UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT |
For the Transition Period from to
Commission File Number
(Exact Name of Registrant as Specified in Its Charter)
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(State or Other Jurisdiction of Incorporation) | (I.R.S. Employer Identification No.) |
(Address of Principal Executive Offices) (Zip Code)
(
(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.
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).
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 ☐
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
Title of Each Class |
| Trading Symbol(s) |
| Name of Each Exchange on Which Registered |
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:
ARGAN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
(Unaudited)
Three Months Ended | |||||||
April 30, | |||||||
| 2022 |
| 2021 | ||||
REVENUES | $ | | $ | | |||
Cost of revenues |
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GROSS PROFIT |
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Selling, general and administrative expenses |
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INCOME FROM OPERATIONS |
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Other income, net |
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INCOME BEFORE INCOME TAXES |
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Income tax expense |
| ( |
| ( | |||
NET INCOME |
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Net income attributable to the non-controlling interest |
| — |
| — | |||
NET INCOME ATTRIBUTABLE TO THE STOCKHOLDERS OF ARGAN, INC. | | | |||||
Foreign currency translation adjustments | ( | ( | |||||
COMPREHENSIVE INCOME ATTRIBUTABLE TO THE STOCKHOLDERS OF ARGAN, INC. | $ | | $ | | |||
NET INCOME PER SHARE ATTRIBUTABLE TO THE STOCKHOLDERS OF ARGAN, INC. | |||||||
Basic | $ | | $ | | |||
Diluted | $ | | $ | | |||
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING | |||||||
Basic |
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Diluted |
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CASH DIVIDENDS PER SHARE | $ | | $ | |
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)
| April 30, |
| January 31, | |||
| 2022 |
| 2022 | |||
(Unaudited) | (Note 1) | |||||
ASSETS | ||||||
CURRENT ASSETS | ||||||
Cash and cash equivalents | $ | | $ | | ||
Short-term investments | | | ||||
Accounts receivable, net |
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Contract assets |
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Other current assets |
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TOTAL CURRENT ASSETS |
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Property, plant and equipment, net |
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Goodwill |
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Other purchased intangible assets, net | | | ||||
Right-of-use, deferred tax and other assets | | | ||||
TOTAL ASSETS | $ | | $ | | ||
LIABILITIES AND EQUITY | ||||||
CURRENT LIABILITIES | ||||||
Accounts payable | $ | | $ | | ||
Accrued expenses |
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Contract liabilities |
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TOTAL CURRENT LIABILITIES |
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Noncurrent liabilities | | | ||||
TOTAL LIABILITIES |
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COMMITMENTS AND CONTINGENCIES | ||||||
STOCKHOLDERS’ EQUITY | ||||||
Preferred stock, par value $ |
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Common stock, par value $ |
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Additional paid-in capital |
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Retained earnings |
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Less treasury stock, at cost – | ( | ( | ||||
Accumulated other comprehensive loss | ( | ( | ||||
TOTAL STOCKHOLDERS’ EQUITY |
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Non-controlling interest |
| ( |
| ( | ||
TOTAL EQUITY |
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TOTAL LIABILITIES AND EQUITY | $ | | $ | |
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 MONTHS ENDED APRIL 30, 2022 AND 2021
(Dollars in thousands)
(Unaudited)
Common Stock | Additional | Accumulated | |||||||||||||||||||||
| Outstanding |
| Par |
| Paid-in |
| Retained |
| Treasury |
| Other Comprehensive |
| Non-controlling |
| Total | ||||||||
Shares | Value | Capital | Earnings | Stock | Loss | Interest | Equity | ||||||||||||||||
Balances, February 1, 2022 |
| | $ | | $ | | $ | | $ | ( | $ | ( | $ | ( | $ | | |||||||
Net income |
| — | — | — | | — | — | — | | ||||||||||||||
Foreign currency translation loss | — | — | — | — | — | ( | — | ( | |||||||||||||||
Stock compensation expense | — | — | | — | — | — | — | | |||||||||||||||
Stock option exercises and other share-based award settlements |
| | | | — | — | — | — | | ||||||||||||||
Common stock repurchases | ( | — | — | — | ( | — | — | ( | |||||||||||||||
Cash dividends |
| — | — | — | ( | — | — | — | ( | ||||||||||||||
Balances, April 30, 2022 |
| | $ | | $ | | $ | | $ | ( | $ | ( | $ | ( | $ | | |||||||
Balances, February 1, 2021 | | $ | | $ | | $ | | $ | ( | $ | ( | $ | | $ | | ||||||||
Net income | — | — | — | | — | — | — | | |||||||||||||||
Foreign currency translation loss | — | — | — | — | — | ( | — | ( | |||||||||||||||
Stock compensation expense | — | — | | — | — | — | — | | |||||||||||||||
Stock option exercises and other share-based award settlements |
| | | | — | — | — | — | | ||||||||||||||
Cash dividends | — | — | — | ( | — | — | — | ( | |||||||||||||||
Balances, April 30, 2021 | | $ | | $ | | $ | | $ | ( | $ | ( | $ | | $ | |
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)
| Three Months Ended April 30, | ||||||
| 2022 |
| 2021 | ||||
CASH FLOWS FROM OPERATING ACTIVITIES | |||||||
Net income | $ | | $ | | |||
Adjustments to reconcile net income to net cash (used in) provided by operating activities | |||||||
Stock compensation expense | | | |||||
Depreciation |
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Lease expense | | | |||||
Deferred income tax expense | | | |||||
Amortization of purchased intangible assets |
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Other |
| ( |
| ( | |||
Changes in operating assets and liabilities | |||||||
Accounts receivable |
| ( |
| ( | |||
Contract assets | ( | | |||||
Other assets |
| ( |
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Accounts payable and accrued expenses |
| ( |
| ( | |||
Contract liabilities | ( | | |||||
Net cash (used in) provided by operating activities |
| ( |
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CASH FLOWS FROM INVESTING ACTIVITIES | |||||||
Purchases of short-term investments | ( | — | |||||
Maturities of short-term investments | 90,000 | 20,000 | |||||
Purchases of property, plant and equipment |
| (238) |
| (844) | |||
Investments in solar energy projects |
| — |
| ( | |||
Net cash (used in) provided by investing activities |
| ( |
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CASH FLOWS FROM FINANCING ACTIVITIES | |||||||
Common stock repurchases | ( | — | |||||
Payments of cash dividends |
| ( |
| ( | |||
Proceeds from the exercise of stock options |
| |
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Net cash used in financing activities |
| ( |
| ( | |||
EFFECTS OF EXCHANGE RATE CHANGES ON CASH | ( | ( | |||||
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS |
| ( |
| | |||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | | | |||||
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | | $ | | |||
SUPPLEMENTAL CASH FLOW INFORMATION (see 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
April 30, 2022
(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 "U.S.”), the Republic of Ireland ("Ireland”) and the United Kingdom (the "U.K.”). GPS and APC, including a consolidated variable interest entity ("VIE”), 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 U.S. 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 U.S.
Basis of Presentation and Significant Accounting Policies
The condensed consolidated financial statements include the accounts of Argan, its wholly-owned subsidiaries and the 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 April 30, 2022, the condensed consolidated statements of earnings and stockholders’ equity for the three months ended April 30, 2022 and 2021, and the condensed consolidated statements of cash flows for the three months ended April 30, 2022 and 2021 are unaudited. The condensed consolidated balance sheet as of January 31, 2022 has been derived from audited financial statements. These condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. 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 ("U.S. 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, 2022 ("Fiscal 2022”).
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, 2022, 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
There are no 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 consolidated financial statements, including development costs incurred by the VIE during the project development period. Consideration for the Company’s engineering and financial support provided to the project included the right to build the power plant pursuant to a turnkey engineering, procurement and construction ("EPC”) services contract that was negotiated and announced.
GPS provided financing for the development efforts through notes receivable from the consolidated VIE that was established by the project owner. The project owner was unable to obtain the necessary equity financing for the project and GPS ceased providing project development funding. The repayment of the notes to GPS is overdue and the VIE has rejected the Company’s efforts to foreclose on the defaulted debt in an orderly fashion. Accordingly, the Company believes that the completion of the development of this project has been significantly jeopardized and that it is doubtful that construction of this power plant will occur. Accordingly, during the fourth quarter of Fiscal 2022, we recorded an impairment loss related to the capitalized project development costs of this project in the amount of $
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.
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 in which it is identified and the loss amount becomes estimable. Revenues from time-and-materials contracts are recognized when the related services are provided to the customer.
7
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 primarily 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 April 30, 2022 and January 31, 2022 were $
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 amounts of such contract variations included in the transaction prices that were used to determine project-to-date revenues at April 30, 2022 and January 31, 2022 were $
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 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.
8
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.
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 U.S. 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 April 30, 2022, the Company had RUPO of $
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 April 30, 2022. 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 months ended April 30, 2022 and 2021, disaggregated by the geographic area where the corresponding projects were located:
Three Months Ended April 30, | |||||
2022 |
| 2021 | |||
United States | $ | | $ | | |
United Kingdom |
| |
| | |
Republic of Ireland |
| |
| | |
Consolidated Revenues | $ | | $ | |
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 April 30, 2022 and January 31, 2022, significant amounts of cash equivalents were invested in money market funds with net assets invested in high-quality money market instruments. Such investments include U.S. Treasury obligations; obligations of U.S. government agencies, authorities, instrumentalities or sponsored enterprises; and repurchase agreements secured by U.S. 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.
9
Short-term investments as of April 30, 2022 and January 31, 2022 consisted solely of certificates of deposit purchased from Bank of America (the "Bank”) with weighted average initial maturities of less than
The Company has a substantial portion of its cash on deposit in the U.S. with the Bank. The Company also maintains certain Euro-based bank accounts in Ireland and certain pound sterling-based bank accounts in the U.K. in support of the operations of APC. Management does not believe that the combined amount of the CDs and the cash deposited with the Bank and cash balances maintained at financial institutions in Ireland and the U.K., in excess of government-insured levels, represent material risks.
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 any credit losses for the three months ended April 30, 2022 and 2021 were insignificant. The amount of the allowance for credit losses at both April 30, 2022 and January 31, 2022 was $
NOTE 5 – PURCHASED INTANGIBLE ASSETS
At both April 30, 2022 and January 31, 2022, the goodwill balances related to the acquisitions of GPS and TRC were $
The Company’s purchased intangible assets, other than goodwill, consisted of the following elements as of April 30, 2022 and January 31, 2022:
April 30, 2022 | January 31, | |||||||||||||
Estimated | Gross | Accumulated | Net | 2022, (net | ||||||||||
| Useful Life |
| Amounts |
| Amortization |
| Amounts |
| amounts) | |||||
| ||||||||||||||
Trade name (TRC) | $ | | $ | | $ | | $ | | ||||||
Process certifications (TRC) |
|
| | | | | ||||||||
Customer relationships (TRC) | | | | | ||||||||||
Customer contracts (SMC) | < | | — | | | |||||||||
Totals | $ | | $ | | $ | $ | |
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 includes the following features, among others: a lending commitment of $
The Company may also 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 April 30, 2022, the Company did not have any borrowings outstanding under the Credit Agreement. However, the Bank has issued outstanding letters of credit in the total amount of $
10
30, 2022 and January 31, 2022, for which the Company has provided cash collateral. As of April 30, 2022, no amounts have been drawn against this letter of credit.
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, 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 April 30, 2022 and January 31, 2022, the Company was in compliance with the covenants of the Credit Agreement.
The Company expects to amend the Credit Agreement during Fiscal 2023 in order to replace LIBOR with an equivalent benchmark rate. The Company does not expect that the change will materially impact its consolidated financial statements.
NOTE 7 – COMMITMENTS
Leases
The Company’s leases are primarily operating leases that cover office space, expiring on various dates through September 2031, and certain equipment used by the Company in the performance of its construction services contracts. Some of these equipment leases may be 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 leases, the Company is obligated to pay property taxes, insurance, and maintenance costs.
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
Operating lease expense amounts are recorded on a straight-line basis over the expected lease terms and were $
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 April 30, 2022.
Years Ending January 31, | |||
2023 (remainder) |
| $ | |
2024 | | ||
2025 | | ||
2026 | | ||
2027 | | ||
Thereafter | | ||
Total lease payments | | ||
Less interest portion | | ||
Present value of lease payments | | ||
| |||
$ | |
11
Monthly payments for the occupancy by TRC of its primary offices and plant, which are made to the founder and retired chief executive officer of TRC based on an annual rental rate of $
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 months ended April 30, 2022 and 2021 were $
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 April 30, 2022 are not estimable.
As of April 30, 2022, the value of the Company’s unsatisfied bonded performance obligations, covering all of its subsidiaries, was approximately $
As of April 30, 2022 and January 31, 2022, the Company had also provided a financial guarantee, subject to certain terms and conditions, on behalf of GPS to an original equipment manufacturer in the amount of $
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
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 are expected to have a material adverse effect on the condensed consolidated financial statements as of April 30, 2022.
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
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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 awards are documented in a written agreement between the Company and the awardee. All stock options awarded under the Stock Plans have exercise prices per share at least equal to the common stock’s market value on the date of grant. Stock options have terms no longer than
As of April 30, 2022, there were
Stock Options
A summary of stock option activity under the Stock Plans for the three months ended April 30, 2022, 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, 2022 |
| | $ | |
| $ | | |||
Granted | | $ | | |||||||
Exercised | ( | $ | | |||||||
Forfeited | ( | $ | | |||||||
Outstanding, April 30, 2022 | | $ | |
| $ | | ||||
Exercisable, April 30, 2022 |
| | $ | | $ | | ||||
Outstanding, April 30, 2021 | | $ | |
| $ | | ||||
Exercisable, April 30, 2021 |
| | $ | |
| $ | |
The changes in the number of non-vested options to purchase shares of common stock for the three months ended April 30, 2022, and the weighted average fair value per share for each number, are presented below (shares in thousands):
| Shares |
| Fair Value | ||
Non-vested, February 1, 2022 |
| | $ | | |
Granted |
| | $ | | |
Vested |
| ( | $ | | |
Non-vested, April 30, 2022 |
| | $ | | |
Non-vested, April 30, 2021 |
| | $ | |
The total intrinsic value amounts of the stock options exercised during the three months ended April 30, 2022 and 2021 were not significant. At April 30, 2022, 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 $
Restricted Stock Units
The Company awards restricted stock units to senior executives, members of the Company’s board of directors and certain other employees. Awardees earn the right to receive shares of common stock as certain performance goals are achieved and/or service periods are satisfied. Each restricted stock unit expires on the three-year anniversary of the award.
During the three months ended April 30, 2022, the Company awarded
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The changes in the maximum number of restricted stock units for the three months ended April 30, 2022, and the weighted average fair value per share for each number, are presented below (shares in thousands):
| Shares |
| Fair Value | ||
Outstanding, February 1, 2022 |
| | $ | | |
Awarded |
| $ | | ||
Issued | ( | $ | | ||
Forfeited | ( | $ | | ||
Outstanding, April 30, 2022 |
| | $ | | |
Outstanding, April 30, 2021 |
| | $ | | |
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 $
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
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 (
NOTE 10 – INCOME TAXES
Income Tax Expense Reconciliations
The Company’s income tax amounts for the three months ended April 30, 2022 and 2021 differed from corresponding amounts computed by applying the federal corporate income tax rate of
| Three Months Ended April 30, | ||||||
| 2022 |
| 2021 | ||||
Computed expected income tax expense | $ | ( | $ | ( | |||
Difference resulting from: | |||||||
State income taxes, net of federal tax effect |
| ( |
| ( | |||
Deferred tax asset adjustments | ( | ( | |||||
Other permanent differences and adjustments, net |
| ( |
| ( | |||
Income tax expense | $ | ( | $ | ( |
Foreign income tax expense amounts for the three months ended April 30, 2022 and 2021 were not material.
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Net Operating Loss ("NOL”) Carryback
In an effort to combat the adverse economic impacts of the COVID-19 crisis, the U.S. 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 U.S. 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
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
The research and development credits claimed by the Company in its federal income tax returns were examined by the IRS. The conclusions of the IRS were formally protested by the Company and the results of the appeals hearing that occurred in May 2022 are described in Note 15.
Income Tax Refunds
As of April 30, 2022 and January 31, 2022, 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 $
Income Tax Returns
The Company is subject to federal and state income taxes in the U.S., and income taxes in Ireland and the U.K. 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, 2018 ("Fiscal 2018”) except for several notable exceptions including Ireland, the U.K. and several states where the open periods are one year longer.
Solar Energy Projects
The Company has invested in limited liability companies that make equity investments in solar energy projects that are eligible to receive energy tax credits. The passive investments have been accounted for under the equity method and the balances are included in other assets in our condensed consolidated balance sheets. Each tax credit, when recognized, is recorded as a reduction of the corresponding investment balance with an offsetting reduction in the balance of accrued taxes payable in accordance with the deferral method. At April 30, 2022 and January 31, 2022, the investment account balances were $
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For the three-month period ended April 30, 2022, the investment balance was adjusted to reflect its share of the income of the investment entities in the amount of approximately $
The Company has also established deferred taxes related to the difference in the book and tax bases of the investments.
Supplemental Cash Flow Information
The Company was not required to make any income tax payments during the three months ended April 30, 2022 or 2021. During the three months ended April 30, 2022 and 2021, the Company did not receive any income tax refunds that were material.
NOTE 11 – NET INCOME PER SHARE ATTRIBUTABLE TO THE STOCKHOLDERS OF ARGAN
Basic and diluted net income per share amounts are computed as follows (shares in thousands except in the note):
Three Months Ended April 30, | ||||||
| 2022 |
| 2021 | |||
Net income attributable to the stockholders of Argan | $ | | $ | | ||
Weighted average number of shares outstanding – basic | | | ||||
Effect of stock awards (1) | | | ||||
Weighted average number of shares outstanding – diluted | | | ||||
Net income per share attributable to the stockholders of Argan | ||||||
Basic | $ | | $ | | ||
Diluted | $ | | $ | |
(1) | For the three months ended April 30, 2022 and 2021, the weighted average numbers of shares determined on a dilutive basis exclude the effects of antidilutive stock options covering an aggregate of |
NOTE 12 – CASH DIVIDENDS AND COMMON STOCK REPURCHASES
On April 11, 2022, Argan’s board of directors declared a regular quarterly cash dividend in the amount of $
Pursuant to authorizations provided by Argan’s board of directors (the "Share Repurchase Plan”), the Company repurchased shares of its common stock during the three months ended April 30, 2022. During this period, the Company repurchased
NOTE 13 – CUSTOMER CONCENTRATIONS
The majority of the Company’s consolidated revenues relate to performance by the power industry services segment which provided
The Company’s most significant customer relationship for the three months ended April 30, 2022 included
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The accounts receivable balances from
NOTE 14 – SEGMENT REPORTING
Segments represent components of an enterprise for which discrete financial information is available that is evaluated regularly by the Company’s chief executive officer, who is the chief operating decision maker, in determining how to allocate resources and in assessing performance. The Company’s reportable segments recognize revenues and incur expenses, are organized in separate business units with different management teams, customers, talents and services, and may include more than
Summarized below are certain operating results and financial position data of the Company’s reportable business segments for the three months ended April 30, 2022 and 2021. The "Other” column in each summary includes the Company’s corporate expenses.
Three Months Ended | Power | Industrial | Telecom | ||||||||||||
April 30, 2022 |
| Services |
| Services |
| Services |
| Other |
| Totals | |||||
Revenues | $ | | $ | | $ | | $ | — | $ | | |||||
Cost of revenues |
| |
| |
| |
| — |
| | |||||
Gross profit |
| |
| |
| |
| — |
| | |||||
Selling, general and administrative expenses |
| | | | | | |||||||||
Income (loss) from operations | | | | ( | | ||||||||||
Other income, net |
| |
| — |
| |
| |
| | |||||
Income (loss) before income taxes | $ | | $ | | $ | | $ | ( |
| | |||||
Income tax expense |
| ( | |||||||||||||
Net income | $ | | |||||||||||||
Amortization of intangibles | $ | — | $ | | $ | — | $ | — | $ | | |||||
Depreciation | | | | | | ||||||||||
Property, plant and equipment additions | | | | — | | ||||||||||
Current assets | $ | | $ | | $ | | $ | | $ | | |||||
Current liabilities | | | | | | ||||||||||
Goodwill | | | | — | | ||||||||||
Total assets | | | | | |
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Three Months Ended | Power | Industrial | Telecom | ||||||||||||
April 30, 2021 |
| Services |
| Services |
| Services |
| Other |
| Totals | |||||
Revenues | $ | | $ | | $ | | $ | — | $ | | |||||
Cost of revenues |
| |
| |
| |
| — |
| | |||||
Gross profit |
| |
| |
| |
| — |
| | |||||
Selling, general and administrative expenses |
| | | | |
| | ||||||||
Income (loss) from operations | | | | ( | | ||||||||||
Other income, net |
| |
| — |
| — |
| |
| | |||||
Income (loss) before income taxes | $ | | $ | | $ | | $ | ( |
| | |||||
Income tax expense |
| ( | |||||||||||||
Net income |