ANKENY, Iowa -- Casey's General Stores Inc. on Monday announced that it will revise its financial statements for fiscal years 2012, 2013 and 2014 and the first quarter of fiscal year 2015, due to an inadvertent accounting and reporting error that occurred during these periods.
The revision is related to the treatment of the excise tax on ethanol following a change in the law governing ethanol blending credits, which was discovered by the company during a routine Internal Revenue Service examination. Convenience-store chain Casey's voluntarily reported this error, has been cooperating fully with the IRS, and has paid $30.4 million in taxes due as well as $1.1 million in interest to resolve this matter.
Since discovery, Casey's has been taking steps to improve the oversight and controls of its excise tax accounting and reporting. Among the actions being taken, Casey's has centralized the excise-tax-return process under the authority of its Tax Department and added additional oversight, including two separate reviews of excise tax forms by senior members of management. The company is also enhancing its information technology solutions to facilitate the preparation of the excise tax return and enhance monitoring of the payment of excise taxes.
"We deeply regret the errors that led to this revision, and we are taking swift and decisive action to enhance our excise tax reporting process and systems to resolve this issue," said Casey's Chairman and CEO Robert J. Myers said. "While we are disappointed to revise our financial results, it's important to note this inadvertent error was in a single area of our reporting."
Prior to Jan. 1, 2012, Casey's received a credit from the federal government for the blending of ethanol and gasoline commonly known as "splash" blending. Up to this time, ethanol gallons were being correctly accounted for on the excise tax return and the applicable tax owed was offset or netted against the credit.
After the credit expired effective Dec. 31, 2011, Casey's continued the practice of blending ethanol and gasoline, thus obligating the company to pay the excise tax of $0.184 per gallon, without the offsetting benefit of the corresponding credit. After Jan. 1, 2012, Casey's continued to file the quarterly IRS Form 720; however, the ethanol gallons blended and related tax for the ethanol activity were inadvertently omitted from the form. As a result, Casey's failed to record the proper federal excise taxes for blended ethanol gallons for the period of Jan. 1, 2012, through July 31, 2014.
The aggregate impact of the unrecorded excise taxes for the period from Jan. 1, 2012, through July 31, 2014, including accrued interest, is approximately $31.5 million. Over that period, the impact to Casey's fully diluted earnings per share is approximately 4.5 cents in each of the affected quarters.
Fiscal 2012 Impact: The total excise tax error was $3.5 million. There was no interest owed for the fiscal 2012 omission. The total impact reduces diluted earnings per share from $3.04 to $2.99, a reduction of $0.05 per share, or 1.6%.
Fiscal 2013 Impact: The excise tax error was $11.3 million, and the interest paid was $217,000. The total impact, including interest paid, reduces diluted earnings per share from $2.86 to $2.69, a reduction of $0.17 per share, or 5.9%.
Fiscal 2014 Impact: The excise tax error was $12.3 million, and the interest paid was $645,000. The total impact, including interest paid, reduces diluted earnings per share from $3.46 to $3.26, a reduction of $0.20 per share, or 5.8%.
Fiscal 2015 First Quarter Impact: The excise-tax error was $3.3 million, and the interest paid was $207,000. The total impact, including interest paid, reduces diluted earnings per share from $1.34 to $1.28, a reduction of $0.06 per share, or 4.5%.
"Casey's business fundamentals and outlook remain strong, and the revision does not impact our capital allocation plans or our long-term growth strategy," Myers said. "We remain on track to continue expanding with new and profitable store locations and growing same store sales across our network. We look forward to executing on those initiatives and continuing to create meaningful, sustainable value for shareholders."
The revision is not expected to affect Casey's continued quarterly dividend payments of 20 cents per share, increased from 18 cents per share in June 2014. Additionally, Casey's long-term growth plans remain on track, and the company remains committed to achieving its financial goals for Fiscal 2015.
Casey's financial goals for Fiscal 2015 include:
- Increase same-store fuel gallons sold 1% with an average margin of 15.3 cents per gallon.
- Increase same-store grocery and other merchandise sales 5.3% with an average margin of 32.1%.
- Increase same-store prepared food & fountain sales 9.5% with an average margin of 60%.
- Build or acquire 72 to 108 stores and replace 25 existing locations.
Casey's, in consultation with its Audit Committee, has identified a material weakness in its internal control over financial reporting concerning the preparation and review of quarterly federal excise tax returns filed with the IRS relating to the company's ethanol blending activities when the tax regulations changed. The internal controls in place at the time were not responsive to changes in circumstances.
Casey's is currently in the process of remediating this material weakness and implementing new procedures related to its accounting for excise taxes. Casey's plans to file a Form 10-K/A for the year ended April 30, 2014, and a Form 10-Q/A for the first fiscal quarter ended July 31, 2014, with the U.S. Securities and Exchange Commission. The company on Monday filed a Form 8-K containing additional information on this matter.
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