<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 January 31, 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 March 9, 1998: 13,233,694
<PAGE>
COPART, INC. AND SUBSIDIARIES
INDEX TO THE QUARTERLY REPORT
JANUARY 31, 1998
<TABLE>
<CAPTION>
DESCRIPTION PAGE
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<S> <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
Management Change 12
Factors Affecting Future Results 12
PART II - OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY
SHAREHOLDERS 15
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 16
Signatures 17
Exhibit 27.0 Financial Data Schedule
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
COPART, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
January 31, July 31,
1998 1997
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<S> <C> <C>
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 27,748,000 $ 27,684,500
Accounts receivable, net 35,551,400 31,337,100
Vehicle pooling costs 9,779,600 8,822,500
Inventory 93,000 278,700
Deferred income taxes 343,700 343,700
Prepaid expenses and other assets 3,344,600 2,825,200
------------- -------------
Total current assets 76,860,300 71,291,700
Property and equipment, net 33,370,800 30,651,300
Intangibles and other assets, net 72,530,400 73,396,500
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Total assets $ 182,761,500 $ 175,339,500
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 473,100 $ 1,938,800
Accounts payable and accrued liabilities 12,467,500 11,757,300
Deferred revenue 5,529,400 5,566,300
Income taxes payable 1,067,700 83,200
Other current liabilities 2,744,000 3,016,100
------------- -------------
Total current liabilities 22,281,700 22,361,700
Deferred income taxes 975,200 975,200
Long-term debt, less current portion 7,891,300 7,814,200
Other liabilities 1,524,900 1,374,000
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Total liabilities 32,673,100 32,525,100
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Shareholders' equity:
Common stock, no par value - 30,000,000 shares authorized;
13,214,814 and 13,071,111 shares issued and outstanding at
January 31, 1998 and July 31, 1997, respectively 111,731,500 111,050,600
Retained earnings 38,356,900 31,763,800
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Total shareholders' equity 150,088,400 142,814,400
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Commitments and contingencies
Total liabilities and shareholders' equity $ 182,761,500 $ 175,339,500
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</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 January 31, Six months ended January 31,
------------------------------ -----------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Salvage fees $ 25,038,800 $ 22,681,400 $ 50,622,200 $ 44,939,700
Purchased vehicle revenue 1,134,900 7,683,100 3,042,300 17,941,900
------------- ------------- ------------- -------------
Total revenues 26,173,700 30,364,500 53,664,500 62,881,600
------------- ------------- ------------- -------------
Operating costs and expenses:
Yard and fleet 16,175,600 20,906,900 34,213,100 45,258,600
General and administrative 2,687,100 2,708,600 5,395,400 5,266,800
Depreciation and amortization 1,928,800 1,793,700 3,859,300 3,565,400
------------- ------------- ------------- -------------
Total operating expenses 20,791,500 25,409,200 43,467,800 54,090,800
------------- ------------- ------------- -------------
Operating income 5,382,200 4,955,300 10,196,700 8,790,800
------------- ------------- ------------- -------------
Other income:
Interest income, net 249,300 35,100 445,600 45,300
Other income 29,200 50,700 166,200 77,800
------------- ------------- ------------- -------------
Total other income 278,500 85,800 611,800 123,100
------------- ------------- ------------- -------------
Income before income taxes 5,660,700 5,041,100 10,808,500 8,913,900
Income taxes 2,207,700 2,029,500 4,215,400 3,565,500
------------- ------------- ------------- -------------
Net income $ 3,453,000 $ 3,011,600 $ 6,593,100 $ 5,348,400
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Basic net income per share $ .26 $ .23 $ .50 $ .42
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average shares
outstanding 13,153,300 12,825,200 13,121,000 12,736,400
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Diluted net income per share $ .26 $ .23 $ .49 $ .41
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average shares and dilutive
potential common shares outstanding 13,456,000 13,260,100 13,427,200 13,201,300
------------- ------------- ------------- -------------
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</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>
Six months ended January 31,
---------------------------------
1998 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,593,100 $ 5,348,400
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 3,859,300 3,565,400
Deferred rent 150,900 289,300
Loss (gain) on sale of assets 15,900 (37,500)
Changes in operating assets and liabilities:
Accounts receivable (4,214,300) (7,566,300)
Vehicle pooling costs (957,100) (1,541,400)
Inventory 185,700 (139,900)
Prepaid expenses and other current assets (692,600) (370,900)
Accounts payable and accrued liabilities 438,100 1,090,100
Deferred revenue (36,900) 878,900
Income taxes 984,500 699,000
----------- -----------
Net cash provided by operating activities 6,326,600 2,215,100
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (4,932,300) (4,568,300)
Proceeds from sale of property and equipment 116,400 1,067,400
Other liabilities - (1,400)
Purchase of net current assets in connection with acquisitions - (287,900)
Purchase of property and equipment in connection
with acquisitions (90,500) (466,600)
Purchase of intangible assets in connection
with acquisition (541,600) (686,000)
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Net cash used in investing activities (5,448,000) (4,942,800)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the exercise of stock options and warrants 523,900 2,254,900
Proceeds from issuance of
Employee Stock Purchase Plan shares 157,000 156,900
Principal payments on notes payable (1,496,000) (370,800)
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Net cash (used in) provided by financing activities (815,100) 2,041,000
----------- -----------
Net increase (decrease) in cash and cash equivalents 63,500 (686,700)
Cash and cash equivalents at beginning of period 27,684,500 13,026,200
----------- -----------
Cash and cash equivalents at end of period $ 27,748,000 $ 12,339,500
----------- -----------
----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 348,700 $ 430,800
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----------- -----------
Income taxes paid $ 3,238,900 $ 2,874,600
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</TABLE>
See accompanying notes to consolidated financial statements.
5
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COPART, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 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.
Gross proceeds generated from auctioned salvage vehicles were approximately
$117,535,900 and $123,585,500 for the three months ended January 31, 1998 and
1997, and $247,095,200 and $254,272,700 for the six months ended January 31,
1998 and 1997, respectively.
The Company auctioned approximately 91,800 and 99,000 vehicles during the
three months ended January 31, 1998 and 1997, and 186,900 and 198,100 vehicles
during the six months ended January 31, 1998 and 1997, respectively.
NOTE 2 - New Acquisition and Openings:
On September 17, 1997, the Company purchased certain assets of a salvage
vehicle auction facility located in Avon, Minnesota. During November 1997, the
Company executed leases to open new facilities in Raleigh, North Carolina and
Orlando, Florida. The Raleigh facility opened for business in December of 1997.
The Orlando facility is scheduled to open March 1, 1998.
6
<PAGE>
NOTE 3 - Net Income Per Share:
For the quarter ended January 31, 1998, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings per Share." 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 six months ended January 31, 1998 and 1997
respectively.
<TABLE>
<CAPTION>
Three months ending January 31, Six months ended January 31,
-------------------------------- ----------------------------
1998 1997 1998 1997
------------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
BASIC NET INCOME PER SHARE
Weighted average common shares
issued and outstanding 13,153,300 12,825,200 13,121,000 12,736,400
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
Net income $ 3,453,000 $ 3,011,600 $ 6,593,100 $ 5,348,400
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
Basic net income per share $ .26 $ .23 $ .50 $ .42
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
DILUTED NET INCOME PER SHARE
Weighted average common shares
issued and outstanding 13,153,300 12,825,200 13,121,000 12,736,400
Common stock equivalents:
Warrants and stock options 302,700 434,900 306,200 464,900
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
Weighted average common and dilutive
potential common shares outstanding 13,456,000 13,260,100 13,427,200 13,201,300
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
Net income $ 3,453,000 $ 3,011,600 $ 6,593,100 $ 5,348,400
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
Diluted net income per share $ .26 $ .23 $ .49 $ .41
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
</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 January 31, 1998 and 1997, approximately 45%
and 31%, respectively, and for the six months ended January 31, 1998 and 1997,
approximately 43% and 29%, 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 January 31, 1998 and 1997, approximately 54%
and 62%, respectively, and for the six months ended January 31, 1998 and 1997,
approximately 56% and 63%, 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 January 31, 1998 and 1997, approximately 1% and
7%, respectively, and for the six months ended January 31, 1998 and 1997,
approximately 1% and 8%, 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 during the first and second quarters of fiscal 1997.
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 and purchased vehicle revenues. Salvage fees from vehicle suppliers
include fees under PIP agreements and fixed programs where the Company charges
for towing, title processing, special preparation, storage and auctioning.
Salvage fees also include fees charged vehicle buyers for purchasing vehicles,
towing, storage and annual registration. 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 31 salvage
vehicle auction facilities and established 10 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 an auction facility in Avon, Minnesota and opened new facilities in
Raleigh, North Carolina and Orlando, Florida. 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 January 31, 1998 Compared to Three Months Ended January 31,
1997
REVENUES
Revenues were approximately $26.2 million during the three months ended
January 31, 1998, a decrease of approximately $4.2 million, or 14%, over the
three months ended January 31, 1997. The change in revenues is due to a $2.4
million increase in salvage fees offset by a $6.5 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.
Acquired facilities in Salt Lake City and Baton Rouge, contributed $0.9
million of new salvage fee revenues for the three months ended January 31,
1998. Existing yard salvage fee revenues increased by $1.4 million, or 6%,
and existing yard purchased vehicle revenues decreased by $6.7 million, or
87% compared to the same period in the prior year.
9
<PAGE>
OPERATING COSTS AND EXPENSES
Yard and fleet expenses were approximately $16.2 million during the
three months ended January 31, 1998, a decrease of approximately $4.7
million, or 23%, over the comparable period in fiscal 1997. Approximately
$0.6 million of yard and fleet expenses were the result of the acquisition of
Salt Lake City and Baton Rouge, 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 62% of revenues during the first quarter of fiscal
1998, as compared to 69% of revenues during the same period of fiscal 1997.
General and administrative expenses were approximately $2.7 million
during the three months ended January 31, 1998, which was unchanged from the
same period in 1997. General and administrative expenses remained comparable
at 10% of revenues during the second quarter of fiscal 1998 compared to 9%
during the same period of fiscal 1997.
Depreciation and amortization expense was approximately $1.9 million
during the three months ended January 31, 1998 which was comparable to the
$1.8 million for the same period in 1997.
OPERATING INCOME, OTHER INCOME AND INCOME TAXES
The Company's operating income was $5.4 million during the three months
ended January 31, 1998, an increase of approximately $0.4 million or 9% over
the comparable period in fiscal 1997. New facilities in Salt Lake City and
Baton Rouge, produced $.3 million of this increase. Existing facilities
produced $0.1 million of the increase due to improved PIP percentages, higher
salvage values, and the reduction of Purchase Program contracts.
The effective income tax rate of 39% applicable to the three months
ended January 31, 1998 is comparable to the effective income tax rate for the
three months ended January 31, 1997 of 40%.
Due to the foregoing factors, Copart realized net income of
approximately $3.5 million for the three months ended January 31, 1998,
compared to net income of approximately $3.0 million for the three months
ended January 31, 1997.
Six Months Ended January 31, 1998 Compared to Six Months Ended January 31, 1997
REVENUES
Revenues were approximately $53.7 million during the six months ended
January 31, 1998, a decrease of approximately $9.2 million, or 15%, over the
six months ended January 31, 1997 based on 186,900 vehicles processed. The
change in revenues is due to a $5.7 million increase in salvage fees offset
by a $14.9 million decrease in purchase vehicle revenues, due to terminated
or renegotiated contracts. Under the Purchase Program, the Company records
the gross proceeds of the vehicle sale as revenue.
Acquired facilities in Salt Lake City and Baton Rouge contributed $1.7
million of new salvage fee revenues for the six months ended January 31,
1998. Existing yard salvage fee revenues increased by approximately $4.0
million, or 9% and existing yard vehicle revenues decreased by $15.0 million,
or 84% compared to the same period in the prior year.
10
<PAGE>
OPERATING COSTS AND EXPENSES
Yard and fleet expenses were approximately $34.2 million during the six
months ended January 31, 1998, a decrease of approximately $11.0 million, or
24%, over the comparable period in fiscal 1997. Approximately $1.3 million
of the yard and fleet expenses were the result of the acquisitions of Salt
Lake City, and Baton Rouge. 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 64% of revenues during the first six 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 six months ended January 31, 1998, as compared to 8% of revenues during
the six months ended January 31, 1997 primarily as a result of the accounting
impact of the Purchase Program.
Depreciation and amortization expense was approximately $3.9 million
during the six months ended January 31, 1998, an increase of approximately
$0.3 million, or 8%, over the six months ended January 31, 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 $10.2 million during the six months
ended January 31, 1998, an increase of approximately $1.4 million or 16% over
the comparable period in fiscal 1997. New facilities in Salt Lake City and
Baton Rouge produced $0.6 million of this increase. Existing facilities
produced $0.8 million of the increase due to improved PIP percentages, higher
salvage values, and the reduction of Purchase Program contracts.
The effective income tax rate of 39% applicable to the six months ended
January 31, 1998 is comparable to the effective income tax rate for the six
months ended January 31, 1997 of 40%.
Due to the foregoing factors, Copart realized net income of
approximately $6.6 million for the six months ended January 31, 1998,
compared to net income of approximately $5.3 million for the six months ended
January 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Copart has financed its growth principally through cash generated from
operations, debt financing, initial and secondary public offerings of Common
Stock, and the equity issued in conjunction with certain acquisitions.
At January 31, 1998, Copart had working capital of approximately $54.6
million, including cash and cash equivalents of approximately $27.7 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.
11
<PAGE>
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 $6.3 million and
$2.2 million, during the six months ended January 31, 1998 and 1997,
respectively.
Capital expenditures (excluding those associated with fixed assets
attributable to acquisitions) were approximately $4.9 million and $4.6
million for the six months ended January 31, 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
$3.3 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.
MANAGEMENT CHANGE
Wayne R. Hilty was promoted to Senior Vice President and Chief Financial
Officer effective January 12, 1998. Mr. Hilty has been the Company's Vice
President and Controller since January 1997, and previously was an
independent consultant to the Company.
FACTORS AFFECTING FUTURE RESULTS
Historically, a limited number of vehicle suppliers have accounted for a
substantial portion of the Company's revenues. In the second 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 these 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 one other existing shareholder, beneficially own approximately
32% 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 shareholder.
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 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Shareholders of the Company was held on December
9, 1997 (the "Meeting").
(b) The following directors were elected at the Meeting:
Willis J. Johnson
Marvin L. Schmidt
A. Jayson Adair
James Grosfeld
James E. Meeks
Jonathan Vannini
Harold Blumenstein
(c) The results of the vote on the matters voted upon at the meeting are:
(i) ELECTION OF DIRECTORS FOR WITHHELD
--------------------- --- --------
Willis J. Johnson 12,376,992 41,894
Marvin L. Schmidt 12,377,992 40,894
A. Jayson Adair 12,374,277 44,609
James Grosfeld 12,377,792 41,094
James E. Meeks 12,377,442 41,444
Jonathan Vannini 12,375,852 43,034
Harold Blumenstein 12,377,142 41,744
(ii) Ratification of KPMG Peat Marwick LLP as independent
auditors for the Company for fiscal year 1998:
FOR AGAINST ABSTAINED NO VOTE
----------------------- -----------------------
12,402,389 8,041 8,456 -0-
(iii) Approval to increase the number of shares reserved for
issuance in the 1994 Employee Stock Purchase Plan from
85,000 shares to 170,000 shares:
FOR AGAINST ABSTAINED NO VOTE
----------------------- -----------------------
11,069,754 1,315,923 15,594 17,615
The foregoing matters are described in more detail in the
Company's definitive proxy statement dated November 7, 1997
relating to the Meeting.
15
<PAGE>
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
27.0 Financial Data Schedule
(b) REPORTS ON FORM 8-K.
None
16
<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.
------------------------------------
Wayne R. Hilty, Senior Vice President and
Chief Financial Officer (duly authorized
officer and principal financial and
accounting officer)
Date: March 9, 1998
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM COPART INC.
QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDING JANUARY 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JAN-31-1998
<CASH> 27,748,000
<SECURITIES> 0
<RECEIVABLES> 35,551,400
<ALLOWANCES> 0
<INVENTORY> 93,000
<CURRENT-ASSETS> 76,860,300
<PP&E> 44,958,400
<DEPRECIATION> 11,587,600
<TOTAL-ASSETS> 182,761,500
<CURRENT-LIABILITIES> 22,281,700
<BONDS> 0
0
0
<COMMON> 111,731,500
<OTHER-SE> 38,356,900
<TOTAL-LIABILITY-AND-EQUITY> 182,761,500
<SALES> 53,664,500
<TOTAL-REVENUES> 53,664,500
<CGS> 0
<TOTAL-COSTS> 43,467,800
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 10,808,500
<INCOME-TAX> 4,215,400
<INCOME-CONTINUING> 6,593,100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,593,100
<EPS-PRIMARY> .50
<EPS-DILUTED> .49
</TABLE>
