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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549


FORM 10-Q
(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020
or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934

For the transition period from _________ to __________

COMMISSION FILE NUMBER 1-33926
trec-20200930_g1.jpg
TRECORA RESOURCES
(Exact name of registrant as specified in its charter)
Delaware75-1256622
(State or other jurisdiction of(I.R.S. Employer Identification No.)
incorporation or organization)
1650 Hwy 6 South,Suite 19077478
Sugar Land,Texas
(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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.10 per shareTRECNew York Stock Exchange

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 October 26, 2020: 24,817,193.





TABLE OF CONTENTS

Item Number and Description
 
 
 
 
 
 
 
 
   
   
   
 
 
 
 
   





PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.
TRECORA RESOURCES AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2020 (Unaudited)December 31, 2019
ASSETS(thousands of dollars, except par value)
 Current Assets  
Cash$51,862 $6,145 
Trade receivables, net22,656 26,320 
Inventories11,110 13,624 
Investment in AMAK (held-for-sale) 32,872 
Prepaid expenses and other assets7,016 4,947 
Taxes receivable16,858 182 
Total current assets109,502 84,090 
Plant, pipeline and equipment, net187,898 188,919 
Intangible assets, net13,354 14,736 
Lease right-of-use assets, net11,154 13,512 
Mineral properties in the United States412 562 
TOTAL ASSETS$322,320 $301,819 
LIABILITIES
Current Liabilities
Accounts payable$12,815 $14,603 
Accrued liabilities13,192 5,740 
Current portion of long-term debt4,194 4,194 
Current portion of lease liabilities3,148 3,174 
Current portion of other liabilities447 924 
Total current liabilities33,796 28,635 
  CARES Act, PPP Loans
6,123  
  Long-term debt, net of current portion
42,949 79,095 
  Post-retirement benefit, net of current portion
321 338 
Lease liabilities, net of current portion
8,006 10,338 
  Other liabilities, net of current portion
907 595 
Deferred income taxes26,132 11,375 
Total liabilities118,234 130,376 
COMMITMENTS AND CONTINGENCIES (Note 12)
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
2,482 2,475 
Additional paid-in capital60,875 59,530 
Retained earnings140,440 109,149 
Total Trecora Resources Stockholders' Equity203,797 171,154 
Noncontrolling Interest289 289 
Total equity204,086 171,443 
TOTAL LIABILITIES AND EQUITY$322,320 $301,819 

See notes to consolidated financial statements.
1



TRECORA RESOURCES AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS
ENDED
SEPTEMBER 30,
NINE MONTHS
ENDED
SEPTEMBER 30,
 2020201920202019
 (thousands of dollars, except per share amounts)
REVENUES   
Product sales$43,570 $59,111 $137,460 $185,933 
Processing fees4,177 3,604 13,028 11,308 
 47,747 62,715 150,488 197,241 
OPERATING COSTS AND EXPENSES
Cost of sales and processing (including depreciation and amortization of $3,887, $3,254, $11,373 and $11,611, respectively)
39,290 53,148 127,786 167,036 
    GROSS PROFIT
8,457 9,567 22,702 30,205 
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative5,766 6,401 18,729 18,532 
Depreciation209 208 637 629 
 5,975 6,609 19,366 19,161 
OPERATING INCOME2,482 2,958 3,336 11,044 
OTHER INCOME (EXPENSE)
Interest income   5 
Interest expense(508)(1,211)(2,159)(4,111)
Miscellaneous income (expense), net(13)74 (7)330 
(521)(1,137)(2,166)(3,776)
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES1,961 1,821 1,170 7,268 
INCOME TAX EXPENSE (BENEFIT)853 238 (3,942)1,412 
INCOME FROM CONTINUING OPERATIONS1,108 1,583 5,112 5,856 
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAX21,324 (1,002)26,179 (1,120)
NET INCOME$22,432 $581 $31,291 $4,736 
Basic Earnings per Common Share
Net income from continuing operations (dollars)$0.04 $0.06 $0.21 $0.24 
Net income (loss) from discontinued operations, net of tax (dollars)0.86 (0.04)1.06 (0.05)
Net income (dollars)$0.90 $0.02 $1.27 $0.19 
Basic weighted average number of common shares outstanding24,817 24,717 24,795 24,689 
Diluted Earnings per Common Share
Net income from continuing operations (dollars)$0.04 $0.06 $0.20 $0.23 
Net income (loss) from discontinued operations, net of tax (dollars)0.84 (0.04)1.04 (0.04)
Net income (dollars)$0.88 $0.02 $1.24 $0.19 
Diluted weighted average number of common shares outstanding25,394 25,053 25,179 25,077 

See notes to consolidated financial statements.
2



TRECORA RESOURCES AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30
 TRECORA RESOURCES STOCKHOLDERS  
 COMMON STOCKADDITIONAL
PAID-IN
TREASURYRETAINED NON-
CONTROLLING
TOTAL
 SHARESAMOUNTCAPITALSTOCKEARNINGSTOTALINTERESTEQUITY
 (thousands)(thousands of dollars)
June 30, 202024,817 $2,482 $60,386 $ $118,008 $180,876 $289 $181,165 
Restricted Stock Units
Issued to Directors— — 113 — — 113 — 113 
Issued to Employees— — 376 — — 376 — 376 
Common Stock
Issued to Directors— — — — —  —  
Issued to Employees— — — — —  —  
Net Income— — — — 22,432 22,432 — 22,432 
September 30, 202024,817 $2,482 $60,875 $ $140,440 $203,797 $289 $204,086 
June 30, 201924,715 $2,472 $58,920 $(2)$128,278 $189,668 $289 $189,957 
Restricted Stock Units
Issued to Directors— — 96 — — 96 — 96 
Issued to Employees— — 186 — — 186 — 186 
Common Stock
Issued to Directors— — — — —  —  
Issued to Employees— — — — —  —  
Net Income— — — — 581 581 — 581 
September 30, 201924,715 $2,472 $59,202 $(2)$128,859 $190,531 $289 $190,820 

See notes to consolidated financial statements.
3



TRECORA RESOURCES AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30
 TRECORA RESOURCES STOCKHOLDERS  
 COMMON STOCKADDITIONAL
PAID-IN
TREASURYRETAINED NON-
CONTROLLING
TOTAL
 SHARESAMOUNTCAPITALSTOCKEARNINGSTOTALINTERESTEQUITY
 (thousands)(thousands of dollars)
January 1, 202024,750 $2,475 $59,530 $ $109,149 $171,154 $289 $171,443 
Restricted Stock Units
Issued to Directors— — 308   308 — 308 
Issued to Employees— — 1,044   1,044 — 1,044 
Common Stock
Issued to Directors28 3 (3)—   —  
Issued to Employees39 4 (4)— —  —  
Net Income    31,291 31,291 — 31,291 
September 30, 202024,817 $2,482 $60,875 $ $140,440 $203,797 $289 $204,086 
January 1, 201924,626 $2,463 $58,294 $(8)$124,123 $184,872 $289 $185,161 
Restricted Stock Units
Issued to Directors— — 264 —  264 — 264 
Issued to Employees— — 644 —  644 — 644 
Common Stock
Issued to Directors10 1 — 6  7 — 7 
Issued to Employees79 8 — —  8 — 8 
Net Income— — — — 4,736 4,736 — 4,736 
September 30, 201924,715 $2,472 $59,202 $(2)$128,859 $190,531 $289 $190,820 

4



TRECORA RESOURCES AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
 20202019
 (thousands of dollars)
OPERATING ACTIVITIES  
Net Income$31,291 $4,736 
Income (Loss) from Discontinued Operations26,179 (1,120)
Income from Continuing Operations$5,112 $5,856 
Adjustments to Reconcile Income from Continuing Operations To Net Cash Provided by Operating Activities:
Depreciation and Amortization10,629 10,863 
Amortization of Intangible Assets1,382 1,396 
Stock-based Compensation1,423 904 
Deferred Income Taxes14,168 1,268 
Postretirement Obligation(1)(28)
Bad Debt Expense(1)(19)
Amortization of Loan Fees136 136 
Loss on Disposal of Assets9  
Changes in Operating Assets and Liabilities:
Decrease in Trade Receivables3,665 1,634 
Decrease in Insurance Receivables1,148  
Increase in Taxes Receivable(16,675) 
Decrease in Inventories2,514 3,253 
(Increase) Decrease in Prepaid Expenses and Other Assets(1,370)914 
Decrease in Accounts Payable and Accrued Liabilities(950)(6,031)
Decrease in Other Liabilities510 267 
Net Cash Provided by Operating Activities - Continuing Operations21,699 20,413 
Net Cash Used in Operating Activities - Discontinued Operations(4,124)(164)
Net Cash Provided by Operating Activities17,575 20,249 
INVESTING ACTIVITIES
Additions to Plant, Pipeline and Equipment(10,309)(6,978)
Proceeds from PEVM150 27 
Net Cash Used in Investing Activities - Continuing Operations(10,159)(6,951)
Net Cash Provided by Investing Activities - Discontinued Operations68,530 2,697 
Net Cash Provided by (Used in) Investing Activities58,371 (4,254)
FINANCING ACTIVITIES
Net Cash Paid Related to Stock-Based Compensation(71)(292)
Additions to CARES Act, PPP Loans6,123  
Additions to Long-Term Debt20,000 2,000 
Repayments of Long-Term Debt(56,281)(15,281)
Net Cash Used in Financing Activities - Continuing Operations(30,229)(13,573)
NET INCREASE IN CASH45,717 2,422 
CASH AT BEGINNING OF PERIOD6,145 6,735 
CASH AT END OF PERIOD$51,862 $9,157 
Supplemental disclosure of cash flow information: 
Cash payments for interest$2,023 $3,749 
Cash payments for taxes, net of refunds$3,000 $53 
Supplemental disclosure of non-cash items:
Capital expansion amortized to depreciation expense$690 $426 
Cash held in escrow by AMAK$1,877 $ 
Foreign taxes paid by AMAK$240 $891 

See notes to consolidated financial statements.
5



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:
a.TOCCO – Texas Oil & Chemical Co. II, Inc. – Wholly owned subsidiary of TREC and parent of SHR and TC
b.SHR – South Hampton Resources, Inc. – Specialty Petrochemicals segment and parent of GSPL
c.GSPL – Gulf State Pipe Line Co, Inc. – Pipeline support for the Specialty Petrochemicals segment
d.TC – Trecora Chemical, Inc. – Specialty Waxes segment
e.PEVM – Pioche Ely Valley Mines, Inc. – Inactive mine – 55% ownership
f.AMAK – Al Masane Al Kobra Mining Company – Held-for-sale mining equity investment & discontinued operations

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 nine months ended September 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, on September 28, 2020, we completed the final closing of the sale of our ownership interest in AMAK, a Saudi Arabian closed joint stock company, which owns, operates and is developing mining assets in Saudi Arabia. Our investment was classified as held-for-sale and the equity in earnings (losses) are recorded in discontinued operations. See Note 5 for additional discussion.

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
6



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. The Company does not expect an 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. This guidance is effective from March 12, 2020 through December 31, 2022 and adoption is optional. 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:
 September 30, 2020December 31, 2019
 (thousands of dollars)
Trade receivables$23,084 $26,749 
Less allowance for doubtful accounts(428)(429)
Trade receivables, net$22,656 $26,320 

Trade receivables serve as collateral for our amended and restated credit agreement. See Note 11.

4. INVENTORIES

Inventories included the following:
 September 30, 2020December 31, 2019
 (thousands of dollars)
Raw material$2,543 $2,100 
Work in process122 142 
Finished products8,445 11,382 
Total inventory$11,110 $13,624 

Inventory serves as collateral for our amended and restated credit agreement. See Note 11.

Inventory included Specialty Petrochemicals products in transit valued at approximately $2.8 million and $2.9 million at September 30, 2020 and December 31, 2019, respectively.

5. INVESTMENT IN AMAK AND DISCONTINUED OPERATIONS

On September 30, 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 (as amended, 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). The Company used a portion of the approximately $60 million in net proceeds from the Share Sale to prepay outstanding borrowings of $30 million under the term loan facility (the "Term Loan Facility") of the Company's amended and restated credit agreement (as amended, the "ARC Agreement"). As of December 31, 2019, the
7



Company had a non-controlling equity interest of 33.3% in AMAK of approximately $32.9 million. This investment was accounted for under the equity method.

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 three months ended September 30, 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 constitutes 50% of the non-refundable deposits previously paid by certain Purchasers). As none of these 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 $1.8 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 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 September 30, 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 condensed consolidated balance sheet as of September 30, 2020.

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 continued 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:
 Three Months Ended September 30,Nine Months Ended
September 30,
 2020201920202019
 (thousands of dollars)(thousands of dollars)
Saudi administration and transaction expenses$(2,605)$ $(2,490)$ 
Equity in earnings (losses) of AMAK682 (942)455 (1,093)
Gain (loss) on sale of equity interest28,510 (325)35,173 (325)
Income (loss) from discontinued operations before taxes26,587 (1,267)33,138 (1,418)
Tax (expense) benefit(5,263)265 (6,959)298 
Income (loss) from discontinued operations, net of tax$21,324 $(1,002)$26,179 $(1,120)

8



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
 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
 (thousands of dollars)(thousands of dollars)
Sales$23,943 $19,643 $62,632 $60,873 
Cost of sales18,644 19,072 53,294 55,804 
Gross profit5,299 571 9,338 5,069 
Selling, general, and administrative3,808 3,557 8,850 9,102 
Operating income (loss)1,491 (2,986)488 (4,033)
Other income16 43 33 396 
Finance and interest expense(237)(456)(871)(1,349)
Income (loss) before Zakat and income taxes1,270 (3,399)(350)(4,986)
Zakat and income tax (benefit)(240)444 859 1,332 
Net Income (Loss)$1,510 $(3,843)$(1,209)$(6,318)

Financial Position
 September 30,December 31,
 20202019
 (thousands of dollars)
Current assets$37,945 $45,354 
Noncurrent assets204,865 196,564 
Total assets$242,810 $241,918 
Current liabilities$23,622 $27,645 
Long term liabilities100,698 79,348 
Stockholders' equity118,490 134,925 
 $242,810 $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 three and nine months ended September 30, 2020 and 2019, is comprised of the following:
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2020201920202019
 (thousands of dollars)(thousands of dollars)
AMAK Net Income (Loss)1,510 (3,843)(1,209)(6,318)
Company's share of income (loss) reported by AMAK345 *(1,279)(555)*(2,103)
Amortization of difference between Company's investment in AMAK and Company's share of net assets of AMAK337 337 1,010 1,010 
Equity in earnings (losses) of AMAK682 (942)455 (1,093)
* Percentage of Ownership varies during the period.

9



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.

6. PREPAID EXPENSES AND OTHER ASSETS

Prepaid expenses and other assets consisted of the following:
 September 30, 2020December 31, 2019
 (thousands of dollars)
Prepaid license$605 $1,209 
Prepaid insurance premiums1,767  
Spare parts2,330 1,857 
Insurance receivable 1,148 
Cash held in escrow by AMAK1,877  
Other prepaid expenses and assets437 733 
Total prepaid expenses and other assets$7,016 $4,947 

7. PLANT, PIPELINE AND EQUIPMENT

Plant, pipeline and equipment consisted of the following:
September 30, 2020December 31, 2019
 (thousands of dollars)
Platinum catalyst metal$1,580 $1,580 
Catalyst4,328 4,095 
Land5,428 5,428 
Plant, pipeline and equipment266,128 258,651 
Construction in progress7,516 5,052 
Total plant, pipeline and equipment$284,980 $274,806 
Less accumulated depreciation(97,082)(85,887)
Net plant, pipeline and equipment$187,898 $188,919 

Plant, pipeline, and equipment serve as collateral for our amended and restated credit agreement. See Note 11.

Construction in progress during the first nine months of 2020 included Advanced Reformer unit improvements and pipeline maintenance at SHR and equipment modifications at TC. Construction in progress during the first nine months of 2019 included equipment purchased for various equipment updates at the TC facility, the Advanced Reformer unit, tankage upgrades, and an addition to the rail spur at SHR.

Amortization relating to the catalyst, which is included in cost of sales, was approximately $0.2 million and $0.2 million for the three months ended September 30, 2020 and 2019, respectively, and $0.7 million and $0.7 million for the nine months ended September 30, 2020 and 2019, respectively.

8. LEASES

The Company leases certain rail cars, rail equipment, office space and office equipment. The Company determines if a contract is a lease at the inception of the arrangement. The Company reviews all options to extend, terminate, or purchase its right-of-use assets at the inception of the lease and accounts for these options when they are reasonably certain of being exercised.

Leases with an initial term of 12 months or less are not recorded on the Condensed Consolidated Balance Sheets. Lease expense for these leases is recognized on a straight-line basis over the lease term.

The Company has no finance leases.
10




The components of lease expense were as follows:
($ in thousands)Classification in the Condensed Consolidated Statements of IncomeThree Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Operating lease cost (a)Cost of sales, exclusive of depreciation and amortization$1,115 $1,114 $3,036 $3,369 
Operating lease cost (a)Selling, general and administrative34 34 102 103 
Total lease cost $1,149 $1,148 $3,138 $3,472 
(a) Short-term lease costs were approximately $0.2 million and $0.1 million for the three months ended September 30, 2020 and 2019, respectively. Short-term lease costs were approximately $0.3 million and $0.1 million for the nine months ended September 30, 2020 and 2019, respectively.

The Company had no variable lease expense, as defined by ASC 842, during the periods.
($ in thousands)Classification on the Condensed Consolidated Balance SheetsSeptember 30, 2020December 31, 2019
Assets: 
OperatingOperating lease assets$11,154 $13,512 
Total leased assets $11,154 $13,512 
Liabilities: 
Current: 
OperatingCurrent portion of operating lease liabilities$3,148 $3,174 
Noncurrent: 
OperatingOperating lease liabilities8,006 10,338 
Total lease liabilities $11,154 $