Annual report pursuant to Section 13 and 15(d)

INVESTMENT IN AMAK AND DISCONTINUED OPERATIONS

INVESTMENT IN AMAK AND DISCONTINUED OPERATIONS

12 Months Ended

Dec. 31, 2020

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 previously disclosed 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 of December 31, 2019, the Company had a non-controlling equity interest of 33.3% in AMAK of approximately $32.9 million.

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 complete 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 are 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.

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 is in the process of finalizing and filing the necessary tax returns in the Kingdom of Saudi Arabia. Upon payment, the Company will have a foreign tax credit which can be used to offset U.S. taxes. As of December 31, 2020, approximately $0.2 million of foreign taxes have been paid. The remaining funds withheld by AMAK are included in prepaid expenses and other assets on the Company’s consolidated balance sheets as of December 31, 2020. Subsequent to December 31, 2020, the Company instructed AMAK to pay approximately $1.1 million of the accrued foreign tax payable from the amount held by AMAK to cover the Company’s tax obligations in Saudi Arabia.

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.

Included in discontinued operations are the following:


	Years Ended December 31,
	2020		2019		2018
	(thousands of dollars)
Saudi administration and transaction expenses	$	(2,452)	$	(187)	$	136
Equity in earnings (losses) of AMAK	702		(986)		(901)
Gain (loss) on sale of equity interest	34,926		(1,473)		—
Income (loss) from discontinued operations before taxes	33,176		(2,646)		(765)
Tax (expense) benefit	(6,967)		556		161
Income (loss) from discontinued operations, net of tax	$	26,209	$	(2,090)	$	(604)

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 AMAK are as follows:


Results of Operations	Nine Months Ended September 30,		Year Ended December 31,
	2020		2019		2018
	(thousands of dollars)
Sales	$	62,633	$	78,350	$	70,234
Cost of sales	(55,728)		(69,620)		(68,084)
Gross profit	6,905		8,730		2,150
Selling, general, and administrative	(4,985)		(13,047)		(7,860)
Operating income (loss)	1,920		(4,317)		(5,710)
Other (expense) income	(346)		558		86
Finance and interest expense	(1,211)		(1,450)		(1,592)
Income (loss) before Zakat and income taxes	363		(5,209)		(7,216)
Zakat and income tax (expense) benefit	(490)		(1,801)		487
Net loss	$	(127)	$	(7,010)	$	(6,729)


Financial Position	September 30,		December 31,
	2020		2019
	(thousands of dollars)
Current assets	$	29,799	$	45,354
Noncurrent assets	209,814		196,564
Total assets	$	239,613	$	241,918

Current liabilities	$	40,919	$	27,645
Long term liabilities	79,122		79,348
Stockholders' equity	119,572		134,925
	$	239,613	$	241,918

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 years ended December 31, 2020, 2019, and 2018, is comprised of the following:


	Nine Months Ended September 30,		Year Ended December 31,
	2020		2019	2018
	(thousands of dollars)
AMAK Net Loss	(127)		(7,010)	(6,729)


Company’s share of loss reported by AMAK	(308)	*	(1,996)	(2,248)
Amortization of difference between Company’s investment in AMAK and Company’s share of net assets of AMAK	1,010		1,010	1,347
Equity in earnings (losses) of AMAK	702		(986)	(901)
* Percentage of Ownership varies during the period.