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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q/A
(Mark One)
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1995
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or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period ended
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Commission file number: 0-10990
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CASTLE ENERGY CORPORATION
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(Exact Name of Registrant as Specified in its Charter)
Delaware 76-0035225
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
One Radnor Corporate Center, Suite 250,
100 Matsonford Road, Radnor, Pennsylvania 19087
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (610) 995-9400
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check X 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 Yes X No .
---- ----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date: 6,693,646 shares of
Common Stock, $.50 par value.
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CASTLE ENERGY CORPORATION
INDEX
Page #
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Part I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets - December, 31, 1995
(Unaudited) and September 30, 1995........................... 1
Consolidated Statements of Operations - Three Months
Ended December 31, 1995 and 1994 (Unaudited)................. 2-3
Consolidated Statements of Cash Flows - Three Months
Ended December 31, 1995 and 1994 (Unaudited)................. 4
Consolidated Statements of Stockholders' Equity - Year
Ended September 30, 1995 and Three Months Ended
December 31, 1995 (Unaudited)................................ 5
Notes to the Consolidated Financial Statements (Unaudited)... 6-9
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CASTLE ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
("000's" Omitted Except Share Amounts)
<TABLE>
<CAPTION>
December 31, September 30,
1995 1995
----------------- -------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents .................................................. $ 4,879 $ 5,341
Restricted cash ............................................................ 7,279 4,959
Accounts receivable ........................................................ 7,629 5,641
Prepaid expenses and other current assets .................................. 220 153
Deferred income taxes ...................................................... 4,623 4,623
Estimated realizable value of discontinued net refining assets ............. 10,803 10,803
--------- ---------
Total current assets ..................................................... 35,433 31,520
Property, plant and equipment, net:
Natural gas transmission ................................................... 22,276 22,720
Furniture, fixtures and equipment .......................................... 262 276
Oil and gas properties, net .................................................... 16,798 17,410
Gas contracts, net ............................................................. 32,172 34,515
Other assets, net .............................................................. 411 463
Note receivable ................................................................ 10,000 10,000
--------- ---------
Total assets ............................................................. $ 117,352 $ 116,904
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt .......................................... $ 4,843 $ 12,080
Current portion of long-term debt - related party .......................... 125 250
Accounts payable ........................................................... 6,372 4,715
Accrued expenses ........................................................... 3,049 3,284
Other liabilities .......................................................... 3,439 3,323
Net refining liabilities retained .......................................... 19,709 20,342
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Total current liabilities ................................................ 37,537 43,994
Long-term debt ................................................................. 25,027 23,616
Other long-term liabilities .................................................... 83 83
Deferred income taxes .......................................................... 7,574 7,574
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Total liabilities ........................................................ 70,221 75,267
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Commitments and contingencies
Stockholders' equity:
Series B participating preferred stock; par value - $1.00; 10,000,000 shares
authorized; no shares issued
Common stock; par value - $0.50; 25,000,000 shares authorized;
6,693,646 shares issued and outstanding .................................. 3,347 3,347
Additional paid-in capital ..................................................... 66,316 66,316
Accumulated deficit ............................................................ (22,532) (28,026)
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47,131 41,637
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Total liabilities and stockholders' equity ............................... $ 117,352 $ 116,904
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements
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CASTLE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
("000's" Omitted Except Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended December 31,
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1995 1994
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<S> <C> <C>
Revenues:
Natural gas marketing and transmission:
Gas sales ................................. $15,840 $20,055
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15,840 20,055
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Exploration and production:
Oil and gas sales ......................... 2,071 2,217
Well operations ........................... 131 142
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2,202 2,359
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18,042 22,414
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Expenses:
Natural gas marketing and transmission:
Gas purchases ............................. 8,741 11,322
Operating costs ........................... 256 267
General and administrative ................ 244 270
Depreciation and amortization ............. 2,846 2,846
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12,087 14,705
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Exploration and production:
Oil and gas production .................... 734 681
General and administrative ................ 220 203
Depreciation, depletion and amortization .. 631 747
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1,585 1,631
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Corporate general and administrative expenses 1,144 1,294
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14,816 17,630
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Operating income ................................ 3,226 4,784
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</TABLE>
(Continued on next page)
The accompanying notes are an integral part of these financial statements
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<PAGE>
CASTLE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
("000's" Omitted Except Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended December 31,
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1995 1994
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<S> <C> <C>
Other income (expenses):
Interest income ............................................ $ 231 $ 729
Other income ............................................... 2,744
Interest expense ........................................... (707) (1,045)
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2,268 (316)
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Net income before provision for income taxes ................... 5,494 4,468
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Provision for income taxes related to continuing operations:
State .................................................. 4,218
Federal ................................................ 27,734
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31,952
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Income (loss) from continuing operations ....................... 5,494 (27,484)
Income from discontinued refining operations less applicable
income taxes of $0 and $27,711, in 1995 and 1994,
respectively ............................................... 41,568
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Net income ..................................................... $ 5,494 $ 14,084
=========== ===========
Net income (loss) per share:
Income (loss) per share from continuing operations - primary $ .82 ($ 3.84)
=========== ===========
- fully diluted ...................................... $ .82 ($ 3.84)
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Income per share from discontinued refining operations
- primary ............................................ $ -- $ 5.81
=========== ===========
- fully diluted ...................................... $ -- $ 5.81
=========== ===========
Net income per share - primary ............................. $ .82 $ 1.97
=========== ===========
- fully diluted ...................................... $ .82 $ 1.97
=========== ===========
Weighted average number of common and common
equivalent shares outstanding - primary ................ 6,711,741 7,157,160
=========== ===========
- fully diluted ...................................... 6,717,043 6,978,024
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
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<PAGE>
CASTLE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
("000's" Omitted)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended December 31,
-------------------------------
1995 1994
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<S> <C> <C>
Net cash flow provided by (used in) operating activities ...................... $ 12,875 $ (911)
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Cash flows from investing activities:
Investment in refining plant .............................................. (20,480)
Investment in oil and gas properties ...................................... (15) (3,857)
Investment in pipelines ................................................... (23) (4)
Purchase of furniture, fixtures and equipment ............................. (115)
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Net cash used in investing activities ........................... (38) (24,456)
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Cash flows from financing activities:
Proceeds of long-term debt ................................................. 41,481
Repayment of long-term debt ................................................ (14,658) (12,646)
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Net cash provided by (used in) financing activities .................. (14,658) 28,835
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Net increase (decrease) in cash and cash equivalents .......................... (1,821) 3,468
Cash and cash equivalents - beginning of period ............................... 6,710 18,118
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Cash and cash equivalents - end of period ..................................... $ 4,889 $ 21,586
========= =========
Supplemental disclosures of cash flow information are as follows:
Cash paid during the period:
Interest ................................................................... $ 718 $ 1,564
========= =========
Income taxes ............................................................... $ 500 $ 143
========= =========
Payment of related party payables in exchange for reduction in cash
participations .......................................................... $ 6,862
=========
MG Settlement, including surrender of 969,000 common shares, cancellation of
debt obligations and the assumption by MG of the forward sale obligations
and Societe Generale loan ............................................... $ 396,166
=========
Unrealized portion of estimated realizable value of discontinued net
refining assets ........................................................ $ 6,803
=========
</TABLE>
The accompanying notes are an integral part of these financial statements
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CASTLE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
("000's" Omitted Except Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional
------------------------- Paid-In Accumulated
Shares Amount Capital (Deficit) Total
------ ------ ---------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance - October 1, 1994 .. 7,627,646 $ 3,814 $ 75,754 ($41,648) $ 37,920
Stock acquired ............. (969,000) (485) (9,622) (1,275) (11,382)
Options exercised .......... 35,000 18 184 202
Net income ................. 14,897 14,897
---------- ---------- ---------- ---------- ----------
Balance - September 30, 1995 6,693,646 3,347 66,316 (28,026) 41,637
Net income ................. 5,494 5,494
---------- ---------- ---------- ---------- ----------
Balance - December 31, 1995 6,693,646 $ 3,347 $ 66,316 ($22,532) $ 47,131
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
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<PAGE>
Castle Energy Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(Unaudited)
Note 1 - Basis of Preparation
The unaudited consolidated financial statements of Castle Energy
Corporation (the "Company") included herein have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
reclassifications have been made to make the periods presented comparable.
Although certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, the Company believes that the disclosures included herein are
adequate to make the information presented not misleading. Operating results for
the three-month period ended December 31, 1995 are not necessarily indicative of
the results that may be expected for the fiscal year ending September 30, 1996.
These unaudited consolidated financial statements should be read in conjunction
with the financial statements and the notes thereto included in the Company's
Annual Report on Form 10-K for the fiscal year ended September 30, 1995.
Reference should be made to such Form 10-K for capitalized (defined) terms used
herein.
In the opinion of the Company, the unaudited consolidated financial
statements contain all adjustments necessary for a fair statement of the results
of operations for the three-month periods ended December 31, 1995 and 1994 and
for a fair statement of financial position at December 31, 1995.
Note 2 - September 30, 1995 Balance Sheet
The amounts presented in the balance sheet as of September 30, 1995
were derived from the Company's audited consolidated financial statements which
were included in its Annual Report on Form 10-K for the fiscal year ended
September 30, 1995.
Note 3 - Acquisition
In October 1994, one of the Company's exploration and production
subsidiaries purchased certain royalty interests held by ARCO in wells purchased
by another of the Company's exploration and production subsidiaries from ARCO in
December 1992. The purchase price was $3,823.
Note 4 - Discontinued Operations
In 1994, the Company decided to discontinue the operations of its
refining business and to sell or retire its two refineries.
In July 1995, operations ceased at the Powerine Refinery and the
Company retired the assets of the Powerine Refinery. On September 29, 1995,
Powerine Oil Company ("Powerine"), the refining subsidiary owning the Powerine
Refinery, sold (for legal purposes) substantially all of the refining plant
assets to Kenyen Projects Limited ("Kenyen"), retaining certain rack facilities
and the land on which the Powerine Refinery is situated and certain other
assets. The purchase price was $22,763 consisting of $3,000 cash and a note for
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Castle Energy Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(Unaudited)
$19,763. The note was due in three equal installments of principal and interest
of $7,108 (of which $19,763 is principal) on April 30, June 30 and September 30,
1996. On January 16, 1996, Powerine merged into a subsidiary of Energy Merchant
Corp. ("EMC"). As part of the sale, EMC also indemnified Powerine and the
Company for any and all environmental liabilities of Powerine. Subsequent to
January 16, 1996, the financial press reported that EMC had acquired the
Powerine Refinery from Kenyen.
On September 30, 1995, operations also ceased at the Indian Refinery
and the Company retired the plant assets of the Indian Refinery. On December 12,
1995, the Company sold the plant assets of the Indian Refinery to American
Western Refining L.P., a subsidiary of Gadgil Western Corporation ("American
Western"). The purchase price was $8,000, including $3,000 cash and a note for
$5,000. The note bears interest at 8% and is due on the earlier of October 31,
1996 or the date American Western obtains financing to restart the Indian
Refinery. The note is secured by the real property and the Indian Refinery.
American Western also assumed certain liabilities of Indian Refining Limited
Partnership ("IRLP"), the owner of the Indian Refinery, including employee
pension liabilities and all environmental liabilities, in conjunction with the
sale. The Company also sold certain precious metal catalysts to American Western
for a note for $1,803.
As a result of the discontinuance of refining operations, all assets
and liabilities related to the refining segment have been netted. The realizable
value of net refining assets sold subsequent to December 31, 1995 is shown under
the caption "Estimated realizable value of discontinued net refining assets" on
the accompanying Consolidated Balance Sheet. The estimated value of the refining
liabilities retained is shown under the caption "Net refining liabilities
retained."
Note 5 - Contingencies
Long-Term Supply Agreement
In 1993, IRLP entered into a Long-Term Supply Agreement (the "LTSA")
with Shell Canada Limited and Salmon Resources Ltd. (collectively "Shell") for
the supply of Caroline Condensate feedstock to the Indian Refinery. MGRM agreed
to be the alternate purchaser under the LTSA in the event IRLP should fail to
perform. On December 23, 1994, Shell filed suit in the United States District
Court for the Northern District of Illinois against IRLP and MGRM (the "Shell
Litigation"). The complaint alleged that MGRM failed to provide Shell with
adequate assurances, pursuant to a request under the Illinois Commercial Code,
concerning its role as "alternate purchaser" under the LTSA, and that as a
result, MGRM repudiated the LTSA pursuant to provisions of the Illinois
Commercial Code. The complaint further alleged that the LTSA should be
terminated because its purpose has been frustrated and the performance has
become impossible.
On October 2, 1995, Shell unilaterally terminated its performance under
the LTSA and ceased delivering Caroline Condensate to the Indian Refinery. On
January 16, 1996, Shell filed an amended complaint, which adds a claim for
$10,000 in damages based upon alleged undercharges and other breaches of the
LTSA. Management believes the claim of Shell is without merit.
On December 12, 1995, IRLP sold the Indian Refinery to American
Western. As part of the sale, American Western assumed all liabilities and
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Castle Energy Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(Unaudited)
expenses associated with the LTSA litigation. American Western is currently
defending this litigation and has filed a counterclaim against Shell in the
amount of $100,000.
Powerine Arbitration
On April 14, 1995, Powerine repaid all of the indebtedness owed by it
to MGTFC, including $10,828 of disputed amounts (the "Disputed Amount"). On the
same day, the Company and two of its subsidiaries and MG and two of its
subsidiaries entered into the Payoff Loan and Pledge Agreement ("Payoff
Agreement"), which provided the following:
a. MG released Powerine from all liens and claims.
b. MG loaned the Company $10,000.
c. Powerine transferred its claim with respect to the Disputed Amount
to the Company.
d. The claim with respect to the disputed Amount was submitted to
binding arbitration (the "Powerine Arbitration").
e. MG can offset the $10,000 loan to the Company against the $10,000
note it issued to the Company as part of the MG Settlement, to the
extent the arbitrator decides the claim with respect to the
Disputed Amount in MG's favor.
The Disputed Amount relates primarily to disputes over the prices paid
by subsidiaries of MG for 388,500 barrels of refined products lifted by MG's
subsidiary, MGRM, and nonpayment for refined products that were processed after
January 31, 1995 and that MGRM was obligated to, but did not, lift and pay for.
To the extent that the arbitrator decides in favor of the Company, the Company's
note to MG will be reduced and the net amount due to the Company from MG will be
increased. If the arbitrator settles the Disputed Amount entirely in the
Company's favor, the Company's note to MG will be cancelled and MG will still
owe the Company its $10,000 note (due October 14, 1997). If the arbitrator
settles the Disputed Amount entirely in MG's favor, the Company's note from MG
will be discharged. In such case the Company's future earnings will also be
adversely impacted since the Company has not recorded any reserve against the
note.
On September 8, 1995, the Company filed its Statement of Claim and
Memorandum. On December 6, 1995, MG filed its Notice of Defense and Response to
Claimant's Statement of Claim and Memorandum. The Company filed a reply on
February 14, 1996 and the parties are proceeding with discovery as to the amount
of damages. The Company expects the arbitration to be settled during the fourth
quarter of fiscal 1996.
In January 1996, MG did not pay interest on the $10,000 note when such
interest was due. As a result, the entire note is due to be paid to the escrow
account for the Powerine Arbitration. The Company has demanded that MG pay the
entire note.
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Castle Energy Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(Unaudited)
Swap Agreement
In April 1995, IRLP terminated a Natural Gas Swap Agreement (the "Swap
Agreement"), dated October 14, 1994 between MGNG and IRLP, claiming the right to
do so based on breaches of other agreements by MG and its affiliates. MGNG
disregarded IRLP's termination notice and sent IRLP a termination notice
alleging IRLP was the defaulting party and claiming approximately $1,200 of
losses. IRLP has refused to pay MGNG's claim. In June 1995, MGRM, as MGNG's
assignee, filed a complaint in Delaware state court, claiming $1,356 plus
interest under the Swap Agreement. IRLP has answered the complaint. The
Company's management believes that IRLP has good defenses to that claim, expects
to prevail and expects to recover its $707 receivable.
Note 6 - Stockholder Litigation Recovery
In December 1995, the Company received $2,725 from a plaintiff class
escrow fund related to stockholder litigation. The parties reached a settlement
with respect to the stockholder litigation in October 1994. The proceeds to the
Company represent unclaimed funds that were to revert to the Company pursuant to
the Settlement Order for the litigation. The recovery is shown as "Other Income"
in the Consolidated Statement of Operations.
Note 7 - Subsequent Events
In March 1996, the Company received a commitment letter from a bank for
a credit facility of $3,800. The credit facility is to be collateralized by the
Company's exploration and production assets and a second lien on the Company's
natural gas marketing and transmission assets and is to be payable as a term
loan over seventeen months. The Company and the bank are currently concluding
the documentation of the credit facility.
On March 5, 1996, the Company engaged Lazard Freres & Co., LLC to
explore strategic alternatives to enhance stockholder value and to act as the
Company's exclusive advisor. The alternatives that may be recommended include
the sale of assets, the sale of the Company, a merger with or joint venture with
another company or other restructuring measures. If such is the case, future
operations of the Company may be different from current operations.
On January 16, 1996, Powerine merged into a subsidiary of EMC (see Note
4 above).
In April 1996, American Western received a bank commitment to pay its
$1,803 platinum note. The closing has not yet occurred. The Company believes the
value of the platinum exceeds the note by at least $400.
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SIGNATURES
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.
Date: April 24, 1996 CASTLE ENERGY CORPORATION
/s/ Richard E. Staedtler
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Chief Financial Officer
Chief Accounting Officer
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