-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CC4DGIxOytlEOl4H4WQAvLY+MnYYYlhUpbaWEYpoDwiA6sTDx19kw7L9obOfQJw5 KKKSSYrM5vgNbvZGoREbyg== 0000010048-01-500008.txt : 20010814 0000010048-01-500008.hdr.sgml : 20010814 ACCESSION NUMBER: 0000010048-01-500008 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BARNWELL INDUSTRIES INC CENTRAL INDEX KEY: 0000010048 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 720496921 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 001-05103 FILM NUMBER: 1706250 BUSINESS ADDRESS: STREET 1: 1100 ALAKEA ST. STREET 2: SUITE 2900 CITY: HONOLULU STATE: HI ZIP: 96813 BUSINESS PHONE: 808-531-8400 MAIL ADDRESS: STREET 1: 1100 ALAKEA ST. STREET 2: SUITE 2900 CITY: HONOLULU STATE: HI ZIP: 96813 FORMER COMPANY: FORMER CONFORMED NAME: BARNWELL OFFSHORE INC DATE OF NAME CHANGE: 19671101 FORMER COMPANY: FORMER CONFORMED NAME: BMA CORP/TN DATE OF NAME CHANGE: 19770324 10QSB 1 tenq0601.txt BARNWELL INDUSTRIES 06302001 10QSB 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 June 30, 2001 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 August 6, 2001 there were 1,310,952 shares of common stock, par value $0.50, outstanding. Transitional Small Business Disclosure Format Yes No X ----- ----- 1 BARNWELL INDUSTRIES, INC. ------------------------- AND SUBSIDIARIES ---------------- INDEX ----- PART I. FINANCIAL INFORMATION: Item 1. Financial Statements Condensed Consolidated Balance Sheets - June 30, 2001 and September 30, 2000 (Unaudited) Consolidated Statements of Operations - three and nine months ended June 30, 2001 and 2000 (Unaudited) Condensed Consolidated Statements of Cash Flows - nine months ended June 30, 2001 and 2000 (Unaudited) Consolidated Statements of Stockholders' Equity and Comprehensive Income - three months ended June 30, 2001 and 2000 (Unaudited) Consolidated Statements of Stockholders' Equity and Comprehensive Income - nine months ended June 30, 2001 and 2000 (Unaudited) Notes to Condensed Consolidated Financial Statements (Unaudited) Item 2. Management's Discussion and Analysis or Plan of Operation PART II. OTHER INFORMATION: Item 6. Exhibits and reports on Form 8-K 2 Item 1. Financial Statements BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES ------------------------------------------ CONDENSED CONSOLIDATED BALANCE SHEETS ------------------------------------- (Unaudited, see Note A below) ASSETS June 30, September 30, - ------ 2001 2000 ------------ ------------ CURRENT ASSETS: Cash and cash equivalents $ 5,595,000 $ 5,701,000 Accounts receivable, net 2,102,000 2,018,000 Note receivable 1,481,000 - Other current assets 1,246,000 1,402,000 ------------ ------------ TOTAL CURRENT ASSETS 10,424,000 9,121,000 INVESTMENT IN LAND 8,388,000 3,975,000 OTHER ASSETS 231,000 216,000 NET PROPERTY AND EQUIPMENT 25,890,000 25,348,000 ------------ ------------ TOTAL ASSETS $ 44,933,000 $ 38,660,000 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ CURRENT LIABILITIES: Accounts payable $ 1,947,000 $ 1,821,000 Accrued expenses 3,864,000 3,383,000 Notes payable 2,209,000 - Income taxes payable 2,828,000 650,000 Payable to joint interest owners and other 1,043,000 1,133,000 Current portion, long-term debt 400,000 400,000 ------------ ------------ TOTAL CURRENT LIABILITIES 12,291,000 7,387,000 ------------ ------------ LONG-TERM DEBT 8,821,000 9,133,000 ------------ ------------ DEFERRED INCOME TAXES 7,171,000 7,206,000 ------------ ------------ MINORITY INTEREST 1,016,000 2,260,000 ------------ ------------ 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 19,881,000 16,680,000 Accumulated other comprehensive loss - foreign currency translation adjustments (3,289,000) (3,048,000) Treasury stock, at cost, 331,845 shares (4,882,000) (4,882,000) ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 15,634,000 12,674,000 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 44,933,000 $ 38,660,000 ============ ============ Note A: The condensed consolidated balance sheet at September 30, 2000 has been derived from the audited consolidated financial statements at that date. See Notes to Condensed Consolidated Financial Statements 3
BARNWELL INDUSTRIES, INC. ------------------------- AND SUBSIDIARIES ---------------- CONSOLIDATED STATEMENTS OF OPERATIONS ------------------------------------- (Unaudited) Three months ended Nine months ended June 30, June 30, ------------------------- ------------------------- 2001 2000 2001 2000 ---- ---- ---- ---- Revenues: Oil and natural gas $ 4,640,000 $ 4,110,000 $16,580,000 $10,770,000 Contract drilling 1,000,000 850,000 2,640,000 2,700,000 Gas processing and other 180,000 260,000 710,000 930,000 Sale of development rights, net - - - 6,540,000 ----------- ----------- ----------- ----------- 5,820,000 5,220,000 19,930,000 20,940,000 ----------- ----------- ----------- ----------- Costs and expenses: Oil and natural gas operating 1,023,000 733,000 2,671,000 2,313,000 Contract drilling operating 913,000 679,000 2,248,000 2,122,000 General and administrative 1,000,000 848,000 3,020,000 2,490,000 Depreciation, depletion and amortization 857,000 1,098,000 2,798,000 2,669,000 Interest 63,000 170,000 348,000 576,000 Minority interest in earnings 1,000 6,000 8,000 3,303,000 Foreign exchange losses - - - 206,000 ----------- ----------- ----------- ----------- 3,857,000 3,534,000 11,093,000 13,679,000 ----------- ----------- ----------- ----------- Earnings before income taxes 1,963,000 1,686,000 8,837,000 7,261,000 Provision for income taxes 1,223,000 966,000 5,177,000 3,331,000 ----------- ----------- ----------- ----------- NET EARNINGS $ 740,000 $ 720,000 $ 3,660,000 $ 3,930,000 =========== =========== =========== =========== BASIC EARNINGS PER COMMON SHARE $ 0.56 $ 0.55 $ 2.79 $ 2.98 =========== =========== =========== =========== DILUTED EARNINGS PER COMMON SHARE $ 0.55 $ 0.53 $ 2.68 $ 2.88 =========== =========== =========== =========== See Notes to Condensed Consolidated Financial Statements
4
BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES ------------------------------------------ CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ----------------------------------------------- (Unaudited) Nine months ended June 30, -------------------------- 2001 2000 ----------- ----------- Cash Flows from Operating Activities: Net earnings $ 3,660,000 $ 3,930,000 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation, depletion, and amortization 2,798,000 2,669,000 Deferred income taxes 30,000 585,000 Minority interest in earnings 8,000 3,303,000 Foreign exchange losses - 206,000 Gain on sale of equity securities - (238,000) Earnings on sale of development rights, net - (6,540,000) ----------- ---------- 6,496,000 3,915,000 Increase from changes in current assets and liabilities 2,757,000 2,159,000 ----------- ----------- Net cash provided by operating activities 9,253,000 6,074,000 ----------- ----------- Cash Flows from Investing Activities: Capital expenditures - oil and natural gas (3,423,000) (3,411,000) Investment in Cambridge Hawaii Limited Partnership (2,791,000) - Additions to investment in land (665,000) (520,000) Cash advanced in exchange for note receivable (1,481,000) - Capital expenditures - other (124,000) (514,000) (Increase) decrease in other assets (13,000) 4,000 Proceeds from sale of oil and natural gas properties - 46,000 Proceeds from sale of marketable securities - 380,000 Proceeds from sale of development rights, net - 6,540,000 ----------- ----------- Net cash (used in) provided by investing activities (8,497,000) 2,525,000 ----------- ----------- Cash Flows from Financing Activities: Payments of dividends (459,000) - Repayments of long-term debt (300,000) (3,666,000) Distribution to minority interest partner - (873,000) Purchases of common stock for treasury - (93,000) Long-term debt borrowings - 50,000 ----------- ----------- Net cash used in financing activities (759,000) (4,582,000) ----------- ----------- Effect of exchange rate changes on cash and cash equivalents (103,000) (14,000) ----------- ----------- Net (decrease) increase in cash and cash equivalents (106,000) 4,003,000 Cash and cash equivalents at beginning of period 5,701,000 2,577,000 ----------- ----------- Cash and cash equivalents at end of period $ 5,595,000 $ 6,580,000 =========== =========== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest (net of amounts capitalized) $ 349,000 $ 611,000 =========== =========== Income taxes $ 2,975,000 $ 1,746,000 =========== =========== Supplemental Schedule of Noncash Investing and Financing Activities: The Company purchased 55.2% of Cambridge Hawaii Limited Partnership for $5,000,000. $2,791,000 was paid upon closing, and the remaining balance of $2,209,000 was financed by non-interest bearing notes payable. See Notes to Condensed Consolidated Financial Statements
5
BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES ------------------------------------------ CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME ------------------------------------------------------------------------ Three months ended June 30, 2001 and 2000 (Unaudited) Accumulated Additional Other Total Common Paid-In Comprehensive Retained Comprehensive Treasury Stockholders' Stock Capital Income Earnings Loss Stock Equity -------- ---------- ------------- ----------- ------------- ------------- ------------- Balances at March 31, 2000 $821,000 $3,103,000 $15,011,000 $ (2,763,000) $ (4,789,000) $ 11,383,000 Purchase of 6,000 common shares for treasury (93,000) (93,000) Comprehensive income: Net earnings $ 720,000 720,000 720,000 Other comprehensive loss, net of income taxes - foreign currency translation adjustments (279,000) (279,000) (279,000) ------------- Total comprehensive income $ 441,000 -------- ---------- ============= ----------- ------------- ------------- ------------- Balances at June 30, 2000 $821,000 $3,103,000 $15,731,000 $ (3,042,000) $ (4,882,000) $ 11,731,000 ======== ========== =========== ============= ============= ============= Balances at March 31, 2001 $821,000 $3,103,000 $19,141,000 $ (3,818,000) $ (4,882,000) $ 14,365,000 Comprehensive income: Net earnings $ 740,000 740,000 740,000 Other comprehensive income, net of income taxes - foreign currency translation adjustments 529,000 529,000 529,000 ------------- Total comprehensive income $ 1,269,000 -------- ---------- ============= ----------- ------------- ------------- ------------- Balances at June 30, 2001 $821,000 $3,103,000 $19,881,000 $ (3,289,000) $ (4,882,000) $ 15,634,000 ======== ========== =========== ============= ============= ============= See Notes to Condensed Consolidated Financial Statements
6
BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES ------------------------------------------ CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME ------------------------------------------------------------------------ Nine months ended June 30, 2001 and 2000 (Unaudited) Accumulated Additional Other Total Common Paid-In Comprehensive Retained Comprehensive Treasury Stockholders' Stock Capital Income Earnings Loss Stock Equity -------- ---------- ------------- ----------- ------------- ------------- ------------- Balances at September 30, 1999 $821,000 $3,103,000 $11,801,000 $ (3,130,000) $ (4,789,000) $ 7,806,000 Purchase of 6,000 common shares for treasury (93,000) (93,000) Comprehensive income: Net earnings $ 3,930,000 3,930,000 3,930,000 Other comprehensive loss, net of income taxes - foreign currency translation adjustments (118,000) (118,000) (118,000) ------------- Total comprehensive income $ 3,812,000 ============= Foreign exchange losses recognized 206,000 206,000 -------- ---------- ----------- ------------- ------------- ------------- Balances at June 30, 2000 $821,000 $3,103,000 $15,731,000 $ (3,042,000) $ (4,882,000) $ 11,731,000 ======== ========== =========== ============= ============= ============= Balances at September 30, 2000 $821,000 $3,103,000 $16,680,000 $ (3,048,000) $ (4,882,000) $ 12,674,000 Dividends declared ($0.35 per share) (459,000) (459,000) Comprehensive income: Net earnings $ 3,660,000 3,660,000 3,660,000 Other comprehensive loss, net of income taxes - foreign currency translation adjustments (241,000) (241,000) (241,000) ------------- Total comprehensive income $ 3,419,000 -------- ---------- ============= ----------- ------------- ------------- ------------- Balances at June 30, 2001 $821,000 $3,103,000 $19,881,000 $ (3,289,000) $ (4,882,000) $ 15,634,000 ======== ========== =========== ============= ============= ============= See Notes to Condensed Consolidated Financial Statements
7 BARNWELL INDUSTRIES, INC. ------------------------- AND SUBSIDIARIES ---------------- NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------------- (Unaudited) 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------- The Condensed Consolidated Balance Sheet as of June 30, 2001, the Consolidated Statements of Operations for the three and nine months ended June 30, 2001 and 2000, the Condensed Consolidated Statements of Cash Flows for the nine months ended June 30, 2001 and 2000, and the Consolidated Statements of Stockholders' Equity and Comprehensive Income for the three and nine months ended June 30, 2001 and 2000 have been prepared by Barnwell Industries, Inc. (referred to herein together with its subsidiaries as "Barnwell" or the "Company") and are unaudited. 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 June 30, 2001 and for all periods presented have been made. The Condensed Consolidated Balance Sheet as of September 30, 2000 has been derived from audited financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's September 30, 2000 annual report to stockholders. The results of operations for the period ended June 30, 2001 are not necessarily indicative of the operating results for the full year. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. RECENT ACCOUNTING PRONOUNCEMENTS -------------------------------- In September 2000, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, a replacement of FASB Statement No. 125." SFAS No. 140 is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. SFAS No. 140 is effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. The SFAS No. 140 provision regarding transfers and servicing of financial assets and extinguishments of liabilities did not have a material effect on the Company's financial condition, results of operations or liquidity. Management does not expect adoption of the remaining provisions of SFAS No. 140 will have a material effect on the Company's financial condition, results of operations or liquidity. In July 2001, the FASB issued SFAS No. 141, "Business Combinations." SFAS No. 141 requires that all business combinations be accounted for under the purchase method of accounting. SFAS No. 141 also changes the criteria for the separate recognition of intangible assets acquired in a business combination. SFAS No. 141 is effective for all business combinations initiated after June 30, 2001. The adoption of SFAS No. 141 is not expected to have a material effect on the Company's financial condition, results of operations or liquidity. In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 addresses the initial recognition and measurement of intangible assets acquired individually or as part of a group of other assets not constituting a business. SFAS No. 142 also addresses, regardless of how 8 acquired, the subsequent accounting and measurement of goodwill and intangible assets. SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. The Company currently has no goodwill or intangible assets. The adoption of SFAS No. 142 is not expected to have a material effect on the Company's financial condition, results of operations or liquidity. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements." The SAB summarizes certain of the SEC staff's views in applying U.S. generally accepted accounting principles to revenue recognition in financial statements. In June 2000, the SEC issued SAB No. 101B, which delays the implementation date of SAB No. 101 until no later than the fourth quarter of fiscal years beginning after December 15, 1999. The adoption of SAB No. 101 is not expected to have a material effect on the Company's financial condition, results of operations or liquidity. 3. EARNINGS PER COMMON SHARE ------------------------- Basic earnings per share ("EPS") excludes dilution and is computed by dividing net earnings by the weighted-average number of common shares outstanding for the period. The weighted-average number of common shares outstanding were 1,310,952 for the three and nine months ended June 30, 2001, and 1,316,420 and 1,316,775 for the three and nine months ended June 30, 2000, respectively. 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 were 1,399,365 and 1,395,753 for the three and nine months ended June 30, 2001, respectively, and 1,395,465 and 1,390,659 for the three and nine months ended June 30, 2000, respectively. Reconciliations between the numerator and denominator of the basic and diluted earnings per share computations for the three and nine months ended June 30, 2001 and 2000 are as follows: Three months ended June 30, 2001 ------------------------------------------ Net Earnings Shares Per-Share (Numerator) (Denominator) Amount ------------ ------------- --------- Basic earnings per share $ 740,000 1,310,952 $ 0.56 ====== Effect of dilutive securities - Common stock options - 43,413 Convertible debentures 23,000 45,000 ---------- ---------- Diluted earnings per share $ 763,000 1,399,365 $ 0.55 ========== ========== ====== Three months ended June 30, 2000 ------------------------------------------ Net Earnings Shares Per-Share (Numerator) (Denominator) Amount ------------ ------------- --------- Basic earnings per share $ 720,000 1,316,420 $ 0.55 ====== Effect of dilutive securities - Common stock options - 14,045 Convertible debentures 21,000 65,000 ---------- ---------- Diluted earnings per share $ 741,000 1,395,465 $ 0.53 ========== ========== ====== 9 Nine months ended June 30, 2001 ------------------------------------------ Net Earnings Shares Per-Share (Numerator) (Denominator) Amount ------------ ------------- --------- Basic earnings per share $3,660,000 1,310,952 $ 2.79 ====== Effect of dilutive securities - Common stock options - 39,801 Convertible debentures 78,000 45,000 ---------- ---------- Diluted earnings per share $3,738,000 1,395,753 $ 2.68 ========== ========== ====== Nine months ended June 30, 2000 ------------------------------------------ Net Earnings Shares Per-Share (Numerator) (Denominator) Amount ------------ ------------- --------- Basic earnings per share $3,930,000 1,316,775 $ 2.98 ====== Effect of dilutive securities - Common stock options - 8,884 Convertible debentures 69,000 65,000 ---------- ---------- Diluted earnings per share $3,999,000 1,390,659 $ 2.88 ========== ========== ====== Assumed conversion of options to acquire 20,000 shares were excluded from the computation of diluted EPS for the nine months ended June 30, 2001, and options to acquire 50,000 shares were excluded from the computation of diluted EPS for the three and nine months ended June 30, 2000, because its effect would be antidilutive. 4. SEGMENT INFORMATION ------------------- The Company operates three segments: exploring for, developing, producing and selling oil and natural gas (oil and natural gas); investing in leasehold land in Hawaii (land investment); and drilling wells and installing and repairing water pumping systems in Hawaii (contract drilling). The Company's reportable segments are strategic business units that offer different products and services. They are managed separately as each segment requires different operational methods, operational assets and marketing strategies, and operate in different geographical locations. The Company does not allocate general and administrative expenses, interest expense, interest income or income taxes to segments, and there are no transactions between segments that affect segment profit or loss. 10
Three months ended Nine months ended June 30, June 30, -------------------------- -------------------------- 2001 2000 2001 2000 ----------- ----------- ----------- ----------- Revenues: Oil and natural gas $ 4,640,000 $ 4,110,000 $16,580,000 $10,770,000 Contract drilling 1,000,000 850,000 2,640,000 2,700,000 Land development - - - 6,540,000 Other 110,000 168,000 442,000 685,000 ----------- ----------- ----------- ----------- Total before interest income 5,750,000 5,128,000 19,662,000 20,695,000 Interest income 70,000 92,000 268,000 245,000 ----------- ----------- ----------- ----------- Total revenues $ 5,820,000 $ 5,220,000 $19,930,000 $20,940,000 =========== =========== =========== =========== Depreciation, depletion and amortization: Oil and natural gas $ 778,000 $ 994,000 $ 2,552,000 $ 2,303,000 Contract drilling 26,000 51,000 89,000 149,000 Other 53,000 53,000 157,000 217,000 ----------- ----------- ----------- ----------- Total $ 857,000 $ 1,098,000 $ 2,798,000 $ 2,669,000 =========== =========== =========== =========== Operating profit (loss) (before general and administrative expenses): Oil and natural gas $ 2,839,000 $ 2,383,000 $11,357,000 $ 6,154,000 Contract drilling 61,000 120,000 303,000 429,000 Land development (1,000) (6,000) (8,000) 3,237,000 Other 57,000 115,000 285,000 468,000 ----------- ----------- ----------- ----------- Total 2,956,000 2,612,000 11,937,000 10,288,000 General and administrative expenses (1,000,000) (848,000) (3,020,000) (2,490,000) Interest expense (63,000) (170,000) (348,000) (576,000) Interest income 70,000 92,000 268,000 245,000 Foreign exchange losses - - - (206,000) ----------- ----------- ----------- ----------- Earnings before income taxes $ 1,963,000 $ 1,686,000 $ 8,837,000 $ 7,261,000 =========== =========== =========== ===========
5. INCOME TAXES ------------ The components of the provision for income taxes for the three and nine months ended June 30, 2001 and 2000 are as follows: Three months ended Nine months ended June 30, June 30, -------------------------- -------------------------- 2001 2000 2001 2000 ---------- --------- ---------- ---------- Current - U.S. $ 25,000 $ 3,000 $ 135,000 $ 270,000 Current - Foreign 1,447,000 1,051,000 5,012,000 2,476,000 ---------- --------- ---------- ---------- Total - Current 1,472,000 1,054,000 5,147,000 2,746,000 ---------- --------- ---------- ---------- Deferred - U.S. 170,000 20,000 170,000 680,000 Deferred - Foreign (419,000) (108,000) (140,000) (95,000) ---------- --------- ---------- ---------- Total - Deferred (249,000) (88,000) 30,000 585,000 ---------- --------- ---------- ---------- $1,223,000 $ 966,000 $5,177,000 $3,331,000 ========== ========= ========== ========== During the three months ended June 30, 2001, the Province of Alberta reduced the province's corporate tax rate from 15.5% to 13.5% effective April 1, 2001. As a result of this reduction, the Company recorded an approximately $300,000 deferred income tax benefit in the three and nine months ended June 30, 2001. 11 6. INVESTMENT IN LAND ------------------ On April 12, 2001, Barnwell Kona Corporation ("BKC"), a wholly owned subsidiary of the Company, and Mr. Terry Johnston, a member of the Board of Directors of the Company, concurrently acquired 84.1% of Cambridge Hawaii Limited Partnership ("CHLP"). CHLP is a Hawaii limited partnership whose only significant asset is a 49.9% minority interest in Kaupulehu Developments ("KD"), a Hawaii general partnership. Mr. Johnston previously indirectly owned 14.9% of CHLP and was the president and controlling shareholder of the former general partner of CHLP. BKC is now the sole general partner of CHLP. Barnwell Hawaiian Properties, Inc., a wholly owned subsidiary of the Company, presently owns the 50.1% majority interest in KD. KD holds leasehold rights in approximately 2,100 acres of land located adjacent to and north of the Four Seasons Resort Hualalai at Historic Ka'upulehu. The property is located between the Queen Kaahumanu Highway and the Pacific Ocean, approximately six miles north of the Kona International Airport in the North Kona District of the Island of Hawaii. KD also owns development rights in approximately 80 acres of residential zoned leasehold land adjacent to the Hualalai Golf Club and a second golf course currently under construction, both of which are part of the Four Seasons Resort Hualalai at Historic Ka'upulehu. BKC and Mr. Johnston concurrently purchased 55.2% and 28.9% of CHLP, respectively. The interests were purchased from three limited partnerships and several individual investors, each of which held partnership interests in CHLP (the "Sellers"). The Company and Mr. Johnston negotiated the purchase price with the Sellers based on an internal assessment of the value of KD's leasehold and development rights. BKC agreed to pay a total of $4,803,000 for 55.2% of CHLP at $87,000 per percent, and Mr. Johnston agreed to pay a total of $2,518,000 for 28.9% of CHLP at $87,000 per percent. BKC and Mr. Johnston also agreed to pay $300,000 ($197,000 and $103,000, respectively) to CHLP for pre-closing expenses related to this transaction. BKC and Mr. Johnston each paid approximately 54% of their purchase price and the $300,000 referred to above for pre-closing expenses in cash at closing. BKC paid $2,791,000 at closing and signed non-interest bearing promissory notes totaling $2,209,000 due January 31, 2002 for the remaining approximately 46% of its purchase price. The Company loaned Mr. Johnston $1,463,000 for his portion of the cash payment at closing. The Company's loan to Mr. Johnston is non-interest bearing and is due January 31, 2002. Mr. Johnston also signed non-interest bearing promissory notes to the Sellers totaling $1,158,000, due January 31, 2002, for the remaining approximately 46% of his purchase price. Both the cash payment at closing and the loan to Mr. Johnston were funded entirely from the Company's cash flow from operations. The Company and Mr. Johnston are jointly and severally liable for the payment of their respective promissory notes for the remaining approximately 46% of the purchase price due to the Sellers due on January 31, 2002. Mr. Johnston pledged to the Company both his original interest and his newly acquired interest in CHLP as security for both the $1,463,000 loan and the Company's contingent liability for Mr. Johnston's payment to the sellers due January 31, 2002. As a result of this transaction, Mr. Johnston owned approximately 43.8% of CHLP and the Company owns approximately 55.2% of CHLP. The Company's newly acquired interest in CHLP, together with the Company's current 50.1% indirect interest in KD held by Barnwell Hawaiian Properties, Inc., results in the Company owning an aggregate indirect interest of 77.6% in KD. The accounts of CHLP are included in the Company's consolidated financial statements from the acquisition date (April 12, 2001) using the purchase method of accounting. The purchase price paid of $5,000,000 was allocated to land, and on a consolidated basis increased the investment in land by $3,748,000 and reduced the minority interest by $1,252,000. Subsequent to April 12, 2001, Mr. Johnston purchased an 12 additional 0.4% of CHLP, bringing his ownership interest in CHLP to 44.2%; the Company loaned Mr. Johnston an additional $18,000 for the 54% cash payment of this purchase. 7. CONTINGENCY ----------- In October 2000, Kaupulehu Developments filed a motion with the Hawaii State Land Use Commission ("LUC") to establish the procedure initiating the process of the remand of Kaupulehu Developments' petition for reclassification of approximately 1,000 acres of land. In January 2001, the LUC held a hearing to act on the motion and adopted a procedure initiating the remand process as directed by the Supreme Court of the State of Hawaii. In April 2001, the LUC ordered the parties to submit draft findings of fact for the LUC to review. Subsequent hearings have occurred in May, June, July and August, and further hearing and action will be required by the LUC to complete this procedure. Management cannot predict the timing or outcome of the LUC's procedures or findings and, accordingly, there is no assurance that State of Hawaii zoning approval will be forthcoming at any time. If the Company is unable to obtain the LUC's approval of its current petition, and if the Company is subsequently unable to obtain the LUC's approval after making additional efforts with the modifications it believes are necessary to obtain the approval, there could be an impairment of the value of the Company's approximately 1,000 leasehold acres included in the June 30, 2001 consolidated balance sheet under the caption "Investment in Land" at approximately $5,500,000. Item 2. Management's Discussion and Analysis or Plan of Operation --------------------------------------------------------- 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 totaled $9,253,000 for the nine months ended June 30, 2001, an increase of $3,179,000 as compared to the same period in the prior year, due to an increase in operating profit generated by the Company's oil and natural gas segment and timing differences in the collection of receivables and payment of income taxes. Cash flows used in investing activities totaled $8,497,000 for the nine months ended June 30, 2001, an $11,022,000 change from $2,525,000 in cash flows provided by investing activities in the nine months ended June 30, 2000. Cash flows from investing activities decreased as there were no sales of development rights in the nine months ended June 30, 2001, as compared to $6,540,000 in proceeds from the sale of development rights in the nine months ended June 30, 2000. In January 2000, Kaupulehu Makai Venture, an affiliate of Kajima Corporation of Japan, exercised a portion of the option granted in 1990 by Kaupulehu Developments, a then 50.1%-owned general partnership, for the development of residential parcels within the Four Seasons Resort Hualalai at Historic Ka'upulehu on the Island of Hawaii. $1,300,000 of the proceeds were used to repay Kaupulehu Developments' borrowings from a Hawaii bank, and $873,000 were distributed to Kaupulehu Developments' minority interest partner. 13 Also contributing to the decrease was a $2,791,000 disbursement of funds for the acquisition of a 55.2% interest in Cambridge Hawaii Limited Partnership, and a $1,481,000 loan to a related party (both discussed in more detail below). In December 2000, the Company declared a dividend of $0.15 per share payable January 3, 2001, to stockholders of record December 12, 2000. In March 2001, the Company declared a dividend of $0.20 per share payable March 30, 2001, to stockholders of record March 16, 2001. The Royal Bank of Canada has renewed Barnwell's credit facility, increasing the facility by $2,000,000 Canadian dollars to $19,000,000 Canadian dollars (approximately US$12,400,000) and extending the revolving period by one year to April 30, 2002 at LIBOR plus 1%. The Company has also restructured the repayment schedule of the loan under the term period if the Company decides to change the facility from a revolving loan to a term loan. This restructuring reduces the Company's payments in the first two years of the term period with a balloon payment in the last quarter of the third year. If the loan is converted to a term loan, the new term period payments are: first and second years of the term period - 20% (5% per quarter), and the third year of the term period - 60% (5% per quarter for the first three quarters and 45% in the final quarter). Facility repayments in the prior year, coupled with the increase in the facility borrowing base in the current period, has resulted in current available credit under the facility of approximately US$4,000,000 at June 30, 2001. The Company invested $847,000, a decrease of 33%, and $3,423,000, essentially unchanged, in oil and natural gas properties for the three and nine months ended June 30, 2001, respectively, as compared to $1,259,000 and $3,411,000 for the three and nine months ended June 30, 2000. During the three months ended June 30, 2001 the Company participated in the recompletion of 5 gross wells (0.48 net wells) in Alberta, Canada; the Company did not participate in drilling any wells during the period. During the nine months ended June 30, 2001, the Company participated in the recompletion of 17 gross wells (1.74 net wells) in Alberta, Canada and participated in the drilling of wells in Alberta, Canada, and Alabama, as follows: Productive Productive Oil Wells Gas Wells Dry Holes Total Wells ------------- ------------- ------------- -------------- Exp. Dev. Exp. Dev. Exp. Dev. Exp. Dev. ---- ---- ---- ---- ---- ---- ---- ----- Gross - 10.00 1.00 8.00 4.00 2.00 5.00 20.00 Net - 1.02 0.20 0.81 2.15 0.35 2.35 2.18 The Company estimates that oil and natural gas capital expenditures will range from $1,200,000 to $1,400,000 in the fourth quarter of fiscal 2001, and will be funded by existing cash balances and/or cash flow from operations. On April 12, 2001, Barnwell Kona Corporation ("BKC"), a wholly owned subsidiary of the Company, and Mr. Terry Johnston, a member of the Board of Directors of the Company, concurrently acquired 84.1% of Cambridge Hawaii Limited Partnership ("CHLP"). CHLP is a Hawaii limited partnership whose only significant asset is a 49.9% minority interest in Kaupulehu Developments ("KD"), a Hawaii general partnership. Mr. Johnston previously indirectly owned 14.9% of CHLP and was the president and controlling shareholder of the former general partner of CHLP. BKC is now the sole general partner of CHLP. Barnwell Hawaiian Properties, Inc., a wholly owned subsidiary of the Company, presently owns the 50.1% majority interest in KD. KD holds leasehold rights in approximately 2,100 acres of land located adjacent to and north of the Four Seasons Resort Hualalai at Historic Ka'upulehu. The property is located between the Queen Kaahumanu Highway and the Pacific Ocean, approximately six miles north of the Kona International Airport in the North Kona District of the Island of Hawaii. KD also owns development rights in approximately 80 acres of residential zoned leasehold land adjacent to the Hualalai Golf Club and a second golf course currently under construction, both of which are part of the Four Seasons Resort Hualalai at Historic Ka'upulehu. 14 BKC and Mr. Johnston concurrently purchased 55.2% and 28.9% of CHLP, respectively. The interests were purchased from three limited partnerships and several individual investors, each of which held partnership interests in CHLP (the "Sellers"). The Company and Mr. Johnston negotiated the purchase price with the Sellers based on an internal assessment of the value of KD's leasehold and development rights. BKC agreed to pay a total of $4,803,000 for 55.2% of CHLP at $87,000 per percent, and Mr. Johnston agreed to pay a total of $2,518,000 for 28.9% of CHLP at $87,000 per percent. BKC and Mr. Johnston also agreed to pay $300,000 ($197,000 and $103,000, respectively) to CHLP for pre-closing expenses related to this transaction. BKC and Mr. Johnston each paid approximately 54% of their purchase price and the $300,000 referred to above for pre-closing expenses in cash at closing. BKC paid $2,791,000 at closing and signed non-interest bearing promissory notes totaling $2,209,000 due January 31, 2002 for the remaining approximately 46% of its purchase price. The Company loaned Mr. Johnston $1,463,000 for his portion of the cash payment at closing. The Company's loan to Mr. Johnston is non-interest bearing and is due January 31, 2002. Mr. Johnston also signed non-interest bearing promissory notes to the Sellers totaling $1,158,000, due January 31, 2002, for the remaining approximately 46% of his purchase price. Both the cash payment at closing and the loan to Mr. Johnston were funded entirely from the Company's cash flow from operations. The Company and Mr. Johnston are jointly and severally liable for the payment of their respective promissory notes for the remaining approximately 46% of the purchase price due to the Sellers due on January 31, 2002. Mr. Johnston pledged to the Company both his original interest and his newly acquired interest in CHLP as security for both the $1,463,000 loan and the Company's contingent liability for Mr. Johnston's payment to the sellers due January 31, 2002. As a result of this transaction, Mr. Johnston owned approximately 43.8% of CHLP and the Company owns approximately 55.2% of CHLP. The Company's newly acquired interest in CHLP, together with the Company's current 50.1% indirect interest in KD held by Barnwell Hawaiian Properties, Inc., results in the Company owning an aggregate indirect interest of 77.6% in KD. The accounts of CHLP are included in the Company's consolidated financial statements from the acquisition date (April 12, 2001) using the purchase method of accounting. The purchase price paid of $5,000,000 was allocated to land, and on a consolidated basis increased the investment in land by $3,748,000 and reduced the minority interest by $1,252,000. Subsequent to April 12, 2001, Mr. Johnston purchased an additional 0.4% of CHLP, bringing his ownership interest in CHLP to 44.2%; the Company loaned Mr. Johnston an additional $18,000 for the 54% cash payment of this purchase. In October 2000, Kaupulehu Developments filed a motion with the Hawaii State Land Use Commission ("LUC") to establish the procedure initiating the process of the remand of Kaupulehu Developments' petition for reclassification of approximately 1,000 acres of land. In January 2001, the LUC held a hearing to act on the motion and adopted a procedure initiating the remand process as directed by the Supreme Court of the State of Hawaii. In April 2001, the LUC ordered the parties to submit draft findings of fact for the LUC to review. Subsequent hearings have occurred in May, June, July and August, and further hearing and action will be required by the LUC to complete this procedure. Management cannot predict the timing or outcome of the LUC's procedures or findings and, accordingly, there is no assurance that State of Hawaii zoning approval will be forthcoming at any time. If the Company is unable to obtain the LUC's approval of its current petition, and if the Company is subsequently unable to obtain the LUC's approval after making additional efforts with the modifications it believes are necessary to obtain the approval, there could be an impairment of the value of the Company's approximately 1,000 leasehold acres 15 included in the June 30, 2001 consolidated balance sheet under the caption "Investment in Land" at approximately $5,500,000. RESULTS OF OPERATIONS - --------------------- Oil and Gas - ----------- SELECTED OPERATING STATISTICS ----------------------------- Average Prices ------------------------------------------------ Three months ended Increase June 30, (Decrease) ----------------------- ----------------- 2001 2000 $ % -------- ------- ------- ---- Oil (Bbls)* $ 24.60 $ 25.89 $ (1.29) (5%) Liquids (Bbls)* $ 21.36 $ 17.04 $ 4.32 25% Gas (MCF)** $ 3.82 $ 2.55 $ 1.27 50% Nine months ended June 30, Increase ----------------------- ----------------- 2001 2000 $ % -------- ------- ------- ---- Oil (Bbls)* $ 26.00 $ 25.07 $ 0.93 4% Liquids (Bbls)* $ 24.21 $ 15.94 $ 8.27 52% Gas (MCF)** $ 4.69 $ 2.15 $ 2.54 118% Net Sales Volumes ------------------------------------------------ Three months ended June 30, Decrease ----------------------- ----------------- 2001 2000 Units % -------- ------- -------- ---- Oil (Bbls)* 40,000 47,000 (7,000) (15%) Liquids (Bbls)* 25,000 26,000 (1,000) (4%) Gas (MCF)** 808,000 917,000 (109,000) (12%) Nine months ended June 30, Decrease ----------------------- ----------------- 2001 2000 Units % --------- --------- -------- ---- Oil (Bbls)* 136,000 143,000 (7,000) (5%) Liquids (Bbls)* 75,000 81,000 (6,000) (7%) Gas (MCF)** 2,379,000 2,615,000 (236,000) (9%) *Bbls = stock tank barrel equivalent to 42 U.S. gallons **MCF = 1,000 cubic feet Oil and natural gas revenues increased $530,000 (13%) for the three months ended June 30, 2001, as compared to the same period in the prior year, due to 50% and 25% increases in natural gas and natural gas liquids prices, respectively. The increase was partially offset by 12% and 15% decreases in natural gas and oil production, respectively. The decrease in natural gas production was due to an increase in royalties, due to higher prices, and an approximately one week shutdown at Dunvegan, the Company's principal producing natural gas property, for scheduled maintenance in the three months ended June 30, 2001 (as compared to virtually no shutdown in the same period last year). The remaining decrease in natural gas production and the decrease in oil production were attributable to declines in production from the Company's older properties. Oil and natural gas revenues increased $5,810,000 (54%) for the nine months ended June 30, 2001, as compared to the same period in the prior year, due primarily to 118% and 52% increases in natural gas and natural gas liquids prices, respectively. The increase was partially offset by a 9% decrease in natural gas production due to an increase in royalties, due to higher prices, and a decline in production from the Company's older natural gas properties including Dunvegan, the Company's principal producing property. Natural gas prices received by the Company have decreased significantly, 34%, from the quarter ended March 31, 2001 to the quarter ended June 30, 2001. This decline in natural gas prices has continued into the Company's fourth 16 quarter with the average price received by the Company in July currently estimated to be from 25% to 35% below the third quarter. Oil and natural gas operating expenses increased $290,000 (40%) and $358,000 (15%) for the three and nine months ended June 30, 2001, as compared to the same periods in the prior year, due to general inflationary pressures on oil patch costs such as electricity, contract labor, property taxes, operators overhead, and gathering and processing fees, resulting from the higher product prices. Contract Drilling - ----------------- Contract drilling revenues and operating expenses increased $150,000 (18%) and $234,000 (34%), respectively, for the three months ended June 30, 2001, due to an increase in pump installation activity in the current year period partially offset by a decrease in well drilling activity, as compared to the same period in the prior year. Contract drilling operating profit before depreciation decreased $84,000 from $171,000 to $87,000 for the three months ended June 30, 2001, as compared to the same period in the prior year, as pump installation jobs typically generate lower margins than well drilling jobs. Gas Processing and Other - ------------------------ Gas processing and other income decreased $80,000 (31%) for the three months ended June 30, 2001, as compared to the same period in the prior year, due to a decrease in gas processing revenues from Dunvegan and lower interest rates earned on lower cash balances. Gas processing and other income decreased $220,000 (24%) for the nine months ended June 30, 2001, as compared to the same period in the prior year, as the prior year period included a $238,000 gain on the sale of equity securities. There was no such gain in the current year period. Sale of Development Rights and Minority Interest in Earnings - ------------------------------------------------------------ In January 2000, Kaupulehu Makai Venture, an affiliate of Kajima Corporation of Japan, exercised a portion of the option granted by Kaupulehu Developments, a then 50.1%-owned general partnership, for the development of residential parcels within the Four Seasons Resort Hualalai at Historic Ka'upulehu on the Island of Hawaii. As a result, the Company recognized $3,243,000 of pre-tax earnings, net of minority interests, in the nine months ended June 30, 2000. There were no sales of development rights in the three and nine months ended June 30, 2001. General and Administrative Expenses - ----------------------------------- General and administrative expenses increased $152,000 (18%) and $530,000 (21%) for the three and nine months ended June 30, 2001, as compared to the same periods in the prior year, due primarily to higher personnel costs and stock appreciation right costs. Depletion, Depreciation and Amortization - ---------------------------------------- Depletion, depreciation and amortization decreased $241,000 (22%) for the three months ended June 30, 2001, as compared to the same period in the prior year, as the prior year period included $170,000 of depletion to fully deplete costs incurred for an unsuccessful well in Alabama; there was no such depletion in the current year period. The remaining decrease was due to 12% and 15% decreases in natural gas and oil production, as compared to the same period in the prior year. The decrease was partially offset by an increase in the depletion rate as a significant amount of the Company's recent capital expenditures have been to produce proved reserves and therefore did not result in reserve additions. 17 Foreign Exchange Losses - ----------------------- The Company conducts foreign operations in Canada. Consequently, the Company is subject to foreign currency transaction gains and losses due to fluctuations of the exchange rates between the Canadian dollar and the U.S. dollar. During the nine months ended June 30, 2000, the Company realized foreign currency transaction losses of $206,000. There were no significant foreign currency transaction gains or losses in the three and nine months ended June 30, 2001. The Company cannot accurately predict future fluctuations between the Canadian and U.S. dollars. Interest Expense - ---------------- Interest expense decreased $107,000 (63%) and $228,000 (40%) for the three and nine months ended June 30, 2001, respectively, as compared to the same periods in the prior year. These decreases were due to an increase in capitalized interest of $62,000 for the three months and $76,000 for the nine months ended June 30, 2001 resulting from the Company's increased investment in land in April 2001, and lower average loan balances and lower average interest rates. Income Taxes - ------------ During the three months ended June 30, 2001, the Province of Alberta reduced the province's corporate tax rate from 15.5% to 13.5% effective April 1, 2001. As a result of this reduction, the Company recorded an approximately $300,000 deferred income tax benefit in the three and nine months ended June 30, 2001. PART II. OTHER INFORMATION Item 6. Exhibits and reports on Form 8-K One Form 8-K was filed during the three months ended June 30, 2001. On April 25, 2001 Company filed a Form 8-K to report its April 12, 2001 acquisition of a 55.2% interest in Cambridge Hawaii Limited Partnership. 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: August 10, 2001 -----END PRIVACY-ENHANCED MESSAGE-----