<PAGE>
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 March 31, 1998
-------------------------------------------------
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period ended
-------------------------------------------------
Commission file number: 0-10990
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CASTLE ENERGY CORPORATION
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 76-0035225
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
One Radnor Corporate Center, Suite 250, 100 Matsonford Road,
Radnor, Pennsylvania 19087
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (610) 995-9400
-----------------------------
- --------------------------------------------------------------------------------
(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: 3,544,029 shares of
Common Stock, $.50 par value outstanding as of April 30, 1998.
<PAGE>
CASTLE ENERGY CORPORATION
INDEX
Page #
------
Part I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets - March 31, 1998 (Unaudited)
and September 30, 1997..................................... 1
Consolidated Statements of Operations - Three Months
Ended March 31, 1998 and 1997 (Unaudited).................. 2
Consolidated Statements of Operations - Six Months Ended
March 31, 1998 and 1997 (Unaudited)........................ 3
Consolidated Statements of Cash Flows - Six Months Ended
March 31, 1998 and 1997 (Unaudited)........................ 4
Consolidated Statements of Stockholders' Equity - Year
Ended September 30, 1997 and Six Months Ended March
31, 1998 (Unaudited)....................................... 5
Notes to the Consolidated Financial Statements (Unaudited) 6
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CASTLE ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
("000's" Omitted Except Share Amounts)
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
----------- -------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................................. $37,090 $36,338
Restricted cash........................................................... 600 497
Accounts receivable....................................................... 7,764 5,868
Prepaid transportation, net............................................... 1,500 1,500
Prepaid expenses and other current assets................................. 400 452
Deferred income taxes..................................................... 883 2,239
Note receivable - Penn Octane Corporation................................. 1,000
Note receivable - MG...................................................... 10,000
Estimated realizable value of discontinued net refining assets............ 4,422 4,422
------- -------
Total current assets.................................................... 53,659 61,316
Property, plant and equipment, net:
Furniture, fixtures and equipment......................................... 152 180
Oil and gas properties, net (full cost method)................................ 3,700 2,818
Gas contracts, net............................................................ 11,015 15,747
Prepaid transportation, net................................................... 302 1,162
Deferred income taxes......................................................... 1,494
Other......................................................................... 75
------- -------
Total assets............................................................ $68,903 $82,717
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Dividend payable.......................................................... $ 528 $ 707
Accounts payable.......................................................... 7,134 5,615
Accrued expenses.......................................................... 1,153 1,257
Net refining liabilities retained......................................... 5,927 7,353
------- -------
Total current liabilities............................................... 14,742 14,932
Long-term liabilities......................................................... 20
------- -------
Total liabilities....................................................... 14,742 14,952
------- -------
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; 6,800,646
shares issued at March 31, 1998 and 6,798,646 shares
issued at September 30, 1997............................................ 3,400 3,399
Additional paid-in capital................................................ 67,080 67,061
Retained earnings......................................................... 26,599 22,468
------- -------
97,079 92,928
Treasury stock at cost - 3,254,617 shares at March 31, 1998 and
2,085,100 shares at September 30, 1997 ................................. (42,918) (25,163)
------- -------
Total stockholders' equity ........................................... 54,161 67,765
------ ------
Total liabilities and stockholders' equity............................ $68,903 $82,717
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
-1-
<PAGE>
CASTLE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
("000's" Omitted Except Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
---- ----
<S> <C> <C>
Revenues:
Natural gas marketing and transmission:
Gas sales.......................................................... $ 17,885 $ 20,367
----------- -----------
17,885 20,367
----------- -----------
Exploration and production:
Oil and gas sales.................................................. 562 2,682
Well operations.................................................... 57 129
----------- -----------
619 2,811
----------- -----------
18,504 23,178
----------- -----------
Expenses:
Natural gas marketing and transmission:
Gas purchases...................................................... 11,113 12,832
Transportation..................................................... 400
Operating costs (recovery)......................................... (16) 129
General and administrative......................................... 12 373
Depreciation and amortization...................................... 2,366 2,779
----------- -----------
13,875 16,113
----------- -----------
Exploration and production:
Oil and gas production............................................. 183 717
General and administrative......................................... 85 403
Depreciation, depletion and amortization........................... 164 405
----------- -----------
432 1,525
----------- -----------
Corporate general and administrative expenses........................ 828 639
----------- -----------
15,135 18,277
----------- -----------
Operating income......................................................... 3,369 4,901
----------- -----------
Other income (expense):
Interest income...................................................... 594 210
Other income (expense)............................................... 8 (11)
Interest expense..................................................... (554)
----------- -----------
602 (355)
----------- -----------
Net income before provision for income taxes............................. 3,971 4,546
----------- -----------
Provision for income taxes:
State................................................................ 40 45
Federal.............................................................. 1,389 1,591
----------- -----------
1,429 1,636
----------- -----------
Net income............................................................... $ 2,542 $ 2,910
=========== ===========
Net income per share:
Basic................................................................ $ .61 $ .50
=========== ===========
Diluted.............................................................. $ .61 $ .50
=========== ===========
Weighted average number of common and potential dilutive common shares
outstanding:
Basic............................................................. 4,144,129 5,778,228
=========== ===========
Diluted........................................................... 4,181,244 5,820,232
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-2-
<PAGE>
CASTLE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
("000's" Omitted Except Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended March 31,
--------------------------
1998 1997
---- ----
<S> <C> <C>
Revenues:
Natural gas marketing and transmission:
Gas sales.......................................................... $ 38,148 $ 38,792
---------- ----------
38,148 38,792
---------- ----------
Exploration and production:
Oil and gas sales.................................................. 1,220 4,776
Well operations.................................................... 115 235
---------- ----------
1,335 5,011
---------- ----------
39,483 43,803
---------- ----------
Expenses:
Natural gas marketing and transmission:
Gas purchases...................................................... 24,199 24,075
Transportation..................................................... 860
Operating costs.................................................... (16) 368
General and administrative......................................... 38 677
Depreciation and amortization...................................... 4,731 5,684
---------- ----------
29,812 30,804
---------- ----------
Exploration and production:
Oil and gas production............................................. 348 1,294
General and administrative......................................... 307 615
Depreciation, depletion and amortization........................... 327 899
---------- ----------
982 2,808
---------- ----------
Corporate general and administrative expenses........................ 1,568 1,782
---------- ----------
32,362 35,394
---------- ----------
Operating income......................................................... 7,121 8,409
---------- ----------
Other income (expense):
Interest income...................................................... 1,231 435
Other income (expense)............................................... 29 (51)
Interest expense..................................................... (753)
---------- ----------
1,260 (369)
---------- ----------
Net income before provision for income taxes............................. 8,381 8,040
---------- ----------
Provision for income taxes:
State................................................................ 84 80
Federal.............................................................. 2,933 2,814
---------- ----------
3,017 2,894
---------- ----------
Net income............................................................... $ 5,364 $ 5,146
========== ==========
Net income per share:
Basic................................................................ $ 1.21 $ .80
========== ==========
Diluted.............................................................. $ 1.20 $ .80
========== ==========
Weighted average number of common and potential dilutive common shares
outstanding:
Basic............................................................ 4,434,363 6,397,746
========== ==========
Diluted.......................................................... 4,465,767 6,429,848
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE>
CASTLE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
("000's" Omitted)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended March 31,
--------------------------
1998 1997
---- ----
<S> <C> <C>
Net cash flow provided by operating activities.......................... $22,110 $13,900
------- -------
Cash flows from investing activities:
Investment in pipelines.............................................. (9)
Investment in oil and gas properties................................. (1,209) (225)
Investment in note receivable - Penn Octane Corporation.............. (1,000)
------- -------
Net cash used in investing activities........................... (2,209) (234)
------- -------
Cash flows from financing activities:
Proceeds of long-term debt........................................... 13,986
Repayment of long-term debt.......................................... (11,835)
Dividends paid to stockholders........................................ (1,414)
Acquisition of treasury stock......................................... (17,755) (14,063)
Proceeds from exercise of stock options............................... 20 87
------- -------
Net cash provided by (used in) financing activities............. (19,149) (11,825)
------- -------
Net increase (decrease) in cash and cash equivalents..................... 752 1,841
Cash and cash equivalents - beginning of period.......................... 36,338 3,457
------- -------
Cash and cash equivalents - end of period................................ $37,090 $ 5,298
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE>
CASTLE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
("000's" Omitted Except Share Amounts)
<TABLE>
<CAPTION>
Common Stock Additional Retained Treasury Stock
----------------- Paid-In Earnings ---------------------
Shares Amount Capital (Deficit) Shares Amount Total
------ ------ ---------- ---------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - October 1, 1996............. 6,693,646 $3,347 $66,316 ($2,952) $66,711
Stock acquired........................ 2,085,100 ($25,163) (25,163)
Options exercised..................... 105,000 52 745 797
Dividends............................. (1,446) (1,446)
Net income............................ 26,866 26,866
--------- ------ ------- ------- --------- -------- -------
Balance - September 30, 1997.......... 6,798,646 3,399 67,061 22,468 2,085,100 (25,163) 67,765
Stock acquired........................ 1,169,517 (17,755) (17,755)
Options exercised..................... 2,000 1 19 20
Dividends declared.................... (1,233) (1,233)
Net income............................ 5,364 5,364
--------- ------ ------- ------- --------- -------- -------
Balance - March 31, 1998 6,800,646 $3,400 $67,080 $26,599 3,254,617 $(42,918) $54,161
========= ====== ======= ======= ========= ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE>
Castle Energy Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except 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 and the six month periods ended March 31, 1998 are not
necessarily indicative of the results that may be expected for the fiscal year
ending September 30, 1998 or for subsequent periods. 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, 1997.
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 and six month periods ended March 31, 1998
and 1997 and for a fair statement of financial position at March 31, 1998 and
1997.
Note 2 - September 30, 1997 Balance Sheet
- -----------------------------------------
The amounts presented in the balance sheet as of September 30, 1997
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, 1997.
Note 3 - Discontinued Operations
- --------------------------------
From August 1989 to September 30, 1995, several of the Company's
subsidiaries conducted refining operations. By December 12, 1995, the
Company's refining subsidiaries had sold all of their refining assets. In
addition, Powerine Oil Company ("Powerine"), one of the Company's refining
subsidiaries, merged into a subsidiary of the purchaser and is no longer a
subsidiary of the Company. The Company's other refining subsidiaries own no
refining assets and are in the process of liquidation. As a result, the
Company has accounted for its refining operations as discontinued operations.
Note 4 - Contingencies/Litigation
- ---------------------------------
Powerine Arbitration
In October 1997, the Company recovered $8,700 from the Powerine
Arbitration. The Company believes it is entitled to an additional $2,142 plus
interest and its special legal counsel presented arguments to the arbitrator
to recover this amount. On January 27, 1998, the arbitrator ruled against the
Company. The Company is currently pursuing other alternatives to recover the
$2,142. Reference should be made to the Company's Form 10-Q for the quarter
ended December 31, 1997 and to Item 3 of the Company's Annual Report on Form
10-K for the year ended September 30, 1997.
-6-
<PAGE>
Castle Energy Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts)
(Unaudited)
SWAP Agreement - MGNG
In January 1998, IRLP filed suit against MG Natural Gas, Inc.
("MGNG"), a subsidiary of Metallgesellschaft Corp. ("MG"), to collect $703
plus interest. In February 1998, MGNG contended that the $703 was never owed
to IRLP and that it had liquidated the subsidiary owing the $703. Management
and general counsel believe that MGNG's counterclaims are not supported by the
facts and do not affect the merits of IRLP's claims, which IRLP intends to
pursue vigorously. Reference should be made to the Company's Form 10-Q for the
quarter ended December 31, 1997 and to Item 3 of the Company's Annual Report
on Form 10-K for the year ended September 30, 1997.
Larry Long Litigation
There have been no significant developments since September 30, 1997.
Reference should be made to Form 10-Q for the quarter ended December 31, 1997
and to the Company's Annual Report on Form 10-K for the year ended September
30, 1997.
MGNG Litigation
On May 4, 1998, a subsidiary of the Company filed a lawsuit against
MGNG and MG Gathering Company, another subsidiary of MG, in the district court
of Harris County, Texas. The Castle subsidiary seeks to recover gas
measurement and transportation expenses charged by the defendants in breach of
a certain gas purchase contract. Improper charges total approximately $750
before factoring in interest. This litigation is in a very preliminary stage:
Defendants have not answered and discovery has not commenced.
Powerine Class Action Lawsuit
In July 1996, Powerine was served with a suit concerning operations
of the Powerine Refinery in the Superior Court of the State of California in
Los Angeles, California. The suit claims the Powerine Refinery is a public
nuisance, that it has released excessive toxic and noxious emissions and
caused physical and emotional distress and property damage to residents living
nearby. The Company was also named as a defendant in the suit. In March 1997,
the Company was served with the lawsuit.
In April 1997, the Company filed a motion to quash the plaintiffs'
summons based upon the lack of jurisdiction. On May 2, 1997, the court granted
the Company's motion. As a result, the Company is no longer a defendant in the
Powerine Class Action Lawsuit.
-7-
<PAGE>
Castle Energy Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts)
(Unaudited)
Note 5 - GAMXX Agreement
- ------------------------
On February 27, 1998, the Company entered into an agreement with
Alexander Allen, Inc. ("AA") concerning amounts owed to the Company by AA and
its subsidiary, GAMXX Energy, Inc. ("GAMXX"). The Company had made loans to
GAMXX through 1991 in the aggregate amount of approximately $8,000. When GAMXX
was unable to obtain financing, the Company recorded a one hundred percent
loss provision on its loans to GAMXX while still retaining its lender's liens
against GAMXX.
Pursuant to the terms of the GAMXX Agreement, the Company is to
receive $1,000 cash in settlement for its loans when GAMXX closes on its
financing. GAMXX expects such closing not later than May 31, 1998.
The Company has carried its loan to GAMXX at zero the last six years.
The Company will record the $1,000 proceeds as "other income" if and when it
collects such amount. There can be no assurance that GAMXX will close on its
financing.
Note 6 - Accounting Pronouncements
- ----------------------------------
In February 1997, FASB issued SFAS No. 128, "Earnings Per Share,"
("FAS No.128") which establishes standards for computing and presenting
earnings per share ("EPS") for entities with publicly held common stock. SFAS
No. 128 simplifies the standards for computing EPS previously found in
Accounting Principles Board Opinion No. 15, "Earnings Per Share," and makes
them comparable to international EPS standards. It replaces the presentation
of primary EPS with a presentation of basic EPS, and requires dual
presentations of basic and diluted EPS on the face of the income statement.
SFAS No. 128 is effective for fiscal years ending after December 15, 1997, and
early adoption is not permitted. The Company adopted FAS 128 effective October
1, 1997. Earnings per share for the three and six month periods ended March
31, 1998 have been stated in accordance with FAS No. 128 and earnings per
share for the three and six month periods ended March 31, 1997 have been
restated in accordance with FAS No. 128.
Note 7 - Derivative Financial Instruments
- -----------------------------------------
The Company utilizes derivative financial instruments to reduce its
exposure to changes in the market price of natural gas. Commodity derivatives
utilized as hedges of natural gas are futures contracts. Natural gas basis
swaps are sometimes used to hedge the basis differential between the
derivative financial instrument index price and the natural gas field price.
In order to qualify as a hedge, price movements in the underlying commodity
derivative must be highly correlated with the hedged commodity.
-8-
<PAGE>
Castle Energy Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts)
(Unaudited)
Gains and losses on futures contracts that qualify as a hedge of
firmly committed or anticipated purchases and sales of natural gas are
deferred on the balance sheet and credited or debited to cost of gas purchased
and recognized in operations when the related hedged transaction occurs. Gains
or losses on derivative financial instruments that do not qualify as a hedge
are recognized in income currently. There were no such deferred gains or
losses at March 31, 1998 or September 30, 1997.
As a result of hedging transactions, the cost of gas purchased
increased $340 for the six months ended March 31, 1998 and decreased $485 for
the six months ended March 31, 1997
Note 8 - Subsequent Events
- --------------------------
Subsequent to March 31, 1998, the Company repurchased 5,000 shares of
its outstanding common stock. The purchase price was $80 ($16.00 per share).
Subsequent to March 31, 1998, an option holder exercised options to
purchase 3,000 shares of the Company's common stock.
-9-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED MARCH 31, 1998
INCLUDED IN PART I FINANCIAL INFORMATION AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> MAR-31-1998
<CASH> $37,090
<SECURITIES> 0
<RECEIVABLES> 7,764
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 53,659
<PP&E> 11,753
<DEPRECIATION> 7,901
<TOTAL-ASSETS> 68,903
<CURRENT-LIABILITIES> 14,742
<BONDS> 0
0
0
<COMMON> 3,400
<OTHER-SE> 50,761
<TOTAL-LIABILITY-AND-EQUITY> 68,903
<SALES> 39,483
<TOTAL-REVENUES> 39,483
<CGS> 24,199
<TOTAL-COSTS> 32,362
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 8,381
<INCOME-TAX> 3,017
<INCOME-CONTINUING> 5,364
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,364
<EPS-PRIMARY> 1.21
<EPS-DILUTED> 1.20
</TABLE>
