BUSINESS COMBINATIONS

12 Months Ended

Jan. 31, 2016

BUSINESS COMBINATIONS

BUSINESS COMBINATIONS

NOTE 4 — BUSINESS COMBINATIONS

On May 29, 2015, a wholly owned subsidiary of the Company purchased 100% of the outstanding capital stock of Atlantic Projects Company Limited (“APC”), 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 continues 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 included (1) $6,484,000 in cash paid at closing, (2) a liability in the amount of $1,081,000 representing cash held back until the expiration of the twelve-month escrow period, and (3) 98,818 shares of the Company’s common stock issued to the former owners of APC that were valued at $3,536,000 based on the closing price of the Company’s common stock on the date of acquisition. 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. In addition, the former owners of APC received a cash dividend during Fiscal 2016 that was declared by APC prior to the acquisition in the aggregate amount of $3,311,000. This amount was determined pursuant to the terms of the SPA and the obligation was included in the balance sheet of APC on the acquisition date as an accrued liability.

On December 4, 2015, the Company acquired TRC Acquisition LLC which owns 100% of The Roberts Company Field Services, Inc. and The Roberts Company Fabrication Services, Inc. (collectively “Roberts”), both Delaware corporations. This business combination was completed pursuant to the terms and conditions of a Membership Interest Purchase Agreement dated December 4, 2015. Roberts, founded in 1977 and headquartered near Greenville, North Carolina, is principally an industrial fabricator and constructor serving both light and heavy industrial organizations primarily in the southern United States. Consideration included a $500,000 cash payment. In addition, the Company made cash payments totaling $15,637,000 on the closing date in order to retire the outstanding bank debt of Roberts and certain leases.

The amounts of net cash used in the acquisitions of APC and Roberts are presented below:

	APC		Roberts
Net assets acquired	$	11,101	$	16,137
Less - shares of common stock issued	3,536		—
Less - escrow liability	1,081		—
Less - cash acquired	2,274		2,968
Net cash used	$	4,210	$	13,169

Both acquisitions have been accounted for using the purchase method of accounting, with Argan as the acquirer. The results of operations for APC and Roberts have been included in the consolidated financial statements since the corresponding acquisition dates. Acquisition costs related to APC and incurred by the Company, which consisted primarily of legal and tax consulting fees and stamp taxes, were $460,000 for the year ended January 31, 2016. Acquisition costs related to Roberts, which consisted primarily of legal fees, were $123,000 for the year ended January 31, 2016. Such costs were included in selling, general and administrative expenses in the consolidated statement of earnings for Fiscal 2016.

The table below summarizes the fair values of assets acquired and liabilities assumed on the dates that APC and Roberts were acquired. However, the purchase price allocation for Roberts is preliminary. Among other matters, the Company is awaiting the final resolution of potential liquidated damages that could be claimed by one customer in the amount of $2.0 million.  The final resolution of this contingency is expected in the fiscal year ending January 31, 2017. The Company does not believe that it is probable that the liquidated damages will be assessed by the customer. For the remainder of the measurement periods for these transactions (no longer than one year from the date of acquisition  for each transaction), the effects of future adjustments to the fair value amounts, if any, will be recognized in the consolidated financial statements of the corresponding future reporting period (see Note 3). 

	APC		Roberts
Cash	$	2,274	$	2,968
Accounts receivable	5,735		18,931
Costs and estimated earnings in excess of billings	3,177		2,162
Deferred income tax assets	—		4,399
Prepaid expenses and other assets	594		1,600
Property, plant and equipment	1,303		7,127
Intangible assets	543		7,487
Goodwill	4,049		14,880
Less - Accounts payable and accrued expenses	5,830		34,188
Less - Billings in excess of costs and estimated earnings	—		9,229
Less - Deferred income tax and other liabilities	744		—
Net assets acquired	$	11,101	$	16,137

The amounts of goodwill recognized with these transaction, which are included in the goodwill of the power industry services and industrial fabrication and field services reportable segments, respectively, reflect the Company’s belief that the future earnings potential of the businesses, the trained and assembled workforces and other marketing related benefits which do not qualify for separate recognition have continuing value. The amounts allocated to amortizable intangible assets included the estimated fair values of process certifications, customer contracts, customer relationships and certain other intangibles. The corresponding amounts are being amortized to expense over the terms of the corresponding useful lives or contracts, as applicable. The weighted-average amortization period for these intangible assets is 6.9 years. The fair value of the Roberts trade name is considered to have an indefinite life.

The unaudited pro forma information presented below for the years ended January 31, 2016 and 2015 assumes that the purchases of APC and Roberts both occurred on February 1, 2014. The pro forma net income amounts reflect the elimination of the acquisition-related costs incurred during the year ended January 31, 2016, and adjustments to amortization of purchased intangibles. For the year ended January 31, 2016, the pro forma results presented below reflect the significant contract losses recorded by Roberts prior to the acquisition, which resulted in a decrease to net income attributable to the Company’s stockholders in the amount of $23,643,000, or $1.57 per diluted share. In the aggregate, the adjustments increased net income attributable to the Company’s stockholders for the year ended January 31, 2015 in the amount of $667,000, or $0.04 per diluted share, on a pro forma basis. The unaudited pro forma information presented below may not be indicative of the results that would have been obtained had the transactions occurred on February 1, 2014, nor is it indicative of the Company’s future results.

	2016		2015
Pro forma revenues	$	575,961	$	524,795
Pro forma net income	$	26,561	$	44,122
Pro forma net income attributable to the stockholders of Argan, Inc.	$	12,702	$	31,112
Pro forma earnings per share attributable to the stockholders of Argan, Inc.
Basic	$	0.86	$	2.14
Diluted	$	0.84	$	2.06

The aggregate amount of revenues attributable to APC and Roberts and included in the consolidated statement of earnings for the year ended January 31, 2016 was $29,454,000. The amount of loss before income tax benefit attributable to the acquired companies for the corresponding period was $1,509,000.