Quarterly report pursuant to Section 13 or 15(d)

INVESTMENT IN AMAK AND DISCONTINUED OPERATIONS

INVESTMENT IN AMAK AND DISCONTINUED OPERATIONS

9 Months Ended

Sep. 30, 2021

Equity Method Investments and Joint Ventures [Abstract]

INVESTMENT IN AMAK AND DISCONTINUED OPERATIONS

On September 28, 2020, the Company completed the final closing of the sale of its ownership interest in AMAK (the “Share Sale”) to AMAK and certain existing shareholders of AMAK and their assignees (collectively, the “Purchasers”). The Share Sale was completed in multiple closings pursuant to a Share Sale and Purchase Agreement, dated September 22, 2019 (which we refer to herein as the “Purchase Agreement”), among the Company, AMAK, and other Purchasers and resulted in aggregate gross proceeds to the Company of Saudi Riyals (“SAR”) 265 million (approximately $70 million) (before taxes and expenses).

As a condition to the effectiveness of the Purchase Agreement, the Purchasers advanced 5% of the purchase price (or approximately $3.5 million) in the form of a non-refundable deposit. Pursuant to the Purchase Agreement, (i) with respect to any Purchaser that 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 and (ii) with respect to any Purchasers that completed the purchase of all or a portion of their allotted ordinary shares after March 31, 2020 but on or before September 28, 2020, an amount equal to 50% of the non-refundable deposit paid by such Purchasers was forfeited to the Company as liquidated damages and such amount was not applied to the purchase price paid by the applicable Purchaser.

On March 26, 2020, the Company and one Purchaser 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 aggregate gross proceeds (before taxes and transaction expenses) of SAR 40 million (or approximately $10.7 million) (inclusive of the full amount of the Purchaser’s non-refundable deposit previously paid of $0.5 million). The Company recorded a foreign tax payable of approximately $0.3 million related to the First Closing.

During the third quarter of 2020, the Company completed additional closings of the Share Sale with respect to its remaining ownership interest in AMAK. In connection with these closings, the Company sold a total of 22,467,422 ordinary shares for

aggregate gross proceeds (before taxes and transaction expenses) of SAR 224 million (or approximately $59.9 million) (inclusive of $1.5 million which constituted 50% of the non-refundable deposits previously paid by certain Purchasers). As none of the third quarter 2020 closings were completed prior to March 31, 2020, the remaining portion of the initial deposits (approximately $1.5 million) were forfeited to the Company as liquidated damages and were not applied to the purchase price. These amounts were included in income from discontinued operations, net of tax. The Company recorded a foreign tax payable of approximately $1.1 million related to the third quarter 2020 closings which were subsequently paid in the first quarter of 2021.

In connection with the completion of the Share Sale, the Company and AMAK entered into an agreement whereby AMAK agreed to withhold approximately $2.1 million of the purchase price to pay the Company’s estimated tax obligations in Saudi Arabia. The Company finalized the necessary tax returns in the Kingdom of Saudi Arabia and paid approximately $1.3 million in foreign taxes. All foreign taxes paid created a foreign tax credit to offset U.S. taxes. The Company collected the remaining excess funds of approximately $0.8 million in August 2021.

As previously disclosed, and as a result of the Company’s investment in AMAK, the Company was required to execute a limited guarantee on October 24, 2010 (the “Guarantee”) of up to 41% of a loan (the “Loan”) by the Saudi Industrial Development Fund (“SIDF”) to AMAK to fund the construction of the AMAK facilities and to provide working capital needs. The provision of personal or corporate guarantees, as applicable, by each shareholder of AMAK was a condition to SIDF providing the Loan. Pursuant to the Purchase Agreement, the Purchasers (other than AMAK) agreed, upon the completion of the Share Sale, to assume the Company’s obligation under the Guarantee (proportionately based upon such Purchaser’s percentage acquisition of ordinary shares in the Share Sale). While a formal written release of the Company from the Guarantee was not obtained from SIDF prior to closing, the Company believes that the Purchasers’ assumption of the Company’s obligation under the Guarantee effectively eliminates the Company’s liability arising under the Guarantee.

As the sale of the Company's interest in AMAK was completed as of September 28, 2020, there is no applicable 2021 financial information to present and it is thereby omitted for comparison purposes.

Included in discontinued operations for 2020 are the following:


	Three Months Ended September 30, 2020		Nine Months Ended September 30, 2020
	(thousands of dollars)
Saudi administration and transaction expenses	$	(2,605)	$	(2,490)
Equity in earnings of AMAK	682		455
Gain on sale of equity interest	28,510		35,173
Income from discontinued operations before taxes	26,587		33,138
Tax expense	(5,263)		(6,959)
Income from discontinued operations, net of tax	$	21,324	$	26,179

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 operations and financial position for 2020 for AMAK are as follows:

Results of Operations


	Three Months Ended September 30, 2020		Nine Months Ended September 30, 2020
	(thousands of dollars)
Sales	$	23,943	$	62,632
Cost of sales	18,644		53,294
Gross profit	5,299		9,338
Selling, general, and administrative	3,808		8,850
Operating income (loss)	1,491		488
Other income	16		33
Finance and interest expense	(237)		(871)
Income (loss) before Zakat and income taxes	1,270		(350)
Zakat and income tax (benefit)	(240)		859
Net Income (Loss)	$	1,510	$	(1,209)

Financial Position


	December 31, 2020
	(thousands of dollars)
Current assets	$	29,799
Noncurrent assets	209,814
Total assets	$	239,613

Current liabilities	$	40,919
Long term liabilities	79,122
Stockholders' equity	119,572
	$	239,613

The equity in the earnings (losses) of AMAK included in income (loss) from discontinued operations, net of tax, on the condensed consolidated statements of operations for the three and nine months ended September 30, 2020, is comprised of the following:


	Three Months Ended September 30, 2020	Nine Months Ended September 30, 2020
	(thousands of dollars)
AMAK Net Income (Loss)	1,510	(1,209)


Company's share of income (loss) reported by AMAK*	345	(555)
Amortization of difference between Company's investment in AMAK and Company's share of net assets of AMAK	337	1,010
Equity in earnings of AMAK	682	455
* Percentage of Ownership varies during the period.

For additional information, see NOTE 6, “INVESTMENT IN AMAK AND DISCONTINUED OPERATIONS” to the consolidated financial statements set forth in our Annual Report on Form 10–K for the year ended December 31, 2020.