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Special Purpose Entities | 6 Months Ended
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Jul. 31, 2013
Special Purpose Entities [Abstract] |
SPECIAL PURPOSE ENTITIES | NOTE 2—SPECIAL PURPOSE ENTITIES The Moxie Project Variable Interest Entities Moxie Energy, LLC (“Moxie”), a Delaware limited liability company, has been sponsoring the development of two natural gas-fired power plants. The strategy of Moxie is to build these power plants (the “Moxie Projects,” both of which were formed as wholly-owned limited liability companies by Moxie) in the Marcellus Shale region of Pennsylvania near the natural gas source, eliminating the need to transport natural gas via pipelines over long distances to supply the power production plants. The Moxie Project entities have been engaged in the lengthy process of planning, obtaining permits and arranging financing for the construction, ownership and operation of the power plants. Under a development agreement with Moxie, as amended and restated, Gemma Power, Inc. (“GPI,” an affiliate included in the GPS group of companies and wholly owned by Argan) supported the development of these two projects with loans that have been made in order to cover most of the costs of the development efforts. As of July 31, 2013, GPI had provided approximately $8,179,000 to the Moxie Projects under development loans, which are due by June 30, 2014 and accrue interest at an annual rate of 20%. GPI has been authorized by the Company’s board of directors to extend loans to the Moxie Projects that could total up to $10 million, as currently contemplated. Moxie supported the arrangement by providing GPI with a first priority lien and security interest in all of the assets of the Moxie Projects, limited recourse guarantees of all of the obligations of the projects, and first priority liens on its membership interests in the two projects. The admission of any additional investor that would change the control of Moxie or either of the Moxie Projects required the prior approval of GPI. Pursuant to the development agreement, Moxie provided GPI with the right to receive development success fees and granted GPS the right to provide construction services for the two projects under engineering, procurement and construction contracts. In March 2013, Moxie reached an agreement for the purchase of its membership interest in one of the Moxie Projects, Moxie Liberty LLC (“Moxie Liberty”), by a third party investor. The consummation of the purchase of Moxie Liberty, contingent upon the investor securing permanent financing for the project, was agreed to occur by September 2, 2013 (see Note 16 for related subsequent events). In order to support the continuing progress of this project, the investor 1) provided collateral supporting Moxie Liberty’s securing the right to connect to the electricity grid, 2) made equipment deposit payments to the manufacturer of the natural gas-fired turbines, and 3) commenced payments to GPS under the corresponding engineering, procurement and construction contact after issuing a limited notice-to-proceed. The equipment deposit funding was provided by the investor under secured loans bearing annual interest of 10%. The membership interest purchase agreement required Moxie Liberty to continue to conduct the remaining development activities. However, the rights of Moxie Liberty to conduct any activities that deviated from the development plan were subject to the approval of the investor. Also in March 2013, GPI consented to Moxie Liberty’s secured lending arrangement with the investor and agreed to equal priority regarding claims (neither party has a priority of payment over or is subordinate to the other) and the method for sharing the proceeds of any debt payments made by Moxie Liberty. In addition, GPS and Moxie Liberty entered into an engineering, procurement and construction contract for the Liberty Generating Station (the “Liberty EPC Contract”). In May 2013, GPI entered into a consent and inter-creditor agreement in connection with the design and construction of the other gas-fired power plant that is being developed by Moxie Patriot LLC (“Moxie Patriot”) and that will be built in Lycoming County, Pennsylvania. The Company also disclosed that Moxie had entered into an agreement with a third party investor for the purchase of Moxie’s membership interest. The investor agreed to provide advances for certain preconstruction costs related to this project. The consummation of the purchase of Moxie Patriot is contingent upon the third party investor securing permanent financing for the project which is not expected to occur until late in the current fiscal year. Should the third party investor consummate the purchase of Moxie Patriot, GPS would design and build the plant under an engineering, procurement and construction contract. Also, GPI would receive development success fees and repayment of the working capital advances plus accrued interest from the proceeds of the sale. On July 31, 2013, GPS and Moxie Patriot entered into an engineering, procurement and construction contract for the Patriot Generating Station (the “Patriot EPC Contract”), confirming the commitment of the investor to make preconstruction payments on behalf of Moxie Patriot in a manner similar to the preconstruction payments made for Moxie Liberty. Primarily due to the Moxie Projects not having sufficient equity investment to permit the entities to finance their activities without additional financial support, these entities were considered to be variable interest entities (“VIEs”) under current accounting guidance. Despite not having an ownership interest in the Moxie Projects, the Company concluded that GPI was the primary beneficiary of these VIEs due substantially to the significance of GPI’s loans to the entities, the risk that GPI could absorb significant losses if the development projects are not successful, the opportunity for GPI to receive development success fees and the intent of the parties for GPS to be awarded large contracts for the construction of the two power plants. Accordingly, the Company included the accounts of the Moxie Project VIEs in its consolidated financial statements for the year ended January 31, 2013. However, during the six months ended July 31, 2013, the power to direct the economic activities of the Moxie Projects that most affect their economic performance shifted with the completion of the agreements described above. GPI is no longer the primary beneficiary of the Moxie Project VIEs. For each project, the investor became the primary source of financial support for the pre-construction phase of each project, providing significant financing in order to secure connection to the electricity grid and to pay for the natural gas-fired turbines, the most significant equipment components of the power plants. Through the Liberty and Patriot EPC Contracts, GPS has transitioned into its typical role of engineering, procurement and construction contractor where it is subject to the direction of the Moxie Project owners, in this case Moxie Liberty and Moxie Patriot, and where the investor has made payments directly to GPS in order to cover certain costs incurred under the limited notices to proceed with the Liberty and Patriot EPC Contracts. Further, in a manner similar to Moxie Liberty, the identification of sources and structuring of the permanent financing for Moxie Patriot are activities being directed and completed primarily by the investor. As a result, the Company ceased the consolidation of Moxie Liberty and Moxie Patriot in the first and second quarters of the current year, respectively. The elimination of the accounts of Moxie Liberty from the Company’s consolidated financial statements resulted in a pre-tax gain which was recorded in the first quarter in the amount of $1,120,000. The elimination of the accounts of Moxie Patriot from the Company’s consolidated financial statements resulted in a pre-tax gain which was recorded in the second quarter in the amount of $1,324,000. As a result, the balances for GPI’s notes receivable from the Moxie Projects and the corresponding accrued interest amounts (totaling $8,179,000 and $1,512,000, respectively) were not eliminated in the consolidation accounting as of July 31, 2013. Accordingly, the total amount of $9,691,000, which approximated the Company’s amount of maximum exposure to loss as of July 31, 2013, was included in the accompanying condensed consolidated balance sheet. The portion of the balance relating to each Moxie Project, along with any development success fee, will be paid to GPI at the closing of the corresponding membership purchase agreement (see Note 16 for related subsequent event). The net operating loss associated with the Moxie Projects (before corresponding income tax benefit) incurred prior to the deconsolidation of the entities, and therefore included in the consolidated results of operations for the six months ended July 31, 2013, was $261,000. Net operating losses associated with both Moxie Project entities (before corresponding income tax benefit) and included in the consolidated results of operations for the three and six months ended July 31, 2012 were $362,000 and $644,000, respectively. Construction Joint Venture During the three months ended July 31, 2013, GPS assigned the Liberty EPC Contract to a joint venture that was formed in order to perform the work for this specific project and to spread the bonding risk of the project. The joint venture partner is a large, heavy civil contracting firm. The joint venture agreement provides that the percentage interest of GPS in any profits and assets, and its respective share in any losses and liabilities that may result from the performance of the Liberty EPC Contract is 75%. However, if the joint venture partner is unable to pay its share of any losses, GPS would be fully liable for those losses incurred under the Liberty EPC Contract. GPS has no significant commitments under this arrangement beyond those related to the completion of the Liberty EPC Contract. The joint venture partners will dedicate resources to the project that are necessary to complete the project and will be reimbursed for their costs. GPS expects to perform most of the activities of the Liberty EPC Contract. The accounts of the joint venture are included in the condensed consolidated financial statements for the three and six months ended July 31, 2013. The amount of the net revenues of the consolidated construction joint venture was less than 10% of the Company’s consolidated net revenues for the three and six month periods ended July 31, 2013. The income attributable to the noncontrolling interest of the joint venture partner for the three and six months ended July 31, 2013 was $79,000.

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