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SPECIAL PURPOSE ENTITIES | 12 Months Ended
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Jan. 31, 2016
SPECIAL PURPOSE ENTITIES |
SPECIAL PURPOSE ENTITIES | NOTE 5 — SPECIAL PURPOSE ENTITIES Construction Joint Ventures GPS 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 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”) that was wholly owned by Moxie Energy, LLC (“Moxie”), a power facility project development firm. The financial support provided by GPI covered a significant portion of the costs of Moxie Freedom’s development of a large natural gas-fired power plant with nominal capacity of 1,040 MW. Under the DLA, GPI made development loans to Moxie Freedom that totaled $4,258,000; such loans earned interest based on an annual rate of 20%. In November 2015, Moxie sold a substantial portion of its ownership interest in Moxie Freedom, GPI received repayment of its development loans in full and $633,000 in accrued interest, GPI received a development success fee in the amount of $4,258,000, and GPS received a full notice-to-proceed with activities pursuant to the corresponding EPC contract. 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 that totaled $1,703,000. 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 January 31, 2015 in the amount of $755,000. Interest payable to the supplier accrued based on an annual rate of 20% and the supplier was entitled to receive 40% of any development success fee earned by GPI in connection with the permanent financing and/or sale of the project. In November 2015, all amounts due under the participation agreement were paid by GPI including principal and interest in the total amount of $1,940,000 and the supplier’s share of the development success fee in the amount of $1,703,000. Through its arrangements with Moxie Freedom, the Company was deemed to be the primary beneficiary of this VIE entity at its inception. However, Moxie Freedom substantially completed its project development efforts during 2015 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 it was deconsolidated during the second quarter of the current fiscal year. The primary effects of the deconsolidation were the elimination of the capitalized project costs from the Company’s consolidated balance sheet ($4,871,000) and the addition to the consolidated balance sheet of the notes receivable from Moxie Freedom and 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 statement of earnings for the year ended January 31, 2016 in the amount of $349,000. The Moxie Project Entities In 2011, Moxie formed a pair of wholly-owned limited liability companies in order to sponsor the development of the two natural gas-fired power plant projects (the “Moxie Projects”) discussed above. The Moxie Project entities, Moxie Liberty LLC (“Moxie Liberty”) and Moxie Patriot LLC (“Moxie Patriot”), together referred to as the “Moxie Project Entities,” were 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, GPI supported the development of these two projects with loans that were made in order to cover most of the costs of the development efforts. Pursuant to the development agreement, Moxie also 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. Because the Moxie Project Entities did not have sufficient equity investment to permit the entities to finance their activities without additional financial support, these entities were considered to be VIEs. Despite not having an ownership interest in the Moxie Project Entities, GPI was the primary beneficiary of these VIEs. Accordingly, the Company included the accounts of the VIEs in its consolidated financial statements for the year ended January 31, 2013. With its agreements to purchase the Moxie Project Entities from Moxie, Panda Power Funds became the primary source of financial support for the projects. As a result, the Company ceased the consolidation of both VIEs during the fiscal year ended January 31, 2014. With the deconsolidation of the Moxie Project Entities, the elimination of their accounts from the Company’s consolidated financial statements, including their accumulated net losses, resulted in pre-tax gains recognized by GPI during the year ended January 31, 2014 in the total amount of $2,444,000. In August and December 2013, respectively, the sale of and permanent financing for Moxie Liberty and Moxie Patriot were completed and the new project owner renamed the project entities Panda Liberty LLC and Panda Patriot LLC. Also, GPS received full notice-to-proceed under both EPC Contracts. From the date of deconsolidation through the date of sale for each project, the interest income earned by GPI on its notes receivable was included in other income in the consolidated financial statements. The amount of interest income included in other income in the consolidated statement of earnings for the year ended January 31, 2014 was approximately $952,000.

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