Argan(AGX) - 2021 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section details Argan, Inc.'s unaudited condensed consolidated financial statements and management's analysis ITEM 1. FINANCIAL STATEMENTS Presents unaudited condensed consolidated financial statements and detailed notes for Q1 2020 and 2019 Condensed Consolidated Statements of Earnings Net loss significantly reduced in Q1 2020 due to increased revenues and a shift to gross profit Condensed Consolidated Statements of Earnings (Three Months Ended April 30, $ thousands) | Metric | Three Months Ended April 30, 2020 ($ thousands) | Three Months Ended April 30, 2019 ($ thousands) | | :---------------------------------------------- | :---------------------------------------------- | :---------------------------------------------- | | REVENUES | 60,148 | 49,544 | | Cost of revenues | 56,139 | 70,570 | | GROSS PROFIT (LOSS) | 4,009 | (21,026) | | Selling, general and administrative expenses | 10,344 | 9,588 | | Impairment loss | — | 2,072 | | LOSS FROM OPERATIONS | (6,335) | (32,686) | | Other income, net | 1,088 | 2,252 | | LOSS BEFORE INCOME TAXES | (5,247) | (30,434) | | Income tax benefit | 4,454 | 521 | | NET LOSS | (793) | (29,913) | | Net loss attributable to non-controlling interests | (30) | (113) |\ | NET LOSS ATTRIBUTABLE TO THE STOCKHOLDERS OF ARGAN, INC. | (763) | (29,800) | | Basic Net Loss Per Share | (0.05) | (1.91) | | Diluted Net Loss Per Share | (0.05) | (1.91) | | Cash Dividends Per Share | 0.25 | 0.25 | Condensed Consolidated Balance Sheets Cash, equivalents, and total assets increased, while liabilities rose and equity slightly decreased Condensed Consolidated Balance Sheets (as of period end, $ thousands) | Metric | April 30, 2020 (Unaudited, $ thousands) | January 31, 2020 (Note 1, $ thousands) | | :---------------------------- | :-------------------------------------- | :------------------------------------- | | Cash and cash equivalents | 262,927 | 167,363 | | Short-term investments | 100,617 | 160,499 | | Accounts receivable, net | 22,212 | 37,192 |\ | Contract assets | 33,035 | 33,379 |\ | Other current assets | 36,945 | 23,322 |\ | TOTAL CURRENT ASSETS | 455,736 | 421,755 |\ | Property, plant and equipment, net | 22,124 | 22,539 |\ | Goodwill | 27,943 | 27,943 |\ | Other purchased intangible assets, net | 4,776 | 5,001 |\ | Deferred taxes | — | 7,894 |\ | Right-of-use and other assets | 2,385 | 2,408 |\ | TOTAL ASSETS | 512,964 | 487,540 |\ | Accounts payable | 34,322 | 35,442 |\ | Accrued expenses | 28,959 | 35,907 |\ | Contract liabilities | 109,825 | 72,685 |\ | TOTAL CURRENT LIABILITIES | 173,106 | 144,034 |\ | Deferred taxes | 320 | — |\ | Other noncurrent liabilities | 2,638 | 2,476 |\ | TOTAL LIABILITIES | 176,064 | 146,510 |\ | TOTAL STOCKHOLDERS' EQUITY | 335,149 | 339,249 |\ | Non-controlling interests | 1,751 | 1,781 |\ | TOTAL EQUITY | 336,900 | 341,030 |\ | TOTAL LIABILITIES AND EQUITY | 512,964 | 487,540 | Condensed Consolidated Statements of Stockholders' Equity Details changes in equity from net loss, currency, stock compensation, options, and dividends Condensed Consolidated Statements of Stockholders' Equity (Three Months Ended April 30, $ thousands) | Item | Three Months Ended April 30, 2020 ($ thousands) | Three Months Ended April 30, 2019 ($ thousands) | | :-------------------------------------- | :---------------------------------------------- | :---------------------------------------------- | | Balances, February 1 | 341,030 | 394,372 | | Net loss | (763) | (29,800) | | Foreign currency translation loss | (246) | (1,054) | | Stock compensation expense | 642 | 413 | | Stock option exercises | 177 | 1,567 | | Cash dividends | (3,910) | (3,895) | | Balances, April 30 | 336,900 | 361,490 | Condensed Consolidated Statements of Cash Flows Operating cash flow significantly improved in Q1 2020, boosting cash and cash equivalents Condensed Consolidated Statements of Cash Flows (Three Months Ended April 30, $ thousands) | Cash Flow Activity | Three Months Ended April 30, 2020 ($ thousands) | Three Months Ended April 30, 2019 ($ thousands) | | :-------------------------------------- | :---------------------------------------------- | :---------------------------------------------- | | Net cash provided by (used in) operating activities | 40,187 | (36,382) | | Net cash provided by investing activities | 59,316 | 7,015 | | Net cash used in financing activities | (3,733) | (2,328) | | EFFECTS OF EXCHANGE RATE CHANGES ON CASH | (206) | (235) | | NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 95,564 | (31,930) | | CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 167,363 | 164,318 | | CASH AND CASH EQUIVALENTS, END OF PERIOD | 262,927 | 132,388 | Notes to Condensed Consolidated Financial Statements Detailed notes explain business, accounting policies, revenue, financial instruments, and segment performance NOTE 1 – DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION Argan operates through subsidiaries in power, industrial, and telecom services; statements are unaudited per SEC rules - Argan, Inc. conducts operations through wholly-owned subsidiaries: Gemma Power Systems (GPS), The Roberts Company (TRC), Atlantic Projects Company (APC), and Southern Maryland Cable (SMC)[15] - Business segments include power industry services (GPS and APC), industrial fabrication and field services (TRC), and telecommunications infrastructure services (SMC)[15] - The condensed consolidated financial statements are unaudited and prepared under SEC rules, condensing certain US GAAP disclosures, and should be read in conjunction with the annual Form 10-K[18][19] NOTE 2 – REVENUES FROM CONTRACT WITH CUSTOMERS Revenue from long-term contracts, TeesREP project loss and COVID-19 suspension, RUPO at $761.8 million - Revenue recognition follows a five-step model, primarily over time for long-term construction contracts (fixed-price or time-and-materials) using the percentage-of-completion method[26][28] - The TeesREP project incurred a $27.6 million net loss in Q1 2019, with an additional $2.7 million net loss recorded in Q1 2020, bringing the total expected loss at completion to approximately $36.2 million[37][38][110] - Construction on the TeesREP project was suspended on March 24, 2020, due to the COVID-19 pandemic, with approximately 90% of subcontracted work completed[40][112] Consolidated Revenues by Geographic Area (Three Months Ended April 30) | Geographic Area | 2020 ($ thousands) | 2019 ($ thousands) | | :------------------ | :----------------- | :----------------- | | United States | 48,865 | 39,766 | | United Kingdom | 10,296 | 5,644 | | Republic of Ireland | 987 | 4,003 | | Other | — | 111 | | Totals | 60,148 | 49,544 | - Remaining Unsatisfied Performance Obligations (RUPO) were $761.8 million at April 30, 2020, with an estimated 36% expected to be recognized in the final three quarters of fiscal year ending January 31, 2021[42] NOTE 3 – CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS Company holds significant cash and short-term investments, with much of it exceeding insured limits - A significant amount of cash and cash equivalents is invested in a mutual fund with net assets in high-quality money market instruments[46] - Short-term investments consist solely of certificates of deposit (CDs) from Bank of America, with weighted average initial maturities of 187 days (April 30, 2020) and 165 days (January 31, 2020)[47] - The weighted average annual interest rate of the CDs was 1.8% at both April 30 and January 31, 2020[47] NOTE 4 – ACCOUNTS AND NOTES RECEIVABLE Credit extended based on customer financial condition; $24.5 million in receivables tied to a legal dispute - Outstanding invoices and unbilled costs from one former customer totaled $24.5 million as of April 30, 2020, with recovery dependent on the resolution of a legal dispute[48] - Expected credit losses were insignificant as of April 30, 2020, and February 1, 2020[49] NOTE 5 – PURCHASED INTANGIBLE ASSETS $2.1 million goodwill impairment for APC in Q1 2019; other goodwill and intangibles detailed - An impairment loss of $2.1 million was recorded in Q1 2019 for APC's goodwill due to a significant contract loss[50] - Goodwill balances for GPS and TRC were $18.5 million and $9.5 million, respectively, at April 30, 2020, and January 31, 2020, with no changes during the three-month periods[50] Purchased Intangible Assets (Net Amount at April 30, 2020) | Asset Type | Net Amount ($ thousands) | | :------------------- | :----------------------- | | Trade names | 3,564 | | Process certifications | 700 | | Customer relationships | 512 | | Totals | 4,776 | NOTE 6 – FINANCING ARRANGEMENTS $50.0 million revolving loan facility with $9.3 million in outstanding LCs, no borrowings, and covenant compliance - The company has a Credit Agreement providing a $50.0 million revolving loan facility available until May 31, 2021, with interest at 30-day LIBOR plus 2.0%[52] - As of April 30, 2020, outstanding credit under the Credit Agreement was approximately $9.3 million (primarily related to the TeesREP project), with no borrowings[52] - The company was in compliance with all financial covenants of the Credit Agreement as of April 30 and January 31, 2020[53] NOTE 7 – COMMITMENTS Commitments include operating leases, performance bonds, parent guarantees, and assurance warranties - Operating leases primarily cover office space, expiring through May 2024, with a weighted average lease term of 33 months and a discount rate of 4.0% as of April 30, 2020[55][57] Future Minimum Lease Payments for Operating Leases (April 30, 2020) | Year | Amount ($ thousands) | | :------------------ | :------------------- | | Remainder of 2021 | 941 | | 2022 | 790 | | 2023 | 344 | | 2024 | 178 | | 2025 | 26 | | Total lease payments | 2,279 | | Less interest portion | 123 | | Present value of lease payments | 2,156 | | Less current portion | 1,593 | | Non-current portion | 563 | - Argan has provided a parent company performance guarantee and caused the Bank to issue letters of credit for the TeesREP project on behalf of APC[62] - A financial guarantee of $3.6 million was provided on behalf of GPS to an original equipment manufacturer, supporting a new EPC services contract award[63] - Assurance-type warranties are provided for construction contracts, typically 9-24 months, with accruals for estimated future costs included in accrued expenses[64] NOTE 8 – LEGAL CONTINGENCIES GPS sued Exelon in January 2019 for breach of contract and withheld payments; litigation is ongoing - GPS filed a lawsuit against Exelon in January 2019 for breach of contract and failure to remedy conditions impacting the schedule and costs of a gas-fired power plant project[66] - Exelon terminated the EPC contract and withheld payments despite the project being nearly complete, asserting GPS failed to fulfill obligations[66] - Litigation activities in Fiscal 2021 have focused on pre-trial preparations, with potential delays in discovery due to COVID-19 restrictions[67] NOTE 9 – STOCK-BASED COMPENSATION Company uses 2011/2020 Stock Plans; Q1 2020 expense increased, $3.6 million unrecognized costs remain - The 2011 Stock Plan allows awards of nonqualified stock options, incentive stock options, and restricted/unrestricted stock to officers, directors, and key employees[68] - The board approved the 2020 Stock Plan in April 2020, pending stockholder approval, allocating 500,000 shares, with features similar to the 2011 Plan[70] - Stock compensation expense was $0.6 million for Q1 2020, up from $0.4 million in Q1 2019[74] - As of April 30, 2020, $3.6 million in unrecognized compensation cost related to outstanding stock awards is expected to be expensed over the next three years[74] Weighted Average Assumptions for Black-Scholes Option-Pricing Model (Three Months Ended April 30) | Assumption | 2020 | 2019 | | :---------------------- | :---- | :---- | | Dividend yield | 3.0% | 2.0% | | Expected volatility | 30.0% | 34.0% | | Risk-free interest rate | 0.5% | 2.4% | | Expected life (in years)| 3.4 | 3.3 | NOTE 10 – INCOME TAXES Significant Q1 2020 income tax benefit from CARES Act NOL carryback; R&D credits under IRS review Income Tax Benefit (Three Months Ended April 30, $ thousands) | Metric | 2020 ($ thousands) | 2019 ($ thousands) | | :--------------------- | :----------------- | :----------------- | | Income tax benefit | 4,454 | 521 | - The CARES Act enabled a carryback of the Fiscal 2020 net operating loss (approximately $38.5 million) to Fiscal 2015, resulting in an estimated $4.2 million rate income tax benefit recorded in Q1 2020[80][163] - Unrecognized income tax benefits related to research and development credits totaled $5.0 million as of April 30, 2020, with ongoing IRS examinations for Fiscal 2016 and 2017[83][86] - Balances of income tax refunds and prepaid income taxes in other current assets were approximately $21.4 million at April 30, 2020, up from $14.5 million at January 31, 2020[84] NOTE 11 – NET LOSS PER SHARE ATTRIBUTABLE TO THE STOCKHOLDERS OF ARGAN, INC. Basic and diluted net loss per share improved to $(0.05) in Q1 2020; all equivalents were antidilutive Net Loss Per Share Attributable to Stockholders (Three Months Ended April 30, $) | Metric | 2020 ($) | 2019 ($) | | :------------------------------------ | :------- | :------- | | Basic Net Loss Per Share | (0.05) | (1.91) | | Diluted Net Loss Per Share | (0.05) | (1.91) | - All common stock equivalents (1,483,151 shares in 2020 and 1,190,913 shares in 2019) were considered antidilutive due to the net loss incurred in each period[89] NOTE 12 – CASH DIVIDENDS Regular quarterly cash dividend of $0.25 per share paid in April 2020 and 2019 - A regular quarterly cash dividend of $0.25 per share of common stock was declared and paid on April 30, 2020, and April 30, 2019[90] NOTE 13 – CUSTOMER CONCENTRATIONS Significant customer concentration, with power services driving most revenues and receivables - The power industry services segment accounted for 81% of consolidated revenues in Q1 2020, a significant increase from 41% in Q1 2019[91] - Two power industry service customers accounted for 61% and 17% of consolidated revenues, respectively, for the three months ended April 30, 2020[92] - One major customer's accounts receivable balance represented 33% of the consolidated balance as of April 30, 2020[93] NOTE 14 – SEGMENT REPORTING Disaggregated financial data for Power, Industrial, and Telecom segments, detailing revenues, costs, and assets Segment Operating Results (Three Months Ended April 30, 2020, $ thousands) | Metric | Power Services | Industrial Services | Telecom Services | Other | Totals | | :----------------------------- | :------------- | :------------------ | :--------------- | :---- | :----- | | Revenues | 48,612 | 9,744 | 1,792 | — | 60,148 | | Cost of revenues | 45,710 | 8,982 | 1,447 | — | 56,139 | | Gross profit | 2,902 | 762 | 345 | — | 4,009 | | Selling, general and administrative expenses | 5,928 | 2,123 | 488 | 1,805 | 10,344 | | Loss from operations | (3,026) | (1,361) | (143) | (1,805) | (6,335) | Segment Assets (April 30, 2020, $ thousands) | Metric | Power Services | Industrial Services | Telecom Services | Other | Totals | | :---------------- | :------------- | :------------------ | :--------------- | :------ | :------ |\ | Current assets | 316,753 | 22,916 | 2,434 | 113,633 | 455,736 |\ | Current liabilities | 163,674 | 8,184 | 793 | 455 | 173,106 |\ | Goodwill | 18,476 | 9,467 | — | — | 27,943 |\ | Total assets | 348,577 | 46,411 | 4,013 | 113,963 | 512,964 | ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management analyzes Q1 2020 and 2019 financials, operations, market, COVID-19 impacts, and accounting policies Business Description Argan is a holding company operating through subsidiaries in power, industrial, and telecom services - Argan is a holding company operating through GPS and APC (power industry services), TRC (industrial fabrication and field services), and SMC (telecommunications infrastructure services)[105] - The company seeks additional acquisitions and/or investments in companies with potential for profitable growth across various industrial focuses[106] Overview Q1 2020 results impacted by TeesREP loss and COVID-19; revenues increased, net loss significantly reduced - The TeesREP project continued to incur net losses, with an additional $2.7 million recorded in Q1 2020, bringing the total expected loss to $36.2 million. Construction was suspended on March 24, 2020, due to COVID-19[110][112] - The ramp-up of the Guernsey Power Station project favorably impacted Q1 2020 revenues and consolidated cash flow[114] - Consolidated revenues for Q1 2020 increased by 21.4% to $60.1 million (from $49.5 million in Q1 2019), primarily due to GPS's increasing revenues[115] - All businesses were adversely impacted by the COVID-19 outbreak, leading to project postponements (APC), challenges in managing projects (GPS), and project delays (TRC, SMC)[116] - Consolidated net loss attributable to stockholders was $(0.8) million, or $(0.05) per diluted share, for Q1 2020, a significant improvement from $(29.8) million, or $(1.91) per diluted share, in Q1 2019[121] Major Customer Contracts GPS secured new EPC contracts, building a $1.3 billion backlog, but project starts face delays - GPS entered into new EPC services contracts for the 920 MW Brooke County Power plant and the 650 MW Killingly Energy Center, with construction scheduled to start in 2020 pending financial close[122] - Project backlog was approximately $1.3 billion at both April 30 and January 31, 2020[126] - Delays in new business awards and project starts are attributed to capital market uncertainty, PJM Interconnection LLC regulatory changes (raising bids for subsidized resources), and increased environmental activism against fossil-fuel projects[128][129][130] - The aggregate rated electrical output for signed EPC services contracts is approximately 7.3 gigawatts with an aggregate contract value exceeding $3.0 billion[126] Market Outlook Favorable natural gas power market outlook despite COVID-19 generation decline; fewer EPC competitors - In 2019, natural gas-fired power plants generated 38.4% of total US electric power (up from 35.2% in 2018), while wind and solar combined for 10.8% (up from 9.9%), and coal declined to 23.5% (from 27.4%)[133] - The EIA forecasts a 5% decline in total US electric power generation in 2020 due to COVID-19, with coal-fired generation falling 25%, natural gas remaining relatively flat, and renewables growing 11%[136] - Long-term EIA outlook (2020) predicts natural gas-fired power generating capacity to increase by 67% by 2050, while coal and nuclear capacity are expected to decline significantly[137] - The competitive landscape for EPC services in natural gas-fired power plant construction has fewer competitors, with some exiting the market or avoiding fixed-price contracts[138] - The company is committed to pursuing new construction projects and is willing to make investments in project development/ownership to secure related EPC services contracts, leveraging its strong balance sheet[140] Impacts of the COVID-19 Pandemic on Our Business Operations COVID-19 caused project delays and revenue decline, but CARES Act provided tax benefits - Overseas operations (APC) experienced postponement of power plant outage/maintenance projects in Ireland, temporary furloughs, and suspension of the TeesREP project, leading to a ~25% decline in APC's Q1 2020 revenues[143][144] - US projects, like the Guernsey Power Station, continued construction under health and safety restrictions, with GPS monitoring supply-chain issues[145] - TRC and SMC revenues were negatively impacted by project delays attributable to the restrictive COVID-19 business environment[147] - Lower interest rates during the pandemic reduced cash investment returns, but the CARES Act allowed a net operating loss (NOL) carryback, providing a favorable income tax benefit[148] - Internal controls over financial reporting remained materially effective despite the shift to remote work arrangements[149] Comparison of the Results of Operations for the Three Months Ended April 30, 2020 and 2019 Q1 2020 net loss reduced by revenue growth and lower costs; tax benefit from CARES Act NOL carryback Operating Results Comparison (Three Months Ended April 30, $ thousands) | Metric | 2020 | 2019 | Change | % Change | | :---------------------------------------------- | :------ | :------ | :------ | :------- | | REVENUES | 60,148 | 49,544 | 10,604 | 21.4 | | Power industry services | 48,612 | 20,203 | 28,409 | 140.6 | | Industrial fabrication and field services | 9,744 | 27,069 | (17,325)| (64.0) | | Telecommunications infrastructure services | 1,792 | 2,272 | (480) | (21.1) | | COST OF REVENUES | 56,139 | 70,750 | (14,611)| (20.7) | | GROSS PROFIT (LOSS) | 4,009 | (21,026)| 25,035 | N/M | | Selling, general and administrative expenses | 10,344 | 9,588 | 756 | 7.9 | | Impairment loss | — | 2,072 | (2,072) | (100.0) | | LOSS FROM OPERATIONS | (6,335) | (32,686)| 26,351 | 80.6 | | Other income, net | 1,088 | 2,252 | (1,164) | (51.7) | | LOSS BEFORE INCOME TAXES | (5,247) | (30,434)| 25,187 | 82.8 | | Income tax benefit | 4,454 | 521 | 3,933 | 755.9 | | NET LOSS ATTRIBUTABLE TO THE STOCKHOLDERS OF ARGAN, INC. | (763) | (29,800)| 29,037 | 97.4 | - The power industry services segment's revenues increased by 140.6% to $48.6 million in Q1 2020, primarily due to the Guernsey Power Station construction, while industrial fabrication and telecommunications services saw declines[153][154][156] - Consolidated gross profit of $4.0 million in Q1 2020 (6.7% of revenues) contrasts with a gross loss of $21.0 million in Q1 2019, which included a $27.6 million net loss from the TeesREP project[157][158] - Other income, net, decreased by 51.7% due to a significant drop in interest rates affecting investment returns[161] - The income tax benefit of $4.5 million in Q1 2020 primarily reflects a $4.2 million benefit from the CARES Act's net operating loss carryback provision[162][163] Liquidity and Capital Resources as of April 30, 2020 Liquidity improved with increased cash and operating cash flow, driven by contract liabilities and tax refund Cash and Working Capital (as of period end, $ thousands) | Metric | April 30, 2020 | January 31, 2020 | | :---------------------- | :------------- | :--------------- | | Cash and cash equivalents | 262,900 | 167,400 | | Working capital | 282,600 | 277,700 | - Net cash provided by operating activities was $40.2 million for Q1 2020, a significant improvement from cash used in operations in Q1 2019[167] - Sources of cash included a temporary increase in contract liabilities ($37.1 million) and a reduction in accounts receivable ($15.0 million)[167] - An expected federal income tax refund of $12.3 million from the NOL carryback is included in other current assets[167] - The company's Credit Agreement provides a $50.0 million revolving loan facility, with $9.3 million in outstanding letters of credit and no borrowings as of April 30, 2020[173] - Management decided to temporarily maintain larger balances of cash and cash equivalents to assure optimum liquidity and mitigate market risks during the COVID-19 pandemic[180] Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA") EBITDA significantly improved in Q1 2020, reflecting better operating cash flow performance EBITDA (Three Months Ended April 30, $ thousands) | Metric | 2020 | 2019 | | :---------------------------------------------- | :------ | :------ | | Net loss, as reported | (793) | (29,913)| | Income tax benefit | (4,454) | (521) | | Depreciation | 937 | 829 | | Amortization of purchased intangible assets | 225 | 299 | | EBITDA | (4,085) | (29,306)| | EBITDA of non-controlling interests | (30) | (115) | | EBITDA attributable to the stockholders of Argan, Inc. | (4,055) | (29,191)| Reconciliation of EBITDA to Net Cash Provided by (Used in) Operating Activities (Three Months Ended April 30, $ thousands) | Item | 2020 | 2019 | | :---------------------------------------- | :------ | :------ | | EBITDA | (4,085) | (29,306)| | Current income tax benefit | 12,668 | 780 | | Stock option compensation expense | 642 | 413 | | Impairment loss | — | 2,072 | | Other non-cash items | 328 | 25 | | Decrease (increase) in accounts receivable| 14,980 | (12,049)| | (Increase) decrease in other assets | (13,600)| 3,808 | | Decrease in accounts payable and accrued expenses | (8,230) | (10,497)| | Change in contracts in progress, net | 37,484 | 8,372 | | Net cash provided by (used in) operating activities | 40,187| (36,382)| Critical Accounting Policies Critical accounting policies involve subjective judgments; no material changes occurred in Q1 2020 - Critical accounting policies include revenue recognition on long-term construction contracts, income tax reporting, accounting for business combinations, valuation of goodwill and other long-lived assets, employee stock options, and significant claims/legal matters[186] - No material changes in the application of critical accounting policies occurred during the three-month period ended April 30, 2020[186] Recently Issued Accounting Pronouncements Reviewed FASB ASUs 2019-12 and 2016-13; neither expected to materially affect financials - ASU 2019-12, Simplifying the Accounting for Income Taxes, effective February 1, 2021, is not expected to alter the company's current accounting for income taxes[187] - ASU 2016-13, Measurement of Credit Losses on Financial Instruments, adopted February 1, 2020, did not affect the company's consolidated financial statements[188] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risks include interest rates and commodity prices; no borrowings, LIBOR transition not material - The company had no outstanding borrowings under its $50.0 million revolving loan facility as of April 30, 2020[190] - The discontinuation of LIBOR at the end of 2021 is not expected to have significant effects on the company's financial arrangements or reporting[191] Hypothetical Impact of Interest Rate Changes on Pre-tax Loss (April 30, 2020, $ thousands) | Basis Point Change | Net Decrease (Increase) in Loss (pre-tax) | | :----------------- | :---------------------------------------- | | Up 300 | 509 | | Up 200 | 339 | | Up 100 | 170 | | Down 100 | (170) | | Down 175 | (288) | - The annual yield on money market funds decreased significantly from 1.49% at January 31, 2020, to 0.19% at April 30, 2020, due to lower interest rates, reducing investment returns[193] - The company is subject to commodity price fluctuations (copper, concrete, steel, fuel) but generally does not hedge, attempting to include anticipated price changes in its bids for fixed-price contracts[195] ITEM 4. CONTROLS AND PROCEDURES Management concluded disclosure controls were effective; no significant changes in internal control reported - Management, with CEO and CFO participation, concluded that disclosure controls and procedures were effective as of April 30, 2020, providing reasonable assurance for timely and accurate reporting[196] - No significant changes in internal control over financial reporting during the fiscal quarter ended April 30, 2020[197] PART II. OTHER INFORMATION This section provides other information, including legal proceedings, risk factors, and exhibits ITEM 1. LEGAL PROCEEDINGS Refers to Note 8 for legal proceedings; other claims not expected to materially affect financials - The status of a specific legal proceeding is discussed in Note 8 to the condensed consolidated financial statements[198] - Management believes that any other current claims or legal proceedings will not have a material adverse effect on the company's condensed consolidated financial statements[198] ITEM 1A. RISK FACTORS No material changes to risk factors previously disclosed in the Annual Report - No material changes to the risk factors disclosed in the company's Annual Report have occurred[199] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS No unregistered sales of equity securities or use of proceeds to disclose ITEM 3. DEFAULTS UPON SENIOR SECURITIES No defaults upon senior securities to disclose ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable to the company ITEM 5. OTHER INFORMATION No other information to disclose ITEM 6. EXHIBITS Lists all exhibits filed with Form 10-Q, including CEO/CFO certifications and XBRL documents - Exhibits include certifications of the Chief Executive Officer (31.1, 32.1) and Chief Financial Officer (31.2, 32.2), along with XBRL Instance, Schema, Calculation, Labels, Presentation, and Definition Documents[199] SIGNATURES Report duly signed by Chairman/CEO and SVP/CFO/Treasurer/Secretary of Argan, Inc - The report was duly signed by Rainer H. Bosselmann, Chairman of the Board and Chief Executive Officer, and David H. Watson, Senior Vice President, Chief Financial Officer, Treasurer and Secretary, on June 9, 2020[200]