News Column


June 9, 2014

The following discussion summarizes the financial position of Argan, Inc. and its subsidiaries as of April 30, 2014, and the results of their operations for the three months ended April 30, 2014 and 2013, and should be read in conjunction with (i) the unaudited condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q and (ii) the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2014 that was filed with the Securities and Exchange Commission on April 15, 2014 (the "2014 Annual Report").

Cautionary Statement Regarding Forward Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for certain forward-looking statements. We have made statements in this Item 2 and elsewhere in this Quarterly Report on Form 10-Q that may constitute "forward-looking statements." The words "believe," "expect," "anticipate," "plan," "intend," "foresee," "should," "would," "could," or other similar expressions are intended to identify forward-looking statements. These forward-looking statements are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we anticipate. All comments concerning our expectations for future revenues and operating results are based on our forecasts for our existing operations and do not include the potential impact of any future acquisitions. Our forward-looking statements, by their nature, involve significant risks and uncertainties (some of which are beyond our control) and assumptions. They are subject to change based upon various factors including, but not limited to, the risks and uncertainties described in Item 1A of Part II of this Quarterly Report on Form 10-Q and Item 1A of Part I of our 2014 Annual Report. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in the forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Business Description Argan, Inc. (the "Company," "we," "us," or "our") conducts operations through its wholly owned subsidiaries, Gemma Power Systems, LLC and affiliates ("GPS") and Southern Maryland Cable, Inc. ("SMC"). Through GPS, we provide a full range of development, consulting, engineering, procurement, construction, commissioning, operations and maintenance services to the power generation and renewable energy markets for a wide range of customers including independent power project owners, public utilities, municipalities, public institutions and private industry. Including its consolidated joint ventures and variable interest entities (when and where applicable), GPS represents our power industry services business segment. Through SMC, we provide telecommunications infrastructure services including project management, construction and maintenance to local governments, the federal government, telecommunications and broadband service providers as well as electric utilities. Argan, Inc. is a holding company with no operations other than its investments in GPS and SMC. At April 30, 2014, there were no restrictions with respect to inter-company payments from GPS or SMC to the holding company. The amount of cash and cash equivalents in the condensed consolidated balance sheets included cash held within consolidated joint venture entities. Such cash, which amounted to approximately $167.9 million and $117.7 million as of April 30, 2014 and January 31, 2014, respectively, will be used to cover the anticipated costs of those construction joint ventures primarily and future distributions to joint venture partners. - 14 -


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For the three months ended April 30, 2014 (the first quarter of our fiscal year 2015), consolidated revenues increased by $4.6 million to $51.2 million for the current quarter, compared with consolidated revenues of $46.6 million for the first quarter of last year, due to the increased revenues of our power industry services business. The revenues of this group rose by $6.0 million for the first quarter of the current year to $49.8 million compared with $43.8 million for the three months ended April 30, 2013. The revenues of the telecommunications infrastructure services business segment for the three months ended April 30, 2014 and 2013 were $1.4 million and $2.9 million, respectively. However, we did not achieve the same level of profitability in the current quarter that we experienced last year. Gross profit declined by approximately $2.9 million to $10.1 million for the three months ended April 30, 2014 from $13.0 million for last year's first quarter, reflecting a reduction in our gross profit percentage, expressed as a percentage of consolidated revenues for the applicable period, to 19.6% for the current quarter from 27.9% last year. Net income attributable to our stockholders for the three months ended April 30, 2014 decreased to $3.5 million, or $0.24 per diluted share, compared with net income attributable to our stockholders of $6.4 million, or $0.45 per diluted share, for the three months ended April 30, 2013. The strong overall gross profit percentage for the prior year quarter reflected the project-to-date effect of the profitability improvement of a significant power plant project that was completed last year. In addition, we recognized a pre-tax gain as other income in the approximate amount of $1.1 million during the first quarter last year in connection with the deconsolidation of the variable interest entity as discussed below. Our balance of cash and cash equivalents continued to grow during the current quarter to a balance of $313.8 million as of April 30, 2014 from a balance of $272.2 million as of January 31, 2014 which reflected primarily our net income for the quarter and a temporary net increase in the amount of cash received from project owners in anticipation of costs to be incurred for construction jobs in progress. At April 30, 2014, we had EPC contracts representing a total contract backlog of $742 million which compares with a total contract backlog of $790 million at January 31, 2014. The Panda Projects Moxie Energy, LLC ("Moxie"), an unaffiliated Delaware limited liability company, formed a pair of wholly-owned limited liability companies in order to sponsor the development of two natural gas-fired combined-cycle power plant projects (the "Moxie Projects"). 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, 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 were made in order to cover most of the costs of the development efforts. 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. During March 2013 and May 2013, Moxie reached agreements for the purchase of its membership interests in Moxie Liberty and Moxie Patriot, respectively, by affiliates of Panda Power Funds ("Panda"). The consummation of the purchase of each Moxie Project Entity was contingent upon Panda securing permanent financing for the corresponding project. In addition, the Moxie Project Entities entered into separate engineering, procurement and construction contracts with GPS for the Liberty and Patriot Power Projects (the "EPC Contracts"). Each of these gas-fired power plants is designed to deliver in excess of 800 MW of base-load electricity. Primarily due to the Moxie Project Entities 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"). Despite not having an ownership interest in the Moxie Project Entities, 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 were 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, we included the accounts of the VIEs of Moxie in our consolidated financial statements for the year ended January 31, 2013. - 15 -


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With the completion of the agreements described above, the power to direct the economic activities of the Moxie Project Entities that most affected their economic performance shifted. GPI was no longer the primary beneficiary of either of the VIEs. Panda became the primary source of financial support for the pre-construction phase of the related projects, providing significant financing in order to secure connections to the electricity grid and to pay for the natural gas-fired turbines, the most significant equipment components of the power plants. Further, the identification of sources and structuring of the permanent financing for the Moxie Projects were activities directed and completed primarily by Panda. As a result of our determinations that GPI was no longer the primary beneficiary, we ceased the consolidation of the Moxie Project Entities last year starting with Moxie Liberty which we deconsolidated in the three-month period ended April 30, 2013. The elimination of the accounts of Moxie Liberty from our condensed consolidated financial statements, including the accumulated net loss of this variable interest entity, resulted in a pre-tax gain recognized by GPI in the three months ended April 30, 2013 in the amount of $1,120,000. We did consolidate the accounts of Moxie Patriot for the three months ended April 30, 2013; its deconsolidation occurred during the three-month period ended July 31, 2013 when it was determined that GPI was no longer its primary beneficiary. In August and December 2013, respectively, Panda completed the purchase of and permanent financing for Moxie Liberty and Moxie Patriot and renamed the project entities Panda Liberty LLC ("Panda Liberty") and Panda Patriot LLC ("Panda Patriot"). Also, GPS received full notices-to-proceed under the EPC Contracts. From the dates of deconsolidation through the dates of purchase of the Moxie Project Entities by Panda, the interest income earned by GPI on its notes receivable was included in our condensed consolidated financial statements. The amount of interest income included in other income in our condensed consolidated statement of operations for the three months ended April 30, 2013 was approximately $162,000. The net operating loss associated with Moxie Patriot (before corresponding income tax benefit) and included in our condensed consolidated results of operations for the three months ended April 30, 2013 was $261,000. Last year, GPS assigned the EPC Contracts 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. The joint venture agreements provide that GPS has the majority interest in any profits, losses, assets and liabilities that may result from the performance of the EPC Contracts. 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 EPC Contracts. GPS has no significant commitments under these arrangements beyond those related to the completion of the EPC Contracts. The joint venture partners will dedicate resources that are necessary to complete the projects and will be reimbursed for their costs. GPS expects to perform most of the activities of the EPC Contracts. Due to the financial control of GPS, the accounts of the joint ventures were included in our condensed consolidated balance sheets as of April 30, 2014 and January 31, 2014, and their results of operations were included in the condensed consolidated statement of operations for the three months ended April 30, 2014.


Current economic conditions in the United States appear to be improving gradually including those in the construction sectors. However, the severe impacts of the recession of 2008 including stubbornly high unemployment, the depressed state of the housing industry, reduced state and local government budgets and sluggish manufacturing activity all contributed to significant reductions in construction spending in the United States from pre-recession levels. The progress of the economic recovery is sluggish, particularly in the construction sectors. The power industry has not fully recovered from the corresponding recessionary decline in the demand for power in the United States. After a two-year decline, total electric power generation from all sources increased slightly by 0.3% in 2013, reaching approximately 98% of the peak power generation level of 2007. Recently published government forecasts project an annual increase in power generation of approximately 1% per year for the next 25 years. For calendar year 2013, electricity generated by natural gas-fired power plants comprised approximately 27% of total generation which represented a 9% annual decline that was due substantially to increased natural gas prices. On the other hand, the share of coal-generated electricity increased by approximately 5% for 2013, and represented 39% of total electricity power generation for the year. During calendar 2013, increases in the price for natural gas caused an interruption in the overall shift in the percentage of power provided by gas-fired power plants versus coal-fired power plants. However, the statistics for 2013 are inconsistent with the long-term power generation trends. Over the last 10 years, total power generation has increased by approximately 5%. During the same period, the amount of electricity generated by natural-gas fired power sources increased by 71%, and the amount of electric power generated by coal-fired plants declined by 20%. The amount of electricity provided by nuclear power plants increased over the last 10 years by only 3%. Electrical power generated by renewable energy sources (excluding hydroelectric sources) tripled over the last ten years, but represents only 6% of total generation. - 16 -


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Recent projections of future power generation assume the sustained increase in natural gas production, which should lead to slower price growth in the future. The availability of competitively priced natural gas, the existence of certain programs encouraging renewable fuel use, and the implementation of environmental rules should dampen future coal use. Announcements by electric utilities of the retirement of coal-fired and nuclear power plants continue, citing the availability of cheap natural gas, increasingly stringent environmental regulations and the significant costs of refurbishment and relicensing. The future retirements of coal and nuclear plants will result in the need for new capacity, and new natural gas-fired plants are cheaper to build than coal, nuclear, or renewable plants. The expected increase in momentum towards more environmentally friendly power generation facilities has not occurred at the pace expected prior to the latest recession. The Environmental Protection Agency has been stridently exercising an expansion of regulatory power over air quality and electric power generation. The renewable energy sector was bolstered by legislation enacted at the beginning of calendar 2013 extending tax credits for various renewable technologies. However, the federal government has not passed comprehensive energy legislation that might include national renewable energy standards, incentives or mandates for the retirement of existing coal-fired power plants and caps on the volume of carbon emissions. Existing coal-fired plants in the United States are proving to be a challenge to retrofit or replace. Coal prices are widely considered to be stable and certain states see the availability of inexpensive, coal-powered electricity as a key driver of economic growth. In addition, simplified designs are intended to make new nuclear plants easier and less expensive to build, to operate and to maintain. As a result, a few electric utilities, primarily in the South, have plans to construct and operate new nuclear power plants. We believe that it is likely that the soft demand for power will continue to limit the number of new energy plant construction opportunities that we will see in the current year. The new opportunities that may arise will continue to result in fierce competition among bidders. Most of our competitors are global engineering and construction firms, substantially larger than us. Our relatively smaller size may be evaluated to be a risk by potential project owners. With the future long-term availability of renewable energy tax incentives unknown and the development pipeline depleted, potential energy project developers and investors made very few commitments related to new renewable energy generation facilities last year. As a result, the likelihood of our booking additional wind and solar power projects in the current year is uncertain. Nevertheless, as we have stated in the past, we believe that the long-term prospects for energy plant construction are extremely favorable. Major advances in horizontal drilling and the practice of hydraulic fracturing ("fracking") have led to a boom in natural gas supply. The abundant availability of cheap, less carbon-intense, natural gas should continue to be a significant factor in the economic assessment of the future for coal-fired power plants. New and pending carbon emission standards have also become a significant obstacle for any plans to build new coal-fired power plants. The coal industry fears that future regulations limiting carbon emissions may jeopardize the continuing operation of existing coal-fired power plants. The future of clean burning coal is also uncertain as significant plants being built by large southern utilities, touted as the showcase technology for generating clean electricity from low-quality coal, have experienced soaring construction costs. The demand for electric power in this country is expected to grow slowly but steadily over the long term. Increasing demands for electricity, the ample supply of natural gas, and the expected retirement of old coal, nuclear and oil-powered energy plants, should result in natural gas-fired and renewable energy plants, like wind, biomass and solar, representing the substantial majority of new power generation additions in the future and an increased share of the power generation mix. Market concerns about emissions should continue to dampen the expansion of coal-fired capacity. Low fuel prices for new natural gas-fired plants also affect the relative economics of coal-fired capacity, as does the continued rise in construction costs for new coal-fired power plants. We expect continuing concerns about the safety, high cost and construction cost overrun risk of nuclear power plants. In summary, the future development of renewable and cleaner natural gas-fired power generation facilities should result in new power facility construction opportunities for us. During this difficult time for the construction industry, particularly in our sector, and until the recovery for our sector of the construction industry becomes more robust, we have been focused on the effective and efficient completion of our current construction projects and the control of costs. Despite the intensely competitive business environment, we are committed to the rational pursuit of new construction projects. This approach may result in a lower volume of new business bookings until the demand for new power generation facilities and the other construction industry sectors recover fully. We will strive to conserve cash and to maintain an overall strong balance sheet. However, the pursuit of future business development opportunities may result in our decision to make investments in the ownership of new projects, at least during the development phase of a project. Because we believe in the strength of our balance sheet, we are willing to consider the opportunities that include reasonable and manageable risks in order to assure the award of the related EPC contract to us. Accordingly, our involvement with the development of the Moxie Projects reflected careful evaluation of the opportunities and risks. We structured the terms of our involvement in order to minimize the financial risks and to benefit substantially from the successful development of the projects. - 17 -


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We remain cautiously optimistic about our long-term growth opportunities. We are focused on expanding our position in the growing power markets where we expect investments to be made based on forecasts of increasing electricity demand covering decades into the future. We believe that our expectations are reasonable and that our future plans are based on reasonable assumptions. Our performance on current projects should provide a stable base of business activity for the next 2 to 3 years, and a return to more typical gross margins due to the absence of sizable development success fees like those earned last year.

Comparison of the Results of Operations for the Three Months Ended April 30, 2014 and 2013

The following schedule compares the results of our operations for the three months ended April 30, 2014 and 2013. Except where noted, the percentage amounts represent the percentage of revenues for the corresponding quarter.

2014 2013 Revenues Power industry services $ 49,824,000 97.3 % $ 43,769,000 93.8 % Telecommunications infrastructure services 1,367,000 2.7 % 2,879,000 6.2 % Totals 51,191,000 100.0 % 46,648,000 100.0 % Cost of revenues ** Power industry services 40,049,000 80.4 % 31,246,000 71.4 % Telecommunications infrastructure services 1,091,000 79.8 % 2,374,000 82.4 % Totals 41,140,000 80.4 % 33,620,000 72.1 % Gross profit 10,051,000 19.6 % 13,028,000 27.9 % Selling, general and administrative expenses 3,379,000 6.6 % 3,443,000 7.4 % Income from operations 6,672,000 13.0 % 9,585,000 20.5 % Gain on deconsolidation of variable interest entity - - 1,120,000 2.4 % Other income, net 22,000 * 155,000 0.4 % Income before income taxes 6,694,000 13.1 % 10,860,000 23.3 % Income tax expense 1,894,000 3.7 % 3,920,000 8.4 % Net income 4,800,000 9.4 % 6,940,000 14.9 % Income attributable to noncontrolling interests 1,325,000 2.6 %

530,000 1.2 %

Net income attributable to our stockholders $ 3,475,000 6.8 % $ 6,410,000 13.7 % * Less than 0.1%. ** Each percentage amount for cost of revenues represents the percentage of revenues of the applicable segment. Revenues Power Industry Services The revenues of the power industry services business increased by $6.0 million to $49.8 million for the three months ended April 30, 2014 compared with revenues of $43.8 million for the first quarter last year. The revenues of this business represented approximately 97% of consolidated revenues for the three months ended April 30, 2014, and approximately 94% of consolidated revenues for the three months ended April 30, 2013. The operating results of this business for the current quarter included revenues associated with performance on three significant construction projects, including the two large gas-fired combined-cycle power plants located in the Marcellus shale region of Pennsylvania and a biomass-fired power plant located in eastern Texas. Revenues were also earned as work progressed on a variety of smaller projects. The combined revenues associated with the early stages of the gas-fired power plant projects represented approximately 76% of this segment's revenues for the current quarter and revenues earned in connection with the construction of the biomass-fired plant represented approximately 22% of this segment's revenues for the current quarter. This latter project is scheduled for substantial completion during the fourth quarter. GPS has been contractually retained to operate and maintain the plant for three years after its start-up. Approximately 47% of this segment's revenues earned in last year's first quarter related to progress on the final stages of an EPC contract for the construction of a peaking power plant located in southern California. - 18 -


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Telecommunications Infrastructure Services

The revenues of this business segment decreased by approximately 52% for the current quarter compared with the corresponding period last year. For the three months ended April 30, 2014, approximately 54% of SMC's revenues were derived from outside plant services provided for a variety of customers. Last year, we were completing final efforts in connection with the state of Maryland's deployment of a state-wide, high-speed, fiber optic network. In addition, SMC's exposure to the state under this program led to the award to us by the state of a large fiber optic network equipment procurement order which was fulfilled last year. Our performance under these projects resulted in revenues for the three months ended April 30, 2013 that represented approximately 43% of SMC's business for last year's first quarter.

Cost of Revenues

Due primarily to the increase in consolidated revenues for the three months ended April 30, 2014 compared with last year's first quarter, the corresponding consolidated cost of revenues also increased. These costs were $41.1 million and $33.6 million for the three months ended April 30, 2014 and 2013, respectively. Our overall gross profit percentage of 19.6% of consolidated revenues was lower in the current quarter compared with the first quarter last year. The gross profit percentage of 27.9% achieved for the prior year quarter benefited from the favorable effects of reductions made to our estimates of the remaining costs expected to be incurred associated with the power plant project for which work was completed during the second quarter last year.

Selling, General and Administrative Expenses

These costs were $3,379,000 and $3,443,000 for the three months ended April 30, 2014 and 2013, respectively, representing approximately 6.6% and 7.4% of consolidated revenues for the corresponding periods, respectively. Increases for the current quarter in the costs of compensation and benefits at GPS and accounting, audit and other professional fees in the amounts of approximately $109,000 and $68,000, respectively, were more than offset by a $94,000 decrease between quarters in compensation expense related to outstanding stock options, the elimination of the general and administrative expenses of Moxie Patriot that amounted to $90,000 in last year's first quarter, and other smaller expense reductions.

Income Tax Expense

For the three months ended April 30, 2014, we incurred income tax expense of $1,894,000 reflecting an estimated annual effective income tax rate of 28.8%. This rate differed from the expected federal income tax rate of 35% due primarily to the favorable effects of permanent differences including the domestic manufacturing deduction and the exclusion of the income attributable to the noncontrolling interests in the consolidated construction joint ventures of GPS. As these entities are treated as partnerships for income tax reporting purposes, we report only the taxable income of the entities attributable to the interests of Argan, Inc. These factors were partially offset by the unfavorable effects of state income taxes. We recorded income tax expense of $3,920,000 for the three months ended April 30, 2013 reflecting an estimated annual effective income tax rate of 36.1% which differed from the expected federal income tax rate of 35% due primarily to the unfavorable effects of state income taxes partially offset by the favorable effect of permanent differences.

Liquidity and Capital Resources as of April 30, 2014

During the three months ended April 30, 2014, our balance of cash and cash equivalents increased by approximately $41.6 million to $313.8 million from a balance of $272.2 million as of January 31, 2014. For the same period, our working capital increased by $6.8 million to $140.1 million as of April 30, 2014 from $133.3 million as of January 31, 2014. We have an available balance of $2.9 million under our revolving line of credit financing arrangement with Bank of America (the "Bank"), reduced by $1.35 million to cover letters of credit issued by the Bank last year in support of the project development activities of a potential power plant construction customer. The current expiration date of this arrangement is May 31, 2015. The current quarter increase in cash was due primarily to a temporary increase in the amount of billings in excess of costs incurred on current construction projects and the related estimated amounts of earnings; this increase provided cash in the amount of $42.8 million. Cash was also provided by net income as adjusted for noncash charges in the aggregate amount of $6.4 million. We used cash as the combined balance of accounts receivable, prepaid expenses and other current assets increased by approximately $7.1 million and the combined balance of accounts payable and accrued liabilities was reduced by $1.7 million. As a result of these factors, net cash was provided by our operating activities during the three months ended April 30, 2014 in the amount of $40.8 million. - 19 -


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We also received approximately $1.1 million in cash proceeds during the current quarter from the exercise of options to purchase our common stock. Partially offsetting this benefit, we lent cash during the current quarter in the amount of $320,000 to potential project owners with power plant projects under development. The total of the related notes receivable and accrued interest was $779,000 as of April 30, 2014 and related to several power plant development projects for different owners. We expect to receive payment of the note balances, plus accrued interest, upon the successful sale and/or funding of the projects. Despite net income of approximately $6.9 million earned in the first quarter last year, the amount of cash and cash equivalents decreased by $5.7 million to a balance of $169.4 million as of April 30, 2013 compared with a balance of $175.1 million as of January 31, 2013. However, consolidated working capital increased during the prior year quarter to $98.0 million as of April 30, 2013 from approximately $88.6 million as of January 31, 2013. Net cash in the amount of $3.6 million was used in our operating activities during the three months ended April 30, 2013. Primarily due to the approaching completion of a large power plant construction project, the amount of billings in excess of costs and estimated earnings decreased by $11.9 million during the prior year quarter. In addition, we reduced the balance of accounts payable and accrued liabilities by $4.3 million. Partially offsetting the unfavorable effects of these uses of cash, accounts receivable declined during the three months ended April 30, 2013, related to a decline in our consolidated revenues, providing cash in the amount of $5.6 million. The net amount of non-cash adjustments to income represented a net use of cash of approximately $112,000 for the first quarter last year as the gain on the deconsolidation of the Moxie Liberty variable interest entity in the amount of $1.1 million more than offset the total amount of noncash expenses. During the three months ended April 30, 2013, we expended cash for property, plant and equipment in the amount of $684,000, including $563,000 used by the Moxie Patriot consolidated variable interest entity. The deconsolidation of the Moxie Liberty variable interest entity in the first quarter last year resulted in the elimination of its cash balance from our condensed consolidated balance sheet in the amount of $121,000. Loans to this entity during the prior year quarter totaled $1.4 million. We have pledged the majority of our assets to secure financing arrangements with the Bank, as amended. Its consent is required for acquisitions, divestitures, cash dividends and certain investments. The amended financing arrangements contain an acceleration clause which allows the Bank to declare amounts outstanding under the financing arrangements due and payable if it determines in good faith that a material adverse change has occurred in the financial condition of any of our companies. The arrangements also require the measurement of certain financial covenants at our fiscal year-end and at each of our fiscal quarter-ends (using a rolling 12-month period), determined on a consolidated basis, including requirements that the ratio of total funded debt to EBITDA (as defined) not exceed 2 to 1, that the ratio of senior funded debt to EBITDA (as defined) not exceed 1.50 to 1, and that the fixed charge coverage ratio not be less than 1.25 to 1. At April 30, 2014 and January 31, 2014, we were in compliance with each of these financial covenants; we had no senior debt outstanding at either date. We expect that the Company will continue to comply with its financial covenants under the financing arrangements. If the Company's performance results in our noncompliance with any of the financial covenants, or if the Bank seeks to exercise its rights under the acceleration clause referred to above, we would seek to modify the financing arrangements, but there can be no assurance that the Bank would not exercise its rights and remedies under the financing arrangements including accelerating the payment of all then outstanding senior debt due and payable. At April 30, 2014, most of our balance of cash and cash equivalents was invested in a high-quality money market fund with at least 80% of its net assets invested in U.S. Treasury obligations and repurchase agreements secured by U.S. Treasury obligations. The fund is sponsored by an investment division of the Bank. Our operating bank accounts are maintained with the Bank. We believe that cash on hand and cash generated from our future operations, with or without funds available under our line of credit, will be adequate to meet our general business needs in the foreseeable future without deterioration of working capital. Any future acquisitions, or other significant unplanned cost or cash requirement, may require us to raise additional funds through the issuance of debt and/or equity securities. There can be no assurance that such financing will be available on terms acceptable to us, or at all. If additional funds are raised by issuing equity securities, significant dilution to the existing stockholders may result.

During the three-month period ended April 30, 2014, there were no material changes in either our off balance sheet arrangements or our contractual obligations that are discussed in Item 7 of our 2014 Annual Report.

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Earnings before Interest, Taxes, Depreciation and Amortization (Non-GAAP Measurement)

We believe that Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA") is a meaningful presentation that enables us to assess and compare our operating cash flow performance on a consistent basis by removing from our operating results the impacts of our capital structure, the effects of the accounting methods used to compute depreciation and amortization and the effects of operating in different income tax jurisdictions. Further, we believe that EBITDA is widely used by investors and analysts as a measure of performance. As EBITDA is not a measure of performance calculated in accordance with generally accepted accounting principles in the United States ("US GAAP"), we do not believe that this measure should be considered in isolation from, or as a substitute for, the results of our operations presented in accordance with US GAAP that are included in our condensed consolidated financial statements. In addition, our EBITDA does not necessarily represent funds available for discretionary use and is not necessarily a measure of our ability to fund our cash needs.

The following table presents the determinations of EBITDA for the three months ended April 30, 2014 and 2013:

2014 2013 Net income, as reported $ 4,800,000$ 6,940,000 Interest expense - 10,000 Income tax expense 1,894,000 3,920,000 Amortization of purchased intangible assets 60,000 61,000 Depreciation 142,000 129,000 EBITDA 6,896,000 11,060,000 Noncontrolling interests - Income from operations 1,325,000 530,000 Interest expense - 171,000 Income tax expense - 329,000 EBITDA of noncontrolling interests 1,325,000


EBITDA attributable to the stockholders of Argan, Inc.$ 5,571,000$ 10,030,000

As we believe that our net cash flow provided by operations is the most directly comparable performance measure determined in accordance with US GAAP, the following table reconciles the amounts of EBITDA for the applicable periods, as presented above, to the corresponding amounts of net cash flows provided by or used in operating activities that are presented in our condensed consolidated statements of cash flows for the three months ended April 30, 2014 and 2013: 2014 2013 EBITDA $ 6,896,000$ 11,060,000 Current income tax expense (818,000 ) (3,538,000 ) Gain on deconsolidation of Moxie Liberty - (1,120,000 ) Stock option compensation expense 343,000


Interest expense - (10,000 ) (Increase) decrease in accounts receivable (5,233,000 )


Changes related to the timing of scheduled billings 43,108,000

(11,691,000 ) Decrease in accounts payable and accrued liabilities (1,660,000 ) (4,323,000 ) (Increase) decrease in prepaid expenses/other assets (1,846,000 )


Net cash provided by (used in) operating activities $ 40,790,000

$ (3,553,000 ) Critical Accounting Policies We consider the accounting policies related to revenue recognition on long-term construction contracts; the valuation of goodwill, other indefinite-lived assets and long-lived assets; the valuation of employee stock options; income tax reporting; and the reporting of legal matters to be most critical to the understanding of our financial position and results of operations, as well as the accounting and reporting for special interest entities including joint ventures and variable interest entities. Critical accounting policies are those related to the areas where we have made what we consider to be particularly subjective or complex judgments in making estimates and where these estimates can significantly impact our financial results under different assumptions and conditions. - 21 -


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These estimates, judgments, and assumptions affect the reported amounts of assets, liabilities and equity and disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting periods. We base our estimates on historical experience and various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets, liabilities and equity that are not readily apparent from other sources. Actual results and outcomes could differ from these estimates and assumptions.

An expanded discussion of our critical accounting policies is included in Item 7 of Part II of our 2014 Annual Report. During the three-month period ended April 30, 2014, there have been no material changes in the way we apply the critical accounting policies described therein.

Adopted and Other Recently Issued Accounting Pronouncements

There are no recently issued accounting pronouncements that have not yet been adopted that we consider material to our consolidated financial statements other than Accounting Standard Update 2014-09, Revenue from Contracts with Customers, which was issued by the Financial Accounting Standards Board in May 28, 2014 in an effort to create a new, principle-based revenue recognition framework. As described in Note 1 to the condensed consolidated financial statements included herein, we have not yet assessed the impact that this new guidance will have on us.

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Source: Edgar Glimpses

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