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 June 30, 1995
Transition Report Pursuant to Section 13 or 15(d) of the Securities
---
Exchange Act of 1934
COMMISSION FILE NUMBER 1-5103
BARNWELL INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 72-0496921
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1100 ALAKEA STREET, SUITE 2900, HONOLULU, HAWAII 96813
(Address of principal executive offices) (Zip code)
(808) 531-8400
(Registrant's telephone number, including area code)
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
requirement for the past 90 days.
Yes X No
----- -----
As of August 10, 1995 there were 1,322,052 shares of common stock, par value
$0.50, outstanding.
BARNWELL INDUSTRIES, INC.
-------------------------
AND SUBSIDIARIES
----------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
June 30, September 30,
1995 1994
------------ -------------
ASSETS (UNAUDITED) (See Note A
- - ------ below)
CURRENT ASSETS:
Cash $ 4,126,000 $ 4,198,000
Trading securities 83,000 948,000
Accounts receivable 2,872,000 2,719,000
Other current assets 755,000 828,000
------------ ------------
TOTAL CURRENT ASSETS 7,836,000 8,693,000
INVESTMENT IN LAND 108,000 -
OTHER ASSETS 1,106,000 903,000
NET PROPERTY AND EQUIPMENT 20,855,000 21,026,000
------------ ------------
TOTAL ASSETS $ 29,905,000 $ 30,622,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- - ------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 1,260,000 $ 1,536,000
Accrued expenses 666,000 840,000
Other current liabilities 922,000 1,396,000
------------ ------------
TOTAL CURRENT LIABILITIES 2,848,000 3,772,000
LONG-TERM DEBT 12,600,000 10,600,000
DEFERRED INCOME TAXES 4,766,000 6,468,000
STOCKHOLDERS' EQUITY:
Common stock, par value $.50 a share:
Authorized, 4,000,000 shares
Issued, 1,642,797 shares 821,000 821,000
Additional paid-in capital 3,103,000 3,103,000
Retained earnings 12,721,000 12,439,000
Foreign currency translation adjustments and other (2,249,000) (1,876,000)
Treasury stock, at cost, 320,745 shares (4,705,000) (4,705,000)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 9,691,000 9,782,000
------------ ------------
TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY $ 29,905,000 $ 30,622,000
============ ============
<FN>
Note A:The balance sheet at September 30, 1994 has been taken from the
audited financial statements at that date and condensed.
See Notes to Condensed Consolidated Financial Statements
BARNWELL INDUSTRIES, INC.
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AND SUBSIDIARIES
----------------
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
-----------------------------------------------------------
(Unaudited)
Three months ended Nine months ended
June 30, June 30,
-------------------------- -------------------------
1995 1994 1995 1994
------------ ----------- ------------ -----------
Revenues:
Oil and gas $ 2,490,000 $ 3,120,000 $ 7,780,000 $11,290,000
Contract drilling 670,000 1,110,000 3,170,000 3,960,000
Interest income and other 130,000 260,000 460,000 620,000
----------- ----------- ----------- -----------
3,290,000 4,490,000 11,410,000 15,870,000
----------- ----------- ----------- -----------
Cost and expenses:
Oil and gas operating 795,000 706,000 2,561,000 2,290,000
Contract drilling operating 521,000 1,062,000 2,316,000 3,247,000
General and administrative 791,000 1,001,000 2,882,000 3,103,000
Depreciation, depletion
and amortization 708,000 587,000 2,191,000 2,011,000
Interest expense 201,000 126,000 535,000 365,000
Minority interest in losses (18,000) (47,000) (262,000) (181,000)
----------- ----------- ----------- -----------
2,998,000 3,435,000 10,223,000 10,835,000
----------- ----------- ----------- -----------
Earnings before income taxes 292,000 1,055,000 1,187,000 5,035,000
Provision for income taxes 152,000 685,000 707,000 2,845,000
----------- ----------- ----------- -----------
NET EARNINGS 140,000 370,000 480,000 2,190,000
Retained earnings
- - - beginning of period 12,581,000 11,871,000 12,439,000 10,183,000
Cash dividends declared - (66,000) (198,000) (198,000)
----------- ----------- ----------- -----------
Retained earnings
- - - end of period $12,721,000 $12,175,000 $12,721,000 $12,175,000
=========== =========== =========== ===========
NET EARNINGS PER COMMON SHARE $ 0.11 $ 0.28 $ 0.36 $ 1.66
====== ====== ====== ======
Cash dividends declared per share $ - $ 0.05 $ 0.15 $ 0.15
====== ====== ====== ======
<FN>
See Notes to Condensed Consolidated Financial Statements
BARNWELL INDUSTRIES, INC.
-------------------------
AND SUBSIDIARIES
----------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Unaudited)
Nine months ended
June 30,
-------------------------------
1995 1994
------------- -------------
Cash Flows from Operating Activities:
Net earnings $ 480,000 $ 2,190,000
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation, depletion, and amortization 2,191,000 2,011,000
Deferred income taxes (1,313,000) 426,000
Minority interest in losses (262,000) (181,000)
----------- -----------
1,096,000 4,446,000
All other (383,000) (1,517,000)
----------- -----------
Net cash provided by operating activities 713,000 2,929,000
----------- -----------
Cash Flows from Investing Activities:
Capital expenditures - oil and gas segment (2,260,000) (3,784,000)
Capital expenditures - contract drilling
segment and other (144,000) (269,000)
Additions to investment in land (108,000) -
Increase in long-term other assets (9,000) (94,000)
---------- -----------
Net cash used in investing activities (2,521,000) (4,147,000)
----------- -----------
Cash Flows from Financing Activities:
Long-term debt borrowings 2,000,000 -
Payment of dividends (198,000) (198,000)
----------- -----------
Net cash provided by (used in)
financing activities 1,802,000 (198,000)
----------- -----------
Effect of exchange rate changes on cash (66,000) (26,000)
----------- -----------
Net decrease in cash (72,000) (1,442,000)
Cash at beginning of period 4,198,000 5,835,000
----------- -----------
Cash at end of period $ 4,126,000 $ 4,393,000
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 544,000 $ 343,000
=========== ===========
Income taxes $ 2,971,000 $ 1,589,000
=========== ===========
<FN>
See Notes to Condensed Consolidated Financial Statements
BARNWELL INDUSTRIES, INC.
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AND SUBSIDIARIES
----------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------
The Condensed Consolidated Balance Sheet as of June 30, 1995, the
Consolidated Statements of Operations and Retained Earnings for the three and
nine months ended June 30, 1995 and 1994, and the Condensed Consolidated
Statements of Cash Flows for the nine months ended June 30, 1995 and 1994 have
been prepared by Barnwell Industries, Inc. (referred to herein together with its
subsidiaries as "Barnwell" or the "Company") without audit. In the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of operations and
changes in cash flows at June 30, 1995 and for all periods presented have been
made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these condensed
consolidated financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's September 30, 1994 Annual
Report filed on Form 10-K. The results of operations for the periods ended
June 30, 1995 are not necessarily indicative of the operating results for the
full year.
2. LONG-TERM DEBT BORROWINGS
-------------------------
In June 1995, the Company issued $2,000,000 of convertible notes due
July 1, 2003. $400,000 of such notes were issued to Morton H. Kinzler,
President, Chief Executive Officer and 19% shareholder of the Company, $200,000
were issued to Martin Anderson, a director and 8% shareholder, $200,000 were
issued to Joseph E. Magaro, a 16% shareholder, $100,000 were issued to
R. David Sudarsky, a 9% shareholder, and $1,000,000 were issued to Ingalls and
Snyder, an 8% shareholder. The notes are payable in 20 consecutive equal
quarterly installments beginning in October 1998. Interest is payable quarterly
at an initial rate of 10% per annum until October 1, 1995, after which the
interest rate will be adjusted quarterly to the greater of 10% per annum or 1%
over the prime rate of interest. The notes are convertible into shares of the
Company's common stock at a price of $20.00 per share, subject to adjustment for
certain events including a stock split of, or stock dividend on, the common
stock. The notes are redeemable, at the option of the Company, at any time
after July 1, 1997 at premiums declining 1% annually from 5% to 0% of the
principal amount of the notes.
The notes have not been registered under the Securities Act of 1933, as
amended, and may not be offered or sold in the United States absent registration
or an applicable exemption from registration requirements.
3. NEW STATEMENT OF FINANCIAL ACCOUNTING STANDARDS
-----------------------------------------------
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-
Lived Assets and Long-Lived Assets To Be Disposed Of." This Statement is
effective for years beginning after December 15, 1995 and applies to long-lived
assets and certain identifiable intangible assets whether held and used or to be
disposed of.
The Statement requires that a company review long-lived assets to be held
and used for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. If the future cash
flows expected to result from use of the asset (undiscounted and without
interest charges) are less than the carrying amount of the asset, a company will
recognize an impairment loss. Such impairment loss is measured as the amount by
which the carrying amount of the asset exceeds the fair value of the asset.
The Statement also requires that long-lived assets to be disposed of be
reported at the lower of the asset carrying amount or fair value, less cost to
sell.
The Company has not yet determined when it will adopt the Statement and has
not estimated the impact that adoption of the Statement is expected to have on
its financial statements.
4. EARNINGS PER COMMON SHARE
-------------------------
Earnings per share are based on the weighted average number of outstanding
common shares during the period. The primary weighted average number of
outstanding shares for the quarters and nine months ended June 30, 1995 and 1994
was 1,322,052. Fully diluted earnings per share is not presented in that the
dilution in each period is less than 3%.
5. INVESTMENT IN LAND
------------------
The option under which Kaupulehu Makai Venture could have acquired
Kaupulehu Developments' leasehold interest in approximately 2,180 leasehold
acres of conservation zoned property in North Kona, Hawaii expired, unexercised,
on April 30, 1995. Accordingly, qualifying direct and indirect costs associated
with the rezoning of approximately 900 acres of the aforementioned 2,180 acres
of conservation zoned property to make them compatible with the development of
golf course and residential sites incurred subsequent to April 30, 1995 are
capitalized as additions to investment in land. Kaupulehu Makai Venture, a
joint venture of which the managing general partner is an affiliated company
of Kajima Corporation of Japan, is developing a golf course and Four Seasons
resort project adjacent to the 2,180 acres held by Kaupulehu Developments.
Kaupulehu Developments is a joint venture in which the Company has a 50.1%
interest.
At June 30, 1995, in addition to the 2,180 leasehold acres and capitalized
rezoning costs described above, Kaupulehu Developments also has development
rights with respect to lands zoned residential, all under option to Kaupulehu
Makai Venture. This option, if exercised, entitles the Company to receive
$16,157,000 in connection with its 50.1% interest in Kaupulehu Developments.
The residential site option expires on April 30, 2007; however, this option will
expire sooner unless 20% of the consideration is received on or before
December 31, 1999 and 50% of the then remaining consideration is received on or
before April 30, 2003. There is no assurance that this option or any portion of
it will be exercised.
6. INCOME TAXES
------------
The components of the provision for income taxes for the three and nine
months ended June 30, 1995 and 1994 are as follows:
Three months ended Nine months ended
June 30, June 30,
--------------------------- ---------------------------
1995 1994 1995 1994
------------ ---------- ------------ ------------
Current - U.S. $ 1,440,000 $ 80,000 $ 1,490,000 $ 160,000
Current - Foreign 252,000 528,000 530,000 2,259,000
----------- --------- ----------- -----------
Total - Current 1,692,000 608,000 2,020,000 2,419,000
----------- --------- ----------- -----------
Deferred - U.S. (1,470,000) (30,000) (1,520,000) (30,000)
Deferred - Foreign (70,000) 107,000 207,000 456,000
----------- --------- ----------- -----------
Total - Deferred (1,540,000) 77,000 (1,313,000) 426,000
----------- --------- ----------- -----------
$ 152,000 $ 685,000 $ 707,000 $ 2,845,000
=========== ========= =========== ===========
Item 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
Net cash flows provided by operating activities for the nine months ended
June 30, 1995 totaled $713,000, as compared to $2,929,000 for the nine months
ended June 30, 1994, a decrease of $2,216,000. The decrease was due to the
receipt of $880,000, net of income taxes, in the prior year period as a result
of the termination of gas purchase, sales and transportation agreements with
Alberta and Southern Gas Co., Ltd. No such payment was received in the current
period. The remaining decrease was due to decreased operating profit resulting
from lower natural gas prices and the payment of $1,350,000 in estimated income
taxes in June 1995 related to the April 30, 1995 expiration of the unexercised
option under which Kaupulehu Makai Venture could have acquired Kaupulehu
Developments' leasehold interest in conservation zoned property in North Kona,
Hawaii.
The Company invested $2,260,000 in the exploration and development of oil
and gas properties, $144,000 in contract drilling and other capital expenditures
and $108,000 in additions to investment in land. For the nine months ended June
30, 1995 the Company participated in the drilling of three successful oil wells
in North Dakota and twenty-two wells Alberta. The results of the Alberta wells
were as follows: seven gas wells (net 1.26 wells), four oil wells (net 0.49
well) and eleven unsuccessful wells (1.80 net wells), seven of which were
exploratory. Additionally, the Company participated in four gas well
recompletions (0.51 net well) and two oil well recompletions (0.32 net well) in
Alberta. "Net well" refers to Barnwell's aggregate participating interest in
a given number of gross wells. For example, a 50% interest in a well represents
one gross well, but 0.50 net well. The gross figure includes Barnwell's
interest, as well as the portion owned by others.
In North Dakota, the Company invested $130,000 towards the drilling of one
successful oil well (0.12 net well) and two successful offset oil wells (0.23
net well). Additionally, the Company has invested in two more North Dakota oil
prospects covering 2,028 gross acres (253 net acres) with three-dimensional
seismic surveys planned for the last half of calendar year 1995.
In June 1995, the Company issued $2,000,000 of convertible notes due
July 1, 2003. The notes are payable in 20 consecutive equal quarterly
installments beginning in October 1998. Interest is payable quarterly at an
initial rate of 10% per annum until October 1, 1995, after which the interest
rate will be adjusted quarterly to the greater of 10% per annum or 1% over the
prime rate of interest. The notes are convertible into shares of the Company's
common stock at a price of $20.00 per share, subject to adjustment for certain
events including a stock split of, or stock dividend on, the common stock. The
notes are redeemable, at the option of the Company, at any time after July 1,
1997 at premiums declining 1% annually from 5% to 0% of the principal amount of
the notes. The issuance of these debentures will enable the Company to expand
its oil and gas development program in the future.
The Company's revolving credit facility with its Canadian bank has been
renewed through March 1, 1996 for $16,000,000 Canadian dollars or its U.S.
dollar equivalent of approximately $11,600,000. If after March 1996 the
facility is converted to a six-year term loan, the Company has agreed to the
following repayment schedule of the then outstanding balance: year 1 - 26%;
year 2 - 24%; year 3 - 17%; year 4 - 15%; year 5 - 12% and year 6 - 6%. The
Company had approximately $1,000,000 of available credit under the facility at
June 30, 1995.
The Company also declared and paid dividends totaling $198,000 during the
first half of the current fiscal year. Due to the decline in natural gas
prices, the Company has elected to suspend the payment of dividends.
RESULTS OF OPERATIONS
- - ---------------------
Oil and Gas
- - -----------
SELECTED OPERATING STATISTICS
-----------------------------
Average Prices
-----------------------------------------------------------------
Three months ended Nine months ended
June 30, June 30,
---------------------------- -------------------------------
1995 1994 1995 1994
---------- ------------- --------------- -----------
Oil (Bbls)* $ 17.86 $ 14.33 $ 15.73 $ 12.69
Liquids (Bbls)* $ 12.17 $ 8.78 $ 11.32 $ 8.91
Gas (MCF)** $ 0.98 $ 1.56 $ 1.06 $ 1.64
Net Sales Volumes
--------------------------------------------------------------------
Three months ended Nine months ended
June 30, June 30,
------------------------------- --------------------------
1995 1994 1995 1994
--------- --------- --------- ---------
Oil (Bbls)* 48,000 43,000 151,000 141,000
Liquids (Bbls)* 29,000 24,000 71,000 73,000
Gas (MCF)** 1,039,000 1,164,000 3,473,000 3,644,000
*Bbls = stock tank barrel equivalent to 42 U.S. gallons
**MCF = 1,000 cubic feet
Oil and gas revenues decreased $630,000 (20%) and $3,510,000 (31%) for the
three and nine months ended June 30, 1995, respectively, as compared to the same
periods in 1994. A $1,586,000 decontracting payment, received from Alberta and
Southern Gas Co., Ltd. in November 1993, was included in oil and gas revenues
in the prior year's nine month period. There was no such payment received in
the nine months ended June 30, 1995. This decontracting payment was the result
of the termination of the Company's Dunvegan natural gas purchase, sales and
transportation agreements with Alberta and Southern Gas Co., Ltd., effective
November 1, 1993.
The remaining decreases were primarily attributable to 37% and 35%
decreases in natural gas prices for the three and nine months ended
June 30, 1995, respectively, as compared to the same periods in the prior year.
Additionally, the Province of Alberta's royalty tax credit program changed
effective January 1, 1995, reducing net earnings for the three months and nine
months ended June 30, 1995 by approximately $80,000 and $165,000, respectively;
net earnings in the fourth quarter of fiscal 1995 will be similarly affected.
These decreases were partially offset by 25% and 24% increases in oil prices and
12% and 7% increases in oil volumes sold for the three and nine months ended
June 30, 1995, respectively, as compared to the same periods of last year. The
increase in oil production in the current periods is partially attributable to
properties in North Dakota where the Company now has an interest in four
producing oil wells.
Oil and gas expenses increased $89,000 (13%) and $271,000 (12%) for the
three and nine months ended June 30, 1995, respectively, as compared to the same
periods in 1994, due to new production in the Dunvegan, Lacombe and Pembina
areas.
Contract Drilling
- - -----------------
Although contract drilling revenues for the three and nine months ended
June 30, 1995 decreased $440,000 (40%) and $790,000 (20%), respectively,
contract drilling gross margin before depreciation increased $101,000 (210%) and
$141,000 (20%), respectively, as compared to the same periods in the prior year.
This is because more of the current periods' revenues were generated by water
well drilling operations than pump installation operations. Well drilling
contracts generally have higher gross margins than pump installation contracts.
Water well drilling revenues increased $201,000 and $469,000 for the three and
nine months ended June 30, 1995, and pump installation revenues decreased
approximately $737,000 and $1,355,000 for the three and nine months ended
June 30, 1995, respectively, as compared to the same periods in the prior year.
General and Administrative Expenses
- - -----------------------------------
General and administrative expenses decreased $210,000 (21%) and $221,000
(7%) for the three and nine months ended June 30, 1995, respectively, as
compared to the same periods in 1994. The decreases were due to decreased
personnel costs, decreases in certain rezoning costs incurred by Kaupulehu
Developments and non-recurring costs associated with the relocation of the
corporate office in Honolulu, Hawaii in the third quarter of 1994.
Interest Expense
- - ----------------
Interest expense increased $75,000 (60%) and $170,000 (47%) for the three
and nine months ended June 30, 1995, respectively, as compared to the same
periods in 1994. The increases for both periods were due to higher average
interest rates on the Canadian credit facility borrowings and interest on the
convertible notes issued in June 1995.
Depreciation, Depletion and Amortization
- - ----------------------------------------
Depreciation, depletion and amortization increased $121,000 (21%) and
$180,000 (9%) for the three and nine months ended June 30, 1995, respectively,
as compared to the same periods in 1994. The increases for both periods were
due to an increase in depletion, partially offset by a decrease in depreciation.
Depletion increased due to a higher depletion rate resulting from the Company's
increased capital expenditures. Depreciation decreased because certain water
well drilling assets became fully depreciated during the latter portion of the
prior fiscal year.
New Statement of Financial Accounting Standards
- - -----------------------------------------------
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-
Lived Assets and Long-Lived Assets To Be Disposed Of." This Statement is
effective for years beginning after December 15, 1995 and applies to long-lived
assets and certain identifiable intangible assets whether held and used or to be
disposed of.
The Statement requires that a company review long-lived assets to be held
and used for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. If the future cash
flows expected to result from use of the asset (undiscounted and without
interest charges) are less than the carrying amount of the asset, a company will
recognize an impairment loss. Such impairment loss is measured as the amount by
which the carrying amount of the asset exceeds the fair value of the asset.
The Statement also requires that long-lived assets to be disposed of be
reported at the lower of the asset carrying amount or fair value, less cost to
sell.
The Company has not yet determined when it will adopt the Statement and has
not estimated the impact that adoption of the Statement is expected to have on
its financial statements.
PART II. OTHER INFORMATION
Item 6.Exhibits and reports on Form 8-K
--------------------------------
(a) Exhibits - None
(b) One report was filed on Form 8-K during the three months ended
June 30, 1995:
Form 8-K, dated June 9, 1995, reported on the issuance of $2,000,000 of
convertible notes due July 1, 2003.
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BARNWELL INDUSTRIES, INC.
-------------------------
(Registrant)
/s/ Russell M. Gifford
-------------------------
Russell M. Gifford
Vice President and
Chief Financial Officer