Quarterly report pursuant to Section 13 or 15(d)

INVESTMENT IN AMAK (Held-for-Sale)

v3.19.3
INVESTMENT IN AMAK (Held-for-Sale)
 9 Months Ended
Sep. 30, 2019
Equity Method Investments and Joint Ventures [Abstract]  
INVESTMENT IN AMAK (Held-for-Sale)
INVESTMENT IN AMAK (Held-for-Sale)

As of September 30, 2019 and December 31, 2018, the Company had a non-controlling equity interest of 33.3% and 33.4% in AMAK of approximately $34.1 million and $38.7 million, respectively. This investment is accounted for under the equity method. There were no events or changes in circumstances that may have an adverse effect on the fair value of our investment in AMAK at September 30, 2019.

The Company committed to a plan to sell our investment in AMAK during the third quarter of 2019. Management engaged in an active program to market the investment which resulted in an agreement with certain AMAK shareholders in September 2019, which became effective subsequent to September 30, 2019. See discussion of the Share Sale and Purchase Agreement in Note 19.

As all the required criteria for held-for-sale classification was met at September 30, 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, include our portion of the equity in earnings (losses) in AMAK as well as other administrative expenses incurred in Saudi Arabia and transaction costs.

AMAK's financial statements were prepared in the functional currency of AMAK which is the Saudi Riyal ("SR"). In June 1986 the SR was officially pegged to the U. S. Dollar ("USD") at a fixed exchange rate of 1 USD to 3.75 SR.

The summarized results of operation and financial position for AMAK are as follows:

Results of Operations
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2019

 
2018

 
2019

 
2018

 
 
(thousands of dollars)
 
(thousands of dollars)
Sales
 
$
19,643

 
$
19,877

 
$
60,873

 
$
53,458

Cost of sales
 
19,072

 
20,350

 
55,804

 
49,411

Gross profit (loss)
 
571

 
(473
)
 
5,069

 
4,047

Selling, general, and administrative
 
3,557

 
2,736

 
9,102

 
7,151

Operating loss
 
(2,986
)
 
(3,209
)
 
(4,033
)
 
(3,104
)
Other income
 
43

 
35

 
396

 
70

Finance and interest expense
 
(456
)
 
(416
)
 
(1,349
)
 
(1,201
)
Loss before Zakat and income taxes
 
(3,399
)
 
(3,590
)
 
(4,986
)
 
(4,235
)
Zakat and income taxes
 
444

 
800

 
1,332

 
800

Net Loss
 
$
(3,843
)
 
$
(4,390
)
 
$
(6,318
)
 
$
(5,035
)


Financial Position
 
 
September 30,

 
December 31,

 
 
2019

 
2018

 
 
(thousands of dollars)
Current assets
 
$
41,030

 
$
44,093

Noncurrent assets
 
191,043

 
212,291

Total assets
 
$
232,073

 
$
256,384

 
 
 
 
 
Current liabilities
 
$
22,107

 
$
17,160

Long term liabilities
 
74,371

 
77,366

Stockholders' equity
 
135,595

 
161,858

 
 
$
232,073

 
$
256,384



Changes in Ownership

•
In the second quarter of 2019, certain shareholders of AMAK transferred a portion of their shares to the CEO of AMAK as a one-time retention and performance bonus. The Company transferred 100,000 shares and the transaction reduced our ownership percentage from 33.4% to 33.3%.

•
In first quarter 2018, we completed an exchange of shares with certain stockholders whereby such stockholders traded 65,000 common shares of TREC in exchange for 24,489 shares of our AMAK stock. The 65,000 shares were accounted for as treasury stock. This transaction reduced our ownership percentage from 33.44% to 33.41%.

•
In connection with the 2018 AMAK share repurchase program, we received net proceeds of approximately $0.4 million during the three months ended March 31, 2019. AMAK completed the share repurchase program in 2019, at which point all shares repurchased from AMAK stockholders were registered as treasury shares. Upon completion of the share repurchase program, the Company's ownership percentage in AMAK did not change from 33.4%.

The equity in the (losses) earnings of AMAK included in loss from discontinued operations, net of tax, on the consolidated statements of operations for the three and nine months ended September 30, 2019, and 2018, is comprised of the following:
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2019

 
2018

 
2019

 
2018

 
 
(thousands of dollars)
 
(thousands of dollars)
AMAK Net Loss
 
$
(3,843
)
 
$
(4,390
)
 
$
(6,318
)
 
$
(5,036
)
Percentage of Ownership
 
33.29
%
 
33.41
%
 
33.29
%
 
33.41
%
 
 
 
 
 
 
 
 
 
Company's share of loss reported by AMAK
 
$
(1,279
)
 
$
(1,467
)
 
$
(2,103
)
 
$
(1,682
)
Amortization of difference between Company's investment in AMAK and Company's share of net assets of AMAK
 
337

 
337

 
1,010

 
1,010

Equity in (losses) earnings of AMAK
 
$
(942
)
 
$
(1,130
)
 
$
(1,093
)
 
$
(672
)


For additional information, see Note 10, "Investment in Al Masane Al Kobra Mining Company ("AMAK")" to the consolidated financial statements set forth in our Annual Report on Form 10–K for the year ended December 31, 2018.