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SPECIAL PURPOSE ENTITIES | 9 Months Ended
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Oct. 31, 2015
SPECIAL PURPOSE ENTITIES |
SPECIAL PURPOSE ENTITIES | NOTE 3 — SPECIAL PURPOSE ENTITIES Construction Joint Ventures GPS has assigned its contracts for the engineering, procurement and construction of two natural gas-fired power plants (the “EPC Contracts”), known as Panda Liberty and Panda Patriot, to two separate joint ventures that were formed in order to perform the work for the applicable project and to spread the bonding risk of each project. The joint venture partner for both projects is a large, heavy civil contracting firm. GPS has no significant commitments under these arrangements beyond those related to the completion of the EPC Contracts. The joint venture partners are dedicating resources that are necessary to complete the projects and are being reimbursed for their costs. GPS is performing most of the activities of the EPC Contracts. The corresponding joint venture agreements, as amended, provide that GPS has the majority interest in any profits, losses, assets and liabilities that may result from the performance of the EPC Contracts. Due to the financial control of GPS, the accounts of the joint ventures have been included in the Company’s condensed consolidated financial statements since the commencement of contract activities near the end of the fiscal year ended January 31, 2014. The shares of the profits of the joint ventures, including the majority portion attributable to the stockholders of Argan, have been determined based on the percentages by which the Company believes profits will ultimately be shared by the joint venture partners. 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 EPC Contracts. In January 2015, the joint ventures made cash distributions including $25 million paid to the Company’s joint venture partner. Moxie Freedom LLC In August 2014, Gemma Power, Inc. (“GPI”), which is included in the group of companies identified above as “GPS” and is wholly owned by Argan, entered into a Development Loan Agreement (the “DLA”) with Moxie Freedom LLC (“Moxie Freedom”), a variable interest entity (“VIE”) wholly owned by Moxie Energy, LLC (“Moxie”), a power facility project development firm. GPI’s financial support has covered a significant portion of the costs of Moxie Freedom’s development of a large natural gas-fired power plant with nominal capacity of 1,000 MW. Under the DLA, GPI agreed to make development loans to Moxie Freedom of up to $6 million. As of October 31, 2015, the aggregate amount of the notes receivable and the related accrued interest was $4,866,000; such loans earned interest based on an annual rate of 20%. The loans and accrued interest should be repaid at the time of a financial closing, but shall mature no later than December 31, 2017. In connection with the DLA, GPI was provided security interests in various assets of Moxie Freedom and Moxie. Moxie Freedom has reimbursed GPS for certain project development support costs through additions to each monthly loan. At the time that Moxie Freedom is sold and repays all development loans and any outstanding obligations related to letters of credit, it shall pay, or cause to be paid, a development success fee to GPI. As additional consideration for the financial commitments made by GPI under the DLA, Moxie Freedom granted GPS the exclusive rights to provide engineering, procurement and construction (“EPC”) services for the project. In July 2015, the Company announced that it had entered into an EPC contract with Moxie Freedom and that it had received a limited notice to proceed with early project activities. Pursuant to a participation agreement, an equipment supplier to Moxie Freedom provided GPI with 40% of the funding for the development loans made to Moxie Freedom. As of October 31, 2015, GPI had received cash from the supplier of $1,703,000 in connection with this agreement. The supplier received an undivided fractional interest in all present and future loans from GPI and the related security. Accordingly, it earned interest on the cash provided to GPI based on an annual rate of 20% and it was entitled to receive from GPI 40% of any development success fee earned by GPI in connection with the permanent financing and/or sale of the project. Under current accounting guidance, the funding provided to GPI was treated as a secured borrowing which was included in the Company’s balance of accrued expenses as of October 31 and January 31, 2015. In early November 2015 (see Note 18), Moxie sold a substantial portion of its ownership interest in Moxie Freedom, GPI received full repayment of its development loans and accrued interest, GPI received its share of the development success fee, and GPS received a full notice-to-proceed with activities pursuant to the corresponding EPC contract. In addition, all amounts due under the participation agreement were paid. Through its arrangements with Moxie Freedom, the Company was previously deemed to be the primary beneficiary of this variable interest entity. However, Moxie Freedom substantially completed its project development efforts and financial support was thereafter provided substantially by the pending investor. As a result, the Company was no longer the primary beneficiary of the VIE and the deconsolidation of Moxie Freedom was reflected in the Company’s condensed consolidated financial statements as of July 1, 2015. The primary effects of the deconsolidation were the elimination of the capitalized project costs from the Company’s condensed consolidated balance sheet ($4,871,000) and the addition to the condensed consolidated balance sheet of the notes receivable from Moxie Freedom and the related accrued interest. For reporting periods prior to the deconsolidation, the amounts of GPI’s notes receivable from Moxie Freedom and the corresponding amounts of accrued interest and interest income were eliminated in consolidation. The deconsolidation resulted in a pre-tax gain which was included in the statements of earnings for the nine months ended October 31, 2015 in the amount of $349,000.

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