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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the Quarterly Period Ended October 31, 2019

 

or

 

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

 

For the Transition Period from              to             

 

Commission File Number 001-31756

 

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

One Church Street, Suite 201, Rockville, Maryland 20850

(Address of Principal Executive Offices) (Zip Code)

 

(301) 315-0027

(Registrant’s Telephone Number, Including Area Code)

 

 

(Former Name, Former Address and Former Fiscal Year, if Changed since Last Report)

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x No o

 

Indicate by check mark whether the Registrant has submitted electronically 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 x No o

 

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

 

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

 

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

 

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

 

 

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

 

Common stock, $0.15 par value: 15,633,302 shares as of December 5, 2019.

 

 

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ARGAN, INC. AND SUBSIDIARIES

FORM 10-Q QUARTERLY REPORT

OCTOBER 31, 2019

INDEX

 

			Page No.
PART I.	FINANCIAL INFORMATION		3
Item 1.	Financial Statements		3
	Condensed Consolidated Statements of Earnings for the Three and Nine Months Ended October 31, 2019 and 2018		3
	Condensed Consolidated Balance Sheets as of October 31, 2019 and January 31, 2019		4
	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended October 31, 2019 and 2018		5
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended October 31, 2019 and 2018		6
	Notes to Condensed Consolidated Financial Statements		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		20
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		32
Item 4.	Controls and Procedures		33
PART II.	OTHER INFORMATION		33
Item 1.	Legal Proceedings		33
Item 1A.	Risk Factors		33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		33
Item 3.	Defaults upon Senior Securities		34
Item 4.	Mine Safety Disclosures (not applicable to the Registrant)		34
Item 5.	Other Information		34
Item 6.	Exhibits		34
SIGNATURES			34
CERTIFICATIONS

 

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ARGAN, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share data)

(Unaudited)

 

		Three Months Ended October 31,						Nine Months Ended October 31,
		2019			2018			2019			2018
REVENUES		$	58,406		$	116,459		$	171,009		$	394,495
Cost of revenues		52,414			86,927			183,078			318,803
GROSS PROFIT (LOSS) (Note 2)		5,992			29,532			(12,069		)	75,692
Selling, general and administrative expenses		12,135			11,147			31,761			31,162
Impairment loss (Note 5)		—			—			2,072			—
(LOSS) INCOME FROM OPERATIONS		(6,143		)	18,385			(45,902		)	44,530
Other income, net		3,578			1,429			7,472			5,121
(LOSS) INCOME BEFORE INCOME TAXES		(2,565		)	19,814			(38,430		)	49,651
Income tax (expense) benefit (Note 11)		(1,996		)	12,560			4,936			4,509
NET (LOSS) INCOME		(4,561		)	32,374			(33,494		)	54,160
Net income (loss) attributable to non-controlling interests		2,294			(60		)	2,007			(83		)
NET (LOSS) INCOME ATTRIBUTABLE TO THE STOCKHOLDERS OF ARGAN, INC.		(6,855		)	32,434			(35,501		)	54,243
Foreign currency translation adjustments		235			(1,092		)	(825		)	(2,364		)
COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO THE STOCKHOLDERS OF ARGAN, INC.		$	(6,620	)	$	31,342		$	(36,326	)	$	51,879
(LOSS) INCOME PER SHARE ATTRIBUTABLE TO THE STOCKHOLDERS OF ARGAN, INC. (Note 12)
Basic		$	(0.44	)	$	2.08		$	(2.27	)	$	3.48
Diluted		$	(0.44	)	$	2.07		$	(2.27	)	$	3.46
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
Basic		15,633			15,569			15,617			15,568
Diluted		15,633			15,702			15,617			15,685
CASH DIVIDENDS PER SHARE (Note 10)		$	0.25		$	0.25		$	0.75		$	0.75

 

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

 

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ARGAN, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share data)

 

		October 31, 2019			January 31, 2019
		(Unaudited)			(Note 1)
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	252,482		$	164,318
Short-term investments		42,107			132,213
Accounts receivable, net		34,880			36,174
Contract assets		50,365			58,357
Other current assets		26,066			25,286
TOTAL CURRENT ASSETS		405,900			416,348
Property, plant and equipment, net		23,211			19,778
Goodwill		30,766			32,838
Other purchased intangible assets, net		5,273			6,137
Right-of-use assets (Note 7)		1,338			—
Deferred taxes		5,911			1,257
Other assets		318			290
TOTAL ASSETS		$	472,717		$	476,648
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable		$	38,249		$	39,870
Accrued expenses (Notes 2, 7 and 11)		22,287			33,097
Contract liabilities		58,421			8,349
TOTAL CURRENT LIABILITIES		118,957			81,316
Lease liabilities (Note 7)		563			—
Other noncurrent liabilities		1,779			960
TOTAL LIABILITIES		121,299			82,276
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; 15,636,535 and 15,577,102 shares issued at October 31 and January 31, 2019, respectively; 15,633,302 and 15,573,869 shares outstanding at October 31 and January 31, 2019, respectively		2,346			2,337
Additional paid-in capital		148,031			144,961
Retained earnings		200,401			247,616
Accumulated other comprehensive loss		(1,171		)	(346		)
TOTAL STOCKHOLDERS’ EQUITY		349,607			394,568
Non-controlling interests		1,811			(196		)
TOTAL EQUITY		351,418			394,372
TOTAL LIABILITIES AND EQUITY		$	472,717		$	476,648

 

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

 

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ARGAN, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE AND NINE MONTHS ENDED OCTOBER 31, 2019 AND 2018

(Dollars in thousands)

(Unaudited)

 

		Common Stock					Additional						Accumulated Other			Non-
		Outstanding Shares		Par Value			Paid-in Capital			Retained Earnings			Comprehensive (Loss) Gain			Controlling Interests			Total Equity
Balances, August 1, 2019		15,633,302		$	2,346		$	147,445		$	211,167		$	(1,406	)	$	(483	)	$	359,069
Net (loss) income		—		—			—			(6,855		)	—			2,294			(4,561		)
Foreign currency translation gain		—		—			—			—			235			—			235
Stock compensation expense		—		—			586			—			—			—			586
Cash dividends		—		—			—			(3,911		)	—			—			(3,911		)
Balances, October 31, 2019		15,633,302		$	2,346		$	148,031		$	200,401		$	(1,171	)	$	1,811		$	351,418
Balances, August 1, 2018		15,568,719		$	2,336		$	144,135		$	225,174		$	150		$	20		$	371,815
Net income (loss)		—		—			—			32,434			—			(60		)	32,374
Foreign currency translation loss		—		—			—			—			(1,092		)	—			(1,092		)
Stock compensation expense		—		—			338			—			—			—			338
Stock option exercises		2,000		—			34			—			—			—			34
Cash dividends		—		—			—			(3,892		)	—			—			(3,892		)
Distributions to joint venture partners		—		—			—			—			—			(72		)	(72		)
Balances, October 31, 2018		15,570,719		$	2,336		$	144,507		$	253,716		$	(942	)	$	(112	)	$	399,505
Balances, February 1, 2019		15,573,869		$	2,337		$	144,961		$	247,616		$	(346	)	$	(196	)	$	394,372
Net (loss) income		—		—			—			(35,501		)	—			2,007			(33,494		)
Foreign currency translation loss		—		—			—			—			(825		)	—			(825		)
Stock compensation expense		—		—			1,512			—			—			—			1,512
Stock option exercises		59,433		9			1,558			—			—			—			1,567
Cash dividends		—		—			—			(11,714		)	—			—			(11,714		)
Balances, October 31, 2019		15,633,302		$	2,346		$	148,031		$	200,401		$	(1,171	)	$	1,811		$	351,418
Balances, February 1, 2018		15,567,719		$	2,336		$	143,215		$	211,112		$	1,422		$	43		$	358,128
Adoption of ASC Topic 606 (Note 1)		—		—			—			37			—			—			37
Net income (loss)		—		—			—			54,243			—			(83		)	54,160
Foreign currency translation loss		—		—			—			—			(2,364		)	—			(2,364		)
Stock compensation expense		—		—			1,244			—			—			—			1,244
Stock option exercises		3,000		—			48			—			—			—			48
Cash dividends		—		—			—			(11,676		)	—			—			(11,676		)
Distributions to joint venture partners		—		—			—			—			—			(72		)	(72		)
Balances, October 31, 2018		15,570,719		$	2,336		$	144,507		$	253,716		$	(942	)	$	(112	)	$	399,505

 

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

 

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ARGAN, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

		Nine Months Ended October 31,
		2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income		$	(33,494	)	$	54,160
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities
Deferred income tax benefit		(4,521		)	(153		)
Impairment loss		2,072			—
Depreciation		2,610			2,465
Stock compensation expense		1,512			1,244
Change in accrued interest on short-term investments		1,106			912
Amortization of purchased intangible assets		864			759
Gain on the settlement of litigation		—			(1,400		)
Other		525			119
Changes in operating assets and liabilities
Accounts receivable		1,274			(17,686		)
Contract assets		7,992			(41,781		)
Other assets		(1,588		)	(15,895		)
Accounts payable and accrued expenses		(12,523		)	(44,016		)
Contract liabilities		50,072			(37,835		)
Net cash provided by (used in) operating activities		15,901			(99,107		)
CASH FLOWS FROM INVESTING ACTIVITIES
Maturities of short-term investments		164,000			310,000
Purchases of short-term investments		(75,000		)	(158,000		)
Purchases of property, plant and equipment		(6,308		)	(7,366		)
Changes in notes receivable		—			225
Net cash provided by investing activities		82,692			144,859
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of cash dividends		(11,714		)	(11,676		)
Proceeds from the exercise of stock options		1,567			48
Distributions to joint venture partners		—			(72		)
Net cash used in financing activities		(10,147		)	(11,700		)
EFFECTS OF EXCHANGE RATE CHANGES ON CASH		(282		)	(368		)
NET INCREASE IN CASH AND CASH EQUIVALENTS		88,164			33,684
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		164,318			122,107
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	252,482		$	155,791
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for income taxes		$	3,062		$	2,625
Cash received from income tax refunds		$	7,917		$	—
Operating lease payments made (Note 7)		$	466		$	—
Cash paid for interest		$	—		$	659
Adoption of ASC Topic 842 (non-cash transaction, see Note 7)		$	1,341		$	—
Right-of-use assets obtained in exchange for new operating lease liabilities (non-cash transaction)		$	441		$	—

 

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

 

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ARGAN, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

OCTOBER 31, 2019

(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 consulting services to the power generation and renewable energy markets. The wide range of customers includes independent power producers, public utilities, power plant equipment suppliers and global energy plant construction firms. Including consolidated joint ventures and variable interest entities (“VIEs”), 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 southeast United States and that are based on its expertise in producing, delivering and installing fabricated steel 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 United States.

 

Basis of Presentation

 

The condensed consolidated financial statements include the accounts of Argan, its wholly-owned subsidiaries and any VIEs for which the Company is deemed to be the primary beneficiary. All significant inter-company balances and transactions have been eliminated in consolidation. Certain amounts in the condensed consolidated balance sheet for the prior year-end were reclassified to conform to the current period-end presentation.

 

In Note 14, the Company has provided certain financial information relating to the operating results and assets of its reportable segments based on the manner in which management disaggregates the Company’s financial reporting for purposes of making internal operating decisions. In Note 13, the Company has provided certain financial information related to concentrations of businesses and customers. The Company’s fiscal year ends on January 31 of each year.

 

These condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“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, 2019.

 

The condensed consolidated balance sheet as of October 31, 2019, the condensed consolidated statements of earnings and stockholders’ equity for the three and nine months ended October 31, 2019 and 2018, and the condensed consolidated statements of cash flows for the nine months ended October 31, 2019 and 2018 are unaudited. The condensed consolidated balance sheet as of January 31, 2019 has been derived from audited financial statements. In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments, which are of a normal and recurring nature, considered necessary to present fairly the financial position of the Company as of October 31, 2019, and its earnings and cash flows for the interim periods presented. The results of operations for any interim period are not necessarily indicative of the results of operations for any other interim period or for a full fiscal year.

 

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Accounting Policies

 

Effective February 1, 2019, the Company adopted Accounting Standards Update (“ASU”) 2016-02, “Leases,” as amended, which herein is referred to as “ASC Topic 842.” Accordingly, operating leases with lease terms of more than twelve (12) months have been presented in the condensed consolidated balance sheet as of October 31, 2019 by adding assets for the right-of-use and liabilities for the obligations that are created by these leases (see Note 7). The Company elected to apply the transition requirements at the adoption date rather than at the beginning of the earliest comparative period presented herein. There was no cumulative effect adjustment that had to be made to retained earnings at the adoption date, and prior year consolidated financial statements were not restated. The new accounting for leases did not have a material effect on the Company’s operating results for the three and nine months ended October 31, 2019.

 

Effective February 1, 2018, the Company adopted ASU 2014-09, “Revenue from Contracts with Customers,” as amended, which herein is referred to as “ASC Topic 606”, using the permitted modified retrospective method. Accordingly, the new guidance was applied retrospectively to contracts that were not completed as of the adoption date. Results for the reporting periods which are included herein have been presented in accordance with the guidance of ASC Topic 606 (see Note 2). The effect of the adoption on retained earnings as of February 1, 2018 was an income tax-effected increase of less than $0.1 million.

 

In 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. The scope of this new standard covers, among other provisions, the methods that businesses shall use to estimate amounts of uncollectible notes and accounts receivable. As subsequently amended, the Company does not expect that the requirements of this new guidance, which becomes effective for the Company on February 1, 2020, will materially affect its consolidated financial statements.

 

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

 

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. Consideration for the Company’s engineering and financial support includes the right to build the power plant pursuant to a turnkey engineering, procurement and construction services contract that has been negotiated and announced. The account balances of the VIE are included in the condensed consolidated financial statements, including development costs incurred by the VIE during the three and nine-month periods ended October 31, 2019 and 2018, and a gain of $2.2 million related to the granting of a utility easement during the three months ended October 31, 2019. The total amounts of the project development costs included in the balances for property, plant and equipment as of October 31 and January 31, 2019 were $6.4 million and $2.1 million, respectively. At October 31 and January 31, 2019, the total amounts of notes receivable from the VIE and related accrued interest, which amounts are eliminated in consolidation, were $5.1 million and $2.1 million, respectively.

 

NOTE 2 — REVENUES FROM CONTRACT WITH CUSTOMERS

 

The new standard outlines a single comprehensive five-step model for entities to use in accounting for revenues arising from contracts with customers 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 new standard 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.

 

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When a performance obligation is satisfied over time, the related revenues are recognized over time. Most of 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 a portion of estimated gross profit, are recognized as services are provided, based on costs incurred and estimated total contract costs using the percentage-of-completion method. 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.

 

Most of the Company’s long-term contracts are considered to have a single performance obligation. Although multiple promises to transfer individual goods or services may exist in a single contract, they are not typically distinct within the context of the applicable contract because the contract promises are interrelated or they require the Company to perform critical integration so that the customer receives a completed project.

 

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 are defined in the new standard to 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 are defined in the new standard to include the amounts that reflect obligations to provide goods or services for which payment has been received. In addition, the definition of accounts receivable has been restated to effectively exclude billed amounts retained by project owners until a defined phase of a contract or project has been completed and accepted. Retentions were historically included in accounts receivable, but are now 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 October 31 and January 31, 2019 were $20.3 million and $15.3 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 aggregate amount of such contract variations included in the transaction prices that were used to determine project-to-date revenues at October 31 and January 31, 2019, were $20.6 million and $18.8 million, respectively. 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. 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 liquidated damages. At the outset of each of the Company’s contracts, the potential amounts of liquidated damages typically are not constrained, or 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.

 

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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.

 

In its Form 10-K Annual Report for the year ended January 31, 2019, the Company disclosed that APC is completing a power-plant construction project in the United Kingdom that has encountered significant operational and contractual challenges, and that the consolidated operating results for the year ended January 31, 2019 reflected unfavorable gross profit adjustments related to this project. The disclosure explained that the project progress was behind the schedule originally established for the job and warned that the project may continue to impact consolidated operating results negatively until it reaches completion.

 

Subsequent to the release of the Company’s consolidated financial statements for the fiscal year ended January 31, 2019, APC’s estimates of the unfavorable financial impacts of the difficulties on this particular project located in Teesside, England (the “TeesREP” project), including increased scope and design changes from original plans and various work interruptions, escalated substantially. APC has conducted comprehensive reviews of the remaining contract work, prepared new timelines for the completion of the project and assessed other factors. Based on the completed analyses, management expects that the forecasted costs for APC at contract completion will exceed projected revenues by approximately $31.2 million.

 

The total amount of the expected loss on this project has been reflected in the condensed consolidated financial statements for the nine months ended October 31, 2019, with most of the loss recorded in the first quarter ended April 30, 2019. The amount of the contract loss reserve, approximately $8.6 million as of October 31, 2019, has been included in accrued expenses in the accompanying condensed consolidated balance sheet. An effect of changes that the Company made during the three-month period ended April 30, 2019 to transaction prices and to estimates of the costs-to-complete active contracts, including changes primarily related to the loss contract, was a net reversal of $1.4 million in revenues that were recognized last year.

 

Subsequent to October 31, 2019, APC and its customer, the engineering, procurement and construction services contractor on the TeesREP project, agreed to operational and commercial terms for the completion of the project. This framework generally addresses project schedule, payment terms, scope, performance guarantees and other terms and conditions for reaching substantial completion of APC’s portion of the total project by mid-2020. The framework does not resolve significant past commercial differences which may have to be addressed through applicable dispute resolution mechanisms. While management is disappointed that a global settlement of past commercial differences could not be achieved at this time, management believes that it is in the Company’s best interests to complete the TeesREP project while the parties concurrently use good faith efforts to settle them. It is not possible currently to predict precisely how, when and on what terms (if any) the past commercial differences will be resolved. The Company continues to reserve its rights under the contract.

 

Remaining Unsatisfied Performance Obligations (“RUPO”)

 

The amount of RUPO represents the unrecognized revenue value of active contracts with customers as determined under ASC Topic 606. 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 October 31, 2019, the Company had RUPO of $817.8 million. The largest portion of RUPO relates to engineering, construction and procurement service contracts with typical performance durations of 2 to 3 years. The Company estimates that the percentages of RUPO at October 31, 2019 expected to be recognized as revenues during the three months ending January 31, 2020 and the year ending January 31, 2021 are 9% and 31%, respectively, with the remaining amount of RUPO expected to be recognizrd during the following two years. Although the amount of reported RUPO represents business that is considered to be firm, it is important to note that cancellations, deferrals or scope adjustments may occur. RUPO may be adjusted to reflect any known project cancellations, revisions to project scope and cost, foreign currency exchange fluctuations and project deferrals, as applicable.

 

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Disaggregation of Revenues

 

The consolidated revenues are disaggregated by reportable segment in Note 14 to the condensed consolidated financial statements. The amounts of revenues earned under fixed-price contracts during the nine-month periods ended October 31, 2019 and 2018, were approximately 76% and 91%, respectively, of the corresponding consolidated revenues for the periods.

 

The following table presents consolidated revenues for the three and nine months ended October 31, 2019 and 2018, disaggregated by the geographic area where the work was performed:

 

		Three Months Ended October 31,						Nine Months Ended October 31,
		2019			2018			2019			2018
United States		$	39,629		$	87,892		$	117,045		$	320,985
United Kingdom		10,349			19,708			35,631			53,866
Republic of Ireland		8,256			8,698			18,007			18,857
Other		172			161			326			787
Totals		$	58,406		$	116,459		$	171,009		$	394,495

 

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

 

At October 31 and January 31, 2019, a significant amount of cash and cash equivalents was invested in a mutual fund 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. 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 October 31 and January 31, 2019 consisted solely of certificates of deposit purchased from Bank of America (the “Bank”) with weighted average initial maturities of 147 days and 250 days, respectively (the “CDs”). 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. The total carrying value amounts as of October 31 and January 31, 2019 included accrued interest of $0.1 million and $1.2 million, respectively. Interest income is recorded when earned and is included in other income. At October 31 and January 31, 2019, the weighted average annual interest rates of the CDs were 1.9% and 2.6%, respectively. In addition, the Company has a substantial portion of its cash on deposit at the Bank in excess of federally insured limits. Management does not believe that the combined amount of the CD investments and the cash deposited with the Bank represents a material risk.

 

NOTE 4 — ACCOUNTS AND NOTES RECEIVABLE

 

At October 31 and January 31, 2019, there were outstanding invoices, with balances included in accounts receivable and contract assets, in the aggregate amounts of $19.6 million and $17.1 million, respectively, for which the collection time will most likely depend on the resolution of the outstanding legal dispute between the parties (see Note 8). At October 31 and January 31, 2019, Company’s allowance for uncollectible accounts was insignificant. The amounts of the provision for uncollectible accounts and notes receivable for the three and nine months ended October 31, 2019 and 2018 were also insignificant.

 

NOTE 5 — PURCHASED INTANGIBLE ASSETS

 

Primarily due to the significant reduction of the fair value of the business of APC deemed to have occurred as a result of the substantial contract loss discussed in Note 2 above, the Company recorded an impairment loss in the first quarter ended April 30, 2019 in the amount of $2.1 million, which was the balance of goodwill associated with APC included in the condensed consolidated balance sheet as of January 31, 2019. At October 31 and January 31, 2019, the goodwill balances related to the acquisitions of GPS and TRC were $18.5 million and $12.3 million, respectively. No other changes were made to the balances of goodwill during the nine-month periods ended October 31, 2019 or 2018.

 

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The Company’s purchased intangible assets, other than goodwill, consisted of the following elements as of October 31 and January 31, 2019:

 

				October 31, 2019									January 31,
		Estimated Useful Life		Gross Amount			Accumulated Amortization			Net Amount			2019 (net amount)
Trade names		15 years		$	8,323		$	4,442		$	3,881		$	4,424
Process certifications		7 years		1,897			1,062			835			1,039
Customer relationships		4-10 years		1,346			789			557			674
Totals				$	11,566		$	6,293		$	5,273		$	6,137

 

NOTE 6 — FINANCING ARRANGEMENTS

 

The Company maintains financing arrangements with the Bank that are described in an Amended and Restated Replacement Credit Agreement (the “Credit Agreement”), dated May 15, 2017. The Credit Agreement provides a revolving loan with a maximum borrowing amount of $50.0 million that is available until May 31, 2021 with interest at the 30-day LIBOR plus 2.0%. 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. At October 31 and January 31, 2019, the Company had letters of credit outstanding under the Credit Agreement, but no borrowings, in the approximate amounts of $10.0 million and $15.2 million, respectively, most of which related to the TeesREP project (see Note 2). 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 also includes other terms, covenants and events of default that are customary for a credit facility of its size and nature. As of October 31 and January 31, 2019, the Company was compliant with the financial covenants of the Credit Agreement.

 

NOTE 7 — COMMITMENTS

 

Leases

 

Management determines if a contract is or contains a lease at inception or upon modification of the contract. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period in exchange for consideration. Control over the use of the identified asset means the lessee has both (a) the right to obtain substantially all of the economic benefits from the use of the asset and (b) the right to direct the use of the asset. The Company has made the election, as permitted by the new standard, not to apply the new accounting to those leases with terms of twelve (12) months or less and that do not include options to purchase the underlying assets that the Company is reasonably certain to exercise. Finally, the Company elected to utilize the package of permitted practical expedients that, upon adoption of ASC Topic 842, allows entities to not reassess whether any existing contracts are or contain leases.

 

The Company’s operating leases primarily cover office space that expire on various dates through May 2024; it has no finance leases. Certain leases contain renewal options, which are included in expected lease terms if they are reasonably certain of being exercised by the Company. None of the operating leases include 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.

 

Operating lease right-of-use assets and associated lease liabilities are recognized 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 based on the information available at commencement date in determining the present value of future payments. The expected lease term includes an option to extend or to terminate the lease when it is reasonably certain the Company will exercise such option. Lease expense for minimum lease payments is recognized on a straight-line basis over the expected lease term. Operating lease expense amounts for the three and nine months ended October 31, 2019 were $0.2 million and $0.5 million, respectively. For operating leases as of October 31, 2019, the weighted average lease term was 37 months and the weighted average discount rate was 4.3%.

 

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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 October 31, 2019:

 

Years ending January 31,
Remainder of 2020		$	193
2021		485
2022		378
2023		197
2024		140
Thereafter		23
Total lease payments		1,416
Less interest portion		98
Present value of lease payments		1,318
Less current portion (included in accrued expenses)		755
Non-current portion		$	563

 

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 nine months ended October 31, 2019 were $0.9 million and $3.2 million, respectively. Rent expense amounts 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 nine months ended October 31, 2019 were $0.1 million and $0.5 million, respectively. Rent expense amounts incurred on construction projects and included in the costs of revenues for the three and nine months ended October 31, 2018 were approximately $1.7 million and $9.9 million, respectively. Rent expense amounts included in selling, general and administrative expenses for the three and nine months ended October 31, 2018 were $0.2 million and $0.5 million, respectively.

 

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 projects would be available and monetary damages or other costs or losses would be determined to be probable, the Company would record such guarantee losses. Any amounts that may be required to be paid in excess of the estimated costs to complete contracts in progress as of October 31, 2019 are not estimable. Argan has provided a parent company performance guarantee and has caused the Bank to issue certain letters of credit (see Note 6) to Técnicas Reunidas (“TR”), the engineering, procurement and construction services (“EPC”) contractor on the TeesREP Biomass Power Station Project, on behalf of APC, a major subcontractor to TR on this project.

 

Warranties

 

The Company generally provides assurance-type warranties for work performed under its construction contracts which do not represent separate performance obligations. 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.

 

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NOTE 8 — LEGAL MATTERS

 

In the normal course of business, the Company may also have pending claims and legal proceedings. It is the opinion of management, based on information available at this time, that there are no current claims and proceedings that could have a material adverse effect on the Company’s condensed consolidated financial statements except for the 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”) 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. Nonetheless, GPS continued to perform the efforts required by the contract to complete the project. On March 7, 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.

 

Among other actions, Exelon issued a contractual notice requiring GPS to vacate the construction site, made claims against GPS and withheld payments from GPS on invoices prepared and rendered in accordance with the terms of the EPC contract between the parties. In summary, the Company’s position is that Exelon wrongfully terminated GPS, materially breached the EPC contract and received the benefits of the construction work performed by GPS without making payments for the value received.

 

With vigor, GPS will continue to assert its rights under the EPC contract, to pursue the collection from Exelon of amounts owed under the EPC contract (see Note 4) and to defend itself against Exelon’s allegations that GPS did not perform in accordance with the contract. The legal process associated with the lawsuit filed by GPS has begun as the parties recently agreed to discovery and confidentiality protocols.

 

NOTE 9 — STOCK-BASED COMPENSATION

 

The Company’s board of directors may make awards under the 2011 Stock Plan (the “Stock Plan”) to officers, directors and key employees. Awards may include incentive stock options (“ISOs”), nonqualified stock options (“NSOs”), and restricted or unrestricted stock. All stock options awarded under the Stock Plan shall have an exercise price per share at least equal to the common stock’s market value per share at the date of grant. ISOs shall have a term no longer than ten years; NSOs may have up to a ten-year term. In the past, stock options typically became exercisable one year from the date of award. Commencing in January 2018, stock options have been awarded with three-year vesting schedules. As of October 31, 2019, there were approximately 1.7 million shares of the Company’s common stock reserved for issuance under the Company’s Stock Plan. This number includes 443,500 shares of the Company’s common stock available for future awards.

 

Summaries of stock option activity under the Company’s stock option plans for the nine months ended October 31, 2019 and 2018, along with corresponding weighted average per share amounts, are presented below (shares in thousands):

 

		Shares		Exercise Price			Remaining Term (years)		Fair Value
Outstanding, February 1, 2019		1,140		$	44.01		7.54		$	11.22
Granted		168		$	46.67
Exercised		(59	)	$	26.36
Forfeited		(38	)	$	46.34
Outstanding, October 31, 2019		1,211		$	45.18		7.28		$	11.27
Exercisable, October 31, 2019		753		$	45.81		6.25		$	10.22

 

		Shares		Exercise Price			Remaining Term (years)		Fair Value
Outstanding, February 1, 2018		889		$	44.83		7.91		$	11.74
Granted		192		$	40.32
Exercised		(3	)	$	17.33
Outstanding, October 31, 2018		1,078		$	44.11		7.63		$	11.33
Exercisable, October 31, 2018		709		$	44.57		6.69		$	11.77

 

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The changes in the number of non-vested options to purchase shares of common stock for the nine months ended October 31, 2019 and 2018, and the weighted average fair value per share for each number, are presented below (shares in thousands):

 

		Shares		Fair Value
Non-vested, February 1, 2019		375		$	10.05
Granted		168		$	10.32
Vested		(57	)	$	9.28
Forfeited		(28	)	$	10.47
Non-vested, October 31, 2019		458		$	10.22

 

		Shares		Fair Value
Non-vested, February 1, 2018		302		$	13.55
Granted		192		$	9.35
Vested		(125	)	$	16.19
Non-vested, October 31, 2018		369		$	10.47

 

The total intrinsic value of the stock options exercised during the nine months ended October 31, 2019 was $1.4 million. The total intrinsic value of the stock options exercised during the nine months ended October 31, 2018 was $0.1 million. At October 31, 2019, 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 $3.0 million.

 

The Company estimates the fair value of each stock option on the date of award using the Black-Scholes 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. The fair value amounts for stock options granted during the periods presented herein were estimated on the corresponding dates of award based on the following weighted average assumptions:

 

		Nine Months Ended October 31,
		2019		2018
Dividend yield		2.2	%	2.5	%
Expected volatility		33.1	%	35.0	%
Risk-free interest rate		2.0	%	2.4	%
Expected life (in years)		3.3		3.3

 

In April 2019 and 2018, and pursuant to terms of the Stock Plan, the Company awarded performance-based restricted stock units to two senior executives covering up to 36,000 shares of common stock at each date 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 release of the stock restrictions depends on the total shareholder return performance of the Company’s common stock measured against the performance of a peer-group of common stocks over three-year periods. The award-date fair value amounts for restricted stock units were 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, by assigning equal probabilities to the thirteen possible payout outcomes at the ends of the three-year vesting periods, and by computing the weighted average of the outcome amounts. For each case, 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.

 

The fair values of stock options and restricted stock units are recorded as stock compensation expense over the vesting periods of the corresponding awards. Expense amounts related to stock awards were $0.6 million and $0.3 million for the three months ended October 31, 2019 and 2018, respectively, and were $1.5 million and $1.2 million for the nine months ended October 31, 2019 and 2018, respectively. At October 31, 2019, there was $3.1 million in unrecognized compensation cost related to outstanding stock awards that the Company expects to expense over the next three years.

 

NOTE 10 — CASH DIVIDENDS

 

On September 10, 2019, the Company’s board of directors declared a regular quarterly cash dividend in the amount of $0.25 per share of common stock, which was paid on October 31, 2019 to stockholders of record at the close of business on October 23, 2019. In April and June 2019, the board of directors declared regular quarterly cash dividends of $0.25 per share of common stock, which were paid to stockholders on April 30, 2019 and July 31, 2019, respectively. During the nine-month period ended October 31, 2018, the board of directors declared regular quarterly cash dividends, each in the amount of $0.25 per share of common stock, which were paid to stockholders on October 31, 2018, July 31, 2018 and April 30, 2018, respectively.

 

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NOTE 11 — INCOME TAXES

 

Income Tax Expense Reconciliation

 

The Company’s income tax amounts for the nine months ended October 31, 2019 and 2018 differed from corresponding amounts computed by applying the federal corporate income tax rate of 21% to loss or income before income taxes for the periods as shown in the table below.

 

		Nine Months Ended October 31,
		2019			2018
Computed expected income tax benefit (expense)		$	8,070		$	(10,427	)
Differences resulting from:
State income taxes, net of federal tax effect		185			676
Federal research and development credits		—			13,866
Net operating loss deemed unrealizable		(6,280		)	1,730
Bad debt loss		5,026			—
Foreign tax differential		(766		)	—
Adjustments and other permanent differences		(1,299		)	(1,336		)
Income tax benefit		$	4,936		$	4,509

 

Foreign income tax expense amounts for the nine months ended October 31, 2019 and 2018 were not material. As presented above, a valuation allowance in the amount of $6.3 million was established against the deferred tax asset amount created by the net operation loss of APC’s subsidiary in the United Kingdom for the nine months ended October 31, 2019. However, this effect was substantially offset by an income tax benefit (federal and state) for the nine months ended October 31, 2019 in the amount of approximately $5.9 million which is the estimated favorable income tax impact of bad debt loss on loans made to APC from Argan, which were determined to be uncollectible during the nine-month period ended October 31, 2019.

 

Research and Development Tax Credits

 

During the three-month period ended October 31, 2018, 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 credits that may be 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 the consolidated financial statements last year was $16.6 million, which amount is before an unfavorable adjustment recorded in the nine-month period ended October 31, 2019 in the amount of $0.4 million. As described below, the Internal Revenue Service (the “IRS”) is examining the research and development credits that were included in the amendments of the Company’s consolidated federal income tax returns for the years ended January 31, 2016 and 2017 that were filed in January 2019. The Company does not anticipate any significant unfavorable changes to its income taxes to arise from the completion of these examinations.

 

The amount of identified but unrecognized income tax benefits related to research and development credits as of October 31, 2019 was $4.9 million, for which the Company has established a liability for uncertain income tax return positions, most of which is included in accrued expenses. The amount of the liability was $5.1 million as of January 31, 2019. 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 settlement and/or expiration of statutes of limitation over the next 12 months. As of October 31, 2019, the Company does not believe that it has any other material uncertain income tax positions reflected in its accounts.

 

Income Tax Returns

 

The Company is subject to income taxes in the United States, the Republic of Ireland, the United Kingdom and various other state and foreign jurisdictions. 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, 2016 except for several notable exceptions including the Republic of Ireland, the United Kingdom and several states where the open periods are one year longer.

 

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The IRS conducted an examination of the Company’s original federal consolidated income tax return for the year ended January 31, 2016. The IRS represented to the Company that no unfavorable adjustment items were noted during the examination. However, the Company has consented to an extension of the audit timeline which will enable the IRS to examine the amendment to the income tax return, which includes the research and development credit for the year. In addition, the IRS has commenced an examination of the Company’s amended consolidated income tax return for the year ended January 31, 2017. To date, the Company has provided supporting documentation related to the credits and written responses to certain questions as requested by the IRS. No audit findings have been communicated to the Company yet.

 

At October 31 and January 31, 2019, the amounts of other current assets presented in the condensed consolidated balance sheets included income tax refunds and prepaid income taxes in the combined amounts of $14.9 million and $19.5 million, respectively. The income tax refunds are amounts expected to be received from taxing authorities based on the amended tax returns claiming research and development tax credits in prior years.

 

NOTE 12 — (LOSS) INCOME PER SHARE ATTRIBUTABLE TO THE STOCKHOLDERS OF ARGAN, INC.

 

Basic and diluted (loss) income per share are computed as follows (shares in thousands except in note (1) below the charts):

 

		Three Months Ended October 31,
		2019			2018
Net (loss) income attributable to the stockholders of Argan, Inc.		$	(6,855	)	$	32,434
Weighted average number of shares outstanding - basic		15,633			15,569
Effects of stock awards (1)		—			133
Weighted average number of shares outstanding - diluted		15,633			15,702
Net (loss) income per share attributable to the stockholders of Argan, Inc.
Basic		$	(0.44	)	$	2.08
Diluted		$	(0.44	)	$	2.07

 

		Nine Months Ended October 31,
		2019			2018
Net (loss) income attributable to the stockholders of Argan, Inc.		$	(35,501	)	$	54,243
Weighted average number of shares outstanding - basic		15,617			15,568
Effects of stock awards (1)		—			117
Weighted average number of shares outstanding - diluted		15,617			15,685
Net (loss) income per share attributable to the stockholders of Argan, Inc.
Basic		$	(2.27	)	$	3.48
Diluted		$	(2.27	)	$	3.46

 

---

(1)                     For the three and nine months ended October 31, 2019, the weighted average numbers of shares determined on a dilutive basis excludes the effects of outstanding stock awards. All common stock equivalents are considered to be antidilutive for these periods as the Company incurred net losses in each period. The weighted average numbers for the three and nine months ended October 31, 2018 exclude the effects of antidilutive stock options covering 581,500 shares for each period; the options had exercise prices per share in excess of the average market price per share for each period.

 

NOTE 13 — CUSTOMER CONCENTRATIONS

 

Historically, the majority of the Company’s consolidated revenues has related to the power industry services segment which provided 61% and 76% of consolidated revenues for the three months ended October 31, 2019 and 2018, respectively, and 49% and 80% of consolidated revenues for the nine months ended October 31, 2019 and 2018, respectively. The industrial services segment represented 34% and 21% of consolidated revenues for the three months ended October 31, 2019 and 2018, respectively, and 47% and 17% of consolidated revenues for the nine months ended October 31, 2019 and 2018, respectively.

 

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