SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Fiscal Quarter Ended January 31, 1999 Commission File Number 0-12788 CASEY'S GENERAL STORES, INC. (Exact name of registrant as specified in its charter) IOWA 42-0935283 State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) ONE CONVENIENCE BOULEVARD, ANKENY, IOWA (Address of principal executive offices) 50021 (Zip Code) (515) 965-6100 (Registrant's telephone number, including area code) NONE (Former name, former address and former fiscal year, if changed since last report) 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, No Par Value 52,706,512 shares (Class) (Outstanding at March 3, 1999)
CASEY'S GENERAL STORES, INC. INDEX Page PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements. Consolidated condensed balance sheets - January 31, 1999 and April 30, 1998 3 Consolidated condensed statements of income - three and nine months ended January 31, 1999 and 1998 5 Consolidated condensed statements of cash flows - nine months ended January 31, 1999 and 1998 6 Notes to consolidated condensed financial statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 9 PART II - OTHER INFORMATION Item 1. Legal Proceedings. 15 Item 5. Other Information. 15 Item 6. Exhibits and Reports on Form 8-K. 15 SIGNATURE 17
PART I - FINANCIAL INFORMATION <TABLE> <CAPTION> Item 1. Financial Statements. CASEY'S GENERAL STORES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (Dollars in Thousands) January 31, 1999 April 30, (Unaudited) 1998 <S> <C> <C> ASSETS Current assets: Cash and cash equivalents $ 10,663 4,022 Short-term investments 2,216 1,328 Receivables 2,705 2,537 Inventories 43,796 39,200 Prepaid expenses 5,693 5,437 ------ ------ Total current assets 65,073 52,524 ------ ------ Long-term investments 2,000 6,137 Other assets 1,360 1,405 Property and equipment, net of accumulated depreciation January 31, 1999, $204,427 April 30, 1998, $185,133 471,298 419,908 -------- ------- $539,731 479,974 ------- ------- </TABLE> See notes to consolidated condensed financial statements.
CASEY'S GENERAL STORES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (Continued) (Dollars in Thousands) <TABLE> <CAPTION> January 31, 1999 April 30, (Unaudited) 1998 <S> <C> <C> LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable $ 37,660 16,600 Current maturities of long-term debt 9,481 5,515 Accounts payable 42,127 43,745 Accrued expenses 22,105 19,748 Income taxes payable 6,181 4,380 ------- ------ Total current liabilities 117,554 89,988 ------- ------ Long-term debt, net of current maturities 73,783 79,094 ------ ------ Deferred income taxes 49,504 45,004 ------ ------ Deferred compensation 2,873 2,514 ----- ----- Shareholders' equity Preferred stock, no par value --- --- Common Stock, no par value 66,914 65,922 Retained earnings 229,103 197,452 ------- ------- Total shareholders' equity 296,017 263,374 ------- ------- $539,731 479,974 ------- ------- </TABLE> See notes to consolidated condensed financial statements.
CASEY'S GENERAL STORES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited) (Dollars in Thousands) <TABLE> <CAPTION> Three Months Ended Nine Months Ended January 31, January 31, 1999 1998 1999 1998 ---- ---- ---- ---- <S> <C> <C> <C> <C> Net sales $291,561 276,927 946,377 915,017 Franchise revenue 1,488 1,204 4,367 3,914 ------- ------- ------- ------- 293,049 278,131 950,744 918,931 ------- ------- ------- ------- Cost of goods sold 218,934 213,817 722,793 717,273 Operating expenses 49,346 43,238 143,188 129,129 Depreciation and amortization 8,671 7,789 25,188 22,397 Interest, net 1,865 1,506 5,144 4,193 ------- ------- ------- ------- 278,816 266,350 896,313 872,992 ------- ------- ------- ------- Income before income taxes 14,233 11,781 54,431 45,939 Federal and state income taxes 5,337 4,418 20,411 17,227 ------- ------ ------ ------ Net income $ 8,896 7,363 34,020 28,712 ------- ------ ------ ------ Earnings per share Basic $ .17 .14 .65 .55 ------- ------ ------ ------ Diluted $ .17 .14 .64 .54 ------- ------ ------ ------ </TABLE> See notes to consolidated condensed financial statements.
CASEY'S GENERAL STORES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in Thousands) <TABLE> <CAPTION> Nine Months Ended January 31, 1999 1998 <S> <C> <C> Cash flows from operations: Net income $ 34,020 28,712 Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization 25,188 22,397 Deferred income taxes 4,500 5,250 Changes in assets and liabilities: Receivables (168) (87) Inventories (4,596) (2,152) Prepaid expenses (256) (210) Accounts payable (1,618) (3,914) Accrued expenses 2,357 1,383 Income taxes payable 1,801 44 Other, net 2,032 2,737 ------ ------ Net cash provided by operations 63,260 54,160 ------ ------ Cash flows from investing: Purchase of property and equipment (75,234) (69,030) Purchase of investments (1,295) (6,466) Sale of investments 4,552 9,372 ----- ----- Net cash used in investing activities (71,977) (66,124) ------ ------ </TABLE>
CASEY'S GENERAL STORES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in Thousands) (continued) <TABLE> <CAPTION> Nine Months Ended January 31, 1999 1998 <S> <C> <C> Cash flows from financing: Proceeds from long-term debt --- 18,000 Payments of long-term debt (4,325) (23,462) Net activity of short-term debt 21,060 22,000 Proceeds from exercise of stock options 992 520 Payments of cash dividends (2,369) (2,232) ----- ----- Net cash provided by financing activities 15,358 14,826 ------ ------ Net increase in cash and cash equivalents 6,641 2,862 Cash and cash equivalents at beginning of the year 4,022 3,098 ----- ----- Cash and cash equivalents at end of the quarter $10,663 5,960 ------ ----- </TABLE> See notes to consolidated condensed financial statements.
CASEY'S GENERAL STORES, INC. AND SUBSIDIARIES NOTES TO (UNAUDITED) CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1. The accompanying consolidated condensed financial statements include the accounts and transactions of the Company and its two wholly-owned subsidiaries, Casey's Marketing Company and Casey's Services Company. All material inter-company balances and transactions have been eliminated in consolidation. 2. The accompanying consolidated condensed financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. Although management believes that the disclosures are adequate to make the information presented not misleading, it is suggested that these interim consolidated condensed financial statements be read in conjunction with the Company's most recent audited financial statements and notes thereto. In the opinion of management, the accompanying consolidated condensed financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of January 31, 1999, and the results of operations for the three and nine months ended January 31, 1999 and 1998, and changes in cash flows for the nine months ended January 31, 1999 and 1998. 3. The Company's financial condition and results of operations are affected by a variety of factors and business influences, certain of which are described in the Cautionary Statement Relating to Forward-Looking Statements filed as Exhibit 99 to the Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 1997. These interim consolidated condensed financial statements should be read in conjunction with that Cautionary Statement. 4. All per-share amounts and number of shares outstanding for the three and nine months ended January 31, 1998 set forth in this Form 10-Q (and in the exhibits hereto) have been adjusted to reflect the two-for-one stock split declared for shareholders of record on February 2, 1998 and distributed as of February 17, 1998.
5. In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement is effective for all fiscal quarters of all fiscal years beginning after June 15, 1999. The Company has little or no derivative or hedging activities; therefore, it is not anticipated this statement will have a material effect on the results of operations or the financial position of the Company. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Financial Condition and Results of Operations (Dollars in Thousands) Casey's derives its revenue from the retail sale of food (including freshly prepared foods such as pizza, donuts and sandwiches), beverages and non-food products such as health and beauty aids, tobacco products, automotive products and gasoline by Company stores and from the wholesale sale of certain grocery and general merchandise items and gasoline to franchised stores. The Company also generates revenues from continuing monthly royalties based on sales by franchised stores, sign and facade rental fees and the provision of certain maintenance, transportation and construction services to the Company's franchisees. A typical store is generally not profitable for its first year of operation due to start-up costs and will usually attain representative levels of sales and profits during its third year of operation. Due to the nature of the Company's business, most sales are for cash, and cash provided by operations is the Company's primary source of liquidity. The Company finances its inventory purchases primarily from normal trade credit aided by the relatively rapid turnover of inventory. This turnover allows the Company to conduct its operations without large amounts of cash and working capital. As of January 31, 1999, the Company's ratio of current assets to current liabilities was .55 to 1. The ratio at January 31, 1998 and April 30, 1998 was .63 to 1 and .58 to 1, respectively. Management believes that the Company's current $47,000 bank lines of credit (aggregate amount), together with cash flow from operations, will be sufficient to satisfy the working capital needs of its business. Net cash provided by operations increased $9,100 (16.8%) in the nine months ended January 31, 1999 from the comparable period in the prior year, primarily as a result of a larger net income, an increase in depreciation net of a decrease in accounts payable and an increase in inventories. Cash flows from investing in the nine months ended
January 31, 1999 decreased, primarily as a result of increased capital expenditures. Cash flows from financing remained constant. Cash flows in the future are expected to decrease as a result of the anticipated growth in capital expenditures. Capital expenditures represent the single largest use of Company funds. Management believes that by reinvesting in Company stores, the Company will be better able to respond to competitive challenges and increase operating efficiencies. During the first nine months of fiscal 1999, the Company expended $75,234 for property and equipment, primarily for the construction and remodeling of Company stores, compared to $69,030 for the comparable period in the prior year. The Company anticipates expending approximately $90,000 in fiscal 1999 for construction, acquisition and remodeling of Company stores, primarily from funds generated by operations, existing cash and short- term investments and bank lines of credit. As of January 31, 1999, the Company had long-term debt of $73,783, consisting of $15,000 in principal amount of 7.70% Senior Notes due December 15, 2004 (the "7.70% Notes") , $30,000 in principal amount of 7.38% Senior Notes due December 28, 2020 (the "7.38% Notes") , $14,400 in principal amount of 6.55% Senior Notes due December 18, 2003 (the "6.55% Notes"), $9,302 of mortgage notes payable and $5,081 of capital lease obligations. Interest on the 7.70% Notes is payable on the 15th day of each month at the rate of 7.70% per annum. Principal of the 7.70% Notes matures in forty quarterly installments beginning March 15, 1995. The Company may prepay the 7.70% Notes in whole or in part at any time in an amount of not less than $1,000 or integral multiples of $100 in excess thereof at a redemption price calculated in accordance with the Note Agreement dated as of February 1, 1993 between the Company and the purchasers of the 7.70% Notes. Interest on the 7.38% Notes is payable semi-annually on the twenty-eighth day of June and December in each year, commencing June 28, 1996, and at maturity, at the rate of 7.38% per annum. The 7.38% Notes mature on December 28, 2020, with prepayments of principal commencing December 28, 2010 and ending June 28, 2020, inclusive, with the remaining principal payable at maturity on December 28, 2020. The Company may prepay the 7.38% Notes in whole or in part at any time in an amount of not less than $1,000 or in integral multiples of $100 in excess thereof at a redemption price calculated in accordance with the Note Agreement dated as of December 1, 1995 between the Company and the purchaser of the 7.38% Notes.
Interest on the 6.55% Notes is payable quarterly on the 18th day of March, June, September and December of each year, commencing March 18, 1998, and at maturity, at the rate of 6.55% per annum. Principal of the 6.55% Notes matures in five annual installments commencing December 18, 1999. The Company may prepay the 6.55% Notes in whole or in part at any time in an amount of not less than $1,000 or integral multiples of $100 in excess thereof at a redemption price calculated in accordance with the Note Agreement dated as of December 1, 1997 between the Company and the Purchasers of the 6.55% Notes. To date, the Company has funded capital expenditures primarily from the proceeds of the sale of Common Stock, issuance of 6-1/4% Convertible Subordinated Debentures (which were converted into shares of Common Stock in 1994), the above-described Senior Notes, a mortgage note, and through funds generated from operations. Future capital needs required to finance operations, improvements and the anticipated growth in the number of Company stores are expected to be met from cash generated by operations, existing cash, investments and additional long-term debt or other securities as circumstances may dictate, and are not expected to adversely affect liquidity. The United States Environmental Protection Agency and several states, including Iowa, have established requirements for owners and operators of underground gasoline 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 gasoline inventory recordkeeping. Since 1984, new Company stores have been equipped with non-corroding fiberglass USTs, including many with double-wall construction, over-fill protection and electronic tank monitoring, and the Company has an active inspection and renovation program with respect to its older USTs. The Company currently has 2,085 USTs, of which 1,769 are fiberglass and 316 are steel. Management believes that its existing gasoline procedures and planned capital expenditures will continue to keep the Company in substantial compliance with all current federal and state UST regulations. Several of the states in which the Company does business have trust fund programs with provisions for sharing or reimbursing corrective action or remediation costs incurred by UST owners, including the Company. The extent of available coverage or reimbursement under such programs for costs incurred by the Company is not fully known at this time. In each of the years ended April 30, 1998 and 1997, the Company spent approximately $502 and $579, respectively, for assessments and remediation. During the nine months ended January 31, 1999, the Company expended approximately $434 for such
purposes. Substantially all of these expenditures have been submitted for reimbursement from state-sponsored trust fund programs and as of January 31, 1999, approximately $4,300 has been received from such programs. Such amounts are typically subject to statutory provisions requiring repayment of the reimbursed funds for non-compliance with upgrade provisions or other applicable laws. The Company has accrued a liability at January 31, 1999 of approximately $1,600 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. Management of the Company believes that the Company is in substantial compliance with the electronic monitoring, cathodic protection and overfill/spill protection regulations having a December 23, 1998 effective date. Additional regulations, or amendments to the existing UST regulations, could result in future revisions to such estimated expenditures. Such expenditures are expected to be funded as described above, and are not expected to adversely affect liquidity. THREE MONTHS ENDED JANUARY 31, 1999 COMPARED TO THREE MONTHS ENDED JANUARY 31, 1998 (DOLLARS AND AMOUNTS IN THOUSANDS) Net sales for the third quarter of fiscal 1999 increased by $14,634 (5.3%) over the comparable period in fiscal 1998. Retail gasoline sales decreased by $6,364 (4.0%) as the number of gallons sold increased by 22,909 (15.5%) while the average retail price per gallon decreased 16.9%. During this same period, retail sales of grocery and general merchandise increased by $19,479 (19.3%) due to the addition of 69 new Company Stores and a greater number of stores in operation for at least three years. Cost of goods sold as a percentage of net sales was 75.1% for the third quarter of fiscal 1999, compared to 77.2% for the comparable period in the prior year. The gross profit margins on retail gasoline sales increased (12.5%) during the third quarter of fiscal 1999 from the third quarter of the prior year (11.3%) due to the decrease in wholesale gasoline costs during the period. However, the gross profit margin per gallon decreased (to $.1112) in the third quarter of fiscal 1999 from the comparable period in the prior year ($.1204). The gross profits on retail sales of grocery and general merchandise also decreased (to 42.0%) from the comparable period in the prior year (42.4%). Operating expenses as a percentage of net sales were 16.9% for the third quarter of fiscal 1999 compared to 15.6% for the comparable period in the prior year. The increase in operating expenses as a percentage of net sales was caused primarily by a decrease in
the average retail price per gallon of gasoline sold. Net income increased by $1,533 (20.8%). The increase in net income was attributable primarily to the increase in retail sales of grocery and general merchandise, an increase in the number of gallons of gasoline sold and an increased number of stores in operation for at least three years. NINE MONTHS ENDED JANUARY 31, 1999 COMPARED TO NINE MONTHS ENDED JANUARY 31, 1998 (DOLLARS AND AMOUNTS IN THOUSANDS) Net sales for the first nine months of fiscal 1999 increased by $31,360 (3.4%) over the comparable period in fiscal 1998. Retail gasoline sales decreased by $21,638 (4.1%) as the number of gallons sold increased by 64,022 (14.0%) and the average retail price per gallon decreased 15.9%. During this same period, retail sales of grocery and general merchandise increased by $50,121 (15.0%) due to the addition of 69 new Company stores and a greater number of stores in operation for at least three years. Cost of goods sold as a percentage of net sales was 76.4% for the first nine months of fiscal 1999 compared to 78.4% for the comparable period in the prior year. This result occurred because the gross profit margins on retail gasoline sales increased (11.3%) during the first nine months of fiscal 1999 from the comparable period in the prior year (9.8%) due to the decrease in wholesale gasoline costs during the period. However, the gross profit margin per gallon decreased in the first nine months of fiscal 1999 (to $.1085) from the comparable period in the prior year ($.1112). The gross profits on retail sales of grocery and general merchandise also decreased (to 41.0%), from the comparable period in the prior year (41.8%). Operating expenses as a percentage of net sales were 15.1% for the first nine months of fiscal 1999 compared to 14.1% for the comparable period in the prior year. The increase in operating expenses as a percentage of net sales was caused primarily by a decrease in the average retail price per gallon of gasoline sold. Net income increased by $5,308 (18.5%). The increase in net income was attributable primarily to the increase in retail sales of grocery and general merchandise, an increase in the number of gallons of gasoline sold, and an increased number of stores in operation at least three years.
YEAR 2000 Management has substantially completed its "Year 2000" program to prepare the Company's information technology systems (including hardware, software and application programs) for year 2000 compliance. All necessary expenditures, which are not expected to be material (including internal staff and consulting costs), will be funded through operating cash flow. The Company also is working cooperatively with third parties having systems upon which the Company and its stores must rely, and seeking assurances that the systems of such other parties will be year 2000 compliant on a timely basis. Systems operated by others which the Company and its stores use and/or rely upon in their daily operations include those of banking institutions and telephone companies, as well as vendor and franchisee workstations and product ordering systems. The Company can provide no assurances that the third-party systems upon which the Company and its stores rely will be year 2000 compliant. Company store operations and the Company's business and financial condition and/or results of operations could be materially adversely affected by a failure of its systems and applications or those operated by such other third parties to perform as intended on and after January 1, 2000. The Company is developing contingency plans for its year 2000 exposure to such systems and applications. CAUTIONARY STATEMENT The foregoing Management's Discussion and Analysis of Financial Condition and Results of Operations 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 the Company's 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 Company cautions 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 the Cautionary Statement Relating to Forward-Looking Statements included as Exhibit 99 to the Form 10-Q for the fiscal quarter ended January 31, 1997.
PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. The Company from time to time is a party to legal proceedings arising from the conduct of its business operations, including proceedings relating to personal injury and employment claims, environmental remediation activities or contamination-related claims, disputes under franchise agreements and claims by state and federal regulatory authorities relating to the sale of products pursuant to state or federal licenses or permits. Management does not believe that the potential liability of the Company with respect to such proceedings pending as of the date of this Form 10-Q is material in the aggregate. ITEM 5. OTHER INFORMATION. The Company has hired James Shaffer as Chief Financial Officer, effective April 1, 1999. Shaffer is a former Senior Vice President and Chief Financial Officer of the Allied Insurance Group, and will report to Ronald M. Lamb, President and Chief Executive Officer. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) The following exhibits are filed with this Report or, if so indicated, incorporated by reference: Exhibit No. Description ------- ----------- 4.2 Rights Agreement dated as of June 14, 1989 between Casey's General Stores, Inc. and United Missouri Bank of Kansas City, N.A., as Rights Agent(a) and amendments thereto (b), (c),(d) 4.3 Note Agreement dated as of February 1, 1993 between Casey's General Stores, Inc. and Principal Mutual Life Insurance Company and Nippon Life Insurance Company of America (e) and First Amendment thereto (f) 4.4 Note Agreement dated as of December 1, 1995 between Casey's General Stores, Inc. and Principal Mutual Life Insurance Company (f)
4.5 Note Agreement dated as of December 1, 1997 among the Company and Principal Mutual Life Insurance Company, Nippon Life Insurance Company of America and TMG Life Insurance Company (g) 11 Statement regarding computation of per share earnings 27 Financial Data Schedule 99 Cautionary Statement Relating to Forward-Looking Statements (h) - ----------------------- (a) Incorporated by reference from the Registration Statement on Form 8-A (0-12788)filed June 19, 1989 relating to Common Share Purchase Rights. (b) Incorporated by reference from the Form 8 (Amendment No. 1 to the Registration Statement on Form 8-A filed June 19, 1989) filed September 10, 1990. (c) Incorporated by reference from the Form 8-A/A (Amendment No. 3 to the Registration Statement on Form 8-A filed June 19, 1989) filed March 30, 1994. (d) Incorporated by reference from the Form 8-A12G/A (Amendment No. 2 to the Registration Statement on Form 8-A filed June 19, 1989) filed July 29, 1994. (e) Incorporated by reference from the Current Report on Form 8-K filed February 18, 1993. (f) Incorporated by reference from the Current Report on Form 8-K filed January 11, 1996. (g) Incorporated by reference from the Current Report on Form 8-K filed January 7, 1998. (h) Incorporated by reference from the Quarterly Report on Form 10-Q for the fiscal quarter ended October 31, 1996, filed December 13, 1996. (b) There were no reports on Form 8-K filed during the quarter for which this Report is filed.
SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CASEY'S GENERAL STORES, INC. Date: March 16, 1999 By: /s/ John G. Harmon ------------------- John G. Harmon Secretary/Treasurer (Authorized Officer and Principal Financial Officer)
EXHIBIT INDEX Exhibit No. Description Page - ----------- ----------- ---- 11 Statement regarding computation of per share earnings 27 Financial Data Schedule