PURCHASE OF ATLANTIC PROJECTS COMPANY LIMITED

6 Months Ended

Jul. 31, 2015

PURCHASE OF ATLANTIC PROJECTS COMPANY LIMITED

PURCHASE OF ATLANTIC PROJECTS COMPANY LIMITED

NOTE 2 — PURCHASE OF ATLANTIC PROJECTS COMPANY LIMITED

On May 29, 2015 (the “Acquisition Date”), a wholly owned subsidiary of the Company purchased 100% of the outstanding capital stock of Atlantic Projects Company Limited, a private company incorporated in the Republic of Ireland. This business combination was completed pursuant to the terms and conditions of a Share Purchase Agreement, dated May 11, 2015 (the “SPA”). Formed in Dublin over forty years ago and including its affiliated companies, APC provides turbine, boiler and large rotating equipment installation, commissioning and outage services to original equipment manufacturers, global construction firms and plant owners worldwide. APC has successfully completed projects in more than thirty countries on six continents. With its presence in Ireland and its other offices located in Hong Kong, Singapore and New York, APC expands the Company’s operations internationally. APC will continue to operate under its own name and with its own management team as a member of the Company’s group of companies.

The fair value on the Acquisition Date of the consideration transferred to the former owners of APC was $11,101,000 (the “Consideration”) including $6,484,000 cash paid at closing, a liability in the amount of $1,081,000 representing cash held back until the expiration of the twelve-month escrow period and approximately 99,000 issued shares of the Company’s common stock which was valued at $3,536,000 based on the closing price of the Company’s common stock on the Acquisition Date. In addition, the former owners of APC are entitled to receive a cash dividend declared by APC prior to the acquisition in the aggregate amount of approximately $3,311,000 which was determined pursuant to the terms of the SPA. This obligation is included in accrued expenses in the Company’s condensed consolidated balance sheet as of July 31, 2015.

The amount of net cash used in the acquisition of APC is presented below:

Net assets acquired	$	11,101,000
Less-shares of common stock issued	3,536,000
Less-escrow liability	1,081,000
Less-cash acquired	2,274,000
Net cash used	$	4,210,000

The Company expects to pay the full amount of the escrow liability although it is entitled to retain an amount to cover any shortfall in the amount of the acquired net worth of APC, as defined in the SPA.

The acquisition of APC has been accounted for using the purchase method of accounting, with Argan as the acquirer. The amounts of acquisition-related costs incurred by the Company, which consisted primarily of legal and tax consulting fees and stamp taxes, were approximately $231,000 and $457,000 for the three and six months ended July 31, 2015, respectively; such costs were included in selling, general and administrative expenses in the condensed consolidated statements of operations for the corresponding periods.

The table below summarizes the preliminary allocation of the purchase price based upon the fair values of assets acquired and liabilities assumed at the Acquisition Date. This preliminary allocation is based upon information that was available to management at the time the condensed consolidated financial statements were prepared. Accordingly, the allocation may change.

Cash	$	2,274,000
Accounts receivable	5,735,000
Costs and estimated earnings in excess of billings	3,177,000
Prepaid expenses and other assets	592,000
Property, plant and equipment	1,303,000
Customer contracts	182,000
Goodwill	4,411,000
Less-accounts payable	628,000
Less-accrued expenses (including cash dividends payable)	5,201,000
Less-deferred taxes and other liabilities	744,000
Net assets acquired	$	11,101,000

The amount of goodwill incurred in connection with this transaction, included in the goodwill of the power industry services reportable segment, reflects the Company’s belief that APC’s trained and assembled workforce, unregistered trade name and other marketing related benefits which do not qualify for separate recognition have continuing value. The amount allocated to customer contracts represents the fair value ascribed to APC’s contract backlog at the Acquisition Date; the amount is being amortized to expense over the terms of the corresponding contracts (less than 1 year).

The following unaudited pro forma information for the six months ended July 31, 2015 and 2014 assumes that the purchase of APC had occurred on February 1, 2014. The pro forma information, as presented below, may not be indicative of the results that would have been obtained had the transaction occurred on February 1, 2014, nor is it indicative of the Company’s future results ($s in thousands, except per share data).

	2015		2014
Pro forma revenues	$	192,505	$	173,214
Pro forma net income	$	27,891	$	17,594
Pro forma net income attributable to the stockholders of Argan, Inc.	$	20,016	$	12,798
Pro forma earnings per share attributable to the stockholders of Argan, Inc.
Basic	$	1.36	$	0.89
Diluted	$	1.33	$	0.87

The pro forma net income amounts above reflect the elimination of the acquisition-related costs ($457,000) incurred during the six months ended July 31, 2015, and the adjustment of the amortization of purchased intangibles resulting in an increase to net income for 2015 and a decrease in net income for 2014 in the amounts of $43,000 and $91,000, respectively.

The amount of revenues attributable to APC and included in the statements of operations for both the three and six month periods ended July 31, 2015 was $3,415,000; the corresponding loss before income tax benefit for the periods was $150,000. The amount of APC’s revenues related to overseas customers that was included in the Company’s consolidated revenues for the corresponding periods was approximately $2,961,000.