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 December 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 small business issuer 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
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
--- ---
As of February 5, 1998 there were 1,322,052 shares of common stock, par value
$0.50, outstanding.
Transitional Small Business Disclosure Format Yes No X
--- ---
<PAGE>
BARNWELL INDUSTRIES, INC.
-------------------------
AND SUBSIDIARIES
----------------
INDEX
-----
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
December 31, 1997 and September 30, 1997 (Unaudited)
Consolidated Statements of Operations and Retained Earnings
three months ended December 31, 1997 and 1996 (Unaudited)
Condensed Consolidated Statements of Cash Flows
three months ended December 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
<PAGE>
<TABLE>
<CAPTION>
BARNWELL INDUSTRIES, INC.
-------------------------
AND SUBSIDIARIES
----------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(Unaudited, see Note A below)
December 31, September 30,
ASSETS 1997 1997
- ------ ------------ -------------
CURRENT ASSETS:
<S> <C> <C>
Cash $ 2,270,000 $ 4,402,000
Accounts receivable 1,458,000 2,065,000
Other current assets 798,000 485,000
------------ -----------
TOTAL CURRENT ASSETS 4,526,000 6,952,000
------------ -----------
INVESTMENT IN LAND 2,007,000 1,848,000
------------ -----------
OTHER ASSETS 480,000 491,000
------------ -----------
NET PROPERTY AND EQUIPMENT 25,227,000 25,107,000
------------ -----------
TOTAL ASSETS $ 32,240,000 $34,398,000
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 1,673,000 $ 3,180,000
Accrued expenses 1,005,000 1,213,000
Other current liabilities 955,000 954,000
------------ -----------
TOTAL CURRENT LIABILITIES 3,633,000 5,347,000
------------ -----------
LONG-TERM DEBT 11,000,000 11,100,000
------------ -----------
DEFERRED INCOME TAXES 5,711,000 5,801,000
------------ -----------
<PAGE>
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 15,291,000 15,171,000
Foreign currency translation adjustments and other (2,614,000) (2,240,000)
Treasury stock, at cost, 320,745 shares (4,705,000) (4,705,000)
------------ -----------
TOTAL STOCKHOLDERS' EQUITY 11,896,000 12,150,000
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 32,240,000 $34,398,000
============ ===========
<FN>
Note A: The condensed consolidated balance sheet at September 30, 1997 has been
derived from the audited financial statements at that date.
See Notes to Condensed Consolidated Financial Statements
</FN>
</TABLE>
<PAGE>
BARNWELL INDUSTRIES, INC.
-------------------------
AND SUBSIDIARIES
----------------
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
-----------------------------------------------------------
(Unaudited)
Three months ended
December 31,
-----------------------------
1997 1996
------------ ------------
Revenues:
Oil and natural gas $ 2,930,000 $ 3,040,000
Contract drilling 180,000 510,000
Gas processing and other 260,000 360,000
------------ ------------
3,370,000 3,910,000
------------ ------------
Costs and expenses:
Oil and natural gas operating 808,000 880,000
Contract drilling operating 259,000 399,000
General and administrative 792,000 831,000
Depreciation, depletion and amortization 796,000 828,000
Interest expense 157,000 182,000
------------ ------------
2,812,000 3,120,000
------------ ------------
Earnings before income taxes 558,000 790,000
Income tax provision 438,000 370,000
------------ ------------
NET EARNINGS 120,000 420,000
Retained earnings - beginning of period 15,171,000 14,121,000
------------ ------------
Retained earnings - end of period $ 15,291,000 $ 14,541,000
============ ============
BASIC AND DILUTED EARNINGS PER COMMON SHARE $0.09 $0.32
===== =====
See Notes to Condensed Consolidated Financial Statements
<PAGE>
BARNWELL INDUSTRIES, INC.
-------------------------
AND SUBSIDIARIES
----------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Unaudited)
Three months ended
December 31,
-------------------------
1997 1996
----------- -----------
Cash Flows from Operating Activities:
Net earnings $ 120,000 $ 420,000
Adjustments to reconcile net earnings to net
cash (used in) provided by operating activities:
Depreciation, depletion, and amortization 796,000 828,000
Deferred income taxes 141,000 59,000
----------- -----------
1,057,000 1,307,000
(Decrease) increase from changes
in current assets and liabilities (1,287,000) 91,000
----------- -----------
Net cash (used in)
provided by operating activities (230,000) 1,398,000
----------- -----------
Cash Flows from Investing Activities:
Capital expenditures - oil and natural gas (1,574,000) (1,542,000)
Additions to investment in land (159,000) (104,000)
Capital expenditures - contract drilling and other (137,000) (20,000)
Decrease in long-term receivables and other assets 5,000 1,000
----------- -----------
Net cash used in investing activities (1,865,000) (1,665,000)
----------- -----------
Effect of exchange rate changes on cash (37,000) (111,000)
----------- -----------
Net decrease in cash (2,132,000) (378,000)
Cash at beginning of period 4,402,000 3,553,000
----------- -----------
Cash at end of period $ 2,270,000 $ 3,175,000
=========== ===========
<PAGE>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amounts capitalized) $ 107,000 $ 169,000
=========== ===========
Income taxes $ 229,000 $ 243,000
=========== ===========
See Notes to Condensed Consolidated Financial Statements
BARNWELL INDUSTRIES, INC.
-------------------------
AND SUBSIDIARIES
----------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------
The Condensed Consolidated Balance Sheet as of December 31, 1997, and the
Consolidated Statements of Operations and Retained Earnings and the Condensed
Consolidated Statements of Cash Flows for the three months ended December 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 changes in cash flows at December 31, 1997 and for all
periods presented have been made. The Condensed Consolidated Balance Sheet as of
September 30, 1997 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, 1997 annual
report to stockholders. The results of operations for the period ended December
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.
<PAGE>
2. EARNINGS PER COMMON SHARE
-------------------------
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share," effective October 1, 1997. The
new standard replaced the presentation of primary and fully diluted earnings per
share ("EPS") with a presentation of basic and diluted EPS, respectively. The
new standard also requires dual presentation of basic and diluted EPS on the
face of the income statement and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. Prior year EPS amounts have been restated to conform
with the provisions of SFAS No. 128.
Basic EPS excludes dilution and is computed by dividing net earnings by
the weighted-average common shares outstanding for the period. The
weighted-average common shares outstanding for the three months ended December
31, 1997 and 1996 was 1,322,052.
Diluted EPS includes the potentially dilutive effect of outstanding common
stock options and securities which are convertible to common shares. The
weighted-average number of common and potentially dilutive common shares
outstanding for the three months ended December 31, 1997 and 1996 was 1,325,504
and 1,325,695, respectively.
Reconciliations between the numerators and denominators of the basic and
diluted EPS computations for the three months ended December 31, 1997 and 1996
are as follows:
Three months ended December 31, 1997
------------------------------------
Net Earnings Shares Per-Share
(Numerator) (Denominator) Amount
------------ ------------- --------
Basic earnings per share $ 120,000 1,322,052 $0.09
Effect of dilutive
securities - common stock options - 3,452 -
------------ ------------- --------
Diluted earnings per share $ 120,000 1,325,504 $0.09
============ ============ =========
<PAGE>
Three months ended December 31, 1996
------------------------------------
Net Earnings Shares Per-Share
(Numerator) (Denominator) Amount
------------ ------------- --------
Basic earnings per share $ 420,000 1,322,052 $0.32
Effect of dilutive
securities - common stock options - 3,643 -
------------ ------------- --------
Diluted earnings per share $ 420,000 1,325,695 $0.32
============ ============ =========
Assumed conversion of the convertible debentures to 100,000 shares of
common stock was excluded from the computation of diluted EPS because its effect
would be antidilutive.
3. INCOME TAXES
------------
The components of the income tax provision for the three months ended
December 31, 1997 and 1996 are as follows:
Three months ended
December 31,
------------------------
1997 1996
---------- ----------
Current - U.S. $ - $ 15,000
Current - Foreign 297,000 296,000
---------- ----------
Total - Current 297,000 311,000
---------- ----------
Deferred - U.S. 25,000 (15,000)
Deferred - Foreign 116,000 74,000
---------- ----------
Total - Deferred 141,000 59,000
---------- ----------
$ 438,000 $ 370,000
========== ==========
<PAGE>
4. NEW STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
------------------------------------------------
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its components
(revenues, expenses, gains and losses) in a full set of general-purpose
financial statements. This statement requires that all items currently
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements and is effective for fiscal years beginning after
December 15, 1997. SFAS No. 130 requires reclassification of financial
statements presented for earlier periods. The Company will adopt the provisions
of SFAS No. 130 in the first quarter of fiscal 1999. The Company conducts
operations in Canada and the assets and liabilities and income and expense items
of the foreign operations are translated at exchange rates in effect as of and
for the period ending on the financial statement date. The resulting translation
gains and losses are accounted for in a stockholders' equity account entitled
"Foreign currency translation adjustments." Under SFAS No. 130, these foreign
currency translation gains and losses will be included as a component of
comprehensive income. Foreign currency fluctuations can occur rapidly and
management expects that quarterly fluctuations will at times be material to
comprehensive income. The Company cannot accurately predict future fluctuations
between the Canadian and U.S. dollars.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." This statement provides
guidance for public business enterprises in reporting information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports to shareholders. This statement also establishes standards for
related disclosures about products and services, geographic areas and major
customers. This statement is effective for financial statements for periods
beginning after December 15, 1997. The Company will adopt the provisions of SFAS
No. 131 in the first quarter of fiscal 1999. SFAS No. 131 requires restatement
of comparative information presented for earlier periods.
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.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash flows from operations before changes in working capital decreased
$250,000 for the three months ended December 31, 1997, as compared to the same
period in the prior year, as the contract drilling segment incurred an operating
loss before depreciation in the current period; the contract drilling segment
generated an operating profit in the same period of the prior year.
Additionally, there was a $1,378,000 decrease in operating cash flows from
changes in non-cash working capital primarily as accounts payable decreased by
$1,444,000, as compared to a $92,000 increase in the prior year period. The
decrease in accounts payable in the current year period related to the payment
of oil and natural gas capital expenditures and the payment of $900,000 of crown
royalties accrued at September 30, 1997. As reported in the Company's 10-KSB for
the year ended September 30, 1997, the Province of Alberta completed its royalty
calculations in 1997 for calendar years 1994, 1995, 1996 and a portion of 1997.
As a result of its initial calculations, the Province remitted $630,000 to the
Company in August 1997 for estimated overpaid royalties. In October 1997, after
completion of its final calculations, the Province submitted a $900,000 invoice
for underpaid royalties which the Company accrued for as of September 30, 1997
and paid at the end of October 1997.
At December 31, 1997, the Company had $2,270,000 cash and approximately
$4,000,000 of available credit under its facility with the Royal Bank of Canada.
This credit facility is currently undergoing its annual review; the Company
currently anticipates no significant changes to the terms or conditions of the
facility. The Company expects to fund capital expenditures by utilizing existing
cash balances, cash flows from operations and available credit under the
Canadian bank facility.
During the quarter ended December 31, 1997, the Company invested
$1,574,000 in oil and natural gas properties ($1,333,000 in Canada and $241,000
in the U.S.), as compared to $1,542,000 ($579,000 in Canada and $963,000 in the
U.S.) during the prior year's first quarter.
During the quarter ended December 31, 1997, the second drilling program in
Michigan commenced. This program consists of three deep natural gas wells and
three wells targeting shallower oil formations. These six wells are in various
stages of progress. The final determination of these wells, which is expected to
occur in the next several months, will be instrumental in determining if the
Company will incur a write-down of a portion of the $1,250,000 invested in
Michigan.
<PAGE>
For the three months ended December 31, 1997, the Company participated in
the drilling of 19 successful wells and 1 unsuccessful well in Alberta, Canada,
and 1 unsuccessful well in the United States as follows:
Productive Productive
Oil Wells Gas Wells Dry Holes Total Wells
----------- ---------- ---------- -----------
Exp. Dev. Exp. Dev. Exp. Dev. Exp. Dev.
---- ----- ---- ---- ---- ---- ---- -----
CANADA
------
Gross 1.00 13.00 - 5.00 - 1.00 1.00 19.00
Net 0.18 2.38 - 0.44 - 0.13 0.18 2.95
UNITED STATES
-------------
Gross - - - - 1.00 - 1.00 -
Net - - - - 0.33 - 0.33 -
The Company also invested $159,000 (including interest costs capitalized)
towards the rezoning of the North Kona, Hawaii property held by Kaupulehu
Developments, a 50.1% owned joint venture. The Company expects fiscal 1998 oil
and natural gas capital expenditures to be lower than capital expenditures in
fiscal 1997. This estimated decrease is due to the fact that capital
expenditures in 1997 included $850,000 for oil and gas lease acquisition costs
in Michigan which will not recur in 1998. The Company, however, may learn of
additional new investment opportunities which may result in increased capital
expenditures.
The Company's internally and externally supported computer systems are
currently being modified to correct for the "Year 2000" problem. Management
believes that with these modifications to existing software, the "Year 2000"
problem will not pose significant operational problems for the Company's
computer systems. The Company does not expect estimated costs associated with
these modifications to have a material effect on its financial position or
results of operations.
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
Oil and Natural Gas
- -------------------
SELECTED OPERATING STATISTICS
----------------------------------------
Average Price Per Unit
----------------------------------------
Three months ended Increase
December 31, (Decrease)
------------------ ----------------
1997 1996 $ %
------ ------ ------ ----
Liquids (Bbls)* $15.38 $18.50 $(3.12) (17%)
Oil (Bbls)* $17.36 $22.41 $(5.05) (23%)
Natural gas (MCF)** $ 1.48 $ 1.27 $ 0.21 17%
Net Production
-----------------------------------------
Three months ended Increase
December 31, (Decrease)
---------------------- ----------------
1997 1996 Units %
--------- --------- ------- ----
Liquids (Bbls)* 18,000 17,000 1,000 6%
Oil (Bbls)* 48,000 48,000 - -
Natural gas (MCF)** 1,070,000 1,118,000 (48,000) (4%)
*Bbls = stock tank barrel equivalent to 42 U.S. gallons
**MCF = 1,000 cubic feet
Oil and natural gas revenues decreased $110,000 (4%) for the three months
ended December 31, 1997, as compared to the same period in 1996, due to 23% and
17% decreases in oil and natural gas liquids prices, respectively, and a 4%
decrease in natural gas production. These decreases were partially offset by a
17% increase in natural gas prices and a 6% increase in natural gas liquids
production. The Company expects petroleum product prices in the second quarter
of fiscal 1998 to be comparable to prices received in the current quarter and
therefore significantly less than prices in the second quarter of fiscal 1997,
when they averaged $1.87 per MCF for natural gas, $21.53 per barrel for natural
gas liquids and $19.93 per barrel for oil.
Contract Drilling
- -----------------
Contract drilling revenues and costs are associated with water well
drilling and water pump installation in Hawaii. Demand for well drilling and
pump installation services is dependent upon land development activities in
Hawaii, which has decreased significantly from prior years' levels. Demand for
water pump replacement and repair is primarily dependent upon the timing of
water system renovations and replacements by water utilities and other entities.
<PAGE>
Contract drilling revenues and costs decreased $330,000 (65%) and $140,000
(35%), respectively, for the three months ended December 31, 1997, as compared
to the same period in 1996, due to decreased water well drilling activity in the
current quarter. Operating results before depreciation decreased to a loss of
$79,000 for the three months ended December 31, 1997, as compared to an
operating profit before depreciation of $111,000 for the same period in 1996.
Included in contract drilling revenues for the three months ended December
31, 1996 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. Operating income before
depreciation related to this item amounted to $150,000 for the three months
ended December 31, 1996.
The Company expects competition within the industry to continue as demand
for water well drilling in Hawaii is not expected to increase in the 1998 fiscal
year.
Gas Processing and Other
- ------------------------
Gas processing and other income decreased $100,000 (28%) for the three
months ended December 31, 1997, as compared to the same period in 1996,
primarily due to a decrease in interest income as a result of lower average cash
balances.
Interest Expense
- ----------------
Interest expense decreased $25,000 (14%) for the three months ended
December 31, 1997, as compared to the same period in 1996, due to an increase in
capitalized interest costs related to the Company's investment in land in Hawaii
and unproven undeveloped oil and natural gas properties 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, Chief Financial Officer
Date: February 10, 1998
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Barnwell Industries Inc.'s 1998 first quarter 10-QSB and is
qualified in its entirety by reference to such 10-QSB.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 2270
<SECURITIES> 0
<RECEIVABLES> 1468
<ALLOWANCES> 10
<INVENTORY> 68
<CURRENT-ASSETS> 4526
<PP&E> 57996
<DEPRECIATION> 32769
<TOTAL-ASSETS> 32240
<CURRENT-LIABILITIES> 3633
<BONDS> 11000
0
0
<COMMON> 821
<OTHER-SE> 11075
<TOTAL-LIABILITY-AND-EQUITY> 32240
<SALES> 3110
<TOTAL-REVENUES> 3370
<CGS> 1067
<TOTAL-COSTS> 1067
<OTHER-EXPENSES> 796
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 157
<INCOME-PRETAX> 558
<INCOME-TAX> 438
<INCOME-CONTINUING> 120
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 120
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
