Edgar Filing: BARNWELL INDUSTRIES INC

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2009

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number 1-5103

BARNWELL INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

DELAWARE		72-0496921
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1100 Alakea Street, Suite 2900, Honolulu, Hawaii	96813
(Address of principal executive offices)	(Zip code)

(808) 531-8400

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

T Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

o Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	o		Accelerated filer o
Non-accelerated filer	o (Do not check if a smaller reporting company)		Smaller reporting company T

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.

o Yes T No

As of August 10, 2009 there were 8,240,160 shares of common stock, par value $0.50, outstanding.

BARNWELL INDUSTRIES, INC.

AND SUBSIDIARIES

INDEX

PART I.	FINANCIAL INFORMATION:

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets - June 30, 2009 and September 30, 2008 (Unaudited)	3

	Condensed Consolidated Statements of Operations - three and nine months ended June 30, 2009 and 2008 (Unaudited)	4

	Condensed Consolidated Statements of Cash Flows - nine months ended June 30, 2009 and 2008 (Unaudited)	5

	Condensed Consolidated Statements of Stockholders’ Equity and Comprehensive (Loss) Income - three months ended June 30, 2009 and 2008 (Unaudited)	6

	Condensed Consolidated Statements of Stockholders’ Equity and Comprehensive (Loss) Income - nine months ended June 30, 2009 and 2008 (Unaudited)	7

	Notes to Condensed Consolidated Financial Statements (Unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28

Item 4T.	Controls and Procedures	45

PART II.	OTHER INFORMATION:

Item 1A.	Risk Factors	45

Item 6.	Exhibits	46

	Signature	46

	Index to Exhibits	47

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	June 30,				September 30,
	2009				2008
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	7,445,000			$	13,618,000
Accounts receivable, net of allowance for doubtful accounts of:
$736,000 at June 30, 2009 and $1,078,000 at September 30, 2008		4,150,000				7,524,000
Deferred income taxes		774,000				2,134,000
Current taxes receivable		499,000				975,000
Real estate held for sale		6,931,000				-
Other current assets		2,157,000				1,411,000
TOTAL CURRENT ASSETS		21,956,000				25,662,000
DEPOSITS ON RESIDENTIAL PARCELS		-				200,000
RESIDENTIAL LOTS UNDER DEVELOPMENT		6,307,000				8,876,000
INVESTMENT IN RESIDENTIAL PARCELS		4,681,000				4,708,000
INVESTMENT IN JOINT VENTURES		2,940,000				2,776,000
INVESTMENT IN LAND INTERESTS		1,450,000				1,450,000
PROPERTY AND EQUIPMENT		195,511,000				207,672,000
ACCUMULATED DEPRECIATION, DEPLETION, AND AMORTIZATION		(146,381,000		)		(118,982,000		)
PROPERTY AND EQUIPMENT, NET		49,130,000				88,690,000
TOTAL ASSETS		$	86,464,000			$	132,362,000

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable		$	3,299,000			$	6,516,000
Accrued capital expenditures		508,000				3,071,000
Accrued liabilities		3,694,000				7,514,000
Payable to joint interest owners		961,000				1,581,000
Income taxes payable		345,000				3,506,000
Current portion of long-term debt		6,931,000				-
Other current liabilities		393,000				645,000
TOTAL CURRENT LIABILITIES		16,131,000				22,833,000

LONG-TERM DEBT		24,780,000				26,217,000
LIABILITY FOR RETIREMENT BENEFITS		2,312,000				2,041,000
ASSET RETIREMENT OBLIGATION		4,262,000				4,565,000
DEFERRED INCOME TAXES		330,000				14,375,000
MINORITY INTEREST		1,022,000				1,067,000
STOCKHOLDERS’ EQUITY:
Common stock, par value $0.50 per share; Authorized, 20,000,000 shares:
8,403,060 issued at June 30, 2009 and September 30, 2008		4,202,000				4,202,000
Additional paid-in capital		1,227,000				1,222,000
Retained earnings		35,054,000				54,862,000
Accumulated other comprehensive (loss) income, net		(594,000		)		3,143,000
Treasury stock, at cost:
162,900 shares at June 30, 2009; 150,200 shares at September 30, 2008		(2,262,000		)		(2,165,000		)
TOTAL STOCKHOLDERS’ EQUITY		37,627,000				61,264,000
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	86,464,000			$	132,362,000

See Notes to Condensed Consolidated Financial Statements

BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three months ended							Nine months ended
	June 30,							June 30,
	2009				2008			2009				2008
Revenues:
Oil and natural gas		$	5,927,000			$	14,646,000		$	19,187,000			$	36,239,000
Contract drilling		1,420,000				2,674,000			3,643,000				7,267,000
Sale of interest in leasehold land, net		-				402,000			201,000				1,111,000
Sale of development rights, net		-				1,664,000			833,000				4,161,000
Gas processing and other		121,000				970,000			697,000				1,545,000

		7,468,000				20,356,000			24,561,000				50,323,000
Costs and expenses:
Oil and natural gas operating		2,140,000				2,607,000			7,036,000				7,539,000
Contract drilling operating		1,070,000				2,166,000			3,187,000				5,943,000
General and administrative		2,086,000				4,193,000			6,073,000				10,476,000
Bad debt (recovery) expense		(129,000		)		608,000			465,000				608,000
Depreciation, depletion, and amortization		2,636,000				3,730,000			9,184,000				11,109,000
Reduction of carrying value of oil and natural gas properties		4,260,000				-			26,348,000				-
Interest expense, net		247,000				257,000			601,000				834,000
Minority interest in (losses) earnings		(40,000		)		486,000			105,000				1,045,000

		12,270,000				14,047,000			52,999,000				37,554,000

(Loss) earnings before income taxes		(4,802,000		)		6,309,000			(28,438,000		)		12,769,000

Income tax (benefit) provision		(1,567,000		)		2,776,000			(8,630,000		)		4,232,000

NET (LOSS) EARNINGS		$	(3,235,000	)		$	3,533,000		$	(19,808,000	)		$	8,537,000

BASIC NET (LOSS) EARNINGS
PER COMMON SHARE		$	(0.39	)		$	0.43		$	(2.40	)		$	1.04

DILUTED NET (LOSS) EARNINGS
PER COMMON SHARE		$	(0.39	)		$	0.42		$	(2.40	)		$	1.01

WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
BASIC		8,240,160				8,269,460			8,240,539				8,242,311
DILUTED		8,240,160				8,438,038			8,240,539				8,447,209

See Notes to Condensed Consolidated Financial Statements

BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine months ended
	June 30,
	2009				2008
Cash flows from operating activities:
Net (loss) earnings		$	(19,808,000	)		$	8,537,000
Adjustments to reconcile net (loss) earnings to net cash (used in) provided by operating activities:
Reduction of carrying value of oil and natural gas properties		26,348,000				-
Depreciation, depletion, and amortization		9,184,000				11,109,000
Bad debt expense		465,000				608,000
Retirement benefits expense		378,000				360,000
Accretion of asset retirement obligation		202,000				206,000
Minority interest in earnings		105,000				1,045,000
Retirement benefits contribution		-				(450,000		)
Share-based compensation payments		-				(458,000		)
Asset retirement obligation payments		(128,000		)		(48,000		)
Share-based compensation benefit		(370,000		)		(87,000		)
Sale of interest in leasehold land, net		(201,000		)		(1,111,000		)
Sale of development rights, net		(833,000		)		(4,161,000		)
Deferred income tax benefit		(8,362,000		)		(1,332,000		)
Additions to residential lots under development		(4,338,000		)		(2,760,000		)
(Decrease) increase from changes in current assets and liabilities		(7,078,000		)		1,439,000

Net cash (used in) provided by operating activities		(4,436,000		)		12,897,000

Cash flows from investing activities:
Proceeds from sale of development rights, net of fees paid		833,000				4,161,000
Proceeds from sale of interest in leasehold land, net of fees paid		201,000				1,085,000
Refund of deposits on residential parcels		200,000				-
Proceeds from gas over bitumen royalty adjustments		162,000				166,000
Investment in joint ventures		(164,000		)		(5,000		)
Capital expenditures - oil and natural gas		(7,494,000		)		(9,939,000		)
Capital expenditures - all other		(19,000		)		(708,000		)
Additions to investment in residential parcels		-				(222,000		)

Net cash used in investing activities		(6,281,000		)		(5,462,000		)

Cash flows from financing activities:
Proceeds from long-term debt borrowings		6,093,000				2,264,000
Repayments of long-term debt		(603,000		)		(121,000		)
Contributions from minority interest partner		31,000				-
Proceeds from exercise of stock options		-				145,000
Payment of dividends		-				(1,238,000		)
Payment of loan commitment fee		(60,000		)		(100,000		)
Purchases of common stock for treasury		(97,000		)		(1,596,000		)
Distributions to minority interest partners		(181,000		)		(968,000		)

Net cash provided by (used in) financing activities		5,183,000				(1,614,000		)

Effect of exchange rate changes on cash and cash equivalents		(639,000		)		(101,000		)

Net (decrease) increase in cash and cash equivalents		(6,173,000		)		5,720,000
Cash and cash equivalents at beginning of period		13,618,000				10,107,000

Cash and cash equivalents at end of period		$	7,445,000			$	15,827,000

See Notes to Condensed Consolidated Financial Statements

BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE (LOSS) INCOME

Three months ended June 30, 2009 and 2008

(Unaudited)

																	Accumulated
						Additional											Other								Total
	Shares		Common			Paid-In			Comprehensive				Retained				Comprehensive				Treasury				Stockholders’
	Outstanding		Stock			Capital			(Loss) Income				Earnings				(Loss) Income				Stock				Equity

Balance at March 31, 2008		8,269,460		$	4,197,000		$	1,003,000						$	49,168,000			$	3,815,000			$	(1,869,000	)		$	56,314,000

Share-based compensation costs							7,000																			7,000

Tax benefit from employee stock option transactions							60,000																			60,000

Dividends declared, $0.05 per share														(414,000		)										(414,000		)

Comprehensive income:
Net earnings										$	3,533,000			3,533,000												3,533,000
Other comprehensive income:
Foreign currency translation adjustments, net of $146,000 of taxes										337,000								337,000								337,000
Retirement plans - amortization of accumulated other comprehensive loss into net periodic benefit cost, net of $14,000 of taxes										27,000								27,000								27,000
Total comprehensive income										$	3,897,000

At June 30, 2008		8,269,460		$	4,197,000		$	1,070,000						$	52,287,000			$	4,179,000			$	(1,869,000	)		$	59,864,000


Balance at March 31, 2009		8,240,160		$	4,202,000		$	1,227,000						$	38,289,000			$	(3,467,000	)		$	(2,262,000	)		$	37,989,000

Comprehensive loss:
Net loss										$	(3,235,000	)		(3,235,000		)										(3,235,000		)
Other comprehensive income:
Foreign currency translation adjustments, net of $154,000 of taxes										2,850,000								2,850,000								2,850,000
Retirement plans - amortization of accumulated other comprehensive loss into net periodic benefit cost, net of $12,000 of taxes										23,000								23,000								23,000
Total comprehensive loss										$	(362,000	)

At June 30, 2009		8,240,160		$	4,202,000		$	1,227,000						$	35,054,000			$	(594,000	)		$	(2,262,000	)		$	37,627,000

See Notes to Condensed Consolidated Financial Statements

BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE (LOSS) INCOME

Nine months ended June 30, 2009 and 2008

(Unaudited)

																		Accumulated
							Additional											Other								Total
	Shares			Common			Paid-In			Comprehensive				Retained				Comprehensive				Treasury				Stockholders’
	Outstanding			Stock			Capital			(Loss) Income				Earnings				(Loss) Income				Stock				Equity

Balance at September 30, 2007		8,268,160			$	4,140,000		$	738,000						$	44,988,000			$	4,933,000			$	(195,000	)		$	54,604,000

Exercise of stock options, 113,000 shares net of 5,200 shares tendered and placed in treasury		107,800			57,000			166,000															(78,000		)		145,000

Share-based compensation costs								28,000																			28,000

Tax benefit from employee stock option transactions								138,000																			138,000

Purchases of 106,500 common shares for treasury		(106,500	)																				(1,596,000		)		(1,596,000		)

Dividends declared, $0.15 per share															(1,238,000		)										(1,238,000		)

Comprehensive income:
Net earnings											$	8,537,000			8,537,000												8,537,000
Other comprehensive loss - foreign currency translation adjustments, net of $513,000 tax benefit											(837,000		)						(837,000		)						(837,000		)
Other comprehensive income - retirement plans - amortization of accumulated other comprehensive loss into net periodic benefit cost, net of $43,000 of taxes											83,000								83,000								83,000
Total comprehensive income											$	7,783,000

At June 30, 2008		8,269,460			$	4,197,000		$	1,070,000						$	52,287,000			$	4,179,000			$	(1,869,000	)		$	59,864,000


Balance at September 30, 2008		8,252,860			$	4,202,000		$	1,222,000						$	54,862,000			$	3,143,000			$	(2,165,000	)		$	61,264,000

Share-based compensation costs								5,000																			5,000

Purchases of 12,700 common shares for treasury		(12,700	)																				(97,000		)		(97,000		)

Comprehensive loss:
Net loss											$	(19,808,000	)		(19,808,000		)										(19,808,000		)
Other comprehensive loss - foreign currency translation adjustments, net of $2,924,000 tax benefit											(3,807,000		)						(3,807,000		)						(3,807,000		)
Other comprehensive income - retirement plans - amortization of accumulated other comprehensive loss into net periodic benefit cost, net of $36,000 of taxes											70,000								70,000								70,000
Total comprehensive loss											$	(23,545,000	)

At June 30, 2009		8,240,160			$	4,202,000		$	1,227,000						$	35,054,000			$	(594,000	)		$	(2,262,000	)		$	37,627,000

See Notes to Condensed Consolidated Financial Statements

BARNWELL INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF PRESENTATION

Basis of Consolidation

The condensed consolidated financial statements include the accounts of Barnwell Industries, Inc. and all majority-owned subsidiaries, including an indirect 77.6%-owned land investment general partnership and two 80%-owned joint ventures (collectively referred to herein as “Barnwell,” “we,” “our,” “us,” or the “Company”). All significant intercompany accounts and transactions have been eliminated. Investments in companies over which Barnwell has the ability to exercise significant influence, but not control, are accounted for using the equity method.

Unless otherwise indicated, all references to “dollars” in this Form 10-Q are to U.S. dollars.

Unaudited Interim Financial Information

The accompanying unaudited condensed consolidated financial statements and notes have been prepared by Barnwell in accordance with the rules and regulations of the United States Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the company believes that the disclosures made are adequate to make the information not misleading. These condensed consolidated financial statements and notes should be read in conjunction with the consolidated financial statements and notes thereto included in Barnwell’s September 30, 2008 Annual Report on Form 10-K. The Condensed Consolidated Balance Sheet as of September 30, 2008 has been derived from audited consolidated financial statements.

In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position at June 30, 2009, results of operations for the three and nine months ended June 30, 2009 and 2008, and cash flows for the nine months ended June 30, 2009 and 2008, have been made. The results of operations for the period ended June 30, 2009 are not necessarily indicative of the operating results for the full year.

Use of Estimates

The preparation of the financial statements in conformity with U.S. generally accepted accounting principles requires management of Barnwell 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.

Significant Accounting Policies

Real Estate Held for Sale, Residential Lots Under Development, Investment in Residential Parcels, and Deposits on Residential Parcels

Real estate held for sale, residential lots under development, investment in residential parcels, and deposits on residential parcels are reported at the lower of the asset carrying value or fair value. The recorded balances are evaluated for impairment whenever events or changes in circumstances indicate that the balance may not be fully recoverable.

The costs of acquiring land, development and construction costs, interest, property taxes and general and administrative expenses related to the development of land and home construction, are capitalized. Costs that relate to a specific lot or home are assigned to that lot or home while common costs related to multiple lots or homes will be allocated to each in proportion to their anticipated sales value.

Barnwell capitalizes interest costs during development and construction and includes these costs in cost of sales when homes are sold.

Barnwell classifies its residential real estate in one of the following categories:

·	Real estate held for sale, which includes completed assets or land for sale in its present condition, that meet all of the criteria set forth in paragraph 30 of Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”;

·	Residential lots under development (current), which includes real estate that we are in the process of developing that is expected to be completed and disposed of within one year of the balance sheet date;

·	Residential lots under development (non-current), which includes real estate that we are in the process of developing that is expected to be completed and disposed of more than one year from the balance sheet date; or

·	Investment in residential parcels (non-current), which consists of land held for speculative purposes and on which development activities have not commenced, and which is not expected to be disposed of within one year of the balance sheet date.

Other

Barnwell’s other significant accounting policies are described in the Notes to Consolidated Financial Statements included in Item 8 of the Company’s most recently filed Annual Report on Form 10-K.

Reclassifications

Certain prior year amounts within this Form 10-Q have been reclassified to conform to the presentation adopted in the current year.

2. (LOSS) EARNINGS PER COMMON SHARE

Reconciliations between net (loss) earnings and common shares outstanding of the basic and diluted net (loss) earnings per share computations for the three and nine months ended June 30, 2009 and 2008 are as follows:

Three months ended June 30, 2009

Net Loss

Per-Share

(Numerator)

(Denominator)

Amount

Basic net loss per share

(3,235,000

)

8,240,160

(0.39

)

Effect of dilutive securities -

common stock options

Diluted net loss per share

(3,235,000

)

8,240,160

(0.39

)

Nine months ended June 30, 2009

Net Loss

Per-Share

(Numerator)

(Denominator)

Amount

Basic net loss per share

(19,808,000

)

8,240,539

(2.40

)

Effect of dilutive securities -

common stock options