Date: 9/7/2021 Form: 10-Q - Quarterly Report
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the Quarterly Period Ended July 31, 2021

or

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

Graphic

(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 Securities Exchange Act of 1934 (the "Exchange Act”) 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   þ    No  

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).    Yes  þ    No  

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.

Large accelerated filer   Accelerated filer þ  Non-accelerated filer   Smaller reporting company   Emerging growth company 

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

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

Title of Each Class

    

Trading Symbol(s)

    

Name of Each Exchange on Which Registered

Common Stock, $.15 par value

AGX

New York Stock Exchange

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: 15,769,440 shares as of September 3, 2021.

ARGAN, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share data)

(Unaudited)

    

Three Months Ended

Six Months Ended

July 31, 

July 31, 

    

2021

    

2020

    

2021

    

2020

REVENUES

$

133,008

$

87,492

$

259,349

$

147,640

Cost of revenues

 

105,356

 

71,862

 

207,983

 

128,001

GROSS PROFIT

 

27,652

 

15,630

 

51,366

 

19,639

Selling, general and administrative expenses

 

10,331

 

9,085

 

20,223

 

19,429

INCOME FROM OPERATIONS

 

17,321

 

6,545

 

31,143

 

210

Other (expense) income, net

 

(260)

 

451

 

452

 

1,539

INCOME BEFORE INCOME TAXES

 

17,061

 

6,996

 

31,595

 

1,749

Income tax (expense) benefit

 

(4,191)

 

(1,397)

 

(7,959)

 

3,057

NET INCOME

 

12,870

 

5,599

 

23,636

 

4,806

Net loss attributable to non-controlling interests

 

 

(10)

 

 

(40)

NET INCOME ATTRIBUTABLE TO THE STOCKHOLDERS OF ARGAN, INC.

12,870

5,609

23,636

4,846

Foreign currency translation adjustments

(139)

(83)

(257)

(329)

COMPREHENSIVE INCOME ATTRIBUTABLE TO THE STOCKHOLDERS OF ARGAN, INC.

$

12,731

$

5,526

$

23,379

$

4,517

NET INCOME PER SHARE ATTRIBUTABLE TO THE STOCKHOLDERS OF ARGAN, INC.

Basic

$

0.82

$

0.36

$

1.50

$

0.31

Diluted

$

0.81

$

0.36

$

1.48

$

0.31

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING

Basic

 

15,769

 

15,653

 

15,748

 

15,648

Diluted

 

15,982

 

15,788

 

15,978

 

15,767

CASH DIVIDENDS PER SHARE

$

0.25

$

1.25

$

0.50

$

1.50

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

2

ARGAN, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share data)

    

July 31, 

    

January 31, 

    

2021

    

2021

(Unaudited)

(Note 1)

ASSETS

CURRENT ASSETS

Cash and cash equivalents

$

451,415

$

366,671

Short-term investments

40,065

90,055

Accounts receivable

 

43,120

 

28,713

Contract assets

 

25,377

 

26,635

Other current assets (Note 10)

 

37,679

 

34,146

TOTAL CURRENT ASSETS

 

597,656

 

546,220

Property, plant and equipment, net

 

19,209

 

20,361

Goodwill

 

27,943

 

27,943

Other purchased intangible assets, net

3,644

4,097

Deferred taxes

249

Right-of-use and other assets

3,537

3,760

TOTAL ASSETS

$

651,989

$

602,630

LIABILITIES AND EQUITY

CURRENT LIABILITIES

Accounts payable

$

44,317

$

53,295

Accrued expenses

 

49,308

 

50,750

Contract liabilities

 

213,722

 

172,042

TOTAL CURRENT LIABILITIES

 

307,347

 

276,087

Deferred taxes

 

751

 

Other noncurrent liabilities

3,356

4,135

TOTAL LIABILITIES

 

311,454

 

280,222

COMMITMENTS AND CONTINGENCIES (Notes 7 and 8)

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; 15,772,673 and 15,706,202 shares issued at July 31, 2021 and January 31, 2021, respectively; 15,769,440 and 15,702,969 shares outstanding at July 31, 2021 and January 31, 2021, respectively

 

2,366

 

2,356

Additional paid-in capital

 

155,904

 

153,282

Retained earnings

 

181,862

 

166,110

Accumulated other comprehensive loss

(1,338)

(1,081)

TOTAL STOCKHOLDERS’ EQUITY

 

338,794

 

320,667

Non-controlling interests

 

1,741

 

1,741

TOTAL EQUITY

 

340,535

 

322,408

TOTAL LIABILITIES AND EQUITY

$

651,989

$

602,630

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

3

ARGAN, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE AND SIX MONTHS ENDED JULY 31, 2021 AND 2020

(Dollars in thousands)

(Unaudited)

Common Stock

Additional

Accumulated

    

Outstanding

    

Par

    

Paid-in

    

Retained

    

Other Comprehensive

    

Non-controlling

    

Total

Shares

Value

Capital

Earnings

Loss

Interests

Equity

Balances, May 1, 2021

 

15,769,440

$

2,366

$

154,974

$

172,934

$

(1,199)

$

1,741

$

330,816

Net income

 

12,870

12,870

Foreign currency translation loss

(139)

(139)

Stock compensation expense

930

930

Cash dividends

 

(3,942)

(3,942)

Balances, July 31, 2021

 

15,769,440

$

2,366

$

155,904

$

181,862

$

(1,338)

$

1,741

$

340,535

Balances, May 1, 2020

15,644,969

$

2,347

$

149,531

$

184,633

$

(1,362)

$

1,751

$

336,900

Net income (loss)

5,609

(10)

5,599

Foreign currency translation loss

(83)

(83)

Stock compensation expense

772

772

Stock option exercises

 

25,000

4

544

548

Cash dividends

(19,589)

(19,589)

Balances, July 31, 2020

15,669,969

$

2,351

$

150,847

$

170,653

$

(1,445)

$

1,741

$

324,147

Balances, February 1, 2021

 

15,702,969

$

2,356

$

153,282

$

166,110

$

(1,081)

$

1,741

$

322,408

Net income

 

23,636

23,636

Foreign currency translation loss

(257)

(257)

Stock compensation expense

1,609

1,609

Stock option exercises and other share-based award settlements

 

66,471

10

1,013

1,023

Cash dividends

 

(7,884)

(7,884)

Balances, July 31, 2021

 

15,769,440

$

2,366

$

155,904

$

181,862

$

(1,338)

$

1,741

$

340,535

Balances, February 1, 2020

15,634,969

$

2,346

$

148,713

$

189,306

$

(1,116)

$

1,781

$

341,030

Net income (loss)

4,846

(40)

4,806

Foreign currency translation loss

(329)

(329)

Stock compensation expense

1,414

1,414

Stock option exercises

35,000

5

720

725

Cash dividends

(23,499)

(23,499)

Balances, July 31, 2020

15,669,969

$

2,351

$

150,847

$

170,653

$

(1,445)

$

1,741

$

324,147

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

4

ARGAN, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

    

Six Months Ended July 31, 

    

2021

    

2020

CASH FLOWS FROM OPERATING ACTIVITIES

Net income

$

23,636

$

4,806

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

Lease expense

1,938

793

Depreciation

 

1,741

 

1,858

Stock compensation expense

1,609

1,414

Deferred income tax expense

1,001

8,536

Amortization of purchased intangible assets

 

453

 

451

Other

 

229

 

399

Changes in operating assets and liabilities

Accounts receivable

 

(14,407)

 

7,532

Contract assets

1,258

6,856

Other assets

 

(3,161)

 

(17,781)

Accounts payable and accrued expenses

 

(8,793)

 

4,714

Contract liabilities

41,680

83,323

Net cash provided by operating activities

 

47,184

 

102,901

CASH FLOWS FROM INVESTING ACTIVITIES

Maturities of short-term investments

50,000

145,000

Purchase of short-term investment

(10,000)

Investment in solar energy projects

 

(4,085)

 

Purchases of property, plant and equipment

 

(1,011)

 

(1,133)

Net cash provided by investing activities

 

44,904

 

133,867

CASH FLOWS FROM FINANCING ACTIVITIES

Payments of cash dividends

 

(7,884)

 

(23,499)

Proceeds from the exercise of stock options

 

1,023

 

725

Net cash used in financing activities

 

(6,861)

 

(22,774)

EFFECTS OF EXCHANGE RATE CHANGES ON CASH

(483)

1,067

NET INCREASE IN CASH AND CASH EQUIVALENTS

 

84,744

 

215,061

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

366,671

167,363

CASH AND CASH EQUIVALENTS, END OF PERIOD

$

451,415

$

382,424

SUPPLEMENTAL CASH FLOW INFORMATION (Notes 7 and 10)

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

 

5

ARGAN, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

July 31, 2021

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

(Unaudited)

NOTE 1 – DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION

Description of the Business

Argan, Inc. ("Argan”) conducts operations through its wholly-owned subsidiaries, Gemma Power Systems, LLC and affiliates ("GPS”); 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 collectively referred to as the "Company.”

Through GPS and APC, the Company provides a full range of engineering, procurement, construction, commissioning, operations management, maintenance, project development, technical and other consulting services to the power generation market, including the renewable energy sector. The wide range of customers includes independent power producers, public utilities, power plant equipment suppliers and global energy plant construction firms with projects located in the United States (the "US”), the Republic of Ireland ("Ireland”) and the United Kingdom (the "UK”). Including a consolidated variable interest entity ("VIE”), GPS and APC represent the Company’s 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 southeastern region of the US and that are based on its expertise in producing, delivering and installing fabricated metal components such as piping systems and pressure vessels. Through SMC, which conducts 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 of the US.

Basis of Presentation and Significant Accounting Policies

The condensed consolidated financial statements include the accounts of Argan, its wholly-owned subsidiaries and its financially controlled VIE. All significant inter-company balances and transactions have been eliminated in consolidation.

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. The Company’s fiscal year ends on January 31 of each year.

The condensed consolidated balance sheet as of July 31, 2021, the condensed consolidated statements of earnings and stockholders’ equity for the three and six months ended July 31, 2021 and 2020, and the condensed consolidated statements of cash flows for the six months ended July 31, 2021 and 2020 are unaudited. The condensed consolidated balance sheet as of January 31, 2021 has been derived from audited financial statements. These condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the US 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, 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, 2021 ("Fiscal 2021”).

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 July 31, 2021, 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.

6

Accounting Policies

Income Taxes

In December 2019, the Financial Accounting Standards Board (the "FASB”) issued Accounting Standards Update ("ASU”) 2019-12, Simplifying the Accounting for Income Taxes, which, among other changes, eliminates the exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the expected loss for the entire year. In these instances, the estimated annual effective income tax rate shall be used to calculate the tax without limitation. The new standard also requires the recognition of a franchise (or similar) tax that is partially based on income as an income-based tax and the recording of any incremental tax that is incurred by the Company as a non-income based tax. The Company’s adoption of this new guidance, which was effective on February 1, 2021, did not alter the Company’s accounting for income taxes.

There are no other recently issued accounting pronouncements that have not yet been adopted that the Company considers material to its condensed consolidated financial statements.

Fair Values

The carrying value amounts presented in the condensed consolidated balance sheets for the Company’s current assets, which primarily include cash and cash equivalents, short-term investments, accounts receivable and contract assets, and its current liabilities are reasonable estimates of their fair values due to the short-term nature of these items.

Variable Interest Entity

In January 2018, the Company was deemed to be the primary beneficiary of a VIE that is performing the project development activities related to the planned construction of a new natural gas-fired power plant. Consequently, the account balances of the VIE are included in the Company’s condensed consolidated financial statements, including development costs incurred by the VIE during the project development period. The total amounts of the project development costs included in the balances for property, plant and equipment as of July 31, 2021 and January 31, 2021 were $7.7 million and $7.5 million, respectively. Consideration for the Company’s engineering and financial support provided to the project includes the right to build the power plant pursuant to a turnkey engineering, procurement and construction ("EPC”) services contract that has been negotiated and announced.

Currently, the most significant project development hurdle for the project owner is the establishment of a fuel-supply source for the plant. The understanding of GPS is that there are viable gas supply alternatives under development by the project owner and others. Recovery of the Company’s investment in this project will depend on the successful completion of all project development efforts, which should lead to the arrangement of financing for the construction of the corresponding power plant, or the sale of the project. As currently contemplated, such financing or sale would provide cash flow sufficient for the project developer to repay the funds borrowed from GPS in full. Such repayment would represent a full recovery of GPS’s investment in the project.

NOTE 2 – REVENUES FROM CONTRACTS WITH CUSTOMERS

The Company’s accounting for revenues on contracts with customers is based on a single comprehensive five-step model that requires reporting entities to:

1.Identify the contract,
2.Identify the performance obligations of the contract,
3.Determine the transaction price of the contract,
4.Allocate the transaction price to the performance obligations, and
5.Recognize revenue.

The Company focuses on the transfer of the contractor’s control of the goods and/or services to the customer, as opposed to the transfer of risk and rewards. Major provisions of the current guidance cover the determination of which goods and services are distinct and represent separate performance obligations, the appropriate treatments for variable consideration, and the evaluation of whether revenues should be recognized at a point in time or over time.

7

When a performance obligation is satisfied over time, the related revenues are recognized over time. The Company’s revenues are recognized primarily under various types of long-term construction contracts, including those for which revenues are based on either a fixed-price or a time-and-materials basis, and primarily over time as performance obligations are satisfied due to the continuous transfer of control to the project owner or other customer.

Revenues from fixed-price contracts, including portions of estimated gross profit, are recognized as services are provided, based on costs incurred and estimated total contract costs using the cost-to-cost approach. If, at any time, the estimate of contract profitability indicates an anticipated loss on a contract, the Company will recognize the total loss in the reporting period that it is identified and an amount is estimable. Revenues from time-and-materials contracts are recognized when the related services are provided to the customer.

Almost all of the Company’s fixed-price contracts are considered to have a single performance obligation. Although multiple promises to transfer individual goods or services may exist, they are not typically distinct within the context of such contracts because contract promises included therein are interrelated or the contracts require the Company to perform critical integration so that the customer receives a completed project. Warranties provided under the Company’s contracts with customers are assurance-type and are recorded as the corresponding contract work is performed.

The transaction price for a contract represents the value of the contract awarded to the Company that is used to determine the amount of revenues recognized as of the balance sheet date. It may reflect amounts of variable consideration, which could be either increases or decreases to the transaction price. These adjustments can be made from time-to-time during the period of contract performance as circumstances evolve related to such items as changes in the scope and price of contracts, claims, incentives and liquidated damages.

Contract assets include amounts that represent the rights to receive payment for goods or services that have been transferred to the project owner, with the rights conditional upon something other than the passage of time. Contract liabilities include amounts that reflect obligations to provide goods or services for which payment has been received. Contract retentions are billed amounts which, pursuant to the terms of the applicable contract, are not paid by project owners until a defined phase of a contract or project has been completed and accepted. These retained amounts are reflected in contract assets or contract liabilities depending on the net contract position of the particular contract. Retention amounts and the length of retention periods may vary. Retainage amounts related to active contracts are considered current regardless of the term of the applicable contract; such amounts are generally collected by the completion of the applicable contract. The total of amounts retained by project owners under construction contracts at July 31 and January 31, 2021 were $46.2 million and $36.8 million, respectively.

Variable Consideration

Amounts for contract variations for which the Company has project-owner directive for additional work or other scope change, but not for the price associated with the corresponding additional effort, are included in the transaction price when it is considered probable that the applicable costs will be recovered through a modification to the contract price. The effects of any revision to a transaction price can be determined at any time and they could be material. The Company may include in the corresponding transaction price a portion of the amount claimed in a dispute that it expects to receive from a project owner. Once a settlement of the dispute has been reached with the project owner, the transaction price may be revised again to reflect the final resolution. The aggregate amount of such contract variations included in the transaction prices that were used to determine project-to-date revenues at July 31, 2021 and January 31, 2021 were $12.7 million and $16.6 million, respectively. Variations related to the Company’s contracts typically represent modifications to the existing contracts and performance obligations, and do not represent new performance obligations. Actual costs related to any changes in the scope of the corresponding contract are expensed as they are incurred. Changes to total estimated contract costs and losses, if any, are reflected in operating results for the period in which they are determined.

The Company’s long-term contracts typically have schedule dates and other performance objectives that if not achieved could subject the Company to liquidated damages. These contract requirements generally relate to specified activities that must be completed by an established date or by the achievement of a specified level of output or efficiency. Each applicable contract defines the conditions under which a project owner may be entitled to any liquidated damages. At the outset of each of the Company’s contracts, the potential amounts of liquidated damages typically are not subtracted from the transaction price as the Company believes that it has included activities in its contract plan, and the associated costs, that

8

will be effective in preventing such damages. Of course, circumstances may change as the Company executes the corresponding contract. The transaction price is reduced by an applicable amount when the Company no longer considers it probable that a future reversal of revenues will not occur when the matter is resolved. The Company considers potential liquidated damages, the costs of other related items and potential mitigating factors in determining the adequacy of its regularly updated estimates of the amounts of gross profit expected to be earned on active projects.

In other cases, the Company may have the grounds to assert liquidated damages against subcontractors, suppliers, project owners or other parties related to a project. Such circumstances may arise when the Company’s activities and progress are adversely affected by delayed or damaged materials, challenges with equipment performance or other events out of the Company’s control where the Company has rights to recourse, typically in the form of liquidated damages. In general, the Company does not adjust the corresponding contract accounting until it is probable that the favorable cost relief will be realized. Such adjustments have been and could be material.

The Company records adjustments to revenues and profits on contracts, including those associated with contract variations and estimated cost changes, using a cumulative catch-up method. Under this method, the impact of an adjustment to the amount of revenues recognized to date is recorded in the period that the adjustment is identified. Estimated variable consideration amounts are determined by the Company based primarily on the single most likely amount in the range of possible consideration amounts. Revenues and profits in future periods of contract performance are recognized using the adjusted amounts of transaction price and estimated contract costs.

Accounting for the Subcontract Loss

Construction activities being performed by APC on the mechanical installation of the boiler for a biomass-fired power plant under construction in Teesside, England, the Tees Renewable Energy Plant ("TeesREP”), were suspended in March 2020 due to the COVID-19 pandemic, pending preparations being made by the contractors and subcontractors to comply with new and evolving government guidance concerning public health protocols. At the time of the suspension of work on the TeesREP project, APC had completed approximately 90% of its subcontracted work. As of July 31, 2020 and based on an updated forecast of subcontract costs, management expected that such costs for the TeesREP project at completion would exceed forecasted revenues by approximately $32.3 million. In connection with a significant modification to the subcontract, a reduction of the subcontract loss and other favorable project-related adjustments resulted in a $2.3 million improvement in consolidated gross profit for the three months ended July 31, 2020. Project-related adjustments netted to a $0.4 million reduction in consolidated gross profit for the six months ended July 31, 2020.

Prior to January 31, 2021, additional negotiated changes to the contractual arrangements for the TeesREP project and the redirected efforts of the top management of APC and the project team resulted in the subsequent reduction of the final amount of the loss incurred on the fixed-price portion of the TeesREP project to $29.5 million. The construction activities of APC during the six months ended July 31, 2021, up to the completion of the project, were performed under a time and materials arrangement. The total amounts of accounts receivable and contract assets related to the TeesREP project and included in the condensed consolidated balance sheets were less than $0.1 million as of July 31, 2021 and were $4.7 million as of January 31, 2021.

Remaining Unsatisfied Performance Obligations ("RUPO”)

The amount of RUPO represents the unrecognized revenue value of active contracts with customers as determined under the revenue recognition rules of US GAAP. Increases to RUPO during a reporting period represent the transaction prices associated with new contracts, as well as additions to the transaction prices of existing contracts. The amounts of such changes may vary significantly each reporting period based on the timing of major new contract awards and the occurrence and assessment of contract variations.

At July 31, 2021, the Company had RUPO of $467.9 million. The largest portion of RUPO at any date usually relates to EPC service contracts with typical performance durations of one to three years. However, the length of certain significant construction projects may exceed three years. The Company estimates that approximately 47% of the RUPO amount at July 31, 2021 will be included in the amount of consolidated revenues that will be recognized during the second half of the fiscal year ending January 31, 2022. Most of the remaining amount of RUPO at July 31, 2021 is expected to be recognized in revenues during the fiscal year ending January 31, 2023.

9

Revenues for future periods will also include amounts related to customer contracts awarded subsequent to July 31, 2021. It is important to note that estimates may be changed in the future and that cancellations, deferrals or scope adjustments may occur related to work included in the amount of RUPO at July 31, 2021. Accordingly, RUPO may be adjusted to reflect project delays and cancellations, revisions to project scope and cost and foreign currency exchange fluctuations, or to revise estimates, as effects become known. Such adjustments may materially reduce future revenues below Company estimates.

Disaggregation of Revenues

The following table presents consolidated revenues for the three and six months ended July 31, 2021 and 2020, disaggregated by the geographic area where the corresponding projects were located:

Three Months Ended July 31, 

Six Months Ended July 31, 

    

2021

    

2020

2021

    

2020

United States

$

123,380

$

83,510

$

238,871

$

132,375

Republic of Ireland

 

7,998

 

1,442

 

12,691

 

2,429

United Kingdom

 

1,630

 

2,540

 

7,787

 

12,836

Consolidated Revenues

$

133,008

$

87,492

$

259,349

$

147,640

The major portion of the Company’s consolidated revenues are recognized pursuant to fixed-price contracts with most of the remaining portions earned pursuant to time-and-material contracts. Consolidated revenues are disaggregated by reportable segment in Note 14 to the condensed consolidated financial statements.

NOTE 3 – CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

At July 31, 2021 and January 31, 2021, significant amounts of cash equivalents were invested in government and prime money market funds with net assets invested in high-quality money market instruments. Such investments include US Treasury obligations; obligations of US government agencies, authorities, instrumentalities or sponsored enterprises; and repurchase agreements secured by US government obligations. Due to market conditions, returns on money market instruments are currently minimal. 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 July 31, 2021 and January 31, 2021 consisted solely of certificates of deposit purchased from Bank of America (the "Bank”) with weighted average initial maturities of less than one year. The Company has the intent and ability to hold the CDs until they mature, and they are carried at cost plus accrued interest which approximates fair value. Interest income is recorded when earned and is included in other income. At July 31, 2021 and January 31, 2021, the weighted average annual interest rates of the outstanding CDs was 0.2% at each period end.

The Company has a substantial portion of its cash on deposit in the US. The Company also maintains certain Euro-based bank accounts in Ireland and certain pound sterling-based bank accounts in the UK in support of the operations of APC. Management does not believe that the combined amount of the CD investments and the cash deposited with the Bank and financial institutions in Ireland and the UK, in excess of government-insured levels, represents a material risk.

NOTE 4 – ACCOUNTS AND NOTES RECEIVABLE

The Company generally extends credit to a customer based on an evaluation of the customer’s financial condition without requiring tangible collateral. Exposure to losses on accounts and notes receivable is expected to differ due to the varying financial condition of each customer. The Company monitors its exposure to credit losses and may establish an allowance for credit losses based on management’s estimate of the loss that is expected to occur over the remaining life of the particular financial asset. The amounts of the provisions for credit losses for the three and six months ended July 31, 2021 and 2020 were insignificant. The allowances for credit losses as of July 31 and January 31, 2021 were also insignificant.

As of July 31 and January 31, 2021, there were outstanding invoices billed to a former customer and unbilled costs incurred on the related project, with balances included in both accounts receivable and contract assets in the aggregate amount of $24.5 million. The recovery time related to this amount will most likely depend on the resolution of the outstanding legal dispute between the parties (see Note 8).

10

As of July 31 and January 31, 2021, there were past due notes receivables from project developers in the aggregate amount of $1.8 million, for which full receipt will most likely depend on the successful financing of the related projects. The Company placed these notes receivables on a non-accrual status during Fiscal 2021.

NOTE 5 – PURCHASED INTANGIBLE ASSETS

At both July 31, 2021 and January 31, 2021, the goodwill balances related to the acquisitions of GPS and TRC were $18.5 million and $9.5 million, respectively. Management does not believe that any events or circumstances that have occurred or arisen since January 31, 2021 require an updated assessment of the goodwill balances of either GPS or TRC.

The Company’s purchased intangible assets, other than goodwill, consisted of the following elements as of July 31, 2021 and January 31, 2021:

July 31, 2021

January 31, 

Estimated

Gross

Accumulated

Net

2021, (net

    

Useful Life

    

Amounts

    

Amortization

    

Amounts

    

amounts)

Trade names

 

TRC

15 years

$

4,499

$

1,700

$

2,799

$

2,949

GPS

15 years

3,643

3,557

86

208

Process certifications

 

7 years

 

1,897

1,535

362

497

Customer relationships

10 years

916

519

397

443

Totals

$

10,955

$

7,311

$

3,644

$

4,097

NOTE 6 – FINANCING ARRANGEMENTS

During April 2021, the Company amended its Amended and Restated Replacement Credit Agreement with the Bank (the "Credit Agreement”). The amendment extended the expiration date of the Credit Agreement to May 31, 2024 and reduced the borrowing rate. The Credit Agreement, as amended, includes the following features, among others: a lending commitment of $50.0 million including a revolving loan with interest at the 30-day LIBOR plus 1.6% (reduced from 2.0%), and an accordion feature which allows for an additional commitment amount of $10.0 million, subject to certain conditions. The Company may use the borrowing ability to cover other credit instruments issued by the Bank for the Company’s use in the ordinary course of business as defined in the Credit Agreement.

At July 31, 2021, the Company did not have any outstanding letters of credit issued under the Credit Agreement. However, in connection with the current project development activities of the VIE that is described in Note 1, the Bank issued a letter of credit, outside the scope of the Credit Agreement, in the approximate amount of $3.4 million as of July 31, 2021 and January 31, 2021 for which the Company has provided cash collateral.

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, as amended, includes other terms, covenants and events of default that are customary for a credit facility of its size and nature, including a requirement to achieve positive adjusted earnings before interest, taxes, depreciation and amortization, as defined, over each rolling twelve-month measurement period. As of July 31, 2021 and January 31, 2021, the Company was in compliance with the covenants of the Credit Agreement.

NOTE 7 – COMMITMENTS

Leases

The Company’s operating leases primarily cover office space that expire on various dates through January 2025 and certain equipment used by the Company in the performance of its construction services contracts. Some of these equipment leases are embedded in broader agreements with subcontractors or construction equipment suppliers. The Company has no material finance leases. None of the operating leases includes significant amounts for incentives, rent holidays or price escalations. Under certain lease agreements, the Company is obligated to pay property taxes, insurance, and maintenance costs.

11

Operating lease right-of-use assets and associated lease liabilities are recorded in the balance sheet at the lease commencement date based on the present value of future minimum lease payments to be made over the expected lease term. As the implicit rate is not determinable in most of the Company’s leases, management uses the Company’s incremental borrowing rate (currently LIBOR plus 1.6%) at the commencement date in determining the present value of future payments. The expected lease term includes any option to extend or to terminate the lease when it is reasonably certain the Company will exercise such option.

Operating lease expense amounts are recorded on a straight-line basis over the expected lease terms and were $1.1 million and $1.9 million for the three and six months ended July 31, 2021, respectively, and were $0.4 million and $0.8 million for the three and six months ended July 31, 2020, respectively. Operating lease payments for the three and six months ended July 31, 2021 were $1.1 million and $1.9 million, respectively, and they were $0.4 million and $0.8 million for the three and six months ended July 31, 2020, respectively. For operating leases as of July 31, 2021, the weighted average lease term is 27 months and the weighted average discount rate is 2.9%.

The Company also uses equipment and occupies other facilities under short-term rental agreements. Rent expense amounts incurred under operating leases and short-term rental agreements (including portions of the lease expense amounts disclosed above) and included in costs of revenues for the three and six months ended July 31, 2021 were $3.3 million and $6.3 million, respectively. Rent expense incurred under these types of arrangements and included in costs of revenues for the three and six months ended July 31, 2020 was $1.4 million and $2.0 million, respectively. Rent expense incurred under these types of arrangements (including portions of the lease expense amounts disclosed above) and included in selling, general and administrative expenses for the three and six months ended July 31, 2021 was $0.3 million and $0.5 million, respectively. Rent expense incurred under these types of arrangements and included in selling, general and administrative expenses for the three and six months ended July 31, 2020 was $0.2 million and $0.4 million, respectively.

The aggregate amounts of operating leases added during the six months ended July 31, 2021 and 2020 were $0.8 million and $1.5 million, respectively. The following is a schedule of future minimum lease payments for the operating leases that were recognized in the condensed consolidated balance sheet as of July 31, 2021.

Years Ending January 31, 

Remainder of 2022

    

$

1,438

2023

743

2024

283

2025

132

2026

20

Total lease payments

2,616

Less interest portion

233

Present value of lease payments

2,383

Less current portion (included in accrued expenses)

1,776

Non-current portion (included in other noncurrent liabilities)

$

607

The future minimum lease payments presented above include amounts due under a long-term lease covering the primary offices and plant for TRC with the founder and current chief executive officer of TRC at an annual rate of $0.3 million with a term extending through April 30, 2022.

Performance Bonds and Guarantees

In the normal course of business and for certain major projects, the Company may be required to obtain surety or performance bonding, to cause the issuance of letters of credit, or to provide parent company guarantees (or some combination thereof) in order to provide performance assurances to clients on behalf of its contractor subsidiaries. As these subsidiaries are wholly-owned, any actual liability is ordinarily reflected in the financial statement account balances determined pursuant to the Company’s accounting for contracts with customers. When sufficient information about claims on guaranteed or bonded projects would be available and monetary damages or other costs or losses would be determined to be probable, the Company would record such losses. Any amounts that may be required to be paid in excess of the estimated costs to complete contracts in progress as of July 31, 2021 are not estimable.

12

As of July 31, 2021, the value of the Company’s unsatisfied bonded performance obligations, covering all of its subsidiaries, was approximately $295.9 million. In addition, as of July 31, 2021, there were bonds outstanding in the aggregate amount of approximately $5.7 million covering other risks including warranty obligations related to completed activities; these bonds expire at various dates over the next seven months. Not all of our projects require bonding.

As of July 31, 2021, the Company has also provided a financial guarantee, subject to certain terms and conditions, on behalf of GPS to an original equipment manufacturer in the amount of $3.6 million in support of business development efforts. The Company believes that the fair value of this guarantee as of July 31, 2021 is not material.

Warranties

The Company generally provides assurance-type warranties for work performed under its construction contracts. The warranties cover defects in equipment, materials, design or workmanship, and most warranty periods typically run from nine to twenty-four months after the completion of construction on a particular project. Because of the nature of the Company’s projects, including project owner inspections of the work both during construction and prior to substantial completion, the Company has not experienced material unexpected warranty costs in the past. Warranty costs are estimated based on experience with the type of work and any known risks relative to each completed project. The accruals of liabilities, which are established to cover estimated future warranty costs, are recorded as the contracted work is performed, and they are included in the amounts of accrued expenses in the condensed consolidated balances sheets. The liability amounts may be periodically adjusted to reflect changes in the estimated size and number of expected warranty claims.

NOTE 8 – LEGAL CONTINGENCIES

In the normal course of business, the Company may have pending claims and legal proceedings. In the opinion of management, based on information available at this time, there are no current claims and proceedings that could have a material adverse effect on the condensed consolidated financial statements except for the outstanding matter described below.

In January 2019, GPS filed a lawsuit against Exelon West Medway II, LLC and Exelon Generation Company, LLC (together referred to as "Exelon”) in the US District Court for the Southern District of New York for Exelon’s breach of contract and failure to remedy various conditions which negatively impacted the schedule and the costs associated with the construction by GPS of a gas-fired power plant for Exelon in Massachusetts. As a result, the Company believes that Exelon has received the benefits of the construction efforts of GPS and the corresponding progress made on the project without making payments to GPS for the value received (see Note 4). In March 2019, Exelon provided GPS with a notice intending to terminate the EPC contract under which GPS had been providing services to Exelon. At that time, the construction project was nearly complete and both of the power generation units included in the plant had successfully reached first fire. The completion of various prescribed performance tests and the clearance of punch-list items were the primary tasks necessary to be accomplished by GPS in order to achieve substantial completion of the power plant.

Nevertheless, and among other actions, Exelon provided contractual notice requiring GPS to vacate the construction site. Exelon has asserted that GPS failed to fulfill certain obligations under the contract and was in default, withholding payments from GPS on invoices rendered to Exelon in accordance with the terms of the contract between the parties.

With vigor, GPS intends to continue to assert its rights under the EPC contract with Exelon, to pursue the collection of amounts owed under the EPC contract and to defend itself against the allegations that GPS did not perform in accordance with the contract. The discovery period related to this litigation is now closed for both parties. No trial date has yet to be set for this lawsuit. Mediation on this matter has been set to occur in September 2021.  

NOTE 9 – STOCK-BASED COMPENSATION

On June 23, 2020, the Company’s stockholders approved the adoption of the 2020 Stock Plan (the "2020 Plan”), and the allocation of 500,000 shares of the Company’s common stock for issuance thereunder. The Company’s board of directors may make share-based awards under the 2020 Stock Plan to officers, directors and key employees. The 2020 Plan replaces the 2011 Stock Plan (the "2011 Plan”); the Company’s authority to make awards pursuant to the 2011 Plan expired on July 19, 2021. Together, the 2020 Plan and the 2011 Plan are hereinafter referred to as the "Stock Plans.”

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The features of the 2020 Plan are similar to those included in the 2011 Plan. Awards may include nonqualified stock options, incentive stock options,  and restricted or unrestricted stock. The specific provisions for each award made pursuant to the terms of the 2020 Plan are documented in a written agreement between the Company and the awardee. All stock options awarded under the 2020 Plan shall have an exercise price per share at least equal to the common stock’s market value on the date of grant. Stock options shall have terms no longer than ten years. Typically, stock options are awarded with one-third of each stock option vesting on each of the first three anniversaries of the corresponding award date.

As of July 31, 2021, there were approximately 2,063,000 shares of common stock reserved for issuance under the Stock Plans; this number includes 475,000 shares of common stock available for future awards under the 2020 Plan.

Stock Options

A summary of stock option activity under the Company’s approved Stock Plans for the six months ended July 31, 2021 and 2020, along with corresponding weighted average per share amounts, is presented below (shares in thousands):

Exercise

Remaining

    

Shares

    

Price

    

Term (years)

    

Fair Value

Outstanding, February 1, 2021

 

1,405

$

44.17

 

6.90

$

10.39

Granted

32

$

54.60

Exercised

(26)

$

39.37

Forfeited

(13)

$

52.26

Outstanding, July 31, 2021

1,398

$

44.42

 

6.51

$

10.41

Exercisable, July 31, 2021

 

1,022

$

45.34

 

5.76

$

11.20

Outstanding, July 31, 2020

1,392

$

44.04

 

7.15

$

10.51

Exercisable, July 31, 2020

 

843

$

46.38

 

6.00

$

11.87

The changes in the number of non-vested options to purchase shares of common stock for the six months ended July 31, 2021 and 2020, and the weighted average fair value per share for each number, are presented below (shares in thousands):

    

Shares

    

Fair Value

Non-vested, February 1, 2021

 

467

$

8.01

Granted

 

32

$

11.12

Vested

 

(117)

$

8.06

Forfeitures

(6)

$

7.41

Non-vested, July 31, 2021

 

376

$

8.27

Non-vested, July 31, 2020

 

549

$

8.44

The total intrinsic value amounts of the stock options exercised during the six months ended July 31, 2021 and 2020 were $0.3 million and $0.8 million, respectively. At July 31, 2021, the aggregate market value amounts of the shares of common stock subject to outstanding and exercisable stock options that were "in-the-money” exceeded the aggregate exercise prices of such options by $7.3 million and $5.6 million, respectively.

Restricted Stock Units

The changes in the maximum number of restricted stock units for the six months ended July 31, 2021, and the weighted average fair value per share for each number, are presented below (shares in thousands):

    

Shares

    

Fair Value

Outstanding, February 1, 2021

 

117

$

17.71

Awarded

 

113

$

38.91

Issued

 

(40)

$

20.64

Outstanding, July 31, 2021

 

190

$

29.73

Outstanding, July 31, 2020

 

117

$

17.71

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Performance-Based Restricted Stock Units

Pursuant to the terms of the Stock Plans and as described in the corresponding agreements with the executives, the Company awarded performance-based restricted stock units to four senior executives in April 2021 and two senior executives in April 2020, covering up to 49,000 and 45,000 maximum total numbers of shares of common stock, respectively, plus a number of shares to be determined based on the amount of cash dividends deemed paid on shares earned pursuant to the awards. The issuance of the number of shares earned under the agreements, free of related restrictions, depends on the total return performance of the Company’s common stock measured against the performance of a peer-group of common stocks over three-year periods.

During the six months ended July 31, 2021, the three-year vesting period for the restricted stock units awarded in April 2018 concluded and it was determined that 40,471 shares of common stock, including shares attributable to cash dividends, were earned pursuant to the performance criteria and other terms of the 2011 Plan and the applicable award agreements. These shares were issued to the awardees in April 2021.

Renewable Performance-Based Restricted Stock Units

In April 2021, the Company awarded renewable energy project performance-based restricted stock units to two senior executives at GPS as described in the corresponding agreements with the executives. Each award covers 5,000 shares of the Company’s common stock plus a number of shares to be determined based on the amount of cash dividends deemed paid on shares earned pursuant to the awards.

The issuance of the shares, free of restrictions, shall be based on the success of GPS in increasing the amount of RUPO related to renewable energy projects, as defined, during certain periods within the three-year term of each award. The awards establish RUPO hurdle amounts for separate periods of time defined in the awards, and assign a certain portion of the award shares to each hurdle. If a RUPO hurdle is exceeded (each is mutually exclusive), the number of shares earned based on the achievement of the applicable hurdle will be issued to the executives at the end of the corresponding period. If a RUPO hurdle amount is not achieved within the period of time defined in the awards, the award shares assigned to the hurdle are forfeited. 

Time-Based Restricted Stock Units

In April 2021, the Company also awarded time-based restricted stock units covering 49,500 shares of common stock to senior executives and other employees pursuant to the terms of the Stock Plans and as described in the corresponding agreements with each awardee. The shares will vest in equal installments on each of the first three anniversaries of the award date. Accordingly, at each vesting date, one-third of the award shares plus a number of shares to be determined based on the amount of cash dividends deemed paid on shares earned pursuant to the awards will be issued to each awardee.

Fair Value

The fair value amounts of stock options and restricted stock units are recorded as stock compensation expense over the terms of the corresponding awards. Expense amounts related to stock awards were $0.9 million and $0.8 million for the three months ended July 31, 2021 and 2020, respectively. Expense amounts related to stock awards were $1.6 million and $1.4 million for the six months ended July 31, 2021 and 2020, respectively.

At July 31, 2021, there was $6.4 million in unrecognized compensation cost related to outstanding stock awards that the Company expects to expense over the next three years.

The Company estimates the weighted average fair value of stock options on the date of award using a Black-Scholes option pricing model. The Company believes that its past stock option exercise activity is sufficient to provide it with a reasonable basis upon which to estimate the expected life of newly awarded stock options. Risk-free interest rates are determined by blending the rates for three to five year US Treasury notes. The dividend yield is based on the Company’s current annual regular dividend amount. The calculations of the expected volatility factors are based on the monthly closing prices of the Company’s common stock for the five-year periods preceding the dates of the corresponding awards.

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The fair value amounts for the performance-based restricted stock units have been determined by using the per share market price of the Company’s common stock on the dates of award and the target number of shares for the awards (50% of the maximum number), by assigning equal probabilities to the thirteen possible payout outcomes at the end of each three-year term, and by computing the weighted average of the outcome amounts. For each award, the estimated fair value amount was calculated to be 88.5% of the aggregate market value of the target number of shares on the award date. For the renewable performance-based restricted stock units, which were awarded for the first time in April 2021, the fair value of each award was determined to be 50% of the aggregate market value of the shares of common stock covered by the award on the date of the award. For the time-based restricted stock units, the fair value of each award equals the aggregate market price for the number of shares covered by each award on the date of award.

NOTE 10 – INCOME TAXES

Income Tax Expense Reconciliation

The Company’s income tax amounts for the six months ended July 31, 2021 and 2020 differed from corresponding amounts computed by applying the federal corporate income tax rate of 21%to the income before income taxes for the periods as presented below:

    

Six Months Ended July 31, 

    

2021

    

2020

Computed expected income tax expense

$

(6,635)

$

(367)

Difference resulting from:

State income taxes, net of federal tax effect

 

(719)

 

(44)

Deferred tax asset adjustments

(283)

Net operating loss carryback benefit (see discussion below)

4,286

Realizable (unrealizable) NOL benefit (UK)

18

(582)

Adjustments and other differences

(340)

(236)

Income tax (expense) benefit

$

(7,959)

$

3,057

Foreign income tax expense for the six months ended July 31, 2021 was $0.4 million; the foreign tax expense amount for the six months ended July 31, 2020 was not material.

During the six months ended July 31, 2021, the Company wrote-off previously established deferred tax assets in the amount of $0.3 million based on the estimated non-deductible portion of stock option compensation.

Net Operating Loss ("NOL”) Carryback

In an effort to combat the adverse economic impacts of the COVID-19 crisis, the US Congress passed the Coronavirus, Aid, Relief, and Economic Security Act ( the "CARES Act”) that was signed into law on March 27, 2020. This wide-ranging legislation was an emergency economic stimulus package that included spending and tax breaks aimed at strengthening the US economy and funding a nationwide effort to curtail the effects of the outbreak of COVID-19.

The tax changes of the CARES Act included a temporary suspension of the limitations on the future utilization of certain NOLs and re-established a carryback period for certain losses to five years. The NOLs eligible for carryback under the CARES Act include the Company’s domestic NOL for the year ended January 31, 2020 ("Fiscal 2020”), which was approximately $39.5 million. The Company made the appropriate filing with the Internal Revenue Service (the "IRS”) requesting carryback refunds of income taxes paid for the years ended January 31, 2017 ("Fiscal 2017”), 2016 ("Fiscal 2016”) and 2015 ("Fiscal 2015”).

A deferred tax asset in the amount of $8.3 million was recorded as of January 31, 2020 associated with the income tax benefit of the NOL for the year then ended. With the enactment of the CARES Act, the asset was moved to income taxes receivable (included in other current assets in the condensed consolidated balance sheets as of July 31, 2021 and January 31, 2021) where the value was increased to approximately $12.7 million. The carryback provided a favorable rate benefit for the Company as the loss, which was incurred in a year where the statutory federal tax rate was 21%, has been carried back to tax years where the tax rate was higher. The substantial portion of the net amount of this additional income tax benefit, estimated at the time to be approximately $4.2 million, was recorded in the six-month period ended July 31, 2020.

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Research and Development Tax Credits

During the year ended January 31, 2019 ("Fiscal 2019”), the Company completed a detailed review of the activities of its engineering staff on major EPC services projects in order to identify and quantify the amounts of research and development tax credits that may have been available to reduce prior year income taxes. This study focused on project costs incurred during the three-year period ended January 31, 2018. Based on the results of the study, management identified and estimated significant amounts of income tax benefits that were not previously recognized in the Company’s operating results for any prior year reporting period.

The amount of research and development tax credit benefit recognized in Fiscal 2019 was $16.6 million. During Fiscal 2020, deferred tax assets related to the research and development tax credits were reduced by $0.4 million. As described below, the IRS has concluded examinations of the Company’s consolidated federal income tax returns for Fiscal 2016 and Fiscal 2017, as amended to include research and development tax credits, and has commenced an examination of the Company’s consolidated federal income tax return for the year ended January 31, 2018 ("Fiscal 2018”) with an expressed intent to focus on the research and development tax credit included therein. All of the aforementioned filings were made prior to January 31, 2019.

The amount of identified but unrecognized income tax benefits related to research and development tax credits as of July 31, 2021 is $5.0 million, for which the Company has established a liability for uncertain income tax return positions, most of which is included in accrued expenses as of July 31, 2021 and January 31, 2021. The final outcome of these uncertain tax positions is not yet determinable. However, the Company does not expect that the amount of unrecognized tax benefits will significantly change due to any expiration of statutes of limitation over the next 12 months. However, it is possible that the disputes with the IRS related to the Company’s federal research and development tax credits (see discussion of income tax returns below) could be resolved within the next twelve months depending on the scheduling of an appeals hearing and/or the results of negotiations with the IRS. If resolution of the disputes occurs, it would result in the Company’s elimination of at least a substantial portion of the amount of the liability for uncertain income tax positions discussed above. As of July 31, 2021, the Company does not believe that it has any other material uncertain income tax positions reflected in its accounts.

As of July 31, 2021 and January 31, 2021, the balances of other current assets in the condensed consolidated balance sheet included income tax refunds receivable and prepaid income taxes in the total amounts of approximately $25.9 million and $26.9 million, respectively. The income tax refunds include the amounts expected to be received from the IRS upon completion of the tax return examination appeals process identified below and the amount expected to be received from the IRS upon its processing of the Company’s NOL carryback refund request discussed above.

Income Tax Returns

The Company is subject to federal and state income taxes in the US, and income taxes in Ireland and the UK. Tax treatments within each jurisdiction are subject to the interpretation of the related tax laws and regulations which require significant judgment to apply. The Company is no longer subject to income tax examinations by authorities for its fiscal years ended on or before January 31, 2017 except for several notable exceptions including Ireland, the UK and several states where the open periods are one year longer.

The IRS conducted an examination of the Company’s original federal consolidated income tax return for Fiscal 2016. The IRS reported to the Company that no unfavorable adjustment items were noted during this examination. However, the Company consented to an extension of the audit timeline which enabled the IRS to also examine the amendment to the income tax return, which included the research and development credit for the year. In addition, the IRS opened an examination of the Company’s amended consolidated income tax return for Fiscal 2017. In substance, these efforts evolved into simultaneously conducted examinations of the research and development credits claimed in each year.

In January 2021, the IRS issued its final revenue agents report that documents its understanding of the facts, attempts to summarize the Company’s arguments in support of the research and development claims and states its position which disagrees with the Company’s treatment of a substantial amount of the costs that support the Company’s claims for Fiscal 2016 and Fiscal 2017. The Company believes that its arguments are sound and that the report does not present any new facts relating to the issues or make any new arguments that would cause it to make any adjustments to its accounting for the research and development claims as of July 31, 2021. In March 2021, the Company submitted a formal protest of the findings of the IRS examiner and is pursuing its income tax position with the IRS through the established protest and

17

appeals process. The Company expects that the ultimate settlement of the income tax dispute will be resolved on a basis favorable to the Company.

In November 2020, the Company was notified by the IRS that it intends to examine the consolidated income tax return for Fiscal 2018, with an expressed focus on the research and development tax credit claimed therein. By the time the appeals process commences, our protest may dispute the results of the examinations of the tax returns for all three years.

Solar Energy Projects

During the six months ended July 31, 2021, the Company invested approximately $4.1 million in a limited liability company that makes equity investments in solar energy projects that are eligible to receive energy tax credits. The passive investment has been accounted for under the equity method and reported within other assets in our condensed consolidated balance sheet. Each tax credit, when realized, is recognized as a reduction of the corresponding investment balance in accordance with the deferral method. Investment tax credits in the approximate amount of $3.0 million were recognized during the six months ended July 31, 2021. As of July 31, 2021, the Company’s remaining cash investment commitment was approximately $0.9 million.

At July 31, 2021, the corresponding investment balance was adjusted to reflect its share of the loss of the investment entity in the amount of approximately $0.3 million, which has been included in other (expense) income in the Company’s condensed consolidated statement of earnings for the three and six months ended July 31, 2021. The Company has also established deferred taxes related to the difference in the book and tax bases of the investments. This investment is expected to provide a positive overall return over the six-year expected life of the investment.

Supplemental Cash Flow Information

The amounts of cash paid for income taxes during the six months ended July 31, 2021 and 2020 were $7.5 million (including the $4.1 million solar energy investment described above) and $3.1 million, respectively. During the six months ended July 31, 2020, the Company received cash refunds of previously paid income taxes from various taxing authorities in the total amount of $0.8 million. The amount of income tax refunds received during the six months ended July 31, 2021 was not material.