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, 2020

Equity Method Investments and Joint Ventures [Abstract]

INVESTMENT IN AMAK AND DISCONTINUED OPERATIONS

INVESTMENT IN AMAK AND DISCONTINUED OPERATIONSOn 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

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,
	2020		2019		2020		2019
	(thousands of dollars)				(thousands of dollars)
Saudi administration and transaction expenses	$	(2,605)	$	—	$	(2,490)	$	—
Equity in earnings (losses) of AMAK	682		(942)		455		(1,093)
Gain (loss) on sale of equity interest	28,510		(325)		35,173		(325)
Income (loss) from discontinued operations before taxes	26,587		(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)

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,
	2020		2019		2020		2019
	(thousands of dollars)				(thousands of dollars)
Sales	$	23,943	$	19,643	$	62,632	$	60,873
Cost of sales	18,644		19,072		53,294		55,804
Gross profit	5,299		571		9,338		5,069
Selling, general, and administrative	3,808		3,557		8,850		9,102
Operating income (loss)	1,491		(2,986)		488		(4,033)
Other income	16		43		33		396
Finance and interest expense	(237)		(456)		(871)		(1,349)
Income (loss) before Zakat and income taxes	1,270		(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,
	2020		2019
	(thousands of dollars)
Current assets	$	37,945	$	45,354
Noncurrent assets	204,865		196,564
Total assets	$	242,810	$	241,918

Current liabilities	$	23,622	$	27,645
Long term liabilities	100,698		79,348
Stockholders' equity	118,490		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,
	2020		2019	2020		2019
	(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 AMAK	345	*	(1,279)	(555)	*	(2,103)
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 earnings (losses) of AMAK	682		(942)	455		(1,093)
* 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.