10-Q

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 July 31, 2006

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 incorporation or organization)	(I.R.S. Employer Identification Number)

ONE CONVENIENCE BOULEVARD, ANKENY, IOWA	50021
(Address of principal executive offices)	(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 by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  x    Accelerated filer  ¨    Non-accelerated filer  ¨

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

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 September 5, 2006
Common Stock, no par value per share	50,410,662 shares

CASEY’S GENERAL STORES, INC.

INDEX

		Page
PART I - FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements.
	Consolidated condensed balance sheets - July 31, 2006 and April 30, 2006	3
	Consolidated condensed statements of earnings - three months ended July 31, 2006 and 2005	5
	Consolidated condensed statements of cash flows - three months ended July 31, 2006 and 2005	7
	Notes to consolidated condensed financial statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	14
Item 3.	Quantitative and Qualitative Disclosure about Market Risk.	21
Item 4.	Controls and Procedures	22
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings.	22
Item 1A.	Risk Factors.	23
Item 6.	Exhibits.	23
SIGNATURE		25

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

CASEY’S GENERAL STORES, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

(Unaudited)

(DOLLARS IN THOUSANDS)

	July 31, 2006		April 30, 2006
ASSETS
Current assets:
Cash and cash equivalents	$	60,003	75,369
Receivables		10,045	9,672
Inventories		106,779	96,255
Prepaid expenses		6,448	7,063
Income tax receivable		—	3,047
Total current assets		183,275	191,406
Other assets		8,157	6,894
Goodwill		14,414	14,414
Property and equipment, net of accumulated depreciation at July 31, 2006, $502,947 and at April 30, 2006, of $490,288		781,950	774,825
	$	987,796	987,539

See notes to consolidated condensed financial statements.

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CASEY’S GENERAL STORES, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

(Unaudited)

(Continued)

(DOLLARS IN THOUSANDS)

            LIABILITIES AND SHAREHOLDERS’ EQUITY

	July 31, 2006		April 30, 2006
Current liabilities:
Note payable	$	8,900	—
Current maturities of long-term debt		48,511	51,628
Accounts payable		129,543	146,121
Accrued expenses		45,357	45,947
Income taxes payable		7,270	—
Total current liabilities		239,581	243,696
Long-term debt, net of current maturities		94,617	106,512
Deferred income taxes		99,235	99,929
Deferred compensation		7,520	7,236
Other long-term liabilities		8,172	6,976
Total liabilities		449,125	464,349
Shareholders’ equity
Preferred stock, no par value		—	—
Common Stock, no par value		50,261	49,161
Retained earnings		488,410	474,029
Total shareholders’ equity		538,671	523,190
	$	987,796	987,539

See notes to consolidated condensed financial statements.

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CASEY’S GENERAL STORES, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS

(Unaudited)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

	Three Months Ended July 31,
	2006		2005
Net sales	$	1,100,355	857,517
Franchise revenue		189	185
		1,100,544	857,702
Cost of goods sold		954,703	717,340
Operating expenses		100,811	89,463
Depreciation and amortization		15,525	13,707
Interest, net		2,395	2,242
		1,073,434	822,752
Earnings from continuing operations before income taxes, loss on discontinued operations, and cumulative effect of accounting change		27,110	34,950
Federal and state income taxes		10,148	12,860
Earnings from continuing operations before loss on discontinued operations and cumulative effect of accounting change		16,962	22,090
Loss on discontinued operations, net of tax benefit of $39 and $72		61	115
Cumulative effect of accounting change, net of tax benefit of $0 and $692		—	1,083
Net earnings	$	16,901	20,892

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CASEY’S GENERAL STORES, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS

(Unaudited)

(Continued)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

	Three Months Ended July 31,
	2006		2005
Basic
Earnings from continuing operations before cumulative effect of accounting change	$	.34	.44
Loss on discontinued operations		—	—
Cumulative effect of accounting change		—	(.02	)
Net earnings	$	.34	.42
Diluted
Earnings from continuing operations before cumulative effect of accounting change	$	.33	.43
Loss on discontinued operations		—	—
Cumulative effect of accounting change		—	(.02	)
Net earnings	$	.33	.41
Basic weighted average shares outstanding		50,392,662	50,238,145
Plus effect of stock options		267,485	171,503
Diluted weighted average shares outstanding		50,660,147	50,409,648

See notes to consolidated condensed financial statements.

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CASEY’S GENERAL STORES, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

(DOLLARS IN THOUSANDS)

	Three Months Ended July 31,
	2006			2005
Cash flows from operations:
Net earnings from continuing operations	$	16,962		22,090
Adjustments to reconcile net income to net cash provided by operations:
Cumulative effect of accounting change		—		(1,083	)
Depreciation and amortization		15,525		13,707
Other amortization		396		—
Stock based compensation		303		—
Loss on sale of property and equipment		237		1,378
Deferred income taxes		(694	)	(1,632	)
Changes in assets and liabilities:
Receivables		(373	)	(760	)
Inventories		(10,524	)	(4,027	)
Prepaid expenses		615		(27	)
Accounts payable		(16,578	)	14,408
Accrued expenses		(590	)	3,172
Income taxes		10,587		14,312
Other, net		(178	)	(1,010	)
Net cash provided by operations		15,688		60,528
Cash flows from investing:
Purchase of property and equipment		(23,321	)	(27,230	)
Proceeds from sale of property and equipment		382		1,359
Net cash used in investing activities		(22,939	)	(25,871	)

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CASEY’S GENERAL STORES, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

(Continued)

(DOLLARS IN THOUSANDS)

	Three Months Ended July 31,
	2006			2005
Cash flows from financing:
Payment of long-term debt		(15,012	)	(13,332	)
Net borrowings of short-term debt		8,900		—
Proceeds from exercise of stock options		527		926
Payment of cash dividends		(2,520	)	(2,263	)
Net cash used in financing activities		(8,105	)	(14,669	)
Cash flows from discontinued operations
Operating cash flows		(10	)	36
Investing cash flows		—		2,445
Net cash flows from discontinued operations		(10	)	2,481
Net (decrease) increase in cash and cash equivalents		(15,366	)	22,469
Cash and cash equivalents at beginning of the period		75,369		49,051
Cash and cash equivalents at end of the period	$	60,003		71,520

SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION

	Three Months Ended July 31,
	2006			2005
Cash paid (received) during the period for:
Interest, net of amount capitalized	$	3,891		4,043
Income taxes		(518	)	(1,119	)
Noncash investing and financing activities
Property and equipment and goodwill acquired through installment purchases or business acquisitions		—		2,800
Noncash operating and financing activities:
Increase in common stock and decrease in income taxes payable due to tax benefits related to stock options		270		—

See notes to consolidated condensed financial statements.

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CASEY’S GENERAL STORES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED CONDENSED

FINANCIAL STATEMENTS

(Dollars in Thousands)

1. The accompanying consolidated condensed financial statements include the accounts and transactions of the Company and its wholly-owned subsidiaries. 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 July 31, 2006, the results of operations for the three months ended July 31, 2006 and 2005, and the cash flows for the three months ended July 31, 2006 and 2005. Certain reclassifications were made to balances for the prior year to conform to current year presentation. The Company has separately disclosed the operating and investing portions of the cash flows attributable to its discontinued operations, which in prior periods were reported combined with operations.

3. The Company recognizes retail sales of gasoline, grocery and general merchandise, and prepared food at the time of the sale to the customer. Wholesale sales to franchisees are recognized at the time of delivery to the franchise location. Franchise fees, license fees from franchisees, and rent for franchise signage and facades are recognized monthly when billed to the franchisees. Other maintenance services and transportation charges are recognized at the time the service is provided. Vendor rebates in the form of rack display allowances are treated as a reduction in cost of sales and are recognized incrementally over the period covered by the applicable rebate agreement. Vendor rebates in the form of billbacks are treated as a reduction in inventory cost and are recognized at the time the product is sold.

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4. Effective May 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards No. 123 (revised 2004) (FAS 123R), Share-Based Payment using the “modified prospective” transition method. FAS 123R requires the measurement of the cost of employee services received in exchange for an award of equity instruments based upon the fair value of the award on the grant date. The cost of the award is recognized in the income statement over the vesting period of the award. Under the “modified prospective” transition method, awards that are granted, modified or settled beginning at the date of adoption are measured and accounted for in accordance with FAS 123R. In addition, expense must be recognized in the income statement for unvested awards that were granted prior to the date of adoption. The expense will be based on the fair value determined at the grant date. The impact of the adoption of FAS 123R on the Company’s financial statements for the year ending on April 30, 2007, is expected to be a reduction in earnings per share of approximately $0.01.

Under the Company’s stock option plans, options may be granted to non-employee directors, certain officers, and key employees to purchase an aggregate of 4,560,000 shares of common stock at option prices not less than the fair market value of the stock (110% of fair market value for holders of 10% or more of the Company’s stock) at the date the options are granted. Options for 626,664 shares were available for grant at July 31, 2006, and options for 917,550 shares (which expire between 2007 and 2015) were outstanding. Any additional option share requirements in the future would require approval by the shareholders of the Company. Additional information is provided in the Company’s 2006 Proxy Statement.

On June 6, 2003, stock options totaling 307,000 shares were granted to certain officers and key employees. These awards were granted at no cost to the employee. These awards vested on June 6, 2006 and subsequent to adoption of FAS 123R, compensation expense was recognized ratably over the vesting period.

On July 5, 2005, stock options totaling 234,000 shares were granted to certain officers and key employees. These awards were also granted at no cost to the employee. These awards will vest on July 5, 2010 and compensation expense is currently being recognized ratably over the vesting period.

The 2000 Stock Option Plan grants employees options with an exercise price equal to the fair market value of the Company’s stock on the date of grant and expire ten years after the date of grant. Vesting is generally over a three to five-year service period. The non-employee Directors’ Stock Option Plan grants directors options with an exercise price equal to the average of the last reported sale prices of shares of common stock on the last trading day of each of the 12 months preceding

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the award of the option. The term of such options is ten years from the date of grant, and each option is exercisable immediately upon grant. The aggregate number of shares of Common Stock that may be granted pursuant to the Director Stock Plan may not exceed 200,000 shares, subject to adjustment to reflect any future stock dividends, stock splits or other relevant capitalization changes.

Information concerning the issuance of stock options is presented in the following table:

	Shares Price		2006 Weighted- Average Exercise
Outstanding at April 30, 2006	961,050		$	15.29
Granted	14,000			22.36
Exercised	(38,500	)		13.67
Forfeited	(19,000	)		12.82
Outstanding at July 31, 2006	917,550		$	15.49
Weighted average fair value of options granted during the three-month period ended July 31, 2006			$	9.25

At July 31, 2006, all outstanding options had an aggregate intrinsic value of $6,554 and a weighted average remaining contractual life of six years. The vested options totaled 685,050 shares with a weighted average exercise price of $13.72 per share and a weighted average remaining contractual life of 4.9 years. The aggregate intrinsic value for the vested options as of July 31, 2006, was $6,100. The aggregate intrinsic value for the total of all options exercised during the quarter ended July 31, 2006, was $345, and the total fair value of shares vested during the quarter ended July 31, 2006, was $1,232.

The fair value of the 2006 stock options granted was estimated utilizing the Black Scholes valuation model. The grant date fair value for the May 1, 2006 options was $9.25. Significant assumptions include:

	May 1, 2006
Risk-free interest rate	4.88%
Expected option life	8.75 years
Expected volatility	35%
Expected dividend yield	1.17%

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The option term of each award granted was based upon historical experience of employees’ exercise behavior. Expected volatility was based upon historical volatility levels and future expected volatility of common stock. Expected dividend yield was based on expected dividend rate. Risk free interest rate reflects the yield on the 8.75 year zero coupon U.S. Treasury.

Total compensation costs recorded for the quarter ended July 31, 2006, were $303 for the stock option awards. No compensation costs related to stock options had been recorded for the three months ended July 31, 2005. As of July 31, 2006, there was $1,120 of total unrecognized compensation costs related to the 2000 Stock Option Plan for stock options which is expected to be recognized ratably through 2011.

Prior to adopting FAS 123R, the Company applied APB Opinion 25 in accounting for its Stock Option Plan and, accordingly, no compensation cost for its stock options was recognized in the financial statements. Pursuant to the disclosure requirements of FAS 123R, pro forma net income and earnings per share for the three-month period ended July 31, 2005, are presented in the following table as if compensation cost for stock options was determined under the fair value method and recognized as expense over the options’ vesting periods:

	Three Months Ended 7/31/05
Net income, as reported	$	20,892
Deducted amount
Total stock-based employee compensation expense determined by fair-value method for all awards, net of related tax effects		153
Pro forma net income	$	20,739
Basic earnings per share
As reported	$	0.42
Pro forma	$	0.41
Diluted earnings per share
As reported	$	0.41
Pro forma	$	0.41

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5. The results of operations of owned stores are presented as discontinued operations beginning in the quarter in which management commits to a plan to close the related store and actively markets the store. The results of operations of a leased store are presented as discontinued operations beginning in the quarter in which the related store ceases operations. The results of operations include related writedowns of stores to estimated net realizable value. The Company does not allocate interest expense to discontinued operations. Amounts related to discontinued operations of prior periods have been reclassified to conform to discontinued operations of the current period in the accompanying condensed consolidated statements of earnings.

The stores presented as discontinued operations had total revenues and pretax loss as follows for the periods presented (in thousands):

	Three Months Ended July 31
	2006			2005
Total revenue	$	3,081		5,721
Pretax loss		(100	)	(187	)

There were no disposals during the three-month period ended July 31, 2006. Included in the loss on discontinued operations is a loss on disposal of $39 for the three-month period ended July 31, 2005. Included in property and equipment in the accompanying condensed consolidated balance sheets are $1,225 in assets held for sale as of July 31, 2006 and April 30, 2006.

6. On August 4, 2006, the Company entered into an Asset Purchase Agreement to acquire up to 33 HandiMart stores from Nordstrom Oil Company. The purchase price will not exceed $64.8 million and the transaction is expected to close within the second fiscal quarter. The Company expects to use available cash and to undertake debt financing to fund the acquisition.

7. 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 included in the Annual Report on Form 10-K for the fiscal year ended April 30, 2006. These interim consolidated condensed financial statements should be read in conjunction with that Cautionary Statement.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Dollars in Thousands).

Overview

Casey’s General Stores, Inc. (“Casey’s”) and its wholly-owned subsidiaries (Casey’s, together with its subsidiaries, are referred to herein as the “Company”), operate convenience stores under the name “Casey’s General Store” in nine Midwestern states, primarily Iowa, Missouri and Illinois. All stores offer gasoline for sale on a self-serve basis and carry a broad selection of food (including freshly prepared foods such as pizza, donuts and sandwiches), beverages, tobacco products, health and beauty aids, automotive products and other non-food items. On July 31, 2006, there were a total of 1,421 Casey’s General Stores in operation, of which 1,403 were owned by the Company and 18 stores were operated by 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 or fourth year of operation.

The Company derives its revenue primarily from the retail sale of gasoline and the products offered in Company stores. The Company also generates a small amount of its revenues from the Company’s franchisees and from the wholesale sale of certain grocery and general merchandise items and gasoline to franchised stores.

Approximately 62% of all Casey’s General Stores are located in areas with populations of fewer than 5,000 persons, while approximately 12% of all stores are located in communities with populations exceeding 20,000 persons. The Company operates a central warehouse, the Casey’s Distribution Center, adjacent to its Corporate Headquarters facility in Ankeny, Iowa, through which it supplies grocery and general merchandise items to Company and franchised stores.

At July 31, 2006, the Company owned the land at 1,330 locations and the buildings at 1,341 locations, and leased the land at 73 locations and the buildings at 62 locations. Due to the insignificant number of leases, management feels that any interpretation of the lease accounting rules will not have a material impact on its financial statements.

Long-lived assets are reviewed quarterly for impairment or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company incurred impairment charges of $300 during the three-months ended July 31, 2006. The Company values the locations addressed above based on their expected resale value. The impairment charges are a component of operating expenses when they are recorded.

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Three Months Ended July 31, 2006 Compared to Three Months Ended July 31, 2005 (Dollars and Gallons in Thousands)

Three months ended 7/31/06	Gasoline			Grocery & other merchandise		Prepared food & fountain		Other		Total
Sales	$	802,875		226,083		65,781		5,616		1,100,355
Gross profit		28,547		72,870		41,365		2,870		145,652
Margin		3.6	%	32.2	%	62.9	%	51.1	%	13.2	%
Gasoline Gallons		291,836
Three months ended 7/31/05	Gasoline			Grocery & other merchandise		Prepared food & fountain		Other		Total
Sales	$	584,502		211,884		57,475		3,656		857,517
Gross profit		33,867		68,040		36,774		1,496		140,177
Margin		5.8	%	32.1	%	64	%	41	%	16.3	%
Gasoline Gallons		286,476

Net sales for the first quarter of fiscal 2007 increased by $242,838 (28.3%) over the comparable period in fiscal 2006. Retail gasoline sales increased by $218,373 (37.4%) as the number of gallons sold increased by 5,360 (1.9%) while the average retail price per gallon increased 34.8%. During this same period, retail sales of grocery and general merchandise increased by $14,199 (6.7%) while prepared food and fountain sales increased by $8,306 (14.5%) due to the addition of 62 new Company Stores and a greater number of stores in operation for at least three years.

The other sales category primarily consists of wholesale gasoline and grocery sales to franchise stores and lottery and prepaid phone card commissions received. These sales increased $1,960 (53.6%) for the first quarter of fiscal 2007 while the gross profit margin increased $1,374 (91.8%) primarily due to the increase in lottery commissions and prepaid phone card commissions from the comparable period in the prior year.

Cost of goods sold as a percentage of net sales was 86.8% for the first quarter of fiscal 2007, compared to 83.7% for the comparable period in the prior year. The gross profit margins on retail gasoline sales decreased (to 3.6%) during the first quarter of fiscal 2007 from the first quarter of the prior year (5.8%). The gross profit margin per gallon also decreased (to $.0978) in the first quarter of fiscal 2007 from the comparable period in the prior year ($.1182). The gross profits on retail sales of grocery and other merchandise increased (to 32.2%) from the comparable period in the prior year (32.1%), while the prepared food margin decreased (to 62.9%) from the comparable period in the prior year (64%). The decrease in the prepared food margin was caused primarily by an expanded fountain program that increased gross profit dollars but reduced the average prepared food margin.

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Operating expenses as a percentage of net sales were 9.1% for the first quarter of fiscal 2007 compared to 10.4% for the comparable period in the prior year. The decrease in operating expenses as a percentage of net sales was caused primarily by an increase in the average retail price per gallon of gasoline sold. Operating expenses increased 12.7% in the first quarter of 2007 from the comparable period in the prior year, primarily due to a 46.9% increase in credit card fees resulting from customers’ greater use of credit cards to purchase more expensive gasoline, and the larger number of corporate stores.

Net earnings decreased by $3,991 (19.1%). The decrease in net earnings was attributable primarily to the decrease in the gross profit margin per gallon of gasoline sold and the increases in the operating expenses.

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 and require management’s most difficult, subjective judgments, often because of the need to estimate the effects of inherently uncertain factors.

Inventory. Inventories, which consist of merchandise and gasoline, are stated at the lower of cost or market. For gasoline, cost is determined through the use of the first-in, first-out (FIFO) method. For merchandise inventories, cost is determined through the use of the last-in, first-out (LIFO) method applied to inventory values determined primarily by the FIFO method for warehouse inventories and the retail inventory method (RIM) for store inventories, except for cigarettes, beer, pop, and prepared foods, which are valued at cost. RIM is an averaging method widely used in the retail industry because of its practicality.

Under RIM, inventory valuations are at cost and the resulting gross margins are calculated by applying a cost-to-retail ratio to sales. Inherent in the RIM calculations are certain management judgments and estimates that could affect the ending inventory valuation at cost and the resulting gross margins.

Vendor allowances include rebates and other funds received from vendors to promote their products. The Company often receives such allowances on the basis of quantitative contract terms that vary by product and vendor or directly on the basis of purchases made. Rebates are recognized as reductions of inventory costs when purchases are made; reimbursements of an operating expense (e.g., advertising) are recorded as reductions of the related expense.

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Long-lived Assets. The Company periodically monitors under-performing stores for an indication that the carrying amount of assets may not be recoverable. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the assets, including goodwill where applicable, an impairment loss is recognized. Impairment is based on the estimated fair value of the asset. Fair value is based on management’s estimate of the amount that could be realized from the sale of assets in a current transaction between willing parties. The estimate is derived from offers, actual sale or disposition of assets subsequent to year end, and other indications of asset value. In determining whether an asset is impaired, assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets, which for the Company is generally on a store-by-store basis. Management expects to continue its on-going evaluation of under-performing stores, and may periodically sell specific stores where further operational and marketing efforts are not likely to improve their performance. The Company incurred impairment charges of $300 during the three months ended July 31, 2006.

Self-insurance. The Company is primarily self-insured for workers’ compensation, general liability, and automobile claims. The self-insurance claim liability is determined actuarially based on claims filed and an estimate of claims incurred but not yet reported. Actuarial projections of the losses are employed due to the high degree of variability in the liability estimates. Some factors affecting the uncertainty of claims include the time frame of development, settlement patterns, litigation and adjudication direction, and medical treatment and cost trends. The liability is not discounted.

Recent accounting pronouncements. In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”), which is an interpretation of FASB Statement No. 109, Accounting for Income Taxes. This interpretation prescribes the minimum recognition threshold a tax position must meet before being recognized in the financial statements. FIN 48 also provides guidance on the derecognition, measurement, classification, interest and penalties, accounting in interim periods and disclosure requirements for uncertain tax positions. FIN 48 is effective as of the beginning of an entity’s first fiscal year that begins after December 15, 2006. Differences between the amounts recognized in the statements of financial position prior to the adoption of FIN 48 and the amounts reported after adoption should be accounted for as a cumulative-effect adjustment recorded to the beginning balance of retained earnings. The cumulative effect adjustment would not apply to those items that would not have been recognized in earnings, such as the effect of adopting FIN 48 on tax positions related to business combinations. The Company plans to adopt FIN 48 on May 1, 2007, and is in the process of assessing the impact of the adoption of this statement on its consolidated financial statements.

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Other accounting standards have been issued or proposed by the FASB or other standard-setting bodies that do not require adoption until a future date. These standards are not expected to have a material impact on the Company’s consolidated financial statements upon adoption.

Liquidity and Capital Resources (Dollars in Thousands)

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 July 31, 2006, the Company’s ratio of current assets to current liabilities was .77 to 1. The ratio at July 31, 2005 and April 30, 2006 was .83 to 1 and .79 to 1, respectively. Management believes that the Company’s current bank line of credit of $50,000 ($8,900 outstanding at July 31, 2006), together with cash flow from operations, will be sufficient to satisfy the working capital needs of its business.

Net cash provided by operations decreased $44,840 (74.1%) in the three months ended July 31, 2006 from the comparable period in the prior year, primarily as a result of a smaller net income, a decrease in accounts payable, a larger increase in inventories and a smaller increase in income taxes payable. Cash used in investing in the three months ended July 31, 2006 decreased due to the decrease in the purchase of property and equipment. Cash used in financing decreased, primarily due to an increase in the short-term debt.

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 three months of fiscal 2007, the Company expended $23,321 for property and equipment, primarily for the construction, acquisition and remodeling of Company stores, compared to $27,230 for the comparable period in the prior year. The Company anticipates expending approximately $125,000 in fiscal 2007 for construction, acquisition and remodeling of Company stores, primarily from existing cash and funds generated by operations.

As of July 31, 2006, the Company had long-term debt of $94,617, consisting of $30,000 in principal amount of 7.38% Senior Notes, $28,000 in principal amount of Senior Notes, Series A through Series F, with interest rates ranging from 6.18% to 7.23%, $34,286 in principal amount of 7.89% Senior Notes, Series A, $1,069 of mortgage notes payable, and $1,262 of capital lease obligations.

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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, the bank line of credit, and additional long-term debt or other securities as circumstances may dictate, and are not expected to adversely affect liquidity.

Cautionary Statements (Dollars in Thousands)

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 following factors described more completely in the Form 10-K for the fiscal year ended April 30, 2006:

Competition. The Company’s business is highly competitive, and marked by ease of entry and constant change in terms of the numbers and type of retailers offering the products and services found in Company stores. Many of the food (including prepared foods) and non-food items similar or identical to those sold by the Company are generally available from a variety of competitors in the communities served by Company stores, and the Company competes with other convenience store chains, gasoline stations, supermarkets, drug stores, discount stores, club stores, mass merchants and “fast-food” outlets (with respect to the sale of prepared foods). Sales of such non-gasoline items (particularly prepared food items) have contributed substantially to the Company’s gross profits from retail sales in recent years. Gasoline sales are also intensely competitive. The Company competes with both independent and national brand gasoline stations in the sale of gasoline, other convenience store chains and several non-traditional gasoline retailers such as supermarkets in specific markets. Some of these other gasoline retailers may have access to more favorable arrangements for gasoline supply then do the Company or the firms that supply its stores. Some of the Company’s competitors have greater financial, marketing and other resources than the Company, and, as a result, may be able to respond better to changes in the economy and new opportunities within the industry.

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

The Company purchases its gasoline from a variety of independent national and regional petroleum distributors. Although in recent years the Company’s suppliers have not experienced any difficulties in obtaining sufficient amounts of gasoline to meet the Company’s needs, unanticipated national and international events could result in a reduction of gasoline supplies available for distribution to the Company. Any substantial curtailment in gasoline supplied to the Company could adversely affect the Company by reducing its gasoline sales. Further, management believes that a significant amount of the Company’s business results from the patronage of customers primarily desiring to purchase gasoline and, accordingly, reduced gasoline supplies could adversely affect the sale of non-gasoline items. Such factors could have a material adverse impact upon the Company’s earnings and operations.

Tobacco Products. Sales of tobacco products represent a significant portion of the Company’s revenues. Significant increases in wholesale cigarette costs and tax increases on tobacco products, as well as national and local campaigns to discourage smoking in the United States, could have an adverse affect on the demand for cigarettes sold by Company stores. The Company attempts to pass price increases onto its customers, but competitive pressures in specific markets may prevent it from doing so. These factors could materially impact the retail price of cigarettes, the volume of cigarettes sold by Company stores and overall customer traffic.

Environmental Compliance Costs. 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

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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. The Company currently has 2,965 USTs, of which 2,557 are fiberglass and 408 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. In each of the years ended April 30, 2006 and 2005, the Company spent approximately $1,519 and $1,414, respectively, for assessments and remediation. During the three months ended July 31, 2006, the Company expended approximately $230 for such purposes. Substantially all of these expenditures have been submitted for reimbursement from state-sponsored trust fund programs and as of July 31, 2006, approximately $9,340 has been received from such programs since their inception. 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 an accrued liability at July 31, 2006 of approximately $200 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.

Although the Company regularly accrues expenses for the estimated costs related to its future corrective action or remediation efforts, there can be no assurance that such accrued amounts will be sufficient to pay such costs, or that the Company has identified all environmental liabilities at all of its current store locations. In addition, there can be no assurance that the Company will not incur substantial expenditures in the future for remediation of contamination or related claims that have not been discovered or asserted with respect to existing store locations or locations that the Company may acquire in the future, or that the Company will not be subject to any claims for reimbursement of funds disbursed to the Company under the various state programs or that additional regulations, or amendments to existing regulations, will not require additional expenditures beyond those presently anticipated.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

The Company’s exposure to market risk for changes in interest rates relates primarily to its investment portfolio and long-term debt obligations. The Company places its investments with high quality credit issuers and, by policy, limits the amount of credit

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exposure to any one issuer. As stated in its policy, the Company’s first priority is to reduce the risk of principal loss. Consequently, the Company seeks to preserve its invested funds by limiting default risk, market risk and reinvestment risk. The Company mitigates default risk by investing in only high quality credit securities that it believes to be low risk and by positioning its 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. The Company believes that an immediate 100 basis point move in interest rates affecting the Company’s floating and fixed rate financial instruments as of July 31, 2006 would have an immaterial effect on the Company’s pretax earnings.

Item 4. 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 Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Notwithstanding the foregoing, there can be no assurance that the Company’s disclosure controls and procedures will detect or uncover all failures of persons within the Company and its consolidated subsidiaries to disclose material information otherwise required to be set forth in the Company’s report.

There were no changes in the Company’s internal control over financial reporting that occurred during the period covered by this report 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 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 or contamination, 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.

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Item 1A. Risk Factors

There have been no material changes in our “risk factors” from those disclosed in our 2006 Annual Report on Form 10-K.

Item 6. Exhibits.

The following exhibits are filed with this Report or, if so indicated, incorporated by reference.

Exhibit No.	Description
4.2	Rights Agreement between Casey’s General Stores, Inc. and United Missouri Bank of Kansas City, N.A., as Rights Agent (incorporated by reference from the Registration Statement on Form 8-A (0-12788) filed June 19, 1989 relating to Common Share Purchase Rights), and amendments thereto (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; the Form 8-A/A (Amendment No. 3 to the Registration Statement on Form 8-A filed June 19, 1989) filed March 30, 1994; the Form 8-A12G/A (Amendment No. 2 to the Registration Statement on Form 8-A filed June 19, 1989) filed July 29, 1994; the Current Report on Form 8-K filed May 10, 1999; and the Current Report on Form 8-K filed September 27, 1999.)
4.4	Note Agreement dated as of December 1, 1995 between Casey’s General Stores, Inc. and Principal Mutual Life Insurance Company (incorporated by reference from the Current Report on Form 8-K filed January 11, 1996).
4.6	Note Agreement dated as of April 15, 1999 among the Company and Principal Life Insurance Company and other purchasers of the 6.18% to 7.23% Senior Notes, Series A through Series F (incorporated by reference from the Current Report on Form 8-K filed May 10, 1999).
4.7	Note Purchase Agreement dated as of May 1, 2000 among the Company and the purchasers of the 7.89% Senior Notes, Series 2000-A (incorporated by reference from the Current Report on Form 8-K filed May 23, 2000).

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31.1	Certification of Robert J. Myers under Section 302 of the Sarbanes Oxley Act of 2002
31.2	Certification of William J. Walljasper under Section 302 of the Sarbanes Oxley Act of 2002
32.1	Certificate of Robert J. Myers under Section 906 of Sarbanes-Oxley Act of 2002
32.2	Certificate of William J. Walljasper under Section 906 of Sarbanes-Oxley Act of 2002

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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: September 5, 2006	By:	/s/ William J. Walljasper
	Its:	Senior Vice President & Chief Financial Officer
		(Authorized Officer and Principal Financial Officer)

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EXHIBIT INDEX

The following exhibits are filed herewith:

Exhibit No.	Description
31.1	Certification of Robert J. Myers under Section 302 of the Sarbanes Oxley Act of 2002
31.2	Certification of William J. Walljasper under Section 302 of the Sarbanes Oxley Act of 2002
32.1	Certificate of Robert J. Myers under Section 906 of Sarbanes-Oxley Act of 2002
32.2	Certificate of William J. Walljasper under Section 906 of Sarbanes-Oxley Act of 2002

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EX-31.1

Exhibit 31.1

Certification of Robert J. Myers

under Section 302 of the

Sarbanes Oxley Act of 2002

I, Robert J. Myers, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Casey’s General Stores, Inc.

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting practices;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s first fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: September 5, 2006	/s/ Robert J. Myers
	Robert J. Myers
	Chief Executive Officer and President

EX-31.2

Exhibit 31.2

Certification of William J. Walljasper

under Section 302 of the

Sarbanes Oxley Act of 2002

I, William J. Walljasper, certify that:

1. I have reviewed this report on Form 10-Q of Casey’s General Stores, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting practices;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s first fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: September 5, 2006	/s/ William J. Walljasper
	William J. Walljasper
	Senior Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATE PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Casey’s General Stores, Inc. (the “Company”) on Form 10-Q for the period ending July 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert J. Myers, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ Robert J. Myers

Robert J. Myers

Chief Executive Officer and President

September 5, 2006

EX-32.2

Exhibit 32.2

CERTIFICATE PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Casey’s General Stores, Inc. (the “Company”) on Form 10-Q for the period ending July 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, William J. Walljasper, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ William J. Walljasper

William J. Walljasper

Senior Vice President and Chief Financial Officer

September 5, 2006