Quarterly report pursuant to Section 13 or 15(d)

INVESTMENT IN AMAK (Held-for-Sale)

INVESTMENT IN AMAK (Held-for-Sale)

6 Months Ended

Jun. 30, 2020

Equity Method Investments and Joint Ventures [Abstract]

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	$	(97	)	$	39		$	(114	)	$	55
Equity in (earnings) losses of AMAK	(306		)	91			226			150
Gain on sale of equity interest	—			—			(6,663		)	—
(Income) loss from discontinued operations before taxes	(403		)	130			(6,551		)	205
Tax expense (benefit)	405			(27		)	1,696			(43		)
(Income) loss from discontinued operations (net of tax)	$	2		$	103		$	(4,855	)	$	162

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	$	20,752		$	20,566		$	38,689		$	41,230
Cost of sales	17,829			18,162			34,650			36,732
Gross profit	2,923			2,404			4,039			4,498
Selling, general, and administrative	2,362			2,807			5,042			5,545
Operating income (loss)	561			(403		)	(1,003		)	(1,047		)
Other income (expense)	—			(75		)	17			353
Finance and interest expense	(103		)	(448		)	(634		)	(893		)
Income (loss) before Zakat and income taxes	458			(926		)	(1,620		)	(1,587		)
Zakat and income taxes	566			366			1,099			888
Net Loss	$	(108	)	$	(1,292	)	$	(2,719	)	$	(2,475	)

Financial Position



	June 30,		December 31,
	2020		2019
	(thousands of dollars)
Current assets	$	41,193	$	45,354
Noncurrent assets	200,828		196,564
Total assets	$	242,021	$	241,918

Current liabilities	$	23,307	$	27,645
Long term liabilities	86,508		79,348
Stockholders' equity	132,206		134,925
	$	242,021	$	241,918

Changes in Ownership


•	In the first quarter of 2020, we completed a portion of the Share Sale to an existing shareholder of AMAK. We sold 4 million shares of AMAK, thereby reducing our ownership percentage from 33.3% to 28.3%. As this transaction

occurred at the end of the first quarter, our portion of the equity in earnings/losses of AMAK reflected for the first quarter of 2020 is calculated at 33.3%, whereas our ownership of balance sheet accounts is reflected at 28.3% as of March 31, 2020.


•	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%.

The equity in the earnings (losses) of AMAK included in income (loss) from discontinued operations, net of tax, on the consolidated statements of operations for the three and six months ended June 30, 2020 and 2019, is comprised of the following:



	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020			2019
	(thousands of dollars)				(thousands of dollars)
AMAK Net Loss	(108	)	(1,292	)	(2,719	)		(2,475	)
Percentage of Ownership	28.3	%	33.3	%	33.1	%	*	33.3	%

Company's share of loss reported by AMAK	(31	)	(429	)	(900	)		(824	)
Amortization of difference between Company's investment in AMAK and Company's share of net assets of AMAK	337		337		674			674
Equity in earnings (losses) of AMAK	306		(92	)	(226	)		(150	)
* 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, 2019.