UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
---
Exchange Act of 1934
For the Quarterly Period Ended March 31, 1997
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 May 14, 1997 there were 1,322,052 shares of common stock, par value $0.50
per share, outstanding.
BARNWELL INDUSTRIES, INC.
-------------------------
AND SUBSIDIARIES
----------------
INDEX
-----
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
March 31, 1997 and September 30, 1996 (Unaudited)
Consolidated Statements of Operations and Retained Earnings
three and six months ended March 31, 1997 and 1996 (Unaudited)
Condensed Consolidated Statements of Cash Flows
six months ended March 31, 1997 and 1996 (Unaudited)
Notes to Condensed Consolidated Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II. OTHER INFORMATION:
Item 6. Exhibits and reports on Form 8-K
BARNWELL INDUSTRIES, INC.
-------------------------
AND SUBSIDIARIES
----------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(Unaudited, see Note A below)
ASSETS March 31, September 30,
- ------ 1997 1996
------------- -------------
CURRENT ASSETS:
Cash $ 3,415,000 $ 3,553,000
Accounts receivable 2,277,000 2,288,000
Other current assets 542,000 710,000
------------- ------------
TOTAL CURRENT ASSETS 6,234,000 6,551,000
INVESTMENT IN LAND 1,383,000 1,115,000
OTHER ASSETS 449,000 445,000
NET PROPERTY AND EQUIPMENT 23,610,000 22,669,000
------------- ------------
TOTAL ASSETS $ 31,676,000 $ 30,780,000
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 1,106,000 $ 1,694,000
Accrued expenses 898,000 678,000
Other current liabilities 1,445,000 815,000
------------- ------------
TOTAL CURRENT LIABILITIES 3,449,000 3,187,000
------------- ------------
LONG-TERM DEBT 11,100,000 11,100,000
------------- ------------
DEFERRED INCOME TAXES 5,193,000 5,090,000
------------- ------------
STOCKHOLDERS' EQUITY:
Common stock, par value $.50 per 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 14,951,000 14,121,000
Foreign currency translation adjustments and other (2,236,000) (1,937,000)
Treasury stock, at cost, 320,745 shares (4,705,000) (4,705,000)
------------- ------------
TOTAL STOCKHOLDERS' EQUITY 11,934,000 11,403,000
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 31,676,000 $ 30,780,000
============= ============
<FN>
Note A: The balance sheet at September 30, 1996 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
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CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
-----------------------------------------------------------
(Unaudited)
Three months ended Six months ended
March 31, March 31,
------------------------ -------------------------
1997 1996 1997 1996
---- ---- ---- ----
Revenues:
Oil and natural gas $ 3,400,000 $ 2,800,000 $ 6,440,000 $ 5,270,000
Contract drilling 230,000 670,000 740,000 1,410,000
Gas processing and other 290,000 190,000 650,000 400,000
----------- ----------- ----------- -----------
3,920,000 3,660,000 7,830,000 7,080,000
----------- ----------- ----------- -----------
Costs and expenses:
Oil and natural gas operating 869,000 826,000 1,749,000 1,746,000
Contract drilling operating 294,000 497,000 693,000 1,025,000
General and administrative 839,000 743,000 1,670,000 1,544,000
Depreciation, depletion and
amortization 620,000 744,000 1,448,000 1,611,000
Interest expense 146,000 158,000 328,000 370,000
Minority interest in earnings - 10,000 - -
----------- ----------- ----------- -----------
2,768,000 2,978,000 5,888,000 6,296,000
----------- ----------- ----------- -----------
Earnings before income taxes 1,152,000 682,000 1,942,000 784,000
Provision for income taxes 742,000 422,000 1,112,000 224,000
----------- ----------- ----------- -----------
NET EARNINGS 410,000 260,000 830,000 560,000
Retained earnings -
beginning of period 14,541,000 13,191,000 14,121,000 12,891,000
----------- ----------- ----------- -----------
Retained earnings - end of period $14,951,000 $13,451,000 $14,951,000 $13,451,000
=========== =========== =========== ===========
NET EARNINGS PER COMMON SHARE $ 0.31 $ 0.20 $ 0.63 $ 0.42
=========== =========== =========== ===========
<FN>
See Notes to Condensed Consolidated Financial Statements
BARNWELL INDUSTRIES, INC.
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AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Unaudited)
Six months ended
March 31,
-----------------------------
1997 1996
------------- ------------
Cash Flows from Operating Activities:
Net earnings $ 830,000 $ 560,000
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation, depletion, and amortization 1,448,000 1,611,000
Deferred income taxes 316,000 133,000
----------- -----------
2,594,000 2,304,000
All other 353,000 (557,000)
----------- -----------
Net cash provided by operating activities 2,947,000 1,747,000
----------- -----------
Cash Flows from Investing Activities:
Capital expenditures - oil and gas segment (3,653,000) (2,810,000)
Additions to investment in land (268,000) (314,000)
Capital expenditures - contract drilling and other (97,000) (52,000)
(Increase) decrease in long-term other assets (9,000) 207,000
Proceeds from sale of oil and natural gas properties 980,000 -
----------- -----------
Net cash used in investing activities (3,047,000) (2,969,000)
----------- -----------
Cash Flows from Financing Activities:
Net contributions from
joint venture minority interest owner - 100,000
----------- -----------
Net cash provided by financing activities - 100,000
----------- -----------
Effect of exchange rate changes on cash (38,000) (26,000)
----------- -----------
Net decrease in cash (138,000) (1,148,000)
Cash at beginning of period 3,553,000 2,976,000
----------- -----------
Cash at end of period $ 3,415,000 $ 1,828,000
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amounts capitalized) $ 290,000 $ 383,000
=========== ===========
Income taxes $ 590,000 $ 143,000
=========== ===========
<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 March 31, 1997, the
Consolidated Statements of Operations and Retained Earnings for the three and
six months ended March 31, 1997 and 1996, and the Condensed Consolidated
Statements of Cash Flows for the six months ended March 31, 1997 and 1996 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
cash flows at March 31, 1997 and for all periods presented have been made. The
Condensed Consolidated Balance Sheet as of September 30, 1996 has been derived
from audited financial statements.
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, 1996 annual
report to stockholders. The results of operations for the period ended
March 31, 1997 are not necessarily indicative of the operating results for the
full year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses and the disclosure of contingent assets and liabilities. Actual
results could differ significantly from those estimates.
2. EARNINGS PER COMMON SHARE
-------------------------
Earnings per share are based on weighted average outstanding common shares
of 1,326,121 and 1,325,912, respectively, for the three and six months ended
March 31, 1997 and 1,324,373 and 1,324,593, respectively, for the three and six
months ended March 31, 1996, after consideration of the dilutive effect of
outstanding stock options and convertible securities.
3. INCOME TAXES
------------
The components of the provision for income taxes for the three and six
months ended March 31, 1997 and 1996 are as follows:
Three months ended Six months ended
March 31, March 31,
------------------------- -------------------------
1997 1996 1997 1996
--------- --------- ---------- ----------
Current - U.S. $ (15,000) $ 20,000 $ - $ 25,000
Current - Foreign 500,000 26,000 796,000 66,000
--------- --------- ---------- ----------
Total - Current 485,000 46,000 796,000 91,000
--------- --------- ---------- ----------
Deferred - U.S. (10,000) (20,000) (25,000) (25,000)
Deferred - Foreign 267,000 396,000 341,000 158,000
--------- --------- ---------- ----------
Total - Deferred 257,000 376,000 316,000 133,000
--------- --------- ---------- ----------
$ 742,000 $ 422,000 $1,112,000 $ 224,000
========= ========= ========== ==========
In the first quarter of fiscal 1996, officials of the U.S. and Canada
formally ratified a new agreement amending the Canada-U.S. Tax Treaty that
reduced the Canadian Branch tax. This change resulted in the recognition of a
deferred income tax benefit of $290,000 in the six months ended March 31, 1996.
4. STOCK OPTIONS
-------------
The Company adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") effective October 1, 1996 and intends to provide the
required disclosures in its financial statements for the year ending September
30, 1997. Adoption of the fair value method of measuring stock-based
compensation prescribed by SFAS 123 would not have had an impact on the
Company's net earnings or earnings per share for the three and six months ended
March 31, 1997 and 1996.
There were no stock option transactions during the three and six months
ended March 31, 1997 and 1996.
5. IMPACT OF RECENTLY ISSUED PRONOUNCEMENTS
----------------------------------------
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share." SFAS
No. 128 is effective for both interim and annual periods ending after December
15, 1997. The Company will adopt SFAS No. 128 in the first quarter of fiscal
1998. SFAS No. 128 requires the presentation of "Basic" earnings per share,
representing income available to common shareholders divided by the weighted
average number of common shares outstanding for the period, and "Diluted"
earnings per share, which is similar to the current presentation of fully
diluted earnings per share. SFAS No. 128 requires restatement of all prior
period earnings per share data presented. Management does not expect adoption
of SFAS No. 128 to have a material impact on the Company's reported earnings per
share, financial position or results of operations.
Item 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
FORWARD-LOOKING STATEMENTS
- --------------------------
This Form 10-QSB contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, including various forecasts, projections of the Company's
future performance, statements of the Company's plans and objectives or other
similar types of information. Although the Company believes that its
expectations are based on reasonable assumptions, it cannot assure that the
expectations contained in such forward-looking statements will be achieved.
Such statements involve risks, uncertainties and assumptions which could cause
actual results to differ materially from those contained in such statements.
These forward-looking statements speak only as of the date of filing of this
Form 10-QSB, and the Company expressly disclaims any obligation or undertaking
to publicly release any updates or revisions to any forward-looking statements
contained herein.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash flows from operations for the six months ended March 31, 1997 totaled
$2,947,000, a $1,200,000 or 69% increase over cash flows from operations for the
same period in the prior year. $910,000 of the increase was primarily
attributable to an increase in collections of receivables, as compared to the
same period in the prior year. The remaining $290,000 of the increase was due
primarily to increased earnings generated by the Company's oil and natural gas
segment.
In January 1997, the Company exchanged a portion of its approximately 17.5%
working interest in a developed natural gas property and a gas plant in the
Thornbury area for a working interest in undeveloped lands in the Thornbury area
plus approximately $830,000 in cash. As a result, the Company's interest in
both the developed and undeveloped properties in the Thornbury area is now
12.5%. No revenue or gain was recognized from this transaction; proceeds were
credited against the full cost pool. The Company spent approximately $930,000
for the six months ended March 31, 1997 towards the development of 11 wells
(1.38 net wells), all successful, and the completion of new compressor stations
at Thornbury.
During the six months ended March 31, 1997 the Company invested $940,000 in
a natural gas and oil exploration program in the Central Basin in Michigan. The
Company has a 5% working interest in this prospect. Additionally, the Company
raised approximately $1,575,000 from participants who purchased a 7.5% working
interest in this prospect. Under the terms of the agreements with the
participants, 30% of the participants' interest will revert to the Company after
the participants receive a return of their entire investment. To date, one well
has been drilled and five existing well bores have been re-entered with the goal
of producing natural gas. One is currently producing at the rate of
approximately 1.3 million cubic feet per day, one is unsuccessful, and four are
currently unproductive wells. The Company together with other working interest
owners are currently reviewing the completion protocol for these four wells,
specifically the fracture procedures, with a view towards re-entering one or
more of these four wells in the hope that a new fracture protocol may enable the
production of natural gas in commercial quantities. These four wells are not
included in the tables below.
During the six months ended March 31, 1997, the Company invested a total of
$3,653,000 in oil and natural gas properties, as compared to $2,810,000 during
the prior year period. For the six months ended March 31, 1997, the Company
participated in the drilling of 33 wells in Alberta, Canada, Michigan, North
Dakota and Louisiana as follows:
Productive Productive Productive
Oil Wells Gas Wells Oil / Gas Dry Holes Total Wells
----------- ------------ ------------ ----------- ------------
Exp. Dev. Exp. Dev. Exp. Dev. Exp. Dev. Exp. Dev.
---- ---- ---- ----- ----- ----- ---- ---- ---- -----
CANADA
- ------
Gross 2.00 8.00 1.00 11.00 - 3.00 - 3.00 3.00 25.00
Net 0.35 0.62 0.04 1.38 - 0.56 - 0.51 0.39 3.07
U.S.A.
- ------
Gross - 1.00 1.00 - - - 1.00 2.00 2.00 3.00
Net - 0.04 0.05 - - - 0.05 0.17 0.10 0.21
During the three months ended March 31, 1997, the Company invested
$2,111,000 in oil and natural gas properties, as compared to $1,247,000 during
the prior year's second quarter. For the three months ended March 31, 1997, the
Company participated in the drilling of 20 wells in Alberta, Canada, North
Dakota and Louisiana as follows:
Productive Productive Productive
Oil Wells Gas Wells Oil / Gas Dry Holes Total Wells
----------- ------------ ------------ ----------- ------------
Exp. Dev. Exp. Dev. Exp. Dev. Exp. Dev. Exp. Dev.
---- ---- ---- ----- ----- ---- ---- ---- ---- -----
CANADA
- ------
Gross 1.00 2.00 1.00 10.00 - 3.00 - - 2.00 15.00
Net 0.28 0.25 0.04 1.25 - 0.56 - - 0.32 2.06
U.S.A.
- ------
Gross - 1.00 - - - - - 2.00 - 3.00
Net - 0.04 - - - - - 0.17 - 0.21
"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.
The Company anticipates participating in the drilling of 10 to 16 wells
(2.8 to 3.8 net wells) in the last six months of the fiscal year. These
drilling activities are expected to increase oil and natural gas capital
expenditures to approximately $5,500,000 for fiscal 1997, approximately 9% more
than fiscal 1996's oil and natural gas capital expenditures.
The Company invested $268,000 towards the rezoning of the North Kona,
Hawaii, property interest held by Kaupulehu Developments, a 50.1% owned joint
venture, and invested $97,000 in contract drilling assets for the six months
ended March 31, 1997.
The Company's revolving credit facility with its bank was renewed through
March 1, 1998 for $14,000,000 ($19,000,000 Canadian dollars). This represents
an increase in the credit facility of approximately $3,000,000. The Company had
approximately $5,000,000 of available credit under the facility at
March 31, 1997. Cash at March 31, 1997 totaled $3,415,000 and working capital
totaled $2,785,000. The Company anticipates that it will fund its capital
expenditures for drilling for the remainder of the fiscal year with existing
cash balances and future cash flows from operations.
RESULTS OF OPERATIONS
- ---------------------
Oil and Natural Gas
- -------------------
SELECTED OPERATING STATISTICS
-----------------------------
Average Prices
-------------------------------------------------
Three months ended Increase
March 31, (Decrease)
------------------------- -----------------
1997 1996 $ %
---------- ---------- ----- ---
Oil (Bbls)* $ 19.93 $ 15.42 4.51 29
Liquids (Bbls)* $ 21.53 $ 13.77 7.76 56
Gas (MCF)** $ 1.87 $ 1.26 0.61 48
Six months ended Increase
March 31, (Decrease)
------------------------- -----------------
1997 1996 $ %
---------- ---------- ----- ---
Oil (Bbls)* $ 20.45 $ 15.25 5.20 34
Liquids (Bbls)* $ 20.30 $ 12.35 7.95 64
Gas (MCF)** $ 1.62 $ 1.09 0.53 49
Net Sales Volumes
------------------------------------------------
Three months ended Increase
March 31, (Decrease)
------------------------- ------------------
1997 1996 Units %
---------- ---------- --------- ---
Oil (Bbls)* 53,000 50,000 3,000 6
Liquids (Bbls)* 17,000 22,000 (5,000) (23)
Gas (MCF)** 904,000 1,130,000 (226,000) (20)
Six months ended Increase
March 31, (Decrease)
------------------------- ------------------
1997 1996 Units %
---------- ---------- --------- ---
Oil (Bbls)* 102,000 101,000 1,000 1
Liquids (Bbls)* 32,000 43,000 (11,000) (26)
Gas (MCF)** 1,970,000 2,411,000 (441,000) (18)
*Bbls = stock tank barrel equivalent to 42 U.S. gallons
**MCF = 1,000 cubic feet
Oil and natural gas revenues increased $600,000 (21%) for the three months
ended March 31, 1997, as compared to the same period in 1996, due to price
increases of 56%, 48% and 29% for natural gas liquids, natural gas and oil,
respectively. This increase due to higher prices was partially offset by
production decreases in natural gas liquids and natural gas of 23% and 20%,
respectively. The decline in natural gas and natural gas liquids production was
due to normal production declines in the Company's properties and to the
reduction of its interest in the Thornbury property due to the rationalization
of the Company's Thornbury property with surrounding undeveloped land.
Oil and natural gas revenues increased $1,170,000 (22%) for the six months
ended March 31, 1997, as compared to the same period in 1996, due to price
increases of 64%, 49% and 34% for natural gas liquids, natural gas and oil,
respectively. This increase due to higher prices was partially offset by
production decreases in natural gas liquids and natural gas of 26% and 18%,
respectively. The decline in natural gas and natural gas liquids production was
due to normal production declines in the Company's properties and to the
reduction of its interest in the Thornbury property due to the rationalization
of the Company's Thornbury property with surrounding undeveloped land.
Subsequent to March 31, 1997, natural gas prices have decreased
approximately 20%. As a result, the Company does not believe that its oil and
natural gas revenues in the second half of fiscal 1997 will increase at the same
rate, over the prior year periods, as they have during the first half of fiscal
1997.
Oil and natural gas operating expenses increased $43,000 (5%) for the three
months ended March 31, 1997, as compared to the same period in 1996, due to
operating expenses related to new prospects in Michigan and in the Rainbow and
Gilby areas of Alberta. This increase was partially offset by lower operating
expenses due to decreased natural gas production. Oil and natural gas operating
expenses were relatively comparable for the six months ended March 31, 1997, as
compared to the same period in 1996, increasing only by $3,000 (0.2%).
Contract Drilling
- -----------------
Contract drilling revenues and costs are associated with water well
drilling and water pump installation in Hawaii. Demand for such services is
dependent upon land development activities in Hawaii, which has decreased
significantly from prior years' levels. As such, contract drilling revenues
decreased $440,000 (66%) and $670,000 (48%), respectively, for the three and six
months ended March 31, 1997, as compared to the same periods in 1996.
Additionally, operating profit before depreciation decreased $237,000 (137%) to
an operating loss of $64,000 for the three months ended March 31, 1997, and
decreased $338,000 (88%) for the six months ended March 31, 1997, as compared to
the same periods in 1996. Included in contract drilling revenues for the six
months ended March 31, 1997 is $230,000 of revenues resulting from the receipt
of payment in full on a well drilling contract which was completed in 1994; the
contract had been discounted due to risks associated with the length of time
between completion of the contract and the due date of the final payment. Gross
margin before depreciation related to this item amounted to $150,000 for the six
months ended March 31, 1997. The Company does not expect operating profit
before depreciation for the last six months of fiscal 1997 to improve from that
of the current six month period.
Gas Processing and Other
- ------------------------
Gas processing and other income increased $100,000 (53%) and $250,000 (63%)
for the three and six months ended March 31, 1997, respectively, as compared to
the same period in 1996, due to an increase in non-unit gas processed at the
Dunvegan gas plant.
General and Administrative Expenses
- -----------------------------------
General and administrative expenses increased $96,000 (13%) and $126,000
(8%) for the three and six months ended March 31, 1997, respectively, as
compared to the same periods in 1996, due to increased personnel costs and
general inflationary increases.
Depreciation, Depletion and Amortization
- ----------------------------------------
Depreciation, depletion and amortization decreased $124,000 (17%) and
$163,000 (10%) for the three and six months ended March 31, 1997, respectively,
as compared to the same periods in 1996, due to lower natural gas and natural
gas liquids production in the current year periods.
Interest Expense
- ----------------
Interest expense decreased $12,000 (8%) and $42,000 (11%), for the three
and six months ended March 31, 1997, respectively, as compared to the same
periods in 1996, due primarily to higher capitalized interest costs related to
the Company's development of land in Hawaii and natural gas and oil properties
in the Central Basin in Michigan.
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
None.
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
Date: May 14, 1997