UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
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
TRECORA RESOURCES
(Exact name of registrant as specified in its charter)
|
| |
DELAWARE | 75-1256622 |
(State or other jurisdiction of | (I.R.S. Employer Identification No.) |
incorporation or organization) | |
|
| |
1650 Hwy 6 South, Suite 190 | 77478 |
Sugar Land, Texas | (Zip code) |
(Address of principal executive offices) | |
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 class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, par value $0.10 per share | TREC | New 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 X
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 Act). Yes No X
Number of shares of the Registrant's Common Stock (par value $0.10 per share), outstanding at October 29, 2019: 24,714,980.
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,
2019
(Unaudited) | | December 31,
2018 |
ASSETS | | (thousands of dollars, except par value) |
Current Assets | | | | |
Cash | | $ | 9,157 |
| | $ | 6,735 |
|
Trade receivables, net | | 25,497 |
| | 27,112 |
|
Inventories | | 13,285 |
| | 16,539 |
|
Investment in AMAK (held-for-sale) | | 34,090 |
| | 38,746 |
|
Prepaid expenses and other assets | | 3,726 |
| | 4,664 |
|
Taxes receivable | | 182 |
| | 182 |
|
Total current assets | | 85,937 |
| | 93,978 |
|
| | | | |
Plant, pipeline and equipment, net | | 190,345 |
| | 194,657 |
|
| | | | |
Goodwill | | 21,798 |
| | 21,798 |
|
Intangible assets, net | | 17,551 |
| | 18,947 |
|
Lease right-of-use assets, net | | 14,364 |
| | — |
|
Mineral properties in the United States | | 562 |
| | 588 |
|
| | | | |
TOTAL ASSETS | | $ | 330,557 |
| | $ | 329,968 |
|
LIABILITIES | | | | |
Current Liabilities | | | | |
Accounts payable | | $ | 10,203 |
| | $ | 19,106 |
|
Accrued liabilities | | 7,270 |
| | 5,439 |
|
Current portion of long-term debt | | 4,194 |
| | 4,194 |
|
Current portion of lease liabilities | | 3,247 |
| | — |
|
Current portion of other liabilities | | 1,011 |
| | 752 |
|
Total current liabilities | | 25,925 |
| | 29,491 |
|
| | | | |
Long-term debt, net of current portion | | 85,143 |
| | 98,288 |
|
Lease liabilities, net of current portion | | 11,117 |
| | — |
|
Other liabilities, net of current portion | | 906 |
| | 1,352 |
|
Deferred income taxes | | 16,646 |
| | 15,676 |
|
Total liabilities | | 139,737 |
| | 144,807 |
|
| | | | |
EQUITY | | | | |
Common stock‑authorized 40 million shares of $0.10 par value; issued and outstanding 24.7 million and 24.6 million in 2019 and 2018, respectively | | 2,472 |
| | 2,463 |
|
Additional paid-in capital | | 59,202 |
| | 58,294 |
|
Common stock in treasury, at cost | | (2 | ) | | (8 | ) |
Retained earnings | | 128,859 |
| | 124,123 |
|
Total Trecora Resources Stockholders' Equity | | 190,531 |
| | 184,872 |
|
Noncontrolling Interest | | 289 |
| | 289 |
|
Total equity | | 190,820 |
| | 185,161 |
|
| | | | |
TOTAL LIABILITIES AND EQUITY | | $ | 330,557 |
| | $ | 329,968 |
|
See notes to consolidated financial statements.
TRECORA RESOURCES AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
|
| | | | | | | | | | | | | | | | |
| | THREE MONTHS ENDED
SEPTEMBER 30, | | NINE MONTHS ENDED
SEPTEMBER 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
| | (thousands of dollars, except per share amounts) |
REVENUES | | | | | | | | |
Product sales | | $ | 59,111 |
| | $ | 68,613 |
| | $ | 185,933 |
| | $ | 198,881 |
|
Processing fees | | 3,604 |
| | 4,803 |
| | 11,308 |
| | 14,382 |
|
| | 62,715 |
| | 73,416 |
| | 197,241 |
| | 213,263 |
|
| | | | | | | | |
OPERATING COSTS AND EXPENSES | | | | | | | | |
Cost of sales and processing | | | | | | | | |
(including depreciation and amortization of $3,254, $3,813, $11,611 and $9,480, respectively) | | 53,148 |
| | 66,574 |
| | 167,036 |
| | 188,139 |
|
| | | | | | | | |
GROSS PROFIT | | 9,567 |
| | 6,842 |
| | 30,205 |
| | 25,124 |
|
| | | | | | | | |
GENERAL AND ADMINISTRATIVE EXPENSES | | | | | | | | |
General and administrative | | 6,401 |
| | 6,327 |
| | 18,532 |
| | 17,216 |
|
Depreciation | | 208 |
| | 205 |
| | 629 |
| | 592 |
|
| | 6,609 |
| | 6,532 |
| | 19,161 |
| | 17,808 |
|
| | | | | | | | |
OPERATING INCOME | | 2,958 |
| | 310 |
| | 11,044 |
| | 7,316 |
|
| | | | | | | | |
OTHER INCOME (EXPENSE) | | | | | | | | |
Interest income | | — |
| | 5 |
| | 5 |
| | 26 |
|
Interest expense | | (1,211 | ) | | (924 | ) | | (4,111 | ) | | (2,617 | ) |
Loss on Extinguishment of Debt | | — |
| | (315 | ) | | — |
| | (315 | ) |
Miscellaneous income (expense), net | | 74 |
| | (28 | ) | | 330 |
| | (67 | ) |
| | (1,137 | ) | | (1,262 | ) | | (3,776 | ) | | (2,973 | ) |
| | | | | | | | |
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | | 1,821 |
| | (952 | ) | | 7,268 |
| | 4,343 |
|
| | | | | | | | |
INCOME TAX EXPENSE (BENEFIT) | | 238 |
| | (236 | ) | | 1,412 |
| | 854 |
|
| | | | | | | | |
INCOME (LOSS) FROM CONTINUING OPERATIONS | | 1,583 |
| | (716 | ) | | 5,856 |
| | 3,489 |
|
| | | | | | | | |
LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX | | (1,002 | ) | | (893 | ) | | (1,120 | ) | | (531 | ) |
| | | | | | | | |
NET INCOME (LOSS) | | $ | 581 |
| | $ | (1,609 | ) | | $ | 4,736 |
| | $ | 2,958 |
|
| | | | | | | | |
Basic Earnings per Common Share | | | | | | | | |
Net income (loss) from continuing operations (dollars) | | $ | 0.06 |
| | $ | (0.03 | ) | | $ | 0.24 |
| | $ | 0.14 |
|
Net loss from discontinued operations, net of tax (dollars) | | (0.04 | ) | | (0.04 | ) | | (0.05 | ) | | (0.02 | ) |
Net income (loss) (dollars) | | $ | 0.02 |
| | $ | (0.07 | ) | | $ | 0.19 |
| | $ | 0.12 |
|
| | | | | | | | |
Basic weighted average number of common shares outstanding | | 24,717 |
| | 24,483 |
| | 24,689 |
| | 24,397 |
|
| | | | | | | | |
Diluted Earnings per Common Share | | | | | | | | |
Net income (loss) from continuing operations (dollars) | | $ | 0.06 |
| | $ | (0.03 | ) | | $ | 0.23 |
| | $ | 0.14 |
|
Net loss from discontinued operations, net of tax (dollars) | | (0.04 | ) | | (0.04 | ) | | (0.04 | ) | | (0.02 | ) |
Net income (loss) (dollars) | | $ | 0.02 |
| | $ | (0.07 | ) | | $ | 0.19 |
| | $ | 0.12 |
|
| | | | | | | | |
Diluted weighted average number of common shares outstanding | | 25,053 |
| | 25,175 |
| | 25,077 |
| | 25,138 |
|
See notes to consolidated financial statements.
TRECORA RESOURCES AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | TRECORA RESOURCES STOCKHOLDERS | | | | |
| | COMMON STOCK | | ADDITIONAL PAID-IN | | TREASURY | | RETAINED | | | | NON- CONTROLLING | | TOTAL |
| | SHARES | | AMOUNT | | CAPITAL | | STOCK | | EARNINGS | | TOTAL | | INTEREST | | EQUITY |
| | (thousands) |
| | (thousands of dollars) |
June 30, 2019 | | 24,715 |
| | $ | 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, 2019 | | 24,715 |
| | $ | 2,472 |
| | $ | 59,202 |
| | $ | (2 | ) | | $ | 128,859 |
| | $ | 190,531 |
| | $ | 289 |
| | $ | 190,820 |
|
| | | | | | | | | | | | | | | | |
June 30, 2018 | | 24,311 |
| | $ | 2,451 |
| | $ | 56,365 |
| | $ | (61 | ) | | $ | 131,022 |
| | $ | 189,777 |
| | $ | 289 |
| | $ | 190,066 |
|
| | | | | | | | | | | | | | | | |
Stock Options | | | | | | | | | | | | | | | | |
Issued to Directors | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Issued to Employees | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Cancellation of Issuance to Former Director | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Restricted Stock Units | | | | | | | | | | | | | | | | |
Issued to Directors | | — |
| | — |
| | 75 |
| | — |
| | — |
| | 75 |
| | — |
| | 75 |
|
Issued to Employees | | — |
| | — |
| | 550 |
| | — |
| | — |
| | 550 |
| | — |
| | 550 |
|
Common Stock | | | | | | | | | | | | | | | | |
Issued to Directors | | — |
| | — |
| | 159 |
| | 41 |
| | — |
| | 200 |
| | — |
| | 200 |
|
Issued to Employees | | — |
| | — |
| | (2 | ) | | 1 |
| | — |
| | (1 | ) | | — |
| | (1 | ) |
Stock Exchange | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Warrants | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Net Income | | — |
| | — |
| | — |
| | — |
| | (1,609 | ) | | (1,609 | ) | | — |
| | (1,609 | ) |
| | | | | | | | | | | | | | | | |
September 30, 2018 | | 24,311 |
| | $ | 2,451 |
| | $ | 57,147 |
| | $ | (19 | ) | | $ | 129,413 |
| | $ | 188,992 |
| | $ | 289 |
| | $ | 189,281 |
|
See notes to consolidated financial statements.
TRECORA RESOURCES AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | TRECORA RESOURCES STOCKHOLDERS | | | | |
| | COMMON STOCK | | ADDITIONAL PAID-IN | | TREASURY | | RETAINED | | | | NON- CONTROLLING | | TOTAL |
| | SHARES | | AMOUNT | | CAPITAL | | STOCK | | EARNINGS | | TOTAL | | INTEREST | | EQUITY |
| | (thousands) |
| | (thousands of dollars) |
January 1, 2019 | | 24,626 |
| | $ | 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 Directors | | 10 |
| | 1 |
| | — |
| | 6 |
| | — |
| | 7 |
| | — |
| | 7 |
|
Issued to Employees | | 79 |
| | 8 |
| | — |
| | — |
| | — |
| | 8 |
| | — |
| | 8 |
|
Net Income | | — |
| | — |
| | — |
| | — |
| | 4,736 |
| | 4,736 |
| | — |
| | 4,736 |
|
| | | | | | | | | | | | | | | | |
September 30, 2019 | | 24,715 |
| | $ | 2,472 |
| | $ | 59,202 |
| | $ | (2 | ) | | $ | 128,859 |
| | $ | 190,531 |
| | $ | 289 |
| | $ | 190,820 |
|
| | | | | | | | | | | | | | | | |
January 1, 2018 | | 24,311 |
| | $ | 2,451 |
| | $ | 56,012 |
| | $ | (196 | ) | | $ | 126,455 |
| | $ | 184,722 |
| | $ | 289 |
| | $ | 185,011 |
|
| | | | | | | | | | | | | | | | |
Stock Options | | | | | | | | | | | |
|
| | | |
|
|
Issued to Directors | | — |
| | — |
| | (10 | ) | | — |
| | — |
| | (10 | ) | | — |
| | (10 | ) |
Issued to Employees | | — |
| | — |
| | 154 |
| | — |
| | — |
| | 154 |
| | — |
| | 154 |
|
Cancellation of Issuance to Former Director | | — |
| | — |
| | (680 | ) | | — |
| | — |
| | (680 | ) | | — |
| | (680 | ) |
Restricted Stock Units | | | | | | | | | | | |
|
| | | |
|
|
Issued to Directors | | — |
| | — |
| | 250 |
| | — |
| | — |
| | 250 |
| | — |
| | 250 |
|
Issued to Employees | | — |
| | — |
| | 1,284 |
| | — |
| | — |
| | 1,284 |
| | — |
| | 1,284 |
|
Common Stock | | | | | | | | | | | | | | | | |
Issued to Directors | | — |
| | — |
| | 82 |
| | 78 |
| | — |
| | 160 |
| | — |
| | 160 |
|
Issued to Employees | | — |
| | — |
| | 130 |
| | 155 |
| | — |
| | 285 |
| | — |
| | 285 |
|
Stock Exchange | | — |
| | — |
| | (66 | ) | | (65 | ) | | — |
| | (131 | ) | | — |
| | (131 | ) |
Warrants | | — |
| | — |
| | (9 | ) | | 9 |
| | — |
| | — |
| | — |
| | — |
|
Net Income | | — |
| | — |
| | — |
| | — |
| | 2,958 |
| | 2,958 |
| | — |
| | 2,958 |
|
| | | | | | | | | | | | | | | | |
September 30, 2018 | | 24,311 |
| | $ | 2,451 |
| | $ | 57,147 |
| | $ | (19 | ) | | $ | 129,413 |
| | $ | 188,992 |
| | $ | 289 |
| | $ | 189,281 |
|
See notes to consolidated financial statements.
TRECORA RESOURCES AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) |
| | | | | | | | |
| | NINE MONTHS ENDED
SEPTEMBER 30, |
| | 2019 | | 2018 |
| | (thousands of dollars) |
OPERATING ACTIVITIES | | | | |
Net Income | | $ | 4,736 |
| | $ | 2,958 |
|
Loss from Discontinued Operations | | (1,120 | ) | | (531 | ) |
Income from Continuing Operations | | $ | 5,856 |
| | $ | 3,489 |
|
Adjustments to Reconcile Income from Continuing Operations To Net Cash Provided by Operating Activities: | | | | |
Depreciation and Amortization | | 10,863 |
| | 8,614 |
|
Amortization of Intangible Assets | | 1,396 |
| | 1,396 |
|
Stock-based Compensation | | 904 |
| | 1,002 |
|
Deferred Income Taxes | | 1,268 |
| | 1,116 |
|
Postretirement Obligation | | (28 | ) | | (817 | ) |
Bad Debt Expense | | (19 | ) | | 152 |
|
Amortization of Loan Fees | | 136 |
| | 216 |
|
Loss on Extinguishment of Debt | | — |
| | 315 |
|
Changes in Operating Assets and Liabilities: | | | | |
Decrease (Increase) in Trade Receivables | | 1,634 |
| | (4,160 | ) |
Increase in Insurance Receivables | | — |
| | (391 | ) |
Decrease in Taxes Receivable | | — |
| | 4,029 |
|
Decrease in Inventories | | 3,253 |
| | 622 |
|
Increase in Prepaid Expenses and Other Assets | | 914 |
| | (1,592 | ) |
Decrease in Accounts Payable and Accrued Liabilities | | (6,031 | ) | | (2,977 | ) |
Decrease in Other Liabilities | | 267 |
| | 96 |
|
Net Cash Provided by Operating Activities - Continuing Operations | | 20,413 |
| | 11,110 |
|
Net Cash Used in Operating Activities - Discontinued Operations | | (164 | ) | | — |
|
Net Cash Provided by Operating Activities | | 20,249 |
| | 11,110 |
|
INVESTING ACTIVITIES | | | | |
Additions to Plant, Pipeline and Equipment | | (6,978 | ) | | (19,090 | ) |
Proceeds from PEVM | | 27 |
| | — |
|
Net Cash Used in Investing Activities - Continuing Operations | | (6,951 | ) | | (19,090 | ) |
Net Cash Provided by (Used in) Investing Activities - Discontinued Operations | | 2,697 |
| | (114 | ) |
Net Cash Used in Investing Activities | | (4,254 | ) | | (19,204 | ) |
FINANCING ACTIVITIES | | | | |
Net Cash (Paid) Received Related to Stock-Based Compensation | | (292 | ) | | 441 |
|
Additions to Long-Term Debt | | 2,000 |
| | 18,177 |
|
Repayments of Long-Term Debt | | (15,281 | ) | | (12,260 | ) |
Net Cash (Used in) Provided by Financing Activities - Continuing Operations | | (13,573 | ) | | 6,358 |
|
NET INCREASE (DECREASE) IN CASH | | 2,422 |
| | (1,736 | ) |
CASH AT BEGINNING OF PERIOD | | 6,735 |
| | 3,028 |
|
CASH AT END OF PERIOD | | $ | 9,157 |
| | $ | 1,292 |
|
Supplemental disclosure of cash flow information: | | |
Cash payments for interest | | $ | 3,749 |
| | $ | 2,663 |
|
Cash payments for taxes, net of refunds | | $ | 53 |
| | $ | 209 |
|
Supplemental disclosure of non-cash items: | | | | |
Capital expansion amortized to depreciation expense | | $ | 426 |
| | $ | 573 |
|
Foreign taxes paid by AMAK | | $ | 891 |
| | $ | — |
|
Stock exchange (Note 16) | | $ | — |
| | $ | 131 |
|
See notes to consolidated financial statements.
TRECORA RESOURCES AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. GENERAL
Organization
Trecora Resources (the "Company") 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," and the "Company" are intended to mean Trecora Resources and its subsidiaries.
This document includes the following abbreviations:
| |
(1) | TREC – Trecora Resources |
| |
(2) | TOCCO – Texas Oil & Chemical Co. II, Inc. – Wholly owned subsidiary of TREC and parent of SHR and TC |
| |
(3) | SHR – South Hampton Resources, Inc. – Specialty Petrochemicals segment and parent of GSPL |
| |
(4) | GSPL – Gulf State Pipe Line Co, Inc. – Pipeline support for the Specialty Petrochemicals segment |
| |
(5) | TC – Trecora Chemical, Inc. – Specialty Waxes segment |
| |
(6) | AMAK – Al Masane Al Kobra Mining Company – Held-for-sale mining equity investment – 33% ownership |
| |
(7) | PEVM – Pioche Ely Valley Mines, Inc. – Inactive mine – 55% ownership |
Basis of Presentation
The accompanying unaudited 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, 2018.
The unaudited condensed 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, 2019 are not necessarily indicative of results for the year ending December 31, 2019.
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, we own a 33% interest in AMAK, a Saudi Arabian closed joint stock company, which owns, operates and is developing mining assets in Saudi Arabia. Our investment is classified as held-for-sale and and the equity in earnings (losses) are recorded in discontinued operations. See Notes 16 and 19.
Accounting Standards Adopted in 2019
In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-02, Leases (Topic 842), as amended by ASU 2017-13, 2018-01, 2018-10, 2018-11, and 2019-01, in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under prior GAAP and disclosing key information about leasing arrangements. The new standard requires that a lessee should recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term on the balance sheet. The Company adopted ASC 842 in the first quarter of 2019 utilizing the modified retrospective transition approach. The Company has elected (1) the package of practical expedients,
which permits it not to reassess under the new standard its prior conclusions about lease identification, lease classification, and initial direct costs for any existing leases as of the adoption date, and (2) the hindsight practical expedient when determining lease term and assessing impairment of right-of-use assets. In addition, the Company elected the practical expedients related to (1) certain classes of underlying asset to not separate non-lease components from lease components and (2) the short-term lease recognition exemption for all leases that qualify. The adoption of ASC 842 on January 1, 2019 resulted in the recognition of right-of-use assets of approximately $17.0 million and lease liabilities for operating leases of approximately $17.0 million on its Consolidated Balance Sheets, with no material impact to retained earnings or Consolidated Statements of Operations. See Note 8 for further information regarding the impact of the adoption of ASC 842 on the Company's consolidated financial statements.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In January 2017, the FASB issued ASU No. 2017-4, Intangibles - Goodwill and Other (Topic 350). The amendments in ASU 2017-4 simplify the measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Instead, under these amendments, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value; however, the loss should not exceed the total amount of goodwill allocated to that reporting unit. The amendments are effective for public business entities for the first interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The amendments also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The Company has goodwill from a prior business combination and performs an annual impairment test or more frequently if changes or circumstances occur that would more-likely-than-not reduce the fair value of the reporting unit below its carrying value. During the year ended December 31, 2018, the Company performed its impairment assessment and determined the fair value of the aggregated reporting units exceed the carrying value, such that the Company's goodwill was not considered impaired. Based on the most recent assessment, the Company cannot anticipate future goodwill impairment assessments. The Company does not anticipate a material impact from these amendments to the Company's financial position and results of operations. The current accounting policies and processes are not anticipated to change, except for the elimination of the Step 2 analysis.
In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting. ASU 2018-07 simplifies the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. The Company adopted this ASU on January 1, 2019 and it did not have a material effect on the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which is designed to improve the effectiveness of disclosures by removing, modifying and adding disclosures related to fair value measurements. ASU No. 2018-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and the ASU allows for early adoption in any interim period after issuance of the update. The adoption of this ASU is not expected to have a significant impact on the Company’s consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), to require the measurement of expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable forecasts and applies to all financial assets, including trade receivables. The main objective of this ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. ASU No. 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and the ASU allows for early adoption as of the beginning of an interim or annual reporting period beginning after December 15, 2018. The Company is currently assessing the impact this ASU will have on its consolidated financial statements.
3. TRADE RECEIVABLES
Trade receivables, net, consisted of the following:
|
| | | | | | | | |
| | September 30, 2019 |
| | December 31, 2018 |
|
| | (thousands of dollars) |
Trade receivables | | $ | 25,930 |
| | $ | 27,564 |
|
Less allowance for doubtful accounts | | (433 | ) | | (452 | ) |
Trade receivables, net | | $ | 25,497 |
| | $ | 27,112 |
|
Trade receivables serve as collateral for our amended and restated credit agreement. See Note 10.
4. PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other assets consisted of the following:
|
| | | | | | | | |
| | September 30, 2019 |
| | December 31, 2018 |
|
| | (thousands of dollars) |
Prepaid license | | $ | 1,411 |
| | $ | 2,419 |
|
Spare parts | | 1,816 |
| | 1,597 |
|
Other prepaid expenses and assets | | 499 |
| | 648 |
|
Total prepaid expenses and other assets | | $ | 3,726 |
| | $ | 4,664 |
|
5. INVENTORIES
Inventories included the following:
|
| | | | | | | | |
| | September 30, 2019 |
| | December 31, 2018 |
|
| | (thousands of dollars) |
Raw material | | $ | 3,278 |
| | $ | 4,742 |
|
Work in process | | 157 |
| | 173 |
|
Finished products | | 9,850 |
| | 11,624 |
|
Total inventory | | $ | 13,285 |
| | $ | 16,539 |
|
Inventory serves as collateral for our amended and restated credit agreement. See Note 10.
Inventory included Specialty Petrochemicals products in transit valued at approximately $3.1 million and $4.1 million at September 30, 2019, and December 31, 2018, respectively.
6. PLANT, PIPELINE AND EQUIPMENT
Plant, pipeline and equipment consisted of the following:
|
| | | | | | | | |
| | September 30, 2019 |
| | December 31, 2018 |
|
| | (thousands of dollars) |
Platinum catalyst metal | | $ | 1,580 |
| | $ | 1,612 |
|
Catalyst | | 4,387 |
| | 3,131 |
|
Land | | 5,428 |
| | 5,428 |
|
Plant, pipeline and equipment | | 259,435 |
| | 253,905 |
|
Construction in progress | | 4,442 |
| | 4,343 |
|
Total plant, pipeline and equipment | | $ | 275,272 |
| | $ | 268,419 |
|
Less accumulated depreciation | | (84,927 | ) | | (73,762 | ) |
Net plant, pipeline and equipment | | $ | 190,345 |
| | $ | 194,657 |
|
Plant, pipeline, and equipment serve as collateral for our amended and restated credit agreement. See Note 10.
Labor capitalized for construction was approximately nil and $0.1 million for the three months and $0.1 million and $2.2 million for the nine months ended September 30, 2019 and 2018, respectively.
Construction in progress during the first nine months of 2019 included Advanced Reformer unit improvements and pipeline maintenance at SHR and equipment modifications at TC. Construction in progress during the first nine months of 2018 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 nil for the three months and $0.7 million and nil for the nine months ended September 30, 2019 and 2018, respectively.
7. GOODWILL AND INTANGIBLE ASSETS, NET
Goodwill and intangible assets were recorded in relation to the acquisition of TC on October 1, 2014.
Goodwill was $21.8 million and $21.8 million as of September 30, 2019 and December 31, 2018, respectively.
The following tables summarize the gross carrying amounts and accumulated amortization of intangible assets by major class:
|
| | | | | | | | | | | | |
| | September 30, 2019 |
| | Gross | | Accumulated Amortization | | Net |
Intangible assets subject to amortization (Definite-lived) | | (thousands of dollars) |
Customer relationships | | $ | 16,852 |
| | $ | (5,617 | ) | | $ | 11,235 |
|
Non-compete agreements | | 94 |
| | (94 | ) | | — |
|
Licenses and permits | | 1,471 |
| | (575 | ) | | 896 |
|
Developed technology | | 6,131 |
| | (3,066 | ) | | 3,065 |
|
| | 24,548 |
| | (9,352 | ) | | 15,196 |
|
Intangible assets not subject to amortization (Indefinite-lived) | | | | | | |
Emissions allowance | | 197 |
| | — |
| | 197 |
|
Trade name | | 2,158 |
| | — |
| | 2,158 |
|
Total | | $ | 26,903 |
| | $ | (9,352 | ) | | $ | 17,551 |
|
|
| | | | | | | | | | | | |
| | December 31, 2018 |
| | Gross | | Accumulated Amortization | | Net |
Intangible assets subject to amortization (Definite-lived) | | (thousands of dollars) |
Customer relationships | | $ | 16,852 |
| | $ | (4,775 | ) | | $ | 12,077 |
|
Non-compete agreements | | 94 |
| | (80 | ) | | 14 |
|
Licenses and permits | | 1,471 |
| | (495 | ) | | 976 |
|
Developed technology | | 6,131 |
| | (2,606 | ) | | 3,525 |
|
| | 24,548 |
| | (7,956 | ) | | 16,592 |
|
Intangible assets not subject to amortization (Indefinite-lived) | | | | | | |
Emissions allowance | | 197 |
| | — |
| | 197 |
|
Trade name | | 2,158 |
| | — |
| | 2,158 |
|
Total | | $ | 26,903 |
| | $ | (7,956 | ) | | $ | 18,947 |
|
Amortization expense for intangible assets included in cost of sales for the three months ended September 30, 2019 and 2018, was approximately $0.5 million and $0.5 million, respectively, and for the nine months ended September 30, 2019 and 2018, was approximately $1.4 million and $1.4 million, respectively.
Based on identified intangible assets that are subject to amortization as of September 30, 2019, we expect future amortization expenses for each period to be as follows: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total |
| | Remainder of 2019 |
| | 2020 |
| | 2021 |
| | 2022 |
| | 2023 |
| | 2024 |
| | Thereafter |
|
| | (thousands of dollars) |
Customer relationships | | $ | 11,235 |
| | $ | 281 |
| | $ | 1,123 |
| | $ | 1,123 |
| | 1,123 |
| | 1,123 |
| | 1,123 |
| | $ | 5,339 |
|
Licenses and permits | | 896 |
| | 26 |
| | 106 |
| | 101 |
| | 86 |
| | 86 |
| | 86 |
| | 405 |
|
Developed technology | | 3,065 |
| | 153 |
| | 613 |
| | 613 |
| | 613 |
| | 613 |
| | 460 |
| | — |
|
Total future amortization expense | | $ | 15,196 |
| | $ | 460 |
| | $ | 1,842 |
| | $ | 1,837 |
| | $ | 1,822 |
| | $ | 1,822 |
| | $ | 1,669 |
| | $ | 5,744 |
|
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 consolidated balance sheets. Lease expense for these leases is recognized on a straight-line basis over the lease term.
The components of lease expense were as follows:
|
| | | | | | | | |
($ in thousands) | Classification in the Condensed Consolidated Statements of Income | Three Months Ended
September 30, 2019 | | Nine Months Ended
September 30, 2019 |
Operating lease cost (a) | Cost of sales, exclusive of depreciation and amortization | $ | 1,114 |
| | $ | 3,369 |
|
Operating lease cost (a) | Selling, general and administrative | 34 |
| | 103 |
|
Total operating lease cost | | $ | 1,148 |
| | $ | 3,472 |
|
| | | | |
Finance lease cost: | | | | |
Amortization of right-of-use assets | Depreciation | $ | — |
| | — |
|
Interest on lease liabilities | Interest Expense | — |
| | — |
|
Total finance lease cost | | $ | — |
| | $ | — |
|
| | | | |
Total lease cost | | $ | 1,148 |
| | $ | 3,472 |
|
| | | | |
(a) Short-term lease costs were approximately $64 thousand during the period. | | |
The Company had no variable lease expense, as defined by ASC 842, during the period. |
| | | | |
($ in thousands) | Classification on the Condensed Consolidated Balance Sheets | September 30, 2019 |
Assets: | | |
Operating | Operating lease assets | $ | 14,364 |
|
Finance | Property, plant, and equipment | — |
|
Total leased assets | | $ | 14,364 |
|
| | |
Liabilities: | | |
Current | | |
Operating | Current portion of operating lease liabilities | $ | 3,247 |
|
Finance | Short-term debt and current portion of long-term debt | — |
|
Noncurrent | | |
Operating | Operating lease liabilities | 11,117 |
|
Finance | Long-term debt | — |
|
Total lease liabilities | | $ | 14,364 |
|
|
| | | | | | | |
($ in thousands) | Three Months Ended
September 30, 2019 | | Nine Months Ended
September 30, 2019 |
Cash paid for amounts included in the measurement of lease liabilities: | | | |
Operating cash flows used for operating leases | $ | 1,127 |
| | $ | 2,260 |
|
Operating cash flows used for finance leases | — |
| | — |
|
Financing cash flows used for finance leases | — |
| | — |
|
Right-of-use assets obtained in exchange for lease obligations: | | | |
Operating leases | $ | 25 |
| | $ | 138 |
|
Finance leases | — |
| | — |
|
|
| | |
| September 30, 2019 |
Weighted-average remaining lease term (in years): | |
Operating leases | 4.8 |
|
Finance leases | 0.0 |
|
Weighted-average discount rate: | |
Operating leases | 4.5 | % |
Finance leases | — | % |
Nearly all of the Company’s lease contracts do not provide a readily determinable implicit rate. For these contracts, the Company’s estimated incremental borrowing rate is based on information available at the inception of the lease.
As of September 30, 2019, maturities of lease liabilities were as follows:
|
| | | | | | |
($ in thousands) | Operating Leases | Finance Leases |
2020 | $ | 3,811 |
| $ | — |
|
2021 | 3,559 |
| — |
|
2022 | 3,391 |
| — |
|
2023 | 2,571 |
| — |
|
2024 | 1,243 |
| — |
|
Thereafter | 1,329 |
| — |
|
Total lease payments | $ | 15,904 |
| $ | — |
|
Less: Interest | 1,540 |
| — |
|
Total lease obligations | $ | 14,364 |
| $ | — |
|
Disclosures related to periods prior to adoption of ASU 2016-02
The Company adopted ASU 2016-02 using a modified retrospective transition approach on January 1, 2019 as noted in Note 1. As required, the following disclosure is provided for periods prior to adoption. Minimum lease commitments as of December 31, 2018 that have initial or remaining lease terms in excess of one year are as follows:
|
| | | |
($ in thousands) | Operating Leases |
2019 | $ | 3,670 |
|
2020 | 3,583 |
|
2021 | 3,418 |
|
2022 | 3,107 |
|
2023 | 2,288 |
|
Beyond 2023 | 2,065 |
|
9. ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
|
| | | | | | | | |
| | September 30, 2019 |
| | December 31, 2018 |
|
| | (thousands of dollars) |
Accrued state taxes | | 249 |
| | 210 |
|
Accrued property taxes | | 2,572 |
| | — |
|
Accrued payroll | | 812 |
| | 936 |
|
Accrued interest | | 32 |
| | 31 |
|
Accrued officer compensation | | 1,251 |
| | — |
|
Accrued restructuring & severance | | 37 |
| | 1,221 |
|
Accrued foreign taxes | | — |
| | 802 |
|
Other | | 2,317 |
| | 2,239 |
|
Total | | $ | 7,270 |
| | $ | 5,439 |
|
10. LIABILITIES AND LONG-TERM DEBT
Senior Secured Credit Facilities
As of September 30, 2019, we had $8.0 million in borrowings outstanding under the revolving credit facility (the "Revolving Facility") of our amended and restated credit agreement (as amended to the date hereof, the "ARC Agreement") and approximately $82.0 million in borrowings outstanding under the term loan facility of the ARC Agreement (the "Term Loan Facility" and, together with the Revolving Facility, the "Credit Facilities"). In addition, we had approximately $46 million of availability under our Revolving Facility at September 30, 2019. TOCCO’s ability to make additional borrowings under the Revolving Facility at September 30, 2019 was limited by, and in the future may be limited by our obligation to maintain compliance with the covenants contained in the ARC Agreement (including maintenance of a maximum Consolidated Leverage Ratio and minimum Consolidated Fixed Charge Coverage Ratio (each as defined in the ARC Agreement)).
On March 29, 2019, TOCCO, as borrower, and SHR, GSPL and TC, as guarantors, entered into a Sixth Amendment (“Sixth Amendment”) to the ARC Agreement. Pursuant to the Sixth Amendment, certain amendments were made to the terms of the ARC Agreement, including increasing the maximum Consolidated Leverage Ratio that must be maintained by TOCCO to 4.75 to 1.00 for the four fiscal quarters ended March 31, 2019, 4.50 to 1.00 for the four fiscal quarters ended June 30, 2019 and 4.00 to 1.00 for the four fiscal quarters ended September 30, 2019. For the four fiscal quarters ended December 31, 2019 and each fiscal quarter thereafter, TOCCO must maintain a Consolidated Leverage Ratio of 3.50 to 1.00 (subject to temporary increase following certain acquisitions).
The maturity date for the ARC Agreement is July 31, 2023. As of September 30, 2019, the effective interest rate for the Credit Facilities was 4.59%. The ARC Agreement contains a number of customary affirmative and negative covenants and we were in compliance with those covenants as of September 30, 2019.
For a summary of additional terms of the Credit Facilities, see Note 12, “Long-Term Debt and Long-Term Obligations” to the consolidated financial statements set forth in our Annual Report on Form 10-K for the year ended December 31, 2018.
Debt Issuance Costs
Debt issuance costs of approximately $0.9 million were incurred in connection with the fourth amendment to the ARC Agreement. Unamortized debt issuance costs of approximately $0.7 million and $0.8 million for the periods ended September 30, 2019 and December 31, 2018, have been netted against outstanding loan balances.
Long-term debt and long-term obligations are summarized as follows:
|
| | | | | |
| September 30, 2019 | | December 31, 2018 |
| (thousands of dollars) |
Revolving Facility | 8,000 |
| | 18,000 |
|
Term Loan Facility | 82,031 |
| | 85,312 |
|
Loan fees | (694 | ) | | (830 | ) |
Total long-term debt | 89,337 |
| | 102,482 |
|
| | | |
Less current portion including loan fees | 4,194 |
| | 4,194 |
|
| | | |
Total long-term debt, less current portion including loan fees | 85,143 |
| | 98,288 |
|
Subsequent to September 30, 2019, we made an optional principal payment of $5.0 million against the Revolving Facility, reducing the outstanding amount from $8.0 million to $3.0 million.
11. STOCK-BASED COMPENSATION
The Stock Option Plan for Key Employees, as well as, the Non-Employee Director Stock Option Plan (hereinafter collectively referred to as the “Stock Option Plans”), were approved by the Company’s stockholders in July 2008. The Stock Option Plans allot for the issuance of up to 1,000,000 shares.
The Trecora Resources Stock and Incentive Plan (the “Plan”) was approved by the Company’s stockholders in June 2012. As amended, the Plan allots for the issuance of up to 2.5 million shares in the form of stock options or restricted stock unit awards.
Stock-based compensation expense of approximately $0.3 million and $0.6 million was recognized during the three months and $0.9 million and $1.0 million for the nine months ended September 30, 2019 and 2018, respectively.
Stock Options and Warrant Awards
Stock options and warrants granted under the provisions of the Stock Option Plans permit the purchase of our common stock at exercise prices equal to the closing price of Company common stock on the date the options were granted. The options have terms of 10 years and generally vest ratably over terms of 4 to 5 years. There were no stock options or warrant awards issued during the three or nine months ended September 30, 2019 or 2018.
A summary of the status of the Company’s stock option and warrant awards is as follows:
|
| | | | | | | | | | | |
| Stock Options and Warrants |
| | Weighted Average Exercise Price Per Share |
| | Weighted Average Remaining Contractual Life | | Intrinsic Value (in thousands) |
|
Outstanding at January 1, 2019 | 745,830 |
| | 10.33 | | | | |
Granted | — |
| | — |
| | | | |
Exercised | (85,000 | ) | | 7.71 | | | | |
Forfeited | (173,830 | ) | | 10.10 |
| | | | |
Outstanding at September 30, 2019 | 487,000 |
| | 10.87 | | 3.8 | | $ | — |
|
Expected to vest | — |
| | | | | | $ | — |
|
Exercisable at September 30, 2019 | 487,000 |
| | 10.87 | | 3.8 | | $ | — |
|
The aggregate intrinsic value of options was calculated as the difference between the exercise price of the underlying awards and the quoted price of our common stock. At September 30, 2019, options to purchase approximately 0.1 million shares of common stock were in-the-money.
Since no options were granted, the weighted average grant-date fair value per share of options granted during the three months ended September 30, 2019 and 2018, respectively, was $0. During the nine months ended September 30, 2019 and 2018, the aggregate intrinsic value of options and warrants exercised was approximately $0.1 million and $0.6 million, respectively, determined as of the date of option exercise.
The Company received no cash from the exercise of options during the nine months ended September 30, 2019 and 2018. Of the 85,000 stock options exercised, the Company only issued approximately 11,000 shares due to cashless transactions. The tax benefit realized from the exercise was insignificant.
The Company has no non-vested options as of September 30, 2019.
Restricted Stock Unit Awards
Generally, restricted stock unit awards are granted annually to officers and directors of the Company under the provisions of the Plan. Restricted stock units are also granted ad hoc to attract or retain key personnel, and the terms and conditions under which these restricted stock units vest vary by award. The fair market value of restricted stock units granted is equal to the Company’s closing stock price on the date of grant. Restricted stock units granted generally vest ratably over periods ranging from 2.5 to 5 years. Certain awards also include vesting provisions based on performance metrics. Upon vesting, the restricted stock units are settled by issuing one share of Company common stock per unit.
A summary of the status of the Company's restricted stock units activity is as follows: |
| | | | |
| Shares of Restricted Stock Units |
| | Weighted Average Grant Date Price per Share |
Outstanding at January 1, 2019 | 405,675 |
| | 11.27 |
Granted | 190,615 |
| | 9.22 |
Forfeited | (123,434 | ) | | 10.82 |
Vested | (136,568 | ) | | 11.86 |
Outstanding at September 30, 2019 | 336,288 |
| | 9.83 |
Expected to vest | 336,288 |
| | |
12. INCOME TAXES
We file an income tax return in the U.S. federal jurisdiction and a margin tax return in Texas. We received notification from the Internal Revenue Service ("IRS") in November 2016 that the December 31, 2014, tax return was selected for audit. In April 2017, the audit was expanded to include the year ended December 31, 2015, to review the refund claim related to
research and development activities. We received notification from the IRS in March 2018 that the audit was complete. We also received notification that Texas will audit our R&D credit calculations for 2014 and 2015. We were notified by Texas that the audit has been temporarily suspended as the Comptroller's office reviews its audit process regarding R&D credits. We do not expect any changes related to the Texas audit. Tax returns for various jurisdictions remain open for examination for the years 2014 through 2018. As of September 30, 2019 and December 31, 2018, respectively, we recognized no adjustment for uncertain tax positions or related interest and penalties.
The effective tax rate varies from the federal statutory rate of 21%, primarily as a result of state tax expense, stock based compensation and a research and development credit for the three and nine months ended September 30, 2019 and 2018. We continue to maintain a valuation allowance against certain deferred tax assets, specifically for mining claims for PEVM, where realization is not certain.
13. NET INCOME PER COMMON SHARE
The following tables set forth the computation of basic and diluted net income (loss) per share for the three and nine months ended September 30, 2019 and 2018, respectively.
Net Income per Common Share - Continuing Operations
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, 2019 | | Three Months Ended
September 30, 2018 |
| | Income (Loss) |
| | Shares |
| | Per Share Amount |
| | Income (Loss) |
| | Shares |
| | Per Share Amount |
|
| | (in thousands, except per share amounts) |
Basic: | | | | | | | | | | | | |
Net income (loss) from continuing operations | | $ | 1,583 |
| | 24,717 |
| | $ | 0.06 |
| | $ | (716 | ) | | 24,483 |
| | $ | (0.03 | ) |
Unvested restricted stock units | | | | 336 |
| | | | | | 398 |
| | |
Dilutive stock options outstanding | | | | — |
| | | | | | 294 |
| | |
Diluted: | | | | | | | | | | | | |
Net income (loss) from continuing operations | | $ | 1,583 |
| | 25,053 |
| | $ | 0.06 |
| | $ | (716 | ) | | 25,175 |
| | $ | (0.03 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended
September 30, 2019 | | Nine Months Ended
September 30, 2018 |
| | Income |
| | Shares |
| | Per Share Amount |
| | Income |
| | Shares |
| | Per Share Amount |
|
| | (in thousands, except per share amounts) |
Basic: | |
