10-K/A
Table of Contents

 

 

United States

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-K/A

(Amendment No. 1)

 

 

Annual Report pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the Fiscal Year Ended April 30, 2014

Commission File Number 001-34700

 

 

CASEY’S GENERAL STORES, INC.

(Exact name of registrant as specified in its charter)

 

 

 

IOWA   42-0935283

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

ONE CONVENIENCE BLVD., ANKENY, IOWA

(Address of principal executive offices)

50021

(Zip Code)

(515) 965-6100

(Registrant’s telephone number, including area code)

Securities Registered pursuant to Section 12(b) of the Act

 

COMMON STOCK   NASDAQ
(Title of Class)   (Name of Exchange on which Registered)

Securities Registered pursuant to Section 12(g) of the Act

NONE

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x    No  ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.    Yes   ¨    No  x

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

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.    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨    Smaller reporting company   ¨

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

The aggregate market value of the registrant’s common stock held by non-affiliates as of October 31, 2013, was approximately $ 2.6 billion based on the closing sales price ($72.88 per share) as quoted on the NASDAQ Global Select Market.

Indicate the number of shares outstanding of each of the issuer’s class of common stock, as of the latest practicable date.

 

Class

 

Outstanding at June 23, 2014

Common Stock, no par value per share   37,882,157 shares

DOCUMENTS INCORPORATED BY REFERENCE

The information called for by Item 5 of Part II and Items 10, 11, 12, 13 and 15 of Part III is hereby incorporated by reference from the definitive Proxy Statement filed with the Securities and Exchange Commission in connection with the Annual Meeting of Shareholders, which was filed with the Securities and Exchange Commission not later than 120 days after April 30, 2014.

 

 

 


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EXPLANATORY NOTE

Casey’s General Stores, Inc. (the “Company”) is filing this Amendment No. 1 on Form 10-K/A to its Annual Report on Form 10-K for the fiscal year ended April 30, 2014, originally filed with the Securities and Exchange Commission (SEC) on June 27, 2014 (the “Original Filing”), to make the following changes:

 

  1. To amend Item 1A. Risk Factors to add an additional risk factor regarding the potential adverse impact the material weakness could have on our timely reporting of financial results, investor confidence, and stock price.

 

  2. To amend Item 8. Financial Statements, Report of Independent Registered Public Accounting Firm, in relation to the independent registered public accounting firm’s report on our internal control over financial reporting; and

 

  3. To make revisions for immaterial errors in the consolidated financial statements for the three-year period ended April 30, 2014 previously issued in the Original Filing in Item 1. Business, Item 6. Selected Financial Data, and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

  4. To amend Item 9A. Controls and Procedures related to the effectiveness of our disclosure controls and procedures and internal control over financial reporting;

In the second quarter of fiscal year 2015, through a routine Internal Revenue Service (IRS) examination, management became aware that an inadvertent accounting and reporting error occurred during the fiscal years 2012, 2013, and 2014 and the first quarter of fiscal year 2015. A control deficiency was identified with regards to the review and approval of quarterly federal excise tax returns by management with the requisite skill and knowledge, and recognition of the corresponding liability and expense. The internal controls in place during this time were not responsive to changes in circumstances. While the control deficiency did not result in a material misstatement to the Company’s consolidated financial statements for any periods through and including the fiscal year ended April 30, 2014, or unaudited condensed consolidated financial statements for the first fiscal quarter of fiscal year 2015, it did represent a material weakness as of April 30, 2014, since there existed a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements would not be prevented or detected on a timely basis. The correction of these immaterial errors is being recognized in revisions to our consolidated financial statements for the fiscal year ended April 30, 2014 in this Amendment No. 1 and in revisions to the unaudited condensed consolidated financial statements for the fiscal quarter ended July 31, 2014, included on Form 10-Q/A dated December 9, 2014 to be filed concurrently with this Form 10K/A.

Pursuant to Rule 12b-15 under the Securities Exchange act of 1934, as a result of this Amendment No. 1, the certifications pursuant to Rules 13a-14(a)/15(d)-14(a) under the Securities Exchange Act of 1934, as amended and Section 906 of the Sarbanes-Oxley Act of 2002 have been re-executed and refiled as of the date of this Amendment No. 1. As a result, the Exhibit Index in Part IV; Item 15 of the Annual Report is also being amended to reflect the inclusion of the aforementioned updates.

Accordingly, we hereby amend Items 1, 1A, 6, 7, 8, 9A, and 15 in the Original Filing. Except as described in this Explanatory Note, the Original Filing is unchanged. In particular, except for the events described above, this Amendment No. 1 speaks only as of the date the Original Filing was filed, and has not been updated, amended, or supplemented to give effect to any subsequent events. Accordingly, forward-looking statements included in this Amendment No. 1 represent management’s views as of the date the Original Filing was filed and should not be assumed to be accurate as of any date thereafter. This Amendment No. 1 should be read in conjunction with the Original Filing, and any of Company’s other filings with the SEC subsequent to the Original Filing, together with any amendments to those filings.


Table of Contents

FORM 10-K/A

TABLE OF CONTENTS

 

PART I

  ITEM 1.    Business      4   
  ITEM 1A.    Risk Factors      9   
  ITEM 1B.    Unresolved Staff Comments      16   
  ITEM 2.    Properties      17   
  ITEM 3.    Legal Proceedings      17   
  ITEM 4.    Mine Safety Disclosures      17   

PART II

  ITEM 5.    Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities      18   
  ITEM 6.    Selected Financial Data      19   
  ITEM 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations      20   
  ITEM 7A.    Quantitative and Qualitative Disclosures about Market Risk      32   
  ITEM 8.    Financial Statements and Supplementary Data      33   
  ITEM 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure      58   
  ITEM 9A.    Controls and Procedures      58   
  ITEM 9B.    Other Information      60   

PART III

  ITEM 10.    Directors, Executive Officers and Corporate Governance      61   
  ITEM 11.    Executive Compensation      61   
  ITEM 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters      61   
  ITEM 13.    Certain Relationships and Related Transactions and Director Independence      61   
  ITEM 14.    Principal Accountant Fees and Services      61   

PART IV

  ITEM 15.    Exhibits and Financial Statement Schedules      62   
     Signatures      64   

 

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PART I

 

ITEM 1. BUSINESS

The Company

Casey’s General Stores, Inc. (“Casey’s”) and its wholly owned subsidiaries (Casey’s, together with its subsidiaries, are referred to herein as the “Company” or “we”) operate convenience stores under the name “Casey’s General Store” (hereinafter referred to as “Casey’s Store” or “Stores”) in fourteen Midwestern states, primarily in Iowa, Missouri, and Illinois. The Company also operates one stand-alone pizza delivery and carry-out store. The stores carry a broad selection of food (including freshly prepared foods such as pizza, donuts, and sandwiches), beverages, tobacco products, health and beauty aids, automotive products, and other nonfood items. In addition, all but one Casey’s stores offer fuel for sale on a self-service basis. Our fiscal year runs from May 1 through April 30 of each year. On April 30, 2014, there were a total of 1,808 stores in operation. There were 44 stores newly constructed and we closed 12 stores in fiscal 2014. We also acquired 28 additional stores in fiscal 2014, and 25 of those were opened in 2014, one was permanently closed and two will be opened during the 2015 fiscal year. We operate a central warehouse, Casey’s Distribution Center, adjacent to our corporate headquarters in Ankeny, Iowa, through which we supply grocery and general merchandise items to our stores.

Approximately 58% of all our stores are located in areas with populations of fewer than 5,000 persons, while approximately 16% of our stores are located in communities with populations exceeding 20,000 persons. The Company competes on the basis of price as well as on the basis of traditional features of convenience store operations such as location, extended hours, and quality of service.

Casey’s, with executive offices at One Convenience Blvd., Ankeny, Iowa 50021-8045 (telephone 515-965-6100) was incorporated in Iowa in 1967. One of our subsidiaries, Casey’s Marketing Company (Marketing Company) also operates from the Corporate Headquarters facility and was incorporated in Iowa in March 1995. A second subsidiary, Casey’s Services Company (Services Company) operates from a nearby facility and was also incorporated in Iowa in March 1995. A third subsidiary, Casey’s Retail Company, was incorporated in Iowa in 2004 and a fourth subsidiary, CGS Sales Corp., was incorporated in 2008 and both also operate from the Corporate Headquarters facility.

The Company’s Internet address is www.caseys.com. Each year we make available through our website all of our SEC filings, including current reports on Form 8-K, quarterly reports on Form 10-Q, our annual report on Form 10-K, and amendments to those reports, free of charge as soon as reasonably practicable after they have been electronically filed with the Securities and Exchange Commission. Additionally, you can go to our website to read our Financial Code of Ethics, Corporate Governance Guidelines, Code of Conduct, and committee charters. We intend to post disclosure of any waivers to the Code of Conduct on our website.

General

We seek to meet the needs of residents of smaller towns by combining features of both general store and convenience store operations. Smaller communities often are not served by national-chain convenience stores. We have succeeded at operating Casey’s General Stores in smaller towns by offering, at competitive prices, a broader selection of products than does a typical convenience store. We have also succeeded in meeting the needs of residents in larger communities with these offerings. We currently own most of our real estate, including the Casey’s Distribution Center, the Services Company facility, and the Corporate Headquarters facility.

The Company derives its revenue primarily from the retail sale of fuel and the products offered in our stores. Our sales historically have been strongest during the first and second fiscal quarters (May through October) and relatively weaker during the third and fourth (November through April). In warmer weather, customers tend to purchase greater quantities of fuel and certain convenience items such as beer, pop, and ice.

 

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Corporate Subsidiaries

The Marketing Company and the Services Company were organized as Iowa corporations in March 1995, and both are wholly owned subsidiaries of Casey’s. Casey’s Retail Company was organized as an Iowa corporation in April 2004, CGS Sales Corp. was organized as an Iowa corporation in 2008, and Tobacco City, Inc. was organized as an Iowa corporation in 2014. All such entities are wholly-owned subsidiaries of Casey’s.

Casey’s Retail Company operates stores in Illinois, Kansas, Minnesota, Nebraska, North Dakota and South Dakota; it also holds the rights to the Casey’s trademark and trade name. The Marketing Company owns and has responsibility for the operation of stores in Arkansas, Indiana, Iowa, Kentucky, Missouri, Oklahoma, Tennessee and Wisconsin. The Marketing Company also has responsibility for all of our wholesale operations, including the Distribution Center. The Services Company provides a variety of construction and transportation services for all stores. CGS Sales Corp. operates one store in Iowa and one in Nebraska.

Store Operations

Products Offered

Each Casey’s General Store typically carries over 3,000 food and nonfood items. Many of the products offered are those generally found in a supermarket. The selection is generally limited to one or two well-known brands of each item stocked. Most of our staple foodstuffs are nationally advertised brands. Stores sell regional brands of dairy and bakery products, and approximately 88% of the stores offer beer. Our nonfood items include tobacco products, health and beauty aids, school supplies, housewares, pet supplies, and automotive products.

All but one Casey’s General Stores offer gasoline or diesel for sale on a self-service basis. The gasoline and diesel generally are sold under the Casey’s name.

It is our policy to continually make additions to the Company’s product line, especially products with higher gross profit margins. As a result, we have added various prepared food items to our product line over the years, facilitated by the installation of snack centers, which now are in the majority of stores. The snack centers sell sandwiches, fountain drinks, and other items that have gross profit margins higher than those of general staple goods. As of April 30, 2014, the Company was selling donuts prepared on store premises in approximately 98% of our stores in addition to cookies, brownies, and Danish. The Company installs donut-making equipment in all newly constructed stores.

We began marketing made-from-scratch pizza in 1984, and it is available in 1,768 stores (98%) as of April 30, 2014. Although pizza is our most popular prepared food offering, we continue to expand our prepared food product line, which now includes ham and cheese sandwiches, pork and chicken fritters, sausage sandwiches, chicken tenders, pizza rolls, popcorn chicken, breakfast croissants and biscuits, breakfast pizza, hash browns, quarter-pound hamburgers and cheeseburgers, and potato cheese bites. The newly constructed stores and many of the remodeled stores now offer made-to-order sub sandwiches.

The growth in our proprietary prepared food program reflects management’s strategy to promote high-margin products that are compatible with convenience store operations. In the last three fiscal years, retail sales of nonfuel items have generated about 28% of our total revenue, but they have resulted in approximately 78% of our gross profits. Gross profit margins on prepared food items averaged approximately 61% during the three fiscal years ended April 30, 2014—substantially higher than the gross profit margin on retail sales of fuel, which averaged approximately 5%.

 

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Store Design

Casey’s General Stores are freestanding and, with a few exceptions to accommodate local conditions, conform to standard construction specifications. The latest store design (O2 style) measures 39 feet by 103 feet with approximately 2,500 square feet devoted to sales area, 500 square feet to kitchen space, 400 square feet to storage, and 2 large public restrooms. The latest store design for smaller communities (P style) measures 43 feet by 75 feet with approximately 1,600 square feet devoted to sales area with the remaining areas similar in size. Store lots have sufficient frontage and depth to permit adequate drive-in parking facilities on one or more sides of each store. Each new store typically includes 4 to 8 islands of fuel dispensers and storage tanks with capacity for 30,000 to 50,000 gallons of fuel. The merchandising display follows a standard layout designed to encourage a flow of customer traffic through all sections of every store. All stores are air-conditioned and have modern refrigeration equipment. Nearly all the store locations feature our bright red and yellow pylon sign which displays Casey’s name and service mark.

All Casey’s General Stores remain open at least sixteen hours per day, seven days a week. Many store locations are open from 6:00 a.m. to 11:00 p.m., although hours of operation may be adjusted on a store-by-store basis to accommodate customer traffic patterns. We also currently operate approximately 725 stores on a 24-hour basis. We require that all stores maintain a bright, clean interior and provide prompt checkout service. It is our policy not to install electronic games or sell adult magazines on store premises.

Store Locations

The Company traditionally has located its stores in smaller towns not served by national-chain convenience stores. Management believes that a Casey’s General Store provides a service not otherwise available in small towns and that a convenience store in an area with limited population can be profitable if it stresses sales volume and competitive prices. Our store-site selection criteria emphasize the population of the immediate area and daily highway traffic volume. Where there is no competing store, we can often operate profitably at a highway location in a community with a population of as few as 400.

 

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Fuel Operations

Fuel sales are an important part of our revenue and earnings. Approximately 71% of Casey’s total revenue for the year ended April 30, 2014 was derived from the retail sale of fuel. The following table summarizes (dollars and gallons in thousands) fuel sales for the three fiscal years ended April 30, 2014:

 

     Year ended April 30,  
     2014     2013     2012  

Number of gallons sold

     1,665,600        1,535,140        1,476,154   

Total retail fuel sales

   $ 5,554,580      $ 5,229,157      $ 5,092,311   

Percentage of total revenue

     70.8     72.1     72.9

Gross profit percentage** (excluding credit card fees)

     4.8     4.2     4.4

Average retail price per gallon

   $ 3.33      $ 3.41      $ 3.45   

Average gross profit margin per gallon** (excluding credit card fees)

     16.08 ¢      14.42 ¢      15.11 ¢ 

Average number of gallons sold per store*

     932        883        870   

 

* Includes only those stores in operation at least one full year on April 30 of the fiscal year indicated.
** Due to the immaterial error discussed in this Amendment No. 1, the numbers for Gross profit percentage and Average gross profit margin per gallon have been revised. On average, the revision reduced Average gross profit margin per gallon by seven-tenths of one cent ($0.007).

Retail prices of fuel decreased slightly during the year ended April 30, 2014. The total number of gallons we sold during this period increased, primarily because of the higher number of stores in operation, our continued efforts to price our retail fuel to compete in local market areas, the growth in our fuel saver program, and the growth in expanded hour stores. For additional information concerning the Company’s fuel operations, see Item 7 herein.

 

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Distribution and Wholesale Arrangements

The Marketing Company supplies all stores with groceries, food, health and beauty aids, and general merchandise from our Distribution Center. The stores place orders for merchandise electronically to our headquarters in Ankeny, and we fill the orders with weekly shipments in Company-owned delivery trucks. All of our existing and most of our proposed stores are within the Distribution Center’s optimum efficiency range—a radius of approximately 500 miles. In April 2014, we announced plans to build a second distribution center in Terre Haute, Indiana. This second distribution center will enable us to expand our territory while at the same time provide a more efficient distribution system to our existing stores.

In fiscal 2014, we purchased directly from manufacturers a majority of the food and nonfood items sold from our Distribution Center. It is our practice, with few exceptions, not to enter into long-term supply contracts with any of the suppliers of products sold by Casey’s General Stores. We believe the practice enables us to respond flexibly to changing market conditions.

Personnel

On April 30, 2014, we had 12,098 full-time employees and 17,651 part-time employees. We have not experienced any work stoppages. There are no collective bargaining agreements between the Company and any of its employees.

Competition

Our business is highly competitive. Food, including prepared foods, and nonfood items similar or identical to those sold by the Company are generally available from various competitors in the communities served by Casey’s General Stores. We believe our stores located in smaller towns compete principally with other local grocery and convenience stores, similar retail outlets, and, to a lesser extent, prepared food outlets, restaurants, and expanded fuel stations offering a more limited selection of grocery and food items for sale. Stores located in more heavily populated communities may compete with local and national grocery and drug store chains, expanded fuel stations, supermarkets, discount food stores, and traditional convenience stores. Convenience store chains competing in the larger towns served by Casey’s General Stores include Quik Trip, Kwik Trip, and regional chains. Some of the Company’s competitors have greater financial and other resources than we do. These competitive factors are discussed further in Item 7 of this Form 10-K/A.

Service Marks

The name “Casey’s General Store” and the service mark consisting of the Casey’s design logo (with the words “Casey’s General Store”) are our registered service marks under federal law. We believe these service marks are of material importance in promoting and advertising the Company’s business.

 

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Government Regulation

The United States Environmental Protection Agency and several states, including Iowa, have established requirements for owners and operators of underground fuel storage tanks (USTs) with regard to (i) maintenance of leak detection, corrosion protection, and overfill/spill protection systems; (ii) upgrade of existing tanks; (iii) actions required in the event of a detected leak; (iv) prevention of leakage through tank closings; and (v) required fuel inventory recordkeeping. Since 1984, new stores have been equipped with noncorroding fiberglass USTs, including some with double-wall construction, overfill protection, and electronic tank monitoring. We currently have 4,215 USTs, 3,308 of which are fiberglass and 907 are steel, and we believe that all capital expenditures for electronic monitoring, cathodic protection, and overfill/spill protection to comply with the existing UST regulations have been completed. Additional regulations or amendments to the existing UST regulations could result in future expenditures.

Several states in which we do business have trust fund programs with provisions for sharing or reimbursing corrective action or remediation costs incurred by UST owners, including the Company. In the years ended April 30, 2014 and 2013, we spent approximately $1,224,000 and $899,000, respectively, for assessments and remediation. Substantially all of these expenditures were submitted for reimbursement from state-sponsored trust fund programs. As of April 30, 2014, approximately $16,899,000 has been received from such programs since inception. The payments are typically subject to statutory provisions requiring repayment of the reimbursed funds for noncompliance with upgrade provisions or other applicable laws. None of the reimbursements received are currently expected to be repaid by the Company to the trust fund programs. At April 30, 2014, we had an accrued liability of approximately $300,000 for estimated expenses related to anticipated corrective actions or remediation efforts, including relevant legal and consulting costs. We believe we have no material joint and several environmental liability with other parties.

 

ITEM 1A.  RISK FACTORS

You should carefully consider the risks described in this report before making a decision to invest in our securities. If any of such risks actually occur, our business, financial condition, and/or results of operations could be materially adversely affected. In that case, the trading price of our securities could decline and you might lose all or part of your investment.

Risks Related to Our Industry

The convenience store industry is highly competitive.

The convenience store and retail fuel industries in which we operate are highly competitive and characterized by ease of entry and constant change in the number and type of retailers offering the products and services found in our stores. We compete with many other convenience store chains, gasoline stations, supermarkets, drugstores, discount stores, club stores, fast food outlets, and mass merchants. In recent years, several nontraditional retailers such as supermarkets, club stores, and mass merchants have affected the convenience store industry by entering the fuel retail business. These nontraditional fuel retailers have obtained a significant share of the motor fuels market, and their market share is expected to grow. In some of our markets, our competitors have been in existence longer and have greater financial, marketing, and other resources than we do. As a result, our competitors may be able to respond better to changes in the economy and new opportunities within the industry. To remain competitive, we must constantly analyze consumer preferences and competitors’ offerings and prices to ensure we offer convenience products and services consumers demand at competitive prices. We must also maintain and upgrade our customer service levels, facilities, and locations to remain competitive and attract customer traffic. These competitive pressures could materially and adversely affect our fuel and merchandise sales and gross profit margins, and therefore could have a material adverse effect on our business, financial condition and results of operations.

 

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The volatility of wholesale petroleum costs could adversely affect our operating results.

Over the past three fiscal years, on average our fuel revenues accounted for approximately 72% of total revenue and our fuel gross profit accounted for approximately 22% of total gross profit. Crude oil and domestic wholesale petroleum markets are marked by significant volatility. General political conditions, acts of war or terrorism, and instability in oil producing regions, particularly in the Middle East and South America, can significantly affect crude oil supplies and wholesale petroleum costs. In addition, the supply of fuel and our wholesale purchase costs could be adversely affected in the event of a shortage, which could result from, among other things, lack of capacity at United States oil refineries or, in our case, the absence of fuel contracts that guarantee an uninterrupted, unlimited supply of gasoline. Significant increases and volatility in wholesale petroleum costs have resulted and could in the future result in significant increases in the retail price of petroleum products and in lower gasoline average margin per gallon. Increases in the retail price of petroleum products have resulted and could in the future adversely affect consumer demand for fuel. This volatility makes it difficult to predict the impact that future wholesale cost fluctuations will have on our operating results and financial condition. These factors could adversely affect our fuel gallon volume, fuel gross profit, and overall customer traffic, which in turn would affect our sales of grocery and general merchandise and prepared food products.

Changing consumer preferences for alternative motor fuel and improvements in fuel efficiency could adversely impact our business.

Technological advancement, regulatory changes, or changes in consumer preferences toward alternative motor fuels or more fuel-efficient vehicles could reduce demand for the fuel products we currently sell. In addition, a shift toward electric, hydrogen, natural gas or other alternative fuel-powered vehicles could fundamentally change the shopping habits of our customers or lead to new forms of fueling destinations or new competitive pressure. New technologies developed to improve the fuel efficiency of automobiles, or further governmental mandates to improve fuel efficiency, may result in decreased demand for conventional fuel. Any of these outcomes could potentially result in fewer customer visits to our stores, decreases both in fuel and general merchandise sales revenue or reduce profit margins, which could have a material adverse effect on our business, financial condition and results of operations.

Increased credit card expenses could increase operating expenses.

A significant percentage of our fuel sales are made with the use of credit cards. Since the interchange fees we pay when credit cards are used to make purchases are based on transaction amounts, higher fuel prices at the pump result in higher credit card expenses. These additional fees increase operating expenses. Higher operating expenses that result from higher credit card fees may decrease our overall profit and have a material adverse effect on our business, financial condition and results of operations. Total credit card fees paid in fiscal 2014, 2013, and 2012, were approximately $95 million, $85 million, and $80 million, respectively.

Wholesale cost and tax increases relating to tobacco products could affect our operating results.

Sales of tobacco products have averaged approximately 9% of our total revenue over the past three fiscal years, and our tobacco gross profit accounted for approximately 12% of total gross profit for the same period. Any significant increases in wholesale cigarette costs or tax increases on tobacco products may have a materially adverse effect on unit demand for cigarettes domestically. Currently, major cigarette manufacturers offer significant rebates to retailers, although there can be no assurance that such rebate programs will continue. We include these rebates as a component of cost of goods sold, which affects our gross margin from sales of cigarettes. In the event these rebates are no longer offered or decreased, our wholesale cigarette costs will increase accordingly. In general, we attempt to pass price increases on to our customers. Due to competitive pressures in our markets, however, we may not always be able to do so. These factors could adversely affect our retail price of cigarettes, cigarette unit volume and revenues, merchandise gross profit, and overall customer traffic, and in turn have a material adverse effect on our business, financial condition and results of operations.

 

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Governmental action and campaigns to discourage smoking may have a material adverse effect on our revenues and gross profit.

Congress has given the Food and Drug Administration (“FDA”) broad authority to regulate tobacco products, and the FDA has enacted numerous regulations restricting the sale of such products. These governmental actions, as well as national, state and local campaigns to discourage smoking and other factors, have resulted in reduced industry volume and consumption levels, and could materially affect the retail price of cigarettes, unit volume and revenues, gross profit, and overall customer traffic, which in turn could have a material adverse effect on our business, financial condition and results of operations.

Future consumer or other litigation could adversely affect our financial condition and results of operations.

Our retail operations are characterized by a high volume of customer traffic and by transactions involving a wide array of product selections, including prepared food. These operations carry a higher exposure to consumer litigation risk when compared to the operations of companies operating in many other industries. Consequently, we may become a party to individual personal injury, bad fuel, product liability and other legal actions in the ordinary course of our business. While these actions are generally routine in nature, incidental to the operation of our business and immaterial in scope, if our assessment of any action or actions should prove inaccurate, our financial condition and results of operations could be adversely affected.

Additionally, we are occasionally exposed to industry-wide or class-action claims arising from the products we carry or industry-specific business practices. For example, various petroleum marketing retailers, distributors and refiners are currently defending class-action claims alleging that the sale of unadjusted volumes of fuel at temperatures in excess of 60 degrees Fahrenheit violates various state consumer protection laws due to the expansion of the fuel with the increase of fuel temperatures. In addition, certain retailers have experienced data breaches resulting in exposure of sensitive customer data, including payment card information. Any such breach of our systems, or any failure to secure our systems against such a breach, could expose us to customer litigation, as well as sanctions from the payment card industry. Certain claims asserted in these lawsuits, if resolved against us, could give rise to substantial damages. Our defense costs and any resulting damage awards or settlement amounts may not be fully covered by our insurance policies. Thus, an unfavorable outcome or settlement of one or more of these lawsuits could have a material adverse effect on our financial position, liquidity and results of operations in a particular period or periods.

Our business and our reputation could be adversely affected by the failure to protect sensitive customer, employee or vendor data, whether as a result of cybersecurity attacks or otherwise, or to comply with applicable regulations relating to data security and privacy.

In the normal course of our business as a motor fuel and merchandise retailer, we obtain large amounts of personal data, including credit and debit card information from our customers. While we have invested significant amounts in the protection of our IT systems and maintain what we believe are adequate security controls over individually identifiable customer, employee and vendor data provided to us, a breakdown or a breach in our systems that results in the unauthorized release of individually identifiable customer or other sensitive data could nonetheless occur and have a material effect on our reputation, operating results and financial condition.

Cyberattacks are rapidly evolving and becoming increasingly sophisticated. A successful cyberattack resulting in the loss of sensitive customer, employee or vendor data could adversely affect our reputation, results of operations, financial condition and liquidity, and could result in litigation against us or the imposition of penalties. Moreover, a security breach could require that we expend significant additional resources to further upgrade the security measures that we employ to guard against cyberattacks.

 

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General economic conditions that are largely out of the Company’s control may adversely affect the Company’s financial condition and results of operations.

Current economic conditions, higher interest rates, higher fuel and other energy costs, inflation, increases in commodity prices, higher levels of unemployment, higher consumer debt levels, higher tax rates and other changes in tax laws or other economic factors may affect consumer spending or buying habits, and could adversely affect the demand for products the Company sells in its stores. Economic conditions, higher fuel prices, and unemployment levels have affected consumer confidence, spending patterns, and miles driven, with many customers “trading down” to lower priced products in certain categories. These factors can lead to sales declines in both fuel and general merchandise, and in turn have an adverse impact on our business, financial condition and results of operations.

Risks Related to Our Business

The prices of “RINs” and certain commodities fluctuate widely.

The market prices paid to the Company for its “renewable identification numbers”, or “RINs”, as well as the wholesale costs paid by the Company for certain commodities such as cheese, coffee and meat, can fluctuate widely from period to period and have a significant impact on the Company’s financial results for a particular period or periods. The market prices of RINs have increased significantly in fiscal 2014 relative to fiscal 2013, with a corresponding benefit to the Company’s gross profits from the retail sales of fuel. Due to the inherent price volatility of RINs, there can be no assurance that the Company will be able to sell its RINs in the future at any particular price. Any significant decline in the market price of RINs, as well as any increases in the wholesale costs of commodities such as cheese and coffee, could have a material adverse effect on the Company’s results of operations in a particular period or periods.

Unfavorable weather conditions can adversely affect our business.

All of our stores are located in the Midwest region of the United States, which is susceptible to tornadoes, thunderstorms, extended periods of rain, flooding, ice storms, and heavy snow. Inclement weather conditions could damage our facilities or could have a significant impact on consumer behavior, travel, and convenience store traffic patterns as well as our ability to operate our locations. In addition, we typically generate higher revenues and gross margins during warmer weather months, which fall within our first and second fiscal quarters. When weather conditions are not favorable during a particular period, our operating results and cash flow from operations could be adversely affected.

Our inability to anticipate and respond to market trends and changes in consumer preferences could adversely affect our financial results.

Our continued success depends on our ability to anticipate, gauge and react in a timely and cost-effective manner to changes in consumer tastes, their attitudes toward our industry and brands, as well as to where and how consumers shop for those products. We must continually work to develop, produce and market new products, maintain and enhance the recognition of our brands, achieve a favorable mix of products, and refine our approach as to how and where we market and sell our products. While we devote considerable effort and resources to shape, analyze and respond to consumer preferences, we recognize that consumer tastes cannot be predicted with certainty and can change rapidly. The issue is compounded by the increasing use of social and digital media by consumers and the speed by which information and opinions are shared. If we are unable to anticipate and respond to sudden challenges that we may face in the marketplace, trends in the market for our products and changing consumer demands and sentiment, it could have a material adverse effect on our business, financial condition and results of operations.

 

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We may not be able to identify, acquire, and integrate new stores, which could adversely affect our ability to grow our business.

An important part of our recent growth strategy has been to acquire other convenience stores that complement our existing stores or broaden our geographic presence. From May 1, 2013 through April 30, 2014 we acquired and opened 25 convenience stores. We expect to continue pursuing acquisition opportunities.

Acquisitions involve risks that could cause our actual growth or operating results to differ materially from our expectations or the expectations of securities analysts. These risks include:

 

    The inability to identify and acquire suitable sites at advantageous prices;

 

    Competition in targeted market areas;

 

    Difficulties during the acquisition process in discovering some of the liabilities of the businesses that we acquire;

 

    Difficulties associated with our existing financial controls, information systems, management resources and human resources needed to support our future growth;

 

    Difficulties with hiring, training and retaining skilled personnel, including store managers;

 

    Difficulties in adapting distribution and other operational and management systems to an expanded network of stores;

 

    Difficulties in obtaining governmental and other third-party consents, permits and licenses needed to operate additional stores;

 

    Difficulties in obtaining the cost savings and financial improvements we anticipate from future acquired stores;

 

    The potential diversion of our senior management’s attention from focusing on our core business due to an increased focus on acquisitions; and

 

    Challenges associated with the consummation and integration of any future acquisition.

We are subject to federal and state environmental and other regulations.

Our business is subject to extensive governmental laws and regulations that include but are not limited to environmental and employment laws and regulations; health care; legal restrictions on the sale of alcohol, tobacco, and lottery products; requirements related to minimum wage, working conditions, public accessibility, and citizenship. A violation of or change in such laws and/or regulations could have a material adverse effect on our business, financial condition, and results of operations.

Under various federal, state, and local laws, regulations, and ordinances, we may, as the owner/operator of our locations, be liable for the costs of removal or remediation of contamination at these or our former locations, whether or not we knew of, or were responsible for, the presence of such contamination. Failure to remediate such contamination properly may make us liable to third parties and adversely affect our ability to sell or lease such property.

Compliance with existing and future environmental laws regulating underground storage tanks may require significant capital expenditures and increased operating and maintenance costs. The remediation costs and other costs required to clean up or treat contaminated sites could be substantial. We pay tank registration fees and other taxes to state trust funds established in our operating areas in support of future remediation obligations.

These state trust funds are expected to pay or reimburse us for remediation expenses less a deductible. To the extent third parties do not pay for remediation as we anticipate, we will be obligated to make these payments, which could materially adversely affect our financial condition and results of operations. Reimbursements from state trust funds will be dependent on the maintenance and continued solvency of the various funds.

In the future, we may incur substantial expenditures for remediation of contamination that has yet to be discovered at existing locations or at locations we may acquire. We cannot assure you that we have identified all environmental liabilities at all of our current and former locations; that material environmental conditions not known to us do not exist; that future laws, ordinances, or regulations will not impose material environmental liability on us; or that a material environmental condition does not otherwise exist at any one or more of our locations. In addition, failure to comply with any environmental laws, regulations, or ordinances or an increase in regulations could adversely affect our operating results and financial condition.

 

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State laws regulate the sale of alcohol, tobacco, and lottery products. A violation or change of these laws could adversely affect our business, financial condition, and results of operations because state and local regulatory agencies have the power to approve, revoke, suspend, or deny applications for and renewals of permits and licenses relating to the sale of these products or to seek other remedies.

Any appreciable increase in income, overtime pay, or the statutory minimum wage rate or adoption of mandated healthcare benefits would result in an increase in our labor costs. Such cost increases or the penalties for failing to comply with such statutory minimum could adversely affect our business, financial condition, and results of operations. State or federal lawmakers or regulators may also enact new laws or regulations applicable to us that may have a material adverse and potentially disparate impact on our business.

Health care reform legislation could have a negative impact on our business.

The Patient Protection and Affordable Care Act (the “PPACA”) as well as other healthcare reform legislation being considered by Congress and various State legislatures may have a negative impact on our business. Although many of the rules, reforms and regulations required to implement the PPACA have not yet been adopted, such reforms appear likely to significantly increase our employee healthcare-related costs and therefore our operating expenses. As the provisions of such reform legislation are phased in over time, the resulting changes to our healthcare cost structure could have a material adverse effect on our business, financial condition and results of operations.

The dangers inherent in the storage and transport of motor fuel could cause disruptions and could expose to us potentially significant losses, costs or liabilities.

We store motor fuel in storage tanks at our retail locations. Additionally, we transport a significant portion of our motor fuel in our own trucks, instead of by third-party carriers. Our operations are subject to significant hazards and risks inherent in transporting and storing motor fuel. These hazards and risks include, but are not limited to, fires, explosions, traffic accidents, spills, discharges and other releases, any of which could result in distribution difficulties and disruptions, environmental pollution, governmentally-imposed fines or clean-up obligations, personal injury or wrongful death claims and other damage to our properties and the properties of others. As a result, any such event could have a material adverse effect on our business, financial condition and results of operations.

We may incur costs or liabilities as a result of litigation or adverse publicity resulting from concerns over food quality, health or other issues that could cause customers to avoid our convenience stores.

We may be the subject of complaints or litigation arising from food-related illness or injury in general which could have a negative impact on our business. Additionally, negative publicity, regardless of whether the allegations are valid, concerning food quality, food safety or other health concerns, employee relations or other matters related to our operations may materially adversely affect demand for our food and could result in a decrease in customer traffic to our convenience stores.

It is critical to our reputation that we maintain a consistent level of high quality prepared food offerings at our convenience stores. Health concerns, poor food quality or operating issues stemming from one store or a limited number of stores could materially adversely affect the operating results of some or all of our stores.

Because we depend on our senior management’s experience and knowledge of our industry, we could be adversely affected were we to lose key members of our senior management team.

We are dependent on the continued efforts of our senior management team. If, for any reason, our senior executives do not continue to be active in management, our business, financial condition or results of operations could be adversely affected. We also rely on our ability to recruit qualified store managers, supervisors, district managers, regional managers and other store personnel. Failure to continue to attract these individuals at reasonable compensation levels could have a material adverse effect on our business and results of operations.

 

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We rely on our information technology systems to manage numerous aspects of our business, and a disruption of these systems could adversely affect our business.

We depend on our information technology (IT) systems to manage numerous aspects of our business transactions and provide analytical information to management. Our IT systems are an essential component of our business and growth strategies, and a serious disruption to our IT systems could significantly limit our ability to manage and operate our business efficiently. These systems are vulnerable to, among other things, damage and interruption from power loss or natural disasters, computer system and network failures, loss of telecommunications services, physical and electronic loss of data, security breaches and computer viruses. Any disruption could cause our business and competitive position to suffer and cause our operation results to be reduced. Also, our business continuity plan could fail.

Additional control deficiencies could prevent us from accurately and timely reporting our financial results.

As previously disclosed, management of the Company, in consultation with the Audit Committee, has identified a material weakness in its internal control over financial reporting concerning the review of quarterly federal excise tax returns filed with the IRS relating to the Company’s ethanol blending activities when the tax regulations changed. The Company has completed or is in the process of completing steps, and plans to take additional steps, to remediate the underlying causes of the material weakness and ineffective disclosure controls and procedures, and to further strengthen its internal controls. For further information on the material weakness and our remediation efforts, see Item 9A herein.

Our internal control over financial reporting constitutes a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. We have in the past and may in the future identify deficiencies in our internal control over financial reporting, including significant deficiencies and material weaknesses. Failure to identify and remediate additional deficiencies in our internal control over financial reporting in a timely manner could prevent us from accurately and timely reporting our financial results, which could cause us to fail to meet our reporting obligations, lead to a loss of investor confidence and have a negative impact on the trading price of our common stock.

Other Risks

Any issuance of shares of our common stock in the future could have a dilutive effect on your investment.

We could issue additional shares for investment, acquisition, or other business purposes. Even if there is not an immediate need for capital, we may choose to issue securities to sell in public or private equity markets if and when conditions are favorable. Raising funds by issuing securities would dilute the ownership interests of our existing shareholders. Additionally, certain types of equity securities we may issue in the future could have rights, preferences, or privileges senior to the rights of existing holders of our common stock.

Iowa law and provisions in our charter documents may have the effect of preventing or hindering a change in control and adversely affecting the market price of our common stock.

Our articles of incorporation give the Company’s board of directors the authority to issue up to one million shares of preferred stock and to determine the rights and preferences of the preferred stock without obtaining shareholder approval. The existence of this preferred stock could make it more difficult or discourage an attempt to obtain control of the Company by means of a tender offer, merger, proxy contest, or otherwise. Furthermore, this preferred stock could be issued with other rights, including economic rights, senior to our common stock, thereby having a potentially adverse effect on the market price of our common stock.

Our articles of incorporation were amended in 2011 to stagger the terms of the Company’s board of directors, as a result of amendments to the Iowa Business Corporation Act. Our staggered board, along with other provisions of our articles of incorporation and bylaws and Iowa corporate law, could make it more difficult for a third party to acquire us or remove our directors by means of a proxy contest, even if doing so would be beneficial to our shareholders. For example, Section 409.1110 of the Iowa Business Corporation Act prohibits publicly held Iowa corporations to which it applies from engaging in a business combination with an interested shareholder for a period of three years after the date of the transaction in which the person became an interested shareholder unless the business combination is approved in a

 

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prescribed manner. Further, Section 490.1108A of the Iowa Business Corporation Act permits a board of directors, in the context of a takeover proposal, to consider not only the effect of a proposed transaction on shareholders, but also on a corporation’s employees, suppliers, customers, creditors, and on the communities in which the corporation operates. These provisions could discourage others from bidding for our shares and could, as a result, reduce the likelihood of an increase in our stock price that would otherwise occur if a bidder sought to buy our stock.

We may, in the future, adopt other measures (such as a shareholder rights plan or “poison pill”) that could have the effect of delaying, deferring, or preventing an unsolicited takeover, even if such a change in control were at a premium price or favored by a majority of unaffiliated shareholders. These measures may be adopted without any further vote or action by our shareholders.

The market price for our common stock has been and may in the future be volatile, which could cause the value of your investment to decline.

Securities markets worldwide experience significant price and volume fluctuations. This market volatility could significantly affect the market price of our common stock without regard to our operating performance. In addition, the price of our common stock could be subject to wide fluctuations in response to these and other factors:

 

    A deviation in our results from the expectations of public market analysts and investors;

 

    Statements by research analysts about our common stock, company, or industry;

 

    Changes in market valuations of companies in our industry and market evaluations of our industry generally;

 

    Additions or departures of key personnel;

 

    Actions taken by our competitors;

 

    Sales of common stock by the Company, senior officers, or other affiliates; and

 

    Other general economic, political, or market conditions, many of which are beyond our control.

The market price of our common stock will also be affected by our quarterly operating results and monthly same store sales results, which may be expected to fluctuate. The following are factors that may affect our quarterly results and same store sales: general, regional, and national economic conditions; competition; unexpected costs; changes in retail pricing, consumer trends, and the number of stores we open and/or close during any given period; costs of compliance with corporate governance and Sarbanes-Oxley requirements. Other factors are discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations. You may not be able to resell your shares of our common stock at or above the price you pay.

 

ITEM 1B.  UNRESOLVED STAFF COMMENTS

Not applicable.

 

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ITEM 2. PROPERTIES

We own our corporate headquarters and Distribution Center. Located on an approximately 45-acre site in Ankeny, Iowa, these adjacent facilities and our vehicle service and maintenance center occupy a total of approximately 375,000 square feet. The original complex was completed in February 1990 and placed in full service at that time. In fiscal 2007, we added 98,000 square feet to the Distribution Center, 20,000 square feet of office space, additional paving for truck parking, and necessary drainage and landscaping improvements. In fiscal 2013, we purchased a nearby service building, which consists of approximately 60,000 square feet of warehouse space and approximately 14,000 square feet of office space.

In March 2014, we initiated further expansion of our distribution center with a projected 38,000 additional square feet of warehouse space for our distribution center.

In April 2014, we announced plans to build a second distribution center, to be located in Terre Haute, Indiana. This second distribution center is projected to have approximately 250,000 square feet of warehouse space.

On April 30, 2014, we also owned the land at 1,787 store locations and the buildings at 1,792 locations and leased the land at 21 locations and the buildings at 16 locations. Most of the leases provide for the payment of a fixed rent plus property taxes, insurance, and maintenance costs. Generally, the leases are for terms of ten to twenty years with options to renew for additional periods or options to purchase the leased premises at the end of the lease period.

 

ITEM 3. LEGAL PROCEEDINGS

The information required to be set forth under this heading is incorporated by reference from Note 11, Contingencies, to the Consolidated Financial Statements included in Part II, Item 8.

 

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

 

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PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

Common Stock

Casey’s common stock trades on the Nasdaq Global Select Market under the symbol CASY. The 38,507,387 shares of common stock outstanding at April 30, 2014 had a market value of approximately $2.6 billion. On that date there were 1,793 shareholders of record.

Common Stock Market Prices

 

Calendar 2012

   High      Low      Calendar
2013
     High      Low      Calendar
2014
     High      Low  

Q1

   $ 56.44       $ 49.52         Q1       $ 59.00       $ 51.45         Q1       $ 70.95       $ 64.84   

Q2

   $ 60.60       $ 51.81         Q2       $ 63.89       $ 52.84            

Q3

   $ 63.00       $ 55.20         Q3       $ 74.08       $ 60.47            

Q4

   $ 57.66       $ 46.15         Q4       $ 77.58       $ 67.80            

Dividends

We began paying cash dividends during fiscal 1991.The dividends declared in fiscal 2014 totaled $0.72 per share. The dividends paid in fiscal 2013 totaled $0.66 per share. On June 6, 2014, the Board of Directors declared a quarterly dividend of $0.20 payable August 15, 2014 to shareholders of record on August 1, 2014. The Board expects to review the dividend every year at its June meeting.

The cash dividends declared during the calendar years 2012-14 were as follows:

 

Calendar

2012

   Cash
dividend
declared
     Calendar
2013
     Cash
dividend
declared
     Calendar
2014
     Cash
dividend
declared
 

Q1

   $ 0.15         Q1       $ 0.165         Q1       $ 0.18   

Q2

     0.165         Q2         0.18         Q2         0.20   

Q3

     0.165         Q3         0.18         

Q4

     0.165         Q4         0.18         
  

 

 

       

 

 

       
     0.645            0.705         

 

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ITEM 6. SELECTED FINANCIAL DATA*

(In thousands, except per share amounts)

Statement of Income Data*

 

     Years ended April 30,  
     2014      2013      2012      2011      2010  

Total revenue

   $ 7,840,255       $ 7,250,840       $ 6,987,804       $ 5,635,240       $ 4,637,087   

Cost of goods sold

     6,618,239         6,179,771         5,987,659         4,754,173         3,844,735   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Gross profit

     1,222,016         1,071,069         1,000,145         881,067         792,352   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Operating expenses

     857,297         760,365         688,431         607,628         526,291   

Depreciation and amortization

     131,160         111,823         96,552         82,355         73,546   

Interest, net

     39,915         35,265         35,192         28,497         10,933   

Loss on early retirement of debt

     —           —           —           11,350         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Income before income taxes

     193,644         163,616         179,970         151,237         181,582   

Federal and state income taxes

     66,824         59,802         65,276         56,614         64,620   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   $ 126,820       $ 103,814       $ 114,694       $ 94,623       $ 116,962   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Basic earnings per common share

   $ 3.30       $ 2.71       $ 3.01       $ 2.24       $ 2.30   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Diluted earnings per common share

   $ 3.26       $ 2.69       $ 2.99       $ 2.22       $ 2.29   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average number of common shares outstanding—basic

     38,458         38,297         38,068         42,285         50,899   

Weighted average number of common shares outstanding—diluted

     38,868         38,620         38,392         42,567         51,053   

Dividends paid per common share

   $ .72       $ 0.66       $ 0.60       $ 0.505       $ 0.34   

Balance Sheet Data

 

     As of April 30,  
     2014      2013      2012      2011      2010  

Current assets

   $ 389,558       $ 278,967       $ 280,726       $ 293,887       $ 310,085   

Total assets

     2,304,876         1,990,168         1,776,263         1,610,955         1,388,775   

Current liabilities

     390,889         412,806         310,186         294,500         240,886   

Long-term debt, net of current maturities

     853,642         653,081         667,930         678,680         154,754   

Shareholders’ equity

     703,264         593,387         503,944         403,896         824,319   

 

* Due to the immaterial error discussed in this Amendment No. 1, the Statement of Income Data and Balance Sheet Data have been revised. See Note 2 to the Consolidated Financial Statements.

 

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars and gallons in thousands, except per share amounts)

Please read the following discussion of the Company’s financial condition and results of operations in conjunction with the Explanatory Note to this Amendment No. 1 to the Original Filing and in conjunction with selected historical consolidated financial data and consolidated financial statements and accompanying notes presented elsewhere in this Form 10-K/A and presented in the Original Filing.

Overview

The Company operates convenience stores under the name “Casey’s General Store” in fourteen Midwestern states, primarily in Iowa, Missouri and Illinois. On April 30, 2014, there were a total of 1,808 stores in operation. All but one store offer fuel for sale on a self-serve basis and carry a broad selection of food (including freshly prepared foods such as pizza, donuts and sandwiches), beverages, tobacco products, health and beauty aids, automotive products and other non-food items. We derive our revenue from the retail sale of fuel and the products offered in our stores.

Approximately 58% of all Casey’s General Stores are located in areas with populations of fewer than 5,000 persons, while approximately 16% of all stores are located in communities with populations exceeding 20,000 persons. We operate a central warehouse, the Casey’s Distribution Center, adjacent to our Corporate Headquarters facility in Ankeny, Iowa, through which we supply grocery and general merchandise items to our stores. At April 30, 2014, the Company owned the land at 1,787 store locations and the buildings at 1,792 locations, and leased the land at 21 locations and the buildings at 16 locations.

During the fourth quarter of fiscal 2014, the Company earned $.54 in diluted earnings per share compared to $.56 per share for the same quarter a year ago. Fiscal 2014 diluted earnings per share were $3.26 versus $2.69 for the prior year. The Company’s business is seasonal, and generally the Company experiences higher sales and profitability during the first and second fiscal quarters (May-October), when customers tend to purchase greater quantities of fuel and certain convenience items such as beer and soft drinks.

During the 2014 fiscal year, we acquired and opened 25 convenience stores from other parties and completed 44 new store constructions. In addition to this activity, the Company also replaced 20 stores and closed 12 stores during the year.

The fourth quarter results reflected a 1.8% increase in same-store fuel gallons sold, with an average margin of approximately 13.1 cents per gallon. The Company’s fourth quarter fuel margin was helped by our ability to sell approximately 12.1 million renewable fuel credits for $5,700. For the fiscal year, same-store gallons increased 3.1% with an average margin of 16.1 cents per gallon. The Company’s policy is to price to the competition, so the timing of retail price changes is driven by local competitive conditions.

Same store sales of grocery and other merchandise increased 7.2% and prepared foods and fountain increased 12.1% during the fourth quarter of fiscal 2014.

The Company has several energy initiatives designed to reduce operating expenses associated with energy consumption. The Company believes that reducing energy consumption where feasible is a sound long-term business strategy. While individually and in aggregate the financial impact of these initiatives may not be material, implementing them throughout our operations is a part of our overall expense management. Below is a list of some of the energy initiatives the Company is currently undertaking:

 

    All newly constructed stores use 100 percent high efficiency LED lighting. Also, when we perform a major remodel of an existing store, the fluorescent lighting is replaced with LED lighting. Furthermore, new canopies over the fuel pumps are installed with time systems and photo eyes to help control the canopy lighting.

 

    Multiple paperless initiatives are going on throughout the Company, including going to paperless paystubs and W-2’s where state law allows.

 

    Electric fuel tank heaters have been installed in our fleet of trucks, significantly reducing idle time. Furthermore, timers have been installed that automatically turn off the engine if it is idling for more than ten minutes.

 

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    All of our store managers receive a portion of their pay in the form of incentive compensation. This encourages store managers to efficiently manage operating expenses, including utility expenses. All levels of supervision, including executive officers and supervisory personnel within the store operations department receive some form of incentive compensation, and operating expenses have a direct impact on the amount of annual incentive compensation payments made to these employees.

For further information concerning the Company’s operating environment and certain conditions that may affect future performance, see the “Forward-looking Statements” at the end of this Item 7.

 

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Fiscal 2014 Compared with Fiscal 2013

Total revenue for fiscal 2014 increased 8.1% to $7,840,255, primarily due to an increase in the number of gallons sold (which generated an additional $435,070), and an increase in inside sales (grocery & other merchandise and prepared food & fountain) (a $258,775 increase). This was partially offset by a 2.1% decrease in average fuel prices (amounting to a $109,647 decrease). Retail fuel sales for the fiscal year were $5,554,580, an increase of 6.2%, and gallons sold increased 8.5% to 1,665,600. Inside sales increased 13% to $2,242,410, primarily a result of an $83,454 increase from the rollout and expansion of our operating initiatives in our stores (expanded hours at select locations, stores with pizza delivery, and major remodels), and a $79,743 increase from stores that were built or acquired after April 30, 2012.

Total gross profit margin was 15.6% for fiscal 2014 compared with 14.8% for the prior year. The fuel margin increased to 4.8% in fiscal 2014 from 4.2% in fiscal 2013 primarily due to the increase in the value of the renewable fuel credits sold. The grocery & other merchandise margin decreased to 32.1% in fiscal 2014 from 32.6% in fiscal 2013 primarily due to the cigarette retail price adjustments made during last fiscal year. The prepared food & fountain margin decreased to 61.1% from 61.8% primarily due to the higher costs of cheese and meat during fiscal 2014.

Operating expenses increased 12.7% ($96,932) in fiscal 2014 primarily due to an increase from stores built or acquired after April 30, 2012 ($31,061), and the expansion of our operating initiatives noted above ($29,511). The operating expense ratio also increased to 10.9% of total revenue in fiscal 2014 from 10.5% in the prior year.

Depreciation and amortization expense increased 17.3% to $131,160 in fiscal 2014 from $111,823 in fiscal 2013. The increase was due to capital expenditures made in fiscal 2014.

The effective tax rate decreased 210 basis points to 34.5% in fiscal 2014 from 36.6% in fiscal 2013. The decrease in the effective tax rate was primarily due to out of period adjustments to correct accumulated variances in deferred taxes ($2,760).

Net income increased to $126,820 in fiscal 2014 from $103,814 in fiscal 2013. The increase was due primarily to the increase in inside sales, the increase in the number of fuel gallons sold and the increase in the fuel gross profit margin due to the increase of the renewable fuel credits sold. However, this was partially offset by the decreases in gross profit margins from inside sales, an increase in the operating expenses, and an increase in depreciation and amortization.

 

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Fiscal 2013 Compared with Fiscal 2012

Total revenue for fiscal 2013 increased 3.8% to $7,250,840, primarily due to an increase in the number of gallons sold (which generated an additional $200,924), and an increase in inside sales (grocery & other merchandise and prepared food & fountain) (a $118,928 increase). This was partially offset by a 1.3% decrease in average fuel prices (amounting to a $64,078 decrease). Retail fuel sales for the fiscal year were $5,229,157, an increase of 2.7%, and gallons sold increased 4% to 1,535,140. Inside sales increased 6.4% to $1,983,635, primarily the result of a $62,608 increase from stores that were built or acquired after April 30, 2011, and a $46,867 increase from the rollout and expansion of our operating initiatives in our stores (expanded hours at select locations, stores with pizza delivery, and major remodels).

Total gross profit margin was 14.8% for fiscal 2013 compared with 14.3% for the prior year. The fuel margin decreased slightly to 4.2% in fiscal 2013 from 4.4% in fiscal 2012 primarily due to the impact of the removal of ethanol blending credits the Company was receiving (approximately $18,000) offset by increases in renewable fuel credits sold (approximately $5,000). The grocery & other merchandise margin increased slightly to 32.6% in fiscal 2013 from 32.5% in fiscal 2012. The prepared food & fountain margin increased to 61.8% from 60.7% primarily due to the lower commodity costs during fiscal 2013.

Operating expenses increased 10.4% ($71,934) in fiscal 2013 primarily due to the expansion of our operating initiatives noted above ($27,996) along with an increase from stores built or acquired after April 30, 2011 ($23,303). The operating expense ratio also increased to 10.5% of total revenue in fiscal 2013 from 9.9% in the prior year.

Depreciation and amortization expense increased 15.8% to $111,823 in fiscal 2013 from $96,552 in fiscal 2012. The increase was due to capital expenditures made in fiscal 2013.

The effective tax rate increased 30 basis points to 36.6% in fiscal 2013 from 36.3% in fiscal 2012. The increase in the effective tax rate was primarily due to lower federal tax credits for the current year.

Net income decreased to $103,814 in fiscal 2013 from $114,694 in fiscal 2012. The decrease was due primarily to the increase in the operating expenses and an increase in depreciation and amortization expenses. However, this was partially offset by an increase in inside sales and an increase in the number of fuel gallons sold.

 

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COMPANY TOTAL REVENUE AND GROSS PROFIT BY CATEGORY (1)

 

     Years ended April 30,  
     2014      2013      2012  

Total revenue by category

        

Fuel

   $ 5,554,580       $ 5,229,157       $ 5,092,311   

Grocery & other merchandise

     1,583,234         1,418,711         1,364,995   

Prepared food & fountain

     659,176         564,924         499,712   

Other

     43,265         38,048         30,786   
  

 

 

    

 

 

    

 

 

 
   $ 7,840,255       $ 7,250,840       $ 6,987,804   
  

 

 

    

 

 

    

 

 

 

Gross profit by category (2)

        

Fuel

   $ 267,872       $ 221,422       $ 223,014   

Grocery & other merchandise

     507,936         462,663         443,245   

Prepared food & fountain

     402,996         348,993         303,159   

Other

     43,212         37,991         30,727   
  

 

 

    

 

 

    

 

 

 
   $ 1,222,016       $ 1,071,069       $ 1,000,145   
  

 

 

    

 

 

    

 

 

 

INDIVIDUAL STORE COMPARISONS (3)

 

     Years ended April 30,  
     2014      2013      2012  

Average retail sales

   $ 4,376       $ 4,159       $ 4,117   

Average retail inside sales

     1,270         1,152         1,117   

Average gross profit on inside items

     512         467         448   

Average retail sales of fuel

     3,105         3,007         3,000   

Average gross profit on fuel (4)

     151         127         132   

Average operating income (5)

     199         174         189   

Average number of gallons sold

     932         883         870   

 

(1) Due to the immaterial error discussed in this Amendment No. 1, the numbers for Gross profit for fuel and Gross profit total, as well as Average gross profit on fuel and Average operating income have been revised.
(2) Gross profits represent total revenue less cost of goods sold. Gross profit is given before charges for depreciation, amortization, and credit card fees. Cost of goods sold includes the costs we incur to acquire fuel and merchandise, including excise taxes, less vendor allowances and rebates and renewable fuel credits (RINs).
(3) Individual store comparisons include only those stores that had been in operation for at least one full year and remained open on April 30 of the fiscal year indicated.
(4) Retail fuel profit margins have a substantial impact on our net income. Profit margins on fuel sales can be adversely affected by factors beyond our control, including oversupply in the retail fuel market, uncertainty or volatility in the wholesale fuel market, and price competition from other fuel marketers. Any substantial decrease in profit margins on retail fuel sales or the number of gallons sold could have a material adverse effect on our earnings.
(5) Average operating income represents retail sales less cost of goods sold and operating expenses attributable to a particular store; it excludes federal and state income taxes, Company operating expenses not attributable to a particular store, and our matching contribution paid to the 401(k) Plan.

 

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SAME STORE SALES GROWTH BY CATEGORY

 

     Years ended April 30,  
     2014     2013     2012  

Fuel gallons (1)

     3.1     0.1     -1.5

Grocery & other merchandise (2)

     7.4       0.8        6.7  

Prepared food & fountain (3)

     11.8       8.6        14.3

 

(1) The 3.1% growth in the fuel gallons in 2014 as compared to 2013 was due primarily to the growth in the fuel saver program.
(2) The increase in same store grocery and other merchandise in 2014 is due primarily to the continued rollout of store initiatives, expanded hours and major store remodels. In comparing grocery and other merchandise same store sales growth from 2013 to 2012, the primary reason for the 5.9% decrease was due to a challenging cigarette environment driven by updates to vendor pricing programs and an increase in certain state excise taxes.
(3) The increase in same store prepared food and fountain in 2014 compared to 2013 is due primarily to the continued rollout of the expanded hour, pizza delivery and major store remodel initiatives. In comparing prepared food and fountain from 2013 to 2012, the primary reason for the decrease of 5.7% relates to challenging weather conditions in multiple quarters of 2013 as compared to 2012.

The same store sales comparison includes aggregated individual store results for all stores open throughout both periods presented. When comparing quarterly data the store must be open for each entire quarter. When comparing annual data, the store must be open for each entire fiscal year being compared.

Remodeled stores that remained open or were closed for just a very brief period of time (less than a week) during the period being compared remain in the same store sales comparison. If a store is replaced, either at the same location (razed and rebuilt) or relocated to a new location, it is removed from the comparison until the new store has been open for each entire period being compared. Newly constructed and acquired stores do not enter the calculation until they are open for each entire period being compared as well.

Use of Non-GAAP Measures

We define EBITDA as net income before net interest expense, depreciation and amortization, and income taxes. Adjusted EBITDA further adjusts EBITDA by excluding the gain or loss on disposal of assets as well as impairment charges. Both EBITDA and Adjusted EBITDA are not presented in accordance with generally accepted accounting principles in the United States of America (“GAAP”).

We believe EBITDA and Adjusted EBITDA are useful to investors in evaluating our operating performance because securities analysts and other interested parties use such calculations as a measure of financial performance and debt service capabilities, and they are regularly used by management for internal purposes including our capital budgeting process, evaluating acquisition targets, and assessing store performance.

EBITDA and Adjusted EBITDA are not recognized terms under GAAP and should not be considered as a substitute for net income, cash flows from operating activities or other income or cash flow statement data. These measures have limitations as analytical tools, and should not be considered in isolation or as substitutes for analysis of our results as reported under GAAP. We strongly encourage investors to review our financial statements and publicly filed reports in their entirety and not to rely on any single financial measure.

Because non-GAAP financial measures are not standardized, EBITDA and Adjusted EBITDA, as defined by us, may not be comparable to similarly titled measures reported by other companies. It therefore may not be possible to compare our use of these non-GAAP financial measures with those used by other companies.

 

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The following table contains a reconciliation of net income to EBITDA and Adjusted EBITDA for the three months and years ended April 30, 2014 and 2013, respectively (1):

 

     Three months ended      Years ended  
     April 30,
2014
    April 30,
2013
     April 30,
2014
     April 30,
2013
 

Net income

   $ 20,932        21,604         126,820         103,814   

Interest, net

     10,320       8,836         39,915         35,265   

Depreciation and amortization

     35,556       29,910         131,160         111,823   

Federal and state income taxes

     6,689       12,262         66,824         59,802   
  

 

 

   

 

 

    

 

 

    

 

 

 

EBITDA

   $ 73,497       72,612         364,719         310,704   

(Gain) loss on disposal of assets and impairment charges

     (34     516         2,846         4,788   
  

 

 

   

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 73,463       73,128         367,565         315,492   
  

 

 

   

 

 

    

 

 

    

 

 

 

 

(1) Due to the immaterial error discussed in this Amendment No. 1, these numbers have been revised from the Original Filing.

For the three months ended April 30, 2014, EBITDA and Adjusted EBITDA were up 1.2% and .5% respectively, when compared to the same period a year ago. The increase was due to operating 59 more stores than the same period a year ago, the results from the implementation of expanded hours, major remodels and pizza delivery, as well as operating more replacement stores. These gains were offset by a reduction in fuel margin compared to the fourth quarter a year ago. For the year ended, April 30, 2014, EBITDA and Adjusted EBITDA were up 17.4% and 16.5% respectively. The primary reason for the increase was attributable to a higher fuel margin from an increase in renewable fuel credit sales, operating 59 more stores than the same period a year ago, the results from the implementation of expanded hours, major remodels and pizza delivery, as well as operating more replacement stores.

 

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Critical Accounting Policies

Critical accounting policies are those accounting policies that management believes are important to the portrayal of our financial condition and results of operations and require management’s most difficult, subjective judgments, often because of the need to estimate the effects of inherently uncertain factors.

Inventory

Inventories, which consist of merchandise and gasoline, are stated at the lower of cost or market. For fuel, cost is determined through the use of the first-in, first-out (FIFO) method. For merchandise inventories, cost is determined through the use of the last-in, first-out (LIFO) method for financial and income tax reporting applied to inventory values determined primarily by our FIFO accounting system for warehouse inventories.

Vendor allowances include rebates and other funds received from vendors to promote their products. The Company often receives such allowances on the basis of quantitative contract terms that vary by product and vendor or directly on the basis of purchases made. Vendor rebates in the form of rack display allowances (RDAs) are funds that we receive from various vendors for allocating certain shelf space to carry their specific products or to introduce new products in our stores for a particular period of time. The RDAs are treated as a reduction in cost of goods sold and are recognized incrementally over the period covered by the applicable rebate agreement. These funds do not represent reimbursements of specific, incremental, identifiable costs incurred by us in selling the vendor’s products. Vendor rebates in the form of billbacks are treated as a reduction in cost of goods sold and are recognized at the time the product is sold. Reimbursements of an operating expense (e.g., advertising) are recorded as reductions of the related expense. The Company takes title to RINs when we purchase clear unleaded gasoline or diesel fuel, and purchase ethanol separately. The ethanol is blended in the tanker during transit to the store and the blending is the event that enables the RIN to be separated from the ethanol it identifies and allows it to be sold to third parties. The RINs are recorded as a reduction in the cost of goods sold in the period when the Company commits to a price and agrees to sell all of the RINs acquired during a specified period.

Long-lived Assets

The Company periodically monitors closed and underperforming stores for an indication that the carrying amount of assets may not be recoverable. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the assets, an impairment loss is recognized to the extent the carrying value of the assets exceeds their estimated fair value. The Company bases the estimated net realizable value of property and equipment on its experience in utilizing and/or disposing of similar assets and on estimates provided by its own and/or third-party real estate experts. Fair value is based on management’s estimate of the future cash flows to be generated and the amount that could be realized from the sale of assets in a current transaction between willing parties, which are considered Level 3 inputs. The estimate is derived from offers, actual sale or disposition of assets subsequent to year-end, and other indications of fair value. In determining whether an asset is impaired, assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets, which for the Company is generally on a store-by-store basis. The Company recorded impairment charges of $2,542 in fiscal 2014, $3,680 in fiscal 2013, and $226 in fiscal 2012, the majority of which was related to replacement store and acquisition activities. Impairment charges are a component of operating expenses.

Self-insurance

We are primarily self-insured for employee healthcare, workers’ compensation, general liability, and automobile claims. The self-insurance claim liability is determined actuarially at each year end based on claims filed and an estimate of claims incurred but not yet reported. Actuarial projections of the losses are employed due to the high degree of variability in the liability estimates. Some factors affecting the uncertainty of claims include the development time frame, settlement patterns, litigation and adjudication direction, and medical treatment and cost trends. The liability is not discounted. The balances of our self-insurance reserves were $28,429 and $24,039 for the years ended April 30, 2014 and 2013, respectively.

 

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Goodwill

Goodwill and intangible assets with indefinite lives are tested for impairment at least annually. The Company assesses impairment annually at year-end using a market based approach to establish fair value. All of the goodwill assigned to the individual stores is aggregated into a single reporting unit due to the similar economic characteristics of the stores. As of April 30, 2014, there was $120,406 of goodwill and management’s analysis of recoverability completed as of the fiscal year-end yielded no evidence of impairment and no events have occurred since the annual test indicating a potential impairment.

Liquidity and Capital Resources

Due to the nature of our business, cash provided by operations is our primary source of liquidity. We finance our inventory purchases primarily from normal trade credit aided by relatively rapid inventory turnover. This turnover allows us to conduct operations without large amounts of cash and working capital. As of April 30, 2014, the Company’s ratio of current assets to current liabilities was 1 to 1. The ratio at April 30, 2013 and at April 30, 2012 was .68 to 1 and .91 to 1 respectively. We believe our current bank line of credit and the cash flow from operations will be sufficient to satisfy the working capital needs of our business.

Net cash provided by operating activities increased $27,832 (9.7%) in the year ended April 30, 2014, primarily because of an increase in net income, and larger increases in depreciation and amortization and accrued expenses. This result was partially offset by a smaller increase in deferred income taxes. Cash used in investing activities in the year ended April 30, 2014 increased $5,605 (1.7%) primarily due to the increase in the purchase of property and equipment from the prior year. Cash flows from financing activities increased $72,791 (240.2%), primarily due to the proceeds from long-term debt.

Capital expenditures represent the single largest use of Company funds. We believe that by reinvesting in stores, we will be better able to respond to competitive challenges and increase operating efficiencies. During fiscal 2014, we expended $340,217 for property and equipment, primarily for construction, acquisition, and remodeling of stores compared with $334,828 in the prior year. In fiscal 2015, we anticipate expending between $360,000 and $410,000, primarily from existing cash, funds generated by operations, and recent long-term debt proceeds for our construction, acquisition, and remodeling of stores.

As of April 30, 2014, we had long-term debt, net of current maturities, of $853,642 consisting of $569,000 in principal amount of 5.22% Senior notes, $75,000 in principal amount of 5.72% Senior notes, Series A and B; $150,000 in principal amount of 3.67% Senior Notes, Series A, $50,000 in principal amount of 3.75% Senior Notes, Series B, and $9,642 of capital lease obligations.

Interest on the 5.22% Senior notes is payable on the 9th day of each February and August. Principal on the 5.22% Senior notes is payable in full on August 9, 2020. We may prepay the 5.22% notes in whole or in part at any time in an amount of not less than $2,000 at a redemption price calculated in accordance with the Note Agreement dated August 9, 2010 between the Company and the purchasers of the 5.22% Senior notes.

Interest on the 5.72% Senior notes Series A and Series B is payable on the 30th day of each March and September. Principal on the Senior notes Series A and Series B is payable in various installments beginning September 30, 2012. We may prepay the 5.72% Senior notes Series A and Series B in whole or in part at any time in an amount of not less than $2,000 at a redemption price calculated in accordance with the Note Agreement dated September 29, 2006 between the Company and the purchasers of the 5.72% Senior notes Series A and Series B.

Interest on the 3.67% Senior notes Series A and 3.75% Series B is payable on the 17th day of each June and December. Principal on the Senior notes Series A and Series B is payable in various installments beginning June 17, 2022 (Series A) and December 17, 2022 (Series B). We may prepay the 3.67% and 3.75% Senior notes in whole or in part at any time in an amount of not less than $2,000 at a redemption price calculated in accordance with the Note Agreement dated June 17, 2013, between the Company and the purchasers of the Senior notes Series A and Series B.

To date, we have funded capital expenditures primarily through funds generated from operations, the proceeds of the sale of common stock, issuance of 6.25% convertible subordinated debentures (converted into shares of common stock in 1994), the previously described Senior notes, and a mortgage note. Future capital required to finance operations, improvements, and the anticipated growth in the number of stores is expected to come from cash generated by operations, the bank line of credit, and additional long-term debt or other securities as circumstances may dictate. We do not expect such capital needs to adversely affect liquidity.

 

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The table below presents our significant contractual obligations, including interest, at April 30, 2014:

 

Contractual obligations

   Payments due by period  
     Total      Less than
1 year
     1-3 years      3-5 years      More than
5 years
 

Senior notes

   $ 1,129,530         41,372         111,456         108,025         868,677   

Capital lease obligations

     17,471         1,078         1,772         1,746         12,875   

Operating lease obligations

     3,227         872         1,177         917         261   

Unrecognized tax benefits

     9,244         —           —           —           —     

Deferred compensation

     16,558         —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,176,030         43,322         114,405         110,688         881,813   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Unrecognized tax benefits relate to uncertain tax positions and since we are not able to reasonably estimate the timing of the payments or the amount by which the liability will increase or decrease over time, the related balances have not been reflected in the “Payments due by period” section of the table.

At April 30, 2014, the Company had a total of $9,244 in gross unrecognized tax benefits. Of this amount, $6,131 represents the amount of unrecognized tax benefits that, if recognized, would impact our effective tax rate. The total amount of accrued interest and penalties for such unrecognized tax benefits was $402 as of April 30, 2014. Interest and penalties related to income taxes are classified as income tax expense in our consolidated financial statements. The federal statute of limitations remains open for the years 2010 and forward. Tax years 2009 and forward are subject to audit by state tax authorities depending on open statute of limitations waivers and the tax code of each state.

A number of years may elapse before an uncertain tax position is audited and ultimately settled. It is difficult to predict the ultimate outcome or the timing of resolution for uncertain tax positions. It is reasonably possible that the amount of unrecognized tax benefits could significantly increase or decrease within the next twelve months. These changes could result from the expiration of the statute of limitations, examinations or other unforeseen circumstances. As of April 30, 2014, the Company has no ongoing federal or state income tax examinations. The Company did not have any outstanding litigation related to tax matters. At this time, management believes it is reasonably possible the aggregate amount of unrecognized tax benefits will decrease by $2,661 within the next 12 months. This expected decrease is due to the expiration of statute of limitations related to certain state income tax filing positions.

Included in long-term liabilities on our consolidated balance sheet at April 30, 2014, was a $16,558 obligation for deferred compensation. As the specific payment dates for the deferred compensation are unknown due to the unknown retirement dates of many of the participants, the related balances have not been reflected in the “Payments due by period” section of the table. However, known payments of $5,273 will be due during the next 5 years.

At April 30, 2014, we were partially self-insured for workers’ compensation claims in all 14 states of our marketing territory; we also were partially self-insured for general liability and auto liability under an agreement that provides for annual stop-loss limits equal to or exceeding approximately $1,000. To facilitate this agreement, letters of credit approximating $15,000 and $15,500, respectively, were issued and outstanding at April 30, 2014 and 2013, on the insurance company’s behalf. We renew the letters of credit on an annual basis.

Forward-looking Statements

This Form 10-K/A contains various “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. Forward-looking statements represent our expectations or beliefs concerning future events, including (i) any statements regarding future sales and gross profit percentages, (ii) any statements regarding the continuation of historical trends, and (iii) any statements regarding the sufficiency of the Company’s cash balances and cash generated from operations and financing activities for the Company’s future liquidity and capital resource needs. The words believe, expect, anticipate, intend, estimate, project and similar expressions are intended to identify forward-looking statements. We caution you that these statements are further qualified by important factors that could cause actual results to differ materially from those in the forward-looking statements, including without limitations the factors described in this Form 10-K/A.

 

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We ask you not to place undue reliance on such forward-looking statements because they speak only of our views as of the statement dates. Although we have attempted to list the important factors that presently affect the Company’s business and operating results, we further caution you that other factors may in the future prove to be important in affecting the Company’s results of operations. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

In addition to any assumptions and other factors referred to specifically in connection with such forward-looking statements, factors that could cause the Company’s actual results to differ materially from those contemplated in any forward-looking statements include, among others, the following:

Competition

Our business is highly competitive and marked by ease of entry and constant change in terms of the numbers and type of retailers offering the products and services found in stores. Many of the food (including prepared foods) and nonfood items similar or identical to those we sell are generally available from a variety of competitors in the communities served by our stores, and we compete with other convenience store chains, gasoline stations, supermarkets, drug stores, discount stores, club stores, mass merchants, and fast-food outlets (with respect to the sale of prepared foods). Sales of nonfuel items (particularly prepared food items) have contributed substantially to our gross profit on retail sales in recent years. Fuel sales are also intensely competitive. We compete for fuel sales with both independent and national brand gasoline stations, other convenience store chains, and several nontraditional fuel retailers such as supermarkets in specific markets. Some of these other fuel retailers may have access to more favorable arrangements for fuel supply than do we or the firms that supply our stores. Some of our competitors have greater financial, marketing, and other resources than we have and therefore may be able to respond better to changes in the economy and new opportunities within the industry.

Fuel Operations

Fuel sales are an important part of our revenue and earnings, and retail fuel profit margins have a substantial impact on our net income. Profit margins on fuel sales can be adversely affected by factors beyond our control, including the supply of fuel available in the retail fuel market, uncertainty or volatility in the wholesale fuel market, increases in wholesale fuel costs generally during a period, and price competition from other fuel marketers. The market for crude oil and domestic wholesale petroleum products is marked by significant volatility and is affected by general political conditions and instability in oil producing regions such as the Middle East and South America. The volatility of the wholesale fuel market makes it extremely difficult to predict the impact of future wholesale cost fluctuation on our operating results and financial conditions. These factors could materially affect our fuel gallon volume, fuel gross profit, and overall customer traffic levels at stores. Any substantial decrease in profit margins on fuel sales or in the number of gallons sold by stores could have a material adverse effect on our earnings.

The Company purchases its fuel from a variety of independent national and regional petroleum distributors. Although in recent years suppliers have not experienced any difficulties in obtaining sufficient amounts of fuel to meet our needs, unanticipated national and international events could result in a reduction of fuel supplies available for distribution. Any substantial curtailment in our fuel supply could reduce fuel sales. Further, we believe a significant amount of our business results from the patronage of customers primarily desiring to purchase fuel; accordingly, reduced fuel supplies could adversely affect the sale of nonfuel items. Such factors could have a material adverse effect on our earnings and operations.

Tobacco Products

Sales of tobacco products represent a significant portion of our revenues. Significant increases in wholesale cigarette costs and tax increases on tobacco products (such as the past tax increase in Illinois) as well as national and local campaigns to further regulate and discourage smoking in the United States have had and are expected to continue having an adverse effect on the demand for cigarettes sold in our stores. We attempt to pass price increases on to our customers, but competitive pressures in specific markets may prevent us from doing so. These factors could materially impact the retail price of cigarettes, the gross profit obtained from the cigarette category, the volume of cigarettes sold by stores, and overall customer traffic, and have a material adverse effect on the Company’s earnings and profits.

Environmental Compliance Costs

The United States Environmental Protection Agency and several of the states in which we do business have adopted laws and regulations relating to underground storage tanks used for petroleum products. In the past, we have incurred substantial costs to comply with such regulations, and additional substantial costs may be necessary in the future. Several states in which we do business have trust fund programs with provisions for sharing or reimbursing corrective action or remediation costs. Any reimbursements received in respect to such costs typically are subject to statutory provisions requiring repayment of the reimbursed funds for any future noncompliance with upgrade provisions or other applicable laws. Although we regularly accrue expenses for the estimated costs related to future corrective action or remediation efforts, there can be no assurance that the accrued amounts will be sufficient to pay such costs or that we have identified all environmental liabilities at all of our current store locations. In addition, there can be no assurance that we will not incur

 

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substantial expenditures in the future for remediation of contamination or related claims that have not been discovered or asserted with respect to existing store locations or locations that we may acquire in the future, that we will not be subject to any claims for reimbursement of funds disbursed to us under the various state programs, and/or that additional regulations or amendments to existing regulations will not require additional expenditures beyond those presently anticipated.

Seasonality of Sales

Company sales generally are strongest during its first two fiscal quarters (May–October) and weakest during the third and fourth fiscal quarters (November–April). In the warmer months, customers tend to purchase greater quantities of fuel and certain convenience items such as beer, pop, and ice. Difficult weather conditions (such as flooding, prolonged rain, or snowstorms) in any quarter, however, may adversely reduce sales at affected stores and may have an adverse impact on our earnings for that period.

Other Factors

Other factors and risks that may cause actual results to differ materially from those in the forward-looking statements include the risk that our cash balances and cash generated from operations and financing activities will not be sufficient for our future liquidity and capital resource needs, tax increases, potential liabilities and expenditures related to compliance with environmental and other laws and regulations, the seasonality of demand patterns, and weather conditions; the increased indebtedness that the Company has incurred to purchase shares of our common stock in our self-tender offer; and the other risks and uncertainties included from time to time in our filings with the SEC. We further caution you that other factors we have not identified may in the future prove to be important in affecting our business and results of operations.

Please see Item 1A. of this Form 10-K/A, entitled “Risk Factors,” for further information on these and other factors that may affect our business and financial results.

 

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company’s exposure to market risk for changes in interest rates relates primarily to our investment portfolio and long-term debt obligations. We place our investments with high-quality credit issuers and, by policy, limit the amount of credit exposure to any one issuer. Our first priority is to reduce the risk of principal loss. Consequently, we seek to preserve our invested funds by limiting default risk, market risk, and reinvestment risk. We mitigate default risk by investing in only high-quality credit securities that we believe to be low risk and by positioning our portfolio to respond appropriately to a significant reduction in a credit rating of any investment issuer or guarantor. The portfolio includes only marketable securities with active secondary or resale markets to ensure portfolio liquidity. We believe an immediate 100-basis-point move in interest rates affecting our floating and fixed rate financial instruments as of April 30, 2014 would have no material effect on pretax earnings.

We do from time to time, participate in a forward buy of certain commodities, primarily cheese and coffee. These are not accounted for as derivatives under the normal purchase and normal sale exclusions under the applicable guidance.

 

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders

Casey’s General Stores, Inc.:

We have audited the accompanying consolidated balance sheets of Casey’s General Stores, Inc. and subsidiaries (the Company) as of April 30, 2014 and 2013, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the years in the three-year period ended April 30, 2014. We also have audited the Company’s internal control over financial reporting as of April 30, 2014, based on criteria established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A (Controls and Procedures). Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. A material weakness related to the lack of review and approval of the federal excise tax returns by management with the requisite skill and knowledge, and recognition of the corresponding liability and expense has been identified and included in management’s assessment.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Casey’s General Stores, Inc. and subsidiaries as of April 30, 2014 and 2013, and the results of their operations and their cash flows for each of the years in the three-year period ended April 30, 2014, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, because of the effect of the aforementioned material weakness on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of April 30, 2014, based on criteria established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

 

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We do not express an opinion or any other form of assurance on management’s statements referring to corrective actions taken after April 30, 2014, relative to the aforementioned material weakness in internal control over financial reporting.

As discussed in Note 2 Correction of Immaterial Errors to the consolidated financial statements, the consolidated financial statements have been revised to correct an immaterial misstatement.

/s/ KPMG LLP

Des Moines, Iowa

June 27, 2014, except as to note 2 and the restatement of the effectiveness of internal control over financial reporting for the material weakness which are as of December 9, 2014

 

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CASEY’S GENERAL STORES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

 

     April 30,  
     2014      2013  

Assets

     

Current assets

     

Cash and cash equivalents

   $ 121,641       $ 41,271   

Receivables

     25,841         20,900   

Inventories

     204,833         189,514   

Prepaid expenses

     1,478         1,396   

Deferred income taxes

     23,292         16,066   

Income taxes receivable

     12,473         9,820   
  

 

 

    

 

 

 

Total current assets

     389,558         278,967   
  

 

 

    

 

 

 

Property and equipment, at cost

     

Land

     490,005         431,523   

Buildings and leasehold improvements

     1,004,263         904,732   

Machinery and equipment

     1,330,697         1,182,470   

Leasehold interest in property and equipment

     16,278         15,486   
  

 

 

    

 

 

 
     2,841,243         2,534,211   

Less accumulated depreciation and amortization

     1,062,278         952,286   
  

 

 

    

 

 

 

Net property and equipment

     1,778,965         1,581,925   
  

 

 

    

 

 

 

Other assets, net of amortization

     15,947         14,485   

Goodwill

     120,406         114,791   
  

 

 

    

 

 

 

Total assets

   $ 2,304,876       $ 1,990,168   
  

 

 

    

 

 

 

Liabilities and Shareholders’ Equity

     

Current liabilities

     

Notes payable to bank

   $ —         $ 59,100   

Current maturities of long-term debt

     553         15,810   

Accounts payable

     250,807         232,913   

Accrued expenses

     

Wages and related taxes

     27,411         16,221   

Property taxes

     22,572         20,229   

Insurance

     28,429         24,039   

Other

     61,117         44,494   
  

 

 

    

 

 

 

Total current liabilities

     390,889         412,806   
  

 

 

    

 

 

 

Long-term debt, net of current maturities

     853,642         653,081   

Deferred income taxes

     318,023         293,708   

Deferred compensation

     16,558         15,787   

Other long-term liabilities

     22,500         21,399   
  

 

 

    

 

 

 

Total liabilities

     1,601,612         1,396,781   
  

 

 

    

 

 

 

Commitments and contingencies

     

Shareholders’ equity

     

Preferred stock, no par value, none issued

     —           —     

Common stock, no par value, 38,507,387 and 38,352,509 shares issued and outstanding at April 30, 2014 and 2013, respectively

     33,878         23,119   

Retained earnings

     669,386         570,268   
  

 

 

    

 

 

 

Total shareholders’ equity

     703,264         593,387   
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 2,304,876       $ 1,990,168   
  

 

 

    

 

 

 

See accompanying Notes to Consolidated Financial Statements.

 

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CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

 

     Years ended April 30,  
     2014      2013      2012  

Total revenue

   $ 7,840,255       $ 7,250,840       $ 6,987,804   

Cost of goods sold (exclusive of depreciation and amortization, shown separately below)

     6,618,239         6,179,771         5,987,659   
  

 

 

    

 

 

    

 

 

 

Gross profit

     1,222,016         1,071,069         1,000,145   

Operating expenses

     857,297         760,365         688,431   

Depreciation and amortization

     131,160         111,823         96,552   

Interest, net

     39,915         35,265         35,192   
  

 

 

    

 

 

    

 

 

 

Income before income taxes

     193,644         163,616         179,970   

Federal and state income taxes

     66,824         59,802         65,276   
  

 

 

    

 

 

    

 

 

 

Net income

   $ 126,820       $ 103,814       $ 114,694   
  

 

 

    

 

 

    

 

 

 

Net income per common share

  

Basic

   $ 3.30       $ 2.71       $ 3.01   
  

 

 

    

 

 

    

 

 

 

Diluted

   $ 3.26       $ 2.69       $ 2.99   
  

 

 

    

 

 

    

 

 

 

See accompanying Notes to Consolidated Financial Statements.

 

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CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands, except per share and share amounts)

 

     Common
stock
     Retained
earnings
    Total  

Balance at April 30, 2011

   $ 3,996       $ 399,900      $ 403,896   

Net income

     —           114,694        114,694   

Dividends declared (60 cents per share)

     —           (22,849     (22,849

Proceeds from exercise of stock options (159,600 shares)

     3,249         —          3,249   

Tax benefits related to nonqualified stock options

     1,162         —          1,162   

Stock based compensation

     3,792         —          3,792   
  

 

 

    

 

 

   

 

 

 

Balance at April 30, 2012

   $ 12,199       $ 491,745      $ 503,944   

Net income

     —           103,814        103,814   

Dividends declared (66 cents per share)

     —           (25,291     (25,291

Proceeds from exercise of stock options (198,200 shares)

     4,721         —          4,721   

Tax benefits related to nonqualified stock options

     1,929         —          1,929   

Stock based compensation

     4,270         —          4,270   
  

 

 

    

 

 

   

 

 

 

Balance at April 30, 2013

   $ 23,119       $ 570,268      $ 593,387   

Net income

     —           126,820        126,820   

Dividends declared (72 cents per share)

     —           (27,702     (27,702

Proceeds from exercise of stock options (140,785 shares)

     3,368         —          3,368   

Tax benefits related to nonqualified stock options

     1,791         —          1,791   

Stock based compensation

     5,600         —          5,600   
  

 

 

    

 

 

   

 

 

 

Balance at April 30, 2014

   $ 33,878       $ 669,386      $ 703,264   
  

 

 

    

 

 

   

 

 

 

See accompanying Notes to Consolidated Financial Statements.

 

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CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)

 

     Years ended April 30,  
     2014     2013     2012  

Cash flows from operating activities

      

Net income

   $ 126,820      $ 103,814      $ 114,694   

Adjustments to reconcile net income to net cash provided by operating activities:

      

Depreciation and amortization

     131,160        111,823        96,552   

Other amortization

     297        195        347   

Stock-based compensation

     5,600        4,270        3,792   

Loss on disposal of assets and impairment charges

     2,846        4,788        1,428   

Deferred income taxes

     17,089        31,828        53,141   

Excess tax benefits related to stock option exercises

     (1,791     (1,929     (1,162

Changes in assets and liabilities:

      

Receivables

     (4,941     800       (1,546

Inventories

     (13,696     (16,222     (8,647

Prepaid expenses

     (82     (98     (118

Accounts payable

     17,894       21,748       (4,510

Accrued expenses

     33,818       15,783       10,944  

Income taxes receivable

     (441     9,969       29,508  

Other, net

     (413     (441     456  
  

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     314,160       286,328       294,879  

Cash flows from investing activities

      

Purchase of property and equipment

     (308,633     (305,301     (240,874

Payments for acquisitions of businesses, net of cash acquired

     (31,584     (29,527     (39,444

Proceeds from sales of property and equipment

     3,328        3,544        2,196   
  

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (336,889     (331,284     (278,122

Cash flows from financing activities

      

Proceeds from long-term debt

     200,000                 

Repayments of long-term debt

     (15,865     (10,757     (1,372

Net (repayments) borrowings of short-term debt

     (59,100     59,100       (600

Proceeds from exercise of stock options

     3,368        4,721        3,249   

Payments of cash dividends

     (27,095     (24,685     (22,849

Excess tax benefits related to stock option exercises

     1,791        1,929        1,162   
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     103,099       30,308       (20,410
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     80,370       (14,648     (3,653

Cash and cash equivalents at beginning of year

     41,271        55,919        59,572   
  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of year

   $ 121,641      $ 41,271      $ 55,919   
  

 

 

   

 

 

   

 

 

 
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION       

Cash paid (received) during the year for Interest, net of amount capitalized

   $ 36,923      $ 35,226     $ 35,403  

Income taxes

     50,031       17,973       (17,973

Noncash investing and financing activities

      

Property and equipment acquired through notes payable and capitalized lease obligations

     1,169        981       191   

See accompanying Notes to Consolidated Financial Statements.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

1. SIGNIFICANT ACCOUNTING POLICIES

Operations Casey’s General Stores, Inc. and its subsidiaries (the Company/Casey’s) operate 1,808 convenience stores in 14 Midwest states. The stores are located primarily in smaller communities, many with populations of less than 5,000. Retail sales in 2014 were distributed as follows: 71% fuel, 20% grocery & other merchandise, and 9% prepared food & fountain. The Company’s products are readily available, and the Company is not dependent on a single supplier or only a few suppliers.

Principles of consolidation The consolidated financial statements include the financial statements of Casey’s General Stores, Inc. and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect 1) the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and 2) the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash equivalents We consider all highly liquid investments with a maturity at purchase of three months or less to be cash equivalents. Included in cash equivalents are money market funds and credit card, debit card and electronic benefits transfer transactions that process within three days.

Inventories Inventories, which consist of merchandise and fuel, are stated at the lower of cost or market. For fuel, cost is determined through the use of the first-in, first-out (FIFO) method. For merchandise inventories, cost is determined through the use of the last-in, first-out (LIFO) method for financial and income tax reporting applied to inventory values determined primarily by our FIFO accounting system for warehouse inventories.

The excess of current cost over the stated LIFO value was $48,777 and $44,792 at April 30, 2014 and 2013, respectively. There were no material LIFO liquidations during the periods presented. Below is a summary of the inventory values at April 30, 2014 and 2013:

 

     Fiscal 2014      Fiscal 2013  

Fuel

   $ 95,004       $ 87,262   

Merchandise

     109,829         102,252   
  

 

 

    

 

 

 

Total inventory

   $ 204,833       $ 189,514   
  

 

 

    

 

 

 

Vendor allowances include rebates and other funds received from vendors to promote their products. The Company often receives such allowances on the basis of quantitative contract terms that vary by product and vendor or directly on the basis of purchases made. Vendor rebates in the form of rack display allowances (RDAs) are funds that we receive from various vendors for allocating certain shelf space to carry their specific products or to introduce new products in our stores for a particular period of time. The RDAs are treated as a reduction in cost of goods sold and are recognized ratably over the period covered by the applicable rebate agreement. These funds do not represent reimbursements of specific, incremental, identifiable costs incurred by us in selling the vendor’s products. Vendor rebates in the form of billbacks are treated as a reduction in cost of goods sold and are recognized at the time the product is sold. Reimbursements of an operating expense (e.g., advertising) are recorded as reductions of the related expense.

Renewable Identification Numbers (RINs) are recorded as a reduction in cost of goods sold in the period when the Company commits to a price and agrees to sell all of the RINs earned during a specified period. The Company includes in cost of goods sold the costs we incur to acquire fuel and merchandise, including excise taxes, less vendor allowances and rebates and RINs.

Goodwill Goodwill and intangible assets with indefinite lives are tested for impairment at least annually. The Company assesses impairment annually at year-end using a market based approach to establish fair value. All of the goodwill assigned to the individual stores is aggregated into a single reporting unit due to the similar economic characteristics of the stores. As of April 30, 2014, there was $120,406 of goodwill and management’s analysis of recoverability completed as of the fiscal year-end yielded no evidence of impairment.

 

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Store closings and asset impairment The Company writes down property and equipment of stores it is closing to estimated net realizable value at the time management commits to a plan to close such stores and begins active marketing of the stores. The Company bases the estimated net realizable value of property and equipment on its experience in utilizing and/or disposing of similar assets and on estimates provided by its own and/or third-party real estate experts.

The Company monitors closed and underperforming stores for an indication that the carrying amount of assets may not be recoverable. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the assets, an impairment loss is recognized to the extent carrying value of the assets exceeds their estimated fair value. Fair value is based on management’s estimate of the price that would be received to sell an asset in an orderly transaction between market participants. The estimate is derived from offers, actual sale or disposition of assets subsequent to year-end, and other indications of fair value, which are considered Level 3 inputs. In determining whether an asset is impaired, assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets, which for the Company is generally on a store-by-store basis. The Company incurred impairment charges of $2,542 in fiscal 2014, $3,680 in fiscal 2013, and $226 in fiscal 2012. Impairment charges are a component of operating expenses.

Depreciation and amortization Depreciation of property and equipment and amortization of capital lease assets are computed principally by the straight-line method over the following estimated useful lives:

 

Buildings

   25-40 years

Machinery and equipment

   5-30 years

Leasehold interest in property and equipment

   Lesser of term of lease or life of asset

Leasehold improvements

   Lesser of term of lease or life of asset

The Company monitors stores and will accelerate depreciation if the expected life of the asset is reduced due to the operation of the store or the Company’s plans.

Excise taxes Excise taxes approximating $646,000, $596,000, and $527,000 on retail fuel sales are included in total revenue and cost of goods sold for fiscal 2014, 2013, and 2012, respectively.

Income taxes The Company uses the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company calculates its current and deferred tax provision based on estimates and assumptions that could differ from actual results reflected in income tax returns filed in subsequent years. Adjustments based on filed returns are recorded when identified.

Revenue recognition The Company recognizes retail sales of fuel, grocery & other merchandise, prepared food & fountain, and commissions on lottery, prepaid phone cards, and video rentals at the time of the sale to the customer. Sales taxes collected from customers and remitted to the government are recorded on a net basis in the consolidated financial statements.

Net income per common share Basic earnings per share have been computed by dividing net income by the weighted average shares outstanding during each of the years. The calculation of diluted earnings per share treats stock options and restricted stock units outstanding as potential common shares to the extent they are dilutive.

Asset retirement obligations The Company recognizes the estimated future cost to remove underground storage tanks over the estimated useful life of the storage tank. The Company records a discounted liability for the fair value of an asset retirement obligation with a corresponding increase to the carrying value of the related long-lived asset at the time an underground storage tank is installed. The Company amortizes the amount added to other assets and recognizes accretion expense in connection with the discounted liability over the remaining life of the tank. The estimates of the anticipated future costs for removal of an underground storage tank are based on our prior experience with removal. Because these estimates are subjective and are currently based on historical costs with adjustments for estimated future changes in the associated costs, we expect the dollar amount of these obligations to change as more information is obtained.

 

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There were no material changes in our asset retirement obligation estimates during fiscal 2014. The recorded asset for asset retirement obligations was $8,391 and $8,011 at April 30, 2014 and 2013, respectively, and is recorded in other assets, net of amortization. The discounted liability was $12,854 and $12,176 at April 30, 2014 and 2013, respectively, and is recorded in other long-term liabilities.

Self-insurance The Company is primarily self-insured for workers’ compensation, general liability, and automobile claims. The self-insurance claim liability is determined actuarially at each year end based on claims filed and an estimate of claims incurred but not yet reported. Actuarial projections of the losses are employed due to the high degree of variability in the liability estimates. Some factors affecting the uncertainty of claims include the development time frame, settlement patterns, litigation and adjudication direction, and medical treatment and cost trends. The liability is not discounted. The balance of our self-insurance reserves were $28,429 and $24,039 for the years ended April 30, 2014 and 2013, respectively.

Environmental remediation liabilities The Company accrues for environmental remediation liabilities when it is probable a liability has been incurred and the amount of loss can be reasonably estimated.

Derivative instruments There were no options or futures contracts as of or during the years ended April 30, 2014, 2013, or 2012. However, we do from time to time, participate in a forward buy of certain commodities, primarily cheese and coffee. These are not accounted for as derivatives under the normal purchase and normal sale exclusions under the applicable guidance.

Stock-based compensation Stock-based compensation is recorded based upon the fair value of the award on the grant date. The cost of the award is recognized ratably in the statement of income over the vesting period of the award.

Segment reporting As of April 30, 2014, we operated 1,808 stores in 14 states. Our stores offer a broad selection of merchandise, fuel and other products and services designed to appeal to the convenience needs of our customers. We manage the business on the basis of one operating segment and therefore, have only one reportable segment. Our stores sell similar products and services, use similar processes to sell those products and services, and sell their products and services to similar classes of customers. We make specific disclosures concerning the three broad merchandise categories of fuel, grocery & other merchandise, and prepared food and fountain because it makes it easier for us to discuss trends and operational initiatives within our business and industry. Although we can separate gross margins within these categories (and further sub-categories), the operating expenses associated with operating a store that sells these products are not separable by these three categories.

Recent accounting pronouncements In April 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity”, to clarify the definition of discontinued operations, limiting it to disposals of components that represent a strategic shift that has or will have a major effect on operations and financial results. Examples of a strategic shift include disposals of a major geographic area, a major line of business, or a major equity method investment. The standard is effective prospectively for disposals that occur within annual periods beginning on or after December 15, 2014, and interim periods within those annual periods. It will be adopted by the Company May 1, 2015. Early application is permitted in specific instances. We are currently evaluating the impact of adoption on our financial statements, however, we do not expect it to have a material impact on our consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for the Company on May 1, 2017. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.

2. CORRECTION OF IMMATERIAL ERRORS

Subsequent to the year ended April 30, 2014, through a routine IRS examination, the Company identified errors in excise taxes owed on ethanol gallon purchases, that resulted in an understatement of accrued expenses at April 30, 2014 and 2013 and cost of goods sold for the fiscal years ended 2014, 2013 and 2012. The excise tax liability is subject to interest charges and is deductible for income tax purposes. In accordance with the SEC’s Staff Accounting Bulletin

 

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(SAB) No. 99, Materiality, and SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Consolidated Statements of Income, Balance Sheets, Shareholders Equity and Cash Flows, management evaluated the materiality of the errors from qualitative and quantitative perspectives and concluded that the errors were immaterial to the Company’s historical financial statements. Consequently, the Company has revised its historical financial statements for the fiscal year ended April 30, 2014 as noted in the tables below.

Statement of Income Data

 

     Year ended April 30,  
     2014      2013      2012  
     As
Previously
Reported
     As
Adjusted
     As
Previously
Reported
     As
Adjusted
     As
Previously
Reported
     As
Adjusted
 

Cost of goods sold

   $ 6,605,996       $ 6,618,239       $ 6,168,475       $ 6,179,771       $ 5,984,114       $ 5,987,659   

Interest, net

     39,270         39,915         35,048         35,265         35,192         35,192   

Federal and state income taxes

     72,018         66,824         64,504         59,802         66,724         65,276   

Net income

     134,514         126,820         110,625         103,814         116,791         114,694   

Net income per common share

                 

Basic

   $ 3.50       $ 3.30       $ 2.89       $ 2.71       $ 3.07       $ 3.01   

Diluted

   $ 3.46       $ 3.26       $ 2.86       $ 2.69       $ 3.04       $ 2.99   
                 

Balance Sheet Data

 

     As of April 30,  
     2014      2013  
     As
Previously
Reported
     As
Adjusted
     As
Previously
Reported
     As
Adjusted
 

Deferred income taxes (asset)

   $ 11,878       $ 23,292       $ 9,916       $ 16,066   

Accrued expenses other

     33,171         61,117         29,436         44,494   

Deferred income taxes (liability)

     317,953         318,023         293,708         293,708   

Retained earnings

     685,988         669,386         579,176         570,268   

Total shareholders’ equity

     719,866         703,264         602,295         593,387   

 

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Statement of Cash Flow Data

 

   
     Years ended April 30,  
     2014      2013      2012  
     As
Previously
Reported
     As
Adjusted
     As
Previously
Reported
     As
Adjusted
     As
Previously
Reported
     As
Adjusted
 

Net income

   $ 134,514       $ 126,820       $ 110,625       $ 103,814       $ 116,791       $ 114,694   

Deferred income taxes

     22,283         17,089         36,530         31,828         54,589         53,141   

Accrued expenses

     20,930         33,818         4,270         15,783         7,399         10,944   

In addition, the quarterly condensed consolidated financial statements have been revised as set forth below:

Statement of Income Data (unaudited)

 

     Three months
ended 7/31/13
     Three months
ended 10/31/13
     Six months
ended 10/31/13
 
     As
Previously
Reported
     As
Adjusted
     As
Previously
Reported
     As
Adjusted
     As
Previously
Reported
     As
Adjusted
 

Cost of goods sold

   $ 1,769,239         1,772,328       $ 1,693,584         1,696,600       $ 3,462,823         3,468,928   

Interest, net

     9,456         9,576         9,748         9,896         19,204         19,472   

Federal and state income taxes

     33,869         32,575         22,289         21,014         56,158         53,589   

Net income

     55,710         53,795         41,319         39,430         97,029         93,225   

Net income per

           

Basic

   $ 1.45         1.40       $ 1.07         1.03       $ 2.53         2.43   

Diluted

   $ 1.43         1.39       $ 1.06         1.01       $ 2.50         2.40   
                 

Statement of Income Data (unaudited) cont.

 

     Three months
ended 1/31/14
     Nine months
ended 1/31/14
 
     As
Previously
Reported
     As
Adjusted
     As
Previously
Reported
     As
Adjusted
 

Cost of goods sold

   $ 1,510,182         1,513,365       $ 4,973,005         4,982,293   

Interest, net

     9,947         10,123         29,151         29,595   

Federal and state income taxes

     7,899         6,556         64,057         60,145   

Net income

     14,669         12,653         111,698         105,878   

Net income per

           

Basic

   $ 0.38         0.33       $ 2.91         2.76   

Diluted

   $ 0.38         0.33       $ 2.87         2.73   

 

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Statement of Cash Flow Data (unaudited)

 

     Three months
ended 7/31/13
     Six months
ended 10/31/13
     Nine months
ended 1/31/14
 
     As
Previously
Reported
     As
Adjusted
     As
Previously
Reported
     As
Adjusted
     As
Previously
Reported
     As
Adjusted
 

Net income

   $ 55,710         53,795       $ 97,029         93,225       $ 111,698         105,878   

Deferred income taxes

     3,122         1,828         11,202         8,633         14,030         10,118   

Accrued expenses

     20,005         23,214         12,904         19,277         18,933         28,665   

In addition, the following notes to the condensed consolidated financial statements have been affected by the revisions for the correction of these immaterial errors: Footnotes 3, 6, 7 and 13.

3. ACQUISITIONS

Due to the immaterial error discussed in this Amendment No. 1, amounts in this footnote have been revised. For further discussion of the revision, see footnote 2, Correction of Immaterial Errors.

During the year ended April 30, 2014, the Company acquired 28 stores through a variety of single store and multi-store transactions with several unrelated third parties. Of the 28 stores acquired, 25 were opened during the 2014 fiscal year, one was closed permanently and two will be opened during the 2015 fiscal year. The acquisitions meet the criteria to be considered business combinations. The stores were valued using a discounted cash flow model on a location by location basis. The acquisitions were recorded in the financial statements by allocating the purchase price to the assets acquired, including intangible assets and liabilities assumed, based on their estimated fair values at the acquisition date. The excess of the cost of the acquisition over the net amounts assigned to the fair value of the assets acquired and the liabilities assumed is recorded as goodwill. All of the goodwill associated with these transactions will be deductible for income tax purposes over 15 years.

Allocation of the purchase price for the transactions in aggregate is as follows (in thousands):

 

Assets acquired:

  

Inventories

   $ 1,622   

Property and equipment

     24,469   
  

 

 

 

Total assets

     26,091   
  

 

 

 

Liabilities assumed:

  

Accrued expenses

     122   
  

 

 

 

Total liabilities

     122   
  

 

 

 

Net tangible assets acquired

     25,969   

Goodwill

     5,615   
  

 

 

 

Total consideration paid

   $ 31,584   
  

 

 

 

The allocation of the purchase price to assets acquired and liabilities assumed for any acquisition is preliminary pending finalization of management’s analysis.

 

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The following unaudited pro forma information presents a summary of our consolidated results of operations as if the transactions referenced above occurred at the beginning of the first fiscal year of the periods presented (amounts in thousands, except per share data):

 

     Years Ended April 30,  
     2014      2013  

Total revenue

   $ 7,885,634       $ 7,362,816   

Net income

   $ 127,615       $ 105,699   

Net income per common share

     

Basic

   $ 3.32       $ 2.76   

Diluted

   $ 3.28       $ 2.73   

4. FAIR VALUE OF FINANCIAL INSTRUMENTS AND LONG-TERM DEBT

A summary of the fair value of the Company’s financial instruments follows.

Cash and cash equivalents, receivables, and accounts payable The carrying amount approximates fair value due to the short maturity of these instruments or the recent purchase of the instruments at current rates of interest.

Long-term debt The fair value of the Company’s long-term debt and capital lease obligations is estimated based on the current rates offered to the Company for debt of the same or similar issues. The fair value of the Company’s long-term debt and capital lease obligations was approximately $841,000 and $721,000, respectively, at April 30, 2014 and 2013.

The Company’s long-term debt at carrying amount by issuance is as follows:

 

     As of April 30,  
     2014      2013  

Capitalized lease obligations discounted at 5.22% to 7.09% due in various monthly installments through 2048 (Note 8)

   $ 10,195         9,891   

5.72% Senior notes due in 14 installments beginning September 30, 2012 and ending March 30, 2020

     75,000         90,000   

5.22% Senior notes due August 9, 2020

     569,000         569,000   

3.67% Senior notes (Series A) due in 7 installments beginning June 17, 2022, and ending June 15, 2028

     150,000         —     

3.75% Senior notes (Series B) due in 7 installments beginning December 17, 2022 and ending December 18, 2028

     50,000         —     
  

 

 

    

 

 

 
     854,195         668,891   

Less current maturities

     553         15,810   
  

 

 

    

 

 

 
   $ 853,642         653,081   
  

 

 

    

 

 

 

 

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Table of Contents

At April 30, 2014, the Company had a bank line of credit arrangement consisting of two Promissory Notes, in the principal amount of $50,000 each (together, the “Notes”). The Notes evidenced a revolving line of credit in the aggregate principal amount of $100,000 and bear interest at variable rates subject to change from time to time based on changes in an independent index referred to in the Notes as the Federal Funds Offered Rate (the “Index”). On December 17, 2013, the Company cancelled a $25,000 Promissory Note that was part of its line of credit. The interest rate to be applied to the unpaid principal balance of the first Note was at a rate of 0.750% over the Index. The interest rate applicable to the second note is 1.000% over the Index. There was a $0 balance at April 30, 2014 and a $59,100 balance owed at April 30, 2013 with a weighted average interest rate of 0.95%.

Interest expense is net of interest income of $214, $211, and $208 for the years ended April 30, 2014, 2013, and 2012, respectively. Interest expense is also net of interest capitalized of $1,177, $894, and $674 during the years ended April 30, 2014, 2013, and 2012, respectively.

The agreements relating to the above long-term debt contain certain operating and financial covenants. At April 30, 2014, the Company was in compliance with all such covenants. Listed below are the aggregate maturities of long-term debt, including capitalized lease obligations, for the 5 years commencing May 1, 2014 and thereafter:

 

Years ended April 30,

   Capital Leases      Senior Notes      Total  

2015

   $ 553         —           553   

2016

     398         15,000         15,398   

2017

     375         15,000         15,375   

2018

     396         15,000         15,396   

2019

     417         15,000         15,417   

Thereafter

     8,056         784,000         792,056   
  

 

 

    

 

 

    

 

 

 
   $ 10,195         844,000       $ 854,195   
  

 

 

    

 

 

    

 

 

 

5. PREFERRED AND COMMON STOCK

Preferred stock The Company has 1,000,000 authorized shares of preferred stock of which 250,000 shares have been designated as Series A Serial Preferred Stock. No shares have been issued.

Common stock The Company currently has 120,000,000 authorized shares of common stock.

Stock option plans The 2009 Stock Incentive Plan (the “Plan”), was approved by the Board of Directors in June 2009 and approved by the shareholders in September 2009. The Plan replaced the 2000 Option Plan and the Non-employee Director Stock Plan (together, the “Prior Plans”). There are 4,153,608 shares available for grant at April 30, 2014 under the Plan. Awards made under the Plan may take the form of stock options, restricted stock or restricted stock units. Each share issued pursuant to a stock option will reduce the shares available for grant by one, and each share issued pursuant to an award of restricted stock or restricted stock units will reduce the shares available for grant by two. We account for stock-based compensation by estimating the fair value of stock options granted under the Plan using market price of a share of our common stock on the date of grant. We recognize this fair value as an operating expense in our consolidated statements of income over the requisite service period using the straight-line method. Additional information regarding the Plan is provided in the Company’s 2009 Proxy Statement. At April 30, 2014, options for 712,024 shares (which expire between 2015 and 2021) were outstanding. All stock option shares issued are previously unissued authorized shares.

On June 10, 2011, restricted stock units with respect to a total of 9,198 shares were granted to certain employees under the annual incentive compensation program. The fair value of the Company’s shares on the date of grant was $40.49. These awards vested on May 1, 2014 and compensation expense was recognized ratably over the vesting period. This award was granted at no cost to the employee.

 

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Table of Contents

On June 23, 2011, stock options totaling 441,000 shares were granted to certain officers and key employees. These awards vested on June 23, 2014, and compensation expense was recognized ratably over the vesting period. This award was granted at no cost to the employee.

On June 23, 2011, restricted stock units totaling 15,000 shares were granted to the CEO. The fair value of the Company’s shares on the date of grant was $44.39. This award was granted at no cost to the employee. This award vested on June 23, 2014 and compensation expense was recognized ratably over the vesting period.

On September 16, 2011, restricted stock units with respect to a total of 14,000 shares were granted to the non-employee members of the Board. The fair value of the Company’s shares on the date of grant was $47.59. This award was also granted at no cost to the non-employee members of the Board. This award vested on May 1, 2012 and compensation expense was recognized ratably over the vesting period.

On June 8, 2012, restricted stock units with respect to a total of 32,998 shares were granted to certain employees under the annual incentive compensation program. The fair value of the Company’s shares on the date of grant was $59.48. These awards will vest on June 8, 2015 and compensation expense is being recognized ratably over the vesting period. This award was granted at no cost to the grantee.

On September 14, 2012, restricted stock units with respect to a total of 14,000 shares were granted to the non-employee members of the Board. The fair value of the Company’s shares on the date of grant was $58.93. This award was granted at no cost to the non-employee members of the Board. This award vested on May 1, 2013 and compensation expense was recognized ratably over the vesting period.

On June 7, 2013 and June 19, 2013 restricted stock units with respect to a total of 77,650 shares were granted to certain officers and key employees. The fair value of the Company’s shares was $62.26 on June 7, 2013 (76,150 shares) and $60.47 on June 19, 2013 (1,500 shares). These awards were granted at no cost to the grantee. These awards will vest on June 7, 2016 and compensation expense is currently being recognized ratably over the vesting period.

On September 13, 2013, restricted stock units totaling 14,000 shares were granted to the non-employee members of the Board. The fair value of the Company’s shares on the date of grant was $71.02. This award was granted at no cost to the non-employee members of the Board. This award vested on May 1, 2014 and compensation expense was recognized ratably over the vesting period.

The 2000 Stock Option Plan allowed the grant of options with an exercise price equal to the fair value of the Company’s stock on the date of grant that expired ten years after the date of grant. Vesting was generally over a three to five-year service period. The Non-employee Directors’ Stock Option Plan allowed the grant of options with an exercise price equal to the average of the last reported sale prices of shares of common stock on the last trading day of each of the twelve months preceding the award of the option. The term of such options was ten years from the date of grant, and each option is exercisable immediately upon grant. The aggregate number of shares of Common Stock that could have been granted pursuant to the Director Stock Plan was 200,000 shares, subject to adjustment to reflect any future stock dividends, stock splits, or other relevant capitalization changes. Shares issued as restricted stock units become unrestricted shares of common stock at the end of the vesting period.

 

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Table of Contents

Information concerning the issuance of stock options under the Plan and Prior Plans is presented in the following table:

 

     Number
of option shares
    Weighted
average option
exercise price
 

Outstanding at April 30, 2011

     775,109     $ 23.38   

Granted

     441,000       44.39   

Exercised

     (159,600 )     20.36   

Forfeited

     (3,000 )     36.19   
  

 

 

   

 

 

 

Outstanding at April 30, 2012

     1,053,509     $ 32.59   

Granted

     —         —     

Exercised

     (198,200 )     23.82   

Forfeited

     (500 )     14.08   
  

 

 

   

 

 

 

Outstanding at April 30, 2013

     854,809     $ 34.64   

Granted

     —         —     

Exercised

     (140,785 )     23.93   

Forfeited

     (2,000 )     44.39   
  

 

 

   

 

 

 

Outstanding at April 30, 2014

     712,024     $ 36.73   
  

 

 

   

 

 

 

Information concerning the issuance of restricted stock units under the Plan is presented in the following table:

 

Unvested at April 30, 2011

     14,000  

Granted

     38,198  

Vested

     (14,000

Forfeited

     —    
  

 

 

 

Unvested at April 30, 2012

     38,198  

Granted

     46,998  

Vested

     (14,000

Forfeited

     —    
  

 

 

 

Unvested at April 30, 2013

     71,196  

Granted

     91,650  

Vested

     (14,l50

Forfeited

     (150
  

 

 

 

Unvested at April 30, 2014

     148,546  
  

 

 

 

At April 30, 2014, all outstanding options had an aggregate intrinsic value of $22,737 and a weighted average remaining contractual life of 6 years. The vested options totaled 284,024 shares with a weighted average exercise price of $25.18 per share and a weighted average remaining contractual life of 4.4 years. The aggregate intrinsic value for the vested options as of April 30, 2014 was $12,349. The aggregate intrinsic value for the total of all options exercised during the year ended April 30, 2014 was $2,952, and there were no shares that vested during the year ended April 30, 2014.

 

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Table of Contents

The grant date fair value for the June 23, 2011 options were $14.65, which was estimated utilizing the Black Scholes valuation model. The significant assumptions included:

 

Risk-free interest rate

     2.14

Expected option life

     6.11 years  

Expected volatility

     37

Expected dividend yield

     1.58

Total compensation costs recorded for the years ended April 30, 2014, 2013 and 2012 were $5,600, $4,270, and $3,792, respectively, for the stock option and restricted stock unit awards. As of April 30, 2014, there was $325 of total unrecognized compensation costs related to the Plan and Prior Plans for stock options that are expected to be recognized ratably through 2015, and $4,036 of unrecognized compensation costs related to restricted stock units which are expected to be recognized ratably through fiscal 2017.

At April 30, 2014, the range of exercise prices for outstanding options was $17.64 – $44.39 and the weighted average remaining contractual life of outstanding options was 6 years. The number of shares and weighted average remaining contractual life of the options by range of applicable exercise prices at April 30, 2014 were as follows:

 

Range of

exercise prices

   Number
of shares
     Weighted average
exercise price
     Weighted average remaining
contractual life (years)
 

$ 17.64

     6,000         17.64         1.0   

20.68 – 26.92

     278,024         25.34         4.4   

44.39

     428,000         44.39         7.2   
  

 

 

       
     712,024         
  

 

 

       

 

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Table of Contents

6. NET INCOME PER COMMON SHARE

Due to the immaterial error discussed in this Amendment No. 1, amounts in this footnote have been revised. For further discussion of the revision, see footnote 2, Correction of Immaterial Errors.

Computations for basic and diluted earnings per common share are presented below:

 

     Years ended April 30,  
     2014      2013      2012  

Basic

        

Net income

   $ 126,820       $ 103,814       $ 114,694   
  

 

 

    

 

 

    

 

 

 

Weighted average shares outstanding-basic

     38,457,680         38,297,083         38,068,001   
  

 

 

    

 

 

    

 

 

 

Basic earnings per common share

   $ 3.30       $ 2.71       $ 3.01   
  

 

 

    

 

 

    

 

 

 

Diluted

        

Net income

   $ 126,820       $ 103,814       $ 114,694   
  

 

 

    

 

 

    

 

 

 

Weighted-average shares outstanding-basic

     38,457,680         38,297,083         38,068,001   

Plus effect of stock options and restricted stock units

     410,726         322,993         323,703   
  

 

 

    

 

 

    

 

 

 

Weighted-average shares outstanding-diluted

     38,868,406         38,620,076         38,391,704   
  

 

 

    

 

 

    

 

 

 

Diluted earnings per common share

   $ 3.26       $ 2.69       $ 2.99   
  

 

 

    

 

 

    

 

 

 

Options to purchase shares of common stock that were not included in the computation of diluted earnings per share, because their inclusion would have been antidilutive, were 439,000 for fiscal 2012. All options were included for fiscal 2014 and fiscal 2013.

 

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Table of Contents

7. INCOME TAXES

Due to the immaterial error discussed in this Amendment No. 1, amounts in this footnote have been revised. For further discussion of the revision, see footnote 2, Correction of Immaterial Errors.

Income tax expense attributable to earnings consisted of the following components:

 

     Years ended April 30,  
     2014      2013      2012  

Current tax expense

        

Federal

   $ 44,078       $ 23,519       $ 9,937  

State

     5,657         4,455         2,345   
  

 

 

    

 

 

    

 

 

 
     49,735         27,974         12,282  

Deferred tax expense

     17,089         31,828         52,994   
  

 

 

    

 

 

    

 

 

 

Total income tax provision

   $ 66,824       $ 59,802       $ 65,276   
  

 

 

    

 

 

    

 

 

 

The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities were as follows:

 

     As of April 30,  
     2014     2013  

Deferred tax assets

    

Accrued liabilities

   $ 23,292      $ 16,066   

Deferred compensation

     6,272        6,050   

Equity compensation

     3,598        916   

Unrecognized tax benefits

     3,113        3,128   

State net operating losses and tax credits

     2,757        3,902   

Other

     98        100   
  

 

 

   

 

 

 

Total gross deferred tax assets

     39,130        30,162   

Less valuation allowance

     —          —     

Total net deferred tax assets

     39,130        30,162   
  

 

 

   

 

 

 

Deferred tax liabilities

    

Property and equipment depreciation

     (318,565     (295,951

Goodwill

     (14,989     (11,919

Other

     (307     66   
  

 

 

   

 

 

 

Total gross deferred tax liabilities

     (333,861     (307,804
  

 

 

   

 

 

 

Net deferred tax liability

   $ (294,731   $ (277,642
  

 

 

   

 

 

 

 

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Table of Contents

At April 30, 2014, the Company had net operating loss carryforwards for state income tax purposes of approximately $71,471, which are available to offset future state taxable income. These net operating loss carryforwards expire during the years 2017 through 2033. In addition, the Company had state alternative minimum tax credit carryforwards of approximately $129, which are available to reduce future state regular income taxes over an indefinite period.

There was no valuation allowance recorded for deferred tax assets as of April 30, 2014 and 2013.In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected taxable income, and tax planning strategies in making this assessment.

Total reported tax expense applicable to the Company’s continuing operations varies from the tax that would have resulted from applying the statutory U.S. federal income tax rates to income before income taxes. Out of period adjustments of $2,760 were recorded in fiscal 2014.

 

     Years ended April 30,  
     2014     2013     2012  

Income taxes at the statutory rates

     35.0     35.0     35.0

Federal tax credits

     (2.1     (1.8     (2.2 )

State income taxes, net of federal tax benefit

     3.2        2.4        2.8  

Out of period adjustments

     (1.4     —          —     

Other

     (0.2 )     1.0       0.7   
  

 

 

   

 

 

   

 

 

 
     34.5     36.6     36.3
  

 

 

   

 

 

   

 

 

 

The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company had a total of $9,244 and $8,938 in gross unrecognized tax benefits at April 30, 2014 and 2013, respectively which is recorded in other long-term liabilities in the consolidated balance sheet. Of this amount, $6,131 represents the amount of unrecognized tax benefits that, if recognized, would impact our effective tax rate. Unrecognized tax benefits increased $306 during the twelve months ended April 30, 2014, due primarily to the expiration of certain statute of limitations offset by a greater increase associated with income tax filing positions for the current year.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

 

     2014     2013  

Beginning balance

   $ 8,938     $ 7,538  

Additions based on tax positions related to current year

     1,229       2,807  

Additions for tax positions of prior years

     415       —    

Reductions for tax positions of prior years

     —         (37

Reductions due to lapse of applicable statute of limitations

     (1,338     (1,370

Settlements

     —         —    
  

 

 

   

 

 

 

Ending balance

   $ 9,244     $ 8,938  
  

 

 

   

 

 

 

The total net amount of accrued interest and penalties for such unrecognized tax benefits was $402 and $286 at April 30, 2014 and 2013, respectively, and is included in other long-term liabilities. Net interest and penalties included in income tax expense for the twelve month period ended April 30, 2014 was an increase in tax expense of $116 and an increase of $37 for the year ended April 30, 2013.

 

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A number of years may elapse before an uncertain tax position is audited and ultimately settled. It is difficult to predict the ultimate outcome or the timing of resolution for uncertain tax positions. It is reasonably possible that the amount of unrecognized tax benefits could significantly increase or decrease within the next twelve months. These changes could result from the expiration of the statute of limitations, examinations or other unforeseen circumstances. The Company currently has no ongoing federal or state income tax examinations. The Company does not have any outstanding litigation related to tax matters.

At this time, the Company’s best estimate of the reasonably possible change in the amount of the gross unrecognized tax benefits is a decrease of $2,661 during the next twelve months mainly due to the expiration of certain statute of limitations. The federal statute of limitations remains open for the years 2010 and forward. Tax years 2009 and forward are subject to audit by state tax authorities depending on open statute of limitations waivers and the tax code of each state.

In July 2013, the Financial Accounting Standards Board issued Accounting Standards Update No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, to provide guidance on the presentation of unrecognized tax benefits. The pronouncement requires unrecognized tax benefits to be offset on the balance sheet by any same-jurisdiction net operating loss or tax credit carryforward that would be used to settle the position with a tax authority. The pronouncement is effective for fiscal years beginning after December 15, 2013 and will be adopted by the Company May 1, 2014. We do not expect it to have a material impact on our consolidated financial statements.

8. LEASES

The Company leases certain property and equipment used in its operations. Generally, the leases are for primary terms of from five to twenty years with options either to renew for additional periods or to purchase the premises and call for payment of property taxes, insurance, and maintenance by the lessee.

The following is an analysis of the leased property under capital leases by major classes:

 

     Asset balances at April 30,  
     2014      2013  

Real estate

   $ 13,668       $ 12,874   

Equipment

     2,610         2,612   
  

 

 

    

 

 

 
     16,278         15,486   

Less accumulated amortization

     5,202         4,900   
  

 

 

    

 

 

 
   $ 11,076       $ 10,586   
  

 

 

    

 

 

 

Future minimum payments under the capital leases and noncancelable operating leases with initial or remaining terms of one year or more consisted of the following at April 30, 2014:

 

Years ended April 30,

   Capital
leases
     Operating
leases
 

2015

   $ 1,078       $ 872   

2016

     904         630   

2017

     868         547   

2018

     870         539   

2019

     876         378   

Thereafter

     12,875         261   
  

 

 

    

 

 

 

Total minimum lease payments

     17,471       $ 3,227   
     

 

 

 

Less amount representing interest

     7,276      
  

 

 

    

Present value of net minimum lease payments

   $ 10,195      
  

 

 

    

 

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The total rent expense under operating leases was $1,424 in 2014, $1,773 in 2013, and $1,269 in 2012.

9. BENEFIT PLANS

401(k) plan The Company provides employees with a defined contribution 401(k) plan. The 401(k) plan covers all employees who meet minimum age and service requirements. The Company contributions consist of matching amounts and are allocated based on employee contributions. Contributions to the 401(k) plan were $5,348, $4,949, and $3,681 for the years ended April 30, 2014, 2013, and 2012, respectively.

On April 30, 2014 and 2013, 1,488,510 and 1,496,465 shares of common stock, respectively, were held by the trustee of the 401(k) plan in trust for distribution to eligible participants upon death, disability, retirement, or termination of employment. Shares held by the 401(k) plan are treated as outstanding in the computation of net income per common share.

Supplemental executive retirement plan The Company has a nonqualified supplemental executive retirement plan (SERP) for two of its executive officers, one of whom retired April 30, 2003 and the other on April 30, 2008. The SERP provides for the Company to pay annual retirement benefits, depending on retirement dates, up to 50% of base compensation until death of the officer. If death occurs within twenty years of retirement, the benefits become payable to the officer’s spouse (at a reduced level) until the spouse’s death or twenty years from the date of the officer’s retirement, whichever comes first. The Company has accrued the deferred compensation over the term of employment. The amounts accrued at April 30, 2014 and 2013, respectively, were $5,925 and $6,457. The discount rates used were 4.4% and 4.0%, respectively, at April 30, 2014 and 2013. The amount expensed in fiscal 2014 was $93 and the Company expects to pay $625 per year for each of the next five years. Expense incurred in fiscal 2013 and fiscal 2012 was $471 and $662, respectively.

Other postemployment benefits The Company also has deferred compensation agreements with three other individuals, one current and two former employees. The amounts accrued at April 30, 2014 and 2013 were $3,950 and $4,016, respectively. The Company expects to pay $167, $497, $497, $497 and $441 the next five years under the agreements. The expense incurred in fiscal 2014, 2013 and 2012 was $156, $438, and $563 respectively.

10. COMMITMENTS

The Company has entered into an employment agreement with its chief executive officer. The agreement provides that the officer will receive aggregate base compensation of not less than $660 per year exclusive of bonuses. The agreement also provides for certain payments in the case of death or disability of the officer. The Company also has entered into employment agreements with thirteen other key employees, providing for certain payments in the event of termination following a change of control of the Company.

11. CONTINGENCIES

Environmental compliance The United States Environmental Protection Agency and several states have adopted laws and regulations relating to underground storage tanks used for petroleum products. Several states in which the Company does business have trust fund programs with provisions for sharing or reimbursing corrective action or remediation costs.

Management currently believes that substantially all capital expenditures for electronic monitoring, cathodic protection, and overfill/spill protection to comply with existing regulations have been completed. The Company has an accrued liability at April 30, 2014 and 2013 of approximately $300 and $418, respectively, for estimated expenses related to anticipated corrective actions or remediation efforts, including relevant legal and consulting costs. Management believes the Company has no material joint and several environmental liability with other parties. Additional regulations or amendments to the existing regulations could result in future revisions to such estimated expenditures.

 

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Legal matters As previously reported, the Company was named as a defendant in four lawsuits (“hot fuel” cases) brought in the federal courts in Kansas and Missouri against a variety of fuel retailers, which were consolidated in the U.S. District Court for the District of Kansas in Kansas City, Kansas as part of the multidistrict “Motor Fuel Temperature Sales Practices Litigation”. On November 20, 2012, the Court preliminarily approved the previously-reported settlement involving the Company, which when approved in final form by the Court following notice to the Class would result in the settlement and dismissal of all claims against Casey’s in the multidistrict litigation. The preliminarily approved settlement includes, but is not limited to, a commitment on the part of the Company to “sticker” certain information on its fuel pumps and make a monetary payment (which is not considered to be material in amount) to the plaintiff class.

From time to time we may be involved in other legal and administrative proceedings or investigations arising from the conduct of our business operations, including contractual disputes; employment or personnel matters; personal injury and property damage claims; and claims by federal, state, and local regulatory authorities relating to the sale of products pursuant to licenses and permits issued by those authorities. Claims for compensatory or exemplary damages in those actions may be substantial. While the outcome of such litigation, proceedings, investigations, or claims is never certain, it is our opinion, after taking into consideration legal counsel’s assessment and the availability of insurance proceeds and other collateral sources to cover potential losses, that the ultimate disposition of such matters currently pending or threatened, individually or cumulatively, will not have a material adverse effect on our consolidated financial position and results of operation.

Other At April 30, 2014, the Company was partially self-insured for workers’ compensation claims in all fourteen states of its marketing territory and was also partially self-insured for general liability and auto liability under an agreement that provides for annual stop-loss limits equal to or exceeding approximately $1,000. To facilitate this agreement, letters of credit approximating $15,000 and $15,500, respectively, were issued and outstanding at April 30, 2014 and 2013, on the insurance company’s behalf. The Company also has investments of approximately $223 in escrow as required by one state for partial self-insurance of workers’ compensation claims. Additionally, the Company is self-insured for its portion of employee medical expenses. At April 30, 2014 and 2013, the Company had $28,429 and $24,039, respectively, in accrued expenses for estimated claims relating to self-insurance, the majority of which has been actuarially determined.

12. SUBSEQUENT EVENTS

Events that have occurred subsequent to April 30, 2014 have been evaluated for disclosure through the filing date of this Annual Report on Form 10-K/A (Amendment No. 1) with the Securities and Exchange Commission.

 

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13. QUARTERLY FINANCIAL DATA (Dollars in thousands, except per share amounts) (Unaudited)

Due to the immaterial error discussed in this Amendment No. 1, amounts in this footnote have been revised. For further discussion of the revision, see footnote 2, Correction of Immaterial Errors.

 

     Year ended April 30, 2014  
     Q1      Q2      Q3      Q4      Year Total  

Total revenue

              

Fuel

   $ 1,514,874         1,416,980         1,255,774         1,366,952         5,554,580   

Grocery & other merchandise

     423,585         416,552         364,846         378,251         1,583,234   

Prepared food & fountain

     166,248         171,751         158,200         162,977         659,176   

Other

     10,042         10,602         11,235         11,386         43,265   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 2,114,749         2,015,885         1,790,055         1,919,566         7,840,255   

Gross profit*

           

Fuel

   $ 91,227         67,816         55,892         52,937         267,872   

Grocery & other merchandise

     138,412         134,708         113,429         121,387         507,936   

Prepared food & fountain

     102,754         106,171         96,147         97,924         402,996   

Other

     10,028         10,590         11,222         11,372         43,212   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 342,421         319,285         276,690         283,620         1,222,016   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   $ 53,795         39,430         12,663         20,932         126,820   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Income per common share

           

Basic

   $ 1.40         1.03         .33         .54         3.30   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Diluted

   $ 1.39         1.01         .33         .54         3.26   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     Year ended April 30, 2013  
     Q1      Q2      Q3      Q4      Year Total  

Total revenue

              

Fuel

   $ 1,330,670         1,393,476         1,185,640         1,319,371         5,229,157   

Grocery & other merchandise

     386,129         362,662         329,657         340,263         1,418,711   

Prepared food & fountain

     142,709         146,540         137,033         138,642         564,924   

Other

     8,794         8,966         10,035         10,253         38,048   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1,868,302         1,911,644         1,662,365         1,808,529         7,250,840   

Gross profit*

           

Fuel

   $ 55,896         54,779         49,186         61,561         221,422   

Grocery & other merchandise

     128,834         121,206         104,660         107,963         462,663   

Prepared food & fountain

     90,565         91,515         83,011         83,902         348,993   

Other

     8,780         8,958         10,013         10,240         37,991   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 284,075         276,458         246,870         263,666         1,071,069   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   $ 37,307         31,146         13,757         21,604         103,814   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Income per common share

           

Basic

   $ .98         .81         .36         .56         2.71   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Diluted

   $ .97         .81         .36         .56         2.69   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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     Year ended April 30, 2012  
     Q1      Q2      Q3      Q4      Year Total  

Total revenue

              

Fuel

   $ 1,377,914         1,288,498         1,141,230         1,284,669         5,092,311   

Grocery & other merchandise

     365,171         357,816         311,199         330,809         1,364,995   

Prepared food & fountain

     123,483         128,838         118,750         128,281         499,712   

Other

     6,904         7,366         7,771         8,745         30,786   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1,873,832         1,782,518         1,578,950         1,752,504         6,987,804   

Gross profit*

              

Fuel

   $ 65,320         62,688         48,270         46,736         223,014   

Grocery & other merchandise

     118,729         116,221         99,099         109,196         443,245   

Prepared food & fountain

     75,843         76,658         72,714         77,944         303,159   

Other

     6,890         7,351         7,757         8,729         30,727   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 266,782         262,918         227,840         242,605         1,000,145   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   $ 39,391         37,632         16,162         21,509         114,694   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Income per common share

              

Basic

   $ 1.04         0.99         .42         .56         3.01   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Diluted

   $ 1.03         0.98         .42         .56         2.99   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

* Gross profit is given before charge for depreciation and amortization and credit card fees. Fiscal 2012 quarterly data was included for comparative purposes and to describe the impact of the immaterial error on Q3 and Q4 of 2012 as discussed in footnote 2, Correction of Immaterial Errors.

 

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

 

ITEM 9A. CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures.

In the second quarter of fiscal year 2015, through a routine Internal Revenue Service (IRS) examination, management became aware that an inadvertent accounting and reporting error occurred during the fiscal years 2012, 2013, and 2014 and the first quarter of fiscal year 2015. A control deficiency was identified with regards to the review and approval of quarterly federal excise tax returns by management with the requisite skill and knowledge, and recognition of the corresponding liability and expense. The internal controls in place during this time were not responsive to changes in circumstances. While the control deficiency did not result in a material misstatement to the Company’s consolidated financial statements for any periods through and including the fiscal year ended April 30, 2014, or unaudited condensed consolidated financial statements for the first fiscal quarter of fiscal year 2015, it did represent a material weakness as of April 30, 2014, since there existed a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements would not be prevented or detected on a timely basis. The correction of these immaterial errors is being recognized in revisions to our consolidated financial statements for the fiscal year ended April 30, 2014 in this Amendment No. 1 and in revisions to the unaudited condensed consolidated financial statements for the fiscal quarter ended July 31, 2014 included on Form 10-Q/A dated December 9, 2014, to be filed concurrent with this Form 10-K/A.

The Company’s chief executive officer and its chief financial officer evaluated the effectiveness of the Company’s disclosure controls and procedures (as that term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended) as of April 30, 2014. Our chief executive officer and chief financial officer concluded that, as a result of the material weakness in internal control over financial reporting described below, our disclosure controls and procedures were not effective as of April 30, 2014. The Company is amending Item 9A of its Annual Report on Form 10-K for 2014, as well as Item 4 of its Quarterly Reports on Form 10-Q for the first quarter of fiscal 2015 to reflect the conclusion by management that there was a material weakness in internal control over financial reporting as of the end of the periods covered by these reports.

For purposes of Rule 13a-15(e), the term disclosure controls and procedures means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its chief executive and chief financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

(b) Management’s Report on Internal Control over Financial Reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) under the Securities Exchange Act of 1934, as amended. Under the supervision of the Audit Committee of the Board of Directors and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting using the criteria established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). As a result of that evaluation, management identified the following control deficiency as of April 30, 2014, that constituted a material weakness:

Ineffective design and operation of controls regarding the review and approval of quarterly federal excise tax returns by management with the requisite skill and knowledge, and recognition of the corresponding liability and expense.

 

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The internal controls in place at the time and subsequently were not responsive to changes in circumstances. The control deficiency resulted in errors in cost of goods sold, interest expense, net, federal and state income taxes, deferred income taxes, accrued expenses and retained earnings. These errors did not, individually or in the aggregate, result in a material misstatement to the Company’s consolidated financial statements for any periods through and including the fiscal year ended April 30, 2014. However such control deficiencies could have resulted in a material misstatement to our annual or interim consolidated financial statements that would not be prevented or detected. Accordingly, management has determined that the lack of an independent control in place to review the federal excise tax returns constituted a material weakness on April 30, 2014.

The effectiveness of our internal control over financial reporting as of April 30, 2014, has been audited by KPMG, our independent registered public accounting firm, as stated in their adverse report which is included herein.

(c) Change in Internal Control over Financial Reporting.

As of the date the Original Filing was filed, there was no change in the Company’s internal control over financial reporting which occurred during the Company’s most recent fiscal quarter that materially affected, or was reasonably likely to materially affect the Company’s internal control over financial reporting.

(d) Remediation.

In the second quarter of fiscal 2015, management became actively engaged in the planning for, and implementation of, remediation efforts to address the material weakness in our internal control over financial reporting identified above, and included preliminary details of its remediation plans in the Current Report on Form 8-K filed on November 24, 2014. After further discussion, management has determined to clarify and refine those preliminary remediation plans and now has implemented or intends to implement the following steps:

 

    preparation of the federal excise tax returns managed under the authority of the Company’s Tax Department;

 

    review and approval of the completed federal excise tax returns by management with the requisite skill and knowledge;

 

    enhance our information technology solutions to facilitate the preparation of the excise tax return and enhance monitoring of the payment of excise taxes; and

 

    formalize the process by which the Tax Department will notify return preparers of any changes in the forms used for filings and or any necessary procedural changes to the process;

Management believes the measures described above and others that will be implemented will remediate the material weakness that we have identified. As management continues to evaluate and improve internal control over financial reporting, we may decide to take additional measures to address control deficiencies or determine to modify, or in appropriate circumstances not to complete, certain of the remediation measures identified.

Nonetheless, the chief executive officer and chief financial officer believe that the subsequent procedures we performed in connection with our preparation of this Form 10-K/A provide reasonable assurance that the identified material weakness did not lead to material misstatements in our consolidated financial statements presented in this Form 10-K/A or prior periods and that the consolidated financial statements included in this Form 10-K/A fairly present, in all material respects, our financial position, results of operations and cash flows as of the dates, and for the periods presented, in accordance with U.S. GAAP.

(e) Other.

The Company does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all fraud and material errors. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be

 

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considered relative to their costs. Because of the inherent limitations on all internal control systems, our internal control system can provide only reasonable assurance of achieving its objectives and no evaluation of controls can provide absolute assurance that all control issues and occurrences of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple errors or mistakes. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of internal control is also based in part upon certain assumptions about the likelihood of future events, and can provide only reasonable, not absolute, assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in circumstances, or the degree of compliance with the policies and procedures may deteriorate.

 

ITEM 9B.  OTHER INFORMATION

Not applicable.

 

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PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

Those portions of the Company’s definitive Proxy Statement appearing under the captions “Election of Directors,” “Governance of the Company,” “Section 16(a) Beneficial Ownership Reporting Compliance,” and “Executive Officers and Their Compensation” as filed with the Commission pursuant to Regulation 14A within 120 days after April 30, 2014 and used in connection with the Company’s 2014 Annual Meeting of Shareholders are hereby incorporated by reference.

The Company has adopted a Financial Code of Ethics applicable to its Chief Executive Officer and other senior financial officers. In addition, the Company has adopted a general code of business conduct (known as the Code of Business Conduct and Ethics) for its directors, officers, and all employees. The Financial Code of Ethics, the Code of Business Conduct and Ethics, and other Company governance materials are available under the Corporate Governance link of the Company Web site at www.caseys.com. The Company intends to disclose on this Web site any amendments to or waivers from the Financial Code of Ethics or the Code of Business Conduct and Ethics that are required to be disclosed pursuant to SEC rules. To date, there have been no waivers of the Financial Code of Ethics or the Code of Business Conduct and Ethics. Shareholders may obtain copies of any of these corporate governance documents free of charge by downloading from the Web site or by writing to the Corporate Secretary at the address on the cover of this Form 10-K/A.

 

ITEM 11. EXECUTIVE COMPENSATION

That portion of the Company’s definitive Proxy Statement appearing under the caption “Executive Officers and Their Compensation” asfiled with the Commission pursuant to Regulation 14A within 120 days after April 30, 2014 and used in connection with the Company’s 2014 Annual Meeting of Shareholders is hereby incorporated by reference.

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Those portions of the Company’s definitive Proxy Statement appearing under the captions “Shares Outstanding,” “Voting Procedures,” and “Beneficial Ownership of Shares of Common Stock by Directors and Executive Officers” as filed with the Commission pursuant to Regulation 14A within 120 days after April 30, 2014 and used in connection with the Company’s 2014 Annual Meeting of Shareholders are hereby incorporated by reference.

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

That portion of the Company’s definitive Proxy Statement appearing under the captions “Certain Relationships and Related Transactions” and “Governance of the Company” as filed with the Commission pursuant to Regulation 14A within 120 days after April 30, 2014 and used in connection with the Company’s 2014 Annual Meeting of Shareholders is hereby incorporated by reference.

 

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

That portion of the Company’s definitive Proxy Statement appearing under the caption “Independent Auditor Fees” as filed with the Commission within 120 days after April 30, 2014 and used in connection with the Company’s 2014 Annual Meeting of Shareholders is hereby incorporated by reference.

 

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PART IV

 

ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

(a) Documents filed as a part of this report on Form 10-K/A

 

  (1) The following financial statements are included herewith:

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets, April 30, 2014 and 2013

Consolidated Statements of Income, Three Years Ended April 30, 2014

Consolidated Statements of Shareholders’ Equity, Three Years Ended April 30, 2014

Consolidated Statements of Cash Flows, Three Years Ended April 30, 2014

Notes to Consolidated Financial Statements

 

  (2) No schedules are included because the required information is inapplicable or is presented in the consolidated financial statements or related notes thereto.

 

  (3) The following exhibits are filed as a part of this report:

 

Exhibit

Number

 

Description of Exhibits

  3.1   Restatement of the Restated and Amended Articles of Incorporation (incorporated by reference from the Quarterly Report on Form 10-Q for the fiscal quarter ended October 31, 1996) and Articles of Amendment thereto (incorporated by reference from the Current Report on Form 8-K filed April 16, 2010, as amended by the Current Report on Form 8-K/A filed April 19, 2010 and the Current Report on Form 8-K filed May 20, 2011)
  3.2(a)   Second Amended and Restated By-laws (incorporated by reference from the Current Report on Form 8-K filed June 16, 2009) and Amendments thereto (incorporated by reference from the Current Reports on Form 8-K filed May 20, 2011, August 2, 2011 and the Current Report on Form 8-K filed June 22, 2012)
  4.8   Note Purchase Agreement dated as of September 29, 2006 among the Company and the purchasers of $100,000,000 in principal amount of 5.72% Senior Notes, Series A and Series B (incorporated by reference from the Current Report on Form 8-K filed September 29, 2006)
  4.9   Note Purchase Agreement dated as of August 9, 2010 among the Company and the purchasers of the 5.22% Senior Notes (incorporated by reference from the Current Report on Form 8-K filed August 10, 2010)
  4.10   Note Purchase Agreement dated as of June 17, 2013 among the Company and the purchasers of the 3.67% Series A Notes and 3.75% Series B Notes (incorporated by reference from the Current Reports on Form 8-K filed June 18, 2013 and December 18, 2013)
10.21(a)*   Amended and Restated Employment Agreement with Donald F. Lamberti (incorporated by reference from the Current Report on Form 8-K filed November 10, 1997) and First Amendment thereto (incorporated by reference from the Current Report on Form 8-K filed April 2, 1998)
10.22(a)*   Amended and Restated Employment Agreement with Ronald M. Lamb (incorporated by reference from the Current Report on Form 8-K filed November 10, 1997), First Amendment thereto (incorporated by reference from the Current Report on Form 8-K filed April 2, 1998) and Second Amendment thereto (incorporated by reference from the Current Report on Form 8-K filed July 17, 2006)
10.27*   Non-Employee Directors’ Stock Option Plan (incorporated by reference from the Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 1994) and related form of Grant Agreement (incorporated by reference from the Current Report on Form 8-K filed May 3, 2005)
10.28(b)   Promissory Notes delivered to UMB Bank, n.a. and related Negative Pledge Agreement dated May 23, 2011 (incorporated by reference from the Current Reports on Form 8-K filed May 23, 2011, February 12, 2013 and June 18, 2013)
10.29(a)*   Form of “change of control” Employment Agreement (incorporated by reference from the Current Report on Form 8-K filed June 2, 2010)

 

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10.30*    Non-Qualified Supplemental Executive Retirement Plan (incorporated by reference from the Current Report on Form 8-K filed November 10, 1997) and Amendment thereto (incorporated by reference from the Current Report on Form 8-K filed July 17, 2006)
10.31*    Non-Qualified Supplemental Executive Retirement Plan Trust Agreement with UMB Bank, n.a. (incorporated by reference from the Current Report on Form 8-K filed November 10, 1997)
10.32*    Severance Agreement with Douglas K. Shull (incorporated by reference from the Current Report on Form 8-K filed July 28, 1998)
10.33*    Casey’s General Stores, Inc. 2000 Stock Option Plan (incorporated by reference from the Annual Report on Form 10-K405 for the fiscal year ended April 30, 2001) and related form of Grant Agreement (incorporated by reference from the Current Report on Form 8-K filed July 6, 2005)
10.34*    Casey’s General Stores 401(k) Plan (incorporated by reference from the Annual Report on Form 10-K for the fiscal year ended April 30, 2003)
10.35*    Trustar Directed Trust Agreement (incorporated by reference from the Annual Report on Form 10-K for the fiscal year ended April 30, 2003)
10.38*    Executive Nonqualified Excess Plan Document and related Adoption Agreement dated July 12, 2006 (incorporated by reference from the Annual Report on Form 10-K for the fiscal year ended April 30, 2007)
10.39*    Employment Agreement with Robert J. Myers (incorporated by reference from the Current Report on Form 8-K filed April 21, 2010 and Amendment to Employment Agreement (incorporated by reference from the Current Report on Form 8-K filed December 19, 2012))
10.40*    Severance Agreement with John G. Harmon (incorporated by reference from the Current Report on Form 8-K filed January 17, 2008)
10.41*    Casey’s General Stores, Inc. 2009 Stock Incentive Plan (incorporated by reference from the Current Report on Form 8-K filed September 23, 2009) and related forms of Restricted Stock Units Agreement (Non-employee Directors) (incorporated by reference from the Annual Report on Form 10-K for the fiscal year ended April 30, 2010) and Restricted Stock Units Agreement (Officers and Other Employees), Restricted Stock Units Agreement (Chief Executive Officer) and Stock Option Grant (incorporated by reference from the Current Report on Form 8-K filed June 27, 2011)
21    Subsidiaries of Casey’s General Stores, Inc.
23.1    Consent of Independent Registered Public Accounting Firm
31.1    Certificate of Robert J. Myers under Section 302 of Sarbanes-Oxley Act of 2002
31.2    Certificate of William J. Walljasper under Section 302 of Sarbanes-Oxley Act of 2002
32.1    Certificate of Robert J. Myers under Section 906 of Sarbanes-Oxley Act of 2002
32.2    Certificate of William J. Walljasper under Section 906 of Sarbanes-Oxley Act of 2002
101.INS    XBRL Instance Document
101.SCH    XBRL Taxonomy Extension Schema Document
101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB    XBRL Taxonomy Extension Label Linkbase Document
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF    XBRL Taxonomy Extension Definition Linkbase Document

 

* Indicates management contract or compensatory plan or arrangement.

 

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

 

  CASEY’S GENERAL STORES, INC.
  (Registrant)
Date: December 9, 2014     By  

/s/ Robert J. Myers

    Robert J. Myers, Chairman and
    Chief Executive Officer
    (Principal Executive Officer and Director)
Date: December 9, 2014     By  

/s/ William J. Walljasper

    William J. Walljasper
    Senior Vice President and Chief Financial Officer
    (Authorized Officer and Principal Financial and Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Date: December 9, 2014     By  

/s/ Robert J. Myers

    Robert J. Myers
    Chairman and Chief Executive Officer, Director
Date: December 9, 2014     By  

/s/ Kenneth H. Haynie

    Kenneth H. Haynie
    Director
Date: December 9, 2014     By  

/s/ Johnny Danos

    Johnny Danos
    Director
Date: December 9, 2014     By  

/s/ Diane C. Bridgewater

    Diane C. Bridgewater
    Director
Date: December 9, 2014     By  

/s/ Jeffrey M. Lamberti

    Jeffrey M. Lamberti
    Director

 

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Date: December 9, 2014     By   /s/ Richard Wilkey
    Richard Wilkey
    Director
Date: December 9, 2014     By   /s/ H. Lynn Horak
    H. Lynn Horak
    Director
Date: December 9, 2014     By   /s/ William C. Kimball
    William C Kimball
    Director
Date: December 9, 2014     By   /s/ Larree M. Renda
    Larree M. Renda
    Director

 

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EXHIBIT INDEX

The following exhibits are filed herewith:

 

Exhibit No.

  

Description

21    Subsidiaries of Casey’s General Stores, Inc.
23.1    Consent of Independent Registered Public Accounting Firm
31.1    Certification of Robert J. Myers under Section 302 of the Sarbanes-Oxley Act of 2002
31.2    Certification of William J. Walljasper under Section 302 of the Sarbanes-Oxley Act of 2002
32.1    Certificate of Robert J. Myers under Section 906 of Sarbanes-Oxley Act of 2002
32.2    Certificate of William J. Walljasper under Section 906 of Sarbanes-Oxley Act of 2002
101.INS    XBRL Instance Document
101.SCH    XBRL Taxonomy Extension Schema Document
101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB    XBRL Taxonomy Extension Label Linkbase Document
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF    XBRL Taxonomy Extension Definition Linkbase Document

 

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