 

137,401

 

135,426

 

Retained earnings

 

175,274

 

154,649

 

Accumulated other comprehensive losses

 

(658

)

(762

)

TOTAL STOCKHOLDERS’ EQUITY

 

314,340

 

291,632

 

Non-controlling interests

 

1,061

 

937

 

TOTAL EQUITY

 

315,401

 

292,569

 

TOTAL LIABILITIES AND EQUITY

 

$

709,926

 

$

652,972

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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Table of Contents

 

ARGAN, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Three Months Ended April 30,

 

 

 

2017

 

2016

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

Net income

 

$

20,749

 

$

14,120

 

Adjustments to reconcile net income to net cash provided by operating activities

 

 

 

 

 

Stock option compensation expense

 

1,112

 

659

 

Depreciation

 

572

 

434

 

Amortization of purchased intangibles

 

183

 

321

 

Deferred income tax expense

 

263

 

1,897

 

Other

 

(382

)

(128

)

Changes in operating assets and liabilities

 

 

 

 

 

Accounts receivable

 

(16,428

)

(6,713

)

Prepaid expenses and other assets

 

(1,773

)

(1,408

)

Accounts payable and accrued expenses

 

12,730

 

5,786

 

Billings in excess of costs and estimated earnings, net

 

23,938

 

28,758

 

Net cash provided by operating activities

 

40,964

 

43,726

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

Purchases of short-term investments

 

(185,000

)

(50,000

)

Maturities of short-term investments

 

145,000

 

36,000

 

Purchases of property, plant and equipment

 

(1,863

)

(245

)

Net cash used in investing activities

 

(41,863

)

(14,245

)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

Proceeds from the exercise of stock options

 

867

 

495

 

Net cash provided by financing activities

 

867

 

495

 

 

 

 

 

 

 

EFFECTS OF EXCHANGE RATE CHANGES ON CASH

 

181

 

545

 

NET INCREASE IN CASH AND CASH EQUIVALENTS

 

149

 

30,521

 

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 

167,198

 

160,909

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

167,347

 

$

191,430

 

 

 

 

 

 

 

SUPPLEMENTAL CASH FLOW INFORMATION

 

 

 

 

 

Cash paid for income taxes

 

$

 

$

847

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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Table of Contents

 

ARGAN, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

APRIL 30, 2017

(Tabular dollar amounts in thousands, except per share data)

(Unaudited)

 

NOTE 1 — DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION

 

Description of the Business

 

The condensed consolidated financial statements include the accounts of Argan, Inc. (“Argan”), its wholly owned subsidiaries, its majority-controlled joint ventures and any variable interest entities for which Argan or one of its wholly-owned subsidiaries is deemed to be the primary beneficiary. Argan conducts operations through its wholly owned subsidiaries, Gemma Power Systems, LLC and affiliates (“GPS”), which provided 90% and 79% of consolidated revenues for the three months ended April 30, 2017 and 2016, respectively; The Roberts Company, Inc. (“TRC”); Atlantic Projects Company Limited and affiliates (“APC”) and Southern Maryland Cable, Inc. (“SMC”). Argan and these consolidated subsidiaries are hereinafter cumulatively referred to as the “Company.”

 

Through GPS and APC, the Company provides a full range of engineering, procurement, construction, commissioning, operations management, maintenance, development, technical and consulting services to the power generation and renewable energy markets for a wide range of customers, including independent power project owners, public utilities, power plant equipment suppliers and global energy plant construction firms. GPS, including its consolidated joint ventures and variable interest entities, and APC represent our power industry services reportable segment. Through TRC, the industrial fabrication and field services reportable segment provides on-site services that support maintenance turnarounds, shutdowns and emergency mobilizations for industrial plants primarily located in the southern United States and that are based on its expertise in producing, delivering and installing fabricated steel components such as pressure vessels, heat exchangers and piping systems. Through SMC, the telecommunications infrastructure services segment provides project management, construction, installation and maintenance services to commercial, local government and federal government customers primarily in the mid-Atlantic region.

 

Basis of Presentation

 

In Note 14, the Company has provided certain financial information relating to the operating results and assets of its reportable segments based on the manner in which management disaggregates the Company’s financial reporting for purposes of making internal operating decisions. All significant inter-company balances and transactions have been eliminated in consolidation. The deferred tax amounts included in the comparative balance sheet were reclassified to conform to the current year presentation. The Company’s fiscal year ends on January 31 of each year.

 

These condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. The accompanying condensed consolidated financial statements and notes should be read in conjunction with the consolidated financial statements, the notes thereto (including the summary of significant accounting policies), and the independent registered public accounting firm’s report thereon that are included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2017.

 

The condensed consolidated balance sheet as of April 30, 2017, the condensed consolidated statements of earnings for the three months ended April 30, 2017 and 2016, and the condensed consolidated statements of cash flows for the three months ended April 30, 2017 and 2016 are unaudited. The condensed consolidated balance sheet as of January 31, 2017 has been derived from audited financial statements. In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments, which are of a normal and recurring nature, considered necessary to present fairly the financial position of the Company as of April 30, 2017, and its earnings and cash flows for the interim periods presented. The results of operations for any interim period are not necessarily indicative of the results of operations for any other interim period or for a full fiscal year.

 

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Revenue Recognition — Revenues are recognized primarily under various long-term construction contracts, including contracts for which revenues are based on either a fixed price, cost-plus-fee or time and materials basis, with typical durations of one month to three years. Revenues from fixed price construction contracts, including a portion of estimated profit, are recognized as services are provided, based on costs incurred and estimated total contract costs using the percentage of completion method. Revenues from cost-plus-fee construction contracts are recognized on the basis of costs incurred during the period plus the amount of fee earned. Revenues from time and materials contracts are recognized when the related services are provided to the customer. Changes to total estimated contract costs or losses, if any, are recognized in the period in which they are determined.

 

Fair Values — The carrying value amounts presented in the condensed consolidated balance sheets for the Company’s cash and cash equivalents, short-term investments, accounts receivable and accounts payable are reasonable estimates of their fair values due to the short-term nature of these instruments. The fair value amounts of reporting units (as needed for purposes of identifying indications of impairment to goodwill) are determined by averaging valuations that are calculated using several market-based and income-based approaches deemed appropriate in the circumstances.

 

NOTE 2 — RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

 

There is no recently issued accounting guidance that has not yet been adopted that the Company considers material to its condensed consolidated financial statements except for the following:

 

Revenue Recognition

 

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued a final standard on revenue recognition, Accounting Standards Update 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), in order to create a new, principles-based revenue recognition framework that may affect nearly every revenue-generating entity. As delayed by the FASB, ASU 2014-09 and a series of related amending pronouncements issued by the FASB become effective for public companies for fiscal years beginning after December 15, 2017.

 

The Company is currently evaluating the impact of ASU 2014-09, as amended, on its condensed consolidated financial statements, including which of the alternative application approaches available under the standards will be utilized for its adoption. Entities are permitted to apply the new standards either retrospectively, subject to certain practical expedients, or through an alternative transition method that requires the application of the guidance only to contracts that are uncompleted on the date of initial application. The Company expects to apply the new standards using the modified retrospective method upon its adoption date of February 1, 2018 which will result in a cumulative effect adjustment as of the date of adoption. To date, the Company has examined a contract that it believes is representative of the fixed price contracts that will be in place at the date of adoption and has come to preliminary conclusions on the impact of the new standards on revenues using the 5-step process prescribed by ASU 2014-09, as amended. It does not believe that the adoption of the standards will have a significant impact on its revenue recognition patterns for its fixed price engineering, procurement and construction contracts as compared to revenue recognition under the existing revenue guidance, assuming that contract structures similar to those in place are in effect at the time of the Company’s adoption. The Company expects that revenues generated in the future will continue to be recognized over time utilizing the cost-to-cost measure of progress consistent with current practice. However, there are certain industry-specific implementation issues that are still unresolved and, depending on the resolution of these matters, conclusions on the impact on the Company’s revenue recognition patterns could change. Through the date of adoption, the Company will continue to evaluate the impacts of ASU 2014-09 to ensure that its preliminary conclusions continue to remain accurate. Additionally, the Company is continuing its assessment of the impact of ASU 2014-09, as amended, on its financial statement disclosures which are expected to be more extensive based on the requirements of the new standards.

 

Leases

 

In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases, which amends the existing guidance and which will require recognition of operating leases with lease terms of more than twelve months on the balance sheet. For these leases, companies will record assets for the rights and liabilities for the obligations that are created by the leases. The pronouncement will require disclosures that provide qualitative and quantitative information for the lease assets and liabilities presented in the financial statements. Although the adoption of this pronouncement, which is effective for fiscal years beginning after December 15, 2018, will affect the Company’s condensed consolidated financial statements, the Company has not yet determined the complete extent or significance of the changes.

 

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Table of Contents

 

NOTE 3 — CONSTRUCTION JOINT VENTURES

 

GPS assigned its contracts for the engineering, procurement and construction of two natural gas-fired power plants to two separate joint ventures that were formed in order to perform the work for the applicable project and to spread the bonding risk of each project. The joint venture partner for both projects is a large civil contracting firm. The corresponding joint venture agreements, as amended, provide that GPS has the majority interest in any profits, losses, assets and liabilities resulting from the performance of the contracts. Final contractual completion of the two projects was achieved in October 2016 and December 2016. GPS has no significant remaining commitments under these arrangements except for the provision of services under the related warranty obligations.

 

Due to the financial control by GPS, the accounts of the joint ventures have been included in the Company’s condensed consolidated financial statements since the commencement of contract activities (near the end of the fiscal year ended January 31, 2014). The shares of the profits of the joint ventures have been determined based on the percentages by which the Company believes profits will ultimately be shared by the joint venture partners.

 

NOTE 4 — CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

 

The Company considers all liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. Short-term investments as of April 30 and January 31, 2017 consisted solely of certificates of deposit purchased from the Bank of America (the “Bank”) with weighted average original maturities of 198 days and 185 days, respectively (the “CDs”). The Company has the intent and ability to hold these securities until they mature, and they are carried at cost plus accrued interest which approximates fair value. The total carrying value amounts as of April 30 and January 31, 2017 included accrued interest of $1.1 million and $0.8 million, respectively. Interest income is recorded when earned and is included in other income, net. As of April 30 and January 31, 2017, the weighted average annual interest rates of the Company’s short-term investment CDs were 1.17% and 1.13%, respectively.

 

The Company has cash on deposit in excess of federally insured limits at the Bank, has purchased CDs from the Bank, and has liquid mutual fund investments through an arrangement with the Bank. Management does not believe that maintaining substantially all such assets with the Bank represents a material concentration risk.

 

NOTE 5 — ACCOUNTS RECEIVABLE

 

Amounts retained by project owners under construction contracts and included in accounts receivable at April 30 and January 31, 2017 were $47.6 million and $36.2 million, respectively. Such retainage amounts represent funds withheld by project owners until a defined phase of a contract or project has been completed and accepted by the project owner. Retention amounts and the length of retention periods may vary. The amount outstanding as of April 30, 2017 relates substantially to active projects and will not be collected until the fiscal year ending January 31, 2019. Retainage amounts related to active contracts are classified as current assets regardless of the term of the applicable contract and amounts are generally collected by the completion of the applicable contract.

 

The Company monitors its exposure to credit losses and maintains an allowance for anticipated losses considered necessary under the circumstances based on historical experience with uncollected accounts and a review of its currently outstanding accounts and notes receivable. The amount of the allowance for uncollectible accounts as of April 30 and January 31, 2017 was approximately $1.9 million, and it related primarily to project development loans made in prior years. The provision for uncollectible accounts for the three months ended April 30, 2017 was not material. The Company did not record a provision for uncollectible accounts for the three months ended April 30, 2016.

 

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Table of Contents

 

NOTE 6 — COSTS, ESTIMATED EARNINGS AND BILLINGS ON UNCOMPLETED CONTRACTS

 

The table below sets forth the aggregate amounts of costs charged to and earnings accrued on uncompleted contracts compared with the billings on those contracts through April 30 and January 31, 2017.

 

 

 

April 30,

 

January 31,

 

 

 

2017

 

2017

 

Costs charged to uncompleted contracts

 

$

685,672

 

$

485,629

 

Estimated accrued earnings

 

112,003

 

78,708

 

 

 

797,675

 

564,337

 

Less - billings to date

 

1,027,662

 

770,386

 

 

 

$

(229,987

)

$

(206,049

)

 

Amounts above are included in the accompanying condensed consolidated balance sheets under the following captions:

 

 

 

April 30,

 

January 31,

 

 

 

2017

 

2017

 

Costs and estimated earnings in excess of billings

 

$

4,357

 

$

3,192

 

Billings in excess of costs and estimated earnings

 

234,344

 

209,241

 

 

 

$

(229,987

)

$

(206,049

)

 

Costs charged to contracts include amounts billed to the Company for delivered goods and services where payments have been retained from subcontractors and suppliers. Retained amounts as of April 30, 2017, which were included in the Company’s balance of accounts payable as of that date, totaled $25.7 million. Generally, such amounts are expected to be paid prior to the completion of the applicable project.

 

NOTE 7 — PURCHASED INTANGIBLE ASSETS

 

At both April 30 and January 31, 2017, the goodwill balances included in the condensed consolidated balance sheets related to the acquisitions of GPS, TRC and APC and were $18.5 million, $14.4 million and $2.0 million, respectively.

 

The Company’s other purchased intangible assets consisted of the following elements as of April 30 and January 31, 2017.

 

 

 

 

 

April 30, 2017

 

January 31,

 

 

 

Estimated
Useful Life

 

Gross
Amount

 

Accumulated
Amortization

 

Net
Amount

 

2017 (net
amount)

 

Trade names -

 

 

 

 

 

 

 

 

 

 

 

GPS/TRC

 

15 years

 

$

8,142

 

$

2,875

 

$

5,267

 

$

5,328

 

SMC

 

indefinite

 

181

 

 

181

 

181

 

Process certifications -

 

 

 

 

 

 

 

 

 

 

 

TRC

 

7 years

 

1,897

 

384

 

1,513

 

1,581

 

Customer relationships -

 

 

 

 

 

 

 

 

 

 

 

TRC/APC

 

4-10 years

 

1,346

 

323

 

1,023

 

1,072

 

Other intangibles

 

various

 

46

 

32

 

14

 

19

 

Totals

 

 

 

$

11,612

 

$

3,614

 

$

7,998

 

$

8,181

 

 

NOTE 8 — FINANCING ARRANGEMENTS

 

The Company maintains financing arrangements with the Bank that are described in an Amended and Restated Replacement Credit Agreement (the “Credit Agreement”), which superseded the Company’s prior arrangements with the Bank (see Note 15). The Credit Agreement provides a revolving loan with a maximum borrowing amount of $50.0 million that is available until May 31, 2021 with interest at the 30-day LIBOR plus 2.00%. The Company may also use the borrowing ability to cover other credit issued by the Bank for the Company’s use in the ordinary course of business. The Company has $5.9 million of credit outstanding under the Credit Agreement.

 

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Table of Contents

 

The Company has pledged the majority of its assets to secure its financing arrangements. The Bank’s consent is not required for acquisitions, divestitures, cash dividends or significant investments as long as certain conditions are met. The Bank requires that the Company comply with certain financial covenants at its fiscal year-end and at each of its fiscal quarter-ends. The Credit Agreement includes other terms, covenants and events of default that are customary for a credit facility of its size and nature. As of April 30 and January 31, 2017, the Company was compliant with the financial covenants of its financing arrangements.

 

A commercial bank that supports the activities of TRC has issued an outstanding irrevocable letter of credit on its behalf in the amount of $0.4 million with a current expiration date in January 2018.

 

NOTE 9 — LEGAL MATTERS

 

In the normal course of business, the Company may have pending claims and legal proceedings. It is the opinion of management, based on information available at this time, that there are no current claims and proceedings that could have a material effect on the Company’s condensed consolidated financial statements other than the one discussed below. The material amounts of any legal fees expected to be incurred in connection with legal matters are accrued when such amounts are estimable.

 

On February 1, 2016, TRC was sued in Person County, North Carolina, by a subcontractor, PPS Engineers, Inc. (“PPS”), in an attempt to force TRC to pay invoices for services rendered in the total amount of $2.3 million. PPS has placed liens on the property of the customers where work was performed by PPS and it has also filed a claim against the bond issued on behalf of TRC relating to one significant project located in Tennessee in the amount of $2.5 million. On March 4, 2016, TRC filed responses to the claims of PPS. The positions of TRC are that PPS failed to deliver a number of items required by the applicable contract between the parties and that the invoices rendered by PPS covering the disputed services will not be paid until such deliverables are supplied. Further, TRC maintains that certain sums are owed to it by PPS for services, furniture, fixtures, equipment, and software that were supplied by TRC on behalf of PPS that total approximately $2.2 million. The amounts invoiced by PPS are accrued by TRC and the corresponding liability amount was included in accounts payable in the condensed consolidated balance sheets as of April 30 and January 31, 2017. TRC has not recorded an account receivable for the amounts it believes are owed to it by PPS. A mediation effort was attempted in 2016 but it was unproductive and an impasse was declared.

 

The Company intends to defend against the claim of PPS and to pursue its claims against PPS. Due to the uncertainty of the ultimate outcomes of these legal proceedings, assurance cannot be provided by the Company that TRC will be successful in these efforts. Management does not believe that resolution of the matters discussed above will result in additional loss with material negative effect on the Company’s consolidated operating results in a future reporting period.

 

NOTE 10 — STOCK-BASED COMPENSATION

 

The Company’s board of directors may make awards under its 2011 Stock Plan (the “Stock Plan”) to officers, directors and key employees. Awards may include incentive stock options (“ISOs”) or nonqualified stock options (“NSOs”), and restricted or unrestricted common stock. ISOs granted under the Stock Plan shall have an exercise price per share at least equal to the common stock’s market value per share at the date of grant, shall have a term no longer than ten years, and typically become fully exercisable one year from the date of grant. NSOs may be granted at an exercise price per share that differs from the common stock’s market value per share at the date of grant, may have up to a ten-year term, and typically become exercisable one year from the date of award.

 

As of April 30, 2017, there were 1,124,650 shares of the Company’s common stock reserved for issuance under the Company’s stock option plans (including the Stock Plan and an expired predecessor plan), including 340,000 shares of the Company’s common stock available for future awards under the Stock Plan. At the annual meeting scheduled for June 22, 2017, the stockholders are being requested to approve an amendment to the Stock Plan in order to increase the number of shares of common stock reserved for issuance thereunder by 750,000 shares.

 

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Table of Contents

 

Summaries of activity under the Company’s stock option plans for the three months ended April 30, 2017 and 2016, along with corresponding weighted average per share amounts, are presented below (shares in thousands):

 

 

 

Shares

 

Exercise
Price

 

Remaining
Term (years)

 

Fair Value

 

Outstanding, February 1, 2017

 

707

 

$

39.04

 

7.82

 

$

10.22

 

Granted

 

105

 

$

64.25

 

 

 

 

 

Exercised

 

(27

)

$

31.53

 

 

 

 

 

Outstanding, April 30, 2017

 

785

 

$

42.68

 

7.94

 

$

11.29

 

Exercisable, April 30, 2017

 

485

 

$

28.17

 

6.83

 

$

7.51

 

 

 

 

Shares

 

Exercise
Price

 

Remaining
Term (years)

 

Fair Value

 

Outstanding, February 1, 2016

 

1,064

 

$

26.38

 

6.36

 

$

6.91

 

Granted

 

75

 

$

33.85

 

 

 

 

 

Exercised

 

(22

)

$

18.80

 

 

 

 

 

Outstanding, April 30, 2016

 

1,117

 

$

27.03

 

6.92

 

$

7.08

 

Exercisable, April 30, 2016

 

842

 

$

24.36

 

6.43

 

$

6.41

 

 

The changes in the number of non-vested options to purchase shares of common stock for the three months ended April 30, 2017 and 2016, and the weighted average fair value per share for each number, are presented below (shares in thousands):

 

 

 

Shares

 

Fair Value

 

Non-vested, February 1, 2017

 

270

 

$

14.93

 

Granted

 

105

 

$

16.37

 

Vested

 

(75

)

$

9.01

 

Non-vested, April 30, 2017

 

300

 

$

17.38

 

 

 

 

Shares

 

Fair Value

 

Non-vested, February 1, 2016

 

300

 

$

8.97

 

Granted

 

75

 

$

9.01

 

Vested

 

(100

)

$

8.55

 

Non-vested, April 30, 2016

 

275

 

$

9.13

 

 

Compensation expense amounts related to stock options were $1.1 million and $0.7 million for the three months ended April 30, 2017 and 2016, respectively. At April 30, 2017, there was $3.8 million in unrecognized compensation cost related to outstanding stock options. The Company expects to recognize the compensation expense for these awards over the next twelve months. The total intrinsic values of the stock options exercised during the three months ended April 30, 2017 and 2016 were $1.0 million and $0.3 million, respectively. At April 30, 2017, the aggregate market values of the shares of common stock subject to outstanding and exercisable stock options exceeded the aggregate exercise prices of such options by $18.9 million and $18.7 million, respectively.

 

For companies with limited stock option exercise experience, guidance provided by the SEC permits the use of a “simplified method” in developing the estimate of the expected term of a “plain-vanilla’’ share option based on the average of the vesting period and the option term which the Company used to estimate the expected terms of its stock options. However, the Company believes that its stock option exercise activity, particularly over the last two years, has become sufficient to provide it with a reasonable basis on which to estimate expected lives. Accordingly, the estimated expected life used in the determination of stock options awarded so far in calendar year 2017 was 3.35 years. The simplified method would have resulted in the use of 5.5 years as the estimated expected life of each of these stock options. As a result, the aggregate fair value of this group of stock options was reduced by $1.2 million, or approximately 20%. The effect of the change on the amount of stock option compensation expense recorded during the three months ended April 30, 2017 was a reduction of $0.2 million.

 

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The fair values of each stock option granted in the three-month periods ended April 30, 2017 and 2016 were estimated on the corresponding dates of award using the Black-Scholes option-pricing model based on the following weighted average assumptions:

 

 

 

Three Months Ended April 30,

 

 

 

2017

 

2016

 

Dividend yield

 

1.09

%

2.07

%

Expected volatility

 

35.96

%

34.08

%

Risk-free interest rate

 

1.59

%

1.02

%

Expected life (in years)

 

3.35

 

5.50

 

 

NOTE 11 — INCOME TAXES

 

The Company’s income tax expense amounts for the three months ended April 30, 2017 and 2016 differed from corresponding amounts computed by applying the federal corporate income tax rate of 35% to the amounts of income before income taxes for the periods as shown in the table below.

 

 

 

Three Months Ended April 30,

 

 

 

2017

 

2016

 

Computed expected income tax expense

 

$

11,139

 

$

7,452

 

Increase (decrease) resulting from:

 

 

 

 

 

State income taxes, net of federal tax benefit

 

1,207

 

584

 

Stock option exercises

 

(273

)

 

Domestic production activities deduction

 

(793

)

(667

)

Exclusion of non-controlling interests

 

(43

)

(661

)

Adjustments and other differences

 

(161

)

464

 

 

 

$

11,076

 

$

7,172

 

 

As of April 30 and January 31, 2017, the condensed consolidated balance sheets included accrued income taxes and prepaid income taxes in the amounts of $6.9 million and $3.9 million, respectively. As of April 30, 2017, the Company does not believe that it has any material uncertain income tax positions reflected in its accounts.

 

The income tax effects of temporary differences that gave rise to deferred tax assets and liabilities as of April 30 and January 31, 2017 included the following:

 

 

 

April 30,

 

January 31,

 

 

 

2017

 

2017

 

Assets:

 

 

 

 

 

Net operating loss (“NOL”) carryforwards

 

$

3,478

 

$

3,487

 

Stock options

 

1,935

 

1,594

 

Purchased intangibles

 

1,508

 

1,592

 

Accrued expenses and other

 

1,713

 

2,052

 

 

 

8,634

 

8,725

 

Liabilities:

 

 

 

 

 

Purchased intangibles

 

(4,508

)

(4,428

)

Construction contracts

 

(3,002

)

(2,862

)

Property and equipment and other

 

(2,336

)

(2,389

)

 

 

(9,846

)

(9,679

)

Net deferred tax liabilities

 

$

(1,212

)

$

(954

)

 

The Company’s ability to realize deferred tax assets, including those related to NOLs, depends primarily upon the generation of sufficient future taxable income to allow for the utilization of the Company’s deductible temporary differences and tax planning strategies. If such estimates and assumptions change in the future, the Company may be required to record additional valuation allowances against some or all of its deferred tax assets resulting in additional income tax expense in the condensed consolidated statement of earnings. At this time, based substantially on the strong earnings performance of the Company’s

 

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power industry services reporting segment, management believes that it is more likely than not that the Company will realize the benefits of its deferred tax assets.

 

The Company is subject to income taxes in the United States of America, the Republic of Ireland and in various other state and foreign jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. The Company is no longer subject to income tax examinations by tax authorities for its fiscal years ended on or before January 31, 2013 except for a few notable exceptions including the Republic of Ireland and California where the open periods are one year longer.

 

NOTE 12 — EARNINGS PER SHARE ATTRIBUTABLE TO THE STOCKHOLDERS OF ARGAN, INC.

 

Reconciliations of weighted average basic shares outstanding to weighted average diluted shares outstanding and the computations of basic and diluted earnings per share for the three months ended April 30, 2017 and 2016 are as follows (shares in thousands):

 

 

 

Three Months Ended April 30,

 

 

 

2017

 

2016

 

 

 

 

 

 

 

Net income attributable to the stockholders of Argan, Inc.

 

$

20,625

 

$

12,230

 

 

 

 

 

 

 

Weighted average number of shares outstanding - basic

 

15,467

 

14,842

 

Effect of stock options (1)

 

304

 

213

 

Weighted average number of shares outstanding - diluted

 

15,771

 

15,055

 

Net income per share attributable to the stockholders of Argan, Inc.

 

 

 

 

 

Basic

 

$

1.33

 

$

0.82

 

Diluted

 

$

1.31

 

$

0.81

 

 


(1)   The numbers of antidilutive shares excluded from the diluted earnings per share computations were not material for the three months ended April 30, 2017 and 2016.

 

NOTE 13 — CONCENTRATIONS OF REVENUES AND ACCOUNTS RECEIVABLE

 

During the three months ended April 30, 2017 and 2016, the majority of the Company’s consolidated revenues related to performance by the power industry services segment which provided 91% and 83% of consolidated revenues for the three months ended April 30, 2017 and 2016, respectively. The Company’s significant customer relationships for the three months ended April 30, 2017 included four power industry service customers which accounted for approximately 29%, 21%, 21% and 18% of consolidated revenues, respectively. The Company’s significant customer relationships for the three months ended April 30, 2016 included five customers which accounted for approximately 18%, 15%, 15%, 12% and 10% of consolidated revenues, respectively.

 

Accounts receivable balances from four major customers as of April 30, 2017 represented 18%, 17%, 15% and 12% of the corresponding condensed consolidated balance as of April 30, 2017, and accounts receivable balances from four major customers represented 18%, 17%, 17% and 11% of the corresponding consolidated balance as of January 31, 2017.

 

NOTE 14 — SEGMENT REPORTING

 

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The Company’s reportable segments, power industry services, industrial fabrication and field services, and telecommunications infrastructure services, are organized in separate business units with different management teams, customers, technologies and services, and may include more than one operating segment. The intersegment revenues of our operations, and the related cost of revenues, are netted against the corresponding amounts of the segment receiving the intersegment services. For the three months ended April 30, 2017, intersegment revenues totaled approximately $1.7 million; the amount was not material for the three months ended April 30, 2016. Intersegment revenues for the aforementioned periods primarily related to services provided by our industrial fabrication and field services segment to our power industry services segment.

 

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Presented below are summarized operating results and certain financial position data of the Company’s reportable business segments for the three months ended April 30, 2017 and 2016. The “Other” columns include the Company’s corporate and unallocated expenses.

 

April 30, 2017

 

Power
Services

 

Industrial
Services

 

Telecom
Services

 

Other

 

Totals

 

Revenues

 

$

210,789

 

$

16,571

 

$

3,129

 

$

 

$

230,489

 

Cost of revenues

 

173,248

 

14,741

 

2,404

 

 

190,393

 

Gross profit

 

37,541

 

1,830

 

725

 

 

40,096

 

Selling, general and administrative expenses

 

5,205

 

1,645

 

313

 

2,326

 

9,489

 

Income (loss) from operations

 

32,336

 

185

 

412

 

(2,326

)

30,607

 

Other income, net

 

1,169

 

 

 

49

 

1,218

 

Income (loss) before income taxes

 

$

33,505

 

$

185

 

$

412

 

$

(2,277

)

31,825

 

Income tax expense

 

 

 

 

 

 

 

 

 

11,076

 

Net income

 

 

 

 

 

 

 

 

 

 

$

20,749

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of intangibles

 

$

87

 

$

96

 

$

 

$

 

$

183

 

Depreciation

 

170

 

335

 

64

 

3

 

572

 

Property, plant and equipment additions

 

12

 

1,694

 

155

 

2

 

1,863

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

$

522,871

 

$

18,306

 

$

4,032

 

$

98,462

 

$

643,671

 

Current liabilities

 

372,849

 

9,865

 

1,728

 

237

 

384,679

 

Goodwill

 

20,548

 

14,365

 

 

 

34,913

 

Total assets

 

552,134

 

52,358

 

5,149

 

100,285

 

709,926

 

 

April 30, 2016

 

Power
Services

 

Industrial
Services

 

Telecom
Services

 

Other

 

Totals

 

Revenues

 

$

108,099

 

$

20,410

 

$

1,839

 

$

 

$

130,348

 

Cost of revenues

 

83,698

 

16,988

 

1,360

 

 

102,046

 

Gross profit

 

24,401

 

3,422

 

479

 

 

28,302

 

Selling, general and administrative expenses

 

3,234

 

1,633

 

327

 

1,853

 

7,047

 

Income (loss) from operations

 

21,167

 

1,789

 

152

 

(1,853

)

21,255

 

Other income, net

 

14

 

 

 

23

 

37

 

Income (loss) before income taxes

 

$

21,181

 

$

1,789

 

$

152

 

$

(1,830

)

21,292

 

Income tax expense

 

 

 

 

 

 

 

 

 

7,172

 

Net income

 

 

 

 

 

 

 

 

 

$

14,120

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of intangibles

 

$

147

 

$

174

 

$

 

$

 

$

321

 

Depreciation

 

132

 

258

 

41

 

3

 

434

 

Property, plant and equipment additions

 

184

 

22

 

39

 

 

245

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

$

287,474

 

$

23,346

 

$

5,502

 

$

83,794

 

$

400,116

 

Current liabilities

 

199,538

 

16,045

 

803

 

1,960

 

218,346

 

Goodwill

 

22,526

 

14,287

 

 

 

36,813

 

Total assets

 

318,248

 

57,613

 

6,073

 

86,045

 

467,979

 

 

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Table of Contents

 

NOTE 15 — SUBSEQUENT EVENT

 

On May 15, 2017, Argan and certain of its subsidiaries entered into the Credit Agreement with the Bank which replaced a predecessor arrangement by modifying its terms to, among other things:

 

·        increase the Bank’s commitment amount from $10 million to $50 million including a revolving loan with interest at the 30-day LIBOR plus 2.00%;

·        add an accordion feature which allows for an additional commitment amount of $10 million, subject to certain conditions; and  

·        extend the maturity date three years from May 31, 2018 to May 31, 2021, which effectively provides for a four-year credit commitment.

 

Note 8 to the condensed consolidated financial statements describes additional features of the Credit Agreement.

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion summarizes the financial position of Argan, Inc. and its subsidiaries as of April 30, 2017, and the results of their operations for the three months ended April 30, 2017 and 2016, and should be read in conjunction with (i) the unaudited condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q and (ii) the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2017 that was filed with the SEC on April 11, 2017.

 

Cautionary Statement Regarding Forward Looking Statements

 

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for certain forward-looking statements. We have made statements in this Item 2 and elsewhere in this Quarterly Report on Form 10-Q that may constitute “forward-looking statements.” The words “believe,” “expect,” “anticipate,” “plan,” “intend,” “foresee,” “should,” “would,” “could,” or other similar expressions are intended to identify forward-looking statements. These forward-looking statements are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we anticipate. All comments concerning our expectations for future revenues and operating results are based on our forecasts for our existing operations and do not include the potential impact of any future acquisitions. Our forward-looking statements, by their nature, involve significant risks and uncertainties (some of which are beyond our control) and assumptions. They are subject to change based upon various factors including, but not limited to, the risks and uncertainties described in Item 1A of Part II of this Quarterly Report on Form 10-Q and Item 1A of Part I of our Annual Report on Form 10-K for the year ended January 31, 2017. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in the forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

Business Description

 

Argan, Inc. is a holding company that conducts operations through its wholly-owned subsidiaries, GPS, APC, SMC and TRC. Through GPS and APC, we provide a full range of engineering, procurement, construction, commissioning, operations management, maintenance, development, technical and consulting services to the power generation and renewable energy markets for a wide range of customers including independent power project owners, public utilities, power plant equipment suppliers and global energy plant construction firms. GPS, including its consolidated joint ventures and any variable interest entities, and APC represent our power industry services reportable segment. Through TRC, the industrial fabrication and field services reportable segment provides on-site services that support maintenance turnarounds, shutdowns and emergency mobilizations for industrial plants primarily located in the southern United States and that are based on its expertise in producing, delivering and installing fabricated steel components such as pressure vessels, heat exchangers and piping systems. Through SMC, now conducting business as SMC Infrastructure Solutions, the telecommunications infrastructure services segment provides project management, construction, installation and maintenance services to commercial, local government and federal government customers primarily in the mid-Atlantic region.

 

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At the holding company level, we intend to make additional acquisitions and/or investments by identifying companies with significant potential for profitable growth. We may have more than one industrial focus. We expect that companies acquired in each of these industrial groups will be held in separate subsidiaries that will be operated in a manner that best provides cash flows and value for our stockholders.

 

Overview

 

Highlights of our financial performance for the three months ended April 30, 2017 included the following:

 

·                  Revenues increased 77% to $230.5 million for the three months ended April 30, 2017 as compared to $130.3 million for the corresponding prior year quarter.

 

·                  Gross profit increased 42% to $40.1 million for the current quarter as compared to $28.3 million for the three months ended April 30, 2016. Our gross profit percentage leveled off at 17.4% for the three months ended April 30, 2017 as compared to 21.7% for the corresponding prior year quarter.

 

·                  Net income attributable to the stockholders of Argan increased 69% to $20.6 million for the three months ended April 30, 2017 as compared to $12.2 million for the comparable prior year quarter.

 

·                  EBITDA(1) attributable to the stockholders of Argan increased 61% to $32.5 million for the three months ended April 30, 2017 as compared to $20.2 million for the corresponding prior year quarter.

 

·                  Our tangible net worth(2) increased 9% to $271.4 million as of April 30, 2017 from $248.5 million as of January 31, 2017.

 

·                  Our liquidity, or working capital(3), increased 9% to $259.0 million as of April 30, 2017 from $237.2 million as of January 31, 2017.

 


(1)         EBITDA is a measure not recognized under generally accepted accounting principles in the United States. We have defined EBITDA as earnings before interest, taxes, depreciation and amortization.

(2)            We define tangible net worth as our total stockholders’ equity less goodwill and intangible assets, net.

(3)            We define working capital as our total current assets less our total current liabilities.

 

Execution on Contract Backlog

 

Contract backlog represents the total accumulated value of projects awarded less the amounts of revenues recognized to date on those contracts at a specific point in time. We believe contract backlog is an indicator of future revenues and earnings potential. Although contract backlog reflects business that we consider to be firm, cancellations or reductions may occur and may reduce contract backlog and our expected future revenues. At April 30, 2017, our total contract backlog was approximately $0.9 billion. Our total contract backlog as of January 31, 2017 was approximately $1.0 billion. The following table summarizes our large EPC power plant projects:

 

Current Project

 

Location

 

Size of
Facility

 

Date FNTP
Received(1)

 

Scheduled
Completion

Caithness Moxie Freedom Generating Station

 

Pennsylvania

 

1,040 MW

 

November 2015

 

2018

CPV Towantic Energy Center

 

Connecticut

 

785 MW

 

March 2016

 

2018

NTE Middletown Energy Center

 

Ohio

 

475 MW

 

October 2015

 

2018

NTE Kings Mountain Energy Center

 

North Carolina

 

475 MW

 

March 2016

 

2018

Exelon West Medway II Facility

 

Massachusetts

 

200 MW

 

April 2017

 

(2)

 


(1)         Full Notice to Proceed (“FNTP”) represents the formal notice provided by the project owner instructing us to commence the activities covered by the corresponding EPC contract without limitation.

 

(2)         The scheduled completion date is subject to certain activities occurring prior to it being established.

 

The first four EPC projects identified in the chart above were the most significant drivers of our financial results for the three months ended April 30, 2017. Work has proceeded smoothly on these jobs which together represented approximately 89% of our consolidated revenues for the quarter. During the current quarter, we received from the project owner the full notice to proceed, subject to certain site and other restrictions, with activities under the turnkey EPC contract to build the dual-fuel, simple cycle power plant in Medway, Massachusetts. The new facility will feature two 100 MW combustion turbine

 

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Table of Contents

 

generators with state-of-the-art noise mitigating improvements. In May 2017, APC announced that it has received from Técnicas Reunidas, S.A. (“TR”) a contract for the erection of a 299 MW biomass boiler at the TeesREP Biomass Power Station located in Teesside, near the northeast coast of England. Work is anticipated to begin this summer with completion scheduled in 2019. TR is a leading Spain-based global general contractor. However, despite these positive developments, we believe that the uncertainty surrounding the U.S. administration and the outlook for coal as part of the energy mix, a sustained future rise in natural gas prices that may give a short-term boost to coal-fired power generation and recent disappointing energy auctions for new power generating assets may be impacting the planning and initiation phases for the construction of new power plants which are being delayed by project owners.

 

Outlook

 

Our industry has not fully recovered from the recessionary decline in the demand for power in the United States. For both calendar years 2016 and 2015, the total amount of electricity generated in the United States was approximately 98% of the peak power generation level of 2007. Total electric power generation from all sources has decreased slightly during three of the last five years, with only a slight increase in 2016. Government forecasts project an annual increase in power generation of less than 1% per year for the next 25 years.

 

For calendar year 2016, the number of megawatt hours of electricity generated from natural gas increased by 3.5% from the prior year and reached an all-time annual high. The number of megawatt hours provided by coal-fired plants declined by 8.3% in 2016 compared to the amount of power provided in 2015. For the third and fourth quarters of calendar 2015, the share of total electrical power generated by natural gas-fired plants exceeded the share provided by coal-fired power plants for the first two times. For 2016, the monthly amount of electricity generated by natural gas-fired power plants exceeded the corresponding monthly amounts provided by coal-fired power plants in ten of the twelve months. As predicted last year, natural gas overtook coal as the leading source of power generation in the United States in 2016. According to data released by the U.S. Energy Information Administration, natural gas was the source of 33.8% of the electrical power generated in the United States for 2016; coal was 30.4%. The overall age of the power generation fleet in our country has changed. Since the turn of the century, more than 53 GW of coal-fired capacity has been retired, most of which were older, smaller, inefficient coal-fired power plants. A nearly equal amount of older and smaller gas-fired generation capacity has been retired as well. Almost 5 GW of nuclear capacity has been retired over the last four years. The future of new nuclear power plant construction has been further clouded with the recent bankruptcy of Westinghouse, one of the few major nuclear providers of fuel, services, technology, plant design and equipment. Today, most of the natural gas fleet and almost all of the wind and solar power generation capacity has been built since 2000. During 2016, wind, solar and natural gas represented more than 93% of the utility-scale power generation capacity added to the power grid in the United States. Most of the operating coal-fired plants are over twenty-five years old.

 

Current projections of future power generation assume the sustained increase in domestic natural gas production, which should lead to stable natural gas prices continuing into the future. The availability of competitively priced natural gas, the significant increases in the efficiency of combined cycle power plants, the existence of certain programs encouraging renewable fuel use, and the implementation of a series of environmental rules, primarily directed toward the reductions of air pollution and the emissions of greenhouse gases, should further reduce future coal use and continue to increase the shares of the power generation mix represented by natural gas-fired power plants, wind farms and solar fields. Recent forecasting has predicted that even without the implementation of the Clean Power Plan, natural gas and renewable energy sources will still be the top choices for new electricity generation plants in the future due to low natural gas prices in the United States. Announcements by electric utilities of the retirement of coal-fired and nuclear power plants continue, citing the availability of cheap natural gas, existing environmental regulations and the significant costs of refurbishment and relicensing. The retirements of coal and nuclear plants typically result in the need for new capacity, and new natural gas-fired plants are relatively cheaper to build than coal, nuclear, or renewable plants, they are substantially more environmentally friendly than conventional coal-fired power plants, and they represent the most economical way to meet base loads and peak demands.

 

We continue to believe that the future prospects for natural gas-fired power plant construction are favorable as natural gas has become the primary source for power generation in the United States. Major advances in horizontal drilling and the practice of hydraulic fracturing have led to the boom in natural gas supply. The abundant availability of cheap, less carbon-intense and higher efficiency natural gas should continue to be a significant factor in the economic assessment of future power generation capacity additions. As indicated above, the demand for electric power in this country is expected to grow slowly but steadily over the long term. Demands for electricity, the ample supply of natural gas, and the continuing retirement of inefficient and old coal and nuclear energy plants, should result in natural gas-fired and renewable energy plants, like wind, biomass and solar, representing the substantial majority of new power generation additions in the future and an increased share of the power generation mix. A construction industry forecast recently predicted that the growth of activity in the power sector of the

 

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industry will be slow but steady over the next four years (the forecast horizon for this particular report). In summary, the development of natural gas-fired and renewable power generation facilities in the United States should continue to provide construction opportunities for us, although the pace of new opportunities emerging may decrease in the near term in reaction to moderate natural gas price increases. We are also encouraged by the results of the business development activities conducted by APC since its acquisition by us that are leading to new power industry construction opportunities outside of this country.

 

We have been successful in the effective and efficient completion of our EPC and other projects and the control of costs while we pursue new construction business opportunities. Despite the intensely competitive business environment, we are committed to the rational pursuit of new construction projects which may result in our decision to make investments in the ownership of new projects, at least during the corresponding development phase. Because we believe in the strength of our balance sheet, we are willing to consider certain opportunities that include reasonable and manageable risks in order to assure the award of the related EPC contract to us.

 

With a growing reputation as an accomplished and cost-effective provider of EPC contracting services and with the proven ability to deliver completed power facilities, particularly combined-cycle, natural gas-fired power plants, we are focused on expanding our position in the power markets where we expect investments to be made based on forecasts of electricity demand covering decades into the future. The EPC contract approach preferred by us is an accepted industry practice, particularly in the United States. It provides project owners with an end-to-end power plant construction solution by putting nearly all aspects and phases of a project under a single contract.

 

We believe that our expectations are reasonable and that our future plans continue to be based on reasonable assumptions. Our performance on current projects should provide a stable base of business activity for the next two fiscal years as we pursue new opportunities that should continue to emerge for all of our businesses.

 

Comparison of the Results of Operations for the Three Months Ended April 30, 2017 and 2016

 

We reported net income attributable to our stockholders of $20.6 million, or $1.31 per diluted share, for the three months ended April 30, 2017. For the three months ended April 30, 2016, we reported a comparable net income amount of $12.2 million, or $0.81 per diluted share. The following schedule compares our operating results for the three months ended April 30, 2017 and 2016 (dollars in thousands).

 

 

 

Three Months Ended April 30,

 

 

 

2017

 

2016

 

$ Change

 

% Change

 

REVENUES

 

 

 

 

 

 

 

 

 

Power industry services

 

$

210,789

 

$

108,099

 

$

102,690

 

95.0

%

Industrial fabrication and field services

 

16,571

 

20,410

 

(3,839

)

(18.8

)

Telecommunications infrastructure services

 

3,129

 

1,839

 

1,290

 

70.1

 

Revenues

 

230,489

 

130,348

 

100,141

 

76.8

 

COST OF REVENUES

 

 

 

 

 

 

 

 

 

Power industry services

 

173,248

 

83,698

 

89,550

 

107.0

 

Industrial fabrication and field services

 

14,741

 

16,988

 

(2,247

)

(13.2

)

Telecommunications infrastructure services

 

2,404

 

1,360

 

1,044

 

76.8

 

Cost of revenues

 

190,393

 

102,046

 

88,347

 

86.6

 

GROSS PROFIT

 

40,096

 

28,302

 

11,794

 

41.7

 

Selling, general and administrative expenses

 

9,489

 

7,047

 

2,442

 

34.7

 

INCOME FROM OPERATIONS

 

30,607

 

21,255

 

9,352

 

44.0

 

Other income, net

 

1,218

 

37

 

1,181

 

3,191.9

 

INCOME BEFORE INCOME TAXES

 

31,825

 

21,292

 

10,533

 

49.5

 

Income tax expense

 

11,076

 

7,172

 

3,904

 

54.4

 

NET INCOME

 

20,749

 

14,120

 

6,629

 

46.9

 

Net income attributable to noncontrolling interests

 

124

 

1,890

 

(1,766

)

(93.4

)

NET INCOME ATTRIBUTABLE TO THE STOCKHOLDERS OF ARGAN, INC.

 

$

20,625

 

$

12,230

 

$

8,395

 

68.6

%

 

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Revenues

 

Power Industry Services

 

The revenues of the power industry services business increased by 95%, or $102.7 million, to $210.8 million for the three months ended April 30, 2017 compared with revenues of $108.1 million for the three months ended April 30, 2016. The revenues of this business represented approximately 91% of consolidated revenues for the current quarter, and approximately 83% of consolidated revenues for the prior year quarter. The current quarter increase in revenues for the power industry services segment reflected primarily the ramped-up construction activities of four EPC projects, which represented approximately 89% of consolidated revenues for the current quarter. The percent complete for these four projects ranged from 42% to 66% as of April 30, 2017, with all four jobs scheduled to be completed during the fiscal year ending January 31, 2019. Last year, the combined revenues associated with these four gas-fired power plant projects that were all in their early phases represented approximately 52% of consolidated revenues for the first quarter. Construction activity related to two other natural-gas fired power plant projects that were completed later in the year represented 26% of consolidated revenues for the three months ended April 30, 2016.

 

Industrial Fabrication and Field Services

 

The revenues of the industrial fabrication and field services business decreased by 19%, or $3.8 million, to $16.6 million for the three months ended April 30, 2017 compared with revenues of $20.4 million for the three months ended April 30, 2016. The largest portion of TRC’s revenues continue to be provided by industrial field services, and TRC’s major customers include some of North America’s largest forest products companies and large fertilizer producers. Approximately 36% of the revenues of TRC for the three months ended April 2016 related to three large loss projects with former customers that were in-process on the date of our acquisition of TRC, and completed last year.

 

Telecommunications Infrastructure Services

 

The revenues of this business segment increased by approximately 70% for the current quarter compared with the corresponding period last year as SMC has been successful in increasing the revenues related to both outside premises and inside premises projects.

 

Cost of Revenues

 

Due primarily to the substantial increase in consolidated revenues for the three months ended April 30, 2017 compared with last year’s first quarter, the corresponding consolidated cost of revenues also increased. These costs were $190.4 million and $102.0 million for the three months ended April 30, 2017 and 2016, respectively. Gross profit amounts for the corresponding three months ended were $40.1 million and $28.3 million, respectively. Our overall gross profit percentage of 17.4% of consolidated revenues was lower in the current quarter compared to a percentage of 21.7% for the prior year quarter, which primarily reflected the completion last year of two natural-gas fired power plants and the current year construction activities for four newer natural-gas fired power plants of GPS. The gross profit percentage of the combined revenues of TRC, APC and SMC declined slightly between the periods.

 

Selling, General and Administrative Expenses

 

These costs were $9.5 million and $7.0 million for the three months ended April 30, 2017 and 2016, respectively, representing approximately 4.1% and 5.4% of consolidated revenues for the corresponding periods, respectively. Approximately 71% of the $2.4 million increase between the quarters was incurred by GPS reflecting increased incentive compensation costs and salaries expense. In addition, stock option compensation expense for the three months ended April 30, 2017 increased by approximately $0.5 million between the quarters, driven primarily by the increased market price of our common stock.

 

Income Tax Expense

 

For the quarter ended April 30, 2017, we recorded income tax expense of $11.1 million reflecting an estimated annual effective income tax rate of approximately 36.4% (before the tax effect of discrete items for the current quarter). This rate differed from the expected federal income tax rate of 35% due primarily to the estimated unfavorable effect of state income taxes, offset substantially by the domestic production activities deduction.

 

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Table of Contents

 

For the three months ended April 30, 2016, we recorded income tax expense of $7.2 million reflecting an estimated annual effective income tax rate of approximately 34.1%. This rate differed from the expected federal income tax rate of 35% due primarily to the favorable permanent effects of the domestic production activities deduction and the exclusion of income attributable to our joint venture partner from our taxable income, offset substantially by the unfavorable effect of state income taxes. As the joint ventures are treated as partnerships for income tax reporting purposes, we report only our share of the taxable income of the entities.

 

Net Income Attributable to Non-controlling Interests

 

As discussed in Note 3 to the accompanying condensed consolidated financial statements, we entered separate construction joint ventures related to two power plant construction projects. Because we have financial control, the joint ventures are included in our condensed consolidated financial statements. Our joint venture partner’s share of the earnings is reflected in the line item net income attributable to non-controlling interests of the accompanying statements of earnings for the three months ended April 30, 2017 and 2016 in the amounts of $0.1 million and $1.9 million, respectively. The reduction in the amount between quarters primarily reflects the contractual completion of the projects last year. Current year activity relates to the completion of final project close-out tasks.

 

Liquidity and Capital Resources as of April 30, 2017

 

As of April 30 and January 31, 2017, our balances of cash and cash equivalents were $167.3 million and $167.2 million, respectively. During this same period, our working capital increased by $21.8 million to $259.0 million as of April 30, 2017 from $237.2 million as of January 31, 2017.

 

The net amount of cash provided by operating activities for the three months ended April 30, 2017 was $41.0 million as net income for the current quarter, including the favorable adjustments related to noncash expense items, provided cash in the total amount of $22.5 million. We also experienced net increases during the current quarter in the amounts of billings on current projects, that temporarily exceed the corresponding amounts of costs and estimated earnings, and accounts payable and accrued expenses, which represented sources of cash in the amounts of $23.9 million and $12.7 million, respectively. On the other hand, primarily due to increasing project owner retainage amounts on current EPC contracts, accounts receivable increased during the three months ended April 30, 2017, which represented a use of cash in the amount of $16.4 million.

 

Our primary use of this cash during the three months ended April 30, 2017 was the net purchase of short-term investments (CDs issued by our Bank) in the amount of $40.0 million. We also used cash during the current period in the amount of $1.9 million for capital expenditures by the operating subsidiaries. During the three months ended April 30, 2017, the exercise of options to purchase 27,500 shares of our common stock provided us with cash proceeds in the approximate amount of $0.9 million.

 

During the three months ended April 30, 2016, our combined balance of cash and cash equivalents increased by $30.5 million to $191.4 million as of April 30, 2016 from a balance of $160.9 million as of January 31, 2016. During this same period, our working capital increased by $18.9 million to $181.8 million as of April 30, 2016 from $162.9 million as of January 31, 2016. Net income for the three months ended April 30, 2016, including the favorable adjustments related to noncash expense items, provided cash in the total amount of $17.3 million. Primarily due to these factors, the net amount of cash provided by operating activities for the three months ended April 30, 2016 was $43.7 million. Our primary use of this cash during last year’s first quarter was the net purchase of short-term investments in the amount of $14.0 million.

 

On May 15, 2017, Argan entered into the Credit Agreement with the Bank as the lender, which replaced a predecessor agreement by modifying its features to, among other things:

 

·                  increase the Bank’s commitment amount from $10 million to $50 million including a revolving loan with interest at the 30-day LIBOR plus 2.00%;

·                  add an accordion feature which allows for an additional commitment amount of $10 million, subject to certain conditions; and

·                  extend the maturity date three years from May 31, 2018 to May 31, 2021, which effectively provides for a four-year credit commitment.

 

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As with the predecessor agreement, the Company has pledged the majority of its assets to secure the financing arrangements. The Bank’s consent is not required for acquisitions, divestitures, cash dividends or significant investments as long as certain conditions are met. The Bank will continue to require that the Company comply with certain financial covenants at its fiscal year-end and at each of its fiscal quarter-ends. The Credit Agreement includes other terms, covenants and events of default that are customary for a credit facility of its size and nature. As of April 30, 2017 and January 31, 2017, the Company was compliant with the financial covenants of the predecessor agreement. The Company may use the borrowing ability to cover other credit issued by the Bank for the Company’s use in the ordinary course of business. Prior to the Credit Agreement, the Company had $5.9 million of credit outstanding under its predecessor arrangement. A different commercial bank that supports the activities of TRC has issued an outstanding irrevocable letter of credit on its behalf in the amount of $0.4 million with a current expiration date in January 2018.

 

At April 30, 2017, most of our balance of cash and cash equivalents was invested in a high-quality money market fund with at least 80% of its net assets invested in U.S. Treasury obligations and repurchase agreements secured by U.S. Treasury obligations. Most of our domestic operating bank accounts are maintained with the Bank. The Company does maintain certain Euro-based bank accounts in the Republic of Ireland and insignificant bank accounts in other countries in support of the operations of APC.

 

We believe that cash on hand, cash that will be provided from the maturities of short-term investments and cash generated from our future operations, with or without funds available under our line of credit, will be adequate to meet our general business needs in the foreseeable future. Any future acquisitions, or other significant unplanned cost or cash requirement, may require us to raise additional funds through the issuance of debt and/or equity securities. There can be no assurance that such financing will be available on terms acceptable to us, or at all.

 

Earnings before Interest, Taxes, Depreciation and Amortization (Non-GAAP Measurement)

 

The following tables present the determinations of earnings before interest, taxes, depreciation and amortization (“EBITDA”) for the three months ended April 30, 2017 and 2016, respectively (amounts in thousands).

 

 

 

Three Months Ended April 30,

 

 

 

2017

 

2016

 

Net income, as reported

 

$

20,749

 

$

14,120

 

Income tax expense

 

11,076

 

7,172

 

Depreciation

 

572

 

434

 

Amortization of purchased intangible assets

 

183

 

321

 

EBITDA

 

32,580

 

22,047

 

Non-controlling interest -

 

 

 

 

 

Net income

 

124

 

1,890

 

EBITDA of non-controlling interests

 

124

 

1,890

 

EBITDA attributable to the stockholders of Argan, Inc.

 

$

32,456

 

$

20,157

 

 

As we believe that our net cash flow provided by operations is the most directly comparable performance measure determined in accordance with generally accepted accounting principles in the United States (“US GAAP”), the following table reconciles the amounts of EBITDA for the applicable periods, as presented above, to the corresponding amounts of net cash flows provided by operating activities that are presented in our condensed consolidated statements of cash flows for the three months ended April 30, 2017 and 2016 (amounts in thousands).

 

 

 

Three Months Ended April 30,

 

 

 

2017

 

2016

 

EBITDA

 

$

32,580

 

$

22,047

 

Current income tax expense

 

(10,813

)

(5,275

)

Stock option compensation expense

 

1,112

 

659

 

Other noncash items

 

(382

)

(128

)

Increase in accounts receivable

 

(16,428

)

(6,713

)

Increase in billings in excess of costs and estimated earnings, net

 

23,938

 

28,758

 

Increase in prepaid expenses and other assets

 

(1,773

)

(1,408

)

Increase in accounts payable and accrued expenses

 

12,730

 

5,786

 

Net cash provided by operating activities

 

$

40,964

 

$

43,726

 

 

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We believe that EBITDA is a meaningful presentation that enables us to assess and compare our operating cash flow performance on a consistent basis by removing from our operating results the impacts of our capital structure, the effects of the accounting methods used to compute depreciation and amortization and the effects of operating in different income tax jurisdictions. Further, we believe that EBITDA is widely used by investors and analysts as a measure of performance.

 

As EBITDA is not a measure of performance calculated in accordance with US GAAP, we do not believe that this measure should be considered in isolation from, or as a substitute for, the results of our operations presented in accordance with US GAAP that are included in our condensed consolidated financial statements. In addition, our EBITDA does not necessarily represent funds available for discretionary use and is not necessarily a measure of our ability to fund our cash needs.

 

Critical Accounting Policies

 

We consider the accounting policies related to revenue recognition on long-term construction contracts; the accounting for business combinations, the subsequent valuation of goodwill, other indefinite-lived assets and long-lived assets; the valuation of employee stock options; income tax reporting and the financial reporting associated with any significant legal matters to be most critical to the understanding of our financial position and results of operations, as well as the accounting and reporting for special purpose entities including joint ventures and variable interest entities. Critical accounting policies are those related to the areas where we have made what we consider to be particularly subjective or complex judgments in making estimates and where these estimates can significantly impact our financial results under different assumptions and conditions.

 

These estimates, judgments, and assumptions affect the reported amounts of assets, liabilities and equity and disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting periods. We base our estimates on historical experience and various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets, liabilities and equity that are not readily apparent from other sources. Actual results and outcomes could differ from these estimates and assumptions.

 

An expanded discussion of our critical accounting policies is included in Item 7 of Part II of our Annual Report on Form 10-K for the year ended January 31, 2017. During the three-month period ended April 30, 2017, there have been no material changes in the way we apply the critical accounting policies described therein.

 

Recently Issued Accounting Pronouncements

 

Note 2 to the accompanying condensed consolidated financial statements presents descriptions of pending accounting pronouncements issued by the Financial Accounting Standards Board (the “FASB”) that are relevant to our future financial reporting. These include Accounting Standard Update (“ASU”) 2014-09, Revenue from Contracts with Customers, which was issued in May 2014 and which has been amended multiple times, and ASU 2016-02, Leases, which was issued in February 2016. ASU 2014-09 represents an effort to create a new, principle-based revenue recognition framework for all companies that will be adopted by us on February 1, 2018. ASU 2016-02, which will be adopted by us on February 1, 2019, will require the recognition on the balance sheet of all operating leases with terms greater than one year.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

In the normal course of business, our results of operations may be subject to risks related to fluctuations in interest rates. As of April 30, 2017, we had no outstanding borrowings under our financing arrangements with Bank of America (see Note 8 to the accompanying condensed consolidated financial statements), which now provide a revolving loan with a maximum borrowing amount of $50 million that is available until May 31, 2021 with interest at LIBOR plus 2.00%. As of April 30, 2017, our balance of short-term investments, which consisted entirely of CDs, was $395 million (excluding accrued interest) with a weighted average initial maturity term of 198 days. This exposes us to a certain amount of risk should interest rates suddenly rise. However, we believe that this risk is minimal, and mitigated somewhat by the manner in which we have scheduled the future maturity dates. As of April 30, 2017, the weighted average interest rate on our short-term investments was 1.17%.

 

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Table of Contents

 

The accompanying condensed consolidated financial statements are presented in US Dollars. The financial results reported by APC and included in our consolidated financial statements are affected by foreign currency volatility. The effects of translating the financial statements of APC from its functional currency (Euros) into the Company’s reporting currency (US Dollars) are recognized as translation adjustments in accumulated other comprehensive income (loss). When the US Dollar appreciates against the Euro, the reported assets, liabilities, revenues, costs and earnings of APC, after translation into US Dollars, are lower than what they would have been had the US Dollar depreciated against the Euro or if there had been no change in the exchange rates. During the three-month period ended April 30, 2017, the US Dollar depreciated against the Euro. We generally do not hedge our exposure to potential foreign currency translation adjustments.

 

Another form of exposure to fluctuating exchange rates relates to the effects of transacting in currencies other than those of our entity’s functional currencies. We do not engage in currency speculation, and we do not utilize foreign currency exchange rate derivatives on an ongoing basis to hedge against certain foreign currency related operating exposures. The net foreign currency transaction gains and losses for the three months ended April 30, 2017 was insignificant.

 

In addition, we are subject to fluctuations in prices for commodities including copper, concrete, steel products and fuel. Although we attempt to secure firm quotes from our suppliers, we generally do not hedge against increases in prices for copper, concrete, steel and fuel. Commodity price risks may have an impact on our results of operations due to the fixed-price nature of many of our contracts. We attempt to include the anticipated amounts of price increases in the costs of our bids.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of disclosure controls and procedures. Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”) as of April 30, 2017. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of April 30, 2017, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

 

Changes in internal controls over financial reporting. There have been no significant changes in our internal control over financial reporting (as defined in Rules 13a-15 and 15d-15 under the Exchange Act) during the fiscal quarter ended April 30, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II

 

ITEM 1.   LEGAL PROCEEDINGS

 

Included in Note 9 to the condensed consolidated financial statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q is a discussion of specific legal proceedings for the three-month period ended April 30, 2017. In the normal course of business, the Company may have other pending claims and legal proceedings. It is our opinion, based on information available at this time, that any other current claim or proceeding will not have a material effect on our condensed consolidated financial statements.

 

ITEM 1A.   RISK FACTORS

 

Investing in our securities involves a high degree of risk. Our business, financial position and future results of operations may be impacted in a materially adverse manner by risks associated with the execution of our strategic plan and the creation of a profitable and cash-flow positive business in a period of weak recovery from a significant economic recession and major disruptions in the financial markets, our ability to obtain capital or to obtain capital on terms acceptable to us, the successful integration of acquired companies into our consolidated operations, our ability to successfully manage diverse operations remotely located, our ability to successfully compete in highly competitive industries, the successful resolution of ongoing litigation and disagreements with customers, our dependence upon key managers and employees and our ability to retain them, potential fluctuations in quarterly operating results and a series of risks associated with our power industry services business, among other risks.

 

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Table of Contents

 

Before investing in our securities, please consider these and other risks more fully described in our Annual Report on Form 10-K for the year ended January 31, 2017. There have been no material revisions to the risk factors that are described therein. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in any forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

Our future results may also be impacted by other risk factors listed from time to time in our future filings with the SEC, including, but not limited to, our Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and Annual Reports on Form 10-K. These documents are available free of charge from the SEC or from our corporate headquarters. Access to these documents is also available on our website. For more information about us and the announcements we make from time to time, you may visit our website at www.arganinc.com.

 

ITEM 2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None

 

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

 

None

 

ITEM 4.   MINE SAFETY DISCLOSURES (not applicable to us)

 

ITEM 5.   OTHER INFORMATION

 

None

 

ITEM 6.   EXHIBITS

 

Exhibit No.  

 

Title

 

 

 

Exhibit 31.1

 

Certification of Chief Executive Officer, pursuant to Rule 13a-14(c) under the Securities Exchange Act of 1934

Exhibit 31.2

 

Certification of Chief Financial Officer, pursuant to Rule 13a-14(c) under the Securities Exchange Act of 1934

Exhibit 32.1

 

Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350

Exhibit 32.2

 

Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350

 

 

 

Exhibit 101.INS#

 

XBRL Instance Document

Exhibit 101.SCH#

 

XBRL Schema Document

Exhibit 101.CAL#

 

XBRL Calculation Linkbase Document

Exhibit 101.LAB#

 

XBRL Labels Linkbase Document

Exhibit 101.PRE#

 

XBRL Presentation Linkbase Document

Exhibit 101.DEF#

 

XBRL Definition Linkbase Document

 

24



Table of Contents

 

SIGNATURES

 

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.

 

 

ARGAN, INC.

 

 

 

 

June 7, 2017

By:

/s/ Rainer H. Bosselmann

 

 

Rainer H. Bosselmann

 

 

Chairman of the Board and Chief Executive Officer

 

 

 

 

 

 

June 7, 2017

By:

/s/ David H. Watson

 

 

David H. Watson

 

 

Senior Vice President, Chief Financial Officer,

 

 

Treasurer and Secretary

 

 

 

 

25