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OFFON

ARGAN, INC.

(AGX)
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ARGAN : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (form 10-K)

04/14/2021 | 05:07pm EDT
The following discussion summarizes the financial position of Argan, Inc. and
its subsidiaries as of January 31, 2021, and the results of their operations for
Fiscal 2021 and Fiscal 2020, and should be read in conjunction with the
consolidated financial statements and notes thereto included elsewhere in Item 8
of this 2021 Annual Report.

Please see "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations," in the Company's Annual Report on Form 10-K for the
year ended January 31, 2020, that was filed with the SEC on April 14, 2020, for
a discussion of financial trends, variance drivers and other significant matters
for Fiscal 2020 as compared to Fiscal 2019.

Cautionary Statement Regarding Forward Looking Statements


The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for certain forward-looking statements. We have made statements in this Item 7
and elsewhere in this Annual Report on Form 10-K that may constitute
"forward-looking statements." The words "believe," "expect," "anticipate,"
"plan," "intend," "foresee," "should," "would," "could," or other similar
expressions are intended to identify forward-looking statements. Our
forward-looking statements, including those relating to the potential effects of
the COVID 19 pandemic on our business, financial position and results of
operations, are based on our current expectations and beliefs concerning future
developments and their potential effects on us.

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There can be no assurance that future developments affecting us will be those
that we anticipate. All comments concerning our expectations for future revenues
and operating results are based on our forecasts for existing operations and do
not include the potential impact of any future acquisitions.

Our forward-looking statements, by their nature, involve significant risks and
uncertainties (some of which are beyond our control) and assumptions. They are
subject to change based upon various factors including, but not limited to, the
risks and uncertainties described in Item 1A of this 2021 Annual Report. Should
one or more of these risks or uncertainties materialize, or should any of our
assumptions prove to be incorrect, actual results may vary in material respects
from those projected in the forward-looking statements. We undertake no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise.

Business Description


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

We intend to make additional opportunistic acquisitions and/or investments by
identifying companies with significant potential for profitable growth and
realizable synergies with one or more of our existing businesses. However, we
may have more than one industrial focus depending on the opportunity. We expect
that acquired companies will be maintained in separate subsidiaries that will be
operated in a manner that best provides cash flows for the Company and value for
our stockholders.

Overview

Operating Results

Consolidated revenues for Fiscal 2021 were $392.2 million, which represented an increase of $153.2 million, or 64.1%, from consolidated revenues of $239.0 million reported for Fiscal 2020.


The revenues of the power industry services segment increased by $183.6 million
to $319.4 million for Fiscal 2021 from $135.7 million reported for Fiscal 2020.
The revenues of this reportable segment of our business represented 81.4% of
consolidated revenues for Fiscal 2021. For Fiscal 2020, the percentage share of
consolidated revenues represented by this reportable segment was 56.8%. The
industrial services business of TRC reported revenues of $65.3 million for
Fiscal 2021. This amount represented a decrease of $29.4 million, or 31.0%, from
revenues of $94.7 million reported by TRC for Fiscal 2020. Revenues provided by
this reportable business segment represented 16.6% and 39.6% of corresponding
consolidated revenues for Fiscal 2021 and Fiscal 2020, respectively.

Consolidated gross profit for Fiscal 2021 was $62.1 million, or 15.8% of the
corresponding consolidated revenues, which reflected primarily the favorable
impacts of the higher consolidated revenues and favorable contributions from all
three reportable business segments. The significant subcontract loss incurred by
APC in the amount of $33.6 million for Fiscal 2020 caused us to report a
consolidated gross loss of $6.8 million for the year. The subcontract loss
prompted us to record an impairment loss related to the goodwill of APC in the
amount of $2.1 million last year as well. In addition, primarily due to
reductions in the amounts of forecasted future revenues, we determined a
goodwill impairment loss related to TRC in the amount of $2.8 million, which was
recorded in Fiscal 2020.

Selling, general and administrative expenses for Fiscal 2021 and Fiscal 2020
were $39.0 million, or 10.0% of corresponding consolidated revenues, and $44.1
million, or 18.5% of corresponding consolidated revenues, respectively. Last
year, this amount included the cost of maintaining core GPS staff during a
period of low project activity whose time

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is typically charged to projects. Due significantly to the extremely low rates
of return on amounts invested in cash equivalents and short-term investments
during the current year, other income declined to $1.9 million for Fiscal 2021
from $8.1 million for Fiscal 2020 despite the increase in the amount of invested
funds between years.

Due primarily to the consolidated pre-tax book income reported for Fiscal 2021
in the amount of $24.9 million, we reported income tax expense in the amount of
$1.1 million for the year, which amount is net of the $4.4 million of net
operating loss carryback benefit, substantially all of which was recorded in the
first quarter of Fiscal 2021. The consolidated income tax benefit of $7.1
million for Fiscal 2020 related substantially to the loss before income taxes
incurred last year.

For Fiscal 2021, our improved overall operating performance resulted in net
income attributable to our stockholders in the amount of $23.9 million, or $1.51
per diluted share. Last year, due substantially to the subcontract loss recorded
for the TeesREP project that is discussed below, we reported a net loss
attributable to our stockholders in the amount of $42.7 million, or $2.73 per
dilutive share.

The Guernsey Power Station

The primary drivers of our improved financial performance for Fiscal 2021 were
the increasing revenues and steady gross margin contributions associated with
the construction of the Guernsey Power Station. This project, which did not
commence until the third quarter of Fiscal 2020, represented the major portion
of our business for Fiscal 2021. Substantial completion of this major project is
expected to occur during the second half of Fiscal 2023.

The Tees Renewable Energy Plant


In our Annual Report on Form 10-K for Fiscal 2019, we disclosed that APC was
completing the mechanical installation of the boiler for a biomass-fired power
plant under construction in the UK, the TeesREP project, and that the project
had encountered significant operational and contractual challenges. The
consolidated operating results for Fiscal 2019 reflected unfavorable gross
profit adjustments related to this project. The accompanying disclosure
explained that the construction project was behind the schedule originally
established for the job and warned that the TeesREP project might continue to
impact our consolidated operating results negatively until it reached
completion.

During Fiscal 2020, APC's estimates of the unfavorable financial impacts on
forecasted costs of the numerous and unique difficulties on this particular
project, including weather delays, inefficiencies due to unanticipated scope and
design changes from preliminary plans, project task re-sequencing and various
work interruptions, escalated substantially from the estimates prepared for the
prior year-end. As a result, during Fiscal 2020, we recorded a loss related to
this project in the amount of $33.6 million.

Near the end of Fiscal 2020, APC and its customer, the engineering, procurement
and construction services contractor on the TeesREP project, agreed to amend
operational and commercial terms for the completion of the project. At the time,
this framework addressed the project schedule, payment terms, the scope of the
remaining effort, performance guarantees and other terms and conditions for APC
to reach substantial completion of its portion of the total project. Although
this negotiation returned a meaningful amount of stability to the continuation
of the project efforts, the amendment did not resolve significant past
commercial differences.

Construction on the TeesREP project was suspended on March 24, 2020 due to the
COVID-19 pandemic. At the time of the work suspension, APC had completed
approximately 90% of its subcontracted work. In connection with resuming its
efforts on the TeesREP project, APC entered into Amendment No. 2, covering new
terms and conditions for completion of the installation of the boiler. This
amendment represented a global settlement of past commercial differences with
both parties making significant concessions, and converted the billing
arrangement for the remaining work to a time-and-materials based scheme.

Despite the change to the billing arrangements, we treated Amendment No. 2 as a
continuation of the original subcontract because the arrangement continued to
represent a single performance obligation to our customer, the delivery of a
complete functioning and integrated boiler, that was only partially satisfied
when the modification to the subcontract occurred. The catch-up impact of the
accounting for the modification of the subcontract plus gross margin earned in
the second quarter, partially offset by project-related charges recorded by APC,
resulted in a net improvement to consolidated gross profit for Fiscal 2021.

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Earlier in Fiscal 2021, we also made changes in the operational and financial
leadership at APC. The new management team is focused on completing the TeesREP
project, reducing costs, limiting future commercial and project risks and
achieving sustained profitability for the combined operations of APC. We
believed that the APC leadership changes, our active management of this
subcontract and the restructuring of the subcontract terms and conditions, as
reflected in Amendment No. 2, would reduce the potential for future material
loss on the TeesREP project.



In fact, during October 2020, APC and its customer agreed to additional
contractual changes that effectively recognized APC's completion of the single
performance obligation, that eliminated any uncertainty regarding APC earning
certain cost and schedule incentives included in Amendment No. 2 and established
a time-and-materials contractual arrangement covering the additional works that
are being requested by APC's customer until completion of the power plant
construction. APC thereby reduced the financial risks associated with the
subcontract even further. The catch-up impact of the accounting for the new
change to the subcontract plus the margin earned on the performance of
construction activities during the third quarter resulted in additional net
improvement to consolidated gross profit for Fiscal 2021.



The negotiated changes to the contractual arrangements for the TeesREP project
and the redirected efforts of the top management of APC and the project team
resulted in the reduction of the final amount of the loss incurred on the
fixed-price portion of the TeesREP subcontract from $33.6 million to $29.5
million. The project activities being conducted by APC under the time and
materials arrangement have been and continue to be profitable. The total amounts
of accounts receivable and contract assets related to the TeesREP project and
included in the consolidated balance sheets were $4.8 million as of January 31,
2021 and $19.2 million as of January 31, 2020.

Research and Development Tax Credits

During Fiscal 2019 and based on the results of a study of the activities of the
engineering staff of GPS on major EPC services projects during the three-year
period ended January 31, 2018, management identified and estimated significant
amounts of income tax benefits that were not previously recognized in our
operating results for any prior year reporting period. The net amount of the
research and development tax credit benefits recognized during the fourth
quarter of Fiscal 2019 was $16.6 million, which was subsequently reduced by $0.4
million. The amount of identified but unrecognized income tax benefits related
to research and development tax credits as of January 31, 2021 was $5.0 million,
for which we have established a liability for uncertain income tax return
positions, most of which is included in accrued expenses. The research and
development tax credits were included in amendments to our consolidated federal
income tax returns for Fiscal 2016 and Fiscal 2017, that were filed in January
2019, and our consolidated federal income tax return for Fiscal 2018, that was
filed in November 2018. Separate income tax return examinations by the IRS
evolved into a simultaneously conducted examination of the research and
development tax credits claimed by us for Fiscal 2016 and Fiscal 2017.

In January 2021, we received the final revenue agents report from the IRS that
documents its understanding of the facts, attempts to summarize our arguments in
support of the claims and states its position which disagrees with our treatment
of a substantial amount of the costs that support our claims. After a careful
review of the report, we concluded that our arguments are sound and that the
report does not present any new facts relating to the issues or make any
arguments that would cause us to make any adjustments to our accounting for the
research and development tax credit claims as of January 31, 2021. We have
formally protested the findings of the IRS examiner and intend to pursue our
income tax position with the IRS through the established appeals process. We
believe that the ultimate settlement of the income tax dispute will be resolved
on a basis favorable to us.

In November 2020, we were notified by the IRS that it intends to examine the
consolidated income tax return for Fiscal 2018, with a most likely focus on the
research and development tax credit claimed therein. We believe that any
resulting disagreement regarding our income taxes for Fiscal 2018 will be
resolved on a basis favorable to us.

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Engineering, Procurement and Construction Service Contracts


At January 31, 2021, the project backlog for the power industry services
reporting segment was approximately $0.8 billion. The comparable backlog amount
as of January 31, 2020 was approximately $1.3 billion. Our reported amount of
project backlog at a point in time represents the total value of projects
awarded to us that we consider to be firm as of that date less the amounts of
revenues recognized to date on the corresponding projects (project backlog is
larger than the value of remaining unsatisfied performance obligations, or RUPO,
on active contracts; see Note 4 to the accompanying consolidated financial
statements). Cancellations or reductions may occur that would reduce project
backlog and our expected future revenues.

Typically, we include the total value of EPC services and other major
construction contracts in project backlog when we receive a corresponding notice
to proceed from the project owner. However, we may include the value of an EPC
services contract prior to the receipt of a notice to proceed if we believe that
it is probable that the project will commence within a reasonable timeframe,
among other factors. Projects that are awarded to us may remain included in our
backlog for extended periods of time as customers experience project delays. For
example, in March 2018, GPS entered into an EPC services contract to build a 500
MW natural gas-fired power plant that was added to project backlog at that time.
However, due to customer delays including a grid connection dispute, contract
activities have not yet started and we removed this project, the NTE Reidsville
Energy Center, from backlog during Fiscal 2021.

A substantial amount of the project backlog amount at January 31, 2021 was represented by the Guernsey Power Station. The ramp-up of activity on this project since August 2019 has favorably impacted our consolidated operating results since then with its increasing revenues. Substantial completion of this project is currently scheduled to occur during the second half of Fiscal 2023.


In January 2020, GPS entered into an EPC services contract with Harrison Power,
LLC ("Harrison Power") to construct a 1,085 MW natural gas-fired power plant in
the Village of Cadiz, Harrison County, Ohio. The project is being developed by
EmberClear, the parent company of Harrison Power. On March 12, 2020, we
announced that GPS had entered into an EPC services contract with NTE
Connecticut, LLC to construct the Killingly Energy Center, a 650 MW natural
gas-fired power plant, in Killingly, Connecticut. The facility is being
developed by NTE Energy, LLC. We anticipate adding the value of each of these
new contracts to project backlog at times closer to their financial close and
expected start dates. We are cautiously optimistic that the start of
construction activities for these projects will occur over the next twelve
months. However, we cannot predict with certainty when the projects will
commence. The start dates for construction are generally controlled by the
project owners.

In May 2019, GPS entered into an EPC services contract to construct a 625 MW
power plant in Harrison County, West Virginia. Caithness is partnered with ESC
Harrison County Power, LLC to develop this project. As a limited notice to
proceed with certain preliminary activities was received from the owner of this
project at the time, the value of the contract was added to our project backlog.
However, meaningful construction activities for the facility are not likely to
begin until financial close is achieved which may not occur before January 31,
2022.

As announced in Fiscal 2019, GPS entered into an EPC services contract to
construct the Chickahominy Power Station, a 1,740 MW natural gas-fired power
plant, in Charles City County, Virginia. Even though we have been providing
financial and technical support to the project development effort through a
consolidated VIE and significant project development milestones have been
achieved, we have not included the value of this contract in our project
backlog. Due to several factors that have interrupted the pace of the
development of this project, including additional costs and time being required
to secure the natural gas supply for the plant and to obtain the necessary
equity financing, we currently cannot predict when construction will commence,
if at all.

In March 2020, we announced that GPS had entered into an EPC services contract
to construct the Brooke County Power plant, a 920 MW natural gas-fired power
generation facility planned for Brooke County, West Virginia. The project owner
announced cancellation of the project in October 2020, citing changing
conditions in the energy and financial markets. The value of this project had
not been added to our project backlog.

The aggregate rated electrical output amount for the natural gas-fired power
plants for which we have signed EPC services contracts, including the Guernsey
Power Station, is approximately 6.4 gigawatts with an aggregate initial contract
value of approximately $3.0 billion and an aggregate unrealized contract value
of approximately $2.7 billion as of January 31, 2021.

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We have maintained that the delays in new business awards to GPS and the project
construction starts of certain previously awarded projects relate to a variety
of factors, especially in the northeast and mid-Atlantic regions of the US.
Currently, we believe that the ability of the owners of fully developed
gas-fired power plant projects to close on equity and permanent debt financing
was challenged by uncertainty in the capital markets caused by multiple factors
including delayed capacity auctions and mounting public and political opposition
to fossil-fuel energy projects.

The recent announcement by the PJM of a new capacity auction schedule may remove
a certain amount of uncertainty for project developers in forecasting future
streams of revenues. The commencement of new EPC power plant projects may
continue to be delayed until the visibility regarding future capacity revenue
streams is restored by the future announcements of capacity prices in the PJM
region.

However, other headwinds for future gas-fired power plant developments remain.
Besides the downturn in the demand for electric power during the COVID-19
outbreak in the US that is referenced in the discussion below, factors to
consider include an increase in the amount of power generating capacity provided
by renewable energy assets, improvements and decreasing prices in renewable
energy storage solutions, increased environmental activism and the results of
the recent presidential election in the US.

Protests against fossil-fuel related energy projects continue to garner media
attention and stir public skepticism about new projects resulting in delays due
to onsite protest demonstrations, indecision by local officials and lawsuits.
During Fiscal 2021, a natural gas-fired power plant that we had been awarded the
EPC services contract to build, the Brooke County Power project, was canceled by
its developer. Although changing market conditions were cited as important
factors in the cancellation decision and despite strong local support for the
project, the opposition by the governor of West Virginia was likely a factor in
the declining enthusiasm for the project. Further, during Fiscal 2021, Dominion
Energy and Duke Energy announced the abandonment of plans to complete the major
Atlantic Coast Pipeline, ending a seven-year effort to build a 600-mile natural
gas pipeline between West Virginia and eastern North Carolina, citing that the
economic viability of the project was threatened by continuing delays and
increasing cost uncertainty after a federal judge issued a ruling preventing the
use of an accelerated construction permitting process. Although this recent
pipeline cancellation decision is not expected to have any direct unfavorable
effect on any of the pending projects awarded to GPS, other pipeline approval
delays may jeopardize projects that are needed to bring supplies of natural gas
to planned gas-fired power plant sites, thereby increasing the risk of future
power plant project delays or cancellations.

Currently, we have a pending project for the construction of a gas-fired power
plant project in Killingly, Connecticut. Although substantially all of the
permits, approvals and other items necessary for the commencement of the project
have been obtained by the project owner, including the securing of capacity
auction payments, a financial close on project financing has not yet occurred.
During this delay, opposition to the project has been voiced by various
government officials and clean air advocates. We currently believe that the
start of this project will occur during Fiscal 2022.

In the New England and mid-Atlantic regions of the US, power plant operators are
challenged by the requirements of the Regional Greenhouse Gas Initiative, or
"RGGI," which is a cooperative effort by states in these regions to cap and
reduce power sector carbon dioxide emissions. In addition, various cities,
counties and states have adopted clean energy and carbon-free goals or
objectives with achievement expected by a certain future date, typically 10 to
30 years out. These aspirational goals may increase the risk of a new power
plant becoming a stranded asset long before the end of its otherwise useful
economic life, which is a risk that potential equity capital providers may be
unwilling to take. The difficulty in obtaining project equity financing and the
other factors identified above, may be adversely impacting the planning and
initial phases for the construction of new natural gas-fired power plants which
continue to be deferred by project owners.

Perhaps the most significant uncertainty relates to the policies of Joseph R.
Biden, Jr., our country's new President. Mr. Biden is proposing to make the
electricity production in the US carbon free by 2035 and to put the country on
the path to achieve net zero carbon emissions by 2050. His plan to tackle
climate change was described as the most ambitious of any mainstream
presidential candidate yet. As he pledged during his presidential campaign, Mr.
Biden caused the US to re-join the Paris Climate Agreement and he has cancelled
the permit allowing the Keystone XL Pipeline to cross the border from Canada
into the US. In addition, Mr. Biden ordered a pause on the US government
entering into new oil and natural gas leases on public lands or offshore waters
to the extent possible, the launch of a rigorous review of all existing leasing
and permitting practices related to fossil fuel development on public lands and
waters, and the identification of steps that can be taken to double renewable
energy production from offshore wind by 2030.

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Despite our commitment to the construction of state-of-the-art, natural
gas-fired power plants as important elements of our country's
electricity-generation mix in the future, we are directing business development
efforts to winning projects for the erection of utility-scale wind farms and
solar fields and for the construction of other renewable energy projects. We
have successfully completed these types of projects in the past and we are
renewing efforts to obtain new work in the renewable power sector that will
complement our natural gas-fired EPC services projects going forward. Recently,
GPS began exclusive negotiations with the owners of several significant
renewable projects for which we expect to begin EPC services contract activities
during Fiscal 2022.

Market Outlook

The overall growth of our power business has been substantially based on the
number of combined cycle gas-fired power plants built by us, as many coal-fired
plants have been shut down. In 2010, coal-fired power plants accounted for about
45% of total electricity generation. By 2020, coal accounted for less than 20%
of total electricity generation. On the other hand, natural-gas fired power
plants provided approximately 40% of the electricity generated by utility-scale
power plants in the US in 2020, representing an increase of 64% from the amount
of electrical power generated by natural gas-fired power plants in 2010, which
provided approximately 24% of net electricity generation for 2010. In the
reference case of its Annual Energy Outlook 2021, the Energy Information
Administration ("EIA") projects that coal-fired generation will continue to
decline through 2050, and will represent only 11% of the electricity generation
mix by 2050. The projection for natural gas-fired plants is that they will
supply 36% of the net electricity generation in the US for 2050.

During 2018 and for the first time in 12 years, the total annual amount of
electricity generated by utility-scale facilities in the US surpassed the total
amount generated in the peak power generation year of 2007 as the total amount
of electricity generation was approximately 1% higher for 2018 than the level
for 2007. For the reference-case, the EIA projects average increases to
utility-scale electricity generation in the US of slightly less than 1% per year
from 2021 through 2050.

However, for calendar year 2020, the total amount of electricity generated by
utility-scale power plants declined by 2.9% due primarily to the adverse effects
of the COVID-19 pandemic on the demand for power in the US. Long-term softness
in the demand for electrical power in the US due to the lingering and adverse
impacts of the COVID-19 outbreak, could result in the delay, curtailment or
cancellation of future gas-fired power plant projects.

Further, the share of electricity generation provided by natural gas is
particularly reactive in the short term to changing natural gas prices. The rise
in natural gas prices, even for just the short term, could have adverse effects
on the ability of independent power producers to obtain construction and
permanent financing for new natural gas-fired power plants.

Undoubtedly, the long-term historic decline in the use of coal as a power source
in the US has been caused, to a significant extent, by the plentiful supply of
inexpensive natural gas which made it the fuel of choice for power plant
developers over this period. However, the pace of these changes was energized by
environmental activism and restrictive regulations targeting coal-fired power
plants. Now, the environmentalist opposition against coal-fired power generation
has expanded meaningfully and effectively to target all fossil fuel energy
projects, including power plants and pipelines, and has evolved into powerful
support for renewal energy sources.

The share of electricity generation in the US provided by utility-scale wind and
solar photovoltaic facilities continues to rise meaningfully. Together, such
power facilities provided approximately 8.0%, 8.8% and 10.6% of the total amount
of electricity generated by utility-scale power facilities in 2018, 2019 and
2020, respectively. In EIA's 2021 reference case, net electricity generation
from all renewable power sources is expected to increase by more than 175%,
representing over 42% of such generation, by 2050. Impetus for this growth is
provided by public concerns about climate change and favorable economic factors.
Environmental activism has resulted in the passage of laws and the establishment
of regulations that discourage new fossil-fuel burning power plants and provide
income tax advantages that promote the growth of wind and solar power. Declines
in the amount of renewable power plant component and power storage costs and an
increase in the scale of energy storage capacity have also occurred. Should the
pace of development for renewable energy facilities, including wind and solar
power plants, accelerate at faster rates than projected, the number of future
natural gas-fired construction project opportunities may fall.

Over the next few years, EIA projects that new wind and photovoltaic solar
capacity will continue to be added to the utility-scale power fleet in the US at
a brisk pace substantially attributable to declining equipment costs and the
availability of valuable tax credits. As these credits decline and then expire
early in the next decade as currently scheduled, the wind capacity additions are
expected to slow. Although the special tax incentives related to solar power
also expire, the

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continuing decline in the cost of solar power equipment is predicted to sustain
the growth of photovoltaic solar power generation facilities. Nonetheless, we
believe that persistently low natural gas prices over the long-term, lower power
plant operating costs, higher energy generating efficiencies and the maintenance
of grid resiliency should sustain the demand for modern combined cycle gas-fired
power plants in the future. Natural gas is relatively clean burning,
cost-effective and reliable; its benefits as a source of power are compelling.
We continue to believe that the future long-term prospects for natural gas-fired
power plant construction remain generally favorable as natural gas continues to
be the primary source for power generation in our country. New gas-fired power
plants incorporate major advances in gas-fired turbine technologies that have
provided increased power plant efficiencies while providing the quick starting
capabilities and the reliability that are necessary to balance the inherent
intermittencies of wind and solar powered energy plants.

It has been reported that renewables currently provide approximately 36% of
electricity generation in California. Yet, last summer's experience is that the
increasing dependence on intermittent renewable energy sources, especially
solar, is making it harder to ensure reliable power in California as millions of
its residents lost power during a late summer heat wave. Analysis of the causes
of the recent widespread power outages in Texas during a frigid stretch of
weather is complex. The residents of Texas suffered as the severe cold froze
wind turbines and the lack of sun diminished the power contributions of solar
powered facilities. However, natural gas-fired power plants in Texas were forced
offline as well primarily due to frozen well-site equipment and the decisions by
regulators to prioritize natural gas for residential use, which caused
interruptions to the supply of natural gas to the plants. However, in both
states, the significant amount of renewable power capacity failed to rise to the
occasion. A diversity lesson from both power crises may be that fossil-fuel
electricity generation sources remain critical elements of the power generation
mix in order to assure grid reliability and the avoidance of power outages.

Additionally, solar and wind energy plant developers continue to confront the
problems caused by grid congestion, often unsuccessfully. Many of these projects
have been canceled because renewable plants need to be sited where the resources
are optimal, often in remote locations where the transmission systems are not
robust. The costs associated with the necessary grid upgrades may be
prohibitive. US offshore wind projects progress inconsistently, facing
challenges in the areas of environmental and fishery impacts, grid connection
and capability and federal permitting processes. Further, projects are
confronted by shipping regulations in the US that may limit the ability of
developers to replicate successful European construction and installation
models.

Major advances in the safe combination of horizontal drilling techniques and
hydraulic fracturing led to the boom in natural gas supplies which have been
available generally at consistently low prices. The abundant availability of
cheap, less carbon-intense and higher efficiency natural gas should continue to
be a significant factor in the economic assessment of future power generation
capacity additions although the pace of new opportunities emerging may be
restrained and the starts of awarded EPC projects may be delayed. We believe
that it is also important to note that the plans for two of our contracted
natural gas-fired power plant projects include the adoption of integrated green
hydrogen solution packages developed by a major gas turbine manufacturer. While
the plants will initially burn natural gas alone, it is planned by the
respective project owners that the plants will eventually burn a mixture of
natural gas and green hydrogen, thereby establishing power-generation
flexibility for these plants.

We believe this is a winning combination that provides inexpensive and efficient
power, enhances grid reliability and addresses the clean-air concerns of
environmentalists. The building of state-of-the-art power plants with flex-fuel
capability replaces coal-fired power plants in the short term with relatively
clean gas-fired electricity generation. Further, such additions to the power
generation fleet provide the potential for the plants to burn 100% green
hydrogen gas, which would provide both base load power and long duration backup
power, when the sun is not shining and the wind is not blowing, for extended
periods of time and without harmful air emissions.

We are committed to the rational pursuit of new construction projects and the
future growth of our revenues. This may result in our decision to make
investments in the development and/or ownership of new projects. Because we
believe in the strength of our balance sheet, we are willing to consider certain
opportunities that include reasonable and manageable risks in order to assure
the award of the related EPC services contracts to us. The competitive landscape
in the EPC services market for natural gas-fired power plant construction has
changed significantly over the last several years. While the market remains
dynamic, we are moving into an era where there may be fewer competitors for new
gas-fired power plant EPC services project opportunities. Several major
competitors have exited the market for a variety of reasons or have been
acquired. Others have announced intentions to avoid entering into fixed-price
contracts.

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Nonetheless, the competition for new utility-scale gas-fired power plant construction opportunities is fierce and still includes global firms like Kiewit Corporation and Bechtel Corporation.


We believe that the Company has a reputation as an accomplished and
cost-effective provider of EPC and other large project construction contracting
services. We are convinced that the latest series of new EPC projects awarded to
us confirms the soundness of our belief. With the proven ability to deliver
completed power facilities, particularly combined cycle, natural gas-fired power
plants, we are focused on expanding our position in the power markets where we
expect investments to be made based on forecasts of electricity demand covering
decades into the future. We believe that our expectations are valid and that our
plans for the future continue to be based on reasonable assumptions.

Confidence in our financial strength and the prospects for our business going
forward prompted our board of directors to declare and to pay two special cash
dividends during Fiscal 2021 in the amount of $1.00 per share each (see Note 15
to the accompanying consolidated financial statements) and to authorize the use
of $25.0 million to repurchase shares of our common stock (see Item 5 in Part II
of this 2021 Annual Report).

Comparison of the Results of Operations for the Years Ended January 31, 2021 and 2020


We reported net income attributable to our stockholders of $23.9 million, or
$1.51 per share, for Fiscal 2021. For the prior year, we reported net loss of
$42.7 million, or $2.73 per diluted share. The following schedule compares our
operating results for Fiscal 2021 and Fiscal 2020 (dollars in thousands).


                                                         Years Ended January 31,
                                               2021          2020        $ Change     % Change
REVENUES
Power industry services                      $ 319,353    $  135,729    $  183,624       135.3 %
Industrial fabrication and field services       65,263        94,682      (29,419)      (31.1)
Telecommunications infrastructure services       7,590         8,586       
 (996)      (11.6)
Revenues                                       392,206       238,997       153,209        64.1
COST OF REVENUES
Power industry services                        266,993       152,854       114,139        74.7
Industrial fabrication and field services       57,257        85,859      (28,602)      (33.3)
Telecommunications infrastructure services       5,889         7,104      
(1,215)      (17.1)
Cost of revenues                               330,139       245,817        84,322        34.3
GROSS PROFIT (LOSS)                             62,067       (6,820)        68,887          NM
Selling, general and administrative
expenses                                        39,041        44,125       (5,084)      (11.5)
Impairment losses                                    -         4,895       (4,895)     (100.0)
INCOME (LOSS) FROM OPERATIONS                   23,026      (55,840)        78,866          NM
Other income, net                                1,859         8,075       (6,216)      (77.0)
INCOME (LOSS) BEFORE INCOME TAXES               24,885      (47,765)       
72,650          NM
Income tax (expense) benefit                   (1,074)         7,053       (8,127)          NM
NET INCOME (LOSS)                               23,811      (40,712)        64,523          NM
Net (loss) income attributable to
non-controlling interests                         (40)         1,977       (2,017)          NM
NET INCOME (LOSS) ATTRIBUTABLE TO
THE STOCKHOLDERS OF ARGAN, INC.              $  23,851    $ (42,689)    $  
66,540          NM


NM - Not meaningful.

Revenues

Power Industry Services

The revenues of the power industry services business increased by 135.3%, or
$183.7 million, to $319.4 million for Fiscal 2021 compared with revenues of
$135.7 million for Fiscal 2020. The revenues of this business represented 81.4%
of consolidated revenues for Fiscal 2021 and 56.8% of consolidated revenues for
the prior year. The primary driver for the improved performance by this
reportable segment for the current year was the increasing revenues associated
with the construction of the Guernsey Power Station, which did not commence
until the third quarter last year.

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Revenues related to this project represented 67.3% and 21.9% of corresponding
consolidated revenues for Fiscal 2021 and Fiscal 2020, respectively. GPS reached
substantial completion on four gas-fired power plant projects late in Fiscal
2019 and concluded activities on a fifth gas-fired power plant early in Fiscal
2020. As a result, the revenues of GPS were significantly reduced for most of
Fiscal 2020, before project activities for our major current project in Ohio
began.

The revenues of the combined business of APC declined by about 22.0% in Fiscal
2021 from the amount of revenues recognized for Fiscal 2020, which represented
the majority of revenues for this segment last year. The amount of the revenues
of APC for Fiscal 2021 were adversely affected, to a certain degree, by a
suspension of work on the TeesREP project and the postponement of Irish works in
response to the COVID-19 pandemic during the current year. More significantly,
both the construction of the gas-fired power plant in Spalding, England, and the
refurbishment of the turbines for the Moneypoint Power Station in Ireland were
completed by APC during Fiscal 2020, and there was a gradual decline in the
level of APC's required activities on the TeesREP project during Fiscal 2021.

Industrial Fabrication and Field Services

The revenues of industrial fabrication and field services (representing the
business of TRC) decreased by $29.4 million, or 31.0%, to $65.3 million for
Fiscal 2021, providing 16.6% of consolidated revenues for Fiscal 2021. Revenues
of TRC for Fiscal 2020 represented approximately 39.6% of corresponding
consolidated revenues last year. New project awards have increased TRC's project
backlog to approximately $54.0 million as of January 31, 2021 from $14.0 million
at the beginning of Fiscal 2021. However, a corresponding ramp-up of revenues
has not yet occurred as the start-ups of field service projects in particular
have been delayed by customers attributable, in part, to the impacts of COVID-19
on their operations.

Telecommunications Infrastructure Services


The revenues of this business segment (representing the business of SMC) were
$7.6 million for Fiscal 2021 compared with revenues of $8.6 million for Fiscal
2020.

Cost of Revenues

Due primarily to the increase in consolidated revenues for Fiscal 2021 compared
with revenues for Fiscal 2020, consolidated cost of revenues also increased.
These costs were $330.1 million and $245.8 million for Fiscal 2021 and Fiscal
2020, respectively. Despite the increase in costs, we reported a gross profit
for Fiscal 2021 in the amount of $62.1 million, an increase of $68.9 million
from the gross loss amount for Fiscal 2020. The gross profit percentages of
corresponding revenues for the power industry services, industrial services and
the telecommunications infrastructure segments for Fiscal 2021 were 16.4%, 12.3%
and 22.4%, respectively.

The gross loss for Fiscal 2020 in the amount of $6.8 million reflected the
amount of subcontract loss, $33.6 million, that was recorded for the TeesREP
project last year. Excluding the loss from the calculations, the pro forma gross
profit percentages of corresponding revenues for the power industry services,
industrial services and the telecommunications infrastructure segments for
Fiscal 2020 were 17.3%, 9.3% and 17.3%, respectively.

The negotiated changes to the contractual arrangements for the TeesREP project
and the redirected efforts of the top management of APC and the project team
resulted in the reduction of the final amount of the loss incurred on the
fixed-price portion of the subcontract from $33.6 million to $29.5 million
during Fiscal 2021. The project activities being conducted by APC under the time
and materials arrangement have been and continue to be profitable.

Selling, General and Administrative Expenses

These costs were $39.0 million and $44.1 million for Fiscal 2021 and Fiscal
2020, respectively, representing 10.0% and 18.5% of consolidated revenues for
the corresponding periods, respectively. As disclosed earlier during Fiscal
2021, we expected these costs, expressed as a percentage of corresponding
revenues, to trend downward throughout the year, primarily driven by the
expected increase in consolidated revenues over the same period. The reduction
in actual costs between the years was due primarily to the increased utilization
of staff by GPS on its projects, reductions in the amounts of travel and the
corresponding costs, and certain reductions in staff and the corresponding
salaries and benefit costs at GPS, TRC and APC during Fiscal 2021, partially
offset by an increase in compensation related to stock awards between years.

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Impairment Losses
We did not record any goodwill or other intangible asset impairment losses
during Fiscal 2021. An impairment loss was recorded during Fiscal 2020 related
to the goodwill of TRC in the amount of $2.8 million. Drivers for the impairment
loss recorded in Fiscal 2020 included a reduction in forecasted revenues,
increased working capital requirements, reduced profit margins and appropriate
changes to certain statistical factors. Additionally, we considered the
magnitude of the contract loss related to the TeesREP project during the first
quarter of Fiscal 2020 to be an event triggering a re-assessment of the goodwill
of APC which resulted in our conclusion that the remaining value was impaired.
Accordingly, an impairment loss was recorded in April 2019 in the amount of
$2.1
million.

Other Income
For Fiscal 2021 and Fiscal 2020, the net amounts of other income were $1.9
million and $8.1 million, respectively, which represented a reduction of 76.5%
between the comparable periods. Although the aggregate amount of invested funds
has increased between the comparable periods, the significant decline in
interest rates that occurred during Fiscal 2021 had a meaningfully adverse
effect on the returns earned on our temporarily invested funds. Other income for
Fiscal 2020 did include a pre-tax gain of $2.2 million recorded by the
consolidated variable interest entity in connection with the grant of a utility
easement at the planned site of a new gas-fired power plant. This gain was also
reflected in the amount of net income attributable to non-controlling interests
for Fiscal 2020.

Income Taxes

We recorded income tax expense for Fiscal 2021 in the net amount of
approximately $1.1 million due to our reporting pre-tax income for financial
reporting purposes in the amount of $24.9 million for the year. Our tax expense
was substantially reduced by the net operating loss ("NOL") carryback benefit in
the approximate amount of $4.4 million that is discussed in the following
paragraph.

In a response to the COVID-19 health crisis, the US Congress passed the
Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") that was
signed into law on March 27, 2020. This wide-ranging legislation was enacted as
an emergency economic stimulus package including spending and tax breaks aimed
at strengthening the US economy and funding a nationwide effort to curtail the
effects of the outbreak of COVID-19. The CARES Act provided opportunities for
taxpayers to evaluate their recent year income tax returns in order to identify
potential tax refunds. One such area is the utilization of NOLs. The tax changes
of the CARES Act temporarily suspended the limitations on the future utilization
of certain NOLs and re-established a carryback period for certain losses to
five years. The losses eligible for carryback under the CARES Act include our
consolidated NOL for Fiscal 2020, which was approximately $39.5 million. With
the filing of our consolidated federal income tax return for Fiscal 2020, we
elected to apply the NOL against our taxable income for the years ended
January 31, 2015, 2016 and 2017. The carryback provides a favorable rate benefit
for us as the loss, which was incurred in a year where the statutory federal tax
rate was 21%, will be carried back to tax years where the tax rate was higher.

Our annual effective income tax rate for Fiscal 2021 was 4.3%. This tax rate
differs favorably from the statutory federal tax rate of 21% due primarily to
the effect of the NOL carryback discussed above offset partially by permanent
differences.

We recorded an income tax benefit for Fiscal 2020 in the amount of approximately
$7.1 million related substantially to the loss before income taxes incurred for
the year. We did not record any income tax benefit related to the net loss
reported by the subsidiary operations of APC located in the UK for Fiscal 2020
due to our expectation at that time that only a minimal portion of the benefit
would be realized in future years. A portion of this income tax benefit was
recorded during Fiscal 2021 due to the unanticipated profitable operations of
this business unit for the year. The income tax benefit for Fiscal 2020 does
reflect the unfavorable expected effects of state income taxes and permanent
differences associated with nondeductible travel and entertainment expenses,
certain nondeductible executive compensation expense and the goodwill impairment
losses.

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Liquidity and Capital Resources as of January 31, 2021


At January 31, 2021 and 2020, our balances of cash and cash equivalents were
$366.7 million and $167.4 million, respectively. Our working capital decreased
by $7.6 million to $270.1 million as of January 31, 2021 from $277.7 million as
of January 31, 2020 due primarily to the net income earned during Fiscal 2021
and attributable to the stockholders of Argan.

The net amount of cash provided by operating activities for Fiscal 2021 was
$174.7 million. Our net income for Fiscal 2021, adjusted favorably by the net
amount of non-cash income and expense items, represented a source of cash in the
total amount of $41.5 million. The sources of cash from operations for Fiscal
2021 also included a temporary increase in the balance of contract liabilities
associated with the early phases of construction activities on projects of GPS
and TRC in the amount of $99.4 million. A reduction in the balances of accounts
receivable and contract assets, primarily at the TRC and APC operations,
provided cash in the amounts of $8.5 million and $6.7 million, respectively. In
addition, the combined level of accounts payable and accrued expenses increased
by $31.4 million during Fiscal 2021, a source of cash for the year.

As discussed above, our income tax accounting for Fiscal 2021 reflects an entry
to record the carryback of our net operating loss incurred for Fiscal 2020 to
prior income tax years. The loss carryback should result in a refund of federal
income taxes in the amount of $12.7 million. This tax refund receivable has been
included in the balance of other current assets as of January 31, 2021, which
was the primary cause of the increase in this balance of $12.8 million during
the year, which represents a use of cash.

Primary sources of cash for Fiscal 2021 were the net maturities of short-term
investments, certificates of deposit issued by the Bank, in the amount of $70.0
million. Non-operating activities used cash during Fiscal 2021, including the
payment of regular and special cash dividends in the total amount of $47.0
million. During Fiscal 2021, capital expenditures were reduced by approximately
76.1% to $1.7 million from a capital expenditures amount of $7.1 million for
Fiscal 2020. Partially offsetting these uses of cash, we received cash proceeds
related to the exercise of stock options during Fiscal 2021 in the amount of
$1.6 million. As of January 31, 2021, there were no restrictions with respect to
inter-company payments between GPS, TRC, APC, SMC and the holding company.

During Fiscal 2020, our balance of cash and cash equivalents increased by $3.1
million to $167.4 million while our working capital decreased by $57.3 million
to $277.7 million as of January 31, 2020 from $335.0 million as of January 31,
2019, due primarily to the loss incurred and recorded on the TeesREP project
during Fiscal 2020.

The net amount of cash provided by operating activities for Fiscal 2020 was
$53.6 million. Our net loss for Fiscal 2020, offset partially by the favorable
adjustments related to non-cash income and expense items, represented a use of
cash in the total amount of $33.8 million. We also used cash during Fiscal 2020
in the amount of $3.3 million to reduce the level of accounts payable, accrued
expenses and lease liabilities. However, these uses of cash were more than
offset by the temporary $64.3 million increase in the balance of contract
liabilities during Fiscal 2020, a substantial source of cash. In addition, the
balance of contract assets declined during Fiscal 2020, due primarily to
decreases in the amounts of revenues recognized in excess of amounts billed on
projects in the UK and Ireland, representing a source of cash in the amount of
$25.0 million.

With the net cash provided by operations and proceeds from the net maturities of
short-term investments, we purchased new certificates of deposit issued by our
Bank, in the aggregate amount of $195.0 million. Cash proceeds in the amount of
$1.6 million were received from the exercise of stock options during Fiscal
2020. Non-operating activities used cash during Fiscal 2020 including payments
for quarterly cash dividends in the total amount of $15.6 million and capital
expenditures in the amount of $7.1 million.

At January 31, 2021, most of our balance of cash and cash equivalents was
invested in government and prime money market funds with most of their total
assets invested in cash, US Treasury obligations and repurchase agreements
secured by US Treasury obligations. The major portion of our domestic operating
bank account balances are maintained with the Bank. We do maintain certain
Euro-based bank accounts in the Ireland and certain pound sterling-based bank
accounts in the UK in support of the operations of APC.

Our Credit Agreement, which expires on May 31, 2021, includes the following features, among others: a lending commitment of $50.0 million including a revolving loan with interest at the 30-day LIBOR plus 2.0%, and an accordion


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feature which allows for an additional commitment amount of $10.0 million,
subject to certain conditions (the "Credit Agreement"). We may use the borrowing
ability to cover other credit instruments issued by the Bank for our use in the
ordinary course of business as defined by the Bank. At January 31, 2021, we had
$1.8 million of outstanding letters of credit issued under the Credit Agreement.
Additionally, in connection with the current project development activities of
the VIE, the Bank issued a letter of credit, outside the scope of the Credit
Agreement, in the approximate amount of $3.4 million for which the Company has
provided cash collateral.

We have pledged the majority of our assets to secure the financing arrangements.
The Bank's consent is not required for acquisitions, divestitures, cash
dividends or significant investments as long as certain conditions are met. The
Credit Agreement requires that we comply with certain financial covenants at our
fiscal year-end and at each fiscal quarter-end, and includes other terms,
covenants and events of default that are customary for a credit facility of its
size and nature. At January 31, 2021 and 2020, we were compliant with the
financial covenants of the Credit Agreement. We expect that we will complete the
negotiation of either an extension or replacement agreement prior to the current
expiration date of the Credit Agreement.

In the normal course of business and for certain major projects, we may be
required to obtain surety or performance bonding, to provide parent company
guarantees, or to cause the issuance of letters of credit (or some combination
thereof) in order to provide performance assurances to clients on behalf of one
of our contractor subsidiaries.

If our services under a guaranteed project would not be completed or would be
determined to have resulted in a material defect or other material deficiency,
then we could be responsible for monetary damages or other legal remedies. As is
typically required by any surety bond, the Company would be obligated to
reimburse the issuer of any surety bond issued on behalf of a subsidiary for any
cash payments made thereunder. The commitments under performance bonds generally
end concurrently with the expiration of the related contractual obligation. Not
all of our projects require bonding.

On behalf of APC, Argan has provided a parent company performance guarantee to
its customer, the EPC services contractor on the TeesREP project. Earlier this
year, and in connection with the negotiation of Amendment No. 2, the Company
replaced an outstanding letter of credit in the amount of $7.6 million with a
surety bond.

As of January 31, 2021, the revenue value of the Company's unsatisfied bonded
performance obligations was less than the value of RUPO disclosed in Note 4 to
the accompanying consolidated financial statements. In addition, as of January
31, 2021, there were bonds outstanding in the aggregate amount of approximately
$43.0 million covering other risks including warranty obligations related to
projects completed by GPS; these bonds expire at various dates over the next
sixteen months.

When sufficient information about claims related to our performance on projects
would be available and monetary damages or other costs or losses would be
determined to be probable, we would record such guaranteed losses. As our
subsidiaries are wholly-owned, any actual liability related to contract
performance is ordinarily reflected in the financial statement account balances
determined pursuant to the Company's accounting for contracts with customers.
Any amounts that we may be required to pay in excess of the estimated costs to
complete contracts in progress as of January 31, 2021 are not estimable.

We have also provided a financial guarantee on behalf of GPS to an original equipment manufacturer in the amount of $3.6 million to support project developmental efforts.


We believe that cash on hand, cash that will be provided from the maturities of
short-term investments and cash generated from our future operations, with or
without funds available under our line of credit, will be adequate to meet our
general business needs in the foreseeable future. For Fiscal 2021, to assure an
optimum level of liquidity during an uncertain Fiscal 2021 and to mitigate the
market risks represented by the COVID-19 pandemic, management decided to
temporarily maintain larger balances of cash and cash equivalents relative to
short-term investments with minimal opportunity cost.

In general, we maintain significant liquid capital in our balance sheet to
ensure our the maintenance of our bonding capacity and to provide parent company
performance guarantees for EPC and other construction projects. Any future
acquisitions, or other significant unplanned cost or cash requirement, may
require us to raise additional funds through the issuance of debt and/or equity
securities. There can be no assurance that such financing will be available on
terms acceptable to us, or at all.

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Contractual Obligations

Contractual obligations outstanding as of January 31, 2021 are summarized below
(dollars in thousands):


                                                       Amount of Commitment Expiration per Period
                                         Less Than        Over 5          Total        Over 5
Contractual Obligations                   One Year      2-3 Years       4-5 Years       Years       Commitment
Operating leases                         $    2,185     $    1,166     $       112    $       -    $      3,463
Purchase commitments (1)                      1,323            154              21            -           1,498
Other noncurrent liabilities (2)                419          1,058         
 1,313          435           3,225
Totals                                   $    3,927     $    2,378     $     1,446    $     435    $      8,186

(1) Amounts represent primarily service arrangements. Commitments pursuant to

purchase orders and subcontracts related to construction contracts are not

included as such amounts are expected to be funded under contract billings.

We have no significant obligation for materials or subcontract services

beyond those required to complete contracts awarded to us.

(2) Amounts represent primarily estimated deferred compensation payments.

Special Purpose Entities

As is common in our industry, EPC contractors and third parties form joint
ventures, limited partnerships and limited liability companies for purposes of
executing a project or program for a project owner. These teaming arrangements
are typically dissolved upon completion of the project or program.

In addition, we may obtain interests in VIEs formed by its owners for a specific
purpose. The evaluation of whether such interests represent our financial
control of a VIE requires analysis and judgement. We concluded that we are the
primary beneficiary of a VIE formed by an independent firm for the purpose of
developing a natural gas-fired power plant in Virginia. As a result, the VIE is
included in our consolidated financial statements until we determine that our
financial control of the entity has passed to another party. Pursuant to
agreements negotiated with the developer, we have lent funds to the VIE to cover
certain costs of the project development effort. The development phase
activities of the VIE are focused on 1) obtaining the necessary permits to build
and operate the power plant, 2) completing arrangements to connect the power
plant to the fuel supply and the electricity grid, 3) engaging energy plant
operators in negotiations for the purchase of project ownership interests, and
4) securing permanent financing for the project.

We have entered into similar support arrangements with other independent parties
in the past that resulted in the successful development and construction of
three separate gas-fired power plants. In each case, we deconsolidated the
corresponding VIE when we were no longer the primary beneficiary. We may enter
into other support arrangements in the future in connection with power plant
development opportunities when they arise and when we are confident that
providing early financial support for the projects will lead to the award of the
corresponding EPC contracts to us.

Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA")

The following table presents the determinations of EBITDA for Fiscal 2021 and Fiscal 2020, respectively (amounts in thousands).




                                                           2021         

2020

Net income (loss), as reported                           $ 23,811    $ (40,712)
Income tax expense (benefit)                                1,074       (7,053)
Depreciation                                                3,715         3,513
Amortization of purchased intangible assets                   904         

1,136

EBITDA                                                     29,504      

(43,116)

EBITDA of non-controlling interests                          (40)         

1,977

EBITDA attributable to the stockholders of Argan, Inc. $ 29,544 $ (45,093)


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As we believe that our net cash flow provided by or used in operations is the
most directly comparable performance measure determined in accordance with
accounting principles generally accepted in the US ("US GAAP"), the following
table reconciles the amounts of EBITDA for the applicable years, as presented
above, to the corresponding amounts of net cash flows provided by operating
activities that are presented in our consolidated statements of cash flows for
Fiscal 2021 and Fiscal 2020 (amounts in thousands).


                                                                  2021          2020
EBITDA                                                         $   29,504    $ (43,116)
Current income tax benefit                                          6,571           413
Stock option compensation expense                                   2,938  
      2,131
Impairment losses                                                       -         4,895
Other non-cash items                                                2,461         1,893
Decrease (increase) in accounts receivable                          8,463  

(1,038)

(Increase) decrease in other assets                              (12,800)  

2,357

Increase (decrease) in accounts payable and accrued expenses 31,442

(3,284)

Change in contracts in progress, net                              106,101  

89,314

Net cash provided by operating activities                      $  174,680  

$ 53,565



We believe that EBITDA is a meaningful presentation that enables us to assess
and compare our operating cash flow performance on a consistent basis by
removing from our operating results the impacts of our capital structure, the
effects of the accounting methods used to compute depreciation and amortization
and the effects of operating in different income tax jurisdictions. Further, we
believe that EBITDA is widely used by investors and analysts as a measure of
performance. However, as EBITDA is not a measure of performance calculated in
accordance with accounting principles generally accepted in the United States of
America ("US GAAP"), we do not believe that this measure should be considered in
isolation from, or as a substitute for, the results of our operations presented
in accordance with US GAAP that are included in our consolidated financial
statements. In addition, our EBITDA does not necessarily represent funds
available for discretionary use and is not necessarily a measure of our ability
to fund our cash needs.

Critical Accounting Policies

We consider the accounting policies discussed below related to revenue
recognition on long-term construction contracts; income tax reporting; the
valuation of goodwill, other indefinite-lived assets and long-lived assets; the
valuation of employee stock awards; and the accounting and financial reporting
associated with any significant claims or legal matters to be most critical to
the understanding of our financial position and results of operations, as well
as the accounting and reporting for special purpose entities including variable
interest entities.

Critical accounting policies are those related to the areas where we have made
what we consider to be particularly subjective or complex judgments in arriving
at estimates and where these estimates can significantly impact our financial
results under different assumptions and conditions.

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

Revenue Recognition

We enter into EPC and other long-term construction contracts principally on the
basis of competitive bids or in conjunction with our support of the development
of power plant projects. The types of contracts may vary. However, the EPC
contracts of our power industry services reporting segment, and most other large
contracts awarded to our other companies, are fixed-price contracts. Revenues
are recognized primarily over time as performance obligations are satisfied due
to the continuous transfer of control to the project owner or other customer.

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Central to accounting for revenues from contracts with customers is a five-step revenue recognition model that requires reporting entities to:

1. Identify the contract,

2. Identify the performance obligations of the contract,

3. Determine the transaction price of the contract,

4. Allocate the transaction price to the performance obligations, and

5. Recognize revenue.



The guidance focuses on the transfer of the control of the goods and/or services
to the customer, as opposed to the transfer of risk and rewards. Major
provisions cover the determination of which goods and services are distinct and
represent separate performance obligations, the appropriate treatment of
variable consideration, and the evaluation of whether revenues should be
recognized at a point in time or over time. In general, application of the new
rules requires us to make important judgements and meaningful estimates that may
have significant impact on the amounts of revenues recognized by us for any
reporting period.

Revenues from fixed price contracts, including a portion of estimated profit,
are recognized over time, based on costs incurred and estimated total contract
costs using the percentage-of-completion method. The cost and profit estimates
are determined at least quarterly for all significant contracts pursuant to a
detailed process. The results of the process are subjected to reviews by senior
management at each subsidiary. The percentage-of-completion method measures the
ratio of costs incurred and accrued to date for each contract to the estimated
total costs for each contract at completion. This requires us to prepare
on-going estimates of the costs to complete each contract as the project
progresses. In preparing these estimates, we make significant judgments and
assumptions about our significant costs, including materials, labor and
equipment, and we evaluate contingencies based on possible schedule variances,
production delays or other productivity factors.

Actual costs may vary from the costs we estimate. Variations from estimated
contract costs, along with other risks inherent in fixed-price contracts, may
result in actual revenues and gross profits differing from those we estimate and
could result in losses on projects or other significant unfavorable impacts on
our operating results for any fiscal quarter or year. If a current estimate of
total contract cost indicates a loss on a contract, the projected loss is
recognized in full when determined, without regard to the percentage of
completion. At the end of the first quarter of Fiscal 2020, we realized that the
previous estimates made regarding costs to complete the APC project were
understated based on the receipt of subsequent information. Management concluded
that the costs for APC to complete the work that remained for the project would
exceed projected revenues by approximately $27.6 million. By January 31, 2020,
the estimated loss amount had been increased to $33.6 million. The negotiated
changes to the contractual arrangements for the TeesREP Project and the
redirected efforts of the top management of APC and the project team resulted in
the reduction of the final amount of the loss incurred on the fixed-price
portion of the TeesREP subcontract from $33.6 million to $29.5 million. This
amount of expected loss on the project has been reflected in our consolidated
financial statements as of January 31, 2021.

Crucial to the compliance with the new standard for revenue recognition is the
identification of the promises made to the customer by us that are included in
the contract. If a promise is distinct, as that concept is defined in the
accounting standard, it represents a separate performance obligation. Contracts
may have multiple performance obligations. The amounts of revenue associated
with each promise are recognized when, or as, the performance obligations are
satisfied. However, complex contracts may include only one performance
obligation if the multiple promises are not distinct within the context of the
contract. For example, if the promises that could be considered distinct are
interrelated or require us to perform integration so that the customer receives
a complete product, the contract is considered to include only one performance
obligation. Most of our long-term contracts have a single performance obligation
as the promises to transfer individual goods or services are not separately
identifiable from other promises within the context of the contract. Our EPC
contracts require us to deliver a complete and functioning power plant, not just
functioning components.

The transaction price of a contract represents the value 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 variations in the scope and price of contracts, claims, incentives and
liquidated damages.

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The Company includes the estimated amount of variable consideration in the
transaction price to the extent it is probable that a significant reversal of
cumulative revenues recognized on the particular contract will not occur when
the uncertainty associated with the variable consideration is resolved. The
Company's determination of the amount of variable consideration to be included
in the transaction price of a particular contract is based largely on an
assessment of the Company's anticipated performance and all information
(historical, current and forecasted) that is reasonably available. The effect of
any revisions to the transaction price on the amount of previously recognized
revenues that is due to the addition or reduction of variable consideration is
recorded currently as an adjustment to revenues on a cumulative catch-up basis.
In the event that any amounts of variable consideration that are reflected in
the transaction price of a contract are not resolved in the Company's favor,
there could be reductions in, or reversals of, previously recognized revenues.
In most significant instances, modifications to our contracts do not represent
the addition of new performance obligations.

Contract results may be impacted by estimates of the amounts of contract
variations that we expect to receive. The effects of any resulting revisions to
revenues and estimated costs can be determined at any time and they could be
material. As of January 31, 2021, the aggregate amount of contract variations
reflected in estimated transaction prices was $16.6 million.

Our long-term contracts typically have schedule dates and other performance
obligations that, if not achieved, could subject us to liquidated damages. These
contract requirements generally relate to specified activities that must be
completed by an established date or by achievement of a specified level of
output or efficiency. Each contract defines the conditions under which a project
owner may make a claim for liquidated damages. The amount of liquidated damages
owed to a project owner pursuant to the terms of a contract would represent a
reduction of the transaction price of the corresponding contract.

At the outset of each of the Company's contracts, the potential amounts of
liquidated damages typically are not subtracted, from the transaction price as
the Company believes that it has included activities in its contract plan, and
has reflected the associated costs in its forecasts of completed contract 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. In general, we consider potential liquidated damages, the costs of
other related items and potential mitigating factors in determining the
estimates of forecasted revenues and the adequacy of our estimates of completed
contract costs.

Goodwill

In connection with the acquisitions of GPS, TRC and APC, we recorded substantial
amounts of goodwill and other purchased intangible assets including contractual
and other customer relationships, non-compete agreements, trade names and
certain fabrication process certifications. We utilized the assistance of a
professional appraisal firm in the initial determinations of goodwill and the
other purchased intangible assets for these acquisitions. Other than goodwill,
the other purchased intangible assets were determined to have finite useful
lives.

At January 31, 2021, the goodwill balances related to the acquisitions of GPS
and TRC were $18.5 million and $9.5 million, respectively, which together
represented approximately 4.6% of consolidated total assets. The Company
performs its required annual assessments of the carrying value of goodwill
balances as of November 1 each year. We also test for impairment of goodwill
more frequently if events or changes in circumstances indicate that the carrying
value of goodwill might be impaired. For example, during the first quarter of
Fiscal 2020, primarily due to the significant reduction in the fair value of the
business of APC deemed to have occurred as a result of the substantial
subcontract loss discussed above, we recorded an impairment loss in the amount
of $2.1 million, which was the remaining balance of goodwill associated with
APC.

In accordance with current accounting guidance, we perform testing for the
impairment of goodwill by comparing the fair value of a reporting unit with the
carrying amount of the unit reflected in the consolidated financial statements,
including goodwill. If the carrying amount of the reporting unit exceeds its
fair value, an impairment loss is recorded for the excess, not to exceed the
total amount of goodwill allocated to the reporting unit.

In certain situations, we use a simplified approach which allows us to first
assess qualitative factors to decide whether it is necessary to perform the more
complex quantitative goodwill impairment test. We are not required to calculate
the fair value of a reporting unit unless we determine, based on a qualitative
assessment, that it is more likely than not that its fair value is less than the
corresponding carrying value. The professional guidance includes discussions of
the types of factors

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which should be considered in conducting the qualitative assessment including
macroeconomic, industry, market and entity-specific factors. Using this
approach, we concluded that it was more likely than not that the fair value of
the GPS reporting unit exceeded the corresponding carrying value as of November
1, 2020. Therefore, completion of the complicated quantitative impairment
assessment was considered to be unnecessary. No events associated with the
business of GPS occurred in the period from the assessment date through January
31, 2021 that would cause us to reconsider that conclusion.

The balance of goodwill related to TRC and included in the consolidated balance
sheet as of January 31, 2021 was $9.5 million. We performed a goodwill
impairment assessment for TRC as of November 1, 2020 with the assistance of a
professional business valuation firm. It was determined that the fair value of
TRC exceeded the corresponding carrying value by approximately $1.5 million;
accordingly, there was no impairment loss recorded as of that date. The fair
value amount for TRC determined as of November 1, 2020 reflected a weighting of
results determined using various business valuation approaches. As in the past,
the majority of the weighted average fair value was based on the result of
modeling discounted future net-after-tax cash flows of the business. The
discounted cash flows of TRC were based on a management forecast of operating
results.

We believe the forecast of the operating results of TRC are based on reasonable
assumptions and, in particular, the following factors. The forecast reflects a
complete recovery of revenues from the pandemic year to Fiscal 2019 levels by
the year ending January 31, 2024, and an average annual growth rate of
approximately 3.0% thereafter. Annual earnings before interest and taxes are
forecast to increase from 3.1% of revenues for the year ending January 31, 2022
to 6.8% of revenues by the year ending January 31, 2026. In addition, the
project backlog of TRC at January 31, 2021 was $54.0 million compared to a
balance of $14.0 million as of January 31, 2020. Any future results that would
compare unfavorably with the projected results could result in additional
material goodwill impairment losses, or at least a significant erosion in the
fair value excess of $1.5 million identified above. No events related to TRC
occurred during the fourth quarter of Fiscal 2021 that caused us to perform a
subsequent impairment assessment.

The goodwill impairment assessments performed for TRC as of November 1, 2019 and
2018 determined that the fair value of TRC was less than the corresponding
carrying value at each date, and goodwill impairment losses of approximately
$2.8 million and $1.5 million were recorded during Fiscal 2020 and Fiscal 2019,
respectively. The fair value amounts for TRC determined at each date reflected a
weighting of results determined using various business valuation approaches. The
majority of the weighted average fair value amount determined at each date was
based on discounted future net-after-tax cash flows of the business that were
forecasted at the time.

Uncertain Income Tax Positions

As disclosed in the "Research and Development Tax Credits" section of Note 13 to
the accompanying consolidated financial statements, during Fiscal 2019 we
completed a detailed review of the activities of our engineering staff on major
EPC services projects in order to identify and quantify the amounts of research
and development credits 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, we identified and estimated significant
amounts of income tax benefits that were not previously recognized in our
financial results for any prior year reporting period. In the determination of
the amount of such benefits to recognize, we were required to apply the
professional accounting guidance related to meaningful uncertain income tax
positions for the first time.

Under this guidance, income tax positions must meet a more-likely-than-not
recognition threshold to be recognized. Income tax positions that previously
failed to meet the more-likely-than-not threshold are recognized in the first
subsequent financial reporting period in which that threshold is met. Fiscal
2019 was the initial reporting period in which we had sufficient data on which
to make an evaluation and to reach a conclusion on the amount of income tax
credit benefits related to prior year project costs that, more likely than not,
qualified as research and development costs under the IRC and the rules and
regulations of certain states. The net amount of the credits that we recognized
in income taxes during Fiscal 2019 was $16.2 million, as subsequently reduced by
$0.4 million. Based on our judgement, the amount of income tax benefits related
to identified research and development income tax credits that we assessed as
not meeting the threshold criteria for recognition was $5.1 million, for which
we established a liability related to uncertain income tax return positions that
was included in accrued expenses as of January 31, 2019. During Fiscal 2020,
this amount was adjusted modestly; the liability amount as of January 31, 2021
was $5.0 million.

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The research and development credits were included in amendments to our
consolidated federal income tax returns for Fiscal 2016 and Fiscal 2017, that
were filed in January 2019, and our consolidated federal income tax return for
Fiscal 2018, that was filed in November 2018.

In January 2021, we received a report from the IRS that documents its
understanding of the facts, attempts to summarize our arguments in support of
the claims and states its position which disagrees with our treatment of a
substantial amount of the costs that support the research and development claims
reflected in our amended tax returns for Fiscal 2016 and Fiscal 2017. After a
careful review of a preliminary report received from the IRS, the preparation of
an acknowledgement-of-facts response to the draft report, analysis of the final
report and consultation with subject experts, we have concluded that our
arguments are sound based on our analysis of the facts, our understanding of the
tax code and related regulations and our interpretations of the applicable case
law, and that the report does not present any new facts relating to the issues
or make any new arguments that would cause us to make any adjustments to our
accounting for the research and development claims as of January 31, 2021. We
have formally protested the findings of the IRS examiner and intend to pursue
our income tax position with the IRS through the established appeals process.

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

We have updated our evaluation of our income tax positions using the
more-likely-than-not threshold in order to confirm the adequacy of the liability
amount carried in the balance sheet as of January 31, 2021 for uncertain income
tax positions. We have not adjusted the liability amount during Fiscal 2021 as
we do not anticipate any significant changes to the net amount of the income tax
benefits recorded for research and development credits claimed for Fiscal 2016
through Fiscal 2018. However, if negotiations with the IRS or legal decisions
cause us to believe that our previously recognized tax positions no longer meet
the more-likely-than-not threshold, the related benefit amounts will be
derecognized in the first financial reporting period in which that threshold is
no longer met, which could materially and adversely affect our future financial
condition and operating results.

Deferred Tax Assets and Liabilities

Our consolidated balance sheet as of January 31, 2021 included deferred tax
assets in the amount of $0.2 million. The components of our deferred taxes are
presented in Note 13 to the consolidated financial statements. These amounts
reflect differences in the periods in which certain transactions are recognized
for financial and income tax reporting purposes.

We consider whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized on a jurisdiction-by-jurisdiction
basis. Our ability to realize our deferred tax assets, including those related
to the net operating losses incurred in the UK that applicable income tax rules
will allow us to use in order to offset future amounts of applicable taxable
income, depends primarily upon the generation of sufficient future taxable
income to allow for the realization of our deductible temporary differences. If
such estimates and assumptions regarding income amounts change in the future, we
may be required to record additional valuation allowances against some or all of
the deferred tax assets resulting in additional income tax expense in our
consolidated statement of earnings. During Fiscal 2020, a valuation allowance in
the amount of $7.1 million was established against the deferred tax asset amount
created by the net operation loss of APC's subsidiary in the UK for Fiscal 2020.

To offset taxable income for Fiscal 2021, a portion of the UK valuation
allowance was released in the tax-effected, translated amount of $0.2 million.
Given the past performance of APC UK over the past three years, the entity is in
a substantial cumulative loss position. For that reason, a valuation allowance
remains established against the net UK deferred tax asset as of January 31,
2021.

A deferred tax asset in the amount of $8.3 million was recorded as of January
31, 2020 associated with the income tax benefit of our domestic net operating
loss for Fiscal 2020 without any corresponding valuation allowance. Among other
changes, the CARES Act re-established a carryback period for certain losses to
five years. The net operating losses eligible for carryback under the CARES Act
include our domestic loss for Fiscal 2020, which was approximately $39.5
million. We have made the appropriate filing with the IRS requesting carryback
refunds of income taxes paid for the years ended January 31, 2017, 2016 and
2015. With the enactment of the CARES Act, the asset amount was moved to income
taxes receivable representing a complete utilization of the net operating loss
within one year of its occurrence.

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At this time, we believe that the historically strong earnings performance of
our power industry services segment will provide sufficient income during the
years when most of our other deferred tax assets become deductible in the US in
order for us to realize the applicable temporary income tax differences.
Accordingly, we believe that it is more likely than not that we will realize the
benefit of significantly all of our net deferred tax assets.

Share-Based Payments

We measure the cost of compensation for stock options awarded to employees and
independent directors based on the estimated grant-date fair value of the stock
options and we recognize the corresponding compensation expense amounts over the
vesting periods which are typically three years. Options to purchase 242,000,
238,500 and 257,000 shares of our common stock were awarded during Fiscal 2021,
Fiscal 2020 and Fiscal 2019, respectively, with weighted average fair value per
share amounts of $6.53, $9.60 and $9.31, respectively.

We use the Black-Scholes option pricing model to compute the fair value of stock
options. The Black-Scholes model requires the use of highly subjective
assumptions in the computations, which are disclosed in Note 12 to the
accompanying consolidated financial statements and include the risk-free
interest rate, dividend yield, the expected volatility of the market price of
our common stock and the expected life of each stock option. Changes in these
assumptions can cause significant fluctuations in the fair value of stock option
awards. We believe that our stock option exercise activity is sufficient to
provide us with a reasonable basis upon which to estimate expected lives.
Accordingly, the estimated expected life used in the determination of the fair
value of each stock option awarded since January 2017 was approximately 3.3
years. Beginning in Fiscal 2021, the estimated expected life used in the
determination of the fair value of each stock option increased to 3.4 years. The
use of the longer estimated expected life in our fair value calculations
resulted in higher fair value amounts per share.

We have also awarded performance-based restricted stock units to two senior
executives in April 2020, 2019 and 2018 covering 45,000, 36,000 and 36,000
maximum total numbers of shares of common stock, respectively, plus a number of
shares to be determined based on the amount of cash dividends deemed paid on
shares earned pursuant to the awards. The release of the stock restrictions
depends on the total return performance of our common stock measured against the
performance of a peer-group of common stocks over three-year periods. The fair
value amounts for the restricted stock units were determined by using the per
share market price of our common stock on the dates of award and the target
number of shares for the awards (50% of the maximum number), by assigning equal
probabilities to the thirteen possible payout outcomes at the end of each
three-year vesting period, and by computing the weighted average of the outcome
amounts. For each award, the estimated fair value amount was calculated to be
88.5% of the aggregate market value of the target number of shares on the award
date.

The fair values of stock options and restricted stock units are recorded as
stock compensation expense over the vesting periods of the corresponding awards
as described above. Expense amounts related to stock awards were $2.9 million,
$2.1 million and $1.6 million for Fiscal 2021, Fiscal 2020 and Fiscal 2019,
respectively.

Variable Interest Entities


We must consolidate any VIE in which we have variable interests if we are deemed
to be the primary beneficiary of the VIE; that is, if we have both (1) the power
to direct the economically significant activities of the entity and (2) the
obligation to absorb losses of, or the right to receive benefits from, the
entity that could potentially be significant to the VIE. Such a determination
requires management to evaluate circumstances and relationships and to make a
significant judgment, and to repeat the evaluation at each subsequent reporting
date. In the past, our evaluations have affirmed that, despite not having
ownership interests in certain power plant development VIEs, GPS was the
corresponding primary beneficiary due primarily to the significance of its loans
to each entity, the risk that GPS could absorb significant losses if the
development project was not successful, the opportunity for GPS to receive a
development success fee and the commitment of the project developer in each case
to award the large EPC contract for the construction of the power plant to GPS.
As a result, the accounts of each VIE were included in our consolidated
financial statements until project development efforts progressed on each one
such that financial support was thereafter provided substantially by a pending
investor. At this point in the life of each VIE, we deconsolidated it.

Currently, we are the primary beneficiary of a VIE that is performing project
development activities for the construction of a new natural gas-fired power
plant. Consideration for the engineering and financial support being provided to
the entity by GPS included the right to negotiate the corresponding turnkey EPC
contract for the project. The account balances of

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the VIE were included in our consolidated financial statements as of January 31,
2021 and 2020. As of January 31, 2021, the amount of capitalized development
costs included in our consolidated net balance for property, plant and equipment
was $7.5 million. We would be required to assess the carrying value of this
asset for impairment if our assessment of the likelihood that this development
project will be completed successfully becomes negative.

Legal Contingencies

We do become involved in legal matters where litigation has been initiated or
claims have been made against us. At this time, we do not believe that any
material loss is probable related to any current matters. However, we do
maintain accrued expense balances for the estimated amounts of legal costs
expected to be billed related to each significant matter. We review the status
of each matter and assess the adequacy of the accrued expense balances at the
end of each fiscal quarter, and make adjustments to the balances if necessary.
Should our assessments of the outcomes of outstanding legal matters change,
significant losses or additional costs may be recorded.

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. As a result, we believe that
Exelon has received the benefits of the construction efforts of GPS and the
corresponding progress made on the project without making payments to GPS for
the value received. In March 2019, Exelon provided GPS with a notice intending
to terminate the EPC contract under which GPS had been providing services to
Exelon. At that time, the construction project was nearly complete and both of
the power generation units included in the plant had successfully reached first
fire. The completion of various prescribed performance tests and the clearance
of punch-list items were the primary tasks necessary to be accomplished by GPS
in order to achieve substantial completion of the power plant. Nevertheless, and
among other actions, Exelon provided contractual notice requiring GPS to vacate
the construction site. Exelon has asserted that GPS failed to fulfill certain
obligations under the contract and was in default, withholding payments from GPS
on invoices rendered to Exelon in accordance with the terms of the contract
between the parties (see the discussion of our exposure related to unpaid
invoices and other assets immediately below). With vigor, GPS intends to assert
its rights under the EPC contract, to pursue the collection from Exelon of
amounts owed under the contract and to defend itself against the allegations
that GPS has not performed in accordance with the contract.

Accounts Receivables and Contract Assets


As described in Note 6 to the accompanying consolidated financial statements,
our loss experience related to uncollectible amounts billed to customers has not
been significant in the past. However, there is collection risk related to
accounts receivable and retainage amounts due from the customer involved in the
legal dispute discussed above. We believe that the underlying invoices were
prepared and submitted to the customer pursuant to the terms of the contract,
but the customer did not pay them when due. The last payment received from the
customer was in January 2019. We believe that we are entitled to receive
payments for these billings and we are confident that payments will be received
ultimately. However, the collection time for these amounts may be extended
substantially and could depend on the resolution of the outstanding legal
matter. As of January 31, 2021, the total amount of outstanding accounts
receivable, retainages and other contract assets related to this customer was
$24.5 million, for which the recovery time will most likely depend on the
resolution of the outstanding legal dispute between the parties.

Recently Issued Accounting Pronouncements


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

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In 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial
Instruments. The requirements of this new standard cover, among other
provisions, the methods that businesses shall use to estimate amounts of
uncollectible notes and accounts receivable. Adoption of this new guidance,
which became effective for us on February 1, 2020, did not materially affect our
consolidated financial statements.

There are no other recently issued accounting pronouncements that have not yet been adopted that we consider material to our consolidated financial statements.

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Financials (USD)
Sales 2022 570 M - -
Net income 2022 33,1 M - -
Net Debt 2022 - - -
P/E ratio 2022 23,6x
Yield 2022 -
Capitalization 773 M 773 M -
Capi. / Sales 2022 1,36x
Capi. / Sales 2023 0,96x
Nbr of Employees 1 473
Free-Float 94,5%
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Rainer H. Bosselmann Chairman & Chief Executive Officer
David Hibbert Watson Chief Financial Officer, Secretary & Treasurer
William F. Leimkuhler Independent Director
Champ Mitchell Independent Director
James W. Quinn Lead Independent Director
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