Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. CASEYS GENERAL STORES INC (726958) 10-K published on Jun 28, 2019 at 4:58 pm
Reporting Period: Apr 29, 2019
An important part of our growth strategy has been to purchase properties on which to build our stores, and in certain instances, acquire other convenience stores that complement our existing stores or broaden our geographic presence. We expect to continue pursuing acquisition opportunities, which involve risks that could cause our actual growth or operating results to differ materially from our expectations or the expectations of securities analysts. These risks include, but are not limited to, the inability to identify and acquire suitable sites at advantageous prices; competition in targeted market areas; difficulties during the acquisition process in discovering some of the liabilities of the businesses that we acquire; difficulties associated with our existing financial controls, information systems, management resources and human resources needed to support our future growth; difficulties with hiring, training and retaining skilled personnel, including store managers; difficulties in adapting distribution and other operational and management systems to an expanded network of stores; difficulties in obtaining governmental and other third-party consents, permits and licenses needed to operate additional stores; difficulties in obtaining the cost savings and financial improvements we anticipate from future acquired stores; the potential diversion of our management’s attention from focusing on our core business due to an increased focus on acquisitions; and, challenges associated with the consummation and integration of any future acquisition.
The fourth quarter results reflected an average margin of approximately 18.6 cents per gallon and a 2.8% decrease in same-store fuel gallons sold (compared to an average margin of 16.3 cents per gallon and a 2.0% increase in same-store fuel gallons sold last year). The Company’s fourth quarter fuel margin included the sale of approximately 18.6 million renewable fuel credits for $3.5 million (compared to 14.8 million credits sold last year for $7.9 million). For the year, we sold 73.1 million renewable fuel credits for $15.1 million. In the prior year we sold 65.9 million credits for $47.5 million. Renewable fuel credit values are driven by market conditions, where credits were trading significantly lower throughout fiscal 2019. For the fiscal year, average fuel margin was 20.3 cents per gallon while same-store gallons decreased 1.7%. In the prior year, average fuel margin was 18.5 cents per gallon while same-store gallons increased 2.3%. Historically, our retail fuel strategy has been to price to the competition, where the timing of retail price changes was driven by local competitive conditions. Over the course of fiscal 2019, the Company, as part of its evolving strategy around fuel price optimization, has been more proactive and balanced in driving changes to market prices to grow gross profit dollars, which has contributed to a higher fuel margin and lower same-store fuel gallons sold. In addition, softer demand in the Midwest adversely impacted same-store fuel gallons sold in the quarter. Same store sales of grocery & other merchandise increased 5.7% and prepared foods & fountain increased 2.0% during the fourth quarter of fiscal 2019, as compared to the same period in the prior year.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This update seeks to increase the transparency and comparability among entities by requiring public entities to recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements. To satisfy the standard’s objective, a lessee will recognize a right-of-use asset representing its right to use the underlying asset for the lease term and a lease liability for the obligation to make lease payments. Both the right-of-use asset and lease liability will initially be measured at the present value of the lease payments, with subsequent measurement dependent on the classification of the lease as either a finance or an operating lease. For leases with a term of twelve months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term.
In July 2018, the FASB issued ASU 2018-10, Leases (Topic 842) - Codification Improvements, which contains several FASB Codification improvements for ASC Topic 842, including several implementation issues and ASU 2018-11, "Leases (Topic 842) - Targeted Improvements" which provides entities with an additional transition method for implementing ASC Topic 842. Entities have the option to apply the new standard at the adoption date, recognizing a cumulative-effect adjustment to the opening balance of retained earnings along with the modified retrospective approach previously identified, both of which include a number of practical expedients that companies may elect to apply. Under the cumulative-effect adjustment comparative periods would not
be restated. Under the modified retrospective approach leases are recognized and measured under the noted guidance at the beginning of the earliest period presented. The new standard is effective for public companies for annual periods beginning after December 15, 2018, and interim periods within those years, with early adoption permitted. We will adopt this guidance as of May 1, 2019 using the modified retrospective approach and elect the cumulative-effect adjustment practical expedient. As a result of the transition method selected, the Company will not restate previously reported comparable periods. The effect of the adoption will not be material to our financial statements.
Supplemental executive retirement plan The Company has a nonqualified supplemental executive retirement plan (SERP) for two of its executive officers, one of whom retired April 30, 2003 and the other on April 30, 2008. The SERP provides for the Company to pay annual retirement benefits, up to 50% of base compensation until death of the officer. If death occurs within twenty years of retirement, the benefits become payable to the officer’s spouse (at a reduced level) until the spouse’s death or twenty years from the date of the officer’s retirement, whichever comes first. The Company has accrued the deferred compensation over the term of employment. The amounts accrued at April 30, 2019 and 2018, respectively, were $3,800 and $4,214. The discount rates were based off of the Company's incremental borrowing rate, and ranged from 3.78% to 4.01% for the year ended April 30, 2019. The discount rate used was 4.5% at April 30, 2018. The amount expensed in fiscal 2019 was $221 and the Company expects to pay $635 per year for each of the next four years, and $354 in the fifth year. Expense incurred in fiscal 2018 and fiscal 2017 was $112 and $131, respectively.