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, 2011

[ ] 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. x 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 x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No

As of August 8, 2011 there were 8,277,160 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, 2011 and September 30, 2010 (Unaudited)	3

	Condensed Consolidated Statements of Operations - three and nine months ended June 30, 2011 and 2010 (Unaudited)	4

	Condensed Consolidated Statements of Cash Flows - nine months ended June 30, 2011 and 2010 (Unaudited)	5

	Condensed Consolidated Statements of Equity and Comprehensive Income (Loss) - three months ended June 30, 2011 and 2010 (Unaudited)	6

	Condensed Consolidated Statements of Equity and Comprehensive Income - nine months ended June 30, 2011 and 2010 (Unaudited)	7

	Notes to Condensed Consolidated Financial Statements (Unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24

Item 4.	Controls and Procedures	37

PART II.	OTHER INFORMATION:

Item 6.	Exhibits	38

	Signature	39

	Index to Exhibits	40

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	June 30, 2011				September 30, 2010
ASSETS
Current assets:
Cash and cash equivalents		$	16,769,000			$	10,674,000
Restricted cash		-				218,000
Accounts receivable, net of allowance for doubtful accounts of:
$73,000 at June 30, 2011; $70,000 at September 30, 2010		4,609,000				6,535,000
Income taxes receivable		94,000				2,240,000
Prepaid expenses		411,000				400,000
Real estate held for sale		13,058,000				13,058,000
Other current assets		826,000				1,242,000

Total current assets		35,767,000				34,367,000

Investments		5,122,000				5,433,000

Property and equipment		252,304,000				226,368,000
Accumulated depletion, depreciation, and amortization		(195,322,000		)		(176,280,000		)
Property and equipment, net		56,982,000				50,088,000

Total assets		$	97,871,000			$	89,888,000

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable		$	2,067,000			$	1,442,000
Accrued capital expenditures		4,007,000				2,269,000
Accrued compensation		2,840,000				2,142,000
Payable to joint interest owners		1,243,000				1,265,000
Income taxes payable		225,000				1,072,000
Current portion of long-term debt		12,242,000				13,650,000
Other current liabilities		5,848,000				2,966,000

Total current liabilities		28,472,000				24,806,000

Long-term debt		12,000,000				12,350,000

Liability for retirement benefits		5,511,000				5,391,000

Asset retirement obligation		5,554,000				4,869,000

Deferred income taxes		4,663,000				3,864,000

Total liabilities		56,200,000				51,280,000

Equity:
Barnwell Industries, Inc. stockholders’ equity:
Common stock, par value $0.50 per share; authorized, 20,000,000 shares:
8,445,060 issued at June 30, 2011 and September 30, 2010		4,223,000				4,223,000
Additional paid-in capital		1,289,000				1,289,000
Retained earnings		34,764,000				34,340,000
Accumulated other comprehensive income, net		2,592,000				49,000
Treasury stock, at cost:
167,900 shares at June 30, 2011 and September 30, 2010		(2,286,000		)		(2,286,000		)

Total Barnwell Industries, Inc. stockholders’ equity		40,582,000				37,615,000
Non-controlling interests		1,089,000				993,000

Total equity		41,671,000				38,608,000

Total liabilities and equity		$	97,871,000			$	89,888,000

See Notes to Condensed Consolidated Financial Statements

BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three months ended June 30,							Nine months ended June 30,
	2011			2010				2011			2010
Revenues:
Oil and natural gas		$	7,559,000		$	5,947,000			$	21,220,000		$	20,650,000
Contract drilling		490,000			1,599,000				2,871,000			4,882,000
Sale of interest in leasehold land, net		681,000			1,128,000				1,245,000			3,347,000
Sale of development rights, net		-			-				2,497,000			2,497,000
Gain from drilling royalty credits		98,000			-				1,424,000			-
Gas processing and other		161,000			105,000				332,000			328,000

		8,989,000			8,779,000				29,589,000			31,704,000
Costs and expenses:
Oil and natural gas operating		2,965,000			2,659,000				8,445,000			7,518,000
Contract drilling operating		833,000			1,819,000				3,044,000			4,203,000
General and administrative		1,201,000			1,591,000				7,334,000			6,001,000
Depletion, depreciation, and amortization		2,461,000			2,163,000				7,334,000			6,817,000
Reduction of carrying value of assets		-			-				311,000			798,000
Interest expense		242,000			326,000				862,000			906,000

		7,702,000			8,558,000				27,330,000			26,243,000

Earnings before income taxes		1,287,000			221,000				2,259,000			5,461,000

Income tax provision (benefit)		400,000			(282,000		)		1,279,000			852,000

Net earnings		887,000			503,000				980,000			4,609,000

Less: Net earnings attributable to non-controlling interests		85,000			189,000				556,000			853,000

Net earnings attributable to Barnwell Industries, Inc.		$	802,000		$	314,000			$	424,000		$	3,756,000

Basic net earnings per common share attributable to Barnwell Industries, Inc. stockholders		$	0.10		$	0.04			$	0.05		$	0.45

Diluted net earnings per common share attributable to Barnwell Industries, Inc. stockholders		$	0.10		$	0.04			$	0.05		$	0.45

Weighted-average number of common shares outstanding:
Basic		8,277,160			8,277,160				8,277,160			8,272,732
Diluted		8,381,762			8,277,160				8,337,633			8,272,732

See Notes to Condensed Consolidated Financial Statements

BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine months ended June 30,
	2011				2010
Cash flows from operating activities:
Net earnings		$	980,000			$	4,609,000
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depletion, depreciation, and amortization		7,334,000				6,817,000
Share-based compensation expense (benefit)		972,000				(89,000		)
Retirement benefits expense		564,000				599,000
Deferred income tax expense		552,000				867,000
Reduction of carrying value of assets		311,000				798,000
Accretion of asset retirement obligation		256,000				236,000
Asset retirement obligation payments		(36,000		)		(56,000		)
Foreign exchange gain		(119,000		)		-
Share-based compensation payments		(130,000		)		-
Retirement plan contributions		(254,000		)		(256,000		)
Sale of interest in leasehold land, net		(1,245,000		)		(3,347,000		)
Sale of development rights, net		(2,497,000		)		(2,497,000		)
Additions to real estate held for sale		-				(44,000		)
Increase (decrease) from changes in current assets and liabilities		7,166,000				(738,000		)

Net cash provided by operating activities		13,854,000				6,899,000

Cash flows from investing activities:
Proceeds from sale of development rights, net of fees paid		2,497,000				2,497,000
Proceeds from sale of interest in leasehold land, net of fees paid		1,245,000				3,347,000
Proceeds from gas over bitumen royalty adjustments		72,000				97,000
Proceeds from sale of oil and natural gas properties		-				733,000
Return of capital distribution from joint venture		-				45,000
Capital expenditures - oil and natural gas		(7,377,000		)		(2,900,000		)
Capital expenditures - all other		(2,075,000		)		(1,038,000		)

Net cash (used in) provided by investing activities		(5,638,000		)		2,781,000

Cash flows from financing activities:
Repayments of long-term debt		(1,758,000		)		(4,500,000		)
Contributions from non-controlling interests		280,000				781,000
Proceeds from exercise of stock options		-				59,000
Payment of loan commitment fees		(63,000		)		(104,000		)
Distributions to non-controlling interests		(740,000		)		(1,247,000		)

Net cash used in financing activities		(2,281,000		)		(5,011,000		)

Effect of exchange rate changes on cash and cash equivalents		160,000				(225,000		)

Net increase in cash and cash equivalents		6,095,000				4,444,000
Cash and cash equivalents at beginning of period		10,674,000				6,879,000

Cash and cash equivalents at end of period		$	16,769,000			$	11,323,000

See Notes to Condensed Consolidated Financial Statements

BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME (LOSS)

Three months ended June 30, 2011 and 2010

(Unaudited)



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

Balance at March 31, 2010		8,277,160		$4,223,000		$1,289,000					$	33,942,000		$	815,000			$	(2,286,000	)		$	776,000			$	38,759,000

Contributions from non-controlling interests																						653,000				653,000

Distributions to non-controlling interests																						(329,000		)		(329,000		)

Comprehensive loss:
Net earnings								$ 503,000			314,000											189,000				503,000
Other comprehensive loss -
foreign currency translation adjustments, net of $0 tax benefit								(1,709,000	)					(1,709,000		)										(1,709,000		)
Other comprehensive income -
retirement plans - amortization of accumulated other comprehensive loss into net periodic benefit cost, net of taxes of $0								67,000						67,000												67,000
Total comprehensive loss								(1,139,000	)
Comprehensive income attributable to non-controlling interests								(189,000	)
Comprehensive loss attributable to Barnwell Industries, Inc.								$(1,328,000	)

At June 30, 2010		8,277,160		$4,223,000		$1,289,000					$	34,256,000		$	(827,000	)		$	(2,286,000	)		$	1,289,000			$	37,944,000

Balance at March 31, 2011		8,277,160		$4,223,000		$1,289,000					$	33,962,000		$	2,379,000			$	(2,286,000	)		$	1,102,000			$	40,669,000

Contributions from non-controlling interests																						40,000				40,000

Distributions to non-controlling interests																						(138,000		)		(138,000		)

Comprehensive income:
Net earnings								$ 887,000			802,000											85,000				887,000
Other comprehensive income:
Foreign currency translation adjustments, net of taxes of $0								150,000						150,000												150,000
Retirement plans - amortization of accumulated other comprehensive loss into net periodic benefit cost, net of taxes of $0								63,000						63,000												63,000
Total comprehensive income								1,100,000
Comprehensive income attributable to non-controlling interests								(85,000	)
Comprehensive income attributable to Barnwell Industries, Inc.								$ 1,015,000

At June 30, 2011		8,277,160		$4,223,000		$1,289,000					$	34,764,000		$	2,592,000			$	(2,286,000	)		$	1,089,000			$	41,671,000

See Notes to Condensed Consolidated Financial Statements

BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME

Nine months ended June 30, 2011 and 2010

(Unaudited)


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

Balance at September 30, 2009		8,240,160		$	4,202,000		$	1,227,000					$	30,500,000		$	(1,349,000	)		$	(2,262,000	)		$	902,000			$33,220,000

Exercise of stock options - 42,000 shares,
net of 5,000 shares tendered and placed in treasury		37,000		21,000			62,000													(24,000		)						59,000

Contributions from non-controlling interests																								781,000				781,000

Distributions to non-controlling interests																								(1,247,000		)		(1,247,000	)

Comprehensive income:
Net earnings										$ 4,609,000			3,756,000											853,000				4,609,000
Other comprehensive income:
Foreign currency translation adjustments, net of taxes of $0										321,000						321,000												321,000
Retirement plans - amortization of accumulated other comprehensive loss into net periodic benefit cost, net of taxes of $0										201,000						201,000												201,000
Total comprehensive income										5,131,000
Comprehensive income attributable to non-controlling interests										(853,000	)
Comprehensive income attributable to Barnwell Industries, Inc.										$ 4,278,000

At June 30, 2010		8,277,160		$	4,223,000		$	1,289,000					$	34,256,000		$	(827,000	)		$	(2,286,000	)		$	1,289,000			$37,944,000

Balance at September 30, 2010		8,277,160		$	4,223,000		$	1,289,000					$	34,340,000		$	49,000			$	(2,286,000	)		$	993,000			$38,608,000

Contributions from non-controlling interests																								280,000				280,000

Distributions to non-controlling interests																								(740,000		)		(740,000	)

Comprehensive income:
Net earnings										$ 980,000			424,000											556,000				980,000
Other comprehensive income:
Foreign currency translation adjustments, net of taxes of $0										2,353,000						2,353,000												2,353,000
Retirement plans - amortization of accumulated other comprehensive loss into net periodic benefit cost, net of taxes of $0										190,000						190,000												190,000
Total comprehensive income										3,523,000
Comprehensive income attributable to non-controlling interests										(556,000	)
Comprehensive income attributable to Barnwell Industries, Inc.										$2,967,000

At June 30, 2011		8,277,160		$	4,223,000		$	1,289,000					$	34,764,000		$	2,592,000			$	(2,286,000	)		$	1,089,000			$41,671,000

See Notes to Condensed Consolidated Financial Statements

BARNWELL INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF PRESENTATION

Principles 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 (“U.S.”) 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 (“GAAP”) 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, 2010 Annual Report on Form 10-K. The Condensed Consolidated Balance Sheet as of September 30, 2010 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, 2011, results of operations for the three and nine months ended June 30, 2011 and 2010, and cash flows for the nine months ended June 30, 2011 and 2010, have been made. The results of operations for the period ended June 30, 2011 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. GAAP 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

Oil and Natural Gas Properties

Barnwell uses the full cost method of accounting under which all costs incurred in the acquisition, exploration and development of oil and natural gas reserves, including costs related to unsuccessful wells and estimated future site restoration and abandonment, are capitalized until such time as the aggregate of such costs net of accumulated depletion and oil and natural gas related deferred income taxes, on a country-by-country basis, equals the sum of 1) the discounted present value (at 10%), using average first-day-of-the-month prices during the 12-month period ending in the reporting period on a constant basis, of Barnwell’s estimated future net cash flows from estimated production of proved oil and natural gas reserves as determined by independent petroleum consultants, less estimated future expenditures to be incurred in developing and producing the proved reserves but excluding future cash outflows associated with settling asset retirement obligations accrued on the balance sheet; plus 2) the cost of major development projects and unproven properties not subject to depletion, if any; plus 3) the lower of cost or estimated fair value of unproven properties included in costs subject to depletion; less 4) related income tax effects. If net capitalized costs exceed this limit, the excess is expensed. Depletion is computed using the units-of-production method whereby capitalized costs, net of estimated salvage values, plus estimated future costs to develop proved reserves and satisfy asset retirement obligations, are amortized over the total estimated proved reserves on a country-by-country basis. Investments in major development projects are not depleted until either proved reserves are associated with the projects or impairment has been determined. At June 30, 2011 and September 30, 2010, Barnwell had no investments in oil and natural gas development projects, proved or unproved, that were not being depleted. General and administrative costs related to oil and natural gas operations are expensed as incurred. Proceeds from the disposition of minor producing oil and natural gas properties are credited to the cost of oil and natural gas properties. Gains or losses are recognized on the disposition of significant oil and natural gas properties.

Revenues associated with the sale of oil, natural gas and natural gas liquids are recognized in the Consolidated Statements of Operations when the oil, natural gas and natural gas liquids are delivered and title has passed to the customer.

Barnwell’s sales reflect its working interest share after royalties. Barnwell’s production is generally delivered and sold at the plant gate. Barnwell does not have transportation contracts with pipelines and does not have natural gas imbalances related to natural gas balancing arrangements with its partners.

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.

Recent Accounting Pronouncements

Fair Value Measurements and Related Disclosures

In May 2011, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update that provides a uniform framework for fair value measurements and related disclosures between GAAP and International Financial Reporting Standards. The amendments clarify or change the application of existing fair va