UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
For the quarterly period ended June 30, 2020
or
OF 1934
For the transition period from _________ to __________
COMMISSION FILE NUMBER 1-33926
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of | (I.R.S. Employer Identification No.) |
incorporation or organization) | |
(Address of principal executive offices) | (Zip code) | |
Registrant's telephone number, including area code: (281) 980-5522
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S–T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes X No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☒
Non-accelerated filer ☐ Smaller reporting company ☒
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.____
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Number of shares of the Registrant's Common Stock (par value $0.10 per share) outstanding at July 31, 2020: 24,714,980 .
TABLE OF CONTENTS
Item Number and Description
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
TRECORA RESOURCES AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2020 (Unaudited) | December 31, 2019 | |||||||
ASSETS | (thousands of dollars, except par value) | |||||||
Current Assets | ||||||||
Cash | $ | $ | ||||||
Trade receivables, net | ||||||||
Inventories | ||||||||
Investment in AMAK (held-for-sale) | ||||||||
Prepaid expenses and other assets | ||||||||
Taxes receivable | ||||||||
Total current assets | ||||||||
Plant, pipeline and equipment, net | ||||||||
Intangible assets, net | ||||||||
Lease right-of-use assets, net | ||||||||
Mineral properties in the United States | ||||||||
TOTAL ASSETS | $ | $ | ||||||
LIABILITIES | ||||||||
Current Liabilities | ||||||||
Accounts payable | $ | $ | ||||||
Accrued liabilities | ||||||||
Current portion of long-term debt | ||||||||
Current portion of lease liabilities | ||||||||
Current portion of other liabilities | ||||||||
Total current liabilities | ||||||||
CARES Act, PPP Loans | ||||||||
Long-term debt, net of current portion | ||||||||
Post-retirement benefit, net of current portion | ||||||||
Lease liabilities, net of current portion | ||||||||
Other liabilities, net of current portion | ||||||||
Deferred income taxes | ||||||||
Total liabilities | ||||||||
EQUITY | ||||||||
Common stock‑authorized 40 million shares of $0.10 par value; issued and outstanding 24.8 million and 24.8 million in 2020 and 2019, respectively | ||||||||
Additional paid-in capital | ||||||||
Retained earnings | ||||||||
Total Trecora Resources Stockholders' Equity | ||||||||
Noncontrolling Interest | ||||||||
Total equity | ||||||||
TOTAL LIABILITIES AND EQUITY | $ | $ | ||||||
See notes to consolidated financial statements.
TRECORA RESOURCES AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED JUNE 30, | SIX MONTHS ENDED JUNE 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
(thousands of dollars, except per share amounts) | ||||||||||||||||
REVENUES | ||||||||||||||||
Product sales | $ | $ | $ | $ | ||||||||||||
Processing fees | ||||||||||||||||
OPERATING COSTS AND EXPENSES | ||||||||||||||||
Cost of sales and processing | ||||||||||||||||
(including depreciation and amortization of $3,750, $4,128, $7,486 and $8,357, respectively) | ||||||||||||||||
GROSS PROFIT | ||||||||||||||||
GENERAL AND ADMINISTRATIVE EXPENSES | ||||||||||||||||
General and administrative | ||||||||||||||||
Depreciation | ||||||||||||||||
OPERATING INCOME (LOSS) | ( | ) | ||||||||||||||
OTHER INCOME (EXPENSE) | ||||||||||||||||
Interest income | ||||||||||||||||
Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Miscellaneous income, net | ||||||||||||||||
( | ) | ( | ) | ( | ) | ( | ) | |||||||||
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | ( | ) | ( | ) | ||||||||||||
INCOME TAX EXPENSE (BENEFIT) | ( | ) | ||||||||||||||
INCOME (LOSS) FROM CONTINUING OPERATIONS | ( | ) | ||||||||||||||
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAX | ( | ) | ( | ) | ( | ) | ||||||||||
NET INCOME (LOSS) | $ | ( | ) | $ | $ | $ | ||||||||||
Basic Earnings per Common Share | ||||||||||||||||
Net income (loss) from continuing operations (dollars) | $ | ( | ) | $ | $ | $ | ||||||||||
Net income (loss) from discontinued operations, net of tax (dollars) | ( | ) | ||||||||||||||
Net income (loss) (dollars) | $ | ( | ) | $ | $ | $ | ||||||||||
Basic weighted average number of common shares outstanding | ||||||||||||||||
Diluted Earnings per Common Share | ||||||||||||||||
Net income (loss) from continuing operations (dollars) | $ | ( | ) | $ | $ | $ | ||||||||||
Net income (loss) from discontinued operations, net of tax (dollars) | ( | ) | ||||||||||||||
Net income (loss) (dollars) | $ | ( | ) | $ | $ | $ | ||||||||||
Diluted weighted average number of common shares outstanding | ||||||||||||||||
See notes to consolidated financial statements.
TRECORA RESOURCES AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
THREE MONTHS ENDED JUNE 30
TRECORA RESOURCES STOCKHOLDERS | |||||||||||||||||||||||||||||||
COMMON STOCK | ADDITIONAL PAID-IN | TREASURY | RETAINED | NON- CONTROLLING | TOTAL | ||||||||||||||||||||||||||
SHARES | AMOUNT | CAPITAL | STOCK | EARNINGS | TOTAL | INTEREST | EQUITY | ||||||||||||||||||||||||
(thousands) | (thousands of dollars) | ||||||||||||||||||||||||||||||
March 31, 2020 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Restricted Stock Units | |||||||||||||||||||||||||||||||
Issued to Directors | — | — | — | — | — | ||||||||||||||||||||||||||
Issued to Employees | — | — | — | — | — | ||||||||||||||||||||||||||
Common Stock | |||||||||||||||||||||||||||||||
Issued to Directors | ( | ) | — | — | — | ||||||||||||||||||||||||||
Issued to Employees | ( | ) | — | — | — | ||||||||||||||||||||||||||
Net Income | — | — | — | — | ( | ) | ( | ) | — | ( | ) | ||||||||||||||||||||
June 30, 2020 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
March 31, 2019 | $ | $ | $ | ( | ) | $ | $ | $ | $ | ||||||||||||||||||||||
Restricted Stock Units | |||||||||||||||||||||||||||||||
Issued to Directors | — | — | — | — | — | ||||||||||||||||||||||||||
Issued to Employees | — | — | — | — | — | ||||||||||||||||||||||||||
Common Stock | |||||||||||||||||||||||||||||||
Issued to Directors | — | — | — | ||||||||||||||||||||||||||||
Issued to Employees | — | — | — | — | |||||||||||||||||||||||||||
Net Income | — | — | — | — | — | ||||||||||||||||||||||||||
June 30, 2019 | $ | $ | $ | ( | ) | $ | $ | $ | $ | ||||||||||||||||||||||
See notes to consolidated financial statements.
TRECORA RESOURCES AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
SIX MONTHS ENDED JUNE 30
TRECORA RESOURCES STOCKHOLDERS | |||||||||||||||||||||||||||||||
COMMON STOCK | ADDITIONAL PAID-IN | TREASURY | RETAINED | NON- CONTROLLING | TOTAL | ||||||||||||||||||||||||||
SHARES | AMOUNT | CAPITAL | STOCK | EARNINGS | TOTAL | INTEREST | EQUITY | ||||||||||||||||||||||||
(thousands) | (thousands of dollars) | ||||||||||||||||||||||||||||||
January 1, 2020 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Restricted Stock Units | |||||||||||||||||||||||||||||||
Issued to Directors | — | — | — | — | — | ||||||||||||||||||||||||||
Issued to Employees | — | — | — | — | — | ||||||||||||||||||||||||||
Common Stock | |||||||||||||||||||||||||||||||
Issued to Directors | ( | ) | — | — | — | — | — | ||||||||||||||||||||||||
Issued to Employees | ( | ) | — | — | — | ||||||||||||||||||||||||||
Net Income | — | — | — | — | — | ||||||||||||||||||||||||||
June 30, 2020 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
January 1, 2019 | $ | $ | $ | ( | ) | $ | $ | $ | $ | ||||||||||||||||||||||
Restricted Stock Units | |||||||||||||||||||||||||||||||
Issued to Directors | — | — | — | — | — | ||||||||||||||||||||||||||
Issued to Employees | — | — | — | — | — | ||||||||||||||||||||||||||
Common Stock | |||||||||||||||||||||||||||||||
Issued to Directors | — | — | — | ||||||||||||||||||||||||||||
Issued to Employees | — | — | — | ||||||||||||||||||||||||||||
Net Income | — | — | — | — | — | ||||||||||||||||||||||||||
June 30, 2019 | $ | $ | $ | ( | ) | $ | $ | $ | $ | ||||||||||||||||||||||
TRECORA RESOURCES AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, | ||||||||
2020 | 2019 | |||||||
(thousands of dollars) | ||||||||
OPERATING ACTIVITIES | ||||||||
Net Income | $ | $ | ||||||
Income (Loss) from Discontinued Operations | ( | ) | ||||||
Income from Continuing Operations | $ | $ | ||||||
Adjustments to Reconcile Income from Continuing Operations To Net Cash Provided by Operating Activities: | ||||||||
Depreciation and Amortization | ||||||||
Amortization of Intangible Assets | ||||||||
Stock-based Compensation | ||||||||
Deferred Income Taxes | ||||||||
Postretirement Obligation | ( | ) | ||||||
Amortization of Loan Fees | ||||||||
Loss on Disposal of Assets | ||||||||
Changes in Operating Assets and Liabilities: | ||||||||
Decrease (Increase) in Trade Receivables | ( | ) | ||||||
Decrease in Insurance Receivables | ||||||||
Increase in Taxes Receivable | ( | ) | ||||||
Decrease in Inventories | ||||||||
Decrease in Prepaid Expenses and Other Assets | ||||||||
Decrease in Accounts Payable and Accrued Liabilities | ( | ) | ( | ) | ||||
Decrease in Other Liabilities | ||||||||
Net Cash Provided by Operating Activities - Continuing Operations | ||||||||
Net Cash Used in Operating Activities - Discontinued Operations | ( | ) | ( | ) | ||||
Net Cash Provided by Operating Activities | ||||||||
INVESTING ACTIVITIES | ||||||||
Additions to Plant, Pipeline and Equipment | ( | ) | ( | ) | ||||
Proceeds from PEVM | ||||||||
Net Cash Used in Investing Activities - Continuing Operations | ( | ) | ( | ) | ||||
Net Cash Provided by Investing Activities - Discontinued Operations | ||||||||
Net Cash Provided by (Used in) Investing Activities | ( | ) | ||||||
FINANCING ACTIVITIES | ||||||||
Net Cash Paid Related to Stock-Based Compensation | ( | ) | ( | ) | ||||
Additions to CARES Act, PPP Loans | ||||||||
Additions to Long-Term Debt | ||||||||
Repayments of Long-Term Debt | ( | ) | ( | ) | ||||
Net Cash Provided by (Used in) Financing Activities - Continuing Operations | ( | ) | ||||||
NET INCREASE (DECREASE) IN CASH | ( | ) | ||||||
CASH AT BEGINNING OF PERIOD | ||||||||
CASH AT END OF PERIOD | $ | $ | ||||||
Supplemental disclosure of cash flow information: | ||||||||
Cash payments for interest | $ | $ | ||||||
Cash payments for taxes, net of refunds | $ | $ | ||||||
Supplemental disclosure of non-cash items: | ||||||||
Capital expansion amortized to depreciation expense | $ | $ | ||||||
Foreign taxes paid by AMAK | $ | $ | ||||||
See notes to consolidated financial statements.
TRECORA RESOURCES AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. GENERAL
Organization
Trecora Resources (the "Company" or "TREC") was incorporated in the State of Delaware in 1967. Our principal business activities are the manufacturing of various specialty hydrocarbons and specialty waxes and the provision of custom processing services. Unless the context requires otherwise, references to "we," "us," "our," "TREC," and the "Company" are intended to mean Trecora Resources and its subsidiaries.
This document includes the following abbreviations:
(1) | TOCCO – Texas Oil & Chemical Co. II, Inc. – Wholly owned subsidiary of TREC and parent of SHR and TC |
(2) | SHR – South Hampton Resources, Inc. – Specialty Petrochemicals segment and parent of GSPL |
(3) | GSPL – Gulf State Pipe Line Co, Inc. – Pipeline support for the Specialty Petrochemicals segment |
(4) | TC – Trecora Chemical, Inc. – Specialty Waxes segment |
(5) | AMAK – Al Masane Al Kobra Mining Company – Held-for-sale mining equity investment – |
(6) | PEVM – Pioche Ely Valley Mines, Inc. – Inactive mine – |
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") for interim financial information and in conformity with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these unaudited financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and, therefore, should be read in conjunction with the financial statements and related notes contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.
The unaudited condensed consolidated financial statements included in this document have been prepared on the same basis as the annual financial statements and in management's opinion reflect all adjustments, including normal recurring adjustments, necessary to present fairly the Company's financial position, results of operations and cash flows for the interim periods presented. We have made estimates and judgments affecting the amounts reported in this document. The actual results that we experience may differ materially from our estimates. In the opinion of management, the disclosures included in these financial statements are adequate to make the information presented not misleading.
Operating results for the six months ended June 30, 2020 are not necessarily indicative of results for the year ending December 31, 2020.
We currently operate in two segments, Specialty Petrochemicals and Specialty Waxes. All revenue originates from sources in the United States, and all long-lived assets owned are located in the United States.
In addition, we own a 28.3 % interest in AMAK, a Saudi Arabian closed joint stock company, which owns, operates and is developing mining assets in Saudi Arabia. Our investment is classified as held-for-sale and and the equity in earnings (losses) are recorded in discontinued operations. See Note 5.
2. RECENT ACCOUNTING PRONOUNCEMENTS
Recently Adopted Accounting Pronouncements
Effective January 1, 2020, we adopted Financial Accounting Standard Board ("FASB") Accounting Standards Update ("ASU") 2016-13, Measurement of Credit Losses on Financial Instruments, which changed the way entities recognize impairment of most financial assets. Short-term and long-term financial assets, as defined by the standard, are impacted by immediate recognition of estimated credit losses in the financial statements, reflecting the net amount expected to be collected. The adoption of this standard did not have a material impact on our condensed consolidated financial statements.
Recent Accounting Pronouncements Not Yet Adopted
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12), which simplifies the accounting for income taxes. This guidance will be effective for us in the first quarter of 2021 on a prospective basis, and early adoption is permitted. We are currently evaluating the impact of the new guidance on our condensed consolidated financial statements.
In March 2020, the FASB issued ASU No. 2020–04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (ASU 2020-04), which provides guidance to alleviate the burden in accounting for reference rate reform by allowing certain expedients and exceptions in applying generally accepted accounting principles to contracts, hedging relationships, and other transactions impacted by reference rate reform. The provisions of ASU 2020-04 apply only to those transactions that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. Adoption of the provisions of ASU 2020-04 are optional and are effective from March 12, 2020 through December 31, 2022. We are currently evaluating the impact of ASU 2020-04 on our condensed consolidated financial statements.
3. TRADE RECEIVABLES
Trade receivables, net, consisted of the following:
June 30, 2020 | December 31, 2019 | |||||||
(thousands of dollars) | ||||||||
Trade receivables | $ | $ | ||||||
Less allowance for doubtful accounts | ( | ) | ( | ) | ||||
Trade receivables, net | $ | $ | ||||||
Trade receivables serve as collateral for our amended and restated credit agreement. See Note 11.
4. INVENTORIES
Inventories included the following:
June 30, 2020 | December 31, 2019 | |||||||
(thousands of dollars) | ||||||||
Raw material | $ | $ | ||||||
Work in process | ||||||||
Finished products | ||||||||
Total inventory | $ | $ | ||||||
Inventory serves as collateral for our amended and restated credit agreement. See Note 11.
Inventory included Specialty Petrochemicals products in transit valued at approximately $1.4 million and $2.9 million at June 30, 2020 and December 31, 2019, respectively.
5. INVESTMENT IN AMAK (Held-for-Sale)
As of June 30, 2020 and December 31, 2019, the Company had a non-controlling equity interest of 28.3 % and 33.3 % in AMAK of approximately $29.2 million and $32.9 million, respectively. This investment is accounted for under the equity method. There were no events or changes in circumstances that had an adverse effect on the fair value of our investment in AMAK at June 30, 2020.
The Company committed to a plan to sell our investment in AMAK during the third quarter of 2019. Management engaged in a comprehensive process to market the investment to numerous potential buyers. The process resulted in an agreement with certain AMAK stockholders in September 2019 to purchase our investment. Pursuant to a Share Sale and Purchase Agreement (as amended, the "Purchase Agreement") that was effective as of October 2, 2019, the Company agreed to sell its entire equity interest in AMAK, to AMAK and certain other existing stockholders of AMAK (collectively, the "Purchasers")
for an aggregate gross purchase price (before taxes and transaction expenses) of Saudi Riyals ("SAR") 264.7 million (or approximately US$70 million), which will be payable in US Dollars (collectively, the "Share Sale"). The Purchasers advanced 5 % of the purchase price (or approximately $3.5 million) in the form of a non-refundable deposit, which was a condition to the effectiveness of the Purchase Agreement. The Purchase Agreement contained various representations, warranties and indemnity obligations of the Company and the Purchasers, including the release of the Company's guarantee as described in Note 12.
On January 16, 2020, the Company and the Purchasers entered into a letter agreement (the “January 2020 Amendment”) providing certain amendments to the Purchase Agreement. Pursuant to the January 2020 Amendment, the Long Stop Date (as defined in the Purchase Agreement) for completion of the Share Sale was extended to March 31, 2020 to allow additional time for the parties to obtain certain required governmental approvals. Under the Purchase Agreement, the Company had certain termination rights if closing of the Share Sale did not occur on or before the Long Stop Date. The January 2020 Amendment also provided that, if closing of the Share Sale does not occur on or before the extended Long Stop Date, and the Company determined in its sole discretion to further extend such date, then an amount equal to 50 % of the approximately $3.5 million non-refundable deposit made by the Purchasers under the Purchase Agreement would be forfeited to the Company as liquidated damages and would not be applied to the purchase price at closing of the Share Sale.
Effective as of March 26, 2020, the Company and the Purchasers entered into a letter agreement, dated March 23, 2020 (the “March 2020 Amendment”), providing for certain additional amendments to the Purchase Agreement.
Pursuant to the March 2020 Amendment, the Company and the Purchasers agreed that the Share Sale may be completed with the respective Purchasers in multiple closings, in each case, subject to the completion of any remaining conditions precedent. To the extent that a Purchaser completed the purchase of all or a portion of the ordinary shares allotted to it under the Purchase Agreement on or before March 31, 2020, the non-refundable deposit paid by such Purchaser (or a portion of such deposit for a partial closing) was credited toward the purchase price of the ordinary shares being purchased. Purchasers that complete the purchase of all or a portion of their allotted ordinary shares after March 31, 2020 but on or before September 28, 2020 (the “New Long Stop Date”), will forfeit an amount equal to 50 % of the non-refundable deposit paid by such Purchasers to the Company as liquidated damages and such amount shall not be applied to the purchase price paid by the applicable Purchaser. With respect to any Purchaser that has not completed the purchase of 100 % of its allocated ordinary shares on or prior to the New Long Stop Date, (i) any remaining amount of non-refundable deposit paid by such Purchaser will be forfeited to the Company as liquidated damages as of September 29, 2020 and (ii) the Company may terminate the Purchase Agreement in accordance with its terms unless the Company elects, in its sole discretion, to further extend the New Long Stop Date.
On March 26, 2020, the Company and one Purchaser, Arab Mining Company, completed the first closing of the Share Sale (the “First Closing”). In connection with the First Closing, the Company sold 4,000,000 ordinary shares for an aggregate gross purchase price (before taxes and transaction expenses) of SAR 40 million (or approximately US$10.7 million) (inclusive of the credited amount of the Purchaser’s non-refundable deposit previously paid of US$0.5 million). The First Closing also included indemnification provisions which effectively reduced our portion of the loan guarantee (as discussed in Note 12). We recorded a foreign tax payable of approximately $0.3 million related to this transaction. Upon payment, this amount will be a foreign tax credit used to offset U.S. taxes.
Pursuant to the March 2020 Amendment, the remaining Purchasers have agreed to use their best efforts to close the purchase of 100 % of their respective allotments of ordinary shares as soon as possible. The March 2020 Amendment also provides that the Company will continue to have the right to appoint three directors of the board of directors of AMAK, and will enjoy all other governance rights it currently has, until the Share Sale has been completed in full. As no other transactions closed through March 31, 2020, approximately $1.5 million of the initial deposits were forfeited to the Company as liquidated damages and will not be applied to the purchase price at closing. This amount was recorded as an increase to our investment in AMAK and a gain on sale of equity interest in discontinued operations.
As all the required criteria for held-for-sale classification was met in third quarter of 2019, the investment in AMAK is classified as held-for-sale in the Consolidated Balance Sheets and reflected as discontinued operations in the Consolidated Statements of Operations for all periods presented. The assets held-for-sale are disclosed by the Company in the Corporate segment. The Company expects to have no continuing involvement with the discontinued operations after the closing date. The gain (loss) from discontinued operations, net of tax, includes our portion of the equity in earnings (losses) in AMAK, forfeited deposits, other administrative expenses incurred in Saudi Arabia and transaction costs.
Included in discontinued operations are the following:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
(thousands of dollars) | (thousands of dollars) | |||||||||||||||
Saudi administration (income) expenses | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
Equity in (earnings) losses of AMAK | ( | ) | ||||||||||||||
Gain on sale of equity interest | ( | ) | ||||||||||||||
(Income) loss from discontinued operations before taxes | ( | ) | ( | ) | ||||||||||||
Tax expense (benefit) | ( | ) | ( | ) | ||||||||||||
(Income) loss from discontinued operations (net of tax) | $ | $ | $ | ( | ) | $ | ||||||||||
AMAK's financial statements were prepared in the functional currency of AMAK which is the SAR. In June 1986 the SAR was officially pegged to the U. S. Dollar at a fixed exchange rate of 1 USD to 3.75 SAR.
The summarized results of operation and financial position for AMAK are as follows:
Results of Operations
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
(thousands of dollars) | (thousands of dollars) | |||||||||||||||
Sales | $ | $ | $ | $ | ||||||||||||
Cost of sales | ||||||||||||||||
Gross profit | ||||||||||||||||
Selling, general, and administrative | ||||||||||||||||
Operating income (loss) | ( | ) | ( | ) | ( | ) | ||||||||||
Other income (expense) | ( | ) | ||||||||||||||
Finance and interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Income (loss) before Zakat and income taxes | ( | ) | ( | ) | ( | ) | ||||||||||
Zakat and income taxes | ||||||||||||||||
Net Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||