<PAGE>
UNITED STATES
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, 1999
OR
/ / 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 Number)
5500 E. SECOND STREET, BENICIA, CA 94510
(Address of principal executive offices with zip code)
Registrant's telephone number, including area code: (707) 748-5000
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 3, 1999:
26,687,500
<PAGE>
COPART, INC. AND SUBSIDIARIES
INDEX TO THE QUARTERLY REPORT
JANUARY 31, 1999
<TABLE>
<CAPTION>
Description Page
----------- ----
<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 the Consolidated Financial Statements 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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
Year 2000 Compliance 12
Factors Affecting Future Results 13
PART II - OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 16
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 16
Signatures 17
</TABLE>
2
<PAGE>
COPART, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
January 31, July 31,
1999 1998
---------------------- ----------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 22,795,200 $ 15,733,500
Short-term investments 713,900 13,062,200
Accounts receivable, net 40,698,100 32,751,500
Vehicle pooling costs 11,519,200 9,399,700
Deferred income taxes 614,900 614,900
Prepaid expenses and other assets 3,422,700 3,426,600
---------------------- ----------------------
Total current assets 79,764,000 74,988,400
Property and equipment, net 45,356,300 37,562,300
Intangibles and other assets, net 76,812,300 78,391,400
---------------------- ----------------------
Total assets $201,932,600 $190,942,100
---------------------- ----------------------
---------------------- ----------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 464,700 $ 621,300
Accounts payable and accrued liabilities 11,653,300 11,674,800
Deferred revenue 6,625,500 5,602,800
Income taxes payable 1,108,000 -
Other current liabilities 1,699,400 2,260,800
---------------------- ----------------------
Total current liabilities 21,550,900 20,159,700
Deferred income taxes 1,122,000 1,122,000
Long-term debt, less current portion 7,624,900 7,804,100
Other liabilities 1,714,000 1,673,700
---------------------- ----------------------
Total liabilities 32,011,800 30,759,500
---------------------- ----------------------
Shareholders' equity:
Common stock, no par value - 30,000,000 shares authorized; 26,687,000
and 26,550,120 shares issued and outstanding
at January 31, 1999 and July 31, 1998, respectively 113,928,500 113,202,600
Retained earnings 55,992,300 46,980,000
---------------------- ----------------------
Total shareholders' equity 169,920,800 160,182,600
---------------------- ----------------------
Commitments and contingencies
Total liabilities and shareholders' equity $201,932,600 $190,942,100
---------------------- ----------------------
---------------------- ----------------------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
COPART, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended January 31, Six months ended January 31,
-------------------------------- --------------------------------
1999 1998 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Salvage fees $27,133,300 $21,480,700 $52,357,000 $44,046,700
Transportation revenue 3,938,100 3,558,000 7,920,000 6,575,500
Purchased vehicle revenue 982,900 1,134,900 1,970,400 3,042,300
-------------- -------------- -------------- --------------
Total revenues 32,054,300 26,173,600 62,247,400 53,664,500
-------------- -------------- -------------- --------------
Operating costs and expenses:
Yard and fleet 19,122,800 16,175,600 37,703,200 34,213,100
General and administrative 3,058,000 2,687,100 6,034,000 5,395,400
Depreciation and amortization 2,435,300 1,928,800 4,725,100 3,859,300
-------------- -------------- -------------- --------------
Total operating expenses 24,616,100 20,791,500 48,462,300 43,467,800
-------------- -------------- -------------- --------------
Operating income 7,438,200 5,382,100 13,785,100 10,196,700
-------------- -------------- -------------- --------------
Other income (expense):
Interest expense (147,200) (157,400) (296,700) (348,700)
Interest income 381,100 406,700 819,000 794,300
Other income 167,900 29,200 402,500 166,200
-------------- -------------- -------------- --------------
Total other income 401,800 278,500 924,800 611,800
-------------- -------------- -------------- --------------
Income before income taxes 7,840,000 5,660,600 14,709,900 10,808,500
Income taxes 3,018,400 2,207,700 5,697,600 4,215,400
-------------- -------------- -------------- --------------
Net income $ 4,821,600 $ 3,452,900 $ 9,012,300 $ 6,593,100
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Basic net income per share $ .18 $ $ .13 $ .34 $ .25
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Weighted average shares
outstanding 26,652,000 26,306,600 26,616,300 26,242,000
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Diluted net income per share $ .18 $ .13 $ .33 $ .25
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Weighted average shares and dilutive
potential common shares outstanding 27,537,400 26,912,000 27,391,600 26,854,400
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
COPART, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended January 31,
--------------------------------------------
1999 1998
-------------------- ---------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,012,300 $ 6,593,100
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 4,725,100 3,859,300
Deferred rent 40,300 150,900
(Gain)/ loss on sale of assets (158,000) 15,900
Employee Stock Purchase Plan compensation 37,500 23,600
Changes in operating assets and liabilities:
Accounts receivable (7,946,600) (4,214,300)
Vehicle pooling costs (2,119,500) (771,400)
Prepaid expenses and other current assets (189,300) (692,600)
Accounts payable and accrued liabilities (582,900) 438,100
Deferred revenue 1,022,700 (36,900)
Income taxes 1,108,000 984,500
-------------------- ---------------------
Net cash provided by operating activities 4,949,600 6,350,200
-------------------- ---------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (10,736,700) (4,932,300)
Proceeds from sale of property and equipment 277,000 116,400
Sale of short-term investments, net 12,348,300 -
Other intangible asset additions (4,500) -
Purchase of property and equipment in connection
with acquisitions - (90,500)
Purchase of intangible assets in connection
with acquisitions - (541,600)
Deferred preopening costs (124,600) -
-------------------- ---------------------
Net cash provided by (used in) investing 1,759,500 (5,448,000)
activities -------------------- ---------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the exercise of stock options and warrants 476,100 523,900
Proceeds from issuance of
Employee Stock Purchase Plan shares 212,300 133,400
Principal payments on notes payable (335,800) (1,496,000)
-------------------- ---------------------
Net cash provided by (used in) financing
activities 352,600 (838,700)
-------------------- ---------------------
Net increase in cash and cash equivalents 7,061,700 63,500
Cash and cash equivalents at beginning of period 15,733,500 27,684,500
-------------------- ---------------------
Cash and cash equivalents at end of period $ 22,795,200 $27,748,000
-------------------- ---------------------
-------------------- ---------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 296,700 $ 348,700
-------------------- ---------------------
-------------------- ---------------------
Income taxes paid $ 4,432,500 $ 3,238,900
-------------------- ---------------------
-------------------- ---------------------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
COPART, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999
(UNAUDITED)
NOTE 1 - General:
In the opinion of the management of Copart, Inc. (the "Company" or
"Copart"), 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, 1998 filed with the
Securities and Exchange Commission.
Gross proceeds generated from auctioned salvage vehicles were
approximately $136,140,300 and $117,535,900 for the three months ended
January 31, 1999 and 1998, and $283,346,000 and $247,095,200 for the six
months ended January 31, 1999 and 1998, respectively.
NOTE 2 - Net Income Per Share:
There were no adjustments to net income in calculating diluted net
income per share. The table below reconciles basic weighted shares
outstanding to diluted weighted average shares outstanding:
<TABLE>
<CAPTION>
Three months ended January 31, Six months ended January 31,
------------------------------- ----------------------------
1999 1998 1999 1998
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Basic weighted shares outstanding 26,652,000 26,306,600 26,616,300 26,242,000
Stock options and warrants outstanding 885,400 605,400 775,300 612,400
------------ ----------- ----------- -----------
Diluted weighted average shares outstanding 27,537,400 26,912,000 27,391,600 26,854,400
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
</TABLE>
NOTE 3 - Stock Split
On December 29,1998, the Board of Directors approved a two-for-one
stock split of the Company's Common Stock. On the payment date of January 28,
1999, shareholders received one additional share for each share owned on the
record date of January 14,1999. The impact of this stock split has been
reflected retroactively in the accompanying consolidated financial statements.
6
<PAGE>
NOTE 4 - Recently Adopted Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income". SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components in a full set of
general-purpose financial statements. SFAS No. 130 requires all items that
are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed
in equal prominence with the other financial statements. The Company adopted
SFAS No. 130 during the period ended October 31, 1998, however the adoption
of SFAS No. 130 did not have any effect on the reporting and display of the
financial position, results of operations or cash flows of the Company. There
is no difference, in the six months ended January 31, 1999, between net
income and comprehensive income.
7
<PAGE>
ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 IN THIS REPORT. 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 revenue. 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, 1999 and 1998, approximately
50% and 45%, respectively, and for the six months ended January 31, 1999 and
1998, approximately 49% and 43%, of the vehicles sold by Copart,
respectively, were processed under the PIP. The increase in the percentage of
vehicles sold under the PIP is due to the Company's successful marketing
efforts. 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, 1999 and 1998, approximately
49% and 54%, respectively, and for the six months ended January 31, 1999 and
1998, approximately 50% and 56%, of the vehicles sold by Copart,
respectively, 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 convert contracts from fixed fee to PIP.
For the three and six months ended January 31, 1999 and 1998,
approximately 1%, of the vehicles sold by Copart, respectively, were
processed pursuant to the Purchase Program.
Due to a number of factors, including the timing and size of new
acquisitions, market conditions, and acceptance of the PIP program by vehicle
suppliers, the percentage of vehicles processed under these programs in
future periods may vary.*
COMPOSITION OF REVENUES
Revenues consist of salvage fees charged to vehicle suppliers and
vehicle buyers, transportation revenue and purchased vehicle revenues.
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 vehicle towing, insurance, fuel, fleet maintenance
and repair, and 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 ten salvage
vehicle auction facilities and established twelve new facilities since the
beginning of fiscal 1996. All of the acquisitions have been accounted for
using the purchase method. Accordingly, the excess of the purchase price over
the fair value of 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 during fiscal 1999, the Company
opened new facilities in Nashville, Tennessee and Austin/San Antonio, Texas.
During fiscal 1998, the Company acquired facilities in or near Avon,
Minnesota; Columbia, South Carolina; Mobile, Alabama; San Diego, California;
Des Moines, Iowa and Detroit, Michigan. In addition, during fiscal 1998, the
Company opened new facilities in Orlando, Florida; Raleigh, North Carolina
and Las Vegas, Nevada. The Company believes that these acquisitions and
openings help to solidify the Company's nationwide service and expand the
Company's coverage of the United 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, 1999 Compared to Three Months Ended January
31, 1998
REVENUES
Revenues were approximately $32.1 million during the three months
ended January 31, 1999, an increase of approximately $5.9 million, or 22.5%,
over the three months ended January 31, 1998. The change in revenues is due
primarily to a $5.7 million increase in salvage fees plus a $0.4 million
increase in transportation revenue, offset by a $0.2 million decrease in
purchase vehicle revenues. Under the Purchase Program, the Company records
the gross proceeds of the vehicle sale as revenue.
New facilities in Avon, Raleigh, Orlando, Columbia, Las Vegas,
Mobile, San Diego, Des Moines and Detroit contributed $3.1 million of new
salvage fee and transportation revenues for the three months ended January
31, 1999. Existing yard salvage fee and transportation revenues increased by
$2.9 million, or 11.7%, and existing yard purchase vehicle revenues decreased
by $0.2 million, or 20%, compared to the same period in the prior year.
9
<PAGE>
OPERATING COSTS AND EXPENSES
Yard and fleet expenses were approximately $19.1 million during the
three months ended January 31, 1999, an increase of approximately $2.9
million, or 18%, over the comparable period in fiscal 1998. Approximately
$2.4 million of yard and fleet expenses were attributable to new facilities
in Avon, Raleigh, Orlando, Columbia, Las Vegas, Mobile, San Diego, Des Moines
and Detroit. The remainder of the increase in yard and fleet was attributable
to yard and fleet expenses from existing operations. Yard and fleet expenses
decreased to 60% of revenues during the second quarter of fiscal 1999, as
compared to 62% of revenues during the same period of fiscal 1998.
General and administrative expenses were approximately $3.1 million
during the three months ended January 31, 1999, an increase of approximately
$0.4 million, or 14%, over the comparable period in fiscal 1998. This
increase is due primarily to increased payroll and other operating expenses.
General and administrative expenses remained unchanged at 10% of revenues
during the second quarter of fiscal 1999 and 1998.
Depreciation and amortization expense was approximately $2.4 million
during the three months ended January 31, 1999, an increase of approximately
$0.5 million, or 26%, over the comparable period in fiscal 1998. This
increase was primarily due to the amortization and depreciation of tangible
and intangible assets acquired in fiscal 1998.
OPERATING INCOME, OTHER INCOME AND INCOME TAXES
The Company's operating income was $7.4 million during the three
months ended January 31, 1999, an increase of approximately $2.1 million, or
38%, over the comparable period in fiscal 1998. New facilities in Avon,
Raleigh, Orlando, Columbia, Las Vegas, Mobile, San Diego, Des Moines and
Detroit produced $0.4 million of this increase. Existing facilities produced
$1.7 million of the increase due to improved PIP percentages and the
implementation of the Copart Auction System.
Total other income was approximately $0.4 million during the three
months ended January 31, 1999, an increase of approximately $0.1 million,
over the three months ended January 31, 1998. This increase was due primarily
to additional rental income.
The effective income tax rate for both of the three-month periods
ended January 31, 1999 and 1998 was approximately 39%.
Due to the foregoing factors, Copart realized net income of
approximately $4.8 million for the three months ended January 31, 1999,
compared to net income of approximately $3.5 million for the three months
ended January 31, 1998.
Six Months Ended January 31, 1999 Compared to Six Months Ended January 31,
1998
REVENUES
Revenues were approximately $62.2 million during the six months
ended January 31, 1999, an increase of approximately $8.6 million, or 16.0%,
over the six months ended January 31, 1998. The change in revenues is due
primarily to a $8.3 million increase in salvage fees plus a $1.4 million
increase in transportation revenue, offset by a $1.1 million decrease in
purchase vehicle revenues. Under the Purchase Program, the Company records
the gross proceeds of the vehicle sale as revenue.
10
<PAGE>
New facilities in Avon, Raleigh, Orlando, Columbia, Las Vegas,
Mobile, San Diego, Des Moines and Detroit contributed $5.8 million of new
salvage fee and transportation revenues for the six months ended January 31,
1999. Existing yard salvage fee and transportation revenues increased by $3.7
million, or 7.3%, and existing yard purchased vehicle revenues decreased by
$1.2 million, or 40% compared to the same period in the prior year.
OPERATING COSTS AND EXPENSES
Yard and fleet expenses were approximately $37.7 million during the
six months ended January 31, 1999, an increase of approximately $3.5 million,
or 10%, over the comparable period in fiscal 1998. Approximately $4.6 million
of yard and fleet expenses were attributable to new facilities in Avon,
Raleigh, Orlando, Columbia, Las Vegas, Mobile, San Diego, Des Moines and
Detroit. 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. Yard and fleet expenses
decreased to 61% of revenues during the first six months of fiscal 1999, as
compared to 64% of revenues during the same period of fiscal 1998.
General and administrative expenses were approximately $6.0 million
during the six months ended January 31, 1999, an increase of approximately
$0.6 million, or 12%, over the comparable period in fiscal 1998. This
increase is due primarily to increased payroll and other operating expenses.
General and administrative expenses remained unchanged at 10% of revenues
during the first six months of fiscal 1999 and 1998.
Depreciation and amortization expense was approximately $4.7 million
during the six months ended January 31, 1999, an increase of approximately
$0.9 million, or 22%, over the comparable period in fiscal 1998. This
increase was primarily due to the amortization and depreciation of tangible
and intangible assets acquired in fiscal 1998.
OPERATING INCOME, OTHER INCOME AND INCOME TAXES
The Company's operating income was $13.8 million during the six
months ended January 31, 1999, an increase of approximately $3.6 million or
35% over the comparable period in fiscal 1999. New facilities in Avon,
Raleigh, Orlando, Columbia, Las Vegas, Mobile, San Diego, Des Moines and
Detroit produced $0.8 million of this increase. Existing facilities produced
$2.8 million of the increase due to improved PIP percentages and the
implementation of the Copart Auction System.
Total other income was approximately $0.9 million during the six
months ended January 31, 1999, an increase of approximately $0.3 million,
over the six months ended January 31, 1998. This increase was due primarily
to additional rental income.
The effective income tax rate for both of the six-month periods
ended January 31, 1999 and 1998 was approximately 39%.
Due to the foregoing factors, Copart realized net income of
approximately $9.0 million for the six months ended January 31, 1999,
compared to net income of approximately $6.6 million for the six months ended
January 31, 1998.
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 January 31, 1999, Copart had working capital of approximately
$58.2 million, including cash, cash equivalents and short-term investments of
approximately $23.5 million. The Company is able to process, market, sell and
receive payment for processed vehicles quickly. The Company's primary source
of cash is from the collection of sellers' fees and reimbursable advances
from the proceeds of auctioned salvage vehicles and from buyers' 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 $4.9 million
and $6.4 million, during the six months ended January 31, 1999 and 1998,
respectively.
Capital expenditures (excluding those associated with fixed assets
attributable to acquisitions) were approximately $10.7 million and $4.9
million for the six months ended January 31, 1999, and 1998, respectively.
Copart's capital expenditures have related primarily to opening and improving
facilities and acquiring yard equipment.
Cash, cash equivalents and short-term investments decreased by
approximately $5.3 million for the six months ended January 31, 1999. The
decrease is due primarily to additions to property and equipment, increases
in accounts receivable, and other working capital changes. The Company's
liquidity and capital resources have not been materially affected by
inflation and are not subject to significant 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 at least 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.
YEAR 2000 COMPLIANCE
GENERAL
Various year 2000 issues result from computer programs written using
a two-digit date field rather than four to define the applicable year.
Certain computer programs utilizing a two-digit date field may recognize a
date using "00" as the year 1900 rather than the year 2000. This could
potentially result in a system failure or miscalculations causing disruptions
of operations, including, among other things, a temporary inability to
process transactions, send invoices, or engage in other similar normal
business activities.
The Company's internal information technology (IT) systems include
all hardware and software used in its computer systems. The Company's non-IT
systems include telephone and alarm systems, office equipment, and motor
vehicle electronic components.
COMPANY'S STATE OF READINESS
The Company has completed an assessment of its internal information
systems relative to the Year 2000 issue. The assessment has confirmed that
the hardware and software the Company currently uses is Year 2000 compliant.
In addition, the company has surveyed non-IT systems and concluded that they
are also year 2000 compliant.
12
<PAGE>
COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES
The Company has not had any specific Year 2000 costs. The systems
used by the Company are relatively new and Year 2000 compliance was built
into these new systems.
RISKS TO THE COMPANY
The Company has initiated informal communications with many of its
significant third parties and suppliers (Insurance companies, Banks and State
Motor Vehicle Departments) to determine the extent to which the Company is
vulnerable to those third parties' failure to remedy their own Year 2000
issues. The Company has received some assurances regarding these issues from
these third parties, but there are no guarantees these third party systems
will be compliant. In addition, the event of non-compliance may have a
material effect on the operations of the Company. For example, if some of the
Company's suppliers are not Year 2000 compliant it could impact the Company's
ability to obtain orders from those suppliers.
The Company believes its exposure to the Year 2000 issue will come
mainly from third parties, either as the result of these parties not being
prepared, or other parties these third parties rely upon not being prepared.
Although there can be no assurance that unforeseen problems will not occur,
the Company expects that all critical internal Year 2000 issues will be
resolved as encountered.
CONTINGENCY PLANS
The Company currently has no formal Year 2000 contingency plans.
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
fiscal 1999 and 1998, vehicles supplied by Copart's largest vehicle supplier
accounted for approximately 15% and 16%, of Copart's revenues, respectively.
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.
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 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.
13
<PAGE>
The market price of the Company's Common Stock is 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 specific 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 owns
approximately 40% 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.
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
14
<PAGE>
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.
15
<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 8, 1998 (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:
<TABLE>
<CAPTION>
(i) Election of Directors For Withheld
--------------------- --- --------
<S> <C> <C>
Willis J. Johnson 12,440,164 45,012
Marvin L. Schmidt 12,438,851 46,325
A. Jayson Adair 12,415,328 69,848
James Grosfeld 12,434,922 50,254
James E. Meeks 12,415,599 69,577
Jonathan Vannini 12,452,151 33,025
Harold Blumenstein 12,453,564 31,612
</TABLE>
(ii) Ratification of KPMG LLP as independent auditors for
the Company for fiscal year 1999:
<TABLE>
<CAPTION>
For Against Abstained No Vote
--- ------ --------- -------
<S> <C> <C> <C>
12,482,579 786 1,811 -0-
</TABLE>
The foregoing matters are described in more detail in the
Company's definitive proxy statement dated October 26, 1998
relating to the Meeting.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
27.1 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.
/s/ Wayne R. Hilty
------------------------------------------------
Wayne R. Hilty, Senior Vice President and
Chief Financial Officer (duly authorized officer
and principal financial and accounting officer)
Date: March 9, 1999
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM COPART INC.
QUARTERLY REPORT ON FORM 10Q FOR PERIOD ENDING AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 23,509,100
<SECURITIES> 0
<RECEIVABLES> 40,698,100
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 79,764,000
<PP&E> 61,084,700
<DEPRECIATION> 15,728,400
<TOTAL-ASSETS> 201,932,600
<CURRENT-LIABILITIES> 21,550,900
<BONDS> 0
0
0
<COMMON> 113,928,500
<OTHER-SE> 55,992,300
<TOTAL-LIABILITY-AND-EQUITY> 201,932,600
<SALES> 62,247,400
<TOTAL-REVENUES> 62,247,400
<CGS> 0
<TOTAL-COSTS> 48,462,300
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 296,700
<INCOME-PRETAX> 14,709,900
<INCOME-TAX> 5,697,600
<INCOME-CONTINUING> 9,012,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,012,300
<EPS-PRIMARY> .34
<EPS-DILUTED> .33
</TABLE>
