<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended April 30, 1998
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ____________ to
____________
Commission file number: 0-23255
COPART, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-2867490
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
5500 E. SECOND STREET, BENICIA, CA 94510
(Address of principal executive offices with zip code)
Registrant's telephone number, including area code: (707) 748-5003
N/A
(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
----- -----
Number of shares of Common Stock outstanding as of June 8, 1998: 13,223,414
1
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COPART, INC. AND SUBSIDIARIES
INDEX TO THE QUARTERLY REPORT
APRIL 30, 1998
<TABLE>
<CAPTION>
DESCRIPTION PAGE
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<S> <C> <C>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
Vehicle Processing Programs 8
Composition of Revenues 8
Composition of Costs and Expenses 9
Acquisitions and New Openings 9
Results of Operations 9
Liquidity and Capital Resources 11
Factors Affecting Future Results 12
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 15
Signatures 16
Exhibit 27.0 Financial Data Schedule 17
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
COPART, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 30, July 31,
1998 1997
----------------- -----------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 36,669,000 $ 27,684,500
Accounts receivable, net 30,838,300 31,337,100
Vehicle pooling costs 8,934,900 8,822,500
Inventory 69,200 278,700
Deferred income taxes 343,700 343,700
Prepaid expenses and other assets 3,997,600 2,825,200
----------------- -----------------
Total current assets 80,852,700 71,291,700
Property and equipment, net 35,688,400 30,651,300
Intangibles and other assets, net 72,271,600 73,396,500
----------------- -----------------
Total assets $ 188,812,700 $ 175,339,500
----------------- -----------------
----------------- -----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 524,200 $ 1,938,800
Accounts payable and accrued liabilities 14,722,800 11,757,300
Deferred revenue 5,044,600 5,566,300
Income taxes payable 823,200 83,200
Other current liabilities 2,758,300 3,016,100
----------------- -----------------
Total current liabilities 23,873,100 22,361,700
Deferred income taxes 975,200 975,200
Long-term debt, less current portion 7,935,300 7,814,200
Other liabilities 1,600,400 1,374,000
----------------- -----------------
Total liabilities 34,384,000 32,525,100
----------------- -----------------
Shareholders' equity:
Common stock, no par value - 30,000,000 shares authorized;
13,223,414 and 13,071,111 shares issued and outstanding at
April 30, 1998 and July 31, 1997, respectively 111,769,000 111,050,600
Retained earnings 42,659,700 31,763,800
----------------- -----------------
Total shareholders' equity 154,428,700 142,814,400
----------------- -----------------
Commitments and contingencies
Total liabilities and shareholders' equity $ 188,812,700 $ 175,339,500
----------------- -----------------
----------------- -----------------
</TABLE>
See accompanying notes to consolidated financial statements.
3
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COPART, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended April 30, Nine months ended April 30,
---------------------------------- ----------------------------------
1998 1997 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Salvage fees $ 25,505,500 $ 24,064,000 $ 69,552,200 $ 63,609,200
Transportation revenue 3,958,500 3,117,300 10,534,000 8,511,800
Purchased vehicle revenue 1,104,700 6,625,500 4,147,100 24,567,400
-------------- -------------- -------------- --------------
Total revenues 30,568,700 33,806,800 84,233,300 96,688,400
-------------- -------------- -------------- --------------
Operating costs and expenses:
Yard and fleet 18,718,100 23,976,000 52,931,200 69,234,600
General and administrative 3,276,400 2,584,600 8,671,800 7,851,400
Depreciation and amortization 1,924,100 1,941,300 5,783,400 5,506,700
-------------- -------------- -------------- --------------
Total operating expenses 23,918,600 28,501,900 67,386,400 82,592,700
-------------- -------------- -------------- --------------
Operating income 6,650,100 5,304,900 16,846,900 14,095,700
-------------- -------------- -------------- --------------
Other income:
Interest income, net 279,900 23,000 725,600 68,300
Other income 123,000 169,500 289,200 247,300
-------------- -------------- -------------- --------------
Total other income 402,900 192,500 1,014,800 315,600
-------------- -------------- -------------- --------------
Income before income taxes 7,053,000 5,497,400 17,861,700 14,411,300
Income taxes 2,750,500 2,199,400 6,965,800 5,764,900
-------------- -------------- -------------- --------------
Net income $ 4,302,500 $ 3,298,000 $ 10,895,900 $ 8,646,400
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Basic net income per share $ .33 $ .25 $ .83 $ .67
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Weighted average shares
outstanding 13,217,700 12,983,200 13,152,500 12,816,900
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Diluted net income per share $ .32 $ .25 $ .81 $ .65
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Weighted average shares and dilutive
potential common shares outstanding 13,528,800 13,425,700 13,458,200 13,263,800
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
See accompanying notes to consolidated financial statements.
4
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COPART, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended April 30,
------------------------------------
1998 1997
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 10,895,900 $ 8,646,400
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 5,783,200 5,506,700
Deferred rent 226,400 439,100
Deferred income taxes - 291,600
Loss (gain) on sale of assets 35,500 (124,500)
Employee stock purchase plan compensation 23,600 27,600
Changes in operating assets and liabilities:
Accounts receivable 498,800 (5,324,200)
Vehicle pooling costs (28,000) 115,200
Inventory 209,500 602,100
Prepaid expenses and other current assets (1,400,300) (655,900)
Accounts payable and accrued liabilities 2,707,700 1,672,800
Deferred revenue (521,700) 281,900
Income taxes 740,000 2,600,100
---------------- ----------------
Net cash provided by operating activities 19,170,600 14,078,900
---------------- ----------------
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (8,383,100) (5,271,700)
Proceeds from sale of property and equipment 347,400 1,362,600
Other intangible asset addition (5,200) (1,930,200)
Purchase of net current assets in connection with acquisitions (262,000) (839,900)
Purchase of property and equipment in connection
with acquisitions (492,900) (466,600)
Purchase of intangible assets in connection
with acquisition (791,600) (2,130,700)
---------------- ----------------
Net cash used in investing activities (9,587,400) (9,276,500)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the exercise of stock options and warrants 561,400 2,304,800
Proceeds from issuance of
Employee Stock Purchase Plan shares 133,400 156,900
Principal payments on notes payable (1,293,500) (680,300)
---------------- ----------------
Net cash (used in) provided by financing activities (598,700) 1,781,400
---------------- ----------------
Net increase in cash and cash equivalents 8,984,500 6,583,800
Cash and cash equivalents at beginning of period 27,684,500 13,026,200
---------------- ----------------
---------------- ----------------
Cash and cash equivalents at end of period $ 36,669,000 $ 19,610,000
---------------- ----------------
---------------- ----------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 499,200 $ 634,300
---------------- ----------------
---------------- ----------------
Income taxes paid $ 5,920,581 $ 2,874,500
---------------- ----------------
---------------- ----------------
</TABLE>
See accompanying notes to consolidated financial statements.
5
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COPART, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1998
(UNAUDITED)
NOTE 1 - General:
In the opinion of the management of Copart, Inc. (the "Company"), the
accompanying unaudited consolidated financial statements contain all
adjustments, consisting only of normal, recurring adjustments, necessary to
present fairly the financial information included therein. These consolidated
financial statements should be read in conjunction with the audited consolidated
financial statements included in the Company's Annual Report on Form 10-K for
the fiscal year ended July 31, 1997 filed with the Securities and Exchange
Commission. The results of operations for the three-month period ended April
30, 1998 are not necessarily indicative of the operating results to be expected
for the full year.
Gross proceeds generated from auctioned salvage vehicles were approximately
$146,943,700 and $148,866,400 for the three months ended April 30, 1998 and
1997, and $394,038,900 and $403,139,200 for the nine months ended April 30, 1998
and 1997, respectively.
NOTE 2 - New Acquisition and Openings:
On September 17, 1997, the Company purchased certain assets of a 20-acre
salvage vehicle auction facility located in Avon, Minnesota. On April 24, 1998
the Company purchased certain assets of a 23-acre salvage vehicle auction
facility located in Columbia, South Carolina. During May of 1998 the Company
purchased certain assets of a 40-acre salvage vehicle auction facility located
in Mobile, Alabama and the Company purchased certain assets of a 39-acre salvage
facility in San Diego, California. In addition, during the first nine months
of fiscal 1998, the Company opened a new 28-acre salvage vehicle auction
facility in Raleigh, North Carolina and a 22-acre facility in Orlando, Florida.
During May of 1998 the Company opened a 9-acre salvage vehicle auction facility
in Las Vegas, Nevada. With the addition of these locations, the Company has 59
facilities occupying approximately 1,264 acres nationwide.
6
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NOTE 3 - Net Income Per Share:
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share" on January 31, 1998. SFAS No. 128 requires the
presentation of "basic" earnings per share ("EPS") and, for companies with
complex capital structures or potentially dilutive securities, such as options
and warrants, "diluted" EPS. Prior period results have been restated to conform
to the new standard. Basic EPS did not differ materially from diluted EPS as
presented in the accompanying consolidated financial statements. The following
table reflects the earnings per share calculations for the three months and nine
months ended April 30, 1998 and 1997 respectively.
<TABLE>
<CAPTION>
Three months ending April 30, Nine months ended April 30,
--------------------------------------------------------------------------
1998 1997 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
BASIC NET INCOME PER SHARE
Weighted average shares
issued and outstanding 13,217,700 12,983,200 13,152,500 12,816,900
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Net income $ 4,302,500 $ 3,298,000 $ 10,895,900 $ 8,646,400
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Basic net income per share $ .33 $ .25 $ .83 $ .67
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
DILUTED NET INCOME PER SHARE
Weighted average shares
issued and outstanding 13,217,700 12,983,200 13,152,500 12,816,900
Common stock equivalents:
Warrants and stock options 311,100 442,500 305,700 446,900
-------------- -------------- -------------- --------------
Weighted average shares and dilutive
potential common shares outstanding 13,528,800 13,425,700 13,458,200 13,263,800
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Net income $ 4,302,500 $ 3,298,000 $ 10,895,900 $ 8,646,400
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Diluted net income per share $ .32 $ .25 $ .81 $ .65
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
7
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF THE RISK FACTORS SET
FORTH BELOW. THE COMPANY HAS ATTEMPTED TO IDENTIFY FORWARD-LOOKING STATEMENTS
BY PLACING AN ASTERISK IMMEDIATELY FOLLOWING THE SENTENCE OR PHRASE THAT
CONTAINS THE FORWARD-LOOKING STATEMENT.
VEHICLE PROCESSING PROGRAMS
The Company processes salvage vehicles principally on a consignment method,
on either the Percentage Incentive Program (the "PIP") or on a fixed fee
consignment basis. Using either consignment method, only the fees associated
with vehicle processing are recorded in revenues. The Company also processes a
small percentage of its salvage vehicles pursuant to purchase contracts (the
"Purchase Program") under which the Company records the gross proceeds of the
vehicle sale in purchased vehicle revenues and the cost of the vehicle in yard
and fleet expenses.
For the three months ended April 30, 1998 and 1997, approximately 48% and
35%, respectively, and for the nine months ended April 30, 1998 and 1997,
approximately 45% and 31%, respectively, of the vehicles sold by Copart were
processed under the PIP. The increase in the percentage of vehicles sold under
the PIP resulted from the conversion of vehicle suppliers from purchase and
fixed fee programs to the PIP. The Company attempts to convert acquired
operations to the PIP, which typically results in higher net returns to vehicle
suppliers and higher fees to the Company than standard fixed fee consignment
programs.
For the three months ended April 30, 1998 and 1997, approximately 51% and
60%, respectively, and for the nine months ended April 30, 1998 and 1997,
approximately 54% and 62%, respectively, of the vehicles sold by Copart were
processed under fixed fee agreements. The decline in the percentage of vehicles
processed under fixed contracts is the direct result of the Company's marketing
efforts to covert contracts from fixed fee to PIP.
For the three months ended April 30, 1998 and 1997, approximately 1% and
5%, respectively, and for the nine months ended April 30, 1998 and 1997,
approximately 1% and 7%, respectively, of the vehicles sold by Copart were
processed pursuant to the Purchase Program. The decrease in the percentage of
vehicles sold under the Purchase Program is due to the Company's termination of
unprofitable contracts.
Due to a number of factors, including the timing and size of new
acquisitions, market conditions, and acceptance of the PIP, the percentage of
vehicles processed under these programs in future periods may vary. *
COMPOSITION OF REVENUES
Revenues consist of salvage fees charged vehicle suppliers and vehicle
buyers, transportation revenue, and purchased vehicle revenue. Salvage fees from
vehicle suppliers include fees under PIP agreements and fixed programs where the
Company charges for title processing, special preparation, storage and
auctioning. Salvage fees also include fees charged vehicle buyers for purchasing
vehicles, storage and annual registration. Transportation revenue includes
charges to suppliers for towing vehicles under fixed fee contracts.
Transportation revenue also includes towing charges assessed to buyers for
delivering vehicles. Purchased vehicle revenues are comprised of the price that
buyers paid at the Company's auctions for vehicles processed under the Purchase
Program.
8
<PAGE>
COMPOSITION OF COSTS AND EXPENSES
Costs attributable to yard and fleet expenses consist primarily of
operating personnel, which includes yard management, clerical and yard
employees, rent, contract towing, insurance, fleet maintenance and repair, fuel
and other facility operating expenses. Yard and fleet expense also includes the
acquisition costs of salvage vehicles under the Purchase Program. Costs
associated with general and administrative expenses consist primarily of
executive, accounting, data processing and sales personnel, professional fees
and marketing expenses.
ACQUISITIONS AND NEW OPENINGS
Copart has experienced significant growth as it acquired 34 salvage vehicle
auction facilities and established 11 new facilities since the beginning of
fiscal 1995. All of the acquisitions have been accounted for using the purchase
method. Accordingly, the excess of the purchase price over the net tangible
assets acquired, consisting principally of goodwill, is being amortized over
periods not exceeding 40 years. Costs related to the opening of new auction
facilities, such as preopening payroll and various training expenses, are
deferred until the auction facilities open and are amortized over the subsequent
12 months.
As part of the Company's overall expansion strategy of offering integrated
nationwide service to vehicle suppliers, the Company anticipates additional
openings or acquisitions in new regions, as well as the regions currently served
by the Company. * To date in fiscal 1998, Copart has acquired auction
facilities in Avon, Minnesota; Columbia, South Carolina; Mobile, Alabama; and
San Diego, California, and opened new facilities in Raleigh, North Carolina;
Orlando, Florida; and Las Vegas Nevada. During fiscal 1997, the Company acquired
facilities near Baton Rouge, Louisiana, and Salt Lake City, Utah. In addition,
the Company opened new facilities in Woodinville, Washington and Hammond,
Indiana to increase capacity in those markets. The Company believes that these
acquisitions and openings solidify the Company's nationwide service and expand
the Company's coverage of the southeastern states. In the event of future
acquisitions, the Company expects to incur future amortization charges in
connection with such acquisitions attributable to goodwill and covenants not to
compete. *
RESULTS OF OPERATIONS
Three Months Ended April 30, 1998 Compared to Three Months Ended April 30, 1997
REVENUES
Revenues were approximately $30.6 million during the three months ended
April 30, 1998, a decrease of approximately $3.2 million, or 10%, over the
three months ended April 30, 1997. The change in revenues is due primarily to
a $1.4 million increase in salvage fees plus an $0.8 million increase in
transportation revenue, offset by a $5.5 million decrease in purchase vehicle
revenues, due to terminated contracts. Under the Purchase Program, the
Company records the gross proceeds of the vehicle sale as revenue.
New facilities in Salt Lake City, Baton Rouge, Avon, Raleigh, and Columbia,
contributed $1.4 million of new salvage fees and transportation revenues for the
three months ended April 30, 1998. Existing yard salvage fee and transportation
revenues increased by $0.9 million, or 3%, and existing yard purchased vehicle
revenues decreased by $5.4 million, or 82% compared to the same period in the
prior year.
9
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OPERATING COSTS AND EXPENSES
Yard and fleet expenses were approximately $18.7 million during the three
months ended April 30, 1998, a decrease of approximately $5.3 million, or 22%,
over the comparable period in fiscal 1997. Approximately $1.0 million of yard
and fleet expenses were the result of the addition of Salt Lake City, Baton
Rouge, Avon, Raleigh and Columbia facilities. The decrease in existing
facilities yard and fleet expense was primarily the result of the decrease in
the cost of Purchase Program vehicles due to terminated or renegotiated purchase
contracts. Under the Purchase Program, the Company records the cost of Purchase
Program vehicles in yard and fleet expenses. Yard and fleet expenses decreased
to 61% of revenues during the third quarter of fiscal 1998, as compared to 71%
of revenues during the same period of fiscal 1997.
General and administrative expenses were approximately $3.3 million during
the three months ended April 30, 1998, an increase of approximately $0.7
million, or 27% over the comparable period in fiscal 1997. General and
administrative expenses increased to 11% of revenues during the third quarter of
fiscal 1998 compared to 8% during the same period of fiscal 1997 primarily as a
result of the accounting impact of the Purchase Program.
Depreciation and amortization expense was approximately $1.9 million during
the three months ended April 30, 1998 which was comparable to the $1.9 million
for the same period in 1997.
OPERATING INCOME, OTHER INCOME AND INCOME TAXES
The Company's operating income was $6.6 million during the three months
ended April 30, 1998, an increase of approximately $1.3 million or 25% over
the comparable period in fiscal 1997. New facilities in Salt Lake City, Baton
Rouge, Avon, Raleigh, and Columbia produced $.5 million of this increase.
Existing facilities produced $0.8 million of the increase due primarily to
improved PIP percentages and the reduction of Purchase Program contracts.
Total other income was approximately $0.4 million during the three months
ended April 30, 1998, an increase of approximately $0.2 million, over the
comparable period in fiscal 1997. This increase was due primarily to additional
interest income.
The effective income tax rate of 39% applicable to the three months ended
April 30, 1998 is comparable to the effective income tax rate for the three
months ended April 30, 1997 of 40%.
Due to the foregoing factors, Copart realized net income of approximately
$4.3 million for the three months ended April 30, 1998, an increase of
approximately $1.0 million, or 30% over the comparable period in fiscal 1997.
Nine Months Ended April 30, 1998 Compared to Nine Months Ended April 30, 1997
REVENUES
Revenues were approximately $84.2 million during the nine months ended
April 30, 1998, a decrease of approximately $12.5 million, or 13%, over the
nine months ended April 30, 1997. The change in revenues is due primarily to
a $5.9 million increase in salvage fees plus a $2.0 million increase in
transportation revenue, offset by a $20.4 million decrease in purchase
vehicle revenue, due to terminated or renegotiated contracts. Under the
Purchase Program, the Company records the gross proceeds of the vehicle sale
as revenue.
10
<PAGE>
New facilities in Salt Lake City, Baton Rouge, Avon, Raleigh, and Columbia
contributed $3.3 million of new salvage fee revenues for the nine months ended
April 30, 1998. Existing yard salvage fee and transportation revenue increased
by approximately $4.7 million, or 6% and existing yard purchase vehicle revenues
decreased by $20.0 million, or 82% compared to the same period in the prior
year.
OPERATING COSTS AND EXPENSES
Yard and fleet expenses were approximately $52.9 million during the nine
months ended April 30, 1998, a decrease of approximately $16.3 million, or 24%,
over the comparable period in fiscal 1997. Approximately $2.3 million of the
yard and fleet expenses were the result of the addition of Salt Lake City, Baton
Rouge, Avon, Raleigh, and Columbia. The decrease in existing facilities yard and
fleet expense was primarily the result of the decrease in the cost of Purchase
Program vehicles due to terminated or renegotiated purchase contracts. Under
the Purchase Program, the Company records the cost of Purchase Program vehicles
in yard and fleet expenses. Yard and fleet expenses decreased to 63% of revenues
during the first nine months of fiscal 1998, as compared to 72% of revenues
during the same period of fiscal 1997.
General and administrative expenses increased to 10% of revenues during the
nine months ended April 30, 1998, as compared to 8% of revenues during the nine
months ended April 30, 1997 primarily as a result of the accounting impact of
the Purchase Program.
Depreciation and amortization expense was approximately $5.8 million during
the nine months ended April 30, 1998, an increase of approximately $0.3 million,
or 5%, over the nine months ended April 30, 1997. The increase was due
primarily to the amortization of start up costs associated with new openings and
capital expenditures associated with improvements at the Company's facilities.
OPERATING INCOME, OTHER INCOME AND INCOME TAXES
The Company's operating income was $16.8 million during the nine months
ended April 30, 1998, an increase of approximately $2.8 million or 20% over
the comparable period in fiscal 1997. New facilities in Salt Lake City,
Baton Rouge, Avon, Raleigh, and Columbia produced $1.1 million of this
increase. Existing facilities produced $1.7 million of the increase due
primarily to improved PIP percentages, higher salvage values, and the
reduction of Purchase Program contracts.
Total other income was approximately $1.0 million during the nine months
ended April 30, 1998, an increase of approximately $0.7 million, over the
comparable period in fiscal 1997. This increase was due primarily to additional
interest income.
The effective income tax rate of 39% applicable to the nine months ended
April 30, 1998 is comparable to the effective income tax rate for the nine
months ended April 30, 1997 of 40%.
Due to the foregoing factors, Copart realized net income of approximately
$10.9 million for the nine months ended April 30, 1998, an increase of
approximately $2.2 million, over the comparable period in fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
Copart has financed its growth principally through cash generated from
operations, debt financing, public offerings of Common Stock, and the equity
issued in conjunction with certain acquisitions.
11
<PAGE>
At April 30, 1998, Copart had working capital of approximately $57.0
million, including cash and cash equivalents of approximately $36.7 million.
The Company is able to process, market, sell and receive payment for processed
vehicles quickly. Therefore, the Company does not require substantial amounts
of working capital, as it receives payment for vehicles at approximately the
same time as it remits payments to vehicle suppliers. The Company's primary
source of cash is from the collection of seller's fees and reimbursable advances
from the proceeds of auctioned salvage vehicles and from buyer's fees.
The Company has entered into various operating lease lines for the purpose
of leasing yard and fleet equipment.
Copart generated cash from operations of approximately $19.2 million and
$14.1 million, during the nine months ended April 30, 1998 and 1997,
respectively.
Capital expenditures (excluding those associated with fixed assets
attributable to acquisitions) were approximately $8.4 million and $5.3 million
for the nine months ended April 30, 1998, and 1997, respectively. Copart's
capital expenditures have related primarily to opening and improving facilities,
acquiring yard equipment and software development. Historically, while Copart
has sub-contracted for a significant portion of its vehicle transport services,
the Company has implemented a program for converting long haul transports to its
own fleet of vehicle carriers at each facility. Based upon the potential for
increased revenues from Company-owned vehicle towing services, the Company has
entered into agreements to acquire approximately $2.4 million of additional
multi-vehicle transport trucks and forklifts and is disposing of certain older
equipment.
The Company's liquidity and capital resources have not been materially
affected by inflation; however, they are subject to seasonal fluctuations.
The Company believes that its currently available cash, cash generated from
operations and borrowing availability under its bank credit facilities and
equipment leasing lines will be sufficient to satisfy the Company's working
capital requirements and fund acquisitions and openings of new facilities for
the next 12 months. However, there can be no assurance that the Company will not
be required to seek additional debt or equity financing prior to such time, or
if new financing is required, that it will be available on reasonable terms if
at all.
FACTORS AFFECTING FUTURE RESULTS
Historically, a limited number of vehicle suppliers have accounted for a
substantial portion of the Company's revenues. In the third quarter of both
fiscal 1998 and 1997, vehicles supplied by Copart's largest vehicle supplier
accounted for approximately 16% of Copart's revenues. The Company's agreements
with this and other vehicle suppliers are either oral or written agreements that
typically are subject to cancellation by either party upon 30 days' notice.
There can be no assurance that existing agreements will not be canceled or that
the terms of any new agreements will be comparable to those of existing
agreements. The Company believes that, as the salvage vehicle auction industry
becomes more consolidated, the likelihood of large vehicle suppliers entering
into agreements with single companies to dispose of all of their salvage
vehicles on a statewide, regional or national basis increases. There can be no
assurance that the Company will be able to enter into such agreements or that it
will be able to retain its existing supply of salvage vehicles in the event
vehicle suppliers begin disposing of their salvage vehicles pursuant to state,
regional or national agreements with other operators of salvage vehicle auction
facilities. A loss or reduction in the number of vehicles from a significant
vehicle supplier or material changes in the terms of an arrangement with a
substantial vehicle supplier could have a material adverse effect on the
Company's financial condition and results of operations.
12
<PAGE>
The Company's operating results have fluctuated in the past and may fluctuate
significantly in the future depending on a number of factors. These factors
include changes in the market value of salvage vehicles, buyer attendance at
salvage auctions, fluctuations in vehicle transportation costs, delays or
changes in state title processing and/or changes in state or federal laws or
regulations affecting salvage vehicles, fluctuations in Actual Cash Values
("ACV's") of salvage vehicles, the availability of vehicles and weather
conditions. As a result, the Company believes that period-to-period comparisons
of its results of operations are not necessarily meaningful and should not be
relied upon as any indication of future performance. There can be no assurance,
therefore, that the Company's operating results in some future quarter will not
be below the expectations of public market analysts and/or investors.
The market price of the Company's Common Stock could be subject to
significant fluctuations in response to various factors and events, including
variations in the Company's operating results, the inability to continue to
increase service fees, the timing and size of acquisitions and facility
openings, the loss of vehicle suppliers or buyers, the announcement of new
vehicle supply agreements by the Company or its competitors, changes in
regulations governing the Company's operations or its vehicle suppliers,
environmental problems or litigation. In addition, the stock market in recent
years has experienced broad price and volume fluctuations that often have been
unrelated to the operating performance of companies.
The Company seeks to increase sales and profitability primarily through the
increase of salvage vehicle volume and revenue at existing facilities, the
opening of new facilities and the acquisition of other salvage vehicle auction
facilities. There can be no assurance that the Company will be able to continue
to acquire additional facilities on terms economical to the Company or that the
Company will be able to increase revenues at newly acquired facilities above
levels realized at such facilities prior to their acquisition by the Company.
Additionally, as the Company continues to grow, its openings and acquisitions
will have to be more numerous or of a larger size in order to have a material
impact on the Company's operations. The ability of the Company to achieve its
expansion objectives and to manage its growth is also dependent on other
factors, including the integration of new facilities into existing operations,
the establishment of new relationships or expansion of existing relationships
with vehicle suppliers, the identification and lease of suitable premises on
competitive terms and the availability of capital. The size and timing of such
acquisitions and openings may vary. Management believes that facilities opened
by the Company require more time to reach revenue and profitability levels
comparable to its existing facilities and may have greater working capital
requirements than those facilities acquired by the Company. Therefore, to the
extent that the Company opens a greater number of facilities in the future than
it has historically, the Company's growth rate in revenues and profitability may
be adversely affected.
Currently, Willis J. Johnson, Chief Executive Officer of the Company,
together with two other existing shareholders, beneficially own approximately
41% of the issued and outstanding shares of Common Stock. This interest in the
Company may also have the effect of making certain transactions, such as mergers
or tender offers involving the Company, more difficult or impossible, absent the
support of Mr. Johnson, and such other existing shareholders.
13
<PAGE>
The Company's operations are subject to federal, state and local laws and
regulations regarding the protection of the environment. In the salvage vehicle
auction industry, large numbers of wrecked vehicles are stored at auction
facilities for short periods of time. Minor spills of gasoline, motor oils and
other fluids may occur from time to time at the Company's facilities which may
result in localized soil, surface water or groundwater contamination. Petroleum
products and other hazardous materials are contained in aboveground or
underground storage tanks located at certain of the Company's facilities. Waste
materials such as waste solvents or used oils are generated at some of the
Company's facilities that are disposed of as nonhazardous or hazardous wastes.
The Company has put into place procedures to reduce the amounts of soil
contamination that may occur at its facilities, and has initiated safety
programs and training of personnel on safe storage and handling of hazardous
materials. The Company believes that it is in compliance in all material
respects with applicable environmental regulations and does not anticipate any
material capital expenditures for environmental compliance or remediation that
are not currently reserved for. Environmental laws and regulations, however,
could become more stringent over time and there can be no assurance that the
Company or its operations will not be subject to significant compliance costs in
the future. To date, the Company has not incurred expenditures for preventive
or remedial action with respect to soil contamination or the use of hazardous
materials which have had a material adverse effect on the Company's financial
condition or results of operations. The soil contamination which may occur at
the Company's facilities and the potential contamination by previous users of
certain acquired facilities create the risk, however, that the Company could
incur substantial expenditures for preventive or remedial action, as well as
potential liability arising as a consequence of hazardous material
contamination, which could have a material adverse effect on the Company.
The salvage vehicle auction industry is highly fragmented in many markets.
As a result, the Company faces intense competition for the supply of salvage
vehicles from vehicle suppliers, as well as competition for buyers of vehicles
from other salvage vehicle auction companies. The Company believes its
principal competitor is Insurance Auto Auctions, Inc. ("IAA"). Over the last
three years, IAA acquired and opened a number of salvage vehicle auction
facilities. IAA is a significant competitor in certain regions in which the
Company operates or may expand in the future. In other regions of the United
States, the Company faces substantial competition from salvage vehicle auction
facilities with established relationships with vehicle suppliers and buyers and
financial resources which may be greater than the Company's. Due to the limited
number of vehicle suppliers and the absence of long-term contractual commitments
between the Company and such salvage vehicle suppliers, competition for salvage
vehicles from such suppliers is intense. The Company may also encounter
significant competition for state, regional and national supply agreements with
vehicle suppliers.
14
<PAGE>
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
--------
27.0 Financial Data Schedule
(b) Reports on Form 8-K.
-------------------
None
15
<PAGE>
SIGNATURES
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.
COPART, INC.
/s/ Wayne R. Hilty
----------------------------------------------
Wayne R. Hilty, Senior Vice President and Chief
Financial Officer (duly authorized officer and
principal financial and accounting officer)
Date: June 8, 1998
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM COPART INC.
QUARTERLY REPORT ON FORM 10Q FOR THE PERIOD ENDING APRIL 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> APR-30-1998
<CASH> 36,669,000
<SECURITIES> 0
<RECEIVABLES> 30,838,300
<ALLOWANCES> 0
<INVENTORY> 69,200
<CURRENT-ASSETS> 80,852,700
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 188,812,700
<CURRENT-LIABILITIES> 23,873,100
<BONDS> 0
0
0
<COMMON> 111,769,000
<OTHER-SE> 42,659,700
<TOTAL-LIABILITY-AND-EQUITY> 188,812,700
<SALES> 84,233,300
<TOTAL-REVENUES> 84,233,300
<CGS> 0
<TOTAL-COSTS> 67,386,400
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 17,861,700
<INCOME-TAX> 6,965,800
<INCOME-CONTINUING> 10,895,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,895,900
<EPS-PRIMARY> .83
<EPS-DILUTED> .81
</TABLE>
