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, 1998
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 May 11, 1998 there were 1,316,952 shares of common stock, par
value $0.50, outstanding.
Transitional Small Business Disclosure Format Yes No X
--- ---
BARNWELL INDUSTRIES, INC.
-------------------------
AND SUBSIDIARIES
----------------
INDEX
-----
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
March 31, 1998 and September 30, 1997 (Unaudited)
Consolidated Statements of Operations and Retained Earnings
three and six months ended March 31, 1998 and 1997 (Unaudited)
Condensed Consolidated Statements of Cash Flows
six months ended March 31, 1998 and 1997 (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,
- ------ 1998 1997
----------- ------------
CURRENT ASSETS:
Cash $ 1,430,000 $ 4,402,000
Accounts receivable 1,791,000 2,065,000
Other current assets 751,000 485,000
----------- -----------
TOTAL CURRENT ASSETS 3,972,000 6,952,000
----------- -----------
INVESTMENT IN LAND 2,207,000 1,848,000
----------- -----------
OTHER ASSETS 216,000 491,000
----------- -----------
NET PROPERTY AND EQUIPMENT 24,398,000 25,107,000
----------- -----------
TOTAL ASSETS $30,793,000 $34,398,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 1,961,000 $ 3,180,000
Accrued expenses 1,378,000 1,213,000
Other current liabilities 808,000 954,000
----------- -----------
TOTAL CURRENT LIABILITIES 4,147,000 5,347,000
----------- -----------
LONG-TERM DEBT 11,865,000 11,100,000
----------- -----------
DEFERRED INCOME TAXES 5,861,000 5,801,000
----------- -----------
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 12,361,000 15,171,000
Foreign currency translation adjustments and other (2,660,000) (2,240,000)
Treasury stock, at cost, 320,745 shares (4,705,000) (4,705,000)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 8,920,000 12,150,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $30,793,000 $34,398,000
=========== ===========
Note A: The balance sheet at September 30, 1997 has been taken from the
audited financial statements at that date and condensed.
See Notes to Condensed Consolidated Financial Statements
<TABLE>
<CAPTION>
BARNWELL INDUSTRIES, INC.
-------------------------
AND SUBSIDIARIES
----------------
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
-----------------------------------------------------------
(Unaudited)
Three months ended Six months ended
March 31, March 31,
-------------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
Revenues:
<S> <C> <C> <C> <C>
Oil and natural gas $ 2,110,000 $ 3,400,000 $ 5,040,000 $ 6,440,000
Contract drilling 480,000 230,000 660,000 740,000
Gas processing and other 300,000 290,000 560,000 650,000
----------- ----------- ----------- -----------
2,890,000 3,920,000 6,260,000 7,830,000
----------- ----------- ----------- -----------
Costs and expenses:
Oil and natural gas operating 868,000 869,000 1,676,000 1,749,000
Contract drilling operating 683,000 294,000 942,000 693,000
General and administrative 1,053,000 839,000 1,845,000 1,670,000
Depreciation, depletion and
amortization 616,000 620,000 1,412,000 1,448,000
Interest expense 170,000 146,000 327,000 328,000
Write-down of assets 2,280,000 - 2,280,000 -
----------- ----------- ----------- -----------
5,670,000 2,768,000 8,482,000 5,888,000
----------- ----------- ----------- -----------
(Loss) earnings before income taxes (2,780,000) 1,152,000 (2,222,000) 1,942,000
Provision for income taxes 150,000 742,000 588,000 1,112,000
----------- ----------- ----------- -----------
NET (LOSS) EARNINGS (2,930,000) 410,000 (2,810,000) 830,000
Retained earnings -
beginning of period 15,291,000 14,541,000 15,171,000 14,121,000
----------- ----------- ----------- -----------
Retained earnings - end of period $12,361,000 $14,951,000 $12,361,000 $14,951,000
=========== =========== =========== ===========
BASIC AND DILUTED
(LOSS) EARNINGS PER COMMON SHARE $ (2.22) $ 0.31 $ (2.13) $ 0.63
=========== =========== =========== ===========
<FN>
See Notes to Condensed Consolidated Financial Statements
</FN>
</TABLE>
BARNWELL INDUSTRIES, INC.
-------------------------
AND SUBSIDIARIES
----------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Unaudited)
Six months ended
March 31,
------------------------
1998 1997
----------- -----------
Cash Flows from Operating Activities:
Net (loss) earnings $(2,810,000) $ 830,000
Adjustments to reconcile net (loss) earnings
to net cash provided by operating activities:
Depreciation, depletion, and amortization 1,412,000 1,448,000
Write-down of assets 2,280,000 -
Deferred income taxes 265,000 316,000
----------- -----------
1,147,000 2,594,000
(Decrease) increase from changes
in current assets and liabilities (1,066,000) 353,000
----------- -----------
Net cash provided by operating activities 81,000 2,947,000
----------- -----------
Cash Flows from Investing Activities:
Capital expenditures - oil and gas segment (3,392,000) (3,653,000)
Additions to investment in land (359,000) (268,000)
Capital expenditures - contract drilling and other (194,000) (97,000)
Decrease (increase) in long-term other assets 5,000 (9,000)
Proceeds from sale of oil and natural gas properties - 980,000
----------- -----------
Net cash used in investing activities (3,940,000) (3,047,000)
----------- -----------
Cash Flows from Financing Activities:
Long-term debt borrowings 965,000 -
----------- -----------
Net cash provided by financing activities 965,000 -
----------- -----------
Effect of exchange rate changes on cash (78,000) (38,000)
----------- -----------
Net decrease in cash (2,972,000) (138,000)
Cash at beginning of period 4,402,000 3,553,000
----------- -----------
Cash at end of period $ 1,430,000 $ 3,415,000
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amounts capitalized) $ 119,000 $ 290,000
=========== ===========
Income taxes $ 485,000 $ 590,000
=========== ===========
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 March 31, 1998, the
Consolidated Statements of Operations and Retained Earnings for the three and
six months ended March 31, 1998 and 1997, and the Condensed Consolidated
Statements of Cash Flows for the six months ended March 31, 1998 and 1997 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, 1998 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 March 31,
1998 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. (LOSS) 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 (loss)
earnings by the weighted-average common shares outstanding for the period. The
weighted-average common shares outstanding for the three and six months ended
March 31, 1998 and 1997 were 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 was 1,322,052 and 1,326,121, respectively, for the three months
ended March 31, 1998 and 1997, and 1,322,052 and 1,325,912 for the six months
ended March 31, 1998 and 1997, respectively.
Assumed conversion of common stock options are excluded from the
computation of diluted EPS for the three and six months ended March 31, 1998
because its effect would be antidilutive. Reconciliations between the numerators
and denominators of the basic and diluted EPS computations for the three and six
months ended March 31, 1997 are as follows:
Three months ended March 31, 1997
-------------------------------------
Net Earnings Shares Per-Share
(Numerator) (Denominator) Amount
------------ ------------ ---------
Basic earnings per share $ 410,000 1,322,052 $ 0.31
Effect of dilutive
securities - common stock options - 4,069 -
------------ ------------ ---------
Diluted earnings per share $ 410,000 1,326,121 $ 0.31
============ ============ =========
Six months ended March 31, 1997
-------------------------------------
Net Earnings Shares Per-Share
(Numerator) (Denominator) Amount
------------ ------------ ---------
Basic earnings per share $ 830,000 1,322,052 $ 0.63
Effect of dilutive
securities - common stock options - 3,860 -
------------ ------------ ---------
Diluted earnings per share $ 830,000 1,325,912 $ 0.63
============ ============ =========
Assumed conversion of the convertible debentures to 100,000 shares of
common stock was excluded from the computation of diluted EPS for all periods
presented because its effect would be antidilutive.
3. INCOME TAXES
------------
The components of the provision for income taxes for the three and six
months ended March 31, 1998 and 1997 are as follows:
Three months ended Six months ended
March 31, March 31,
------------------------- ------------------------
1998 1997 1998 1997
--------- --------- --------- ----------
Current - U.S. $ - $ (15,000) $ - $ -
Current - Foreign 26,000 500,000 323,000 796,000
--------- --------- --------- ----------
Total - Current 26,000 485,000 323,000 796,000
--------- --------- --------- ----------
Deferred - U.S. 25,000 (10,000) 50,000 (25,000)
Deferred - Foreign 99,000 267,000 215,000 341,000
--------- --------- --------- ----------
Total - Deferred 124,000 257,000 265,000 316,000
--------- --------- --------- ----------
$ 150,000 $ 742,000 $ 588,000 $1,112,000
========= ========= ========= ==========
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 fiscal years 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.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which amends the disclosure
requirements of SFAS No. 87, "Employers' Accounting for Pensions," SFAS No. 88,
"Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits," and SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." This statement
standardizes the disclosure requirements of SFAS No.'s 87 and 106 to the extent
practicable and recommends a parallel format for presenting information about
pensions and other postretirement benefits. SFAS No. 132 addresses disclosure
only and does not change any of the measurement or recognition provisions
provided for in SFAS No.'s 87, 88 or 106. This statement is effective for
financial statements for periods beginning after December 15, 1997. The Company
will adopt the provisions of SFAS No. 132 in the first quarter of fiscal 1999.
SFAS No. 132 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.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash flows from operations before changes in working capital decreased
$1,447,000 for the six months ended March 31, 1998, as compared to the same
period in the prior year, due to lower operating results generated by both the
oil and natural gas segment and the contract drilling segment. Declines in
prices received for all petroleum products in the current six month period
significantly decreased oil and natural gas revenues, and the contract drilling
segment incurred an operating loss before depreciation in the current six month
period due to increased competition for water well drilling contracts in Hawaii;
the contract drilling segment generated an operating profit in the same period
of the prior year. Operating cash flows were also impacted by changes in
non-cash working capital, primarily due to decreases in accounts payable and
payables to joint interest owners. 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. The change in payables to joint interest owners is due
to timing differences in capital collections and disbursements by the Company on
behalf of joint interest owners.
At March 31, 1998, the Company had $1,430,000 of cash and approximately
$3,000,000 of available credit under its facility with the Royal Bank of Canada,
which has been renewed through February 1999 at $19,000,000 Canadian dollars, or
approximately $13,000,000 U.S. dollars. During the six months ended March 31,
1998, the Company borrowed $965,000 under the Canadian bank facility to fund oil
and natural gas capital expenditures in Canada. The Company expects to fund
Canadian oil and natural gas capital expenditures for the remainder of fiscal
1998 by utilizing available credit under the Canadian bank facility.
During the six months ended March 31, 1998, the Company invested a total
of $3,392,000 in oil and natural gas properties ($2,974,000 in Canada and
$418,000 in the U.S.), as compared to $3,653,000 ($2,469,000 in Canada and
$1,184,000 in the U.S.) during the prior year period. For the six months ended
March 31, 1998, the Company participated in the drilling of 46 wells in Alberta,
Canada, and Michigan, North Dakota and Louisiana as follows:
Productive Productive
Oil Wells Gas Wells Dry Holes Total Wells
------------ ----------- ----------- ------------
Exp. Dev. Exp. Dev. Exp. Dev. Exp. Dev.
---- ---- ---- ---- ---- ---- ---- ----
CANADA
- ------
Gross 2.00 20.00 - 14.00 - 2.00 2.00 36.00
Net 0.63 3.51 - 0.91 - 0.20 0.63 4.62
U.S.A.
- ------
Gross - - - - 7.00 1.00 7.00 1.00
Net - - - - 0.63 0.02 0.63 0.02
During the three months ended March 31, 1998, the Company invested
$1,818,000 in oil and natural gas properties ($1,641,000 in Canada and $177,000
in the U.S.), as compared to $2,111,000 ($1,890,000 in Canada and $221,000 in
the U.S.) during the prior year's second quarter. For the three months ended
March 31, 1998, the Company participated in the drilling of 25 wells in Alberta,
Canada, and Michigan and Louisiana as follows:
Productive Productive
Oil Wells Gas Wells Dry Holes Total Wells
------------ ----------- ----------- ------------
Exp. Dev. Exp. Dev. Exp. Dev. Exp. Dev.
---- ---- ---- ---- ---- ---- ---- ----
CANADA
- ------
Gross 1.00 7.00 - 9.00 - 1.00 1.00 17.00
Net 0.45 1.13 - 0.47 - 0.07 0.45 1.67
U.S.A.
- ------
Gross - - - - 6.00 1.00 6.00 1.00
Net - - - - 0.30 0.02 0.30 0.02
"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 Michigan, 2 gas wells and 3 oil wells were marginally successful out of
a cumulative total of 13 wells, and in North Dakota and Louisiana the Company
participated in the drilling of a dry hole in each state during the six months
ended March 31, 1998. Because of the disappointing results from these prospects
to date, the Company recognized a non-cash write-off of its entire investment in
its Michigan Basin Prospect totaling $1,500,000, a write-down of $470,000 of its
investment in North Dakota oil properties and a write-off of its entire $100,000
investment in its Louisiana gas property.
During the six months ended March 31, 1998, the Company invested $359,000,
including $77,000 of interest costs capitalized, towards the rezoning of the
North Kona, Hawaii property held by Kaupulehu Developments, a 50.1% owned joint
venture. In April 1998, the Supreme Court of the State of Hawaii decided to hear
the appeal of the Third Circuit Court's decision upholding the State Land Use
Commission's approval of Kaupulehu Developments' rezoning petition.
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.
On April 17, 1998, the Company agreed to repurchase 5,100 shares of its
stock from a director and shareholder of the Company at $16.625 per share, the
market price of the Company's stock on that date. The number of shares of
treasury stock and shares outstanding subsequent to this transaction amounted to
325,845 and 1,316,952, respectively.
RESULTS OF OPERATIONS
- ---------------------
Oil and Natural Gas
- -------------------
SELECTED OPERATING STATISTICS
-----------------------------
Average Prices
--------------------------------------------------
Three months ended Increase
March 31, (Decrease)
------------------------- ------------------
1998 1997 $ %
---------- ---------- -------- ------
Oil (Bbls)* $14.47 $19.93 $(5.46) (27%)
Liquids (Bbls)* $13.21 $21.53 $(8.32) (39%)
Gas (MCF)** $ 1.29 $ 1.87 $(0.58) (31%)
Six months ended Increase
March 31, (Decrease)
------------------------- ------------------
1998 1997 $ %
---------- ---------- -------- ------
Oil (Bbls)* $15.89 $20.45 $(4.56) (22%)
Liquids (Bbls)* $14.31 $20.30 $(5.99) (30%)
Gas (MCF)** $ 1.39 $ 1.62 $(0.23) (14%)
Net Sales Volumes
--------------------------------------------------
Three months ended Increase
March 31, (Decrease)
------------------------- ------------------
1998 1997 Units %
---------- ---------- -------- ------
Oil (Bbls)* 52,000 54,000 (2,000) (4%)
Liquids (Bbls)* 17,000 17,000 - -
Gas (MCF)** 852,000 904,000 (52,000) (6%)
Six months ended Increase
March 31, (Decrease)
------------------------- ------------------
1998 1997 Units %
---------- ---------- -------- ------
Oil (Bbls)* 100,000 102,000 (2,000) (2%)
Liquids (Bbls)* 35,000 34,000 1,000 3%
Gas (MCF)** 1,922,000 2,022,000 (100,000) (5%)
*Bbls = stock tank barrel equivalent to 42 U.S. gallons
**MCF = 1,000 cubic feet
Oil and natural gas revenues decreased $1,290,000 (38%) for the three
months ended March 31, 1998, as compared to the same period in 1997, due to
price decreases of 39%, 31% and 27% for natural gas liquids, natural gas and
oil, respectively.
Oil and natural gas revenues decreased $1,400,000 (22%) for the six months
ended March 31, 1998, as compared to the same period in 1997, due to price
decreases of 30%, 22% and 14% for natural gas liquids, oil and natural gas,
respectively.
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.
Contract drilling revenues and costs increased $250,000 (109%) and
$389,000 (132%), respectively, for the three months ended March 31, 1998 due to
increased well drilling activity and larger pump installation contracts in the
current period, as compared to the same period in 1997. Operating results before
depreciation decreased to a loss of $203,000 for the three months ended March
31, 1998, as compared to a loss of $64,000 for the same period in 1997 due to
lower contract margins.
Contract drilling revenues decreased $80,000 (11%) and contract drilling
operating expenses increased $249,000 (36%) for the six months ended March 31,
1998, as compared to the same period in 1997. Accordingly, operating results
before depreciation decreased to a loss of $282,000 for the six months ended
March 31, 1998, as compared to an operating profit before depreciation of
$47,000 for the same period in 1997. 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. Operating income before depreciation related to this item amounted to
$150,000 for the six months ended March 31, 1997.
The decreases in operating results before depreciation for the three and
six months ended March 31, 1998, as compared to the same periods in 1997, are
due to a decrease in demand for water well drilling in Hawaii, which has in turn
created increased competition for available contracts. Contract margins have
decreased significantly as a result of the increase in competition. The Company
continues to pursue opportunities for well drilling work in the continental U.S.
and has made several proposals to third parties.
Gas Processing and Other
- ------------------------
Gas processing and other income decreased $90,000 (14%) for the six months
ended March 31, 1998, as compared to the same period in 1997, due to a decrease
in interest income as a result of lower average cash balances.
General and Administrative Expenses
- -----------------------------------
General and administrative expenses increased $214,000 (26%) and $175,000
(11%) for the three and six months ended March 31, 1998, respectively, as
compared to the same periods in 1997, due primarily to costs associated with a
change in management of the Company's oil and natural gas segment. In May 1998,
the Company hired a new executive in charge of the oil and natural gas
operations.
Interest Expense
- ----------------
Interest expense increased $24,000 (16%) for the three months ended March
31, 1998, as compared to the same period in 1997, due to higher average interest
rates and the fact that effective January 1, 1998, the Company discontinued
capitalization of interest costs related to the development of natural gas and
oil properties in the Central Basin in Michigan (see write-down of assets
below).
Write-down of Assets
- --------------------
Under the full cost method of accounting, the amount of oil and natural
gas properties' capitalized costs less accumulated depletion is subject to a
ceiling test limitation that requires any excess over the present value of
estimated future cash flows from proved reserves to be expensed. Due to
disappointing exploratory results from the Company's Michigan, North Dakota and
Louisiana prospects, capitalized oil and natural gas properties' costs in the
United States exceeded the full cost ceiling test limitation as of March 31,
1998. Accordingly, the Company recorded a write-down of $2,070,000 for the three
months ended March 31, 1998.
In addition, the Company wrote down $170,000 of land and land improvement
costs related to a contract drilling yard and $40,000 related to
available-for-sale securities to adjust these assets for recent declines in
market values.
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
Executive Vice President and
Chief Financial Officer
Date: May 14, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Barnwell Industries Inc.'s 1998 second quarter 10QSB and is
qualified in its entirety by reference to such 10QSB.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 1430
<SECURITIES> 0
<RECEIVABLES> 1525
<ALLOWANCES> 86
<INVENTORY> 68
<CURRENT-ASSETS> 3972
<PP&E> 59699
<DEPRECIATION> 35301
<TOTAL-ASSETS> 30793
<CURRENT-LIABILITIES> 4147
<BONDS> 11864
0
0
<COMMON> 821
<OTHER-SE> 8099
<TOTAL-LIABILITY-AND-EQUITY> 30793
<SALES> 5700
<TOTAL-REVENUES> 6260
<CGS> 2618
<TOTAL-COSTS> 2618
<OTHER-EXPENSES> 1412
<LOSS-PROVISION> 76
<INTEREST-EXPENSE> 327
<INCOME-PRETAX> (2222)
<INCOME-TAX> 588
<INCOME-CONTINUING> (2810)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2810)
<EPS-PRIMARY> (2.13)
<EPS-DILUTED> (2.13)
</TABLE>
