Form 10-Q CASEYS GENERAL STORES For: Oct 31
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E-mailSECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended October 31, 2021
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
Commission File Number 001-34700
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |||||||
(Address of principal executive offices)
(Zip Code)
(515 ) 965-6100
(Registrant’s telephone number, including area code)
Securities Registered pursuant to Section 12(b) of the Act
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Securities Registered pursuant to Section 12(g) of the Act
NONE
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | |||||||||||||
| Smaller reporting company | Emerging growth company | ||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class | Outstanding at November 30, 2021 | |||||||
| Common stock, no par value per share | ||||||||
CASEY’S GENERAL STORES, INC.
INDEX
| Page | |||||||||||
| PART I | |||||||||||
| Item 1. | |||||||||||
| Item 2. | |||||||||||
| Item 3. | |||||||||||
| Item 4. | |||||||||||
| PART II | |||||||||||
| Item 1. | |||||||||||
| Item 1A. | |||||||||||
| Item 2 | |||||||||||
| Item 6. | |||||||||||
3
PART I—FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
CASEY’S GENERAL STORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(DOLLARS IN THOUSANDS)
| October 31, 2021 | April 30, 2021 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Receivables | |||||||||||
| Inventories | |||||||||||
| Prepaid expenses | |||||||||||
| Income taxes receivable | |||||||||||
| Total current assets | |||||||||||
| Other assets, net of amortization | |||||||||||
| Goodwill | |||||||||||
Property and equipment, net of accumulated depreciation of $ | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and Shareholders' Equity | |||||||||||
| Current liabilities: | |||||||||||
| Current maturities of long-term debt and finance lease obligations | $ | $ | |||||||||
| Accounts payable | |||||||||||
| Accrued expenses | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt and finance lease obligations, net of current maturities | |||||||||||
| Deferred income taxes | |||||||||||
| Deferred compensation | |||||||||||
| Insurance accruals, net of current portion | |||||||||||
| Other long-term liabilities | |||||||||||
| Total liabilities | |||||||||||
| Shareholders’ equity: | |||||||||||
| Preferred stock, no par value | |||||||||||
| Common stock, no par value | |||||||||||
| Retained earnings | |||||||||||
| Total shareholders’ equity | |||||||||||
| Total liabilities and shareholders' equity | $ | $ | |||||||||
See notes to unaudited condensed consolidated financial statements.
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CASEY’S GENERAL STORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
| Three Months Ended October 31, | Six Months Ended October 31, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | |||||||||||||||||||
| Cost of goods sold (exclusive of depreciation and amortization, shown separately below) | |||||||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Interest, net | |||||||||||||||||||||||
| Income before income taxes | |||||||||||||||||||||||
| Federal and state income taxes | |||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Net income per common share | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||
| Basic weighted average shares outstanding | |||||||||||||||||||||||
| Plus effect of stock compensation | |||||||||||||||||||||||
| Diluted weighted average shares outstanding | |||||||||||||||||||||||
| Dividends declared per share | $ | $ | $ | $ | |||||||||||||||||||
See notes to unaudited condensed consolidated financial statements.
5
CASEY’S GENERAL STORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
| Shares Outstanding | Common Stock | Retained Earnings | Shareholders' Equity | ||||||||||||||||||||
| Balance at April 30, 2021 | $ | $ | $ | ||||||||||||||||||||
| Net income | — | — | |||||||||||||||||||||
Dividends declared ( | — | — | ( | ( | |||||||||||||||||||
| Exercise of stock options | — | ||||||||||||||||||||||
| Share-based compensation (net of tax withholding on employee share-based awards) | ( | — | ( | ||||||||||||||||||||
| Balance at July 31, 2021 | |||||||||||||||||||||||
| Net income | — | — | |||||||||||||||||||||
Dividends declared ( | — | — | ( | ( | |||||||||||||||||||
| Share-based compensation (net of tax withholding on employee share-based awards) | — | ||||||||||||||||||||||
| Balance at October 31, 2021 | $ | $ | $ | ||||||||||||||||||||
| Shares Outstanding | Common Stock | Retained Earnings | Shareholders' Equity | ||||||||||||||||||||
| Balance at April 30, 2020 | $ | $ | $ | ||||||||||||||||||||
| Net income | — | — | |||||||||||||||||||||
Dividends declared ( | — | — | ( | ( | |||||||||||||||||||
| Exercise of stock options | — | ||||||||||||||||||||||
| Share-based compensation (net of tax withholding on employee share-based awards) | ( | — | ( | ||||||||||||||||||||
| Balance at July 31, 2020 | |||||||||||||||||||||||
| Net income | — | — | |||||||||||||||||||||
Dividends declared ( | — | — | ( | ( | |||||||||||||||||||
| Exercise of stock options | — | ||||||||||||||||||||||
| Share-based compensation (net of tax withholding on employee share-based awards) | — | ||||||||||||||||||||||
| Balance at October 31, 2020 | $ | $ | $ | ||||||||||||||||||||
See notes to unaudited condensed consolidated financial statements.
6
CASEY’S GENERAL STORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(DOLLARS IN THOUSANDS)
| Six months ended October 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Amortization of debt issuance costs | |||||||||||
| Share-based compensation | |||||||||||
| (Gain) loss on disposal of assets and impairment charges | ( | ||||||||||
| Deferred income taxes | |||||||||||
| Changes in assets and liabilities: | |||||||||||
| Receivables | ( | ( | |||||||||
| Inventories | ( | ( | |||||||||
| Prepaid expenses | ( | ( | |||||||||
| Accounts payable | |||||||||||
| Accrued expenses | ( | ||||||||||
| Income taxes | ( | ||||||||||
| Other, net | ( | ||||||||||
| Net cash provided by operating activities | |||||||||||
| Cash flows from investing activities: | |||||||||||
| Purchase of property and equipment | ( | ( | |||||||||
| Payments for acquisition of businesses, net of cash acquired | ( | ||||||||||
| Proceeds from sales of assets | |||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from long-term debt | |||||||||||
| Payments of long-term debt | ( | ( | |||||||||
| Payments of debt issuance costs | ( | ||||||||||
| Net payments of short-term debt | ( | ||||||||||
| Proceeds from exercise of stock options | |||||||||||
| Proceeds from capital grant | |||||||||||
| Payments of cash dividends | ( | ( | |||||||||
| Tax withholdings on employee share-based awards | ( | ( | |||||||||
| Net cash provided by (used in) financing activities | ( | ||||||||||
| Net (decrease) increase in cash and cash equivalents | ( | ||||||||||
| Cash and cash equivalents at beginning of the period | |||||||||||
| Cash and cash equivalents at end of the period | $ | $ | |||||||||
7
CASEY’S GENERAL STORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Continued)
(DOLLARS IN THOUSANDS)
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
| Six months ended October 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Cash paid during the period for: | |||||||||||
| Interest, net of amount capitalized | $ | $ | |||||||||
| Income taxes, net | |||||||||||
| Noncash investing and financing activities: | |||||||||||
| Purchased property and equipment in accounts payable | |||||||||||
| Right-of-use assets obtained in exchange for new finance lease liabilities | |||||||||||
| Right-of-use assets obtained in exchange for new operating lease liabilities | |||||||||||
See notes to unaudited condensed consolidated financial statements.
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CASEY’S GENERAL STORES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share and Per Share Amounts)
1. Presentation of Financial Statements
Casey’s General Stores, Inc. and its subsidiaries (hereinafter referred to as the "Company" or "Casey’s") operate 2,380 convenience stores in 17 states, primarily in the Midwest. Many of the stores are located in smaller communities, often with populations of less than 5,000 .
The accompanying condensed consolidated financial statements include the accounts and transactions of Casey's General Stores, Inc. and its direct and indirect wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation.
2. Basis of Presentation
The accompanying condensed consolidated 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 U.S. generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to such rules and regulations.
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments necessary to present fairly the financial position as of October 31, 2021 and April 30, 2021, the results of operations for the three and six months ended October 31, 2021 and 2020, and shareholders' equity and cash flows for the six months ended October 31, 2021 and 2020. Although management believes that the disclosures are adequate to make the information presented not misleading, it is suggested that these interim condensed consolidated financial statements be read in conjunction with the Company’s most recent audited financial statements and notes thereto. See the Form 10-K for the year ended April 30, 2021 for our consideration of new accounting pronouncements.
3. Revenue and Cost of Goods Sold
The Company recognizes retail sales of fuel, grocery and general merchandise (previously referred to as “grocery and other merchandise”), prepared food and dispensed beverage (previously referred to as “prepared food and fountain”) and other revenue at the time of the sale to the guest. Sales taxes collected from guests and remitted to the government are recorded on a net basis in the condensed consolidated financial statements.
A portion of revenue from sales that include a redeemable digital box top coupon or points under our Casey’s Rewards program is deferred. The deferred portion of the sale represents the value of the estimated future redemption of the digital box top coupon or points. The amounts related to digital box top coupons and points are deferred until their redemption or expiration. Revenue related to the digital box top coupons and points issued is expected to be recognized less than one year from the original sale to the guest. As of October 31, 2021 and April 30, 2021, the Company recognized a contract liability of $36,379 and $30,719 , respectively, related to the outstanding digital box top coupons and Casey's Rewards points, which is included in accrued expenses on the condensed consolidated balance sheets.
Gift card related revenue is recognized as the gift cards are used by the guest. Gift card breakage revenue is recognized based on the estimated gift card breakage rate over the pro rata usage of the card.
Renewable Identification Numbers (RINs) are treated as a reduction in cost of goods sold in the period the Company commits to a price and agrees to sell the RIN. Warehousing costs are recorded within operating expenses on the condensed consolidated statements of income. Reimbursements of an operating expense (e.g., advertising) are recorded as reductions of the related expense.
The Company often receives vendor allowances on the basis of quantitative contract terms that vary by product and vendor or on the basis of purchases made. Vendor allowances include rebates and other funds received from vendors to promote their products. Vendor rebates, including billbacks, are treated as a reduction in cost of goods sold and are
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4. Long-Term Debt and Finance Lease Obligations, Lines of Credit and Fair Value Disclosure
The fair value of the Company’s long-term debt (including current maturities) is estimated based on the current rates offered to the Company for debt of the same or similar issuances. The fair value of the Company’s long-term debt was approximately $1,683,000 and $1,391,000 at October 31, 2021 and April 30, 2021, respectively. The fair value calculated excludes finance lease obligations of $71,480 and $14,085 outstanding at October 31, 2021 and April 30, 2021, respectively, which are grouped with long-term debt on the condensed consolidated balance sheets.
Term Loan Facility
In order to fund the acquisition of Buchanan Energy (see note 6) the Company drew on the senior unsecured term loan facility in the aggregate principal amount of $300 million (the “Term Loan Facility”) during the first quarter of fiscal 2022. Amounts borrowed under the Term Loan Facility bear interest at variable rates based upon, at the Company’s option, either: (i) the Adjusted LIBO Rate, plus a margin ranging from 1.55 % to 2.60 %; or (ii) the ABR Rate, plus a margin ranging from 0.20 % to 1.60 %. The Company initially elected the Adjusted LIBO Rate, and there is an option to elect either rate in subsequent interest periods. The Term Loan Facility also carries a facility fee of 0.20 % to 0.40 % per annum. The applicable margins and facility fee are dependent upon the Company's Consolidated Leverage Ratio, as defined in the Credit Agreement establishing the Term Loan Facility as calculated quarterly. The outstanding principal balance is required to be repaid in equal quarterly installments in an amount equal to 1.25 % of the original principal amount, on the last day of each March, June, September and December, with the balance due on January 6, 2026. The Company had an outstanding principal balance of $292,500 on the Term Loan Facility at October 31, 2021.
Revolving Facility
The Company has a committed unsecured revolving credit facility in the aggregate principal amount of $450,000 (the "Revolving Facility"). The maturity date for the revolving facility is January 11, 2024. Amounts borrowed under the Revolving Facility bear interest at variable rates based upon, at the Company’s option, either: (a) the LIBO Rate adjusted for statutory reserve requirements (but no less than 0.75 %), plus a margin ranging from 1.05 % to 1.85 %; or (b) an alternate base rate, which is the higher of (i) the prime rate announced by the Administrative Agent, (ii) the federal funds rate plus 1/2 of 1.00%, and (iii) the one-month LIBO Rate plus 1.00 %, plus a margin ranging from 0.05 % to 0.85 %. The Revolving Facility also carries a facility fee of 0.20 % to 0.40 % per annum. The applicable margins and facility fee are dependent upon the Company’s Consolidated Leverage Ratio, as noted above. The Company had $0
Bank Line
5. Compensation Related Costs and Share Based Payments
The 2018 Stock Incentive Plan (the “2018 Plan”), was approved by the Company's shareholders on September 5, 2018 ("the "2018 Plan Effective Date").
Awards under the 2018 Plan may take the form of stock options, stock appreciation rights, restricted stock, restricted stock units and other equity-based and equity-related awards. Each share issued pursuant to a stock option and each share with respect to which a stock-settled stock appreciation right is exercised (regardless of the number of shares actually delivered) is counted as one share against the maximum limit under the 2018 Plan, and each share issued pursuant to an award of restricted stock or restricted stock units is counted as two shares against the maximum limit. Restricted stock is transferred immediately upon grant (and may be subject to a holding period), whereas restricted stock units have a vesting period that must expire, and in some cases performance or market conditions that must be satisfied before the stock is transferred. At October 31, 2021, there were 1,975,756 shares available for grant under the 2018 Plan.
We account for share-based compensation by estimating the fair value of time-based and performance-based restricted stock unit awards using the closing price of a share of our common stock on the date of grant. For market-based awards we use a "Monte Carlo" approach to estimate the value of the awards, which simulates the prices of the Company’s and each member of the performance peer groups' common stock price at the end of the relevant performance period, taking into account volatility and the specifics surrounding each total shareholder return metric under the relevant plan. We
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recognize these amounts as an operating expense in our condensed consolidated statements of income ratably over the requisite service period using the straight-line method, as adjusted for certain retirement provisions, and updated estimates of performance based awards. All awards have been granted at no cost to the grantee and/or non-employee member of the Board.
Information concerning the unvested restricted stock units under the 2018 Plan is presented in the following table:
| Unvested at April 30, 2021 | |||||
| Granted | |||||
| Vested | ( | ||||
| Forfeited | ( | ||||
| Performance Award Adjustments | ( | ||||
| Unvested at October 31, 2021 | |||||
The above awards reflect (a) long-term incentive compensation program grants for 2018 through 2021, which include a mix of time-based restricted stock units and performance-based restricted stock units (subject to three-year cumulative net income before net interest expense, income taxes, depreciation and amortization ("EBITDA"), three-year relative total shareholder return ("TSR") and three-year average return on invested capital ("ROIC")), (b) certain “make-whole” and sign-on grants, which include a mix of time-based restricted stock units and performance-based restricted stock units subject to TSR, EBITDA, and ROIC, (c) a special strategic grant which, upon grant, included performance-based restricted stock units subject to the performance of the Company’s e-commerce and loyalty platforms (which performance period has been completed, and are now subject to time-based vesting), (d) special performance grants which include time-based restricted stock units, and (e) non-employee director equity awards, which include time-based restricted stock units.
6. Acquisitions
Many of our acquisitions meet the criteria to be considered business combinations. The Company accounts for business combinations using the acquisition method of accounting. Under this method of accounting, acquired assets and assumed liabilities are included within the acquirer's accounts as of the date of acquisition, with any excess of purchase price over the fair value of the net assets acquired recognized as goodwill. Acquisition-related transaction costs are recognized as period costs as incurred. We accounted for the Buchanan Energy and Circle K acquisitions as business combinations.
Buchanan Energy
On May 13, 2021, the Company closed on the acquisition of 100 % of the equity interest in Buchanan Energy (and certain of its related subsidiaries and affiliated entities), owner of Bucky’s Convenience Stores. The transaction included 92 retail locations (consisting of 24 stores in Nebraska, 56 in Illinois, five in Iowa, three in Missouri, and four in Texas), a dealer network of 81 stores where Casey’s will manage fuel wholesale supply agreements to these stores, as well as several parcels of real estate which may be used for new store construction. Three of the retail locations were divested shortly after closing as part of a consent order with the Federal Trade Commission. As a result of this acquisition, we increased our total store count to over 2,300 stores and have added a fuel wholesale business. The Company expects to achieve certain synergies over time, in part, through the reduction of duplicate processes, improvements in purchasing power, installing our kitchens, and expanding merchandise offerings.
The aggregate purchase price for the acquisition totaled $572,532 , which is net of a provisional working capital adjustment of $4,710 . Upon closing, $577,242 was paid in cash using available cash on hand and proceeds from the Term Loan Facility and a draw on the Revolving Facility, as discussed above in Note 4. The draw on the Revolving Facility has been repaid at October 31, 2021.
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| Assets acquired: | |||||
| Cash and cash equivalents | $ | ||||
| Receivables | |||||
| Inventories | |||||
| Prepaid expenses | |||||
| Property and equipment | |||||
| Contractual customer relationships | |||||
| Deferred income taxes | |||||
| Finance lease right-of-use assets | |||||
| Operating lease right-of-use assets | |||||
| Other assets | |||||
| Goodwill | |||||
| Total assets | |||||
| Liabilities assumed: | |||||
| Accounts payable | |||||
| Accrued expenses | |||||
| Finance lease liabilities | |||||
| Operating lease liabilities | |||||
| Other long-term liabilities | |||||
| Total liabilities | |||||
| Net assets acquired and total purchase price | $ | ||||
Acquired operating lease right-of-use assets are included within other assets, net of amortization and acquired operating lease liabilities are included within accrued expenses and other long-term liabilities in the condensed consolidated balance sheets as of October 31, 2021.
The $31,100 of contractual customer relationships will be amortized over a useful life of 15 years and are included within other assets, net of amortization in the condensed consolidated balance sheets as of October 31, 2021. These assets were valued using the multi-period excess earnings method.
The goodwill acquired was assigned to the retail reporting unit in the amount of $253,814 and the fuel wholesale reporting unit in the amount of $7,997 . The goodwill recognized is primarily attributable to the location of the seller’s stores in relation to our footprint and expected synergies due to expanded inside store offerings and improved purchasing power. Almost all of the goodwill acquired as the result of this transaction will be deductible for income tax purposes over 15 years. The value assigned to goodwill is considered provisional.
The Company incurred total acquisition-related transaction costs of approximately $8.6 million. This includes approximately $6.7 million incurred during the six months ended October 31, 2021, which are included in the condensed consolidated statements of income within operating expenses.
The Company recognized approximately $246,947 and $470,591 of revenue related to Buchanan Energy in the condensed consolidated statements of income for the three and six months ended October 31, 2021, respectively. The amount of net income related to Buchanan Energy was not material for the three and six months ended October 31, 2021.
12
Circle K
Throughout June 2021, the Company closed on the acquisition of 48 stores located in Oklahoma from Circle K pursuant to the terms and conditions of an asset purchase agreement. The aggregate purchase price for the acquisition totaled $41,416 , which was paid in cash upon closing using available cash on hand.
The table below summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date. We utilized a third-party valuation specialist to assist in valuing the leases acquired.
| Assets acquired: | |||||
| Inventories | $ | ||||
| Property and equipment | |||||
| Finance lease right-of-use assets | |||||
| Operating lease right-of-use assets | |||||
| Goodwill | |||||
| Total assets | |||||
| Liabilities assumed: | |||||
| Accrued expenses | |||||
| Finance lease liabilities | |||||
| Operating lease liabilities | |||||
| Total liabilities | |||||
| Net assets acquired and total consideration paid | $ | ||||
The goodwill recognized from this transaction is primarily attributable to the location of the seller's stores in relation to our footprint and expected synergies due, in part, to expanded inside store and fuel offerings. All of the goodwill acquired as a result of this transaction will be deductible for income tax purposes over 15 years.
The Company recognized approximately $47,647 and $71,391 of revenue related to the acquired Circle K locations in the condensed consolidated statements of income for the three and six months ended October 31, 2021, respectively. The amount of net income related to the acquired Circle K locations was not material for the three and six months ended October 31, 2021.
Pro Forma Information
The following unaudited pro forma information presents a summary of our condensed consolidated statements of income as if the Buchanan Energy and Circle K transactions referenced above occurred on May 1, 2020 (amounts in thousands, except per share data):
| Three Months Ended October 31, | Six Months Ended October 31, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Total revenue | |||||||||||||||||||||||
| Net income | |||||||||||||||||||||||
| Net income per common share | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
Pilot
On September 27, 2021, the Company entered into an asset purchase agreement (the “Purchase Agreement”) with Pilot Corporation to acquire all of the assets of 40 stores located in Tennessee and Kentucky for a purchase price of $220 million, subject to customary post-closing adjustments.
The closing of the acquisition is conditioned upon the satisfaction of customary closing conditions, including, among others: (a) expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, which occurred on or around November 4, 2021; (b) the accuracy of the representations and warranties of each party to the Purchase Agreement as of the closing; (c) the performance in all material respects by the parties of their respective covenants under the Purchase Agreement, including receipt of certain
13
consents; and (d) in the case of Pilot Corporation, the absence of any material adverse effect since the date of the Purchase Agreement.
The Company intends to finance the pending transaction with a combination of cash on hand and incremental financing.
7. Commitments and Contingencies
From time to time we may be involved in legal or administrative proceedings or investigations arising from the conduct of our business operations, including, but not limited to, contractual or other general business disputes; employment, personnel, or accessibility matters; personal injury and property damage claims; claims by federal, state, and local regulatory authorities relating to the sale of products pursuant to licenses and permits issued by those authorities; and, other claims or proceedings. Claims for 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 operations.
We have entered into various purchase agreements related to our fuel supply, which include varying volume commitments. Prices included in the purchase agreements are indexed to market prices. While volume commitments are included in the contracts, we do not have a history of incurring material penalties related to these provisions. These contracts are not accounted for as derivatives as they meet the normal purchases exclusion under derivative accounting.
We have entered into forward contracts for cheese in order to fix the price per pound for a portion of our expected supply. As of October 31, 2021, the forward contracts run through November 2021. The commitment under these contracts is approximately $2,600 . These contracts are not accounted for as derivatives as they meet the normal purchases exclusion under derivative accounting.
8. Unrecognized Tax Benefits
The total amount of gross unrecognized tax benefits was $9,316 at April 30, 2021. At October 31, 2021, gross unrecognized tax benefits were $11,357 . If this unrecognized tax benefit were ultimately recognized, $8,972 is the amount that would impact our effective tax rate. The total amount of accrued interest and penalties for such unrecognized tax benefits was $488 at October 31, 2021, and $370 at April 30, 2021. Net interest and penalties included in income tax expense for the six months ended October 31, 2021, was a net expense of $118 and a net expense of $106 for the same period in 2020.
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 has no ongoing federal or state income tax examinations. 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 $2,000 during the next twelve months mainly due to the expiration of certain statute of limitations.
The federal statute of limitations remains open for the tax years 2015 and forward. Tax years 2012 and forward are subject to audit by state tax authorities depending on open statute of limitations waivers and the tax code of each state.
9. Segment Reporting
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| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations (Dollars in Thousands). | ||||
Overview
Casey’s and its direct and indirect wholly-owned subsidiaries operate convenience stores primarily under the names "Casey’s" and “Casey’s General Store” (collectively, with the stores below referenced as "GoodStop" or "Bucky's", as the "Company" or “Stores”) throughout 17 states, over half of which are located in Iowa, Missouri and Illinois. All convenience stores carry a broad selection of food (including freshly prepared foods such as pizza, donuts, and sandwiches), beverages, tobacco and nicotine products, health and beauty aids, automotive products, and other nonfood items. In addition, all but three offer fuel for sale on a self-service basis. The Company derives its revenue primarily from the retail sale of fuel and the products offered in its stores. As of October 31, 2021, there were a total of 2,380 stores in operation.
During the fiscal year, the Company introduced certain stores branded or rebranded as "GoodStop (by Casey’s)". Similar to most of our store footprint, the "GoodStop" locations offer fuel for sale on a self-serve basis, and a broad selection of snacks, drinks, tobacco products, and other essentials. However, such locations typically do not have a kitchen and have limited prepared food offerings. As of October 31, 2021, 17 stores operate under the "GoodStop" brand.
Additionally, the Company is temporarily operating certain locations acquired from Buchanan Energy under the name, "Bucky's." The Company plans to eventually transition all "Bucky's" locations to either the "Casey's" or "GoodStop" brand. The Company also operates two stores selling primarily tobacco products, one grocery store, and one liquor store.
Approximately 52% of our stores were opened in areas with populations of fewer than 5,000 persons, while approximately 23% of all stores were opened in communities with populations exceeding 20,000 persons. Three distribution centers are currently in operation (in Ankeny, Iowa adjacent to our corporate headquarters [which we refer to as our Store Support Center], in Terre Haute, Indiana, and in Joplin, Missouri) from which certain grocery and general merchandise and prepared food and dispensed beverage items are supplied to our stores. As of October 31, 2021, the Company leased a combination of land and/or building at 86 locations.
The Company reported diluted earnings per common share of $2.59 for the second quarter of fiscal 2022. For the same quarter a year-ago, diluted earnings per common share was $3.00.
The following table represents the roll forward of store growth through the second quarter of fiscal 2022:
| Store Count | |||||
| Total stores at April 30, 2021 | 2,243 | ||||
| New store construction | 7 | ||||
| Acquisitions | 144 | ||||
| Acquisitions not opened | (6) | ||||
| Prior acquisitions opened | 4 | ||||
| Closed | (12) | ||||
| Total stores at October 31, 2021 | 2,380 | ||||
Acquisitions in the table above include, in part, 89 stores which were acquired from Buchanan Energy on May 13, 2021. The table excludes three sites that were included in the transaction, but were divested by the Company shortly after closing as part of a consent order with the Federal Trade Commission. Additionally, it includes 48 stores from the Circle K transaction that closed in June. For additional discussion, refer to Note 6 in the condensed consolidated financial statements.
Throughout the first six months of fiscal 2022, the Company has generally seen an increase in guest traffic and sales of certain products compared to the same period a year ago as schools, businesses and the economy in general have gone through various stages of reopening from COVID-19. The Company has, however, also seen a recent increase in the number of COVID-19 cases reported amongst its team members and in certain areas of its operating territory, which in some instances has led to temporary store closures (which often times only last for a matter of hours) for COVID-19 cleaning protocols, labor challenges and the return of various locally imposed governmental restrictions, including but not limited to mask and social distancing mandates. In addition, on November 4, 2021, the Occupational Safety and Health Administration (OSHA) announced a requirement that employers with 100 or more employees, which includes the Company, ensure their employees are fully vaccinated for COVID-19 or undergo regular testing. The original implementation date for the requirements was January 4, 2022; however, they have been temporarily enjoined by a federal appeals court and OSHA has temporarily suspended enforcement. Should these requirements eventually be put in place, they may have a material impact on the Company due to the costs and logistics of testing, the cost and impact of employees electing to leave the Company’s workforce permanently, or the impact of and cost to attract prospective employees that may seek employment elsewhere, instead of being subject to the requirements. As such, the continued unpredictable nature of the COVID-19 pandemic, including case trends, severity of new
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variants, including Omicron, the efficacy of vaccines and the willingness of individuals to be vaccinated, further governmental restrictions or protections, and its effect on the Company’s workforce and the economy as a whole, could again lead or contribute to additional disruptions, labor shortages and increased operating expenses for the foreseeable future. While COVID-19 continues to result in, and will continue to bring, significant challenges and uncertainty to our operating environment, we believe that our resilient business model and the strength of our brand and balance sheet position us well to navigate, and eventually emerge from, the pandemic.
Same-store sales is a common metric used in the convenience store industry. We define same-store sales as the total sales increase (or decrease) for stores open during the full time of both periods being presented. We exclude from the calculation any acquired stores and any stores that have been replaced with a new store, until such stores have been open during the full time of both periods being presented. Stores that have undergone a major remodel, had adjustments in hours of operation, added pizza delivery, or had other revisions to their operating format remain in the calculation.
The second quarter results reflected a 2.5% increase in same-store fuel gallons sold, with an average fuel revenue less related cost of goods sold (exclusive of depreciation and amortization) of 34.7 cents per gallon, compared to 35.3 cents per gallon in the same quarter a year ago. Same-store gallons sold were positively impacted by higher guest traffic. The Company sold 4.2 million renewable fuel credits for $6.2 million during the quarter, compared to the sale of 6.1 million renewable fuel credits in the second quarter of the prior year, which generated $3.8 million.
Same-store sales of grocery and general merchandise increased 6.8% and prepared food and dispensed beverage increased 4.1% during the second quarter. Note that we have changed the names of the "grocery and other merchandise" category to "grocery and general merchandise" and the "prepared food and fountain" category to "prepared food and dispensed beverage" to better reflect the composition of the category. There have been no changes to the makeup of the categories, and they remain directly comparable to prior periods. The increase in grocery and general merchandise same-store sales was primarily due to stronger sales of packaged beverages and grocery items, such as salty snacks and meat snacks. The increase in prepared food and dispensed beverage same-store sales was primarily attributable to continued momentum in pizza slices, driven in part by increased guest traffic inside the store. Prepared food and dispensed beverage same-store sales were adversely impacted by supply chain challenges in the quarter, notably in bakery and dispensed beverages. The Company also implemented selective price increases to offset inflationary pressures throughout the business.
Three Months Ended October 31, 2021 Compared to
Three Months Ended October 31, 2020
(Dollars and Amounts in Thousands)
| Three Months Ended October 31, 2021 | Fuel | Grocery & General Merchandise | Prepared Food & Dispensed Beverage | Other | Total | ||||||||||||||||||||||||
| Revenue | $ | 2,048,831 | $ | 829,484 | $ | 309,504 | $ | 75,123 | $ | 3,262,942 | |||||||||||||||||||
| Revenue less cost of goods sold (excluding depreciation and amortization) | $ | 231,883 | $ | 275,940 | $ | 187,498 | $ | 22,269 | $ | 717,590 | |||||||||||||||||||
| 11.3 | % | 33.3 | % | 60.6 | % | 29.6 | % | 22.0 | % | ||||||||||||||||||||
| Fuel gallons | 668,757 | ||||||||||||||||||||||||||||
| Three Months Ended October 31, 2020 | Fuel | Grocery & General Merchandise | Prepared Food & Dispensed Beverage | Other | Total | ||||||||||||||||||||||||
| Revenue | $ | 1,193,491 | $ | 718,226 | $ | 288,822 | $ | 15,366 | $ | 2,215,905 | |||||||||||||||||||
| Revenue less cost of goods sold (excluding depreciation and amortization) | $ | 204,154 | $ | 238,992 | $ | 173,661 | $ | 14,953 | $ | 631,760 | |||||||||||||||||||
| 17.1 | % | 33.3 | % | 60.1 | % | 97.3 | % | 28.5 | % | ||||||||||||||||||||
| Fuel gallons | 577,581 | ||||||||||||||||||||||||||||
Total revenue for the second quarter of fiscal 2022 increased by $1,047,037 (47.3%) over the comparable period in fiscal 2021. Retail fuel sales increased by $855,340 (71.7%) as the average retail price per gallon increased 48.3%, and the number of gallons sold increased by 91,176 (15.8%). During this same period, retail sales of grocery and general merchandise increased by $111,258 (15.5%), due to operating 161 more stores than a year ago and strong sales of packaged beverages, salty snacks, and
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meat snacks. Prepared food and dispensed beverage sales increased by $20,682 (7.2%), due to operating 161 more stores than a year ago and continued momentum in pizza slices.
The other revenue category historically has primarily consisted of lottery, which is presented net of applicable costs, and car wash. As a result of the Buchanan Energy acquisition, we acquired a dealer network of 81 stores where Casey’s will manage fuel wholesale supply agreements to these stores. The activity related to this dealer network is included in the other category and is presented gross of applicable costs. Other revenues increased $59,757 (388.9%) for the second quarter of fiscal 2022 compared to the prior year, driven primarily by activity related to the dealer network.
Revenue less cost of goods sold (excluding depreciation and amortization) was 22.0% of revenue for the second quarter of fiscal 2022, compared to 28.5% for the comparable period in the prior year. Fuel revenue less related cost of goods sold (exclusive of depreciation and amortization) was 11.3% of fuel revenue during the second quarter of fiscal 2022, compared to 17.1% in the second quarter of the prior year, largely attributable to higher average retail price of fuel per gallon. Revenue per gallon less cost of goods sold per gallon (exclusive of depreciation and amortization) was 34.7 cents in the second quarter of fiscal 2022, compared to 35.3 cents for the comparable period in the prior year.
Grocery and general merchandise revenue less related cost of goods sold (exclusive of depreciation and amortization) was consistent at 33.3% for the current year and prior year periods. The current year percentage was positively impacted by the private label program and procurement initiatives, offset by inflationary pressures. Prepared food and dispensed beverage revenue less related cost of goods sold (exclusive of depreciation and amortization) increased to 60.6% of revenue, compared to 60.1% for the comparable period in the prior year, primarily due to a resurgence in pizza slices and procurement initiatives, offset by inflationary pressures.
Operating expenses increased $90,296 (22.0%) in the second quarter of fiscal 2022 from the comparable period in the prior year, primarily due to operating 161 more stores compared to the same period a year ago, higher wage rates, and a 35% increase in credit card fees from higher retail fuel pricing along with higher sales volume.
Depreciation and amortization expense increased by 15.5% to $74,258 in the second quarter of fiscal 2022 from $64,294 for the comparable period in the prior year. The increase was primarily due to operating 161 more stores than a year ago and capital expenditures during the previous twelve months.
Interest expense increased by $2,886 (27.1%), primarily attributable to a $300,000 draw on the Term Loan Facility to fund the acquisition of Buchanan Energy during the first quarter.
The effective tax rate increased to 25.0% in the second quarter of fiscal 2022 compared to 23.6% in the same period of fiscal 2021. The increase in the effective tax rate was primarily due to a decrease in favorable permanent differences.
Net income decreased by $15,152 (13.5%) to $96,831 from $111,983 in the comparable period in the prior year. The decrease in net income was primarily attributable to increased fuel and merchandise contribution from improved guest traffic, offset by higher operating expenses and depreciation driven primarily from operating 161 more stores than a year ago and higher wage rates.
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Six Months Ended October 31, 2021 Compared to
Six Months Ended October 31, 2020
(Dollars and Amounts in Thousands)
| Six Months Ended October 31, 2021 | Fuel | Grocery & General Merchandise | Prepared Food & Dispensed Beverage | Other | Total | ||||||||||||||||||||||||
| Revenue | $ | 4,015,986 | 1,664,969 | 617,944 | 146,036 | 6,444,935 | |||||||||||||||||||||||
| Revenue less cost of goods sold (excluding depreciation and amortization) | 466,358 | 551,348 | 375,604 | 48,167 | 1,441,477 | ||||||||||||||||||||||||
| 11.6 | % | 33.1 | % | 60.8 | % | 33.0 | % | 22.4 | % | ||||||||||||||||||||
| Fuel gallons | 1,336,291 | ||||||||||||||||||||||||||||
| Six Months Ended October 31, 2020 | Fuel | Grocery & General Merchandise | Prepared Food & Dispensed Beverage | Other | Total | ||||||||||||||||||||||||
| Revenue | $ | 2,279,472 | $ | 1,450,087 | $ | 559,588 | $ | 31,779 | $ | 4,320,926 | |||||||||||||||||||
| Revenue less cost of goods sold (excluding depreciation and amortization) | $ | 414,184 | $ | 474,591 | $ | 335,309 | $ | 31,179 | $ | 1,255,263 | |||||||||||||||||||
| 18.2 | % | 32.7 | % | 59.9 | % | 98.1 | % | 29.1 | % | ||||||||||||||||||||
| Fuel gallons | 1,127,089 | ||||||||||||||||||||||||||||
Total revenue for the first six months of fiscal 2022 increased by $2,124,009 (49.2%) over the comparable period in fiscal 2021. Retail fuel sales increased by $1,736,514 (76.2%) as the average retail price per gallon increased 48.6%, and the number of gallons sold increased 209,202 (18.6%). During this same period, retail sales of grocery and general merchandise increased by $214,882 (14.8%) due to operating 161 more stores than a year ago and strong sales of packaged beverages, salty snacks, and meat snacks. Prepared food and dispensed beverage sales increased by $58,356 (10.4%), due to operating 161 more stores than a year ago and a resurgence in pizza slices.
The other revenue category historically has primarily consisted of lottery, which is presented net of applicable costs, and car wash. As a result of the Buchanan Energy acquisition, we acquired a dealer network of 81 stores where Casey’s will manage fuel wholesale supply agreements to these stores. The activity related to this dealer network is included in the other category and is presented gross of applicable costs. These revenues increased $114,257 (359.5%) through the second quarter of fiscal 2022 compared to the prior year, driven primarily by activity related to the dealer network.
Revenue less cost of goods sold (excluding depreciation and amortization) was 22.4% of revenue for the first six months of fiscal 2022, compared to 29.1% for the comparable period in the prior year. Fuel revenue less related cost of goods sold (exclusive of depreciation and amortization) was 11.6% of fuel revenue for the first six months of fiscal 2022 compared to 18.2% for the first six months of the prior year. Revenue per gallon less cost of goods sold per gallon (exclusive of depreciation and amortization) was 34.9 cents for the first six months of fiscal 2022 compared to 36.7 cents in the prior year.
Grocery and general merchandise revenue less related cost of goods sold (exclusive of depreciation and amortization) increased to 33.1% of grocery and general merchandise revenue, compared to 32.7% in the prior year. Grocery and general merchandise revenue less related cost of goods sold (exclusive of depreciation and amortization) was positively impacted by mix shift, including gaining market share on the private label program, and procurement initiatives, offset by inflationary pressures. Prepared food and dispensed beverage revenue less related cost of goods sold (exclusive of depreciation and amortization) increased to 60.8% of revenue, compared to 59.9% in the prior year, primarily due to a resurgence in pizza slices and procurement initiatives, offset by inflationary pressures.
Operating expenses increased by $183,136 (23.0%) in the first six months of fiscal 2022 from the comparable period in the prior year, primarily due to restoring store operation hours to pre-COVID levels, operating 161 more stores compared to the same period a year ago, higher wage rates, a 37% increase in credit card fees from higher retail fuel pricing along with higher sales volume, and one-time deal and integration costs associated with the Buchanan Energy and Circle K acquisitions.
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Depreciation and amortization expense increased 15.4% to $150,146 for the first six months of fiscal 2022 from $130,114 for the comparable period in the prior year. The increase was primarily due to operating 161 more stores than a year ago and capital expenditures during the previous twelve months.
Interest expense increased by $3,209 (13.3%), primarily attributable to a $300,000 draw on the Term Loan Facility to fund the acquisition of Buchanan Energy during the first quarter.
The effective tax rate increased to 24.1% in the first six months of fiscal year 2022 compared to 23.7% in the same period of fiscal year 2021. The increase in the effective tax rate was driven by a one-time expense to update the state deferred tax rate following the Buchanan Energy and Circle K transactions offset by an increase in excess tax benefits recognized on share-based awards.
Net income decreased by $16,585 (7.1%) to $215,990 from $232,575 in the prior year. The decrease in net income was primarily attributable to increased fuel and merchandise contribution from improved guest traffic, offset by higher operating expenses and depreciation driven primarily from operating 161 more stores than a year ago, an increase in store hours and higher wage rates.
Use of Non-GAAP Measures
We define EBITDA as net income before net interest expense, income taxes, depreciation and amortization. Adjusted EBITDA further adjusts EBITDA by excluding the gain or loss on disposal of assets as well as impairment charges. Neither EBITDA nor Adjusted EBITDA are considered GAAP measures, 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.
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, assessing performance, and awarding incentive compensation.
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.
The following table contains a reconciliation of net income to EBITDA and Adjusted EBITDA for the three and six months ended October 31, 2021 and 2020:
| Three months ended | Six months ended | ||||||||||||||||||||||
| October 31, 2021 | October 31, 2020 | October 31, 2021 | October 31, 2020 | ||||||||||||||||||||
| Net income | $ | 96,831 | $ | 111,983 | $ | 215,990 | $ | 232,575 | |||||||||||||||
| Interest, net | 13,520 | 10,634 | 27,250 | 24,041 | |||||||||||||||||||
| Federal and state income taxes | 32,337 | 34,501 | 68,519 | 72,097 | |||||||||||||||||||
| Depreciation and amortization | 74,258 | 64,294 | 150,146 | 130,114 | |||||||||||||||||||
| EBITDA | $ | 216,946 | $ | 221,412 | $ | 461,905 | $ | 458,827 | |||||||||||||||
| Loss (gain) on disposal of assets and impairment charges | 63 | 1,819 | (1,707) | 2,159 | |||||||||||||||||||
| Adjusted EBITDA | $ | 217,009 | $ | 223,231 | $ | 460,198 | $ | 460,986 | |||||||||||||||
For the three months ended October 31, 2021, EBITDA and Adjusted EBITDA decreased 2.0% and 2.8%, respectively, when compared to the same period a year ago. For the six months ended October 31, 2021, EBITDA increased 0.7% and Adjusted EBITDA decreased 0.2%, compared to the same period a year ago. The decreases in Adjusted EBITDA are primarily attributable to increased fuel and merchandise contribution from improved guest traffic, offset by higher operating expenses driven primarily from operating 161 more stores than a year ago and higher wage rates.
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Critical Accounting Policies
Critical accounting policies are those accounting policies that management believes are important to the portrayal of the Company’s financial condition and results of operations. The Company's critical accounting policies are described in the Form 10-K for the year ended April 30, 2021, and such discussion is incorporated herein by reference. There have been no changes to these policies in the six months ended October 31, 2021.
Liquidity and Capital Resources
Due to the nature of the Company’s business, 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 October 31, 2021, the Company’s ratio of current assets to current liabilities was 0.99 to 1. The ratio at October 31, 2020 and April 30, 2021 was 1.30 to 1 and 1.18 to 1, respectively. The decrease in the ratio is partially attributable to a decrease in cash and cash equivalents associated with payments for the acquisitions of Buchanan Energy and 48 stores from Circle K, offset by an increase in inventory due to operating 161 more stores than a year ago and higher fuel pricing. Additionally, current liabilities have increased primarily related to accounts payable, due to increasing store count, higher fuel pricing, as well as an effort to better utilize available payment terms.
Management believes that the Bank Line of $25,000 and the Revolving Facility of $450,000, combined with the current cash and cash equivalents and the future cash flow from operations will be sufficient to satisfy the working capital needs of our business.
Net cash provided by operations decreased $96,580 (17.5%) in the six months ended October 31, 2021 from the comparable period in the prior year, due to changes in inventories, accounts payable, and accrued expenses. Cash used in investing in the six months ended October 31, 2021 increased $571,606 over prior year, due primarily to cash paid for the acquisition of Buchanan Energy for $571,725 and 48 Circle K stores for $41,416, net of cash acquired. For additional discussion, refer to Note 6 in the condensed consolidated financial statements. Cash provided by financing increased $316,929 (456.7%), primarily due to a $300,000 draw on the Term Loan Facility, also discussed in Note 4 and Note 6.
Purchases of property and equipment and payments for acquisitions of businesses typically represent the largest use of Company funds. Management believes that by acquiring, building, and reinvesting in stores, the Company will be better able to respond to competitive challenges and increase operating efficiencies. During the first six months of fiscal 2022, the Company expended $749,644, compared to $158,815 for the comparable period in the prior year related to these activities. The increase from the prior year is due to the Buchanan Energy and Circle K acquisitions.
As of October 31, 2021, the Company had long-term debt consisting of:
| Finance lease liabilities | 71,480 | ||||
| 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 | ||||
| 3.65% Senior notes (Series C) due in 7 installments beginning May 2, 2025 and ending May 2, 2031 | 50,000 | ||||
| 3.72% Senior notes (Series D) due in 7 installments beginning October 28, 2025 and ending October 28, 2031 | 50,000 | ||||
| 3.51% Senior notes (Series E) due June 13, 2025 | 150,000 | ||||
| 3.77% Senior notes (Series F) due August 22, 2028 | 250,000 | ||||
| 2.85% Senior notes (Series G) due August 7, 2030 | 325,000 | ||||
| 2.96% Senior notes (Series H) due August 6, 2032 | 325,000 | ||||
| Variable rate term loan facility, requiring quarterly installments ending June 6, 2026 | 292,500 | ||||
| Less debt issuance costs | (2,455) | ||||
| 1,711,525 | |||||
| Less current maturities | (34,134) | ||||
| 1,677,391 | |||||
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The Company has funded purchases of property and equipment and payments for acquisitions of businesses primarily from the issuance of debt, existing cash, and funds generated from operations. Future capital needs required to finance operations, improvements and the anticipated growth in the number of stores are expected to be met from cash generated by operations, the Revolving Facility, the Bank Line, and additional long-term debt or other securities as circumstances may dictate, and are not expected to adversely affect liquidity.
Cautionary Statements
This Form 10-Q, including the foregoing Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. The words “may,” “will,” “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” “continue,” and similar expressions are used to identify forward-looking statements. Forward-looking statements represent the Company’s current expectations or beliefs concerning future events and trends that we believe may affect financial condition, liquidity and needs, supply chain, results of operations and performance at our stores, business strategy, strategic plans, growth opportunities, integration of acquisitions, acquisition synergies, short-term and long-term business operations and objectives including our long-term strategic plan, and the potential effects of COVID-19 on our business. 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 limitation, the following risk factors described more completely in the Company’s Form 10-K for the fiscal year ended April 30, 2021:
Business Operations: Pandemics or disease outbreaks, such as COVID-19, responsive actions taken by governments and others to mitigate their spread, and guest behavior in response to these events, have, and may in the future, adversely affect our business operations, supply chain and financial results; our business and our reputation could be adversely affected by a data security incident or the failure to protect sensitive guest, Team Member or supplier data, or the failure to comply with applicable regulations relating to data security and privacy; food-safety issues and food-borne illnesses, whether actual or reported, or the failure to comply with applicable regulations relating to the transportation, storage, preparation or service of food, could adversely affect our business and reputation; a significant disruption to our distribution network, to the capacity of the distribution centers, or timely receipt of inventory could adversely impact our sales or increase our transaction costs, which could have a material adverse effect on our business; we could be adversely affected if we experience difficulties in, or are unable to recruit, hire or retain, members of our leadership team and other distribution, field and store Team Members; any failure to anticipate and respond to changes in consumer preferences, or to introduce and promote innovative technology for guest interaction, could adversely affect our financial results; we rely on our information technology systems, and a number of third-party software providers, to manage numerous aspects of our business, and a disruption of these systems could adversely affect our business; increased credit card expenses could lead to higher operating expenses and other costs for the Company; our operations present hazards and risks which may not be fully covered by insurance, if insured; 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; consumer or other litigation could adversely affect our financial condition and results of operations; and, covenants in our senior notes and credit facility agreements require us to comply with certain covenants and meet financial maintenance tests and the failure to comply with these requirements could have a material impact to us.
Governmental Actions, Regulations, and Oversight: Compliance with and changes in tax laws could adversely affect our performance; we are subject to extensive governmental regulations; governmental action and campaigns to discourage tobacco and nicotine use and other tobacco products may have a material adverse effect on our revenues and gross profit; and, wholesale cost and tax increases relating to tobacco and nicotine products could affect our operating results.
Industry: General economic and political conditions that are largely out of the Company’s control may adversely affect the Company’s financial condition and results of operations; developments related to fuel efficiency, fuel conservation practices, climate change, and changing consumer preferences may decrease the demand for motor fuel; unfavorable weather conditions can adversely affect our business; the volatility of wholesale petroleum costs could adversely affect our operating results; and, the convenience store industry is highly competitive.
Growth Strategies: We may experience difficulties implementing and realizing the results of our long-term strategic plan; we may experience increased costs, disruptions or other difficulties with the integration of the Buchanan Energy acquisition; and, we may not be able to identify, acquire, and integrate new properties and stores, which could adversely affect our ability to grow our business.
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Common Stock: 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; any issuance of shares of our common stock in the future could have a dilutive effect on your investment; and, 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.
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. We ask you not to place undue reliance on any forward-looking statements because they speak only of our views as of the statement dates. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
Item 3. 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 certain 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 attempt 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 attempt to 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 October 31, 2021 would have not have a material effect on pretax earnings.
We do from time to time, participate in a forward buy of certain commodities. These contracts are not accounted for as derivatives as they meet the normal purchases exclusion under derivative accounting.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer of the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 240.13a-15(e)). Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company’s current disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.
We acquired Buchanan Energy, owner of Bucky’s Convenience Stores on May 13, 2021 and its total assets and revenues constituted approximately 12% and 7%, respectively, of the Company's consolidated total assets and revenues as shown on our condensed consolidated financial statements as of and for the six months ended October 31, 2021. We will exclude Buchanan Energy's control over financial reporting from the scope of management’s annual assessment of the effectiveness of the Company's controls and procedures. This exclusion is in accordance with the general guidance issued by the Staff of the SEC that an assessment of a recent business combination may be omitted from management's report on internal control over financial reporting in the first year of consolidation.
Changes in Internal Controls Over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting during the quarter ended October 31, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II—OTHER INFORMATION
Item 1. Legal Proceedings
The information required by this Item is set forth in Note 6 to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q and is incorporated herein by this reference.
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Item 1A. Risk Factors
There have been no material changes in our “risk factors” from those previously disclosed in our 2021 Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table sets forth information with respect to the Company's repurchases of common stock during the quarter ended October 31, 2021:
| Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs | |||||||||||||||||||
| Second Quarter | |||||||||||||||||||||||
| August 1 - August 31, 2021 | — | $ | — | — | $ | 300,000,000 | |||||||||||||||||
| September 1 - September 30, 2021 | — | — | — | 300,000,000 | |||||||||||||||||||
| October 1 - October 31, 2021 | — | — | — | 300,000,000 | |||||||||||||||||||
| Total | — | $ | — | — | $ | 300,000,000 | |||||||||||||||||
On March 7, 2018, the Company announced a share repurchase program, whereby the Company is authorized to repurchase up to an aggregate of $300 million of the Company’s outstanding common stock. On March 6, 2020, the authorization was extended through the end of the Company’s 2022 fiscal year. The timing and number of repurchase transactions under the program depends on a variety of factors including, but not limited to, market conditions, corporate considerations, business opportunities, debt agreements, and regulatory requirements. The program can be suspended or discontinued at any time. No stock was repurchased in the current quarter.
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Item 6. Exhibits.
| Exhibit No. | Description | ||||
| 2.1 | |||||
| 3.1 | |||||
| 3.2a | |||||
| 10.1* | |||||
| 31.1* | |||||
| 31.2* | |||||
| 32.1* | |||||
| 32.2* | |||||
| 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 | ||||
* Filed herewith
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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: December 7, 2021 | By: | /s/ Stephen P. Bramlage Jr. | ||||||
| Stephen P. Bramlage Jr. | ||||||||
| Its: | Chief Financial Officer | |||||||
| (Authorized Officer and Principal Financial and Accounting Officer) | ||||||||
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